Ladies and gentlemen, thank you for standing by, and welcome to Tandem's Third 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.

Thank you. Good afternoon, everyone and thanks for joining Tandem's third 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, EVP and Chief Financial Officer will be participating on today’s call. Following our prepared remarks, we'll open up the call for questions. Thanks for limiting yourself to asking two questions before getting back into the queue. With that, I'll now turn the call over to John.

Thank you, Susan, and welcome everyone to today's call. The third quarter was another remarkable demonstration of our employees' commitment to progressing our business commercially, operationally, and strategically, while focusing on customer care and preparing for future growth. We have been resilient, which isn't to say that we haven't faced challenges from COVID-19, but rather that we are finding creative solutions that are allowing us to operate successfully in what's becoming a new normal for so many of us. My continued thanks to our employees for their tenacity and dedication. Our entire team is doing an amazing job driving our achievements. With so much happening at Tandem and more broadly, we're going to concentrate today's prepared remarks on the highlights of the quarter so we can spend more time during Q&A expanding on the topics that are most important to you. Looking back at the quarter, Q3 stands out for its record sales driven by the strength of our easy-to-use t:slim X2 with Control-IQ technology. We celebrate this achievement along with other wins throughout our business including; UnitedHealthcare's decision to name Tandem as a network provider effective July 1st; our t:slim X2 with Control-IQ technology once again being featured in the prestigious New England Journal of Medicine this time with powerful data from our pivotal study with pediatric users; and new product launches including the domestic launch of our first-generation mobile app and commencing the international launch of Control-IQ. These are all impressive accomplishments under more normal circumstances and are nothing short of extraordinary during these challenging times as we have not yet broadly returned to the pre-COVID-19 practices. For example, our employees who are able to perform their job functions remotely continue to do so. At the same time, we continue to practice more stringent precautionary measures for our manufacturing and warehouse employees who have shown unwavering dedication and have performed their roles on-site throughout the pandemic. And lastly, our field-based sales and clinical employees in the U.S. and Canada have stayed flexible and adaptable as the level of live account and customer interactions fluctuate with COVID-19 resurgences. Throughout the third quarter, we've heard from an increasing number of domestic healthcare providers that they have begun seeing patients in person. But since telehealth has been a successful option in many practices, it's likely to remain a lasting offering at some level. The pace of office reopenings can typically be characterized in three stages; first, the healthcare provider begins seeing patients live; next, they begin welcoming our clinical educators to perform live trainings; and then live meetings with the sales representatives resume. As a reminder, our customer trainings in the second quarter were nearly 100% virtual and in the third quarter, the mix shifted to approximately half live. That said, there are still a wide spectrum of comfort levels that range from welcoming us the same way things were pre-COVID to select examples of accounts that are choosing not to do any new pump starts at this time. Just this past week, we are hearing increasing talk of lockdowns in various regions. So we're being mindful that both healthcare providers and customers can change quickly. And so we remain prepared and can quickly pivot to and from a live or remote setting. Internationally, COVID-19 is creating increased variability, particularly as some regions begin to experience a resurgence of the virus and others are taking more stringent precautionary measures. As a reminder, many countries outside of the U.S., people with diabetes are typically seen through a hospital system and the use of telehealth is not as widely adopted. The foundation of our overall strength continues to be the demand for our t:slim X2 system. Feedback remains overwhelmingly positive from experienced pumpers and people who are converting from multiple daily injections. Nearly 90% of respondents to our recent customer survey showed that people chose the t:slim X2 for their first pump because of our advanced technology offerings such as Control-IQ, CGM integration, and software updates. This supports our belief that technology that reduces the daily burden of living with diabetes drives therapy adoption. Our customer survey also highlighted the success of our efforts to keep customer experience at the forefront. Our NPS scores, which already aligned with the high level seen in consumer technology, increased by an impressive 12 points over 2019. In addition, we continue to achieve great success, both in capturing market share and expanding the insulin pump market, with approximately half of our new customers reporting conversion from MDI. This is a metric I'm particularly proud of, as it is evidence that we are seeing success in one of our broader corporate goals to bring the benefits of insulin pump therapy to more people living with diabetes. In fact, we've already achieved nearly 40% of our goal of having 500,000 customers using our technology by the end of 2024. Our t:slim X2 with Control-IQ technology has been a meaningful driver of this year's growth. Momentum started with a domestic launch in January, followed by an expanded age indication in June and then an August feature in the New England Journal of Medicine for a second time. More recently, new data was presented at the European Association for the Study of Diabetes, which even further supports the clinical efficacy of the Control-IQ algorithm and its optimization into our easy-to-use t:slim platform. While held virtually, the conference still attracted a large global audience, which was timely following the kickoff of our OUS launch of Control-IQ in the U.K. and South Africa in July. By year's end, we anticipate Control-IQ will be available in more than half of the countries outside the United States and look forward to broad availability in the upcoming quarters, subject to required regulatory and reimbursement approvals. Making Control-IQ widely available is fundamental to our goal to increase pump adoption from the 10% to 20% penetration rate we see in most OUS countries today. We've been making steady progress internationally and look forward to continuing to build our momentum next year. With 2021 just around the corner, we've been taking the opportunity to review our progress against our longer-term strategic goals and fine-tune our plans for the year ahead with emphasis on scalability and execution. Next year is also positioned to be particularly exciting with the planned launch of multiple new offerings. Tandem has achieved its unprecedented growth based on our ability to rapidly innovate, and next year, we'll be prepared to build on that momentum with additional new product offerings such as our mobile bolus feature for the t:slim X2, our new t:sport pump platform, and algorithm advances. Our app's mobile bolus feature is anticipated to be our first new launch next year, which we plan to offer to our in-warranty t:slim X2 customers at no cost. We did the immediate launch of the first generation of this app this year, primarily in the third quarter, and nearly 50,000 people have now downloaded the app on their Android and iOS devices. Overall, customers and HCPs have been positive about its features, but we're continuing to receive customer feedback, where people are requesting additional features beyond the display of information and are looking for the ability to program insulin delivery. Along these lines, we have recently submitted a 510(k) filing to the FDA for our mobile bolus feature and look forward to delivering what people are asking for to help make their diabetes management easier. Launch timing for our mobile bolus feature and really any product that requires agency review may be difficult to predict in the upcoming quarters. The FDA is publicly stating that the review timelines may be longer than anticipated due to the prioritization of COVID-19 related filings. That being said, we are reviewing our upcoming regulatory strategies to ensure that we are doing everything in our control to help support efficient reviews and bring these new technologies to people who can benefit from them as soon as possible. The next product we look forward to launching next year is t:sport, which is especially exciting as it's our first new form factor since the launch of t:slim. It expands our family of insulin pump offerings by providing people with the option of using an even smaller pump that is fully operated through a mobile app. We now plan to file a 510(k) for the mobile app control t:sport pump in advance of a separate filing for a dedicated controller. We believe this refined regulatory strategy is the most straightforward and expeditious path to having an app-controlled t:sport offering. And although approval timings are difficult to predict, we are going to continue to prepare for a launch in the second half of 2021. The third new offering for 2021 that our internal development teams are focused on are features and enhancements to our Control-IQ technology. We are not detailing a feature schedule for competitive reasons, but broadly, future enhancements are centered around algorithm refinements that are intended to even further improve clinical outcomes, new features for greater personalization, and improvements to the overall system usability. Automated insulin delivery remains a key tenet of our broader strategy to expand the adoption of insulin therapy management. We've gained invaluable experience since the launch of our first CGM integrated pump in 2015 and our first AID system in 2018. As we look to the future, this provides us with a competitive advantage as we further optimize our algorithm and advance our leadership position in insulin therapy management. Our stacked near-term pipeline and the progress that we are continuing to make are great examples of the team's commitment to innovation. We are also working on a number of longer-term pipeline initiatives. I look forward to providing more color on in the coming quarters. We are now entering the strongest time of the year seasonally for domestic pump sales, which is meaningful to our business and to our mission to bring the benefits of insulin therapy management to more people living with diabetes. While COVID-19 creates a level of uncertainty, we remain confident in our updated near-term guidance as well as the longer-term goals that we set at the beginning of the year, which are stepping stones to even greater accomplishments. With that, I'll now turn the call over to Leigh.

Thank you, John, and good afternoon, everyone. Our third quarter results were once again a demonstration of the strength of our product portfolio and our ability to execute on our plans, despite the challenges we have faced this year from COVID-19. Worldwide sales grew 31% in the third quarter to achieve another record sales quarter of $124 million, with 22,000 pump shipments. We now have nearly 190,000 customers in our worldwide installed base. On a year-to-date basis, our worldwide sales were $331 million representing 30% growth. Sales trends in the U.S. continue to be extremely positive with the continued momentum of our Control-IQ technology. Domestic pump shipments in the third quarter were approximately 18,400. This is an increase of 33% over last year and 25% compared to the second quarter, resulting in domestic sales of $108 million. Pump sales were 65% of total sales at $70 million bringing us to over 150,000 in warranty customers. We were extremely pleased that we were able to benefit from access to all UnitedHealthcare customers this quarter. The percent of pump purchases this quarter from customers with UnitedHealthcare insurance grew to just over 10% from the 4% to 5% we were experiencing in the last few years. Included in our total pump shipments for the quarter were purchases from approximately 3,200 renewing customers bringing us to 8,400 year-to-date, which now surpasses what we renewed in all of 2019. This 75% growth on a year-to-date basis is meaningful progress against our growing base of renewal opportunities. In our international markets, we shipped approximately 3,600 pumps in the third quarter. We now have more than 35,000 in warranty customers in our installed base which is impressive with just over two years of experience operating outside the U.S. As a result, we saw $16 million in international sales or 2% growth even with a 10% decrease in year-over-year pump shipments. Our international shipments continue to be highly variable from quarter-to-quarter with our recent new market launches and as we continue to gain experience in our legacy markets post-Animas which meaningfully benefited our business through mid-2019. As anticipated in the third quarter, we were also impacted by the summer holiday season in Europe compounded by the COVID-19 environment in which we are operating. For the full year of 2020, we are increasing our worldwide sales expectations to a range of $465 million to $475 million, based primarily on the strong domestic sales performance in the third quarter. We continue to remain cautious regarding the continued impact of COVID-19, particularly in the international markets. This worldwide expectation breaks down to a domestic sales range of $395 million to $400 million, and continued expectations for international sales in the range of $70 million to $75 million. Moving on to margins, our gross margin was 53% of sales in the third quarter, compared to 54% the prior year and reflects sequential improvement from 50% in the second quarter. This includes pressure from our royalty obligation at just over 1% of sales in the third quarter, compared to nearly 2% in the second quarter and none in the prior year. Non-manufacturing costs in aggregate improved as a percent of sales, partially offsetting the royalty impact this quarter. There are a number of other moving parts pressuring gross margin this year, which individually are not significant and are more temporary in nature, either due to our current COVID operating environment or through anticipated growth leverage. These include the expansion of our cartridge capacity, incorporating a third-party manufacturer, increased spending to support our digital health product offerings, and COVID-19 risk mitigation measures. Other factors that have and will continue to influence our gross margin performance from quarter-to-quarter include changes in product and geographical mix. Our expectation of achieving a full year 2020 gross margin, in the low- to mid-50% range is unchanged. Our adjusted EBITDA margin was 12% of sales in the third quarter which reflects the sustained trend of reporting positive adjusted EBITDA margin, since the fourth quarter of 2018. This has sequentially doubled the 6% we reported in the second quarter, due primarily to higher sales levels and gross margin improvement. We continue to focus on investing in initiatives to support our long-term strategic plan. Adjusted EBITDA excludes the impact of non-cash stock-based compensation, which declined year-over-year to $13 million or 10% of sales, down from 18% of sales in the prior year and 15% of sales in the second quarter. We anticipate achieving adjusted EBITDA margins in the low to mid-teens as a percent of sales in 2020, which is unchanged from our prior guidance. We ended the third quarter with $465 million in total cash and investments, up from $426 million at the end of the second quarter, which includes $30 million from employee stock plans and warrant exercises as well as $8 million in free cash flow. In summary, we have increased our 2020 worldwide sales expectations to be in the range of $465 million to $475 million or 28% to 31% growth over 2019. This includes international sales in the range of $70 million to $75 million. We continue to anticipate that gross margins in 2020 will be in the low-to-mid-50% range and 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. Our first question comes from the line of Danielle Antalffy of SVB Leerink. Your line is open.

Hi. Good afternoon guys. Thanks so much for taking my questions. Congrats on a really strong quarter.

Thanks, Danielle.

I have a question regarding the guidance. I appreciate the details you provided. First, I'm not trying to be overly ambitious, but I'd love to see the guidance raised. However, you presented a very strong outlook, and the guidance suggests some slowdown, on a comparable basis, in Q4. Could you explain what's included in the guidance? I assume there's some uncertainty related to COVID. Are you accounting for any potential slowdown in Q4? Is there any seasonality we should be aware of? Please help us understand what contributes to this expected slowdown.

Sure. Great question, Danielle. And I think you hit the nail on the head with a few of them there. So first, I usually like to separate the domestic from the international, because they do behave quite differently. And from the domestic perspective, we are still expecting a seasonal climb into the fourth quarter like we've seen in years past just because people are beginning to meet their deductibles. And so we do expect a strong Q4 pump season with momentum from Control-IQ. But I think one of the most important factors that's really hard to predict these days is what's happening with COVID-19 and what kind of impact it will have on the business. And so that's the U.S. perspective. I will also add we did see a slight bit of pent-up demand from the UnitedHealthcare initiation on July 1. And so we are anticipating in the guidance that it will go back to what we had originally indicated, which was a low to mid-single-digit lift on the business as opposed to the more than 10% of pump shipments we saw in the third quarter. And from an international perspective, it's some of the same factors. First of all, there's just a high degree of variability in the ordering patterns that come from the international markets. But one big issue there would be COVID-19. And we're starting to hear more so there right now about shutdowns in some of those geographies even than what we're hearing in the U.S. today. So we're just being thoughtful about those activities happening in the fourth quarter. But we still think that it's going to be a really great year and we're excited about where we've come in now even with this COVID pandemic out there affecting us.

That is very helpful and I appreciate it. Can I ask one follow-up? You adapted well and brought in new patients at a strong rate even during the peak of COVID from March to May. I’m curious if you think you will perform better in Q4, assuming this resurgence continues, or should we expect a similar impact?

Yes. Right now, we're viewing it as pretty much a similar impact. And I guess one other thing to point out, if you're looking at how the distribution of the sales spread across the years, just keep in mind when you compare it to our history that Q1 had no impact from COVID. So that also has a bit of an effect if you're just looking at how it spreads across the year. But there is a great deal of uncertainty and even though we've been highly successful in this environment, it's still uncertain and it's anyone's guess on how things will go in the coming months.

Yes, particularly in the OUS countries.

Got it, yes. Thank you so much guys.

Thank you.

Thank you. Our next question comes from the line of Steven Lichtman of Oppenheimer & Company. Your line is open.

Hi guys, thank you. John, you mentioned earlier the feedback that you've gotten so far about interest in the mobile bolusing and great to hear about the filing. Can you talk a little bit more about how you think that that could be a differentiator for you guys once approved next year? And maybe also how you get the word out to patients either through DTC or other means about that new feature in particular?

Yes. As I said, it's the most sought-after improvement to the current mobile app that we've got in the market. And so we're very excited about it. And I think that the real improvement that comes along with the mobile bolus feature is the discretion it provides. Once you have the ability to bolus remotely from a mobile app, there's really no reason to take your pump out while you're outside of your home. And so that discretion is huge and I think people are very excited about it. And we have marketing programs. We are definitely connected to social media and a lot of digital media that we interact with. And so we definitely plan to get the word out. Clearly, we need to get the device approved first. But as I said, we're expecting to hear from the FDA sometime in the first half of the year.

Great. And then just secondly in terms of another opportunity you spoke last quarter about evaluating the type two space and your approach commercially and potentially with some more data. Just wondering if you could just update us on your thoughts on that effort?

Yes, sure. Well type one has been our priority up until this point but we recognize that there's a large underserved type two community. And right now it represents about 10% of our pump users. So what's meaningful? We did present data at the ADA this past year showing significant time and range improvements when people transitioned from a sensor-augmented system to Control-IQ and we are very pleased with those results. As I've mentioned in the past, type two has a negative social stigma from the perception that it can be managed with diet and exercise and that's clearly not the case. It's not that simple. But it does result in discretion being a very important element of the design of the system. So we expect that there's going to be increasing interest for the type two community in t:sport as it becomes available in the second half of this coming year. Others have attempted to enter this segment unsuccessfully. And so we're taking a measured approach. We're carefully evaluating the opportunities. We're doing a lot of investigation and analysis. I think that clinical studies are going to continue to be an important part of that. So we intend to do additional clinical studies. We're evaluating the design. We know that the system needs to be simpler than what we have today. And then we're also just looking at the channels, how do we access the PCP community and I think that's an important element as well. And I think we've mentioned in the past that it's a possibility of using our digital health initiatives to try to get access to that community and provide training and support. So, like I said, we're investigating. We're doing a lot of analysis. We think it's an important area for us to focus on. And I think you'll be hearing more in the future as we make more progress.

Great. Thanks, John.

Sure. Thanks.

Thank you. Our next question comes from Travis Steed of Bank of America. Your line is open.

I’ve got questions. I just wanted to start off broad level thinking about 2021 given the number of moving parts you have Control-IQ comps, competitive launches, United Healthcare just any general thoughts on how to think about 2021 even if it's broad strokes. And The Street is at 20% growth right now for next year. And I'm just curious if that's something that you're comfortable with at this point?

Well I would say just to start off, Travis, that we remain very confident in achieving our longer-term objectives over the next four to five years as we've identified 500,000 people using our pump technology, gross margins in excess of 60%, and operating margins in the mid-20s. So I think we feel that we've made great progress up until this point. We intend to maintain our leadership position in pump technology with the simple intuitive products that we've got. And the factors that have made us successful up until this point remain in 2021 and beyond and those are clearly the competitive conversions. We intend to expect those to continue. We also believe that as we drive new innovative products to the market, we're going to see a continued uptake and penetration in the MDI community. Renewals are going to be an increasingly important part of our revenue stream as time goes on. And I think that we are really excited about our expansion into the OUS community. So we think that we have aggressive plans to get to where we sit in the 2024 timeframe and that's exciting for us.

Okay. First, any comments on the 20% growth for where consensus is next year? And one clarification on the t:sport timing. I think the language changed from summer 2021 to I think I heard second half 2021. I don't know if that was an intentional change in language or if there was a delay there. Just wanted to double check on that?

Well, happy to answer that. I'll answer the second part first. I would say that the uncertainty from the FDA approval is really what's driving that for us. We've had conversations with the FDA over the last several months and they've been indicating that resources are going to be transitioned from the diabetes support community into COVID-19. And so we're just anticipating that there's going to be just longer review times. So that was intentional.

And Travis, to the 2021, we're not giving any quantification obviously at this point. We're not uncomfortable with where the Street is sitting today. I'll say that while we are excited about the opportunities in front of us as John laid out, they haven't changed from what we've seen in the last two or three years, and we've seen the success that we've experienced there. But I'll add that there's just a bit of uncertainty around the COVID environment and how the year will begin. And so as we get closer to that time, we'll be able to give better color.

Okay. Thanks for taking my question. Congrats.

Yes, good talking to you, Travis.

Thank you. Our next question comes from Matt Taylor of UBS. Your line is open.

Hi. Thank you so much for taking the question. So the first one I wanted to ask about just to understand your risk exposure is could you talk about the relative weighting of your international revenue to some of these bigger markets that we've seen restrictive measures put in place? And then moving forward how does this impact your expansion timelines to new geographies?

Sure. Thanks for the question, Matt. So when it comes to the international geographies, we obviously haven't quantified up to now the impact or benefit from any particular market. I will say that some of the markets that we've heard most recently where there are more shutdowns coming are the newer markets that we've entered into. So we've just barely gotten started there. And again, this has contributed greatly to the variability we've been seeing in the ordering patterns. And so we'll see how this plays out. They do operate much differently outside the U.S. than what we see here where telehealth has been widely adopted, and we learned to pivot and become successful in that environment. Outside the U.S. they just don't see patients in the same manner. And so we'll keep an eye on how it's going. This doesn't all use our enthusiasm though for the international market in the long term and what we think our prospects are there.

Matt, I'd also say that the markets that we're in now, we plan to add a few more markets here this year, but we really plan to focus on just taking advantage and harvesting, I guess if you will, the opportunities that are in these existing markets. There's big opportunities in a couple of these newer markets that we're entering into right now and we plan to really focus on those this year.

Okay. That's helpful, John. Thanks. I just had one follow-up. Could you provide an update on your program with Abbott? Can you talk about how that's going or the timing, and anything we should expect from that program?

Sure. It's going quite well. I mean we're working very well with them. It's a good team. We have a good relationship. It's a complex implementation in that there's many moving parts. And there's multiple teams that are working on this right now. So I think that because of the timing right now, we're in the early design process. We're still in a planning phase, early design. It really makes it difficult for us to sort of commit the specific timing. I'll just say it's going well and that we'll probably be speaking more about this in the fourth quarter call early in the spring.

Great. Thanks so much.

Sure, thanks.

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

This is actually Joe on for Matt. I wanted to follow-up a little bit on your guidance. It seems like you guys have been using telehealth pretty successfully over the last nine months. Maybe I'm reading your comments wrong, but they do seem a little bit different than on the last call. So I just wanted to clarify. I mean has anything changed from a telehealth patient process perspective? And are you being more cautious given the circumstances?

As for telehealth, we successfully transitioned back in March and effectively used it during the second quarter. In the third quarter, we've seen more offices opening up, and we've only recently heard discussions about potential lockdowns, which seem to be limited to certain areas in the Midwest experiencing a resurgence of COVID. Overall, our telehealth process is functioning well, and we are pleased with the results we are seeing.

Okay. That makes sense. And then I guess on your commentary on UnitedHealth, I think the comments on pent-up demand make sense. But as far as the Q4 guide, you mentioned that you expect it to normalize to prior levels. I guess wouldn't there still be quite a few potential patients out there? And then if I remember correctly, Medtronic retains the prior authorization status through that agreement. Has that impacted your ability to get those patients at all? Thank you.

Sure. Thank you. I'll start with the second half. No, it has not impacted our ability at all with the pre-authorization requirement. It's routine and we handle this with all the commercial payers on a regular basis. And I'm glad you asked about United. I can give some clarifying comments. So before we had access to the contract, we were experiencing levels of about 4% to 5% of our shipments to United patients. And when we got access, we guided to the fact that it would be a low to mid-single-digit lift. And what that does is it tracks pretty good historically with what our business looks like before, when we still had access prior to 2016. And so in the third quarter, we saw a nice little pop up and we ended up being a little over 10% of our business. And so as we go into the fourth quarter because we're still trying to set out how much was pent-up demand and how much might be ongoing or continued business, we're going back to our original guidance which was that low to mid-single-digit lift into the fourth quarter.

Thank you.

Thank you. Our next question comes from Ryan Blicker of Cowen. Your line is open.

Hi. Thanks for taking my questions. Maybe starting with the new Control-IQ algorithm update. Can you talk about what clinical trial work is going to be required? And presumably, one of the features would be removing some of the conservatism baked into the system for correction boluses today versus what the algorithm is recommending. Does that require a prospective study? And how confident are you in that update launching in 2021?

Well, we really haven't talked about the specifics in the release for next year for competitive reasons. I can tell you that we are interested in improved ease of use, simplification of some of the elements of the algorithm, also personalization and just overall changes to the algorithm to improve the outcomes, improving time in range from what it is today, which is very good. I think that as you work with the FDA, you basically have to identify these changes from a risk-based point of view and understand what kind of clinical studies are required to support those. And so we are in the process of evaluating that and making plans to do those studies. But as I said, we really haven't spoken about it. And I think you'll hear more on this in the fourth quarter call.

Got it. And then maybe just some update on Sugarmate. How is the integration going? Any early learnings you can share on things that can improve Tandem's mobile app offerings over time? And then can you remind me were you planning on doing any targeted advertising to patients on that platform? And if so, any update on that? Thank you.

Yes. Well, Sugarmate, we've been working with the team now for several months. We've been really focused on just increasing the capabilities of their team, integrations of their systems into our own internal systems, and it's all going very well. There's a number of plans that Sugarmate had already laid out before we acquired them and we're working with them to support those plans to add additional features. I think that my sense about this year going forward in 2021 is we're really going to focus on Sugarmate more as an independent app in the marketplace and really work with their team to identify features and capabilities that we can add to our own in time. But there probably won't be any visible evidence of that next year. It will be more likely in the following years from that. But we're very excited about the opportunity. I don't think that we intend to use the product to advertise specifically to try to get people to come over to Tandem. It's not the way we do things. And so I think that our opportunity here is just to continue to work with Sugarmate and take advantage of the great presence they've got in the market and the reputation they do as well.

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

I think I was on mute there for a second. But thanks for taking the question. So Leigh, you talked about some pent-up demand at United in the third quarter. Any insight or any color on where that came from? Was that some t:slim users who had maybe a four, five-year-old pump that was just out of warranty and they've been waiting? Or was that incremental share gain you think versus Medtronic or any of the other competitors? Just how do think about where maybe some of that pent-up demand might have come from?

Thanks for the question, Jeff. It was really a mix of factors. When people call in to start their insurance verification process, they come from various areas. Sometimes, when we find out they have UnitedHealthcare insurance, they hesitate and think about whether they should wait to see if we will have access to that in the future. We went back and reviewed all our records of those who showed interest and reached out to ask if they were still interested now that we have access to this contract. So, as I mentioned, the demand came from multiple avenues.

All right. That's helpful. Thank you. And as a follow-up as I think about DTC advertising, obviously, your CGM neighbor has been doing that quite effectively here recently. Your competitor on the East Coast spent I think it was $7 million or $8 million in the third quarter on DTC advertising. Is that something you think you may look to do in a bigger way going forward? Is the market from a competitive standpoint going in the direction where you really need to do that to stand out? Obviously, New England Journal of Medical articles helped quite a bit or white papers helped up quite a bit in that. But is it time to start thinking about adding a DTC component here?

So we do have DTC efforts and we focus more on the digital side of things. I think you're referring to what a lot of folks have done lately, which is a commercial on prime time TV. And when we think about the best use of our dollars in order to reach our targeted audience for us in particular, it feels like the digital platforms are the better way to go at this point. And so we're continuing to focus on different social media channels, different streaming services to really zone in on the population that we serve.

And we are investing in that area significantly. It's just that I think at this point in time, it's more targeted and we think it's more appropriate use of our funds.

Okay. Understood. Thanks, John.

Yes. Sure. Thanks.

Thank you. Our next question comes from Ravi Misra of Berenberg Capital Markets. Your line is open.

Hi, there. This is Arie on for Ravi. Thanks for taking the question. So the first one on remote training. So I think you mentioned that in Q2 it's about 100%. And then now Q3 back to 50%. So as we think about the long-term, do you kind of expect remote training to stay beyond the pandemic? And if so does remote training kind of benefit your SG&A and how much impact would that be?

We fully intend to remain involved in our training process. In fact, we were already concentrating on remote training before the pandemic began, and we were exploring programs in 2019 to enhance the process for our teams. We are looking at a more efficient way of providing training that users truly appreciate, as opposed to those who attend in-person sessions. This has been a positive development for us, and we plan to continue utilizing it. Our customer service scores improve when we offer remote training, so this is definitely a benefit for us. As for quantifying the impact, I will let Leigh address that.

Sure. So just a point that the training costs actually are part of our cost of goods sold so they impact our gross margin. And John made the point that we've been looking at remote training opportunities even before the pandemic as one of our gross margin initiatives in order to reach our 60% or better long-term target. And so it was something that we had kicked off. I guess one of the silver linings of this pandemic is that it really accelerated that initiative. And so we look forward to continuing to see gross margin benefit in the future from it.

Okay. Great. And then another question on SG&A. I hope I didn't miss your comment on this. So the Q3 SG&A was about 41% of sales, and I guess this is much lower than some of the last few quarters. Can you talk about what kind of helped you to achieve that? And how should we think about SG&A spend going forward? Thanks.

Sure. So I think that probably the element that impacted it the most was really the change in our non-cash stock-based compensation. We saw a step down from what we had been experiencing in prior quarters in that regard and not just SG&A, but operating expenses in total. It was running I think around $14 million in the second quarter. And in the third quarter, it dropped down as a part of operating expenses to something more along the lines of $10 million to $11 million. And so that was one of the driving forces that showed a step down that partially offset some of our natural spending increase.

Thanks.

Thank you. Our next question comes from the line of Larry Biegelsen of Wells Fargo. Your line is open.

It's Leig calling in for Larry. And thanks for taking my question. First, I just wanted to get clarification on t:sport. Are you still planning to file in Q4, but not expecting approval until later next year because of the FDA shifting of resources? Or is the filing itself delayed as well?

Well, we're not going to file the dedicated controller application in the fourth quarter like we had originally done. We had planned to do the mobile app-controlled version of t:sport in the first half of 2021. And I think we're still on target to do that.

Great. And in the past you've talked about t:sport having a similar impact on the company as Control-IQ. Can you elaborate on that at this point?

Yes. I think that it's a substantial improvement in form factor. There are people out there that just prefer to use their mobile phone for everything that they do and it's half the size of the current t:slim product. So we think that this discretion that comes along with t:sport is going to drive another inflection point in our revenue. It's going to have the Control-IQ algorithm on it. It also will have a mobile bolus button. So if you were to lose your cellphone or it would die a battery or something like that, the system continues to operate and you can deliver boluses if you need to. So we think the combination of features that go along with it, the form factor, the size, the discretion really is going to be another significant improvement in the way people experience diabetes technology and we're very excited about it.

Great. Thank you very much.

Thank you.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.