Ladies and gentlemen, thank you for standing by and welcome to Tandem's Second Quarter 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. Please be advised that today’s conference may be recorded. I would now like to hand the conference over to your host, EVP and Chief Administrative Officer, Susan Morrison. Madam, please go ahead.

Great, thank you, and welcome, everyone, to Tandem's second quarter 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, 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. John Sheridan, President and CEO; and Leigh Vosseller, Executive Vice President 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 two questions before getting back into the queue. With that, I'll now turn the call over to John.

Thanks, Susan, and good afternoon everyone and welcome to today's call. Looking back at the first half of 2020, the broader issues impacting the world continue to be at the forefront of our minds. Even in this challenging global environment, our business has excelled in its commercial, operational, and strategic performance. I'd like to say a special thanks to our employees for their steadfast focus and commitment to improving the lives of people living with diabetes. It is only through their hard work and dedication that our customers are able to succeed and as a result, so is our business. I am very proud of the team and all that we have accomplished. I'd also like to extend continued thanks to the healthcare providers supporting the diabetes community and to the frontline workers looking after all of us during these challenging times, along with all of our suppliers who continue to support us without disruption. Thank you to everyone. Next, I'd like to take a moment to extend an extra welcome to our two new board members, Kathleen McGroddy-Goetz and Peyton Howell. Kathy has extensive experience commercializing pioneering technologies that span from microelectronics through software, advanced data analytics, and artificial intelligence with an emphasis on healthcare and life science applications. Peyton is a reimbursement expert across a broad range of disease states, including diabetes, and brings a wealth of healthcare knowledge across hospital, pharmacy, and home care settings. We are fortunate to welcome Kathy and Peyton to our board. Their perspectives will be extremely valuable as we work to execute on our long-term strategy to lead in insulin therapy management. The addition of these two talented individuals is just one of many meaningful announcements. Since our last call, we also further strengthened our balance sheet with a successful completion of a convertible debt offering of nearly $290 million, presented compelling real-world clinical outcomes of early adopters of our Control-IQ technology, earned FDA clearance lowering the age indication for Control-IQ from age 14 down to age 6 and above, announced our acquisition of the popular Sugarmate app, finalized our agreement with Abbott to integrate their CGM technology with our pumps, and completed a cross-license agreement with Medtronic. As if this long list of accomplishments was not enough, we were also able to share the highly anticipated decision by United Healthcare to include Tandem’s products in their network. All the while, we also achieved record worldwide sales in the second quarter, which are even better than expected when we entered the quarter amidst the challenges of COVID-19. Based on the continued high demand for our t:slim X2 insulin pump, we are reinstating our original sales guidance that we set at the beginning of 2020. Domestically, the feedback for our easy-to-use Bluetooth-enabled t:slim X2 platform continues to be outstanding. This has been further supported by the growing awareness of our Control-IQ technology that's demonstrating better real-world clinical results than in our pivotal study. Our t:connect data provides us with great customer insight and indicates that our domestic integrated Dexcom CGM use has increased from approximately 30%, just two years ago, to more than 60% today. Similarly, the data also indicates that more than 60% of our customers in the U.S. use either Basal-IQ or Control-IQ. Looking specifically at our 2Q new domestic customers, the percentage using CGM is meaningfully higher than the 60% in the overall installed base. Of these customers who are adopting t:slim X2 therapy from multiple daily injections, more than half are using CGM. This supports our belief that once a person has their CGM information, it often highlights opportunities for greater glucose control, which is where pump therapy and automated insulin delivery come into play. Importantly, we are continuing to see about half of our new customers report adopting pump therapy for the first time from multiple daily injections. This pattern was consistent across all months of the second quarter, which was significant as there was a natural assumption that people may be less likely to adopt pump therapy during the pandemic. Another noteworthy metric is that people with type 1 diabetes now comprise more than 90% of our new customers. It is evident that we are making progress in our broader strategic goal to bring the benefits of pump therapy to more people with diabetes by expanding the type 1 insulin pump market from just over 30% today to 50%. It also points to an unmet market of individuals with insulin-dependent type 2 diabetes that have not been our primary focus in the past, but we are evaluating how our technology can assist in meeting their needs. Another interesting observation from the quarter is that nearly all of our new customer pump trainings were performed virtually, and we are receiving extremely high marks from customers regarding the training experience. In fact, customer confidence and satisfaction scores have increased. While a small percentage of people have opted to wait for live training, the majority have moved forward with virtual training. Today, we estimate that the vast majority of our accounts are seeing some of their patients in the office, although limited access for commercial activities continues. Our sales representatives and educators are using their discretion based on geographical considerations regarding whether they will participate in these live visits. However, our overall direction is to limit interactions and work remotely as much as possible. Even with the challenges of COVID-19, we are expecting growth throughout this year. We anticipate this will continue to be driven by seasonal trends, along with strong interest in Control-IQ and the expanded access to United Healthcare members. United Healthcare’s recent decision is one that we celebrated with the entire diabetes community as it provides people living with diabetes greater choice in their therapy management. Access is an initial step towards improved outcomes, and we look forward to bringing the benefits of the t:slim X2 insulin pump to United Healthcare members. Internationally, our new pump sales also exceeded our expectations. We initially assumed that there would not be many pump placements during the quarter, as many people with diabetes receive care through hospital systems outside of the United States. However, our distributor restocking orders and their feedback showed sustained demand for the t:slim X2, even in this challenging landscape. The t:slim X2 pump software is now available in 12 languages, and we've been receiving the same positive feedback from customers in international markets on our easy-to-use t:slim X2 system. I'm also excited to share that we have commenced the international launch of our Control-IQ technology, which is at the early end of our second half of 2020 goal. Control-IQ is now available in the UK and South Africa, and we plan to continue rolling it out more broadly internationally throughout the remainder of the year. As you can see, our worldwide commercial efforts are progressing exceptionally well, which we attribute to both our product innovation and our emphasis on customer service. Additionally, our corporate and operational functions continue to perform at a very high level. Employees who are capable of performing their job functions remotely continue to do so, and we do not feel any immediate pressure to have them return to the office and potentially put them at increased risk. Our manufacturing and warehouse employees are operating onsite with heightened safety precautions in place, as are our third-party cartridge manufacturer just across the border in Mexico. These teams have excelled in the face of COVID-19 challenges and continue to work towards our production goals while preparing for future growth. Scalability remains a focus for us, particularly as we advance our new products in development. Overall, we estimate that the R&D impact from COVID-19 is a delay of just over a quarter. Given the circumstances, we are pleased that there were no further impacts. In the next 12 months, we aim to bring three new products and features to the U.S. market, including the launch of our t:connect mobile app, the future edition of the mobile bolus delivery feature through an app, and the clearance of the t:sport insulin delivery system. As a reminder, our t:connect mobile app represents the center of our digital health strategy moving forward, which is why we adopted a more measured approach to its launch over the past few weeks. Even without broad promotion, approximately 15,000 individuals have downloaded the app since its release for both Android and iOS devices. Most importantly, the feedback on user experience has been excellent, and we are confident in its ability to serve as a foundation for future offerings. We will be ramping up its promotion now so both customers and healthcare providers are aware of its key benefits, such as the secondary display and the wireless upload of pump data. The wireless upload feature eliminates a burdensome step for our customers and their healthcare providers, allowing them to view tracking and trending information in t:connect without needing to upload data through a USB cable. This enhances efficiency in healthcare providers' offices by streamlining visits and providing an essential resource for the delivery of care using telehealth platforms. The ability for our users to deliver a bolus through the app is the next major feature we plan to launch and one that's already in high demand. Human factors testing has commenced and will take several weeks to complete at various sites nationwide. Afterwards, we will compile and analyze the data, which will be used in a 510(k) submission to the FDA in the fourth quarter. Currently, no commercially available app delivers insulin from a consumer mobile device, and FDA resources are being prioritized for COVID-19. Consequently, the timing for clearance is difficult to predict, but we are preparing to launch in the first quarter of 2021. The remote bolus capability is a significant step toward full mobile control, which is another major feature we plan to introduce on our app for the operation of our next-generation hardware platform, the t:sport pump. T:sport is significant to our business as it expands the family of insulin pump offerings, providing customers with a choice between programming therapy management using a touchscreen on the pump or opting for a pump that is about half the size and fully controlled through a mobile app. Both platforms will feature the latest automated insulin delivery algorithm. I'm pleased to report that human factors testing for t:sport is now underway. As a reminder, t:sport will utilize a two-part regulatory strategy. The first submission is expected to include both t:sport pump hardware and a dedicated controller; it is now planned for the fourth quarter due to delays caused by COVID-19. This will be followed by a separate filing for the t:sport pump utilizing full pump control through our mobile app. While the second filing is under review, we intend to gather expanded real-world user experiences with the pump and expand our manufacturing processes. However, owing to this multi-step strategy, it is also more challenging to predict the ultimate FDA clearance and broad commercial availability, but we are preparing for clearance in the summer of 2021, after which time we will commence our commercial launch. In the quarter, we rounded out our digital health activities with the acquisition of Sugarmate, a popular app with complementary features to t:connect. Sugarmate also integrates with consumer devices such as the Apple Watch, Alexa, and CarPlay, helping visualize therapy data in innovative ways, which is essential to supporting insulin therapy management. We estimate that more than half of the 30,000 people using Sugarmate do not use an insulin pump today, so we expect it to help us deliver new features to Tandem pump users, as well as to a broader community of people with diabetes. This is our first acquisition and a small but significant step in the future development of digital health platforms that reinforce our strategy to lead in insulin therapy management. In support of this strategy, we continue to advance our internal development efforts on features and enhancements to our Control-IQ technology. We aren't providing a schedule yet for competitive reasons, but broadly, they center around algorithm enhancements intended to improve clinical outcomes further, introduce new features with greater personalization, and refine overall system usability. We are planning the first of our Control-IQ updates for the second half of 2021. Another exciting business development activity this quarter was finalizing our agreement with Abbott to develop and commercialize an integrated system using their technology. The product development teams are now initiating integration efforts, from which we will be able to establish commercial timelines. We look forward to bringing the benefits of integration and automated insulin delivery to Abbott’s customers and more people living with diabetes. As you can see, each of our accomplishments this quarter reflects a tremendous amount of cross-functional work. Collectively, they symbolize the strength of our organization and the high level at which we are functioning to drive the near and longer-term growth of our business, furthering our mission to improve the lives of people living with diabetes. Now, I'd like to turn the call over to Leigh for further discussion of the results of the quarter and our financial guidance.

Thank you, John, and good afternoon, everyone. It is remarkable that we achieved our highest sales quarter ever in the face of the COVID-19 pandemic. We entered the second quarter with a great deal of uncertainty regarding the pandemic’s impact. While we did experience negative pressure on our pump volumes, the impact was far less pronounced than originally anticipated. Thank you again to our employees, suppliers, and distributors who continue to work tirelessly to support our customers. Worldwide sales in the second quarter were a record $109 million, representing 17% growth over last year, which we already anticipated would be a tough comparison due to international dynamics in 2019. Our worldwide installed base has reached nearly 170,000 customers, with 18,700 pumps shipped worldwide this quarter. Overall, our worldwide sales in the first half of 2020 totaled $207 million, reflecting a strong 30% growth year-over-year. As our international operations continue to grow as a meaningful part of the business, understanding the differing trends in the U.S. and OUS markets is crucial. Starting with the U.S., our domestic pump shipments grew 15% year-over-year to 14,700. We attribute this growth to the appeal of our easy-to-use pump with the capability to offer remote software updates, and heightened customer awareness of our Control-IQ technology and the improved clinical benefits it provides, as well as our successful adaptation to operating in a telehealth environment. Our second quarter shipments included approximately 3,000 pumps to renewing customers, surpassing the total shipped to renewing customers for the entire first half of 2019. We are pleased with the steady progress we continue to make on our renewal and retention initiatives. In total, we achieved $89 million in domestic sales in the second quarter, of which $33 million originated from supplies sales. This growth in supply sales reflects a more than 40% increase in our domestic installed base compared to last year, which has now reached approximately 137,000 warranty customers. Year-to-date, our domestic sales stand at $169 million, reflecting a 35% increase versus $125 million in 2019. Outside the U.S., our second quarter results are not directly comparable to last year. As a reminder, in the second quarter of 2019, our international sales benefited significantly from the final influx of Animas patients converting to Tandem, along with the fulfillment of a $7 million backlog due to a supplier component constraint months earlier. This quarter, we shipped about 4,000 pumps, which is down from the 8,500 units shipped last year, mainly due to those one-time dynamics, but it exceeded our expectations at the beginning of the quarter. Consequently, we reported $20 million in international sales for the second quarter of 2020. On a year-to-date basis, our international sales reached $38 million, compared to $34 million in the prior year, representing a 12% growth mainly due to supply contribution from our growing international installed base. We currently have around 32,000 customers outside the U.S. in just under two years, which is a significant achievement considering we didn't reach that base size in the U.S. until over three years post-launch. As we look ahead, we are confident in reinstating our original 2020 worldwide sales guidance set at the beginning of the year of $450 million to $465 million. This outlook includes a mix of headwinds and tailwinds we are experiencing, including the unpredictable nature of the COVID-19 pandemic. It is important to note that we continue to feel pressure from the pandemic and do not anticipate a full recovery in 2020. That said, several positive factors give us confidence for the remainder of the year. These factors include the strong, positive feedback from Control-IQ so far, its ongoing worldwide rollout, our demonstrated success in adapting to a remote operational environment, and the anticipated benefits from United Healthcare's decision to include Tandem as a network provider. We anticipate achieving domestic sales of approximately $380 million to $390 million. Historically, we see a significant seasonal uptick in domestic sales, particularly in the fourth quarter, when our pump shipments typically represent 35% to 40% of our full-year sales. At this time, we are assuming that the benefits from seasonality, along with Control-IQ and access to United Healthcare members, will produce sequential benefits in the third and fourth quarters, albeit alongside ongoing pandemic-related pressures on our business. Outside the U.S., our 2020 sales guidance stands at approximately $70 million to $75 million. This expectation reflects ongoing COVID-19 pressures in existing and new markets, as well as the likely variability in distributor ordering patterns due to the typical European third-quarter holidays and the ongoing scaling launch of Control-IQ for the remainder of the year. Regarding our performance across the P&L, our gross margin was 50% compared to 54% in the previous year. The majority of the decline stemmed from royalty and non-cash stock-based compensation. Royalty expenses related to Control-IQ represent a new element of gross margin in 2020, for which there was no comparable expense in 2019. We record royalty expense for every new pump sold with Control-IQ installed, as well as for free software updates during the quarter. In the second quarter, royalty expenses accounted for nearly 2% of sales. Royalty expenses as a percentage of sales may fluctuate in the near term depending on the number of free software updates in any period but are expected to decline as a percentage of sales in the long term. Additionally, non-cash stock-based compensation in cost of sales increased to 2% of sales in the second quarter of 2020 from 1% in the second quarter of 2019. Fluctuating sales and manufacturing volumes also impacted this quarter's gross margin. Last year's sales benefit from backlog fulfillment led to increased pump manufacturing volumes to meet the additional demand. Conversely, in recent months, we have scaled back our pump manufacturing builds while managing our inventory to appropriate levels during the pandemic. This reduction in production led to more than a 15% decrease in our pump manufacturing volumes in the first half of 2020 compared to the previous year, which further increased overhead costs per unit in the second quarter and is expected to continue into the third quarter. As an essential business during COVID, we also made decisions that resulted in slightly elevated costs to mitigate manufacturing disruptions and ensure supply continuity for our customers, such as maintaining a larger roster of direct labor employees. Other factors affecting gross margin this quarter included a slight benefit from pump average selling prices, pressure from product mix, and increased spending levels to expand cartridge manufacturing capacity and support our digital health product offerings. Overall, we project that our gross margin for 2020 will range in the low to mid-50% bracket. We continue to execute our margin improvement initiatives and feel confident in achieving our long-term gross margin goal of at least 60%. Our adjusted EBITDA margin, which excludes non-cash stock-based compensation, was 6% in the second quarter, continuing our trend of reporting a positive quarterly adjusted EBITDA margin since the fourth quarter of 2018. Prior to COVID-19, we consciously decided to fund 2020 investments that target long-term sales and profitability initiatives. Due to the strength of our balance sheet, we are committed to sustaining these investments even in the face of the COVID-19 pressures. Consequently, our operating expenses grew to $66 million in the second quarter of 2020, including $14 million in non-cash stock-based compensation. In comparison, our operating expenses were $52 million in the second quarter of 2019, which included $11 million in stock-based compensation. We expect to achieve adjusted EBITDA margins in the low to mid-teens as a percent of sales in 2020, as we focus on prudent spending to meet our objectives and strategic plan. Our total cash and investments at the end of the second quarter amounted to $426 million, compared to $176 million at the end of 2019. This increase includes $245 million from the convertible debt transaction we completed in May 2020, along with $31 million generated year-to-date from employee stock plans and warrant exercises. In summary, we anticipate our 2020 worldwide sales reaching $450 million to $465 million, with international sales expected between $70 million to $75 million. We remain committed to investing in key initiatives projected to generate returns on sales and profitability beyond 2020. Consequently, we expect our gross margins in 2020 to fall within the low to mid-50% range, while adjusted EBITDA margins will be in the low to mid-teens as a percent of sales. With that, I will turn it over to the operator for questions.

Thank you.

While the questions are being compiled, I wanted to mention that there is a short delay in filing our 10-Q due to EDGAR issues, and we expect it to be filed as soon as the system comes back online. Thanks.

Thank you. Our first question comes from the line of Brooks O'Neil of Lake Street Capital. Your line is open.

Good afternoon, all. Congratulations on a terrific performance here and the positive outlook as well. So nice work.

Thanks, Brooks.

Thanks, Brooks.

So I was listening as carefully as I could, and I didn't hear you specifically say a lot about what the trends have been in July and what changes you've been seeing in the most recent time period. Could you give us just a little feel for what you're seeing out there recently?

Sure. Brooks. Thanks for the question. To provide some context, when we were on our first quarter earnings call at the end of April, we started to see some softness in May, which is why we were cautious about the annual guidance. However, in the middle-to-late part of the quarter, we began to observe stabilization. While it wasn’t the typical seasonal uptick, we did witness some strengths, albeit not as robust as previously seen. As we moved into July, we're excited because we now have the opportunity to pursue United Healthcare members, given that we're in network. Based on the strength we noted in the second quarter and the momentum stemming from Control-IQ as we move forward, we're quite confident in the numbers we've communicated for the rest of the year while still remaining cautious about the ongoing impact of COVID-19.

Brooks, I'd also say that we've been successful operating in a telehealth environment. Our sales and training teams are performing exceptionally well, which truly aids us in the field.

So would you say, just as a quick follow-up, but not really my second question, that you don't anticipate any problems continuing in more of a telehealth environment going through the third quarter and into the fourth?

I believe the team is operating effectively in the telehealth setting. Currently, healthcare providers are getting accustomed to this setup. There has been some reopening of offices recently, particularly after the total shutdown in late March, April, and May. By late May, we began to notice openings, with further increment in June. I believe telehealth will remain significant moving forward, and I think our team feels confident operating in this environment. We've been prepared and adapting for quite some time now, and I don't expect it will negatively impact us.

Great. So a second question I had was, could you elaborate a bit more on international? I'm really excited about the opportunity with Abbott given their enormous international success. However, my understanding is that you're primarily marketing Basal-IQ right now. Can you elaborate on how that's progressing, and if there are any changes you've seen as you begin to transition to Control-IQ? How may this impact international dynamics in the near term?

We began introducing Basal-IQ in the second half of 2019 across about 12 countries, and most of those countries are now actively utilizing it. We are seeing similar success, excitement, and positive feedback in international markets as we have here in the States. We recently initiated our Control-IQ launch in the UK and South Africa, earlier than originally anticipated, and we have a plan to roll out Control-IQ by geography between now and the end of the year. We believe that Control-IQ is very competitive, and we are confident that the positive dynamics we've seen in the U.S. will also be replicated in other markets. However, I must mention that there has been unpredictability in ordering patterns outside the U.S., primarily because most patient visits occur within hospital settings leading to uncertainty in demand materialization in the second half. The situation is less volatile in the States, but that unpredictability poses a headwind countered by the tailwind of Control-IQ’s introduction.

Thank you so much for taking my questions.

Sure. Thanks.

Thank you. Our next question comes from Travis Steed of Bank of America. Your question, please.

Hi, congratulations on a great quarter. So the full year guide remains the same now as it was before. But I'm curious, as you're halfway through the year, if you're tracking ahead of that original plan, or if you're below plan, now that you have UNH to fill the void. Just kind of checking in on where you stand?

We feel fortunate to have reinstated our original guidance, yet it comes with much different dynamics than we faced initially. Our guidance philosophy considers factors we control while being cautious about unpredictable elements. From a renewal perspective, we feel confident in our projections. At the start of the year, we focused on the growth rates we hoped to see from the NDI market compared to last year, which was already escalating, and we were cautious about Control-IQ since it was newly launched. We've now reached the midpoint of the year, and the landscape has changed drastically due to COVID. We are witnessing outstanding momentum from Control-IQ, which we are incorporating into our outlook for the back half. United Healthcare's partnership was not factored in before, so that adds another layer of positive dynamics, leading us to a very strong year of growth.

It appears that for new patients in the U.S. in Q2, you saw about 1,500 new patients, which is about 500 below trend. Could you gauge the impact of COVID on patient delays versus the lift from Control-IQ? Do you have a sense of how many patients delayed their decisions, and do you expect any of those who delayed will come through in the second half? Also, how do you expect the United Healthcare impact to play out—will it be a burst of patients or more consistent?

It's challenging to pinpoint the exact impact of COVID versus the benefits of Control-IQ. I can confirm that Q2 did not meet our original expectations. However, upon entering the quarter, we were already more cautious about its outcome. We credit Control-IQ as a significant factor for the strength we experienced in the second quarter. Regarding United Healthcare, we can clearly see strong interest from individuals eager to switch to our pump or initiate pump therapy for the first time now that we're networked. As we think about United Healthcare, we've communicated our expectation of a mid-single-digit uplift to business as a result.

Thank you. Next question comes from the line of Alex Nowak of Guggenheim. Your line is open.

Great. Good afternoon, everyone. First, congratulations on making the connections with United Healthcare—clearly a big win. That announcement seems to come with some preferential language towards the competitor, Medtronic. Can you clarify how this affects reentry into the United Health market, and what sophisticated marketing actions can you pursue to convert those waiting to switch to a pump to Tandem?

Unfortunately, we cannot comment on the specific marketing practices of United Healthcare. We've worked closely with them to meet their requirements. Now that the information is public, we're able to share insights. I do not perceive that Medtronic possesses any competitive advantage in this scenario against us. They have brought up their previous products which we routinely manage in our organization. We believe this news benefits the diabetes community, and we are thrilled to provide the advantages of Control-IQ and our pump therapy to the United Healthcare population.

Understood. Also, regarding Medtronic’s announcement of their next-gen 780G pump, did you notice any changes in order patterns after this product announcement? Additionally, have you spoken with endocrinologists about their views on the Medtronic data compared to Control-IQ?

We haven't noticed any significant changes as a result of that announcement. To date, approximately half of our new sales stem from competitive conversions, mostly from Medtronic. Therefore, it appears that their announcement has not had an adverse impact on our sales. The data they released was indeed impressive and outshined the 670G, but we all know they must address sensor performance issues. Until they align their sensor performance with Dexcom and Abbott, they may continue to face challenges. We are confident that Control-IQ can compete effectively against the 780G, and we will determine the market response once it becomes available.

Okay, understood. Congratulations.

Thank you.

Thank you. Our next question comes from Danielle Antalffy of SVB Leerink. Your line is open.

Thank you so much. Good afternoon, guys. Thanks for the questions, and congrats on a strong quarter. Following up on your competitive switches with Medtronic, you noted that 50% of your new starts were switches from competitor products, which is consistent with trends over the past few years. How sustainable do you think this will be moving forward? Do you expect any changes as the pump market continues to evolve and as your competitors unveil new products?

I believe we have the best product on the market currently and it's essential for us to continue innovating to uphold that status. Improved therapeutic outcomes, which you can see in discussions across social media platforms, along with ease of use, drive adoption. We intend to maintain our focus on those areas. We are eager about our mobile app with the mobile bolus capability, and t:sport is set to add an extremely competitive product feature in the near future. Moreover, we plan to introduce algorithm enhancements. Looking at the competitive field, we have a plethora of innovations lined up and I remain confident about our market standing.

That sounds great. You all have been executing phenomenally well. You deserve a lot of credit. Given the ongoing trends in telehealth, do you think your advancements in that area have strengthened your competitive position? I observe that you may be ahead of the competition with telehealth implementations. Thank you.

Absolutely. We've found that our ability to function effectively in a virtual environment has been a tailwind for our organization. Our sales teams have readily adapted to this challenge. We've previously discussed our shift towards digital health, and the need for virtual training and interaction with physicians will increasingly play an important role in our future product developments and services that harness data. The aim is to streamline the daily interactions physicians have with their patients, alleviating burdens on their practices as we have with our pump products.

Thank you.

You're welcome.

Thank you. Our next question comes from Matt Blackman of Stifel. Your question, please.

Good afternoon, everyone, and let me also congratulate you on a truly remarkable quarter. I have just a couple of questions. First, John, I want to follow up on your CGM and type 2 comments in the script. Earlier this week, your CGM partner mentioned that roughly 20% of their current installed base consists of type 2 and largely intensive patients. Similar to how you assess type one penetration and runway, do you think CGM penetration in the type 2 market will help increase pump penetration, or will there be different dynamics at play for this patient cohort?

You're correct; we mentioned that around 60% of people using our pumps also utilize CGM. If you look at the previous quarter’s data, it's significantly higher. Our sentiment remains that for patients, the critical metric is how CGM complements their capability to optimize glucose control and bolus calculations. For type 1 patients, using CGM often leads to improved glycemic control, which naturally transitions them into pump therapy given its benefits. Conversely, while we recognize that the type 2 market is underserved, we're exploring strategies for our involvement. Recently, we've shared compelling data on type 2 patients using Control-IQ and the significant improvements they've observed. We're dedicated to gathering additional clinical data and believe t:sport will be an attractive option for insulin-intensive type 2 patients. We're diligently evaluating commercial strategies, sales channels, and sales support to ensure we approach this area effectively.

Thank you for the insight, John. Additionally, I found your recent cross-licensing agreement with Medtronic quite interesting. Are there any implications or insights we should glean regarding the competitive landscape over the next several years? Furthermore, do you predict that as competition intensifies, the pump market may see increased litigation?

This agreement ultimately serves the best interests of the diabetes community. This collaboration enables both companies to innovate and develop solutions without being bogged down in litigation that distracts from operations. We've demonstrated an ability to innovate quicker than competitors over the last seven years, and we intend to carry that momentum forward. Notably, I believe this agreement is indicative of our strong IP portfolio.

Thank you. I appreciate the insights, and congratulations once again.

Thank you.

Thanks, Matt.

Thank you. Our next question comes from Ryan Blicker of Cowen. Your questions, please.

Hi, thanks for taking my question. Following up on international guidance, you mentioned earlier the unpredictability of distributor ordering patterns. Can you reflect on the first half of the year? Was there significant stocking from distributors in your new geographies? Given the unpredictability, especially with the ongoing Control-IQ launch in several geographies, why is your international guidance on the higher side for the year?

As John mentioned, there is considerable variability in distributor ordering patterns internationally, exacerbated by COVID-19 impacts on those markets. In the second half of the year, we want to be cautious regarding variables—COVID remains a primary concern, but there is also the typical summer holiday season in Europe, which tends to disrupt business. While we anticipate market opportunities from Control-IQ’s rollout, we need to manage expectations with a careful approach. Specifically, for Germany, we received the last piece of reimbursement approval needed to start actively marketing and placing pumps on patients by the end of June. We aim to have a robust marketing push in the second half of the year. Despite these challenges, we are encouraged by what we're hearing and seeing in the international market.

Understood. That’s helpful. Regarding virtual training, do you think this trend will persist even after we navigate through the pandemic? If so, how might this reshape your operating expense structure over time?

I think the transition to virtual training is here to stay. Patients and healthcare providers appreciate it, and while not every visit necessitates virtual training, many find it less stressful and more convenient. Our customer service feedback has been overwhelmingly positive. We track these statistics to ensure we are maintaining quality with heightened virtual interactions. The benefits of virtual trainings greatly enhance our workflow's efficiency and reduce travel time for staff, which we believe will have positive long-term implications for our expense structure.

As a point of clarity, training costs are included in cost of goods sold, impacting gross margins. We've piloted virtual training before COVID and demonstrated its success. We expect ongoing benefits in the future.

That's excellent news. I have one more question on your robust pipeline initiatives. Can you confirm whether you still expect to launch a new algorithm in 2021? Additionally, do you believe you will be able to present more differentiated outcomes in the next one to two years within your offerings?

We do plan to launch an update to the Control-IQ algorithm in the second half of next year. While we haven't disclosed specific features for competitive reasons, we are committed to improving therapeutic outcomes, personalization, and usability. That's where we are focused right now.

Thank you. Our next question comes from Matthew O'Brien of Piper Sandler. Your line is open.

Thanks for taking the questions. Initially, when COVID broke out, you introduced a flexible spending plan. What kind of response did you see from patients, particularly new patients in Q2? How impactful was that? Did it significantly affect your revenue in Q2? And how does this factor into your reinstated guidance for the year?

I believe you're referring to our payment plans, which have always been available for patients. In the second quarter, we noted very low utilization, and while we remain mindful that the future may see these plans used more widely, there was no material impact on our revenue during Q2.

That’s helpful, thank you. The opportunity with Abbott clearly holds significant value given their footprint. However, the label it received with 2.0 was different from expectations, particularly regarding AID. Was the label in line with your projections when considering integration with Abbott? Do you anticipate needing 3.0 to effectively integrate with Tandem going forward? How do you view that relationship?

We've not disclosed specifics concerning the model we’d integrate. We're actively working with Abbott's teams to establish a developmental plan and timeline for integration. Abbott has stated that some issues arise from specific components, which we believe won’t interfere with our ability to integrate our pump with their sensor. We're proceeding with our development work while Abbott addresses their sensor performance improvements.

Okay, thank you. I appreciate the clarity.

You're welcome.

Thank you. Our next question comes from Jason Bedford of Raymond James. Please go ahead.

Hi. This is Matt Wizman on for Jason Bedford. Thanks for taking the questions here. My question revolves around the percentage of new MDI patients adopting CGM. You mentioned that approximately 50% of these users come from CGM. Is that accurate? Are you witnessing an increase in Dexcom users on MDI converting to pumps? Furthermore, is Tandem specifically targeting these Dexcom users on MDI?

You are correct that we noted that approximately 50% of patients coming from MDI are using CGM when they transition to Tandem. It's indeed the right statistic. Looking at CGM adoption over the past couple of years, we have seen a significant increase. When we first surveyed two years ago, it was around 30%, and currently, the average installation base is at 60%. Our data indicates a correlation where users of both Basal-IQ and Control-IQ significantly benefit from having their CGM information.

Thanks, John. To follow up on ADA dynamics, the real-world data you published was very compelling. Has that impacted demand or interest from endocrinologists?

Yes, it is fair to mention that the compelling real-world data has generated positive interest and attention. Many endocrinologists are gaining experience with Control-IQ and fully recognizing its efficacy, which in turn enhances our market demand. Historically, as familiarity with our technology has grown, adoption and prescriptions have also increased. We believe we are currently at an inflection point due to Control-IQ's introduction. While COVID-19 has posed challenges, our ability to navigate through the pandemic while showcasing Control-IQ's advantages has yielded positive results.

I appreciate the time. Thank you.

You're welcome.

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

Yes. Hi. This is Matt Henriksson in for Joanne. I want to focus on the pediatric label, which has flown under the radar during the call. Now that you have this label, but summer camps aren't open, how has your outreach to children changed? What are your expectations for this population as we move forward?

We continue to pursue outreach efforts despite summer camps being closed. For instance, a recent virtual conference, 'Children with Diabetes,' successfully led to positive visibility due to Control-IQ's pediatric indication. We are refining our marketing materials to communicate effectively to parents regarding the benefits of our technology for younger patients. Many endocrinologists are aware of this update and are more comfortable prescribing our devices.

I appreciate that insight. Additionally, regarding the mobile bolus feature on your app, you mentioned undergoing human factors testing in the next few weeks. Would any clinical data be needed before the FDA approval and expanded labeling?

No, we do not expect to require any clinical data apart from the human factors data we are already collecting. Our timeline for submission to the FDA remains targeted for the fourth quarter, and while we initially anticipated submitting this by summer, delays were inevitable due to COVID. The FDA's focus remains on COVID-19 initiatives, so we will manage expectations for this review process into the new year.

Great. Thanks for taking the questions.

You're welcome.

Thank you. Our next question comes from Chris Pasquale of Guggenheim. Your question, please.

Thanks. I have a couple of questions about the t:sport pump. Could you confirm the strategy moving forward? Previously, you said you'd wait for the full mobile control before launching commercially. Is that still the course of action? Additionally, can you clarify the summer 2021 timeline? Is that for the final approval, or for the second filing submission?

To clarify, we planned to submit the first filing for t:sport later this summer and are now set for submission in the fourth quarter. This delay is consistent with what we’ve observed with other timelines. Once we secure approval for the device, we'll initiate a soft launch to gather real-world data before the comprehensive market debut. Following approval for the t:sport pump, we would then proceed with the combined device and the mobile app submission. We anticipate approval for the combined device by summer 2021, whereupon we will fully integrate our product into the market.

That explanation is helpful. I wanted to revisit manufacturing; you cited that the number of pumps shipped in the first half was stable compared to last year's shipments. However, you highlighted that lower volumes were a headwind for gross margin. Can you expand on that?

Sure. Last year, many dynamics were in play such as the significant late-stage influx of Animas patients converting to our pumps. As a result, during the first half of last year, we were producing higher volumes to fulfill that demand and address a backlog. Now, in the first half of this year, while our sales numbers were similar, our manufacturing volumes were dramatically reduced, leading to increased per-unit overhead costs.

That makes sense. Thank you.

Thank you. Our next question comes from Steven Lichtman of Oppenheimer. Your question please.

Thank you. Hi, everyone.

Hi, Steven.

I wanted to ask about the strong drivers during the quarter—specifically regarding your renewal rate. Can you elaborate on your progress in capturing that opportunity, the role of Control-IQ in bolstering renewals, and your latest thoughts on projected capture rates moving forward?

Renewals have seen steady improvement for us. No surprises here. The investment we made in renewals and retention initiatives continues to pay off. Right now, we're adding approximately 8,000 customers to our warranty base in the latter half of this year and are seeing promising metrics for those who previously purchased pumps from us. Control-IQ has positively contributed to this.

Thank you, Leigh. Can you elaborate on how Sugarmate enhances your capabilities concerning your digital strategy and mobile apps? Additionally, how do you plan to integrate Sugarmate into your overall efforts?

We are thrilled to have Sugarmate join the Tandem family. They offer innovative methods to present data and have unique connectivity features allowing integration with Apple Watch, Alexa, and CarPlay, which are all keys to supporting our insulin therapy management. Over 50% of Sugarmate's 30,000 users currently do not use an insulin pump. Therefore, we expect this acquisition to enable us to introduce new features to Tandem pump users and extend our reach to the broader diabetes community. Our aim is to ensure Sugarmate continues offering excellent services to its users while we gradually incorporate Tandem's support systems.

Thank you.

You're welcome.

Thank you. Our next question comes from Matt Taylor of UBS. Please go ahead.

Hi, thank you for taking the questions. First, you mentioned that in international markets, there seems to be a backdrop of comparability issues. Have you noted any dynamics that favor you or advantages that may affect you versus peers in those markets?

The competitive landscape internationally is similar to that in the U.S. with Tandem, Medtronic, and Insulet vying for the market share—it's essentially tube vs. tubeless. As we roll out Control-IQ internationally, I believe we will capitalize on the benefits it provides our customers.

Understood. Thank you. Also, have you observed any notable shifts in terms of renewal or attrition rates?

There's been sustained growth in renewals over time. We haven't witnessed any significant alterations to customer purchasing behavior concerning attrition due to COVID. Despite an initial surge in purchasing in Q1 with stay-at-home orders, we are now observing steady ordering patterns.

Thank you.

Thank you.

Thanks, Matt.

Thank you. Our next question comes from Jeff Johnson of Baird. Please go ahead.

Hi, this is on for Jeff. Has COVID influenced pricing strategies with United Health? Additionally, is there a difference in pricing with United Health compared to other payers given the Medtronic preferred pricing?

We have not seen any pricing impacts resulting from COVID. We don’t specifically comment on price variations per payer. But one of our primary objectives is to establish more direct contracts moving forward while reducing our reliance on distributors. Today, about 30% of our business is direct, and we aim for that to reach 50% to enhance operational efficiencies.

Great. Thank you. Lastly, can you discuss the experience of onboarding your new board members, particularly Mr. Howell’s insights regarding payers and pharmacy benefits? Do you foresee any potential for obtaining Control-IQ requests through DME or pharmacy in the future?

We are very excited to welcome both Kathy and Peyton to our team. Peyton possess extensive reimbursement experience, which is integral to our approach. We're looking to her insights as we navigate challenges in hospital, pharmacy, and home care settings. We are optimistic about exploring avenues pertaining to these channels. Leigh, do you have thoughts on pharmacy specifics?

Absolutely. Our managed care approach involves strengthening our payer relationships and seeking direct contracts. As we progress, we will assess if transitioning to a pharmacy for product delivery makes sense for us, particularly given the specialty nature of our product. It comes down to ensuring we're addressing the benefits versus the pitfalls of going the pharmacy route, such as price erosion possibilities. We will continue to strengthen payer relationships as our first approach.

Thank you very much.

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