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.