Tandem Diabetes Care, Inc.

Good day and thank you for standing by and welcome to the Q1 Tandem Diabetes Care 2021 earnings call. At this time, all participants are on a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. If you require any further assistance, please press star then zero. I would now like to introduce your host for this conference call, Susan Morrison.

Thank you. Good afternoon, everyone, and thanks for joining Tandem's first quarter earnings call for 2021. 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, quarterly report on Form 10-Q, 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 future operating plans, and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information. Our call today will be hosted by John Sheridan, our President and Chief Executive Officer and Lee Vossler, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, we'll open up the call for questions. Thank you in advance for only asking one question and one follow-up before getting back into the queue. I'll now turn the call over to John.

Thanks, Susan, and welcome everyone to today's call. 2021 is off to an incredible start with record first quarter sales and meaningful operational progress throughout our business. I am proud of our performance and Tandem's ability to continue delivering record-breaking results while improving the lives of people with diabetes. Credit for these accomplishments goes to our more than 1,500 employees, as well as our valued partners and suppliers. Thank you, everyone, for continuing to provide our customers with a positively different experience with Tandem, even while operating under constraints of the COVID-19 pandemic. Looking back, we are in the strongest position in our company's history, with world-class products and services, operational excellence, a differentiated product pipeline, and robust balance sheet. The number of people using the T-SLIM X2 has nearly quadrupled over the past three years, and we are now more than 20 countries around the world. Tandem has moved from being a comeback story to being a leader in diabetes technology. We have a line of sight to achieving our longer-term goals, and as we demonstrated once again in the first quarter, we are focused on executing. In today's prepared remarks, we're going to concentrate on the highlights and updates from the quarter, so there is ample Q&A time to expand on the topics that are most important to you. Starting with our top drivers of pump adoption in Q1, we were particularly happy to see the increasing international demand for our T-Central X2 pump and continued high interest in our Control IQ technology. The strength of our performance outside the United States is a reflection of our offering a best-in-class product in a large and under-penetrated market. As a reminder, there are approximately 4 million people living with type 1 diabetes in the countries that we are in internationally, and yet pump penetration on average is less than 20%. It's a huge opportunity, and even so, with our commercial efforts still scaling and meaningful COVID-19 restrictions in place, we outperformed our internal expectations for Q1. It was particularly encouraging that this international demand was not the result of any one country's activities but rather positive adoption trends across essentially all geographies. Outside the United States, people are choosing the T-SLIM X2 for the same reasons we hear domestically, which center around its ease of use and flexibility. Interestingly, these were two primary areas of focus in our flagship T-SLIM strategy, as it's designed to appeal to large segments of both current pump users as well as people using multiple daily injections. Ease of use can increase a person's confidence in managing their therapy while reducing the burden of diabetes in their daily lives. Flexibility is important since the needs and preferences of people living with diabetes can vary greatly day to day. Infusion sets provide flexibility, and as a result, durable pumps remain the dominant industry form factor both domestically and internationally. Our Q1 international sales also reflect the early benefit of our expanding Control IQ launch which began in the second half of last year and will continue to scale across additional geographies throughout 2021. In the larger countries we serve, we are at various stages of control IQ availability. We launched in Canada in the first quarter and plan to launch in Germany and France later this year. There are two statistics in our control IQ use which really highlight the scale of the impact that we are making with our technology. First, following its initial launch in the first quarter of last year, more than 150,000 people have our Control IQ technology worldwide. Second is that we now have more than 20 million days of real-world Control IQ use already logged in our cloud infrastructure. Experience matters with automated insulin delivery and the real-world use of Control IQ sets a high bar. When analyzed through our T-Connect system, we are able to use this data to further study the algorithm's clinical benefits offer valuable insights to health care providers, enhance our future product offerings, and demonstrate health economic outcomes to payers. Most importantly, feedback from our customers and health care providers continues to be awesome. In fact, real-world data was published in the Diabetes Technology and Therapeutics Journal in March, demonstrating that users of Control IQ technology achieved and to some extent exceeded the results obtained in the randomized controlled trials after one year of use. In addition, the data showed glycemic improvements in a broad range of people, nearly 8,000 of whom had type 1 diabetes and 400 of whom had type 2 diabetes. Type 2 diabetes continues to be a strong area of interest for us as we analyze people's needs and preferences that make up the different segments of this market. We are working towards a type 2 indication for Control IQ, and we are encouraged to see the DTT publication that the average time and range for type 2 users with CGM integrated pump experience increased from just under 70% to 78%. The data from the DTT publication, along with other real-world glycemic trend and quality-of-life data, will be presented next month at the ATTD and the ADA conferences. I think the poster at the ADA on the qualitative study of experiences with Control IQ titled, I Feel Human, I Feel Normal, best captures our customers' experience. Tandem has been catapulted to the forefront of diabetes research in recent years, and it's a position that we are committed to retaining. This is why we are particularly thrilled to announce that during the quarter, Dr. Jordan Pinsker has joined us as medical director. Dr. Pinsker is amongst the most prominent artificial pancreas researchers worldwide and is highly regarded at Tandem and respected throughout the diabetes industry. He joins us from Samsung Diabetes Research Institute in Santa Barbara, where he was a lead investigator in numerous clinical trials on automated insulin delivery systems for Tandem as well as other leading manufacturers. He was also the lead author on a number of recent publications, including those highlighting patient-reported outcomes and the success of our virtual training programs for individuals starting control IQ technology. In addition, Dr. Pinsker brings extensive knowledge in patient care, diabetes epidemiology, and physician practice efficiencies to Tandem's executive team, and as importantly, shares our passion for improving the lives of people with diabetes. Dr. Pinsker will lead our clinical strategy as we look to advance our automated insulin delivery offerings, expand our product portfolio to support different segments of the diabetes market, including people who are living with type 2. Turning to our other product development efforts, We are continuing to make good progress across all of our R&D pillars that focus on the expansion of our hardware offerings, automated insulin delivery, digital health and systems and integrations, and other advancements. We provided an overview of our R&D activities on the last call, and so today will just be a highlight of a couple updates of note. First is that a new study using control IQ technology in kids as young as two years old recently commenced enrollment. Results from another pilot study in this younger age group were published in December. The initial period for this new study will likely run throughout the year and will include a large number of participants to help further support a lower age indication. While health care providers can and do sometimes prescribe our control IQ technology to younger kids today, we are not able to market to them about the benefits of our technology. So the lower age indication could increase adoption of our products in this segment of the market. Next update is that in March we received an FDA response to our mobile bolus submission that we filed in the fourth quarter of last year. It's a meaningful milestone as we have understood that the agency has needed to prioritize COVID-19 related filings and we're encouraged to begin the normal questions and response process of this review. For competitive reasons, we don't comment to any level of detail on our interactions with the FDA. but I will say that I was very pleased to see the agency's response to our cybersecurity work. Between COVID-19 and the fact that there's not a credit commercial app available that controls the delivery of insulin, it's tough to predict clearance timing. Based on where we are in the process, we're no longer planning for a Q2 clearance, but we will be working to bring this highly sought-after feature to market as quickly as possible. Strategically, we've always recognized the importance of filing our mobile bolus feature first, so any learnings could be transferred to our entire product pipeline. We are seeing the direct benefit of this approach now as we've gained some additional perspective that will be useful for the T-SPORT filing. It's directly relevant because our T-SPORT pump is designed for use with the same foundational iOS and Android apps that our customers will use to access the mobile bolus feature for T-SLIMx2. We're making great progress on advancing the development of T-SPORT. and the user interface refinements that we elected to make at the end of last year are resulting in a more robust customer experience. Our development timeline for T-SPORT is on track. However, the filing date will push out a few weeks as we incorporate additional information from these insights gained from our mobile bolus response. By addressing these items up front, we believe our T-SPORT regulatory filing will be more complete and ultimately result in a faster path to clearance and commercial availability. Internally, our operations team is preparing manufacturing for T-Sport's commercial launch next year. We are particularly excited to launch a new pump form factor option as it expands our family of offerings while addressing a different segment of the diabetes market than we serve today, many of whom use multiple daily injection and otherwise would not consider pump therapy. Also slated between now and the end of 2022 are enhanced features for our control IQ technology expanded digital health offerings like TandemSource, and the launch of our new sensor integrations with Dexcom and Abbott. Commercially, operationally, and strategically, we are working to enhance our business while providing new solutions and a revolutionary customer experience to people living with diabetes worldwide. Overall, we're coming out of the first quarter performance with great confidence about our ability to achieve our key goals we've set for 2021 and beyond. And with that, I'll now turn the call over to Lee.

Thank you, John, and good afternoon, everyone. Overall, our financial performance in the first quarter was strong, with progress made across the key fundamental areas of our business. Highlights include our sales growth, both domestically and internationally, the increasing contribution of reoccurring pump renewal purchases and supply sales, gross margin improvement, even with continued investment, a 12-point improvement in operating loss, and ending the quarter with the strongest balance sheet in our company's history. To add some color on each of these areas, starting with sales, the first quarter was record-setting for us once again. We achieved $141 million in worldwide sales, which is a 44% increase compared to last year. As a reminder, we provide details of our sales results by both geography and product in the investor section of our website under Events and Presentation. Overall, our worldwide pump shipments exceeded 25,000 in the quarter with a record number of pumps to international markets. This is our second-highest sales quarter ever, only second to our most recent fourth quarter, which benefited from the traditional end-of-year seasonality. While we continue to feel pressure on our sales from the pandemic, it has been largely offset by high demand for the T-SUM X2, momentum which is just beginning in the international market. The breakdown of where our sales come from is beginning to look very different compared to historical years. In the first quarter, nearly half of our worldwide sales were from reoccurring sources of revenue, which includes our scaling renewal pump sales to repeat customers, as well as the ongoing sale of supplies to our installed base of nearly 240,000 customers. In addition, international sales now contribute meaningfully to the business, and we anticipate that international will represent approximately 20% of our total sales this year. Turning to our domestic results, we now have more than 185,000 customers in our U.S. installed base. Sales for the quarter were 103 million, representing growth of 30% over the prior year. As a reminder, the first quarter last year benefited from an incremental 3 million in supply sales from customer stocking at the onset of the pandemic. Our sales growth was primarily driven by 16,600 pump shipments. Consistent with historical trends, approximately half of our new domestic customers were new to pump therapy from multiple daily injections, which is evidence that we continue to expand the market, in addition to capturing competitive share. Contributing to our growth is the full access to UnitedHealthcare members that we did not have in the first half of last year, as well as an increase in renewal sales, both in terms of pump shipments and in the cumulative rate. The direct connection we have with our customers through the DME channel provides valuable benefit in furthering our progress on renewals, particularly as we prepare for 2022 when the opportunities will increase significantly. In the international markets, pump shipments well exceeded our expectations, reaching 8,700 for the quarter. This brings us to more than 50,000 customers in our international install base. Sales were 38 million for the quarter, which is a record for our international operations and more than double the prior year. Unlike the fourth quarter, which was heavily weighted to one distributor, we fulfilled orders from essentially every distributor in the first quarter. We expect ordering patterns to continue to fluctuate in the coming quarters, though, as our distributors navigate the constantly changing COVID dynamics and closely manage their inventory levels, while also scaling the launch of Control IQ. In addition, many countries outside the United States, and Europe in particular, experience meaningful seasonality in the summer months as people take time to go on holiday. Factoring in these sales dynamics and based on our strong Q1 results, we have increased our 2021 sales expectations both domestically and internationally. to a total range of $625 million to $640 million, or a growth rate of 25% to 28%. This includes international sales in the range of $125 million to $130 million, representing year-over-year growth of 50% to 56%. From a gross margin perspective, we improved to 52% this quarter compared to 51% in the prior year. This reflects the beginning of expected leverage from the cartridge capacity investments we made in 2020 to support our rapidly growing installed base. The non-cash charge for stock-based compensation included in cost of sales also declined as a percent of sales to 1% compared to 2% in the prior year. As a reminder, a higher percent of sales to markets outside the U.S. put slight pressure on gross margin from lower average selling prices. However, we greatly benefited in operating an adjusted EBITDA margin due to the nature of our distribution model outside the U.S. We also made great progress in our adjusted EBITDA and operating margin in the first quarter. Our adjusted EBITDA margin increased to 9% of sales from 4% in the prior year. We experienced an even greater improvement in our operating loss to only negative 2% of sales from negative 14% last year, due in part to a reduction in total non-cash stock-based compensation as a percent of sales. I am particularly proud that we were able to gain this leverage while heavily investing in R&D to support both our near and long-term strategic initiatives related to pump hardware, software, and digital health. Our progress in Q1 is on track for achieving our 2021 expectations of a 55% gross margin and adjusted EBITDA in the range of 14% to 15% of sales. There is also one accounting update this quarter for non-operating expenses. Since the second quarter of 2020, we have reported total cash and non-cash interest expense of $4 million to $5 million each period associated with our convertible debt. In the first quarter of 2021, we early adopted new accounting guidance related to the treatment of convertible debt, which resulted in only $2 million in interest expense this quarter. This is expected to be the new quarterly trend going forward. Our total cash and investments increased $29 million in the first quarter, ending at $513 million, primarily due to strong cash flow generated from operations. This is a milestone in that we achieved positive cash from operations for the first time in the lowest seasonal quarter of the year. We have also generated free cash flow four quarters in a row, despite higher capital investments in 2020 to expand manufacturing capacity. To summarize our 2021 outlook, we have increased our worldwide sales expectations to a range of $625 million to $640 million, including international sales of $125 million to $130 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 as components of both cost of sales and operating expense. As you can see by today's results, we have substantially evolved as an organization since the launch of our first pump in 2012, particularly in the last three years with our explosive growth and consistent execution against our financial objectives. Innovation, customer care, and our commitment to growth are at the forefront of our strategic decision-making, and we are positioned well to achieve the longer-term goals we have set for our business in support of the diabetes community. With that, I will turn it over to the operator for questions.

Ladies and gentlemen, if you have a question or a comment at this time, please press the star, then the one key on your touch-tone telephone. If your question has been answered or you wish to move yourself from the queue, please press the pound key. Our first question comes from Stephen Lishpin with Oppenheimer.

Thank you. Hi, guys. So just first question on international, great to hear the progress there. I was wondering if you could provide any color on how trends have changed and I assume accelerated as you've launched Control IQ in various countries, particularly with a couple of other countries. You mentioned expecting to come online with Control IQ later this year.

Hi, Steve. Thanks for the question. It's really interesting as you think about it. We're just at the beginning of the Control IQ rollout. In fact, we haven't even launched it yet in France and Germany, which are our two largest markets, and we're seeing great strength already without it. I think what we're seeing in the U.S. with control IQ and the momentum it's driving is an indicator of what we can expect to see in the OUS market. For now, I don't think we have a great trend in terms of what's happening there. There's been a lot of variability in ordering patterns from the distributors just based on the dynamics that they're fighting with the changing COVID environment. But it is encouraging to think about how this might translate into the long-term growth for us.

Great. Thanks, Leigh Ann. And Don, you talked about Type 2, and you're increasingly talking about Type 2. I was wondering if you could frame for us sort of where you guys are at overall. You talked about seeking an approval for Control IQ. You made the investment during the quarter in CQR. Can you sort of just update us, you know, your thoughts overall on where Tandem is on approaching the Type 2 market?

Absolutely. Well, first of all, we're very excited about the data that was in DTT. You know, the 400 users that saw substantial improvement in time and range over the last year. So that was great data and great to see. But, you know, we are still working on sort of a longer-term plan and strategy that involves clinical studies, design, you know, the user interface, and channel access. So those are sort of the lead things that we've been working on. But, you know, as we said before, our first step is to take advantage of our existing products. You know, control IQ is currently not indicated for type 2, and so we really want to work with the FDA to get approval for that. It may require a clinical study, but we're still, you know, and we need to begin the conversations actually to get approval for that. And then, obviously, we believe that, you know, that TSPOR with the smaller form factor and discretion is also going to be very appealing to the Type 2 community. So, you know, with those two products, you know, almost in the bag, you know, we plan to move forward with those aggressively here in the near future. And then we'll be working on longer-term issues that would be looking at a discrete form factor specifically for this community and, you know, just take advantage of the newer products, potentially simplifying the user interface. and also in the meantime studying just the channel and market access dynamics so that when we actually get to that point where we have these newer products, we can be successful. Great. Thanks, John.

Sure thing. Good talking to you, Steve. Our next question comes from Larry Dittleson with Wells Fargo.

Hey, guys. Thanks for taking the question. Congrats on this strong quarter. And just one question on international and one on C-Corps. Lee, how do we think about the cadence this quarter for international sales? If we look at seasonality last year using Q1, you would come in well above the guidance, and I'll ask the C-Quark question up here as well. John, your quote in the release they put out obviously caught people's attention. What attracted you to that pump? How do you think it compares to the incumbent and any color on the timeline? Thanks for checking the questions, guys. Go ahead.

I'll start, Larry, with the international question. So when you think about the cadence, it is a little bit difficult to predict just based on this variability in the ordering patterns that we've seen. You know, it started with Q4 was a little bit unique because so much of that opportunity came from one particular distributor, at least half of the business in the fourth quarter. This quarter we saw everyone ordering. But I can't say yet that I see a particular trend that can help us develop a confidence in exactly how it will play out. I think the thing to think about the most is, generally speaking, we expect pressure in the third quarter just due to typical seasonality outside the U.S. because of European holiday season. And otherwise, we expect continued growth as we gain traction across the new markets and Control-A-Q continues to roll out there.

All right. And then with regards to C-Corps, we're excited about the investment. As you know, diabetes is not a one-size-fits-all condition. There are many market segments, and there's different use preferences in each of these segments. And so, you know, this investment just aligns with our strategy to support solutions that meet the needs of these different segments, particularly in Type II. When you look at the Seeker Simplicity, it's a simple, low-profile alternative to injections, and it's a valuable tool, and it will appeal to customers who really are in a very different segment that we're operating in today. And so the intent here really is to learn about this particular segment as we formulate our Type II strategy, specifically about the segment working closely with CCER to understand that. But then there's broader Type II issues I think we can learn from working with CCER about, as I mentioned, market access, about working with PCPs versus endos. So I think there's a great deal of education that TANDEM can gain from this relationship. And I think that we can help seek her as well in many ways. And so we're, you know, we're excited about the opportunity. And, you know, I think this is just kind of one element in our strategy to get into the type two market effectively.

Thanks, Sean.

Yeah. Our next question comes from Matthew O'Brien with Piper Sandler.

Oh, afternoon. Thanks for taking the questions. You know, just looking at the guidance, and, you know, there's not a lot to pick on here, but I just want to make sure I'm asking this question just so we're clear on it all. But looking at the guidance, you know, you beat by $23 million versus what we were modeling. You're pushing the midpoint of the guidance range up about $25 million. Almost all of that is international. So is there anything, you know, given, you know, the competitive dynamic or anything else to really call out domestically as to why you maybe didn't bump up things a little bit more and that piece of the business which is still 80% of the overall business.

Sure. I'll just start by saying, you know, our philosophy and approach hasn't changed at all. Just a few months ago when we talked about guidance for the year, we talked about the, you know, the positives and also a few of the things that we were more cautious about. And when I think about the positives, it's really the momentum we've seen from Control IQ. In the U.S., it's been building now for quite some time, and we're just starting to see it build outside the U.S. And then when we think about some of the – oh, I should add that we have UnitedHealthcare as a tail end also at the beginning half of this year since we didn't have access until July of last year. The items that we're cautious about would still be that COVID dynamic, I would say more so outside the U.S. than in the U.S. It's not that we're not seeing it here, but we think that the control IQ momentum is largely offsetting it. And then the other area is the potential for some noise in the market in the back half of the year as it relates to the competitive dynamics. And so I still think all those factors are in play. To your point, we were still very pleased with our domestic results, still outpaced our own internal plan, and we look forward to seeing, you know, further growth across the year.

Okay, Lee, but just to be clear, you're not incrementally more nervous about the competitive noise in the marketplace in the back half? Is that fair? Not at all. Yeah, I mean, I think we're very confident with our position, and I think that's why we raise guidance both OUS and domestically. Got it. And then as a follow-up, that's really helpful. I appreciate that. Lee, I didn't hear any comments as far as what the contribution was from United or on the replacement side in terms of quantitative figures. Would you mind providing those?

I'm sure I'll talk to you a little bit about how those turned out. So from a renewal perspective first, we did see, just like we've been seeing across the recent quarters, what, four to eight quarters, we saw an increase in the volume compared to last year, as well as an improvement in our cumulative rates. And I think those are key factors. You know, right now, renewals are really about strong, steady, you know, just that solid progress. And what you've been seeing in the baseline is easy to predict off of. What's really exciting about renewals more so is what's going to come next year. When you think about the comparison of 2017, which are new opportunities this year, and the 2018 shipments, which are new opportunities for next year, those doubled in terms of size. And so this year, just Think about a continuation of what we've been seeing and think about next year as being the wow year, I guess, if you will. And then from a United perspective, it's just tracking along in line with our expectations. It's clearly up year over year because we didn't have access in Q1 of last year, but it started in the baseline in Q3 and we're just trending as we would expect. We likely won't comment to the particular size of it going forward because we don't typically comment to quarter-to-quarter variations on different payers. But now it is a good part of, you know, the baseline, and so we are happy with where it's tracking.

Great. Thank you. Yep. Thank you. Our next question comes from Brooks O'Neill with Lake Street Capital.

Thank you. Good afternoon. Congratulations on the great start to the year. I'm curious, obviously there's been what I would call widespread expectations about the new pumps from the competitors, right? Do you guys think you lost business in the first quarter as people waited to see what those new products look like? Or how do you think the market is responding to you in light of the expectation that these new pumps are catching up to where you've been for a long time?

Yeah, I mean, Brooks, I don't think so. I'm pretty certain we haven't. I mean, we obviously had a great quarter. Right now, one of our competitors, Pumps, is available OUS, and it's particularly available in the German market. And you saw that in the last two quarters, we've done extremely well in Germany. And we did that with Basel IQ. Control IQ was not even there yet. So we're excited that we're going to compete effectively against that product. You know, and you can't market these products in the U.S. until they've been approved by the FDA, and neither have in the U.S. yet. So, you know, I think it's unlikely at this point that we've seen any impact. We'll just have to see what happens as they do gain approval. There will probably be more noise, and we'll probably won't see that until the second half of the year.

Yep. Okay. And then I'm curious, I understand the competitive issue, but I'm curious about your comments on the mobile bolus and then subsequently T-SPORT. Is your sense that the FDA believes that your mobile capability works and is safe, but they just want a little bit more information? Do they want more data? Help us to understand kind of how you read the FDA's response and feelings about that product.

Sure. I mean, I think that this is just part of the normal interaction with the FDA when you have a submission like this. And I think that, you know, I don't want to comment specifically about things in our interaction with the FDA, but I will say we're very pleased with their response to us on cybersecurity. And I think that might have been one of the areas of greatest risk, and I think we've alleviated any concerns that they've got there with our response and our design. So we feel very positive about that. I'll also say that the FDA remains very supportive of using mobile technology in medical devices, particularly insulin pumps. And so I think that's also a positive. And I think that we still remain very confident that we're going to get approval for this product. This is just a normal back-and-forth interaction. And I think that clearly we're going to have to now respond. And there's inherent uncertainty in dealing with the FDA in the review process. But this product's coming to market, and we'll keep you informed as we know more about it from our interactions with the FDA. Okay, thank you, John.

Yeah, thank you. Our next question comes from Matt Taylor with UBS.

Hey, thanks for taking the question. So I just wanted to follow up on a question there about the cadence in the environment. I know there's still some uncertainty. Could you offer any color on recent trends? Did things improve through the quarter? Is there any trend to extrapolate through April, anything that you could provide on that would be really helpful.

I'm able to say that there's been strong demand into the second quarter as well. So, you know, we're excited about 2021 and we have confidence that we're going to achieve the goals this year that we set out for ourselves as well as the next couple of years based on what we're seeing now and the positive reaction to control IQ from the physicians who are prescribing it as well as the people who are using it. It's just outstanding. And as we talked about, we have 150,000 people who are now using it. And we have momentum. We have incredible momentum. The physicians are prescribing more and more systems. We have their confidence and trust. And the people who are using it, I mean, I can't tell you how many positive anecdotes I get daily from people using it that are so motivational to our whole organization. But, you know, I think we're in a great spot.

Gotcha. Gotcha. And then just to follow up on international, you know, there was definitely some outperformance there sounds like relative to what you expected. That was broad based. Is that what you think is going to continue? I guess broad based ordering or just wanted to do more specificity on if there were any kind of pockets of strength that you would call out?

You know, it was really strength across the board from all of the regions, that order. We were happy to see everyone was ordering, including Germany, who just placed such a substantial order in the fourth quarter, already reordering in the first quarter. It's hard to say if their orders today are a new trend, you know, within each country. They're still wrestling a lot with the COVID dynamic. So how is it impacting their local markets? How do they get their inventory right set as they think about the demand that's in front of them? And so it's been a bit of a challenge for the distributors throughout this to try to figure it out. But what I think is we're hearing loud and clear is there's enthusiasm, and there's a lot of awareness about what we're bringing. And I think, again, it will be something that we will continue to see in the long term.

Great.

Well, thanks for the call, and congrats on a good quarter.

Thanks, Matt. Thanks, Matt.

Our next question comes from Ravi Misra with Berneberg Capital Markets.

Hi, good evening, everyone. So just a quick question. So around the 20 million days control IQ, you know, that's a rather large number. And can you just help us think about kind of longer term some of the innovation that you think you can extract from that data, whether it comes to algorithm refinements or kind of any value add capabilities you can add for the patient? And then maybe my second one, I'll just ask it up front. For Lee, just on the guidance and the leverage metrics, it looked like international leverage was a lot better than you thought it was given the sales outperformance this quarter, and you brought that number up, but it seems like you're kind of holding fast to the profitability metrics that you had laid out in the prior call. So just kind of wondering what's the offset there given kind of the revenue outperformance? Thank you.

Yeah, that's a great question, Robbie, about how we use the data. And as you can see, we have a tremendous amount of data. And we have invested greatly in our data science team and our algorithm teams. And they're looking carefully at this data to do just what you're saying. We're mining the data. We're looking for exactly how the system performs. And we're looking for opportunities to make improvement in the overall performance of the system and its interactions, you know, as the algorithm works. And I think this is really the data is what's driving the formulation of the next steps for our control IQ advancements in time. And so I think that there's the algorithm itself that's on the pump. There's also data that we collect that I think we can probably help physicians optimize settings over time for the people who are using the pump. So there's algorithms that could potentially exist in the cloud. that could support and make the physician, so we consider a customer as well, more efficient as they interact and provide better therapy and more effectively for their patients. And then there's also just the product itself. We see how the product performs. It helps us understand where the opportunities are for improvement. And clearly we've taken a lot of that information and we've applied it to T-Sport, and we're going to continue to apply it to the next generation products over in time. So it's a treasure trove. It's hugely important to us. We're fully taking advantage of it, and we're building teams out who know how to do just that. And I would finally say that, you know, when we work with payers, payers really value this data as well. And we see ourselves establishing dashboards with this type of information that we can make available to payers, you know, to help them see the benefits of our technology and potentially go back to them and look for additional reimbursement for our products in time.

And, Robbie, to your question on the margins, I think I would just start by saying that this just gives us even more confidence in achieving those margin targets we've set for this year. And one way to think about it is this, is when we set our operating plan, it's based on a revenue assumption. And there are many things that people in the organization would like to spend money on that we can't necessarily afford within the construct that we put together. And so by having an overachievement in sales, it allows us the opportunity to maybe advance some of those initiatives or investments or, you know, go ahead and put them on the table for something that we could do this year as opposed to maybe putting off to next year. So we still feel very confident in hitting those margin targets, and it will allow us to keep moving forward towards meeting our long-term objectives as well.

Thank you. Our next question comes from Jason Bedford with Raymond James.

Good afternoon. Just a couple quick ones, I guess. On the pipeline, John, I just want to paraphrase your commentary a bit here to make sure I understand the message. On T-Sport, I think you said pushed out a few weeks. So is that still fourth quarter or could it slip into early 22? And then just to follow up on that, do you believe you've solved kind of the user interface and human factors dynamics that you talked about last call?

Yeah, good question. So I think that the, you know, we're still on track with this program. We're very excited about it. We believe that the interface refinements that we elected to make last year are definitely resulting in a much more positive experience. And so we're pleased with those results. I would say that when we developed the strategy to submit the mobile Bullets app first, we did that intentionally because we knew there would be lessons learned that we could apply to T-Sport and other products that use a mobile app. And so now there's these new requirements that I guess we should have anticipated and did anticipate. We're going to have to go back and do additional work, and it's going to be measured in weeks, as we said. I think the way we look at it is that by incorporating these improvements now, we're likely to gain during the review process itself, so that the commercialization should hopefully end up at the same point in time that we expected it to in 22 anyway. It's possible we might slip into 2021, excuse me, 2022 with the filing, But we anticipate that the commercial availability of the device will be roughly the same as it was to start.

And, John, maybe you could just remind us, if you have disclosed it before, what is the expected commercial availability timeline? I mean, we haven't said specifically, but I would say it's probably sometime in the summer of 2022. Okay. And then, Lee, if I can sneak in another one, just on the international, if I annualize first quarter sales, the guidance implies that the average over the next few quarters is lower than in the first quarter. You're launching control IQ in a few key countries. So I'm just wondering, is the hesitation about that going higher on international just largely a function of the uncertainty tied to COVID and the distributor ordering patterns?

Yes, and just a reminder, too, that third quarter pressure we tend to see because of the European holiday season. I would add that to it. But, yes, it's caution around the fact that we really haven't been able to discern a specific cadence or trend with the distributors. They're all really getting back on their feet, and I hope it's the beginning of the new trend, but I just want to be thoughtful about some of the variability we've been seeing in the last few quarters.

Fair enough. Thanks. Our next question comes from Joanne Wish with Citibank.

Good afternoon, and thanks for taking the question. Excuse me. The other diabetes companies are starting to sell their products into the pharmacy channel, and I recognize that traditional pumps are into the DME channel, but is there no way that Control IQ and those that come after it can move into the pharmacy?

I would not put a no way on it, Joanne. You know, I think you're right. What we're seeing is a lot of movement into the pharmacy channel across the space. But those products aren't necessarily like our products. Our products being a little bit more specialized in nature, those being more I'll call it commodity-like. And so today we're really focused on, well, what are the benefits we have in the D&E channel that maybe aren't in the pharmacy channel? And we really like the fact that we have a clear line of visibility to our customers in terms of who's ordering, where they're coming from, It helps us build that customer relationship right up front, which is key and important as we think about the long-term renewal prospects. So that's piece number one. And the other element that we like about the DME channel is just the pricing stability that we've seen there. One of our initiatives really is to continue to enhance reimbursement by increasing demonstrating the clinical value of the product to the insurance payers. And we think we have a good path for that through the DME channel. So those are the things that we're focused on today. What you hear about the pharmacy channel many times is it sounds like it's more streamlined up front. So we're focused on then how can we streamline that ordering process so that people don't have that perceived negativity around it. And so we're focused on digital solutions, automating, just improving our processes in order to make the flow better. So that's where we're focused on today is on the D&E side, really. And we can continue to evaluate the pharmacy channel for the long term.

I appreciate that. And my second question has to do with replacement cycle. It sounds like it's significant in 2022. Is there any way to quantify that? Thanks.

Sure. From a renewals perspective, if you think about it, the people who purchased pumps in 2018 are going to be coming back for their first opportunity in 2022. And when you compare that to 2017, I should have said we shipped 34,000 pumps in 2018. That's double what we shipped in 2017. And it really was just the beginning of the escalation of our business. up through this year. So where renewals have been strong and steady, just very solid path and trajectory, I think it's going to get a lot more exciting in the coming years as those become a more meaningful part of the business opportunity for us. And renewals, when you compare it to attracting new patients, I mean, those are the people we've built a relationship with. So our goal is to continue to offer innovation. It's to enhance that customer experience so that they will want to stay with us when their warranties expire.

Thank you.

Thanks, Joanne. Our next question comes from Alex Norlock with Craig Hallam.

Great. Good afternoon, everyone. This is Trent McCarthy jumping on for Alex. Just to dig a little deeper on the competitive question, what are you hearing from patients and providers in the EU and UK around Medtronic 780G? Are you finding it more or less competitive than you originally thought, and is the feedback there allowing you to tweak your plans to defend when Medtronic launches here in the U.S.? ?

You know, I would say that we are just now beginning to hear about it. And I think that, you know, we feel like we're doing quite well, OUS, you know, with the products that we've got there today. As I was just mentioning a moment ago, you know, we're in Germany today with Basal IQ. You know, the 780G has been there for two or three quarters. And we did exceptionally well last quarter, and we did quite well again this quarter. So I feel that when you look at the 780G, it's incremental improvement to an algorithm that's on a system and sensor that have been problematic. So I think that while Medtronic's a formidable competitor, I think we feel comfortable that we can compete effectively against them in the OUS countries as well as here in the States. Got it.

And then just to follow up, Dexcom ran a big consumer push and is taking prices lower in the EU to help pick up greater adoption. Are you seeing any benefit from their efforts translate into an increase in MDI conversions? And do you anticipate the EU push to help your conversion potentially in that geography?

So from the DTC perspective and the campaign's perspective, I don't have any evidence that can show a direct correlation to an ad and what benefit we might get, but I think it's natural to assume we've always gotten benefit from the relationships that we have with that's come in the market. When their sales reps are in talking with physicians and patients, it's a natural conversation to talk about the integration of our products. So I think it's fair, you know, if they're seeing an uptick based on that, that we might also be having that same cable effect.

Got it. Thanks for the questions. Our next question comes from Matthew Blackman with Spiegel.

Good afternoon, everybody. Thanks for taking my questions. I'll just put them both out there up front. I guess the first one, can you size or frame the incremental opportunity and expanded age indication would open up for you? And then the follow-up question, sort of back to the DTC theme, obviously we've got more competition coming, and those folks are spending more on developing new patient funnels. Are you considering any incremental investment in DTC or even outside the traditional endo channel, something in the primary care channel, just how you're thinking about sort of the investments from here to drive more patients to pump therapy? Thanks.

Thanks, Matt. You know, I think the numbers that we've seen are there's approximately 1.1 million children under the age of 18 with type 1 worldwide. So it's not necessarily a large number, but it's a very important population that does need control immediately. And I know that a number of pediatric endocrinologists are suggesting that we should put children in this age group on pumps immediately because of the benefits the technology is providing. So I don't think it's going to be a meaningful increase in opportunity for us. It's just a very important age group that we want to work with and just provide the benefits of control IQ to. So, you know, we want to be able to market to that group as well so that people are aware of it. We can't do that today until we get this indication. And so, you know, we're going to continue to push forward with this and we would anticipate that, you know, our study will be completed probably in the early 2022 timeframe and that during that time of 2022 we could get the indication for that group. That's our hope.

Then to your question, Matt, on DTC strategies, I'll just start by saying we have a very smart team of marketing folks who are constantly evaluating the best ROI and the way to attract customers and to reach them. Our focus is primarily today on social media engagement, streaming platforms, ways that we can really connect directly with the Type 1 community, and we know and see that they are highly engaged when it comes to online activities. And so that's where our focus is today, but we will continue to define and refine our strategies and determine where is the best place for us to spend our dollars.

Thank you.

Yep.

Take care. Our next question comes from Dania Antolafi with SBB Layering.

Hi, this is Rebecca Wong for Danielle. I have a higher-level question on the competitive landscape. So we're seeing the infant pump market will be more competitive with all those new entrants. How much do you think the overall pump market growth could accelerate from current levels with more options for patients? And, I mean, do you think the market needs to accelerate for tandem to sustain your current growth trajectory? Thank you.

That's a good question. Thank you. We have stated publicly that we believe that we can increase the penetration in the type 1 community from, you know, probably in the low 30s today to the mid-50s. Other endocrinologists and others who work in, you know, manufacturing companies within diabetes believe that can even go higher. And so I think, you know, it does just – there's a lot of opportunity. We think that the new technology that's coming to market, whether it's CGM or whether it's pump technology with algorithms, is definitely going to reduce the threshold that people face when they make a decision to go from pens and needles to pumps and other technology. We think we are drafting behind the CGM companies. As CGM companies get their products onto people who are MDIs, They see the benefits of the technology. They see the benefits of working with a company that provides service and support. And I think that they're more likely to consider a pump at that point in time. So we think that the market's going to continue to expand. And I think as it does, we'll all benefit. And, you know, we think technology and ease of use is driving that adoption. Thank you.

Ladies and gentlemen, I'm not showing any further questions at this time. And since there are no further questions, this also concludes today's presentation. You may now disconnect and have a wonderful day.