Tandem Diabetes Care Inc (TNDM) 2021 Q4 法說會逐字稿

Thank you for standing by, and welcome to Tandem's Fourth Quarter and Year-end 2021 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. You may begin.

Thanks, Latif. Good afternoon, everyone, and thank you for joining Tandem's Fourth Quarter and Year-end 2021 Earnings Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development timelines, 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 future operating plans and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information.

Hosting today's call are John Sheridan, our President and CEO; Brian Hansen, Executive Vice President and Chief Commercial Officer; and Leigh Vosseller, our Executive Vice President and Chief Financial Officer. Following the prepared remarks, we'll open up the call for questions. Thank you in advance for limiting yourself to 1 question and 1 follow-up before getting back into the queue.

I'll now turn the call over to John.

Thank you, Susan, and welcome, everyone, to today's call. As you can see in today's results, the fourth quarter was a strong finish to an impressive year for Tandem. In looking back at the highlights of the year, we set record sales for both the quarter and the year. We also furthered our leadership position in markets outside the United States with an expanded international launch of our Control-IQ technology.

Operationally, we focused on continuous improvement throughout our business, and we reached an impressive milestone of achieving our first year of positive operating margin. Finally, as we highlighted at our R&D day late last year, we furthered our product development efforts to support our near- and longer-term portfolio.

In addition to these accomplishments, just last week we achieved the exciting milestone of FDA clearance of a mobile app that enables our t:slim X2 pump users to bolus insulin from their smartphone. With this clearance, we are adding to the list of Tandem firsts, as this is the first-ever FDA cleared smartphone app capable of initiating insulin delivery on both iOS and Android operating systems.

Organizationally, we've also been enhancing our structure over the past few quarters with the creation of new senior leadership positions. We've welcomed talented and experienced individuals who complement and strengthen our management team as we scale the business and prepare for continued growth, near-term product launches and the execution of our longer-term strategy. It's an important step as Tandem has a great opportunity to further our market-leading position in diabetes care.

Our installed base has nearly quadrupled in the past 3 years, which is evidence that our innovations drive adoption. I am proud that nearly 330,000 people worldwide use a t:slim X2 for their therapeutic management. Credit for these achievements goes to our talented employees, who have demonstrated great flexibility and an outstanding commitment to improving the lives of people living with diabetes.

As we look ahead, 2022 is positioned to be another exciting year for Tandem. We're also being mindful of and prepared to continue navigating the challenges associated with the pandemic. It's encouraging to see headlines showing a decline in COVID-19 cases, but as we've seen historically, things can oscillate quickly. In addition, the broader effects of the pandemic, such as staffing challenges in the clinics we serve and the global supply chain headwinds, will take time to recover and will trail case rate improvements.

That being said, while pandemic-related uncertainties still remain, our focus and commitments to achieving our goal is unwavering. Importantly, our growth drivers from recent years are still in place today. These include an underlying worldwide market that remains large and underpenetrated, a robust competitive conversion opportunity, strong demand for our automated insulin dosing technology, our innovative product pipeline, the positively different experience we provide our customers and the growing renewal opportunity from our current customers who are eligible to purchase a new Tandem pump again.

Brian Hansen, our EVP and Chief Commercial Officer, has seen each of these firsthand. And I'd now like to turn the call over to him for him to share his perspective on the quarter and the year ahead.

Thanks, John. What stands out for me is that our t:slim X2 platform continues to be the leading insulin therapy solution for the durable pump community, which is the largest segment of the insulin pump market. In fact, recent U.S. data suggests that more people chose the t:slim X2 last year compared to any other pump offering, and that the market is continuing to accelerate.

We estimate that more than 70,000 people in the United States adopted insulin pump therapy for multiple daily injections in 2021, which is double the number of people who adopted pump therapy just 3 years ago. Outside the United States, we see a similar trend that suggests that pump therapy penetration is also accelerating.

With this market growth, I am proud that Tandem continues to make meaningful progress in our long-standing goal to bring the benefits of pump therapy to more people with diabetes. In the fourth quarter, we once again saw a balanced source of new customer growth in the United States, with approximately half of our customers reporting that they've converted from another pump manufacturer and half from multiple daily injections.

We're also gaining increased visibility into our growth sources outside the United States, where we see both a high number of competitive conversions and people new to pump therapy. It's a testament to the ease of use and form factor of our platform, its software updatability from a home computer, the proven performance of our Control-IQ technology and the customer experience we provide.

In January, we held a virtual national sales meeting, which was great timing as the sales force expansion from 95 territories to 110 territories is now complete. At the meeting, we heard high enthusiasm for our t:slim X2 pump and strong conviction in our Control-IQ technology. The team was coming off a seasonally demanding fourth quarter where they put in the extra time and effort to ensure that our customers who wanted to get a new pump before year-end were able to do so before the typical reset of deductibles.

This year was particularly interesting, as many offices shifted back into remote interactions in the fourth quarter during the resurgence of COVID-19 cases. Health care provider offices were often pressured with staffing shortages, and there was a wide range in how they were operating. I was very proud that our team remained flexible, shifting and adjusting to support the prescribers in whatever way worked best for their practices.

Outside the United States, our international distribution partners also continue to navigate the challenges of COVID-19, which varies greatly by country and by region. Despite these challenges, we achieved record sales in only our third full year of commercial activities outside the United States. Our success was driven by multiple factors, such as the scaling launch of our Control-IQ technology, which is now offered nearly everywhere we operate outside the United States.

In addition, our t:slim X2 was available for a full year in both Germany and France, which represent 2 of our larger markets and where our Control-IQ was launched in the fourth quarter. As a reminder, outside of North America, we work with experienced distributors who are responsible for all the selling, reimbursement and customer care activities. It's been fantastic to hear their feedback on product adoption, and similar to what we hear in the United States, the customer experience with Control-IQ is overwhelmingly positive.

This helps to fuel demand for our products as more people experience the benefits of Control-IQ and health care providers see the clinical outcome improvements this innovation provides.

It's been a tough environment for distributor forecasting and inventory management. And in addition to the high growth dynamics of our product launch and the pandemic, they are also navigating the associated supply chain complexities. For example, the timing and availability of sea freight has been a variable that they've had to contend with that has been difficult to predict. As a result, we've seen and anticipate we'll continue to see the variability in distributor ordering patterns throughout 2022.

Turning to the competitive environment, it was largely consistent worldwide throughout 2021 as well as in the more recent weeks. In the United States, our sales team was thrilled to receive last week's news of FDA clearance for our t:slim X2 pump users to bolus using the t:connect mobile app. It's significant, as this clearance provides people the freedom and discretion of having their most frequently used pump feature available on their personal smartphone.

The updated mobile app also continues to offer the benefits our customers have already been enjoying, including a convenient way to view their pump alerts on their phone, which serves as a discreet, secondary display for their pump and automatic wireless uploads of pump therapy data to our cloud-based t:connect web application.

We are kicking off training on the new mobile bolus feature for our internal teams now, followed by health care provider trainings, and then we'll be progressing the launch as a tiered rollout throughout the spring with availability for everybody this summer. This launch is a prime example of the power of our Tandem Device Updater and how it provides the t:slim X2 with a competitive advantage.

In the upcoming months, we'll be able to offer nearly 240,000 of our in-warranty U.S. customers access to the mobile delivery feature free of charge. And it's easy to get through just a software update to their pump and their app that they can perform in the comfort and convenience of their own home. That's the type of innovation that truly makes our offerings positively different.

It is also an opportunity for us to connect with existing customers who may be waiting on the sidelines for a reason to buy their next t:slim X2. As a reminder, customers typically become eligible for a new pump purchase once every 4 years. Our experience, though, is that many customers will not pursue that renewal pump purchase until well after their warranty has expired, averaging roughly a year later.

We continue to enhance our internal infrastructure and processes to drive customer renewals and are seeing great results. For example, in 2021 we hit a milestone where more than 70% of customers whose warranties expired in 2016 have now purchased their second or even third pump, which speaks to the high retention for our customers over a lengthy time frame.

Our speed is improving. The percentage of customers purchasing a pump within 6 months of their warranty expiration has improved for the third year in a row, and nearly half of our customers newly eligible in 2021 have already renewed. That is fantastic progress, as many people who are eligible did not become so until the fourth quarter.

As you can see, 2021 was a busy and accomplished year, and our commercial initiatives are well-positioned to continue being a driving contributor to our longer-term growth objectives.

With that, I will turn the call back over to John.

Thank you, Brian. At our R&D Day event in December, we shared our longer-term vision and strategy for driving continued growth through innovation. It's rooted in a foundation of extensive market research, which is a practice that we began at the company's inception. A consistent outcome from these results has been that there is no one-size-fits-all solution in diabetes management. How a person chooses to wear their pump is a big driver in their purchasing decision, and it's based on personal needs and preferences.

As a result, this creates segments in both the type 1 and type 2 markets, and our portfolio approach is designed to bring new solutions to more people living with diabetes. We are continuing to invest in advancing our t:slim platform, along with bringing our miniaturized durable pump to market as well as tubeless options.

From a timing perspective, the next new pump we intend to launch is a Tandem Mobi, which we historically referred to under its development named t:sport. Mobi gives us an opportunity to serve a new market segment with an even smaller, more discreet pump using leading-edge hardware technology. We chose the name Mobi to represent the pump's mobility in the way it's worn and as a nod to its mobile app-based interface.

The Mobi pump is designed to be fully controlled through a mobile app on a user's personal smartphone. The t:connect mobile app that was cleared last week for bolus insulin delivery is also the foundation of Mobi's mobile control functionality.

Last year, during the regulatory review for our mobile bolus feature for the t:slim X2 platform, we were able to get clarity on the FDA's expectation for pump mobile control functionality, and all that learning has been applied to the Mobi full control mobile app development effort. Mobi has been extensively tested, including more than 15 rounds of formative human factors testing. This gave us high confidence as we entered our human factors validation study, which is now underway. This is the largest human factor study in the company's history and will be used to support the 510(k) filing to the FDA later this summer.

As a reminder, Mobi will be submitted to the FDA through the ACE pump 510(k) pathway, which allows for it to be integrated with interoperable algorithms and CGMs without additional regulatory review. This is particularly relevant for the commercialization of Mobi, as we will be evaluating timelines to determine which iCGM will be integrated when we first launch.

CGM integration work has been progressing well with both our CGM partners, Dexcom and Abbott. These are strategic priorities for us in 2022 so that our customers can benefit from new sensor technologies, along with the features of our AID algorithms and insulin delivery systems.

We are also making great progress on our clinical initiatives for advancing Control-IQ's labeling and feature set, with a few milestones of note. We currently are enrolling our first type 2 feasibility study, our pediatric trial is progressing well, and as discussed in the past, we intend to use the data to pursue an age indication for children younger than 6 years old, and we also have several other studies in progress and in the planning phases to further support our AID programs.

As we look to the year ahead, it's once again primed with opportunities to bring the benefits of our technologies to more people living with diabetes. I am confident in our team's ability to continue meeting and exceeding our near- and longer-term goals as well as delivering relentless innovation and revolutionary customer experiences to the diabetes community.

With that, I'll now turn the call over to Leigh.

Thank you, John, and good afternoon, everyone. 2021 was another record-breaking sales performance for us as we scaled from just under $500 million sales in 2020 to more than $700 million in 2021. This represents 41% growth over 2020, which we successfully delivered despite the unique and unpredictable challenges of the pandemic.

We shipped nearly 130,000 pumps worldwide, of which approximately 30% were shipped in the fourth quarter alone. This brings us to a worldwide installed base of nearly 330,000 customers.

Fourth quarter worldwide sales were a record $210 million, which as a point of comparison is meaningfully more than our full year sales in 2018. This is a significant achievement in only a 3-year time frame.

Specific to the U.S. market, 2021 sales grew 26% to $525 million. More than half of our sales were driven by shipment of approximately 83,000 pumps in the year. Our U.S. installed base of nearly 240,000 customers also drove meaningful growth in our supply sales and builds the foundation for pump renewal sales in the future.

Following on Brian's remarks regarding our renewal progress, we reached our goal to renew approximately 60% of the more than 65,000 pump warranties that cumulatively expired to the end of 2021. While the majority of the renewals this year were generated from 2021 warranty expirations, there was still a meaningful contribution from warranty expirations as far back as 2016, and we expect continued renewal sales in the future from warranties that expired in years past.

As we look at our 2022 renewal opportunity, approximately 30,000 additional customers will become eligible for renewal based on our 2018 shipments. Importantly, more than 40% of these customers will not be eligible for renewal until their warranties expire in the fourth quarter of 2022, which will influence the timing of those renewal sales across the year.

Fourth quarter sales in the U.S. were $161 million on 26,000 pump shipments, benefiting from the traditional seasonal uptick we experience due to the timing of insurance deductible resets and the highest volume of renewals we have shipped in a single quarter.

Outside the U.S., our presence continues to strengthen across the more than 20 countries in which we operate. We ended 2021 with $178 million in sales, which was 114% growth over 2020. Just over half of the sales were derived from 45,000 pump shipments, essentially doubling our installed base outside the U.S. to nearly 90,000 customers. We ended the year with strong fourth quarter sales outside the U.S. of $49 million on 12,000 pump shipments, reflective of the continued strong demand for our products but impacted by the variability in ordering patterns that we saw throughout the year due to the challenging COVID environment, as Brian discussed.

We anticipate that these fluctuations will continue into 2022. For example, certain distributors exited 2021 with sufficient inventory to meet first quarter demand and are anticipated to place lighter follow-on orders in the first quarter of 2022. Therefore, we anticipate Q1 orders for both pumps and supplies will be lower than the fourth quarter of 2021 as distributors continue to focus on achieving optimal inventory levels.

Looking to 2022 worldwide, we have significant growth opportunity from our market-leading Control-IQ technology, especially in the markets outside the U.S., where it is still in the early phases of commercialization. Our recurring supply sales also represent a meaningful and predictable revenue stream that will increase proportionately in 2022 with the growth in our sizable installed base.

We are maintaining a cautious approach in 2022 for impacts that COVID may have on the business, particularly as we reflect on the continuous surprises in 2021, even at times when markets began to reopen.

For these reasons, we expect our 2022 worldwide sales to be in the range of $845 million to $860 million, a growth rate between 20% and 22%. Due to U.S. seasonality and international ordering patterns, we anticipate Q1 will be the smallest sales quarter of the year at approximately 19% to 20% of sales, similar to years past.

Our U.S. sales guidance includes annual expectations in the U.S. of $630 million to $640 million or growth of 20% to 22%, with pump sales scaling up across the year in line with historical seasonal patterns. Overall, in the U.S., sales in the first quarter tend to fall in the high teens as a percentage of our full year sales due to the impact of insurance deductible resets impacting both pump shipments and supply sales.

Sales expectations outside the U.S. are estimated to be in the range of $215 million to $220 million or growth of 21% to 24%. While market demand remains strong in the markets where we operate, we expect that COVID impacts on the timing of distributor orders are likely to continue to create a high degree of variability in sales across the quarters. Therefore, we are being conservative with our OUS guidance as we monitor the dynamics with each of our distributor partners.

Sales are expected to be lowest in Q1 with growth across the year as we continue to penetrate the various markets and increase our installed base, keeping in mind that some seasonal pressure tends to occur in the third quarter due to the European summer holiday season.

Moving on to margins. We continued to demonstrate improvement in our gross margin in 2021, increasing to 54% from 52% in 2020. This reflects an approximate 10% improvement in the per unit production costs for both our pumps and cartridges. While overhead reductions are a contributing factor as our volumes increase, we are also seeing notable benefit from cost-saving initiatives. These benefits more than offset the impact of lower average selling prices from increased pump sales in the OUS markets as well as growth in our supply sales from our large installed base.

As a reminder, U.S. pumps are our highest gross margin product, followed by OUS pumps and then overall consumables. Pump sales were 59% of worldwide sales in 2021 compared to 63% in 2020.

Our fourth quarter gross margin of 54% was essentially flat compared to the same period in 2020. We continued to drive product cost savings through the end of the year, but these benefits were partially offset with increased costs associated with global supply chain challenges that we began to incur within the period. Additionally, both international sales and supply sales represented a higher percent of our overall sales in the fourth quarter of 2021 as compared to 2020.

Looking ahead to 2022, we expect to achieve an annual gross margin of 54%. This is in line with 2021 due to increased material and freight cost expectations, which we anticipate will continue to be a burden in 2022.

We are continuing to drive our cost-saving programs to offset these cost increases to the extent possible. We view this as a more temporary impact to the business and remain confident in achieving our long-term goals while managing these near-term cost pressures.

We expect to achieve gross margins of 65% by 2027 with incremental progress across the years from scale and cost-saving initiatives, but more significantly in the future from new product introductions and reimbursement initiatives.

Our 2021 operating margin of 3% marked another milestone achievement for Tandem, which was the first time that we reported a positive operating margin on a full year basis. By comparison, our operating margin was negative 2% in 2020. This is meaningful as we continue to demonstrate progress on the path to achieving our long-term profitability objectives.

We continue to view our adjusted EBITDA margin, which excludes noncash stock-based compensation, as the appropriate metric to measure our near-term profitability progress. That margin improved 2 percentage points to 14% in 2021, reflecting expansion in line with our gross margin improvement year-over-year.

We took a more significant step-up in our R&D investments in the second half of 2021 to drive our pipeline programs, including hiring of key personnel and commencing a number of clinical trials. Our top financial priority is to invest in product and business model innovations to deliver sustained high revenue growth. These investments will continue into 2022 as we also build the foundation for leverage in the long-term.

We anticipate our full year adjusted EBITDA margin will be in the range of 14% to 15%, and that we are well on track to achieving our long-term operating margin goal of 25%.

Our cash and investments substantially increased by $139 million in 2021, ending the year at a balance of $624 million. We believe we are well-positioned to make the necessary investments to execute on our strategic plan.

To summarize our 2022 outlook, worldwide sales are estimated to be in the range of $845 million to $860 million, including sales outside the U.S. of $215 million to $220 million. We estimate gross margin for the year to average 54% and adjusted EBITDA to be in the range of 14% to 15% of sales. Our noncash charges for stock compensation, depreciation and amortization are expected to be approximately $90 million, included as components of both cost of sales and operating expense.

In conclusion, I am proud of our financial achievements and overall execution in 2021 that were made possible by the efforts of our amazing employees. Tandem is positioned to break records again -- once again in 2022 as we continue to carry out our mission by bringing the benefits of our solutions to more people living with diabetes.

With that, I will turn it over to the operator for questions.

(Operator Instructions) Our first question comes from the line of Chris Pasquale of Guggenheim.

Congrats on a nice finish to a strong year. Wanted to just drill in on the renewal opportunity, something that should be a big driver for you guys over the next couple of years. It would be great to just get an absolute number of what you think the renewals were in 2021? You gave a lot of details around rates, but it would be great to have a baseline there.

Sure. Thanks for the compliment, Chris. I'm happy to talk to you today. So with regards to renewals, first of all I'd say that, yes, it's becoming a growing opportunity, which will be much more meaningful in the coming years. For 2021 and even again for 2022, the vast majority of our pump sales will still come from pumpers new to Tandem.

We have made great progress, though, and it's not that we aren't renewing people, it's just that the opportunity volume hasn't grown as much. So in 2022, it's going to increase by about 30,000 new opportunities, which is where we'll really start to see more contribution. But it's pretty back cash-loaded. So you can think about it as more of a 2022 and into 2023 opportunity. And just to give you maybe a little more perspective on that breakdown, you can think of the new pumpers as still being more than 80% of what we shipped in 2021.

Okay. That's helpful. And then on margins, flat gross margin '22 versus '21, maybe not too surprising given some of the cost pressures the industry is dealing with broadly. But it was good to hear you reiterate the long-term goal. Just curious on the drivers there. How much of it is dependent on new products? How much of it is dependent on reimbursement, which is a little bit out of your control, as you think about getting to 65% long-term?

Sure. So when you think about it, I usually put it in 3 buckets. What you've been seeing us demonstrate is really the incremental benefits each year as we grow our volumes, leverage our overhead and just keep identifying cost-saving initiatives and efficiencies within the processes themselves. The real step changes will come when we launch new products.

So for example, with Mobi coming, once we get to a level of scale, we've estimated that that product cost should be about 20% better than the t:slim itself. So you can see that's where you'll start to see step changes going towards that 65% long-term goal.

The reimbursement initiatives are more similar to incremental progress like we're seeing on the volume side. It's really about continued competitions with the insurance payers, getting more direct contracts and looking for price increases as we move along, especially as we're using our clinical data to share the benefits that their patients are seeing. So you can think about it within those 3 ways.

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

Congratulations on the terrific finish to 2021. I'm just curious, Leigh, if you could talk a little bit about the assumptions you include in the 2022 guidance. John mentioned, I think, 2 CGM partners, both Dexcom and Abbott, and I'm curious how you think about the impact of G7 and Libre 3? And then whether you've included an assumption about contribution from Mobi in the 2022 guidance?

Okay. Thank you, Brooks. So in terms of guidance, just our overall philosophy is we typically do not include products not yet approved in any of our guidance levels. So to answer your questions on CGM as well as Mobi, those would not be factored into our 2022 guidance at this point. What has been included, though, is the continued enthusiasm for Control-IQ.

It still has not yet reached its full market potential. Even here in the U.S., where it's been around now for 2 years, but especially outside the U.S. border, just starting to roll it out in France and Germany in just the recent months. And so we still think we have a great runway with Control-IQ. And now with the addition of mobile bolus, that gives us a lot to talk about with our customers.

Our next question comes from Larry Biegelsen of Wells Fargo.

This is Nathan on for Larry. Just a question sticking to 2022 guidance. What are you assuming for competition? We just saw Omnipod 5 approval, we also have Medtronic's warning letter and potential impact to their pumps. So what's assumed in your guidance?

Sure. And thanks for the question. So when we think about what's included, I already mentioned Control-IQ, but in particular, we still think we're going to continue penetrating the MDI population and see growth in competitive conversions year-over-year.

As we think about competition this year, we really factored in, I would say, more at the noise level. If you think about it, we're still the leading player in the durable pump segment, which is the largest of the segment. And we don't see a lot of switching back and forth between tubed and tubeless pumps, and so at this point we're considering it noise level like we have seen in the past where new products are launched and sometimes it causes a little bit of near-term disruption.

Okay. That's helpful. And then you previously indicated that you plan on beginning the type 2 Control-IQ pivotal study in '22. Can you provide an update on timing? What do you think you would need to show in the study to achieve traction in type 2? And also, when would you expect the type 2 label and how important is this to you?

Thanks, Nathan. Well, right now, we're enrolling our type 2 feasibility study. And this is something that we've worked with the FDA on to just understand the various segments of the type 2 community and just to test them out in a smaller study.

It turns out that some time -- I would say that probably late next year or early 2023, we would initiate our type 2 -- our pivotal study. It's going to be a large study, and I think that's roughly what we would expect for timing. So I think we're looking at an indication probably in the 2023 time frame.

Our next question comes from Alex Nowak of Craig-Hallum Capital.

With several diabetes approvals making their way through the FDA in the last couple of weeks, are you starting to see the backlog at that agency start to ease a bit here? And then when you take the learnings from mobile bolus, if you document those and then you fold them into Mobi, how are you thinking about what you need to change the Mobi, additional studies that might be needed on the bench side? And then how are you thinking about timing for approval there?

Yes. Good questions, Alex. I would say it's difficult to say, still, as to whether or not the FDA has got additional resources that have come back from just supporting the COVID work that they're involved in. So I think it's we have to wait and see still. I would say that they've been very supportive. They've been -- with the limited staff, and we're very happy and appreciative to get the approval. But it's still early in my mind. And I think we need another quarter or 2 to see if, in fact, things do change there.

When it comes to Mobi, I would say that we have -- we learned a great deal. There was not a lot of new information that came as they did approve the device, which was good. And so I would say that right now, we're -- we've essentially -- we've incorporated the learnings from the questions that we received last year into Mobi at this point in time. And we've really transitioned from a development mode into more of a testing mode.

As I've indicated, we're involved right now in the largest -- some of the study that we've done for human factors testing, we did at least 15 -- at least -- maybe 15 or 17 formative studies leading up to it. So there's a great deal of experience, and we're comfortable with the results. But it's a very complex study. It's going to take several months. It's going to be involved -- multiple cities will be involved, multiple types of segments within the diabetes community will be involved. So it's a long and extensive study.

And so that's really -- we have to finish that. There's also additional verification validation studies and testing that we have to do inside the company. So I think that puts us to a summertime submission. And we feel real good about that.

Okay. No, that's helpful. And then with -- outside the U.S. just becoming much more important to the company here, can you just give us an update on where you stand today as far as your pump versus the installed base of pumps out there, the share of new pumps being placed outside the U.S. market? And then just how has Medtronic's 780G launch there changed the sales process for you?

So I'll start with a little bit on just color of where we stand today. If I understand your question correctly, and please correct me if I'm wrong here, when you think about where our business is coming from, it's much like the U.S. where there's a high level of competitor conversions coming our way as well as people new to MDI. So we continue to penetrate those markets, and we're especially excited about Control-IQ and the great demand that we're seeing and interest in that product as we look forward.

And then if Brian wants to talk a little bit about the selling environment as it relates to 780G out there today.

Yes, I think as we see here in the U.S., we see the power of Control-IQ in our international markets as well, and we really haven't seen a dramatic influence or shift from that product in the markets where we compete against it today. So we feel pretty good about it. We certainly have a lot of visibility with our partners. We have great relationships with our partners, and we have balanced growth across all the regions we're in right now. So the early indications are Control-IQ is doing very, very well.

Our next question comes from Steve Lichtman of Oppenheimer & Co.

You saw a solid 4Q, so obviously able to overcome COVID headwinds. I was wondering what kind of impact you did see from COVID in the quarter and what you're seeing as the year turned, and as you mentioned, John, COVID cases have started to come down?

Yes. I'll take that one. This is Brian. It was an interesting year for sure. And I think the best thing we can probably say is we remain cautious because we've kind of been here before. I said in my earlier statement, very proud of the team and the work they've done over the last few years. And in Q3, we saw things kind of open up, but it was characterized by almost an extended holiday or vacation period. And then as we moved into Q4, and we had a lot of optimism, the new variant came and it began to change access for us to our patients and our health care providers. We first saw it in Europe and then we saw it here in North America. So we kind of migrated back towards our remote model in many regions. And frankly, we were pretty good at that.

The difference in Q4 was we saw a lot of COVID-19 positives at that point. We saw it with our health care providers, we saw with some of our patients. And we saw internally here with our staff, internal and external, and our partners. So it was just an odd quarter to kind of navigate through. We did so successfully. We certainly hope that it moderates now and we head into some clearer waters in 2022. But again, we are cautious, I would say....

Yes, I think there's still uncertainty as we move into this year, and we'll just have to keep our eye on it.

Got it. And then also on the commercial organization, what kind of tailwind could the expanded sales force provide in '22? You had a nice growth in the commercial team. Is it getting you into new regions you weren't in before? Or more about going deeper? And will we see a material benefit from that expansion '22? Or is that more meaningful in '23?

Well, I'll start with the purpose behind it. One was to reduce some of the workload on our existing staff, because they were simply getting a lot of patients to handle in their current territories. So going from 95 to 110 was to ease a little bit of that burden. But then that allows us to do exactly what you said, go a little deeper in our existing accounts and also get out to see some additional accounts that we may not have spent as much time with.

So we opportunistically look for those areas where we're just getting a little bit too large and we may not be doing all that we could be doing in that area. So this allowed us to rightsize the sales side in the clinical side a little bit. And I do think it's certainly going to provide some benefit for us this year. And our folks are very happy to get that relief.

Leigh, if you want to talk any further to that?

That's great.

Cool.

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

So just to put a little bit finer point on the potential tailwind on the Medtronic side of things. I think they've said $200 million to $300 million is the impact they expect this year just using the midpoint of that. $250 million -- I think around half of that is insulin pumps and supplies. And I'm assuming a majority of those folks are into durable pumps. So as I look, Leigh, at the domestic guidance, it looks like you're only factoring in, I don't know, somewhere in the $10 million to $20 million range from that tailwind. Are those numbers kind of ballpark? And then, I guess, why be so conservative with the potential tailwind on the Medtronic side?

Sure. Thanks for the question, Matt. So we haven't actually quantified, obviously, how much we're thinking about it. But I guess one point to make is we were coming into this year. I think many people thought that our competitive conversion opportunity was going to go down, where in fact, we still expect that it will increase this year and maintain that same healthy balance of new pumpers coming from MDI and competitive conversions.

So we still think the opportunity is strong. But as is our nature, and as we're continuing to navigate the COVID environment, we're going to be cautious initially until we see continued trends that might suggest otherwise.

Okay. So there is some conservatism built in based on what you've seen from Medtronic so far?

That's correct.

Okay. And then on the competitive side, is -- the Control-IQ momentum that you have, is a form factor enough to really dislodge a bunch of existing patients or even new to pumping patients heading into the full launch of (inaudible)? Or do you need to see real-world data for a year kind of post-full approval? Or is the momentum so strong with C-IQ that it's really going to be difficult to slow things down from a momentum perspective in terms of what you've got going?

I'd say briefly, we're really comfortable with our position and certainly where we sit right now. The competitive messaging that's out there is it's early to tell. We certainly haven't seen a reduction in our pipeline and these phased rollouts. We'll surely learn more over the coming periods here. But boy, Control-IQ and the outcomes that we've seen for Control-IQ continue to be a real positive for us, launching mobile bolus is an exciting opportunity for us to get in to visit our accounts. The product pipeline certainly leads to great things at the end of the year and into next year. And the services we provide in our infrastructure we have in place, I think, puts us in a really good spot.

And Matt, I'd just add to that, that the -- when you look at the algorithms themselves and you look at the results, there's really -- there's not a whole lot of significant differentiation. I would say that it's some convergence if anything. And there's more to it. We really do believe form factor is important.

And when you look at our pipeline, we've got Control-IQ and t:slim doing very well today. We've got Mobi filing here shortly. We've got additional sensor partnership integrations, which I think are really going to give us a sales boost as well with this new technology. And then we've got X3, we've got Mobi tubeless and we've got patch here in the next 3 to 5 years. So I think that we feel very well-positioned to compete.

And as Brian said, there's not a lot of information out there right now. We're going to have to wait and see what happens. But we feel in a very strong position to compete with the other element -- other players in this market.

Our next question comes from Matt Taylor of UBS.

So I did want to ask one follow-up on, you mentioned that you're baking in some conservatism to the international guidance. Maybe just talk about what you're seeing, how conservative you're being? And what's the FX number that we should be using for international?

Sure. Matt, so I'm actually going to let Brian talk about the environment a little bit because I think that helps explain better the caution that we're putting into the guidance. But I'll take the simplest one first, which is we have very little FX exposure. So nothing to speak to in terms of -- from a materiality perspective.

We have great relationships with our partners. We have great visibility to the work that they're doing. And again, we talked about the balance of just growth across all of our regions. It was an interesting end to the year. As we prepared to launch Control-IQ in Q3 and into Q4, especially in our newest geographies, we encountered several factors that made it quite complex. One was the unknown demand. These were large markets that we were going into, specifically, France and Germany. They're newer partners for us. There's different distribution models in those countries, which makes it even more complex and one of the reasons they were a little bit later in our launch cadence, and there were some really unique supply chain issues that hit us in Q4, whether it was by air or by sea, it was hard to get things out the door and on schedule over there.

So there's plenty to learn from Q4. The good news is the demand for Control-IQ continues and the variability that we're experiencing should take care of itself as we move into the middle part of the year. And as we talked about, the competitive environment remains fairly strong in our position right now. So I remain pretty bullish on what we're doing.

Our next question comes from Danielle Antalffy SVB Leerink.

Can you hear me okay?

Yes.

We can. Thanks, Danielle.

All right. So congrats on a strong end of the year. And just a question on where we are with penetration today. Leigh, I think you've mentioned that something like double the number of new patients started on pump therapy this year versus 3 years ago. How are you feeling about your long-term sort of target out there for pump penetration in type 1 based on where we exited the year? And then one follow-up on international.

Danielle, I'll go ahead and take that. I mean, I think we feel very positive about continued pump penetration. And it's not just being driven by Tandem, but when you look at the diabetes medtech community in general. There's been a tremendous amount of innovation that has occurred over the last couple of years, and there's more innovation coming. And I think that it's all intended to just reduce the burden of diabetes.

And we believe that ease of use drives adoption. We've stated specifically that we think we can get to 60% to 65% penetration. And when you look at our pipeline, we think we've got innovation that's going to continue to drive that as well as our partners and competitors. So we think it's a number that's -- it's going to continue to expand.

And as you said, we've seen aggressive growth in MDI penetration in the last couple of years. We expect to see it to continue to happen. And not only in the U.S. markets, but also OUS as we bring this technology to the Europe and other countries that we're in today. We think it's going to happen there as well.

Well, you've [programmed] my question, John. That was -- my next question was going to be in the -- some of these major international markets, where -- what the incremental, maybe that's a better way to think about it, incremental runway for penetration is versus where we are today? And what's going to drive -- what are going to be in the markets to drive you over the next few years internationally?

I mean, I think the factors are the same. The same factors that are affecting pump penetration improvements in the U.S. are going to occur OUS. And I would say right now, our numbers would suggest that the pump penetration in the markets we're in today is approximately 5% to 10%, and we think that can probably double, maybe more than double, in the next 3 to 5 years.

And that's also -- it's a much larger market. As you know, in the States, it's approximately 1.7 million or 1.8 million people with diabetes. In the markets we're in today, it's 4 million. And so as we make improvements in the pump penetration there, it's a much bigger number for all of us to participate in.

Our next question comes from Jayson Bedford of Raymond James.

I have a few questions here. So maybe for Brian, you mentioned over 70,000 folks adopted pump therapy in '21. Just embedded in the guidance, what's the expectation for that number in '22?

We haven't given a specific number other than we think that our ability to penetrate the MDI population will continue to increase in 2022. So the drivers that have made us successful so far are still there. It's more MDI patients coming our way. It's more competitor conversions, and it's an increase in the number of renewals that will ship this year.

Okay. Okay. I guess just on the renewals, you mentioned an incremental 30,000 coming due, I think, in '22. Can you just update us on the actual number of renewals either exiting '21 or '22, if we can back into to one of the years? But what's the actual number of renewals out there?

Sure. What we actually achieved by the end of 2021, there's more than 65,000 people whose warranties have expired over the years since the beginning. And we have renewed a significant portion of those.

And so what we're looking at as we go forward, I think one of the things to think about is the information we gave today on where we exited 2021, which is that nearly half of the people whose warranties expired in 2021 have already renewed. So you can think about that as you look forward into 2022 and what that additional 30,000 opportunities might provide for us. And 2021 is not done and 2020 is not done. There's still people coming from way back that will continue to be renewal opportunities as we look forward.

Okay. So I had a number of about 60,000 exiting '22. Is that in the ballpark for cumulative renewals?

Sorry, I don't think I -- yes, I don't think I gave you that specific metric. Of the more than 65,000 customers, 60,000 have renewed by the end of 2021. I mean, sorry, 60% of them, sorry.

I was going to say, wow.

I know.

Okay. That's helpful. And then just in terms of mobile bolus in Europe, can you just talk about where you are, your thoughts there and then maybe some of the challenges of introducing such technology in Europe where I think they have stricter laws around privacy?

Yes. Great question. When you looked at the results of that, you can see about 1/4 of our revenue came from OUS. And I think that we've quickly become an international company. And I think that we need to structure our product pipeline so that it also represents and provides this technology and innovation to the OUS countries. So we're absolutely committed to providing mobile bolus and Mobi and all of our products OUS. It's something that we have to do.

I think you're right, there's some complexity. But right now, as we've talked about in the past, we are rolling out Tandem Source. Right now, it's in the U.K. in a, I guess, early release state, and the intent of Tandem Source would be to integrate with mobile technology. And so it's definitely something that we have on the road map. We just haven't been very clear yet, intentionally, about what the timing is, but I think that will come in time.

And so mobile bolus in Europe is more of a '23 dynamic than '22? Is that fair?

I mean I'd say that's a fair thing to say, yes. We haven't been clear-- that clear about it. But I'd say it's fair.

Our next question comes from Jeff Johnson of Baird.

John, maybe one clarifying question for you and then one pump volume question, modeling question for Leigh. But on the clarifying side, you talked about ACE pump submission for Mobi maybe middle of -- mid-summer or summer of this year, I think you said.

Yes.

Is there anything with an ACE pump submission that would think -- that would make us think that it's more than kind of a typical or less than a typical 6-month 510(k) review pathway? I mean, I know COVID has created uncertainty around review timelines, but historically we think a 510(k) is about 6 months. So is that fair with a Mobi submission, so maybe a late '22 or early '23 kind of a potential approval time line is a way to think about it?

I think that's very fair prior to COVID occurring, but right now, I think that it's still -- I think the jury is still out as to how much additional resources diabetes group at the FDA get in the next couple of months. We hope that things return to normal by that time because we'd, of course, like to get the product on the market as quickly as possible. But I think there's this inherent uncertainty in their resource and staffing levels at this point in time. But we're going to have to wait a little bit more time just to see how it plays out.

Okay. So ex FDA assumptions, in ACE pump kind of that typical 6 months is fair -- is a fair way to think about this.

Yes. Exactly. Yes, it is, yes.

Yes. Perfect. And then, Leigh, just from a pump volume standpoint, I know you don't guide to pump volumes, but I'm going to ask a question around that anyway. When I look at your U.S. pump volumes in the first half of this year of '21, they grew over 30%. In the second half, I think they were up upper single digits. Is your guidance for '22 kind of implying somewhere in between there, comps ease, hopefully COVID falls off a little bit, so maybe pump volumes in the U.S. grow somewhere between the second half and the first half of '21? Is that a reasonable guesstimate for the year?

I think it's challenging to take the growth rates in 2021 and apply any sense of normalcy to it. If you think about really what was happening in the base year of 2020, COVID had the most significant impact in the first half of that year, and in the back half what we were starting to see was we were actually starting to feel optimistic at that point, and it seemed like things are getting back to normal and maybe a little bit of that pent-up demand for the first half of the year was coming through.

So that's why the growth rates in 2021 probably are maybe a little bit unfair. But thinking of somewhere in the middle, I think, makes sense for this year. We look at it as more the terms of the seasonality curve and where you come off of that launching point with pump shipments in the U.S. usually being in the high teens as a percent of the year and in the fourth quarter, just kind of depending on -- it might vary in years where we have product launches, but anywhere in that 30-plus percent range.

Our next question comes from Josh Jennings of Cowen and Company.

This is [Brian] in for Josh. I have 2 longer-term ones on the tubeless opportunity that's in the pipeline. First, a competitor today revealed its intention to commercialize a patch pump. Since this comes after the R&D Day, does it in any way change your views on Tandem's eventual opportunity in the patch market segment?

Not at all. In fact, I think we were aware of the investment that they had made in the company in the past. And it's not surprising that they're considering doing this. Yes, so it's not a surprise. And it doesn't change -- it doesn't change our own decisions and our strategy of moving forward with products that support both tubed and tubeless segments.

Okay. And my follow-up is just, generally speaking, can the U.S. regulatory success you're accruing for tube pumps be leveraged to streamline the FDA process for the development of a patch pump, or are those 2 very distinct realms for the agency, tube pumps and patch pumps? I'm thinking about -- yes, I was going to say I'm thinking about factors like the size of a pivotal trial? Or are we just too far out to know the exact scope of work there?

Well, I would say that when it comes to actually working with the FDA on these filings, we have a great deal of experience with it. We've been doing it now for many years. And we understand the types of data and the depth of the analysis that we need to provide. So I think our team is very experienced when it comes to these sorts of filings.

I'll also say that the entire initiative of interoperability benefits us. And I don't think that they have distinguished whether or not it's a tubed or a tubeless pump when interoperability comes to play, because one of our competitors does have the ACE pump designation for a patch pump. So I think that the regulatory landscape is not going to impact us one way or the other. We just have to continue to produce well thought-out analysis and justifications for the technology, and if we do that, I think we will continue to be successful.

And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.