Tandem Diabetes Care, Inc.

Thank you for standing by and welcome to Tandem's third quarter 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 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. Please go ahead.

Thank you. Good afternoon, everyone, and thanks for joining Tandem's third quarter 2021 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, quarterly report on Form 10-Q, and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or other factors. In addition, today's discussion will include references to adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA is a key measure used by us to evaluate operating performance, generate future operating plans, and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information. Hosting today's call are John Sheridan, our President and CEO, and Lee Vossler, our EVP and Chief Financial Officer. Following the prepared remarks, we'll be opening up the call for questions. Thanks for limiting yourself to one question before getting back in the queue. I'll now turn the call over to John.

Thank you, Susan, and welcome everyone to today's call. 2021 has been remarkable. We delivered a record-setting third quarter in terms of robust sales, improving gross margin, and generation of cash. We continue to add new customers at an industry-leading rate, and since the third quarter of last year, we have welcomed more than 100,000 people to our worldwide installed base. These achievements would be impressive in any environment, but are especially so as we continue to navigate the challenges of COVID-19. From sales and clinical to quality supply chain and manufacturing, the efforts of our team members are contributing to further our mission to improve the lives of people with diabetes. And thank you to everyone. Looking back at the quarter, strong worldwide demand for control IQ, seasonality, and COVID-19 all created puts and takes in influencing our sales patterns. These vary slightly between the domestic, internet, and international portions of our business. So I'll spend some time up front discussing both in more detail. Starting with our domestic business, in October, I had the opportunity to meet with members of our sales and clinical teams in various regions of the country. Their feedback was very consistent, and I was proud that the loudest sentiment shared was on the positive impact that we are making with our market-leading control IQ technology. Demand and interest from the diabetes community remains high, which supports our belief that we are still in the early innings of control IQ adoption. The challenges our field team described are largely a byproduct of this high demand coupled with the continued navigation of COVID-19. As a reminder, we have approximately 95 territories during the third quarter, and our territories are typically comprised of both a sales rep and a diabetes nurse educator. Over the past 18 months, the productivity rate of our sales territories has grown very high, which was manageable when we were operating in a remote environment. Then as COVID restrictions began to lift and in-person sales calls and clinical training began increasing, the team's available capacity became stretched thin as we worked to keep up with demand. With this in mind and anticipation of continuing growth in 2022 and beyond, we are in the process of expanding to approximately 110 territories. We are also investing in our internal teams that support the sales and customer training processes. Another interesting dynamic discussed by our field teams is that the broader labor shortages being experienced across the country are also impacting healthcare prescriber offices. As a result, there is fewer staff to see patients and handle back office workload, and some healthcare providers are having fewer in-office days to accommodate the continued prominent use of telemedicine. This is why the initiatives that we have in place to build out our provider and patient-facing data platforms are so important. The Tandem Source platform represents the new generation of our T-Connect data management application and is designed to enhance provider-patient engagement with therapy data whether remotely or in the office. We are also continuing to invest in cloud-based tools for prescribing, order management, software update, and patient support to streamline office efficiency in order to deliver added value to pump users and healthcare providers alike. Overall, the impact of COVID-19 on our different territories varies greatly by geography and even by prescriber office. We saw a summer of seasonality in the U.S. that was more similar to what we typically see in Europe, as people took some well-deserved time off during the concentrated period at the beginning of the quarter. Then as diagnosis rates for COVID-19 variants began to increase later in the quarter, we once again saw sales activities begin to shift to fewer live interactions. Even with these fluctuations, beginning in October, we saw a notable increase in referrals, which is the first step in the pump ordering process. Internationally, we also experienced seasonality in the third quarter, which was less COVID-19 related and more anticipated to the traditional European holiday season. While most people with diabetes are being seen through the hospital systems outside the United States, which continues to be pressured by COVID, our outperformance can really be attributed to the large, underpenetrated nature of the markets that we are in and the overwhelmingly positive response to T-Slim X2 and, more recently, our Control IQ technology. Our distribution partners are doing a great job in their sales efforts to identify the prescribers that are less impacted by COVID-19. The enthusiasm we are hearing about people's experiences with Control IQ outside the United States mirror the positive experience that we hear about domestically. This is very encouraging as we are still in the early stages of launch with our Control IQ technology, particularly in France and Germany, which provides significant additional market opportunity. As there are a number of steps that take place in bringing a product to market, we expect the launch in these countries to build over the next 12 months and provide benefit throughout 2022 and beyond. As we've seen domestically, our international launch of ControlIQ is demonstrating that when technology reduces the burden of diabetes, it drives customer adoption. In 2022, we plan to focus our international efforts on supporting our OUS distribution partners to drive deeper penetration in their markets. In addition to our sales and clinical activities, our internal quality, supply chain, and manufacturing teams are also doing an outstanding job navigating the pressures related to COVID-19. While no one is isolated from the more global issues, like increasing shipping costs and semiconductor supply constraints, we take great pride in the success of our overall supply chain management throughout the pandemic. And as we look ahead to 2022 and beyond, we will continue to carefully manage sourcing activities and keep in close contact with our suppliers. From a manufacturing perspective, we are regularly evaluating our needs and adding lines and expanding capacity accordingly. Moving a majority of our cartridge manufacturing to a third-party manufacturer in 2020 was beneficial from a capacity and cost perspective, but it proved to be fortuitous as we were able to rely on different labor markets. Overall, I am very proud of how we continue to perform during these more challenging times and the team's solution-oriented approach to overcoming the various headwinds from the pandemic. As you can see, Even though we have experienced some unusual domestic seasonality associated with the changes to the COVID environment, we are demonstrating that our market-leading T-Slim X2 with Control IQ, combined with our expanding global footprint, has us well-positioned to deliver both near- and longer-term growth. Incredibly, more than two-thirds of our 300,000 customers worldwide are now using Control IQ technology. and the real-world experiences shared by our customers continues to be overwhelmingly positive. This also reflects in the ongoing clinical data being reported on ControlIQ, including the data presented most recently at the EASD and ISPAD meetings. The data presented at these conferences highlights how all individuals with Type 1 diabetes can benefit from ControlIQ technology, not just the traditional pump candidates as thought of historically. For example, individuals with higher hemoglobin A1Cs and those who have not had access to technology in the past did very well on control IQ. There was also data presented that highlighted a significant reduction in adverse events in pediatric control IQ users, which is particularly encouraging as we prepare to pursue lowering its age indication from users as young as six down to ages two and above. As you'll recall, we are supporting a multi-site study to evaluate the use of control IQ in this pediatric age population, and we intend to use the data to support a regulatory submission by the end of 2022. We will also be pursuing an expanded labeling indication for people living with type 2 diabetes. Our type 2 feasibility study is on schedule to start this month and will inform our pivotal trial that we plan to conduct next year. We've also begun enrollment in our first clinical trial for Control-IQ with an expanded feature set that we will plan to provide additional color on later this year. As you can see, we've been very active with our clinical efforts, and the FDA has been responsive to our requests, approving four IDEs for upcoming studies this quarter. A different team at the FDA is also continuing to review our 510 for the TSLNX2 mobile bolus feature that we submitted about a year ago. We responded to all the questions by the FDA in late August and continue to prepare for launch. Three of our other key R&D initiatives for 2022 are T-SPORT pump, as well as the integration with Dexcom's G7 sensor and Abbott's Libre technology are also continuing to progress. Each of these have dependencies, either our own with T-SPORT as we look to obtain the mobile bolus clearance in advance of providing a regulatory timeline for submission, or that of our CGM partners as they work to secure FDA clearances. However, our own development work is able to continue unimpeded at this time. In looking beyond 2022, our product pipeline is something we haven't given investors much visibility into, but internally, we've been putting increasing attention on our longer-term strategy for driving our growth through innovation over the next five years. We'd like to take the time to share our vision with you. which is more expansive than we can cover on a call like today's. So we invite you to join us for an R&D Day event, which will take place virtually on Monday, December 6th. Participation details and registration can be found on the Investor Center portion of our website, and we look forward to sharing more on our strategy and vision with you at that point in time. In the meantime, we are focused on a strong finish to 2021 and setting up 2022 to be another successful year. With that, I'll now turn the call over to Leigh.

Thanks, John. Good afternoon, everyone. Our streak of records continues with our highest sales quarter ever, increased profits, and strong cash flow generation, even with the backdrop of the global pandemic. While the pandemic has made it difficult to predict near-term variations in market conditions, the strong demand for the TSLM X2 with Control IQ has been evident around the world, and we are particularly excited for its scaling launch outside the U.S. Worldwide, we shipped 32,000 pumps in the third quarter and generated $180 million in sales. This represents 45% growth over the prior year, driven almost equally by new pump sales and recurring revenue streams from the high retention rate of our customers. To that point, we now have nearly 300,000 customers in our worldwide install base, contributing meaningfully to our supplies sales growth and providing significant opportunity for future sales of renewal pumps. The dynamics continue to vary greatly in the U.S. compared to the markets in which we operate outside the U.S. Starting with our domestic sales performance this quarter, we generated $133 million in sales, or 24% growth compared to the prior year, on over 20,000 pump shipments. Much like we discussed on our last earnings call and as John spoke to, it was an unusual quarter in terms of the COVID undercurrents and its effect on our sales. But putting the impact of COVID aside, we are pleased that we continue to expand the insulin pump market with approximately half of our new customers converting from multiple daily injections. We are also pleased with our continued progress on renewals, particularly as we prepare for a step-up in conversion opportunities next quarter, stemming primarily from the 7,000 pumps we shipped in the fourth quarter of 2017. Also of note, the third quarter of last year was the first time we had full access to the UnitedHealthcare subscriber base. In other words, we saw incremental benefit in both the first and second quarter of this year in terms of the UnitedHealthcare opportunity, but the third quarter was largely comparable to last year. From an international perspective, we are really beginning to hit our stride with all geographies continuing to demonstrate strong ordering patterns. As a reminder, our TESLAM X2 technology is now available in more than 20 countries worldwide. Outside the U.S., we more than tripled pump shipments compared to the third quarter of last year to over 11,000 pumps, and generated $47 million in pump and consumable sales. Going into the third quarter, we fully anticipated a decline in pump shipments from the second quarter associated with the typical European summer holiday season. The lower pump sales were more than offset by greater supply sales due in part to some inventory rebalancing estimated to have benefited our third quarter sales by approximately $3 million. As our distributors continue to manage high patient demand, global logistics challenges, and, of course, the ever-changing COVID dynamics affecting their selling activities. In all, we are now supporting an installed base of approximately 77,000 in markets outside the U.S., of which more than 40% joined the Tandem family this year alone. We are once again increasing guidance and now expect to end the year with 2021 worldwide sales in the range of $685 million to $695 million, which reflects year-over-year growth of 37% to 39%. International sales expectations are increased to a range of $168 million to $173 million, which is more than double our 2020 sales. The escalating awareness and acceptance of our technologies around the world have made us incredibly successful in this challenging environment, and we anticipate this momentum will continue in the long term. In the near term, however, we will maintain a heightened level of caution due to the COVID volatility we have seen from quarter to quarter. The overall growth in our sales also contributed to gross margin expansion. We improved to a 54% gross margin in the third quarter from 53% in the prior year. This is a reflection of improvements in the cost per unit of each of our products as we continue to leverage our fixed infrastructure on higher sales volumes, and drive efficiencies in the manufacturing process through various lean initiatives. We also continue to benefit from higher average selling prices of our supplies thanks to the growth of international installed base. I applaud our operations team for their ability to manage the many challenges they have faced in the COVID environment while still scaling effectively to meet customer demand. For the full year of 2021, we are adjusting our gross margin expectations to approximately 54% based on higher expectations for pump sales outside the U.S., where average selling prices are lower than in the U.S. due to the nature of our distributor model, as well as the potential for higher supply chain and labor costs. Longer term, we remain confident in achieving our goal to exceed 60% through continued leverage from growth, further manufacturing efficiencies, new product launches, and enhanced reimbursement. Our margin expansion this quarter extended to both our operating and adjusted EBITDA margins. We maintained a high level of focus on advancing our R&D pipeline initiatives, for which spending in the third quarter increased 50% over the prior year. Even so, we still stepped up our operating margin by 5 percentage points to 4% of sales, and our adjusted EBITDA margin expanded to 15% of sales versus 12% in the prior year. We are maintaining our adjusted EBITDA expectations at approximately 15% of sales for the full year of 2021. This expansion of our margins, again, contributed to significant growth in our total cash and investments, along with benefit from our employee stock plans. We closed the quarter with $595 million in total cash and investments, which is an increase of $50 million in the third quarter and $110 million for the year to date. The strength in our balance sheet continues to afford us the flexibility we need to invest strategically in key programs and appropriately scale the business to meet the growing demand for our products. In summary, we began the year with worldwide sales guidance in the range of $600 to $615 million, and today our expectations are now in the range of $685 million to $695 million, which includes international sales of $168 million to $173 million. Gross margin for the full year is updated to be approximately 54%, while our adjusted EBITDA expectations remain unchanged at approximately 15% of sales. Our non-cash charges for stock compensation, depreciation, and amortization are now expected to be slightly lower at approximately $75 million, included as components of both cost of sales and operating expense. With that, I will turn it over to the operator for questions.

Thank you. As a reminder, to ask a question, you will need to press star 1 on your telephone. To withdraw your question, press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matt O'Brien of Piper Sandler. Your line is open.

Hey, good afternoon, guys. This is Drew on for Matt, and thank you for taking the questions. I just want to push a little bit more on the comments related to COVID. You know, maybe I'm overreading your comments a little bit, but it kind of sounds like you're saying that the virtual training environment was a bit of a tailwind to your U.S. business, and now you kind of have to Play a little bit of catch up from a Salesforce perspective as things resume in person. Is that the right interpretation of those comments? And I guess if so, does that suggest that that pressure might linger a little bit over the next couple of quarters? Or can you backfill that with the territory ads relatively quickly?

Thanks. That's a great question. I just want to start off by saying that we had a great quarter. It was really strong performance. And, you know, we're confident that the fundamentals of the business remain intact. We clearly experienced some unusual COVID-related effects this quarter, particularly when you consider that the seasonality in the U.S. was more resembled the typical seasonality we see in Europe where people take an entire month off. That was very evident to us as the quarter began. This is well-deserved time off, but clearly it was very different than we've seen in the past. And I'd also say that the Delta variant, it seemed like the offices were opening up and then they closed back up pretty quickly in different locations and geographies. But there was an inefficiency, I think, that comes along with that. And finally, the endo practices themselves, they were impacted by these broader staffing challenges. And I think with lower staff online, they were basically pushing out endo visits. So it wasn't necessarily that there was inefficiency in the virtual environment. It was more that the access to the actual endos has changed in this particular quarter. And I think I just want to say it was a challenging environment, but we did a great job. I'm proud of the team, and it was a strong performance.

Okay, that's super helpful. And then just briefly on international control IQ in Germany and France, maybe you could just speak to it in a little bit more detail. You know, despite the seasonality, did you see an acceleration compared to how those regions were growing with basal IQ, and how is that compared to when you've rolled out control IQ in other regions? Thank you.

Yeah, our international team is frequently in touch with our distributors, and they've been very upbeat about control IQ. We're just getting started in France and Germany, as you said, but, you know, the initial demand has been very strong, and we think we've got a long runway there for success. And then if you look into the other smaller markets, you know, we're capturing significant market share with Control IQ in those markets. And we're also, you know, we're seeing very significant success in capturing new tenders. So I would say that the excitement that we've seen here in the U.S. is being replicated OUS. It's an underpenetrated market, and we think we've got a long runway there. So we're quite excited about it.

Very helpful. Thank you.

Thank you. And as a reminder, please limit yourself to one question. Our next question comes from the line of Danielle Antofi of SDB Leverink. Your line is open.

Hey, good afternoon, guys. Thanks so much for taking the question. Just a quick question on the type 2 opportunity, and good to hear you guys are starting the feasibility study. I guess I'm just curious about how to think about what it's going to take to get after the type 2 market from an access perspective. One of the things we're hearing out there is that it's really about access and the pharmacy, going through the pharmacy versus even data and the label. I'd be curious to hear what you guys say about that. Thanks so much.

Sure. It's good to hear from you, Danielle. I would say that our plans, as we've described in the past, are really to to get our current product, to get Control IQ approved for the Type 2 community first. But right now, we have just less than 10% of the people in our install base are Type 2. And they're seeing incredible results using Control IQ and just in terms of managing their therapy. So we have a lot of confidence that this is going to be impactful for the Type 2 community. And as I said, we're really focused on getting through these clinical studies. We're going to start a smaller study this month. And we think that's going to inform us on the design of a pivotal study that would be done next year. And so we would expect that sometime late 2022 or 2023, we'd be in a position to submit the application for the approval to the FDA, probably a 2023 approval. So we think that we've got a good plan. We're also spending quite a bit of internal resources on just understanding the the opportunities to develop additional products for Type 2. We have people looking at the clinical benefits. We have people looking at features in the products and access. And so access is something that we do need to research. You know, specifically to the pharmacy channel, I'll just let Lee comment on that.

Sure. And so what I'll say when people refer to the pharmacy channel, I think they're usually referring to the simplification of the ordering process or the perceived simplification of the ordering process. And so to John's point, there's a lot of research to be done about what it might take for the type 2 space if it's different. But what we believe is that we can optimize that upfront ordering process and still leverage the structure we've built around DME so that we can make it just as simple and streamlined, and that wouldn't necessarily be a barrier or a change that we would have to make in the long term.

Okay, that makes sense. I guess, Lee, I just have one follow-up on that. So one of the things that I thought I heard from at least one or two primary care physicians is that for whatever reason, the reimbursement hurdles for Type 2s through pharmacy are lower than the DME. Is that true, or is it really just about the prior auth and maybe whatever they have to do in their office to get that reimbursement, those hurdles might be lower, and that's what you're referring to?

Sure. I think it's hard to put a broad generalization on reimbursement through pharmacy as all being one way. Depending on where you're structured in the tiers or the formularies, It might vary. You might have a basic co-pay. You might have a co-insurance that still looks like it doesn't DME channel. So that's part of what we'll continue to evaluate as well to see if we can make a difference there. But for now, we'll continue to focus on optimizing the DME experience and, like I said before, evaluate whether or not we need to make a change.

Okay. Thanks so much, guys.

Take care.

Thank you. Our next question comes from Matt Taylor of UBS. Your question, please.

Hi. Excuse me. Thank you for taking the question. I wanted to start with just a follow-up on the two comments that you made about the near-term performance. I mean, firstly, would you be able to quantify or help us understand, you know, how much the July seasonality negatively impacted the quarter versus your expectations? And then I think we made a comment that you saw a pickup in October. Could you help us, you know, frame that in terms of what you've seen in the past?

Sure. Thanks for the question, Matt. It was a highly unusual quarter in terms of the market dynamics that we were experiencing. You know, John walked through the part about it started with an intensive vacation season. It turned into a Delta variant surge. And we were confident that we would still see a strong Q4 because it's routine and customary for us people to hit their deductibles. that they move forward on purchases. I think the difference this year was that we saw that come a bit later than what we're accustomed to seeing. So in the past, it usually really picks up right after Labor Day when people are going back to school and getting settled back into what I would call a more normal routine. And what we saw was that it came about more so in October. So we're still very excited about where we're headed for Q4. I think it just changed that what's usually a modest step up from Q2 to Q3 this time to make it a little more flattish.

Right, right. Okay. And I wanted to circle back on the commentary that you had on Salesforce expansion. So maybe you could just give us a sense for, you know, what is going from the 95 to the 110 territories get you in terms of runway? And how much do you think you'll be at maturity? What are the next few years look like in terms of continued Salesforce expansion?

Sure, Matt. I mean, we've seen incredible growth over the last few years. And, you know, the result is that our clinical teams and Salesforce really have industry-leading productivity today. It's very, very high. You know, and this is typically the time of the year that the sales team, they get together, they look at the various territories, the productivity of the territories, and they make decisions on, you know, what is needed to deal with the current demand that we're experiencing as well as what we need for next year and beyond, really. And so I think that, you know, adding 15 territories right now is what they feel is going to support current demand as well as get us through 2022. I would say that they're always assessing this, though, and I think that we feel this is going to get us to where we have to be. It's the right number. And I think that, you know, it's something that's constantly evaluated, though. It's not like we, you know, we think that's going to take us through to, you know, a couple more years. We'll probably do this the same time next year as well. I'll also say that as we add members to the sales organization in the field. We also have a relatively large organization internally that supports the field and the clinical teams, and we're obviously adding to them as well, and that definitely helps the overall productivity of the system. But both of those are happening as we speak right now, and we hope to have these people in place by the beginning of the year so we can start off strong.

Great.

Thanks for the context, John. Thanks.

Take care, Matt.

Thank you. Our next question comes from Travis Steed of Barclays. Please go ahead. Questions.

I guess to look a little further out, if you think about some of the puts and takes over the next 12 months, you know, maybe some potential for competition but also bigger sales force, some other tailwinds like new product launches. Just kind of curious how you see the puts and takes over the next year, if you will. And, you know, the street's kind of at the low end of what you typically do at modeling 20%. So just kind of thinking about, you know, the next 12 months, if you will.

Yeah, I mean, I think that the factors that have made us successful, Travis, in the past really exist now and probably even more so because our pipeline is next year has been a great year for our pipeline where we have mobile bolus, we're going to have tandem source, we're going to have the integration of the CGM companies, and, you know, we're also hoping that we have T-Sport next year as well. So, you know, I think that the pipeline is obviously the most important thing. And we think that the technology that we're developing right now is driving adoption. Ease of use drives adoption. And we're seeing a significant growth in the MDI conversions. And as Lee said, we're still seeing about 50% from competitive conversions. So I think we think next year is going to be an exciting year. Clearly there's going to be a different competitive environment. But, you know, right now we are in Germany and the U.K., and so is 780, and we're doing quite well right there. And I think that, you know, when you look at the patch company's introduction next year, it's going to be basically slow, and it's going to take them a while to really ramp up. So I think that's exciting. That's another factor that we've got in mind, and as I said, T-Sport is going to compete quite effectively against the past product. So, you know, I think we are very confident with our competitive position, and we think that Control IQ, as it is today, is going to continue to do very well next year. But as I said, we have a great pipeline, and I think that we're well positioned to see pretty good growth next year. You want to add to that, Dawn?

Yeah, I guess I would just add on top of all those positives, one other element is that the renewal opportunity continues to step up pretty significantly next year, so we're looking forward to that as well.

Great. And on the virtual R&D day, I don't know if there's any additional color you could add at this point. Are you planning on updating that 500,000 patient LRP that you've got out there for 2024 at the virtual R&D day, or will you wait and do that at a later point? And is it going to be more like product focused or is it going to be highlighting some of the software investments that you've made over the past year?

Yeah, I think it's going to be really focused on R&D, and I think that there will be time, I think, in the future to talk more about sort of the financial objectives that we've got. So I think that it's going to be the broad spectrum of our vision for the next five years, and so it will include software and hardware. And, you know, we're really excited to share this with you guys. We've been keeping it internal for a while now, and I think that you're going to be equally as excited when you have a chance to look at it because it is – It's definitely going to be driving growth for us for the next five years and beyond, and I think it's going to be a great day for everybody.

Great. Looking forward to it. Thanks a lot. You too. Take care, Travis.

Thank you. Next question comes from Brooks O'Neill of Lake Street Capital. Your question, please.

Good afternoon. I have one question. It's got two elements to it. I'm trying to keep to your format. So first question, recognizing, as Lee said, that domestically most of the insurance plans reset at the end of December. Do you feel the late start to the fourth quarter bump is going to in any way limit your ability to fulfill or sell pumps in the strong seasonal fourth quarter? And then sort of, I think, related, have you seen any benefit or impact from the delayed competitive launches? And if so, how do you think that's affected you? Thanks a lot.

Thanks, Brooks. I'll take the first part of the question. When it comes to the deductibles resetting, it's such a powerful force to move people through that purchasing cycle. We don't anticipate there's going to be any problem with managing everyone that needs to come through with the capacity that we have in place. We, frankly, you know, prepare for this all year long, and we know this volume is going to come. So we feel confident in being able to push through everyone who comes to the table.

And I'll also point out that we raised guidance in the fourth quarter as well, which, you know, I think shows confidence that we've got. And then what relative, you know, as I mentioned on the call, I was in the sales force with Brian. Excuse me. I was in the field with Brian and the sales force this past month. And, you know, had great conversations with the team and really got to understand the things that they were hearing and seeing. And if you recall on the second quarter call, we basically indicated that we thought that the second half of this year was going to be primarily impacted by COVID and very little competitive activity. And I would say that's exactly what's happening. I mean, some people are talking about it, but the real issue this quarter was COVID and not much chatter about COVID. about the new products. I would say that there's still some uncertainty because of the FDA on their availability, and we'll just have to wait and see when they do get through that process.

Absolutely. Thanks a lot. Take care, Brooks. Thanks, Matt.

Thank you. Our next question comes from Alex Nowak of Craig Harlem Capital. Your line is open.

Great. Good afternoon, everyone. Going back to the mobile bullish, you responded to questions in August to the FDA. So is the FDA review clock still ticking here? And aren't you pretty close to hitting that 90-day review window with the 510K? And then just curious if the delay relates to a couple of the cybersecurity notices we've seen issued by the FDA recently, just in adjacent areas.

Yeah. Hi, Alex. How are you doing? You know, as you're right, we basically, we got the questions in the spring, and we did a very thorough job, and we submitted them back in the August timeframe. You know, and we had some initial conversations with them just to let us know that they received them, but really since then, there hasn't been anything that's been meaningful in terms of communication. You know, and I would say that, you know, the issues that we're dealing with here really don't have to do with cybersecurity. That was the very first thing we hit with the FDA, and I think they were quite pleased with the with the approach that we've taken and the design parameters that we've implemented. What really happened in this most recent response has to do with how the patients interact with the system, how they interact with the cell phone, and a lot to do with training. We had to go back and revise our training approach so that it was more in the app as opposed to in a manual. That was really most of the work that we did. I think that they're very busy right now. I think any of those metrics that they established and were probably they were adhering to 18 months ago are no longer valid. And I think they're still very busy supporting COVID. And, you know, a lot of the people that had been part of the groups that we have worked with are still not back yet. And so I imagine that everybody's experiencing the same thing, but, you know, hopefully it'll return to normal next year. But, Right now it appears that, you know, we're hoping and planning for, you know, approval here. But, you know, as we get further and further into November, you know, it seems like practically it probably won't happen. We'll just have to wait and see what does happen.

Okay, understood. That makes sense. And once you do get the mobile balls approval, how quickly can you pivot that into a submission for T-SPORTS?

Well, I think we have to see what actually are the lessons learned from the mobile bolus feedback we get from the FDA and how much work we're going to be required to apply that to T-SPORT. So as soon as we get the response and as soon as we get approval on that, we'll come forward and we'll discuss more about the timing for T-SPORT. Okay. I appreciate it. Thank you. Yep. Take care.

Thank you. Our next question comes from Chris Pasquale of Guggenheim. Please go ahead.

Thanks for taking the questions. You talked about the renewal opportunity, which becomes a much bigger deal for you guys over the next couple of years as you sort of lap the significant new customer gains that you had a few years ago. I'm curious if you could just give us some updated metrics on how you think you're doing in terms of converting those patients that are ready for for a new pump today and how you're approaching, you know, really maximizing the opportunity over the next couple of years to try and get as many of those, you know, patients to come on with a second pump. Thanks.

Sure. So when I think about the renewal opportunity, our team's been very focused on it, obviously, for many years. And over the course of these years, since we began going after those opportunities, we've learned a lot of lessons. We've implemented a lot of changes in our process, efficiencies, the way we approach patients, and most importantly, our retention activities along the way. So it's not like a patient hears from us again for the first time four years after they bought their first pump. And so that's proven to really improve our renewal metrics. And where we are right now is we're tracking to being at about a 60% cumulative renewal rate by the end of this year, which is a pretty big step up compared to where we were at the end of last year. And it's great because we're positioned well as the number of new opportunities increases pretty dramatically. And by that I mean if you look back to 2017 versus 2018, the number of pumps we shipped practically doubled. So we're looking at the number of opportunities for next year practically doubling what we're seeing this year. So we think we're in a good spot. We continue to see progress, and we're very pleased with where we're headed with it.

Thank you. Our next question comes from Steve Lichtman. Of Oppenheimer and Company, your line is open.

Thank you. John, you talked about the momentum you guys are seeing internationally, but also talked about the fact that you're relatively early on in relative to control IQ expansion. Can you put some more color around that, whether qualitative or quantitative? Where are you guys on the rollout in France and Germany? What other countries are you targeting here in your term? Just your outlook for continuing that international momentum would be great.

Yeah, absolutely. I mean, I'll start off by saying that right now we have 300,000 patients worldwide, and two-thirds, 200,000, are using Control-IQ, which is really, really exciting. And in terms of momentum, we have 30 million patient days of data in our databases that really help understand the performance of the system and benefit our product development initiatives. So great momentum there. I would say that, you know, it's early in France and Germany. And being so early, it's really exciting to see the interest and the initial strong demand. I mean, clearly there are big markets. We're just getting started. It's only been a month or so, maybe two months at best, since we've started to push the products in that area. So, you know, we think that there's a long runway here And I would expect that, you know, just like we saw in the States, we saw, you know, strong demand, and it continues to be strong. We expect to see that OUS. And as you know, the countries we're in now, the 20 or 20-plus countries we're in now, represent, you know, almost two-and-a-half times the number of people that are here in the States. And so underpenetrated, large market, and great technology. We think it's a winning formula.

Great. Thanks, John. I'll jump back into you. Take care.

Thank you. Our next question comes from Joanne Wanch of Citi. Your line is open.

Hi, this is Anthony on for Joanne. Thanks for taking our question. I understand it might be a bit early, but to the extent that you can, what initial labeling should we expect for T-SPORT just in terms of type 1 versus type 2? And then what manufacturing steps do you need to take ahead of that launch? Thanks.

Yeah, sure. I think that, well, right now, if you look just at the pump, The T-SLIM pump is an ACE pump, and it is indicated for both type 1 and type 2. The component that is not is the algorithm, and so the control IQ algorithm has to be approved for type 2. And, you know, I would say that shortly after, you know, we introduced TSPORT, MY GUESS IS THAT WE'LL HAVE A TYPE 2 INDICATION. SO IT'LL PROBABLY BE INTRODUCED INITIALLY AND THEN, YOU KNOW, WITH TYPE 1 INDICATIONS ONLY AND THEN FOLLOWED BY TYPE 2 AS SOON AS THAT APPROVAL COMES THROUGH. YOU KNOW, WHEN IT COMES TO MANUFACTURING, WE'RE BUILDING THE PRODUCT RIGHT NOW. WE'VE ESTABLISHED THE MANUFACTURING CAPABILITY. WE'RE BUILDING PRODUCTS. We're evaluating and testing those products. We're letting the R&D teams, you know, have access to them. You know, the organization is wearing them and walking around with them. And, you know, we're building up the manufacturing capabilities as we speak. And, you know, again, we're making a lot of progress. We're doing, you know, the device is awesome. It looks great. And we're excited about it. We just need to get it out there in the marketplace so you guys can hear about it as well.

Great. Thanks.

Our next question comes from Ravi Misra, Barenberg Capital Management. Your line is open.

Hi, good evening. Thanks, John. Thanks, Lee, for taking the questions. Hi, Ravi. I guess I'll use my bullet on the international sales and kind of the – can you talk a little bit more about the stocking? That's that $3 million number that you mentioned, Lee. And as we kind of go forward, you know, you're having this tech day, are you going to lay out some of the more international strategy around how you plan to attack other markets beyond Europe? How should we think about kind of the rest of the world? There's a lot of diabetics out there beyond Europe, and what kind of timeframe should we think about you guys getting into that world? Thank you.

Sure. Thanks, Robbie, for the question. I'll start with talking about the benefit that we talked about in the third quarter. This really came through the supply sales in the international markets, and I think the one piece that's been more difficult is the variability we've seen in the ordering patterns across the year. So what we wanted to highlight is as you looked at this third quarter in particular, there was about $3 million of incremental benefit that just came from the timing of when supplies were ordered. And that's in an effort to help just from a modeling perspective because typically the supply sales are the easiest to model and give you a level of predictability for the future. So hopefully that helps when you're thinking about how to model out the international sales until we get out of this type of COVID environment that's creating the variability that we're seeing today. And you asked about where we go next, basically. So I'll start with 2022. It's really going to be about a year of building, getting more depth in the markets that we're in. So we're not necessarily going to be talking about any major expansions, but we will in the future talk more about where we're going to go after this. There's so much room to run there, as John said, so much under penetration, a really large market that we want to make sure that we're capitalizing on that today before we take too many steps forward.

And then just relative to the pipeline and international, we made this transition pretty quickly over the last several years. And I think that right now we're definitely thinking like an international company. And when we talk about pipeline projects, it's definitely something that's part of the equation. I would say that there's a benefit in the U.S. today because of the interoperability initiatives. You know, the regulatory challenges are not as significant as they are OUS. I doubt we'll talk too much in depth about it. Really, the R&D day is going to be about vision, where we're headed. But I think in time we will definitely speak more about it because it's definitely a huge opportunity. I think we see it as you do, and we want to take advantage of it.

Thank you. Again, ladies and gentlemen, to ask a question, please press star 1 on your touch-tone telephone. Again, that's star 1 on your touch-tone telephone to ask a question. Our next question comes from the line of Matthew Blackman of Stifel. Your line is open.

Good afternoon, everybody. Thanks for taking my question. John, you mentioned starting a control IQ enhancement study. Is that the control IQ 2.0 study that's being run at UVA? I think it started there. late in the summer? And if so, when might we see that data? Is it possible that we'd see it at ADA or maybe even ATTD? Just any more color you can give us on that. Thanks.

Yeah. No, you're right. That is, you know, we have Control IQ 1.5, which is, I would say, it's kind of modest changes to the function of the product, not really algorithmic in nature. And then Control IQ 2.0, which is really what we're investigating today in a smaller study that's in UVA. And when you sort of think about what we, you know, we had to go out and do a great deal of market research to understand what were the features that we wanted to include in it. And then those features had to be designed and implemented, modeled and tested. And now we're at a point where we're doing clinical studies on those. And so, you know, the way it's going to work really is that we're going to probably iterate through these features, generate a significant amount of information, share that with the FDA, and then decide what might Control IQ 2.0 look like. and then designed the pivotal study for it. We're excited about this. We're excited about the results. It's really cool to start doing something significantly new and different. I would say that our clinical team definitely wants to present the data. They're excited about it as well. I don't know if we'll be in a position to do it that early, but, I mean, I think that everything that we do clinically, we will ultimately share with the broader community because, you know, I think it's going to be great results and, you know, further the excitement and the growth opportunities that we have here at Tandem. Thanks, John. Sure thing. Take care, Matt.

Thank you. Our next question comes from Jason Bedford of Braman James. Your line is open. Thank you.

Hold on. This is for Jason. One quick question. Is there any timing update you guys can provide us on the G7 integration as well as the Libre integration? What more has to be done before those two things can happen? Thank you.

Sure. Well, as we've talked about in the past, you know, we've been working with Abbott now for about a year, and we're making great progress. Tandem is really focused on the integration of the technology into our pump. And in parallel, Abbott is focused on addressing the vitamin C issues that they have with the ICGM designation and AID systems. And so those are happening in parallel. You know, I think at some point we're going to – I think that there's an FDA clearance that's going to be required for Abbott, and I think that that really will be sort of the long pole at this point in time. When it comes to Dexcom, we've integrated three generations of their sensors already. We're on the fourth. We know how to do this. And so, you know, we would anticipate shortly, I mean, we've said, you know, months after their approval, their FDA approval, we'd be in a position to introduce the product. So, you know, we're moving aggressively here. We think that these are two very exciting initiatives for us that are going to drive a lot of interest in the company and our product. So, you know, we are definitely resourcing these things and taking them very seriously.

Thank you, and that's all the questions we have in queue. This does conclude today's conference call. Thank you for participating. You may now disconnect.

Looks like we have one more.

We actually do. We have a question from Brooks O'Neill, Lake Street Capital. Your line is open. Okay.

Hey, guys. Sorry, I appreciate your squeezing me in here. I was just thinking you were talking about Dexcom and Abbott, so I was curious, obviously, the over bolus feature. works in conjunction with Apple and, I guess, Android phones as well. Would it be reasonable to think there might be other ways you could work with Apple and or Android manufacturers down the road?

Yeah, I mean, I think once we integrate the technology onto a, a phone, Brooks. There's just a wide range of opportunities that we've got there. I mean, there's a watch. I mean, there's a watch. People, you know, if you can get onto the Apple pump, the watch is not that far away. So that's an opportunity, I would say. And then there's also just all of the features that you have on your phone. I mean, when you consider just how you interact with it today, I could envision where we have the ability to order supplies the ability to text our customer support lines, the ability to just open up videos that help explain how the system works if there's questions like that. So there's a tremendous amount of opportunity that we establish once we get into this mobile space. And we certainly intend to take advantage of it. And I think it's going to be very exciting. It's going to really reduce the burden on people using it. It's going to be convenient, and it's also going to be very discreet. So all these things are great for the people who are using our systems, and we'll talk more about this on R&D Day, but it's a really cool opportunity for us and people using our systems. Great. Thank you very much, John. Take care, Brooks.

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