Tandem Diabetes Care, Inc. (TNDM) Q4 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Tandem's Fourth Quarter and Year End 2020 Earnings Call. [Operator Instructions] Please be advised that today's conference may be recorded. [Operator Instructions] I would now like to hand the conference over to your host, EVP and Chief Administrative Officer, Susan Morrison. Madam, you may begin.

Thank you. Good afternoon, everyone, and thanks for joining Tandem's fourth quarter and year end 2020 earnings call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development timelines, and financial performance and operating plans, and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated, or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today, and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K, and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors. In addition, today's discussion will include references to adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA is a key measure used by us to evaluate operating performance, generate operating plans, and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information. John Sheridan, President and CEO; and Leigh Vosseller, EVP and Chief Financial Officer will be participating on today's call. Following our prepared remarks, we'll open up the call for questions. Thanks for limiting yourself to asking one question before getting back into the queue. With that, I'll now turn the call over to John.

Thanks Susan, and welcome everyone to today's call. Before we jump into our fantastic 2020 results, I'd be remiss not to take time upfront to acknowledge the incredible team of employees at Tandem. It's a group with a demonstrated history appointed together during difficult times, and in the face of 2020s challenges, we persevered and stayed focused on our mission to improve the lives of people living with diabetes. Our heartfelt thank you to all our employees for your efforts, passion, and dedication that made the year a success even under challenging circumstances. Looking back over the past year, we achieved approximately $500 million in sales, surpassed the milestone of having more than 200,000 customers in our worldwide installed base, launched our best-in-class Control-IQ technology, and made meaningful internal product development and operational progress all under the constraints of the global pandemic. The catalyst that drove our performance in 2020 were largely the same as those that fueled our growth in the past several years. Innovative product offerings, scaling international efforts, and increasing number of customers eligible for the full-year warranty renewal, and underlying at all is a large under-penetrated worldwide market. As we look at 2021 and beyond, each of these opportunities remain which further strengthens our confidence in achieving our near and longer term goals. We are gaining penetration in individual practices. In fact, our number of prescribers has increased over 80% in the last three years and our average number of prescriptions is also increasing. It's been an exciting shift over time as we continue to earn the trust and confidence of healthcare providers, by demonstrating the clinical benefits and exemplary customer experience, we provide with both our insulin therapy management systems, and our top ranked customer services. This feedback was echoed in our own customer surveys in 2020, to which we received more than 100,000 responses. Our keystone next to satisfaction score in the survey exceeded 90%, which we - and we continued to have high net promoter scores. That's more typical of leading consumer brands than medtech. The support of health care providers and the overall positive experience in our customers are key to driving our growth in the U.S. In fact, we continue to see equal growth in the U.S. from people converting from multiple daily injections, and from a competitor's front, each representing about half of our new customers. Awareness of the benefits of Control-IQ is also a key driver of our technology adoption. The vast majority of eligible customers have taken advantage of our free Control-IQ software update, and the feedback continues to surpass our expectations. The personal testimonials are so powerful that we recently launched a marketing campaign, "how Control-IQ changed my life". Our customers submitted videos explaining their Control-IQ experiences in their own words, and to-date, these videos have been viewed nearly half a million times on social media. We began the rollout of our Control-IQ technology outside the United States in July, and it is now available in more than half of the countries we serve. The international customer response we are receiving nears the domestic enthusiasm and we anticipate completing its rollout mid-year. Our Control-IQ technology sets a new high bar worldwide for automated insulin delivery technology, as it allows users more time to spend thinking about their lives and less about their diabetes. We are investing in enhancements to our Control-IQ technology to increase the clinical efficacy and even further improve the customer experience to extended personalization, and ease of use. Last year we submitted a regulatory filing to the FDA for the first enhancements to Control-IQ, to allow for greater personalization, and certain rates and ranges, and to add an indication for add-along. This continuous improvement strategy, combined with the FDA's interoperability initiative, and our Tandem Device Updater allows us to put new features in the hands of users faster than ever before. Ultimately, we are working to provide the diabetes community a fully closed loop system, and each feature updates enhancements brings us one step closer. Innovation will continue to be an important growth driver for us, and it is true to our mission at Tandem, as we take a positively different approach to diabetes care. We have catapulted to becoming a leader in diabetes technology in a short period of time, and are committed to sustaining this position by continuing to bring new products to market, and reduce the daily burden of diabetes care for both pump users and healthcare providers. In support of this commitment, we are preparing to launch our app based mobile bolus feature for the t:slim X2 in the first half of 2021. We're particularly excited to add this to our list of first accomplishments, as it will be the first FDA-cleared use of a personal mobile device through delivery of insulin. We will be offering this feature on iOS and Android, which is important as the majority of our customers use our app on iOS, and both platforms hold considerable consumer market share. More than 80,000 people have downloaded our current app, and we expect this new feature to drive even greater awareness and adoption. Similar to both Basal-IQ and Control-IQ, we also plan to offer this highly anticipated feature to our in-warranty customers in the United States for no cost. This technology is vital for us to be able to make an immediate difference in improving the lives of our customers. The pump software update, with our new mobile bolus feature will be the fifth update that we've offered to our customers, since first launching the Tandem Device Updater in 2016. Our software update process is built on the same requirements we have set for all of our products, ease of use, ease of training, and strong security. We set a high bar for each of these, which is why even five years later we remain the only insulin pump company to offer this capability anywhere in the world, and this experience is clearly a competitive advantage for Tandem. Customer segmentation is something you hear us talk about often. Since there is not a one size fits all solution for people living with diabetes, varying clinical needs and personal preferences create many segments in diabetes market, and it's a dynamic that drives our longer-term strategy, as we work to provide solutions to people throughout the diabetes community. In many ways Tandem is both a medical device manufacturer, and provider of consumer technology. It's why the support and digital touch points that we provide our customers and healthcare providers is crucial, as we experience with our pumps. One of the most valued digital tools that we offer domestically is t:connect, our web-based data management application. t:connect improves healthcare provider efficiency by providing streamlined information from our pumps, integrated CGM's and supported blood glucose meters, that can be used for therapy management, particularly now that pump data can be wirelessly uploaded to t:connect from our mobile app. In addition to t:connect, our expanding digital health platform now includes our t:connect web application, our mobile app, the Tandem Device Updater and our customer portal. These offerings stood out as a valued resource amongst prescribers in the remote care environment of 2020, which underscores the importance of our internal development initiatives over the past year and in 2021. As we look to the year ahead, we are excited to bring new capabilities to market with our second generation data management application Tandem Source. Source features dashboards that are customizable so that our user, caregiver or healthcare provider can access the data and insights needed to optimize diabetes management, via our mobile app or the Web. It's also designed for future integration with third-party partners, establishing pathways to unlock new insights that make it easier for users commence their diabetes. Importantly, we will make Tandem Source available as a global offering giving us an end-to-end solution for the first time in all the markets that we serve. We intend to launch Tandem Source in select countries outside the United States later this year with a domestic launch to follow. Tandem Source is one element of our vision for better insulin therapy management, leveraging next generation digital assets with a focus on delivering simplified and personalized experiences to our customers. It is a powerful complement to our algorithmic capabilities on the pump. It's also a precursor to further enhancements to our commerce infrastructure including our purchasing onboarding and support interfaces. Over time, the investments we are making in our digital infrastructure will enable us to further enhance our solutions for users and support outcomes-driven discussions with payers. A positive experience with our ecosystem attracts more people to our products and keeps people motivated to use our pumps. The global nature of our digital strategy is a good reflection of the expanding international focus internally and the growing importance of international markets to our business. Since launching outside the United States just two years ago, we now have crossed approximately 45,000 people using the Tandem pump in nearly 20 different countries. By comparison, it took us more than four years to reach this level of installed base domestically. The rapid growth reflects the quality of our product offerings and the meaningful worldwide opportunity that exists, particularly since pump penetration in the geographies we are in outside the United States is 10% to 20%. In 2021, we plan to continue bringing our t:slim X2 pump into new geographies and our goal is to be in approximately 25 countries by the year end. This will bring our total addressable Type 1 market outside the United States to approximately 4 million people, of which more than 400,000 use a pump today. We also continue development of our t:sport insulin delivery system. You may recall that we're designing t:sport to be fully controlled by a mobile app that's available on both iOS and Android operating systems. Throughout the latter part of 2020 we conducted human factors testing, both live and virtual as part of our iterative design process after being delayed due to COVID-19. Delays in human factors testing have been one of the unfortunate consequences of COVID as recruiting has slowed and face-to-face testing is impacted as we prioritize the safety of our employees and study participants. Our t:sport human factors testing results were mostly positive with a few opportunities for improvement identified during each of the various rounds of testing that were primarily related to making the user interface more intuitive and efficient. In the late December, we completed a collective analysis of these studies and it was our opinion that some of the opportunities identified during the testing did not meet the high user experience standards that we've committed to providing to the diabetes community and have built our reputation on. Internally, one of our core values is no short cuts, and this is a fitting opportunity to work by those standards and refine the design until it's right to ensure its safe and intuitive to use. None of the changes we plan to make are particularly challenging. It will just take extra time to update and test the software, and confirm our new designs to additional human factors testing. As a result our final goal has shifted from the third quarter to the fourth quarter, and we'll provide further updates as we have more clarity on the timeline. We remain excited for the opportunity t:sport presents as our research shows that as form factor and the discretion before it, by mobile control appeal to a broader segment of the insulin-using diabetes population who otherwise would not consider pump therapy. Just as importantly we remain confident that t:sport like the original t:slim will set a new standard for innovation and ease of use for our industry. In addition to t:sport being a 2022 growth catalyst, we also anticipate that next year will benefit from new sensor offerings by both our CGM partners, DexCom and Abbott. We have a long successful history of partnering with DexCom and look forward to the benefits that their G7 sensor will bring to people living with diabetes. The G7 will be the fourth generation of DexCom sensors that we integrate with our technology. Based on the FDA's interoperability initiative and the timing of DexCom's clearance, our goal is to commercially launch our Control-IQ technology with the G7 sensor within one quarter following their receipt of FDA clearance. Our development efforts with Abbott Libre technology are also off to a strong start. It's been a collaborative effort and we share a common goal to bring the integrated product with Abbott Libre's technology to diabetes community as soon as possible in 2022. We intend to begin our commercial efforts with a U.S. launch and which Libre technology we initially launch with will ultimately depend on the timing of Abbott's FDA clearance, supporting AIB use. A CGM can be a driver of pump therapy adoption and is fundamental to the broader adoption of automated insulin delivery. We are excited for these new CGMs to come to market and look forward to collaborating to bring the benefits of our insulin therapy management platform to even more people living with diabetes. Beyond 2022, in addition to continuing to expand our hardware platform offerings and automated insulin delivery in connecting health initiatives. We are also beginning to spend more time on opportunities to improve and enhance other components of the insulin therapy management systems, including additional infusion set technologies and the use of alternative insulins. While these efforts and the longer-term goals that we have set for ourselves are largely based on helping people with Type 1 diabetes, we are also beginning to expand our internal efforts on helping people with Type 2 diabetes. People with Type 2 diabetes represent less than 10% of our total domestic customers, yet a worldwide prevalence of people with Type 2 diabetes using intensive insulin therapy is similar to people with Type 1. The reimbursement challenge is that private payers in the U.S. that once existed for people with Type 2 has been reduced. As historical test requirements are increasingly recognized as antiquated further, we continue to support advocacy partners to effect CMS policy change that will increase ease of access. With a breakdown of this barrier, we are focusing our research on the clinical needs, behaviors, and preferences that segment the Type 2 market to better understand why pumps option is only about 7% domestically and even less outside the United States. At the highest level, our research has highlighted the importance of discretion, simplicity of therapy management and the need for demonstrated clinical outcomes and support when a person with Type 2 is considering an insulin pump. We are using digital requirements to guide our multi-part strategy or accelerating pump adoption in the Type 2 community. We'll provide more color on our specific initiatives in the upcoming months, but our plan to kick off our efforts to pursue an expanded labeling indication for our Control-IQ technology to include people with Type 2. In the longer term, we are working to provide the Type 2 community with a dedicated solution that uses a discrete form factor and features our latest automated insulin delivery technology. We're also exploring the role of simplified functionality and a modified user interface in addition to concentrated insulins and tailored support solutions. As you can see, our drive to improve the lives of people living with diabetes is stronger than ever. In addition, our scalability initiatives are progressing well to support our continued growth and we are focused on execution. We remain dedicated to our mission and are confident in our ability to achieve our near and longer term goals. I look forward to sharing our progress and achievements in the year ahead as we work to become the worldwide leader in insulin therapy management. And with that, I'll now turn the call over to Leigh.

Thank you, John, and good afternoon, everyone. Once again, the entire organization executed remarkably well with Control-IQ continuing to drive strong demand and outstanding sales results. We were able to accomplish this by entering the fourth quarter with a heightened concern regarding COVID-19 and its potential impact on the markets in which we operate, particularly those geographies outside the U.S. We closed 2020 achieving record worldwide sales of approximately $500 million. This 38% year-over-year sales growth, both domestically and internationally, was particularly impressive as 2019 largely benefited from the worldwide Animas opportunity in addition to having no pandemic-related headwind. We shipped more than 90,000 pumps worldwide for the full year of 2020, of which more than a third were shipped in the fourth quarter. Fourth quarter sales were $168 million, a growth rate of 55%. This momentum gives us high confidence as we enter the New Year. To add some additional color on our domestic business, 2020 sales were $416 million and we now have more than 170,000 domestic customers in our installed base. We shipped 25,000 pumps domestically in the fourth quarter resulting in sales at $139 million or 42% growth over 2019. As John mentioned, we continue to be successful across multiple growth drivers, including our own renewal where we saw an increase in the fourth quarter. Our internal data shows that we are renewing customers at a higher rate and are shortening our average time to renewal. As a result, we have increased our cumulative renewal rates at 55%, which is up 5 percentage points from the end of 2019 reinforcing the ability to reach our longer term goal of a 70% renewal rate. In 2021, our taximo opportunities will scale from 50,000 to more than 65,000 while we expect to see continued positive trends, particularly now that we have access to all UnitedHealthcare subscribers. Even more exciting is looking ahead to 2022 and beyond, where the number of opportunities sails dramatically in line with our 2018 to 2020 growth trends during which period we demonstrated a pump shipment CAGR of greater than 60%. Outside the U.S., our full year sales grew to $83 million, of which $29 million were in the fourth quarter alone. Awareness of our technology and demand are building outside the U.S. even amidst the challenges of COVID-19. This was reflected in greater than anticipated pump shipments late in the fourth quarter typical to demand and right size inventory levels, particularly in Germany, which represented approximately half of our 8,000 international pump shipments. We are proud of our international progress and that nearly 45,000 people with diabetes outside the United States are using Tandem's insulin therapy management technology. Globally, we estimate that our in-warranty installed base is going to more than 250,000 people, trading a 61% increase in supply sales for the full year of 2020. Of total worldwide sales, pumps represented 63%, followed by infusion set at 26% and cartridges at 11%. For all of these reasons our enthusiasm for 2021 is high as we continue to build on the same drivers that made recent years so successful. We expect our 2021 worldwide sales to be in the range of $600 million to $615 million, a growth rate of 20% to 23%. We continue to build our recurring stream of supply sales from our large installed base and pump renewal sales. In combination we expect these to contribute nearly half of our 2021 sales. As a reminder, Q1 is typically the smallest sales quarter of the year due to seasonality. For example, in 2020 it represented approximately 20% of our worldwide sales. Our sales guidance includes the range of $495 million to $505 million in the U.S. Similar to our historic seasonal trends, pump shipments are expected to sail increasingly across the year based on the timing of insurance deductible resets, and the resulting impact on customer ordering patterns. Our international sales are expected to be in the range of $105 million to $110 million, growing 26% to 32% as we continue to penetrate our existing markets, drive further awareness in those countries where COVID-19 impacted our 2020 commercial launches and enter new markets. We anticipate continued variability in the quarterly ordering patterns of our distributors in the near-term where the level of COVID restrictions continues to fluctuate, and as we continue to get familiarity with the ordering dynamics in the individual market. For example, the fourth quarter of 2020 benefited from large size demand in Germany, which is not anticipated to recur at those levels in the near term. As we enter 2021, we anticipate that Control-IQ will be available in all of the countries in which operate today, and will begin to drive increased momentum similar to what we've experienced in the U.S. Overall, the outlook remains in line with our historical guidance philosophy. We based our projections on the factors where we have a better line of sight or control, and have had caution for unknown such as the impact of COVID-19 and new product launches whether our own or those of our competitors. Turning to margins. We being improved sequentially to 54% in the fourth quarter and ended the full year with the gross margin at 52%. There has been a number of factors that contributed despite pressure on 2020 compared to 2019, but most notable is a royalty obligation associated with our Control-IQ technology at just over 1% of sales this year for which there was no comparable expense in 2019. Excluding the cost of the royalty, both our pump and supplies gross margin improved versus 2019. We also made investments in 2020 to double our cartridge manufacturing capacity and incorporate an experienced third-party manufacturer into our processes, both of which are necessary at best to support our growing installed base and to reach our 2024 gross margin goal in excess of 60%. Other factors that have and will continue to influence our gross margin results include average selling prices and changes in both geographical and product mix. In 2021 with an increase in volumes, anticipated production and pressure from COVID and continued cost deposits from these initiatives, we expect to achieve annual gross margins of approximately 55%. For the third year in a row we achieved a positive operating margin in the fourth quarter and recognized an operating margin loss of only 2% of sales for all of 2020. We also sustained our trend of reporting positive adjusted EBITDA margins for the ninth quarter in a row reaching 21% of fourth quarter sales and 12% on a full-year basis. As anticipated, our adjusted EBITDA was relatively flat to 2019 based on current investments in manufacturing, R&D and simply organizational scale setting the foundation for achievement of our long-term operating margin goal of 25% or better. In 2021, we expect to pass the breakeven point for operating margin on a full year basis and achieve an adjusted EBITDA margin in the range of 14% to 15% through gross margin improvement and continued execution on our operating initiatives, while we continue to make prudent investments to meet our long-term objective. Our total cash and investments were $485 million at the end of 2020. We generated $25 million of cash from operations this year and $314 million from financing activities, including our convertible debt transaction in May. We also reinvested $32 million in the business through capital purchases for manufacturing and general facilities expansion as well as executed against our mobile strategy through the Sugarmate acquisition. Our balance sheet is strong and continues to kind provide us security and flexibility in pursuit of our strategic plan. To summarize our 2021 outlook. Worldwide sales are estimated to be in the range of $600 million to $615 million, including international sales of $105 million to $110 million. We estimate gross margin for the year to average 55% and adjusted EBITDA to be in the range of 14% to 15% of sales. Our non-cash charges for stock compensation, depreciation and amortization are expected to be approximately $80 million included both component of cost of sales and operating expense. With that, I will turn it over to the operator for questions.

[Operator Instructions] Our first question comes from the line of Steven Lichtman of Oppenheimer. Your question, please.

I guess, sorry, I have one question John, you mentioned you guys have submitted for - I believe you mentioned submitting for an algorithm enhancement. When - is this the one you've been targeting for 2021 overall? When should we expect to see that, and could you talk a little bit more about what it's going to do for customers? Thanks.

Sure yes, thanks for the question. I would say that the - this enhancement to the algorithm really is about improving access to the technology. We're expanding body weight and correction factors just to enable a broader range of the pediatric population to use a system and also people that have larger insulin needs. There is some mobile bolus - or there is some bolus in the experience improvements and I've mentioned analog you know I think that this is. These are changes that we don't believe require clinical studies. And as I said, we submitted them this past year. So we're waiting for the FDA right now to get onto this and to begin to actually look at the review process. There's a little bit of uncertainty as when we expect to see this happening. I would say that we have a lot more meaningful improvements planned that do require clinical studies, and we'll be conducting those this year.

Our next question comes from the line Larry Biegelsen of Wells Fargo. Your line is open.

Good afternoon, and thanks for taking the question and congratulations on a nice quarter. John, maybe a little bit more color on what led to the delay in t:sport? What still needs to be done and your confidence you can address this in it with just one quarter delay, if I heard correctly pushing out from third quarter to fourth quarter filing? Thanks for taking the question.

Yes, sure. Well, I think that we didn't anticipate - or we do experience the delays due to COVID when COVID first hit. We probably lost an entire quarter, and I would say that it was just difficult to actually do the human factors testing. When the market did open back up, we had virtual human factors, we had face-to-face, but we had a hard time getting the correct number of patients in various groups to do the appropriate types of testing. But as I said, what happened is that we began to look at the data thoroughly in the December timeframe. And as we did, we just saw issues that we weren't satisfied with. And I think the most important takeaway here is that we want to get this product right, and we're willing to sacrifice a few months to do that because we understand the long-term benefits of this technology, and we know what's going to drive demand from the MDI segment. So we're - we think that we have a reputation that's built upon ease of use, intuitive and simple-to-use devices, and we've got to continue to do that. I would say that none of the changes that we're making are significant. It just requires us to go back and correct the issues, test them again, and then just move forward. So, as we mentioned, we're going to be doing this now. Our submission's planned for the fourth quarter. There is still some uncertainty that we are entering into additional human factors testing now and it's still a COVID environment. And as I mentioned the FDA is - they're pretty backed up right now. And it's uncertain as to when they are going to get back to their normal cadence of review, but we are - this is still our number one priority as an organization. We have a lot of confidence in the device and how it's going to impact the market. And so, we're moving forward aggressively to get it - to market.

Our next question comes from Alex Nowak of Craig-Hallum Capital. Your line is open.

Good afternoon, everyone. This is Trent McCarthy on for Alex. One question Control-IQ, can you speak to the competitive environment and how that will morph over 2021? Medtronic is being more vocal with their pump this year. There are new patch pumps coming as well as some new players? So how do you expect growth to modulate this year and next with competition, and what actions are you taking to defend that?

Well, I guess I'll start off by saying that we have a great deal of confidence in Control-IQ even without t:sport being in the market this year. I think that we've demonstrated a history of innovation and we intend to continue to keep that trend. When you look at competition, I think it's really important - there is a couple of factors I think that are important that impact adoption. And first, it's basically do you achieve the therapeutic outcomes that you said you would? And then how do you improve the patient experience? And we look that - in that light. If you look back on - the competitors that are coming to market this year - they have data from a clinical study that I would say no, it's measured in the hundreds of patients. By contrast, we have real world data today and 100,000 patients. And I think that Control-IQ, it's been in the market for a full year. We actually got - we updated people in the marketplace. In about four or five months, we had about 50,000 people using our system in the marketplace. So healthcare providers got to see an immediate bump and they had immediate experience in interacting with Control-IQ. And the outcomes have been tremendous. I mean people had actually experienced great results and the healthcare providers have a great deal of confidence now and trust in the system. And so, I think that's a really important. It's really important to understand that a tremendous number of healthcare providers have confidence in the system and it's in many, many people's hands. More and more people are prescribing our pump and of the people who are prescribing it, they are prescribing more and more systems. So, I think that when it comes to the clinical efficacy, we've clearly demonstrated that. We've demonstrated it in a big way in a very short period of time. So when you consider a patient experience, I think it's important to point out that the patient experience is not all about the algorithm. As far as I'm concerned, today the algorithm is table stakes. If the, patient experience is really about this interaction with the entire system, the entire product, and for that matter, the entire company. And so, I think when you look at Control-IQ, the system absolutely provides a very positive experience today. I mean people can basically - or people who are using Control-IQ think more about their lives than their diabetes. It works in the background, people trust it, they can sleep. There is no finger sticks. There is no need to carry a second device to measure diabetes. I think the mobile bolus feature is going to be a tipping point. It's going to increase the demand for the system by providing additional discretion, and it's going to improve the convenience. We have world-class customer service that still goes down in the background. And we also have this digital ecosystem, that’s once will wrap around all of these products that provide support, simplicity and efficiency for our patients - our healthcare providers. So, I think with the competition coming up. I think Tandem is in a very strong position, both clinically and in reducing the burden. And so, as I said, I feel very confident that we're going to continue to do extremely well this year with Control-IQ and we'll have t:sport in the market in 2022. I think that will also continue to drive demand for our products.

Our next question comes from Chris Pasquale of Guggenheim Partners. Your question, please.

Thanks, and congrats on a great quarter, guys. Curious, do you have an estimate for the percentage of U.S. new patient starts that came from United this quarter?

Yes. So the way United settled in for us getting full access again starting July 1, it ended up being about 10% of our domestic shipment. And as we look forward into 2021, that's a good baseline for a starting point. In the longer term, we anticipate that, that will grow to be closer to their overall market share, which is estimated at about 15%. But that will take time as we - to gain access to people who are coming up for their warranty renewal.

That's helpful, thanks. And then, John, the comments around Type 2 and the opportunity there was very interesting. When you think about a dedicated platform for those patients and what they really need, do you see t:sport as fulfilling those needs and really checking all those boxes or do you think that down the road? You're going to need a distinct platform from the two that you're already going to have in your portfolio to really address that population?

Yes, I mean I think our intent really is to start with t:sport and to explore how that interacts with - how the diabetes, the Type 2 diabetes community interacts with it. And in the - at the same time continue to collect information from focus groups and things like that as to what people - what their preferences are. We definitely see a sort of simplification in the user interface. And we also believe that there is a way to improve access through tailored support solutions. We think that there is no reason why we can't create customer access points that replicate the experience that people have through the pharmacy channel using our digital assets. So there's a lot of opportunity here, but I would say that t:sport is clearly where we're going to start. As we mentioned the first thing we're going to do is get the indication for Control-IQ and then we're going to just jump right into this with our multi-point strategy.

Our next question comes from Brooks O'Neil of Lake Street Capital. Please go ahead.

I'm hoping you could just characterize kind of, what you're seeing in general from the FDA in terms of responsiveness. And just want to be sure that the t:sport delay and changes you're planning to make are coming from your own initiatives as opposed to getting some direction from the FDA?

Hi, Brooks. I mean we - right now, we are talking to the FDA frequently, and I think that there's definitely been a significant reduction of their resources that they've been reassigned to other COVID-related tasks. And so the predictability I think right now is a bit uncertain. A few months ago, they indicated they thought it would be about nine months before the sort of road jam or the road block would break, and it's been about that amount of time right now. So I think that as you know, we're still in the midst of this pandemic and I'm not exactly sure when the resources are going to come back. But we do have confidence that we're going to have approval for our mobile bolus feature in the first half and I think that as we move to the latter half of 2021, we're hoping that these three apps, so that there really is no impact on t:sport. But I would say that all of the decisions that have to do with t:sport had nothing to do with the FDA at this point in time.

Our next question comes from Chris Lin of Cowen. Your question, please.

Hi, thanks for taking my question. I just want to follow up on a previous question here. Could you update us on pump share gains trends exiting 2020, and as it relates to 2021, what do you have factored into guidance? And I guess do you put in a bit more conservatism just relative to the past with the pending launch of 780G? Thank you.

Sure. So as we exited 2020, the source of our new pump came really - considering with what we've seen in our history, which is about half from the MDI population and about half from competitor conversion. So as we move forward into 2021, I guess what you pointed out is that MDI population continues to become further penetrated in the pump space. And where years ago, you would see only about 25,000 to 30,000 new pumpers come to market each year. What we've been experiencing in the last two years is that is an acceleration and our best estimate, it was somewhere close to 60,000 people who purchased a pump in the market this year for the first time. So when we think about 2021, we're anticipating that, that will continue to grow but at the same time, just consistent with our conservative guidance philosophy, we're anticipating right now will be at least as good as what we saw in 2020 and we'll continue to take a very large share of that.

Our next question comes from Matthew O'Brien of Piper Sandler. Your line is open.

Thanks for taking my question. I guess, Leigh, just on the renewal side, I wasn't quite following the commentary as far as what you're seeing on the renewals side, what you're seeing in terms of an acceleration there and what we should be expecting. To me, it sounds like things are starting to get much better on the renewal side and that could be a meaningful tailwind for the company over the next several years, is that what you were trying to say? And then John just to kind of finish off a finer point that you were making earlier on the Type 2 side on the discrete side, is there going to be a renewal component - not a renewal, excuse me, an annuity component with the technologies you're thinking about there? Thank you.

Thank you for the question. Starting with renewals, so just to frame up how - where things are looking today is up through the end of December. We have had about 50,000 people in total whose warranties have expired. And of that, we have renewed about 55% of them. And when you compare that to where we were a year ago at the end of 2019, we have renewed about 50% of all of the opportunities that were available. So that 50% to 55% demonstrates really great progress on the renewals front. And I agree with you, renewals are becoming such an important part of our business as we look forward because if you think about the acceleration, the kind of the business in the last three years, all of those folks will start coming to the table as well. And so it's been a lot of investment in that stream and it's also just building up a better patient experience, which we think that's what's driving this improvement in the renewal cumulative rate.

I would just say that relative to the annuity aspect. I mean, we're continuing to invest in our pump technology and we believe that miniaturizing is really the direction to go. So as I mentioned, we're looking at concentrated insulins as well, so - but we really haven't spoken about whether or not the next point after is going to be disposable or not.

Our next question comes from Mathew Blackman of Stifel. Your line is open.

Good afternoon, everyone. Thanks for taking the question. And I've got a few international questions that I'll just sort of throw out there in one swoop and maybe the first couple for Leigh. You called out Germany stocking. Is there any way you could quantify that for us and then Leigh for you as well, can you just give us a sense of what the mix of patients are that you're on-boarding, that are coming from existing pumpers versus MDI in some of these European countries? And then a couple for John, sort of same line of questioning. You sort of alluded to it in your commentary about international but any efforts to expand the number of MDI patients in some of these regions outside the U.S. whether it's you or your partners, and it doesn't look like or sound like it but any changes in the competitive backdrop in Europe with some of these recent launches? Thanks.

Thanks, Matt for the questions. I'll start with Germany. What really is happening with Germany is, it's not exactly as we had anticipated when we came into the year. We were planning the commercial launch for the third quarter but with COVID and everything going on in the world, that was somewhat muted. I would say the reception to launching t:slim we sailed forward and what happened was in Q4, everything start to come to fruition. And so there was a large uptick in demand, which they needed to fulfill plus at the same time it was needed to put inventory back on their shelf, so they can move forward. So what we found in the fourth quarter really was about half of our international shipments came from Germany, and we were thrilled to have that some very late in the year like that because it says a lot about where things are headed in the international market. We have it from a global perspective, again, given the same metrics that we have in the U.S. in terms of the mix of the source of new pumpers. So whether or not it's MDI or competitor conversions, obviously, we started with mostly competitor conversions because of the Animas opportunity. But what I'll say about the international market is it's far less penetrated than we see even in the U.S. There was only 10% to 20% of people using pumps today, that is our most significant opportunity there.

Yes. I would just underscore the fact that we said we have approximately this 4 million people with Type 1 and 400,000 are using pumps. So I think that the MDI population is right to be looked at. And I think that when you look at our success here, half of our sales are coming from MDI in United States, and we're really - I mean, you look at t:sport and an improvement into the technology is really to drive the MDI adoption by reducing the barriers that they see as reasons not to use the technology. So it's really a main focus for us here in the other states as well as OUS.

As a reminder, please limit yourself to one question. Our next question comes from the line of Matt Taylor of UBS. Your question, please.

Hi, thanks for taking the question. So I wanted to ask you about your comments on phone bolus. It seems a little different on this call. You seem very excited about it in terms of it being, calling it a tipping point or kind of awareness generator that you saw with Basal and Control-IQ. Those are high bars. So maybe talk about why you think that? Have you done additional market testing or are you getting feedback that really shows that could be a catalyst?

Yes, I think that mobile bolus is going to be very important, but I wouldn't put it in the same category as Control-IQ or Basal-IQ. I would say that we believe that t:sport will have that same sort of effect. But I think when you talk to people right now that are using this system, with Control-IQ they really have no reason to take it out of their pockets of whether they have it during the day, while they're outside their home unless they have the bolus for a meal. And so, there's a great deal of excitement. It’s a number one requested feature really for us today as to be able to bolus from a phone. And so, we're trying to make this. It's going to be a very easy to use, and it's going to be accessible to our entire patient population over a short period of time. And so, I think it's going to be a meaningful driver and I think that it's really going to go right after as we were just talking about the MDI group. Because I think this provides discretion that they currently don't have and we're always trying to reduce these barriers that the MDI people perceive as objections for using pump technology. So, we're excited about it. I think it's going to be important. And I guess that we're trying to roll this thing out in the first half of the year.

Our next question comes from Jayson Bedford of Raymond James. Please go ahead.

So just, I guess one from me. All three of the domestic pump manufacturers reported much better fourth quarter, December quarter results here. Of course you guys grew the strongest so I'll give you credit there. But I'm just wondering, do you think this is a function of COVID-related pent-up demand or is it something else either from and awareness or an access standpoint? I just would - love your thoughts there on just kind of general market acceleration?

We're seeing some sort of relief, I think in the COVID environment, but it's a bit spotty. It's geography - jump by geography. It seems like the Southeast have opened up and office visits are common there, but there are other locations where it's still pretty tight. So, I think it's difficult for us to sort of put our finger on COVID as - and sort of bring up COVID as the reason that's driving it. I think that we just believe it’s a continued interest in the technology and I said that we're building momentum with these healthcare providers. There's so many of them now are so familiar with the results. They see them. They have got many, many patients on the system. They have a great confidence with this. At least from our point of view, we think that's what's driving this. It's - the healthcare providers, trust and confidence and it's also the people using the system. They talk about it. It is available on social media. We have marketing programs that are just using people's own words to describe their experience of Control-IQ, and I think all of that really I think, is just making awareness better. So I think it's probably more of an awareness situation than its COVID.

Our next question comes from Joanne Wuensch of Citibank. Your question, please.

I'm curious about your comments of getting into the Type 2 diabetes patients, and it sounds like the mobile bolus app might be moving in that direction. But I wanted to make sure that, that's the right read and then I'm curious what else you might need or want to have to penetrate it, and going along with that? Do you have plans to launch a patch pump?

All right well - let me just start with the mobile bolus. The mobile bolus feature is going to be developed - made available to our entire U.S. patient population here, like I said, hopefully in the first half. And that's something that's going to drive discretion, which we know is important to the Type 2 community. We probably believe that the t:sport device however, with its size combined with the mobile app really have more discretion associated with it. And we think that's to be more appealing to the Type 2 community. We are - as I said, we are focused on a multi-point plan. We are looking at using the technology we have today and are exploring how it resonates with the Type 2 community as well as looking at opportunities to add features and capability to the products so that they appeal more. I think simplicity is the big one. I think that having the most advanced algorithm is important and size and discretion are hugely important. So those are things that we're focused on. We're also focused on access. We need to understand how to penetrate this market from an access point of view, and it's something that we think is very important. And regarding patch pump, we haven't said anything about patch pumps other than to say that we are constantly looking at advancing the technology that we have. And we do believe that sort of reduction in size and miniaturizing of the system is important.

Our next question comes from Jeff Johnson of Baird. Your question, please.

So hopefully this doesn't count as my question, but Leigh, I'm not sure if I caught the renewal number in the quarter, if you could just repeat that for me? But for my question, John I was thinking on, you made some comments on FreeStyle Libre, and you made a comment in passing about, you're not sure which sensor you might go with, with them. Is there an opportunity on Libre to work that into a Control-IQ? My understanding was maybe the battery or some other limitations there wouldn't allow for full kind of continuous streaming to a pump to control it. So, I just want to understand if Libre 3 is delayed for any reason or if it doesn't meet your timeline requirements, would you say and you could go back to Libre 2 or is there something else in that comment? Thanks.

I'm going to let Leigh first and I'll answer your question after that, Jeff.

Yes.

I'll take second I think the way I think that renewals is more about trying to cater to something you can measure or compare against our long-term goal of achieving a 70% renewal rate. So the way I think that is - that we have now improved to about 55% of all opportunities, which were roughly 50,000 at the end of the year. I can give a specific number this quarter, but it's fair to assume that it was up again compared to last year and even the third quarter in line with seasonal trends so, moving in a really great direction.

And Jeff, I would just say that we haven't been specific about which technology we intend to incorporate into the relationship with Abbott, the CGM integration, but I do know that the Libre 2 is capable of operating in the IT system. But first, Abbott obviously has to address the vibrancy issue, which I know that they're working on.

Our next question comes from Ravi Misra of Berenberg Capital Management. Your line is open.

So I wanted to probe a little bit more on the Type 2 access commentary that you talked about earlier, John. One of your peers yesterday on their call basically said that they feel that having pharma access is something that kind of sets them up really nicely into Type 2? Maybe if you could comment on that and your kind of potential ability to get there these days. I know that's been something you've been trying for a while or is there another kind of channel or venue that we should be thinking of that we're not that would kind of engender that?

Yes, I mean, I'll tell you what I'll do. I'll start off and I'm going to let Leigh kind of wrap up as well, because she has thoughts on the pharmacy channel. I would say that when we interact with physicians today. They do not make decisions on whether or not the system's going into a pharmacy channel or whether it's going into the DME. So, I think that that's - we believe that we can make the system and the interaction with our products just as accessible and easy as the pharmacy channel using some of our digital health initiatives. I think the reason will be - when you look at some of our competitors, the reason that's important, we sell a pump once a year. And so when you consider the touch points that we've got, once every four years, the touch points, it's very is reduced. I think that if we can even improve that when you - I think that you go a long way to improving access. There is no way we can't - there's no way we really can't we can't automate the supply sales. We can automate that we can make that happen automatically. And I think that's something that simplifies our part of the process. But I think when you look at the competitive patch pumps, I mean they're selling pumps and they're using it every three days. And they're probably buying it monthly or quarterly. So there's a lot more interaction I think that access and frequency of interaction make the pharmacy channel important for them. You want to take that Leigh.

I would say - John framed that very well. I think first and foremost, it's about having the right product because that's what physicians will recommend. And as the channel simplify things, we'll continue to look for rates to optimize or create efficiencies within our own channel, and then what it comes down to for us, we are focused on getting stronger relationships with the payers through more direct contracts. And in those conversations then we can have a deeper discussion about what's the right channel, what makes sense for us, with the type of product that we have. Would it be much more specialized than a disposable type product?

Great thanks. And if I could just ask one more, is there an FX component to the U.S. revenue? Thank you.

It's very immaterial.

Our next question comes from Danielle Antalffy of SVB Leerink. Your line is open.

Good afternoon, guys. Thanks so much for taking the question. Just wanted to ask one question on replacement given the competitive environment, hardly 50% of your replacement -- I'm sorry, of your that comes from replacement. How sustainable do you think that is given the fact the primary driver of those replacements of the replacement group is Medtronic and they're launching the 780G, which might be more competitive?

Danielle, I think we feel very confident in our competitive positioning next year and we would anticipate that we would continue to see a strong part of our total sales coming from better conversion.

Thank you. Ladies and gentlemen that does conclude the Q&A portion of our call today and our call. Thank you so much for participating. You may now disconnect. Have a great day.