Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the tandem diabetes care third quarter 2019 earnings conference call. At this time, all participants' lines are in listen only mode.
After the speakers presentation, there will be a question and answer session last question. During the session. You want me to press Star one on your telephone please be advised that today's conference is being recorded.
If you require any further assistance please press star zero.
I'd now like to hand, the conference or your speaker today, Ms., Susan Morrison Executive Vice President and Chief administrative officer. Thank you. Please go ahead now.
Thank you good afternoon, everyone and thanks for joining tabs third quarter 2019 earnings call. Today's discussion will include forward looking statements. These statements reflect management's expectations about future events product development timelines and financial performance and operating plants 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 and our most recent annual report on Form 10-K quarterly report on Form 10-Q and in our other FCC filing.
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 to make strategic decisions for the allocation of capital. Please refer to the Investor Center of our website for further information.
Today's call participants include Kim Blickenstaff, our executive Chairman, John Sheraton, President and CEO and leave off where executive Vice President and Chief Financial Officer.
Following our prepared remarks, well open the call up for questions. Yeah. Appreciate everyone limiting themselves to two questions before getting back into the queue I'll now turn the call over to Kim.
Excellent and welcome everyone to todays call.
Our third quarter results once again demonstrates severance effect algae reduces the burden of diabetes it drives customer adoption.
Scott. So that's why we have a meaningful long term opportunity to continue bringing the benefits of insulin pump therapy, the people with diabetes World War.
As we've discussed historically insulin pump conversations is not exceed 30% in any other countries. We are really with the greatest inflation being too I mean I'd say.
Because of this larger Susie.
Sorry, 2019, we got expectations at least 40% Europe for your sales group, which was well above most of all high growth but to Sears.
We thought this year's group would primarily be driven by capturing a fortune before for people with offering from therapies for the first time.
What was a portion of the current views are eligible for reimbursement, which would benefit from the animals conversion opportunity.
In addition, we anticipated additional momentum from our international launches Eastland mix too and the domestic launch will be Faisal likes you took soldier.
Looking back over the year, we've experienced shrink that each of these key areas well, achieving nearly 100% growth based on 2000 lighting sales growth.
We also continue to benefit from multiple tailwinds at about.
The number of people choosing from surface. The first one for multiple daily injections continues to be strong and represented about half of our new close to loosen quarter.
Conversions from other people then factors remain similar to what we saw left sports as far as the breaks out of wichmann, such as opposed to force painful.
Renewals for stealing it will be a continued tailwinds. It was our installed base grows.
Nationals Awards under penetrated markets. We're just very early stages of bringing the benefits. It seems like you've technology to these markets and finally or new product pipeline, just deep with innovation and we have planned for studies cadence of new offerings in the upcoming quarters in years.
So that and we were actively preparing for domestic launch with the T. Slim that's true.
Control acutely felt withdrew following FDA approval, we expect this would be the seventh insulin pump we launched within the last several years demonstrating that we are delivering upon our commitment to rapid innovation.
Over the fourth insulin delivery system that we've successfully integrated with a dexcom CGM sensor.
Historically future or product launches the bus sales catalyst for the company.
And control like you approval, we will be launching the most advanced insulin delivery system available in the world.
This is a remarkable accomplishment for any company, particularly for Waterboard size and history.
Further contributing to our excitement in anticipation of the approval of control like fuel is laughable publications pivotal clinical trial data for the control like Q system in the new England drilled most.
Widely believed to be the most prestigious peer reviewed medical journal publication underscores a meaningful improvement in clinical outcomes demonstrated to be usibor control like fuel system in the study.
And the opportunity remains for additional publications that speaks the positive psycho social benefits that people have reported from using the system, including desire to continue to use the system ease of use usefulness and trust.
We believe the new England Journal publications, and the corresponding editorial will be invaluable our conversations.
Well missions at war with payers. So if you.
I've seen the new England Journal publication serve as an inflection point for companies and transform their business by establishing the product is a new standard of care.
It is our vision for automated insulin delivery systems and the goal for control like you took out.
Strategically we're maintaining our focus on key elements of the business that will position us for a longer term success.
This combined with the continued strength of the catalyst that have driven our growth in 2019 gives us confidence in our ability to continue delivering meaningful long term growth that outpaces other typical high growth medtech companies.
I'll now turn the call overdraft.
Thank you Kim third quarter was a solid demonstration of a steadfast execution on the part of our employees commercially our focus was on continuing to share the features and benefits of our T. Slim next to platform well internally, we were optimizing our scalability uppers and preparing for the watch a control like you.
Excitement is obviously higher on tandem as well as across the diabetes community for our country why Q approval. There are no concerning issues that we're working through with the FDA and at this time, we are engaged with them in a routine interact to review process for the approval of the system for people, aged 14 and above.
Our pediatric trial, that's intended to lower the age indication for control Q2 people ages six and above is now fully enrolled and we are on track for filing are supporting regulatory submission in the first quarter of next year. It's important to note that we cannot market control like he went to following FDA approval Nonetheless awareness of assist.
Has been building since the initial presentation of the data at Ada in June among the thought leaders health care providers and people with diabetes.
Because of this we have increasingly heard from a top prescribers that people are waiting until control like he was approved to purchase the new pop despite our offering of no cost software updates to the tandem device updater. This pausing with a real dynamic that we experienced beginning in the third quarter and has continued into the fourth quarter.
Following approval will be ready to take control like you orders and begin working with customers through the insurance and prescription verification process. Our launch plans include taking a few weeks following approval to educate healthcare providers of my features and functionality of control like you before shipping new pumps with control like you and with an unique features.
The tandem device updater offering this new software to our existing T Slim next to customers.
We recently pulled together our steel sales and clinical teams to provide training I can draw like you in the excitement in these sessions was incredible we started 2019 with approximately 70 territories in the United States and based on demand have increased our scaling efforts to have 90 territories by early next year.
In the past, we've discussed tenants commitments relentless innovation as being first fast smart and customer focused with control like you I believe we are well positioned to deliver on each of these initiatives.
The current with the launch of control like you will also be the launch of our new mobile application, which is particularly exciting as is the foundation of our digital health strategy. The first generation of the Apple benefit patients by allowing their TCIL next to to wireless sleep upload data from their pump and CGM to our ticking up data management application. This.
Feature as it takes away a manual step for our customers and their health care providers of having to upload pumps through U.S. be in order to track and see trending information.
In the past we've discussed how in addition to the customers tenants also focused on ways to improve the full diabetes ecosystem.
This app will be evidence of that effort as it as the wireless upload feature is a significant benefit for health care providers by helping to improve their office sufficiency and stream streamlining visits.
HCP is commonly share that they waste meaningful office time accessing data from the different insulin pumps. Each day with this launch of our new App, we will be offering the first wireless solution to address this issue.
Well our focus domestically is on the pending approval and launch of control I Q internationally excitement is building for base like you, which is now available in half the countries that we are in outside the United States.
In addition to selling new pumps with based like you included we're also offering based like you to existing customers. Following our recent international launch of the tandem device updater, which is another tandem first.
Not surprisingly we are already hearing the same overwhelmingly positive feedback from people using based like you outside the United States as we do in the states as the early feedback begins to spread to existing geography, and as we launch in additional countries. We anticipate that strong adoption of days like you will be a catalyst for international business in 2020.
Further contributing to our future international growth is the expansion into three new geographies, Germany, France, and the Benelux countries. We've recently signed agreements with experienced distributors, who service these regions and look forward to bringing the benefits of the T. Some next to do more people around the world beginning in early 2020.
Well, that's our confidence in excitement at tandem is that right behind the domestic launch of control I Q in our new App and the international watch a base like Q is a rich pipeline of even more innovation that are being designed to further reduce the burden and improved the lives of people living with diabetes.
Our next generation automated insulin delivery algorithms or an active development and focus on customization and even greater ease of use to continue progressing towards our ultimate goal of offering a fully closed loop system.
Next calm continues to be a trusted partner in our automated insulin delivery efforts and we look forward to bringing new innovations to market with them by integrating future technologies.
We recently announced that we intend to develop and commercialize integrated diabetes solutions that combined habits next generation glucose sensing technology with our insulin delivery systems to provide more options for people in managing their diabetes. There are a number of steps in finalizing. This agreement we look forward to doing so in advancing the product integration activities.
As we look to the near term our efforts in 2020 will focus on T. sport and new meaningful features for our mobile App. We are sharing a timeline for the different features we plan to roll out through our mobile application for competitive reasons, but we intend to offer a steady cadence of new features and enhancements, which with new feature rollout slated.
For the second half of next year.
This leads to our next main pipeline initiatives in 2020, our T. sport insulin delivery system hardware design for this pump is now final and we're currently in active software development, we intend to submit the pump which is about half the size of the T. Slim for five 10-K clearance as an alternate controller enabled pump in the summer of 2020.
We continue to develop the software to control team sport and two parallel paths. The first of all our full T. sport control through a mobile application and the second is via a dedicated device for people, who want the size and discretion and benefits of T. sport, but for to keep their therapy management device separate from their mobile app their mobile device.
We are in the process of understanding from a development commercial and regulatory perspective, the timing of the offerings of both options and we'll keep you posted as decisions are made.
From a manufacturing perspective, our first T. sport Carter's line is on order and what's particularly exciting as they we also expect that our new T. Slim automated cartridge manufacturing lines will be capable of being converted to manufacture t. sport cartridges.
This opportunity for incremental benefit from the uptake of T. sport and potential cannibalization of T. Slim next to buy two sport is difficult to predict but this is the type of creative solutions that provide us the flexibility as we grow and scale our business.
In the past we've discussed our manufacturing capacity as a key scalability initiative for the company.
Earlier this year, we order threeq, new automated cartridge lines and have been evaluating housing them near our corporate headquarters in San Diego or outsourcing elsewhere to a third party.
Recently after completing through diligence efforts, we have made the decision to utilize a highly experienced manufacturer for the latter. We're currently in the late stage of negotiations with this firm and expect to have more to share on this in the near future.
Well cut spending factoring only makes up a small portion of our revenue utilizing a contract manufacturer is an opportunity to gain leverage in this area of our operations and provide flexibility for future growth planning. This expansion of our manufacturing capacity has been ongoing for the better part of this year and we expect this additional capacity to come online in Q1 up.
2020.
We will continue to run our manufacturing operations concurrent in San Diego and we expect this arrangement combined with a new manufacturing equipment will double our existing manufacturing capacity and provide us flexibility to scale the business as it grows.
Equal to our dedication to relentless innovation is our commitment to revolutionary customer service.
As we discussed in our last call internal sales support and customer support teams have needed to increase to support our growing installed base. As a reminder, we direct we directly support our U.S. and Canadian customers well, our international dispute distribution partners sport our customers in other countries.
The ease of use of our technology has it been a big factor and allowing us to manage growth in these organizations and we've also been investing in the solutions overall will allow us to grow our sales faster than the support resources that being said, we have invested and we'll continue to invest in these groups as part of our mission to deliver world class customer service.
Our temporary office in Boise, Idaho is dedicated to supporting many of the positions at scale with our customer base, just customer technical support and insurance verification and this office is now fully operational the speed and efficiency at which we were able to identify the location hire and train talented individuals and operationalize. The facility is unheard of in our.
Industry.
It also confirmed that we pick the right location to build these operations and we are in the final stages of identifying a more permanent facility in Boise that will further allow us to leverage the business and provide flexible and continued growth in 2020 and beyond.
Our ability to quickly operationalize the book the Boise facility is really a testament to the hard work and perseverance of our employees and their commitment to providing world class service to our customers.
We have but we have begun to see certain call metrics, such as customer wait time increase and now with Boise online, we've already begun to see meaningful positive improvements.
Overall, the third quarter was straightforward and that we met or exceeded our goals across the organization.
Control acute approval pending itself to be an exciting and to what was already been an incredible year.
As we look to 2020, we expect the benefit of having control like you on the market domestically and based like you in the market internationally for the four year diabetes is large and growing market and we fully intend to continue building our market share by bringing people, new and innovative products that reduced the burden of diabetes by implementing solutions that Ben.
The health care providers, who care for our customers and by demonstrating the value of our offerings to payers who support them.
I'd now like to turn the call really for an additional color on the quarter as well as guidance for the rest of the year.
Thank you John and good afternoon, everyone at 95 million in worldwide Steel Q3 marks the third quarter in a row with greater than 100% sales growth year over year.
It is primarily driven by pump shipments, which exceeded 17800 in the third quarter.
Based on continued to strengthen the business we are narrowing our guidance range for worldwide sales to be 358 million to 365 million, which on the high end is nearly double our 2018 sales of 184 million.
The U.S. market remains strong with a total of 13800 pump shipments in the quarter. This is an impressive 87% increase over 2018, resulting in 79 million in total domestic sale.
Also included in the quarterly parts shipments were approximately 2000 renewals, which continue to scale at a steady.
We have now cumulatively really renewed more than 12000 customers out of approximately 24000 opportunities and total.
Of those opportunities warranties for nearly 15% did not expire until third quarter at this year.
In mind that there is often lack from the actual data warranty expiration to the timing, which a customer chooses to make our next purchase.
We're still seeing renewals for 2016 in 2017 warranty exploration in recent quarters.
Overall, we estimate our domestic in warranty installed base has grown to nearly 107000 people.
On a sequential basis, our U.S. pump shipments grew 8%, we're highly confident that the approval of control like you will be an inflection point in our sales what's available similar to what we've experienced with new pump launches in the past.
This relates the guidance our philosophy is unchanged, we only factoring the things we can teach can control.
Do not factoring new products benefit prior to the football.
Based on the strengthen our sales today and factoring in continued piping pending the availability of control like you. We are confident in our domestic sales expectation and are narrowing our guidance to a range of 300 million just 305.
Which represents approximately 75% year over year growth on the high.
Our international sales in the third quarter were 16 million driven by 4000 pump shipments we were very happy with the strength demonstrated in our sales as this was the first quarter that our distributors attention was not primarily centered on the conversion of animist customers.
The remainder we also experienced an outright performance in the second quarter due to the 8 million dollar fulfillment of backlog for 2018.
We now have an international installed base of nearly 22000 people. We are proud of achieving this level of presence while scaling rapidly over the past year by comparison. It took nearly three years to reach a similar size installed base and a much larger U.S. market.
The enemies opportunity provided valuable kick start to this business and word of mouth is beginning to spread about the features and benefits of the T cell next to among the diabetes community.
In addition, our distributors focus has turned to the launches at both based like you and the tandem device updater. These new product launches plus the underpenetrated nature of the countries. We are currently yen gives us great confidence in our international sales expectation.
However, not unlike the U.S. this new product watch may cause a temporary impact our sales patterns in Q4.
The expectation of the impact is reflected in our guidance for the year, which we have narrowed to 58 million to 16.
We believe there's a meaningful longer term opportunity outside the U.S. when you combine the opportunities today with a three new geographies, where we are preparing to launch in early 2020.
We now have approximately 129000 customers in our worldwide installed base based on the number of customers you have purchased a pump in the past four years.
We experienced a 105% year over year increase into play sales in the third quarter based on this continually increasing installed base.
Overall comp sales represented 67% of total sales followed by infusion sets at 22% and cartridges at 11%.
Gross margin remained strong at 54% in the third quarter compared to 47% in the prior year as we continue to benefit from increasing sales and higher manufacturing volume.
This is consistent with our gross margin performance in the second quarter with similar sales level.
As John discussed, we continue to focus on and invest and the expansion of our manufacturing capacity to meet the rapid uptake and demand.
We are maintaining or 54% gross margin expectation for the full year keeping in mind that we make screens pressure from other factors such as geographical mix variability in noncash stock based compensation and the royalty associated with the launch of control late Q.
Cost of sales also includes noncash stock based compensation expense at a rate of 2% to fail.
Similar to your gross margin adjusted EBITDA remained consistent with the second quarter at 13%. Despite continued investments to scale the business.
Is the significant improvement over the negative 10% adjusted EBITDA in the third quarter at 2018, which was the last negative quarter, we reported.
Operating expenses were 57 million in the quarter, including 15 million in noncash stock based compensation, which compared to operating expenses of 38 million in the prior year, including only 9 million in stock compensation.
The growth year over year aside from stock compensation was primarily associated with investments in our operating structure, including advancement of R&D initiatives increased number of customer support personnel and facilities expansion.
As a result, this focus on leverage ever operating structure, we are increasing our adjusted EBITDA outlook for 2019 to a range of 7% to 12% of sale.
Our total cash and investment balance increased by 28 million. This year to 157 million at the end of the third quarter. This includes 18 million benefit from employee stock plan.
We have previously guided to the fact that we began generating cash from operations in the second half of 2019.
Our strong sales growth combined with our measured investments in the business allowed us to already achieved that goal on a year to date basis.
To summarize our 2019 outlook our worldwide sales are estimated to be in the range of 358 million to 365 million, including international sales of 58 million to 60 million.
We expect gross margin for the year to average, 54% and we now expect adjusted EBITDA in the range of 7% to 12%.
Our non cash charges for stock compensation and depreciation and amortization are expected to be approximately 60 million included as component that both cost to sales and operating expense.
2019 has been an incredible year, so far as we anticipate nearly doubling sales compared to 2018 based on the performance of days like you enter international expansion effort.
Today, we are focused on closing the year strong while we prepare for another exciting year in 2020 at the many growth catalysts, we discussed today, including a large and underpenetrated insulin pump market are scaling renewal the international opportunity in our much anticipated country like you launch habits on track to continue fulfilling our mission to improve the likes of people with diabetes.
Worldwide.
With that I will turn it over to the operator for questions.
Ladies and gentlemen to ask a question you will need a press star one on your telephone to withdraw your question press the pound AG in the interest of talking we ask that you. Please on yourself to two questions. Please stand by what we compile the kuni roster.
Our first question comes from Brooks O'neil with Lake Street. Your line is now over there.
Good afternoon, congratulations terrific results.
Just curious.
John .
Mentioned.
Pause during the quarter in the context of what I think was continued very strong sales growth. So could you. Just described how you see that manifesting itself in the marketplace and perhaps could you talk a little bit about the response, you're seeing from endocrinologists around but merely the you.
In response to your product development.
Sure how you doing Brexit nice talking to agree.
I guess the first thing I'd say is that we interact with.
Physicians quite often in our office place and so to our sales organizations and in the last.
Couple of months, we have heard from them that the Hccs are basically pausing and waiting for control like you to be available and on the market I would say that there's a couple of things that have happened here first of all I think more so than any product. We've introduced the level of awareness for control like he has just been off the charts with the the data presented at.
Okay and the end of the in New England Journal article to really big.
Really big publications and I think that the people were just talking about it and so there is this a lot of awareness out there we can't market right now we basically you can't do anything to market the product and so I think that you know we're in a situation. We just have to wait until we get approval I would say that AC piece are probably waiting because if they were.
To prescribe bays likes you they would have to come back and shortly prescribed the.
Control like you as well so there's probably some pausing just to reduce that burden I think we remain very confident that the technology is going to be approved by the FDA. This quarter and we're looking forward to a very strong 2020.
Great.
That is extremely helpful. I just wanted to ask Li one little detail question I guess.
It looks to be Italy by looking at your tables on your website correctly like you did not add back.
Positive stock award.
Benefit this quarter.
In the past in Q1 in Q2, there was a large.
Expense non cash related towards how did you treat that at the time.
Thank you Buck so actually we did include in our non operating expenses. There was a benefit this quarter of about $2 million for that change and the fair value of those warrants that are still outstanding which is consistent with the way we've treated in the past. The difference. The time is that it was a benefit as opposed to the other periods. It.
Has been next since most of the time. So this year that brings us to about $11 million noncash expense associated with the work.
Okay. So the.
Okay, So 17 million.
No adjusted EBITDA at 12.7 that does include 2 million benefit from the warrants is that right.
That's been excluded from the net loss to reconciled to the EBITDA number.
Okay I got it thank you very much and congratulations great.
Thank you.
Thank you. Our next question comes from Alex Noah.
Michael on your line is no.
Good afternoon, everyone.
I just wanted to touch on the guidance from so I mean, this is kind of attenuation of the last question here, but the guidance is it's implying Q4 sales about 104 to 111 million, that's roughly 30% of full year sales last year. In Q4. It was about 41 Q4 was about 41% of sales in 2017 is 37.
And so I guess I'm just trying to understand why are you assuming a much more muted Q4 here I understand there's some pausing with control I Q launching in the near term, but it looks like you're assuming a pretty big pause in my opinion.
And thanks for the question. So I'll start with what you need to do is are we need to dissect the year between international and domestic that's a major difference between the comparisons for 2017 in 2018. If you recall this year in particular, we had a heavier first half performance from international So if you're looking at on a worldwide.
Basis, It would look as if the percent of sales in the fourth quarter is lower than in the past. So if you pull that out and you look at just the domestic business, you'll see that it's more in line with a normal seasonality corcept leasing and the path.
Okay understood got it and then just staying on that one piece with control like you and the pause there if you had to take guidance and.
Back out and say what that actual pauses what would the guidance look like excluding that pause with control like you.
Good question, Unfortunately were not able to quantified at this time the real answer will come when we see.
Approval country, we're able to start marketing yet we're very confident so that is related to timing as we looked at Q3, we still had a very strong quarter and all of the normal dynamics were in place. We still saw the name same split SMB I versus conversions and we saw animates was in line pretty much with what we've seen the last few years and so it's very clear, especially from the.
The feedback that is due to this causing and as John said, we're very excited when it does comment that with this looks like for 2020.
Okay understood congrats on the great results.
Thank you thanks.
Thank you. Our next question comes from Travis Steed with Bank of America. Your line is no.
Thanks for taking the questions.
The setting a new England Journal and medicine, it seems like a very unlikely United continue denying coverage.
If you can talk about how many patients do not in housing and kind of your confidence and getting that approval.
In 2020.
Sure Stratasys, John I think that.
As we've talked about in the past our number one priority when it comes to pay organizations is really to try to get as many contracts as we can and so we're moving aggressively to try to get our goals from our goal of 50% up from 25.
I think that the other thing that we're really interested in doing is based on getting additional reimbursement for our.
Our advanced algorithms and so I would say that right now we have a and we're having great meetings with the senior levels of these payer organizations and there's a lot of a favorable interaction.
So we are we're excited about moving forward with these with these organizations and we feel positive going forward.
And I'll add to it a little bit of color to the number you ask about the number of United patients. So today. Our estimation is there about 15 million covered lives under United and based on the prevalence of type one in the U.S.. We think that there probably are about 250000 people and their population with type one. So we're looking at those as an opportunity for us when we do you are able.
To secure that agreement in the future and based on that it would appear that about roughly 80000 people. If you use the penetration rate across the us would have pump today. So we have the same opportunities where we can convert more people from India as well as convert people from their existing comp over to our over to us until at the end of the day, we're looking.
That help lift to be somewhere in the mid single digits, if and when we are able to secure that contract.
That's helpful color. Thank you.
One other question.
It really good year this year.
Taking share from competitors.
The perfectstorm because like you versus 70 G.
We have a medtronics, making manager changes.
Entering new products.
Love to hear what you think about the competitive landscape moving forward and you think competitive wins can continue to grow and 29 2020 or 20.
20, not team did an exceptional year for you.
I think with the with the introduction and launch of control like you I think we expect that we'll have the same sort of momentum in 2020 that we didnt 2019.
We'll be competing against.
The the Metropcs, new product, which you I think it's intended to be introduced in the mid year timeframe.
I think that we'll have we'll have momentum already built up on control like you by that point in time, and I think that the ease of use and the simplicity of our device is going to continue to differentiate us when you do compares with those devices.
Great. Thank you.
Thanks, Jeff.
Next question comes from Danielle Antalffy with SVB Leerink Your line is no.
Hey, good afternoon, everyone. Thanks, so much for taking the question congrats on another good quarter just to follow up on this pause.
Situation or issue or what have you I guess I was hoping maybe you could talk a little bit more about why you think given the fact that it's a free software upgrade you're seeing this pause is it misinformation amongst.
Patients around the free software upgrade or what's going on there because it does seem a little unusual and are you confident that it's around control like you are not potentially patients waiting for the next medtronic product cycle or something like that maybe give a little bit more detail to give us comfort there.
Sure I mean, I think we absolutely think it's around the availability of control like you and you know and as I said I think that.
Well well I think it's a logical question to ask whether or not the free software would be a differentiator I think what we see happening as the decision really comes down to the interaction with the the physician and the person who wants to acquire the new technology and I think that that position is just recommending that they wait.
Until control like you as available it's just it's easier for them. They don't have to go to the download process now we would argue that the downloading process is very simple.
And it's not that big of a deal, but I think thats, just what was coming down too and as I mentioned earlier in the case at the positions. If they were to prescribe the pump today as a base like you. They will have to come by come back again to prescribe it as a a control like you pop here in just a matter of is that are a short period of time. So I think it's a combination of those issues that I think our are really affecting that decision process.
Okay that that actually makes a lot of sense and one quick follow up on Libra, you guys announced a few weeks ago, a partnership with Abbott and ultimately, Italy right to point out can you talk a little bit about or what can you get to tell us around timing for potential integrated product and what you.
Now know about Liebreich 2.0 that you know in the past I think your commentary was sort of like we don't know what the product is so it sounds like you must have gotten some level of comfort around.
What Libra 2.0 will will look like and whether or not or will have I. CGM can you can you talk a little bit about that thanks. So much.
Sure I don't think we've actually indicator, which product we're going to work at this point, Tom I think we've indicated that we're going to work with Abbott on into integrating their next generation technology. So I think it's important that we start off of that the next thing that we're doing right. Now is we're working with them on the agreement, we're really trying to get the agreement done here and I think that once that's in place we can start to work aggressive.
We are implementing the technology and assist them you know I would say that we're probably looking yet.
It's got at least take us a year so in terms of but having a meaningful impact on revenue or growth is probably something that we wouldn't anticipate seeing until 2021.
Thank you so much.
Sure. Thanks.
Thank you. Our next question comes from Matthew Block with Stifel. Your line is now.
Good afternoon, everyone just actually a couple of questions for Lee.
We could just remind us how backend loaded the fourth quarter typically is in terms of pump shipments in other words, if you got control like Q approval next week in the middle of the quarter I'm guessing, it's still be able to capture more than half of a typical fourth quarter opportunity.
Sure. So a typical fourth quarter for us from the domestic side is that about 35 to 40 person at the pump shipments occur in that quarter and and you're correct. It's even more back end loaded to the end of that quarter.
When we benefit that 40% range that's been when we've had a product launch in the third quarter. So that gave us plenty of time to execute on the launch in People's hands and so at this point as we said earlier, we have not factored in any trajectory change for control like you in the fourth quarter and so we do expect there to be a difference, but when that time context when lead.
Well start to factor that.
Okay I appreciate that and then the next question should we should we use that that 15.8 million in international revenues this quarter as a caught a reasonable normalized launching point to think about 2020 growth off of.
Yes, I think it's a good launching point as we mentioned in the prepared remarks that we do think barrels might be a little bit isn't a blip here in the fourth quarter as we're rolling out based like you just like we see Andy you actually have a new product launch, but third quarter with the start of a good baseline.
Okay. That's all I had thank you very much.
Thank you. Our next question comes from JP, Kim with Piper Jaffray. Your line is note.
Good afternoon. Thanks for taking my question does actually met and for JP.
Is hoping to talk a little bit about next year, there's just a lot of moving parts right now, but the business and I know you probably don't want to get into guidance too much for next year, but John you said it you're expecting a really strong year. So can you just talk a little bit about the puts and takes as we think about 2020 with this slowdown whats control like you and international growth and you know any other.
Any other tailwinds that we may see on renewal side.
How do we think about the trajectory of the business into 2020.
Well I mean, the slowdown a control I see it was only because it's not available as point in time I mean as soon as its available we expect to see similar momentum as we did with based like Q last year. So we expect that control like who is going to have a meaningful impact on our revenue growth in 2020.
I would also say that when you look all U.S.. We also think that days like you.
And these new locations will also have meaningful impact on the growth, we see Oh U.S. and so those are those are big factors for us.
I think as I said, a moment ago, when I was talking about sort of competitive situation with with control Ikea, we think that.
The ease of use is going to continue to drive compare competitive conversions. So we expect to see more of that and we also expect renewals are continuing to grow. So I think that we feel the same factors in the same issues that created the momentum in 2019 are available in 2020 and in addition to that we've also got T. sport coming to market and so.
So we were looking forward to completing in development and the approval process for that but we see that is having an impact at a minimum in 2021.
Okay, but obviously not expecting a doubling of the business again next year, but you know something and the market growth rate is healthy but.
Should we think about you guys.
Doubling or even tripling the market growth rate as we think about 2020.
Okay.
Well as Kim mentioned in the opening we we love to the other med Tech companies for what is a good strong growth rate in and of course, when you're at 365 million and you've doubled your business year over year. It does get harder to do 100% again that we expect to continue to outpace as we have in the past the med Tech community.
Okay and last real quick one for me, it's just on the animal side of things you lap the supply stop there how do we think about the number of patients that are still out there.
Indiana in the universe that they're out of my Caesars. Thank you.
Yes. Unfortunately, that's a number that we've never had a really in our hands. Although we really wish we would we do think that number has dropped quite significantly from where things started there having said that we think it won't be a complete drop off for us in terms of opportunity going into fourth quarter and even into 2020, we think about paper overtime there are still that pocket.
People, who hold onto their plan.
A couple other supplies and just keep using it as long as they possibly can there may be other people, who have even taking advantage of conversion program to the medtronic pump and they might become opportunities for us as their warrants expire as well.
Very helpful. Thank you.
Thank you. Our next question comes from Jeff Johnson with Baird. Your line is now open.
Thank you. Good afternoon, guys. We can I follow up on that point, then a a round animus and I guess in the third quarter itself.
It sounds like about 50% again was empty I.
And the other 50% ex the turnover patients of your own or the renewals of your own where either medtronic or are probably animus conversion last couple of quarters. It seems like that Medtronic to animal split has been about two thirds one third on the competitive converts and very little Insulet is is that kind of where we were in the third quarter as well or any update you can provide there would.
Helpful.
Yes, that's a good approximation and the third quarter was very consistent with what we've been seeing for the last two years basically.
Okay and it sounds like you expect some of that to continue into the fourth quarter and beyond just want to confirm that's what you meant by your last answered, but John I was hoping for my follow up question. Then I can also ask you on T. sport, you're talking about this parallel pathway now to phone control versus the controller unit.
I think it makes sense from a risk mitigation standpoint, but my question. I guess is are you hearing anything from the FDA say that maybe they're getting a little hedged on phone control is that or is the FDA concerned about anything with your ability to phone control versus a broader ability to control an insulin pump in general with the phone would just love any color you're hearing from the.
FDA, we are talking with the FDA about on phone control.
No I think that the FDA remains very bullish on using phone control for insulin devices I think we're seeing that across the board when we have conversations with them. So we still think that that's going to be an exciting new product for us.
It's something that we're spending a lot of effort to to get to market here quickly.
Alright, thank you.
Thank you. Our next question comes from Steven Lichtman with Oppenheimer and company. Your line is now open.
Thank you hi, guys.
So first thanks for the visibility on some of the new country opportunities next year, obviously without expecting you give us guidance can you talk generally about the opportunity you see anything on regard the distributors you signed up or the relative market opportunity in the countries you'll be entering versus the countries you're currently in.
Well I think you can look at Germany, It's a it's probably the second largest market.
We have a great distributor, there and they're investing in a salesforce and so I mean, obviously initially it's going to be just.
Getting started and getting the hitting the ball rolling but we expect that when when that organization has in place.
Staffed and train that it's going to be a meaningful driver for our O us growth.
Similar to France, I think France also has a meaningful marketplace.
We're excited about getting into that that location also.
Okay, Great and then.
Secondly, just the piece of renewal capture seems to be picking up.
What's driving that maybe lead in your view in your mind as to what your goals are on on renewal capture.
Sure and our long term goal is to achieve a 70% retention rate of our customers and so part of that is not only.
I guess I would think we're getting better as we continue to progress and learn from the renewal process that we're still bringing people from those older and cohort. So people from 2016 in 2017 still renewed this quarter and I think theres enthusiasm around our products themselves and just the diabetes technology. So that's really helping to move our renewals in the right direction.
Okay, great. Thanks, guys.
Thanks, Steve.
Thank you. Our next question comes from Ryan Blicher with Cowen. Your line is now open.
Hi, good afternoon. Thanks for taking my questions I apologize if I missed this but can you provide a bit more color on the rationale behind your international guidance for Q4, which appears to imply that new patient shipments declined pretty materially versus Q3, what were animus contributions to international new patient shipments in Q3, and why Wouldnt. The launch of bases like you allow for a bit better of a new page.
And number in Q4 for the international business.
Sure and thanks, Ryan further questions.
Just a reminder from an international perspective, the majority of the animates business and we were able to convert by the end of the second quarter. So I would say prior to that point you would see gave is mostly animals and and modestly new market growth in the third quarter two when that transition occurred until it became mostly new market growth and less about the animals conversion opportunity and we did begin.
On to rollout. These like you at the very end of the second quarter on and through the third quarter. So we're going country by country on that one factor is that our tandem device updater wasn't available really till the end of the third quarter actually on September Thirtyth and so that's one of the factors the distributors taking him mine whenever they are thinking about their rollout strategy for based like year. So not.
Like the U.S., we are anticipating that there could be a small pausing or a transition period as a new product comes to market and and that it fuels, what our guidance for the fourth quarter.
Okay. Thank you and then do you expect to launch control like you internationally in 2020.
I don't think we've got we've stated that yet.
So we're probably discuss that on the fourth quarter call next year.
Okay, and if I could just take another shot at 2020 question, so you're not providing guidance, but looking at 2020 consensus revenue expectations. It appears to imply that new patient additions are around flat.
Every year versus 2019.
There are headwinds to reduce animus opportunity and competitive launches, but you've also talked pretty confidently about control like you. Both in the U.S. and maybe internationally will see and then T support obviously can't hurt there's another quarter to go but looking as we sit here today do you expect to add more new patients in 2020 than you will in 2019. Thank you.
We do expect to continue to see strong growth control like Q, it's really going to be the major driver next year as we look at how the market breaks down I'm as John mentioned, we go through the different pieces of it we have the Andy I opportunity, which this year seems to have accelerated quite significantly. So if you assume that even the same next year, we would expect 50 to 60000.
New people coming to market from the Andy I population, which we feel confident we'll take a fair our fair share.
If you think about the people, who just come up for renewal, whether it's from our own comp or from other public companies that easily more than 125000 pounds coming to market next year and again with a leading technology with control like you out there. We think that we have a really strong chanted attracting as customers at a very high rate.
Thank you. Our next question comes from Robbie Misra Berenberg. Your line is now open.
Hi, Thank you for taking the call. So just a question on on T support here coming through I appreciate the incremental until they provided just how do we think about this in terms of what the offering is to patients. I mean is this going after a potential new segment that may not be amenable to slim or.
Do you think that this could open up a different slice of the market for you guys.
We did a lot of research on this Ravi early on and what we found is that the people that were most interested in T. Slim excuse me T support were empty eyes, and pediatrics and so I think we expect to see meaningful growth in those two markets. Once this devices on the marketplace.
Great. Thanks, and then just one more I'm going back to the question I think Stephen it asked on renewals.
You are getting by my math here kind of in the mid Sixtys based on that cohort I mean should we expect.
Yeah, I think we were previously thinking that this would be like a multiyear plan to get to 70.
But is this something though you can get too in 2020, maybe or should we kind of re bias our numbers even higher thanks.
And I really think it's a longer term trajectory to get to that sustained 70% rate. If you think about it that base of opportunities that we're adding every year is increasing so substantially when you look back to our growth from 20 care team to 2016 in that he doesn't lend itself with the renewal of taking such as a lag to actually be process.
It doesn't lend itself to getting to 70% that quickly, but we still feel very good about achieving that goal. We just thinking about it more as cohort by cohort rather than at the highest at business level.
Okay, Great and then if I can just ask one last one if you could just help us understand the impact where the flow through the economics of the European fourth quarter kind of stepped down as they focus on that training through your through your Opex is there any kind of different seasonality or cash usage that may have been overstated understating the quarter.
That may not be recurring in the fourth quarter. Thank you.
Right and so when it comes to the international teams. They distributors there very different from the U.S. They handle all the customer support activities. So there's really no no more expense for us whenever there's a new product rollout there other than the support that we provide them on a regular basis, but the majority of that burden and pasta honestly file.
On to them.
Thank you. Our next question comes from Alex Nowak with Craig Hallum. Your line is now.
Hey, everyone I'd, just a quick follow up here to kind of the the pausing piece that we've all been talking about in the call here you know many people when they buy their pump they buy it in Q4 before their deductibles reset with control acute launching likely to late here for people to come.
Color on pause and get their pump purchase and before the year end of 2018 do these patients then wait until Q4 2020.
Instead of immediately buying their pump in Q1 20, when control like you will likely become available.
Its really hard to say what that behavior will actually be but I do expect that seasonality might impact when they decide that need to make that purchasing decision because for so many people until their deductible has been Matt. It's a very costly decision for them to make but having said that we had a very and we have a very firm lot.
Strategy in place so at the moment, we get approval, we will be pushing very hard to try to get as many people to the pipeline as possible before ended the year.
Okay understood. Thank you.
Thanks.
I'm not showing any further questions at this time I would now like to turn the call back over to John Sheraton for any closing remarks.
Well, thanks, everybody for joining us today, we look forward to see you soon we're going to be at the credit Suisse Conference in Scottsdale on November 12, Stifel Healthcare Conference in New York on the 19th of November and the Piper Jaffrey Conference on December Fourq also in New York City.
Thanks again for joining us we look forward to keeping you updated on the company as we continue to make progress.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.