Tandem Diabetes Care, Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Tandem's fourth quarter and year-end 2020 earnings call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 1 on your touchtone telephone. Please be advised that today's conference may be recorded. Should you require any further assistance, please press star 0. I would now like to hand the conference over to your host. EVP and Chief Administrative Officer, Susan Morrison. Madam, you may begin.

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

Thanks, Susan, and welcome everyone to today's call. Before we jump into our fantastic 2020 results, I'd be remiss not to take time up front to acknowledge the incredible team of employees at Tandem. It's a group with a demonstrated history of pulling together during difficult times, and in the face of 2020's challenges, we persevered and stayed focused on our mission to improve the lives of people living with diabetes. A heartfelt thank you to all our employees for your efforts, passion, and dedication that made the year a success, even under challenging circumstances. Looking back over the past year, we achieved approximately 500 million in sales, surpassed the milestone of having more than 200,000 customers in our worldwide installed base, launched our best-in-class ControlIQ technology, and made meaningful internal product development and operational progress, all under the constraints of the global pandemic. The catalysts that drove our performance in 2020 were largely the same as those that fueled our growth in the past several years, innovative product offerings, scaling international efforts, and increasing number of customers eligible for their four-year warranty renewal, and underlying it all is a large under-penetrated worldwide market. As we look to 2021 and beyond, each of these opportunities remain, which further strengthens our confidence in achieving our near and longer-term goals. We are gaining penetration in individual practices. In fact, our number of prescribers has increased over 80% in the last three years, and their average number of prescriptions is also increasing. It's been an exciting shift over time as we continue to earn the trust and confidence of healthcare providers by demonstrating the clinical benefits and exemplary customer experience we provide with both our insulin therapy management systems and our top-ranked customer services. This feedback was echoed in our own customer surveys in 2020, to which we received more than 100,000 responses. Our TESOL Next2Satisfaction score in the survey exceeded 90%, and we continue to have high net promoter scores. That's more typical of leading consumer brands than MedTech. The support of healthcare providers and the overall positive experience from our customers are key to driving our growth in the U.S. In fact, we continue to see equal growth in the U.S. from people converting from multiple daily injections and from a competitor's pump, each representing about half of our new customers. Awareness of the benefits of Control IQ is also a key driver of our technology adoption. The vast majority of eligible customers have taken advantage of our free Control IQ software update, and the feedback continues to surpass our expectations. The personal testimonials are so powerful that we recently launched a marketing campaign, How Control IQ Changed My Life. Our customers submitted videos explaining their Control IQ experiences in their own words, And to date, these videos have been viewed nearly half a million times on social media. We began the rollout of our Control IQ technology outside the United States in July, and it is now available in more than half the countries we serve. The international customer response we are receiving mirrors the domestic enthusiasm, and we anticipate completing its rollout mid-year. Our Control IQ technology sets a new high bar worldwide for automated insulin delivery technology, as it allows users more time to spend thinking about their lives and less about their diabetes. We are investing in enhancements to our ControlIQ technology to increase the clinical efficacy and to even further improve the customer experience through expanded personalization and ease of use. Last year, we submitted a regulatory filing to the FDA for the first enhancements to ControlIQ to allow for greater personalization in certain rates and ranges and to add an indication for admalance. This continuous improvement strategy, combined with the FDA's Interoperability Initiative and our Tandem Device Updater, allows us to put new features in the hands of users faster than ever before. Ultimately, we are working to provide the diabetes community a fully closed-loop system, and each feature update and enhancement brings us one step closer. Innovation will continue to be an important road driver for us, and it is true to our mission at Tandem as we take a positively different approach to diabetes care. We've catapulted to becoming a leader in diabetes technology in a short period of time and are committed to sustaining this position by continuing to bring new products to market and reduce the daily burden of diabetes care for both pump users and healthcare providers. In support of this commitment, we are preparing to launch our app-based mobile bolus feature for the T-Cell Next 2 in the first half of 2021. We're particularly excited to add this to our list of first accomplishments as it will be the first FDA-cleared use of a personal mobile device for the delivery of insulin. We'll be offering this feature on iOS and Android, which is important as the majority of our customers use our app on iOS, and both platforms hold considerable consumer market share. More than 80,000 people have downloaded our current app, and we expect this new feature to drive even greater awareness and adoption. Similar to both Basal IQ and Control IQ, We also plan to offer this highly anticipated feature to our in warranty customers in the United States for no cost. This technology is vital for us to be able to make an immediate difference in improving the lives of our customers. The pump software update with our new mobile bolus feature will be the fifth update that we've offered to our customers since first launching the tandem device updater in 2018. Our software update process is built on the same requirements we have set for all of our products. ease of use, ease of training, and strong security. We set a high bar for each of these, which is why, even five years later, we remain the only insulin pump company to offer this capability anywhere in the world. And this experience is clearly a competitive advantage for Tandem. Customer segmentation is something you hear us talk about often, since there is not a one-size-fits-all solution for people living with diabetes. Varying clinical needs and personal preferences create many segments in diabetes market. And it's a dynamic that drives our longer-term strategy as we work to provide solutions to people throughout the diabetes community. In many ways, Tandem is both a medical device manufacturer and a provider of consumer technology. It's why the support and digital touchpoints that we provide our customers and healthcare providers is as crucial as their experience with our pumps. One of the most valued digital tools that we offer domestically is T-Connect. our web-based data management application. T-Connect improves healthcare provider efficiency by providing streamlined information from our pumps, integrated TGMs, and supported blood glucose meters that can be used for therapy management, particularly now that pump data can be wirelessly uploaded to T-Connect from our mobile app. In addition to T-Connect, our expanding digital health platform now includes our T-Connect web application, our mobile app, the Tandem device updater, and our customer portal. These offerings stood out as a valued resource amongst prescribers in the remote care environment of 2020, which underscored the importance of our internal development initiatives over the past year and in 2021. As we look to the year ahead, we are excited to bring new capabilities to market with our second-generation data management application, Tandem Source. Source features dashboards that are customizable so that a user, caregiver, or healthcare provider can access the data and insights needed to optimize diabetes management via our mobile app or the web. It's also designed for future integration with third-party partners, establishing pathways to unlock new insights that make it easier for users to manage their diabetes. Importantly, we will make TandemSource available as a global offering, giving us an end-to-end solution for the first time in all the markets that we serve. We intend to launch Tandon Source in select countries outside the United States later this year with a domestic launch to follow. Tandon Source is one element of our vision for better insulin therapy management, leveraging next-generation digital assets. With a focus on delivering simplified and personalized experiences to our customers, it is a powerful complement to our algorithmic capabilities on the pump. It's also a precursor to further enhancements to our commerce infrastructure, including our purchasing, onboarding, and support interfaces. Over time, the investments we are making in our digital infrastructure will enable us to further enhance our solutions for users and support outcomes-driven discussions with payers. A positive experience with our ecosystem attracts more people to our products and keeps people motivated to use our pumps. The global nature of our digital strategy is a good reflection of the expanding international focus internally and the growing importance of international markets to our business. Since launching outside the United States just two years ago, we now have approximately 45,000 people using the Tandem Pump in nearly 20 different countries. By comparison, it took us more than four years to reach this level of install base domestically. The rapid growth reflects the quality of our product offerings and the meaningful worldwide opportunity that exists. particularly since pump penetration in the geographies we are in outside the United States is 10 to 20%. In 2021, we plan to continue bringing our T-cell NXT pump to new geographies, and our goal is to be in approximately 25 countries by the year end. This will bring our total addressable Type 1 market outside the United States to approximately 4 million people, of which more than 400,000 use a pump today. We also continue development of our T-Sport insulin delivery system. You may recall that we're designing T-Sport to be fully controlled by a mobile app that's available on both iOS and Android operating systems. Throughout the latter part of 2020, we conducted human factors testing, both live and virtual, as part of our iterative design process after being delayed due to COVID-19. Delayed human factors testing have been one of the unfortunate consequences of COVID. as recruiting has slowed and face-to-face testing is impacted as we prioritize the safety of our employees and study participants. Our T-SPORT human factors testing results were mostly positive, with a few opportunities for improvement identified during each of the various rounds of testing that were primarily related to making the user interface more intuitive and efficient. In late December, we completed a collective analysis of these studies. And it was our opinion that some of the opportunities identified during the testing did not meet the high user experience standards that we've committed to providing the diabetes community and have built our reputation on. Internally, one of our core values is no shortcuts. And this is a fitting opportunity to live by those standards and refine the design until it's right to ensure it's safe and intuitive to use. None of the changes we plan to make are particularly challenging. It will just take extra time to update and test the software and confirm our new designs through additional human factors testing. As a result, our filing goal has shifted from the third quarter to the fourth quarter and will provide further updates as we have more clarity on the timeline. We remain excited for the opportunity T-SPORT presents as our research shows that its form factor and the discretion afforded by mobile control appeal to a broader segment of the insulin-using diabetes population who otherwise would not consider pump therapy. Just as importantly, we remain confident that T-SPORT, like the original T-SWIM, will set a new standard for innovation and ease of use for our industry. In addition to T-SPORT being a 2022 growth catalyst, We also anticipate that next year we'll benefit from new sensor offerings by both our CGM partners, Dexcom and Abbott. We have a long successful history of partnering with Dexcom and look forward to the benefits that their G7 sensor will bring to people living with diabetes. The G7 will be the fourth generation of Dexcom sensors that we integrate with our technology. Based on the FDA's interoperability initiative and the timing of Dexcom's clearance, Our goal is to commercially launch our control IQ technology with the G7 sensor within one quarter following their receipt of FDA clearance. Our development efforts with Abbott Libre technology are also off to a strong start. It's been a collaborative effort, and we share a common goal to bring the integrated product with Abbott Libre's technology to the IBD's community as soon as possible in 2022. We intend to begin our commercial efforts with a U.S. launch and which library technology we initially launch with will ultimately depend on the timing of Abbott's FDA clearance supporting AID use. A CGM can be a driver of pump therapy adoption and is fundamental to the broader adoption of automated insulin delivery. We are excited for these new CGMs to come to market and look forward to collaborating to bring the benefits of our insulin therapy management platform to even more people living with diabetes. Beyond 2022, in addition to continuing to expand our hardware platform offerings and automated insulin delivery and connected health initiatives, we're also beginning to spend more time on opportunities to improve and enhance other components of the insulin therapy management systems, including additional infusion set technologies and the use of alternative insulins. While these efforts and the longer-term goals that we have set for ourselves are largely based on helping people with type 1 diabetes, We are also beginning to expand our internal efforts on helping people with type 2 diabetes. People with type 2 diabetes represent less than 10% of our total domestic customers, yet the worldwide prevalence of people with type 2 diabetes using intensive insulin therapy is similar to people with type 1. The proper reimbursement challenges with private payers in the U.S. that once existed for people with type 2 has been reduced, as historical test requirements are increasingly recognized as antiquated. Further, we continue to support advocacy partners to affect CMS policy change that will increase ease of access. With the breakdown of this barrier, we are focusing our research on the clinical needs, behaviors, and preferences that segment the Type II market to better understand why pumped option is only about 7% domestically and even less outside the United States. At the highest level, our research has highlighted the importance of discretion, simplicity of therapy management, and the need for demonstrated clinical outcomes and support when a person with Type 2 is considering an insulin pump. We are using these requirements to guide our multi-part strategy for accelerating pump adoption in the Type 2 community. We'll provide more color on our specific initiatives in the upcoming months, but are planning to kick off our efforts to pursue an expanded labeling indication for our control IQ technology to include people with Type 2. In the longer term, we are working to provide the Type 2 community with a dedicated solution that uses a discrete form factor and features our latest automated insulin delivery technology. We're also exploring the role of simplified functionality and a modified user interface in addition to concentrated insulin and tailored support solutions. As you can see, our drive to improve the lives of people living with diabetes is stronger than ever. In addition, our scalability initiatives are progressing well to support our continued growth, and we are focused on execution. We remain dedicated to our mission and are confident in our ability to achieve our near and longer-term goals. I look forward to sharing our progress and achievements in the year ahead as we work to become the worldwide leader in insulin therapy management. And with that, I'll now turn the call over to Lee.