Tandem Diabetes Care Inc Q3 FY2021 Earnings Call

Thank you for standing by, and welcome to Tandem's Third Quarter Earnings Call. At this time all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. The operator provided instructions. Please be advised that today's conference may be recorded. The operator provided instructions. I would now like to hand the conference over to your host, EVP and Chief Administrative Officer, Susan Morrison. Please go ahead.

Thank you. Good afternoon, everyone and thanks for joining Tandem's third quarter 2021 earnings call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product development timelines and financial performance and operating plans and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today, and under the risk factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or other factors. In addition, today's discussion will include references to adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA is a key measure used by us to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Please refer to our press release issued earlier today for further information. Hosting today's call are John Sheridan, our President and CEO, and Leigh Vosseller, our EVP and Chief Financial Officer. Following the prepared remarks, we'll be opening up the call for questions. Thanks for limiting yourself to one question before getting back in the queue. I'll now turn the call over to John.

Thank you, Susan, and welcome everyone to today's call. 2021 has been remarkable. We delivered a record-setting third quarter in terms of robust sales, improving gross margin and generation of cash. We continue to add new customers at an industry-leading rate. And since the third quarter of last year, we have welcomed more than 100,000 people to our worldwide installed base. These achievements would be impressive in any environment, but are especially so as we continue to navigate the challenges of COVID-19. From sales and clinical to quality, supply chain and manufacturing, the efforts of our team members are contributing to further our mission to improve the lives of people with diabetes. Thank you to everyone. Looking back at the quarter, strong worldwide demand for Control-IQ, seasonality, and COVID-19 all created puts and takes influencing our sales patterns. These vary slightly between the domestic U.S. and international portions of our business. I'll spend some time upfront discussing both in more detail. Starting with our domestic business, in October, I had the opportunity to meet with members of our sales and clinical teams in various regions of the country. Their feedback was very consistent. I was proud that the loudest sentiment shared was on the positive impact that we are making with our market-leading Control-IQ technology. Demand and interest from the diabetes community remains high, which supports our belief that we are still in the early innings of Control-IQ adoption. The challenges our field team described are largely a byproduct of this high demand coupled with the continued navigation of COVID-19. As a reminder, we had approximately 95 territories during the third quarter. Our territories are typically comprised of both a sales representative and a diabetes nurse educator. Over the past 18 months, the productivity of our sales territories has become very high, which was manageable when we were operating in a remote environment. As COVID restrictions began to lift and in-person sales calls and clinical training increased, the team's available capacity became stretched thin as we worked to keep up with demand. With this in mind, in anticipation of continuing growth in 2022 and beyond, we are in the process of expanding to approximately 110 territories. We are also investing in our internal teams that support the sales and customer training processes. Another dynamic discussed by our field teams is that the broader labor shortages being experienced across the country are also impacting healthcare prescriber offices. As a result, there is less staff to see patients and handle back-office workload, and some healthcare providers are having fewer in-office days to accommodate the continued prominent use of telemedicine. This is why the initiatives that we have in place to build out our provider and patient-facing data platforms are so important. The Tandem Source platform represents the new generation of our t:connect data management application, and it's designed to enhance provider-patient engagement with therapy data whether remotely or in the office. We are also continuing to invest in cloud-based tools for prescription order management, software update, and patient support to streamline office efficiency in order to deliver added value to pump users and healthcare providers alike. Overall, the impact of COVID-19 on our different territories varies greatly by geography and even by prescriber office. We saw a summer of seasonality in the U.S. that was more similar to what we typically see in Europe, as people took some well-deserved time off during the concentrated period at the beginning of the quarter. Then as diagnosis rates for COVID-19 variants began to increase later in the quarter, we once again saw sales activities shift to fewer live interactions. Even with these fluctuations, beginning in October, we saw a notable increase in referrals, which is the first step in the pump ordering process. Internationally, we also experienced seasonality in the third quarter, which was less COVID-19 related and more attributable to the traditional European holiday season. While many healthcare systems outside the United States continue to be pressured by COVID, our outperformance can really be attributed to the large underpenetrated nature of the markets that we are in, and the overwhelmingly positive response to t:slim X2, and more recently, our Control-IQ technology. Our distribution partners are doing a great job in their sales efforts to identify the prescribers that are less impacted by COVID-19. The enthusiasm we are hearing about people's experiences with Control-IQ outside the United States mirrors the positive experience that we hear about domestically. This is very encouraging as we are still in the early stages of launch with our Control-IQ technology, particularly in France and Germany, which provides significant additional market opportunity. Because there are several steps that take place in bringing a product to market, we expect the launch in these countries to build over the next 12 months and provide benefit throughout 2022 and beyond. As we've seen domestically, our international launch of Control-IQ is demonstrating that when technology reduces the burden of diabetes, it drives customer adoption. In 2022, we plan to focus our international efforts on supporting our distribution partners to drive deeper penetration in their markets. In addition to our sales and clinical activities, our internal quality, supply chain and manufacturing teams are also doing an outstanding job navigating the pressures related to COVID-19. While no one is isolated from the more global issues like increasing shipping costs and semiconductor supply constraints, we take great pride in the success of our overall supply chain management throughout the pandemic. As we look ahead to 2022 and beyond, we will continue to carefully manage sourcing activities and keep in close contact with our suppliers. From a manufacturing perspective, we are regularly evaluating our needs and adding lines and expanding capacity accordingly. Moving a majority of our cartridge manufacturing to a third-party manufacturer in 2020 was beneficial from a capacity and cost perspective, and it proved to be fortuitous as we are able to rely on different labor markets. Overall, I am very proud of how we continue to perform during these more challenging times and the team's solution-oriented approach to overcoming the various headwinds from the pandemic. As you can see, even though we have experienced some unusual domestic seasonality associated with changes to the COVID environment, we are demonstrating that our market-leading t:slim X2 with Control-IQ, combined with our expanding global footprint, has us well positioned to deliver both near and longer-term growth. Incredibly, more than two-thirds of our approximately 300,000 customers worldwide are now using Control-IQ technology, and the real-world experiences shared by our customers continues to be overwhelmingly positive. This is also reflected in the ongoing clinical data being reported on Control-IQ, including the data presented most recently at the EASD and ISPAD meetings. The data presented at these conferences highlights how all individuals with Type 1 diabetes can benefit from Control-IQ technology, not just the traditional pump candidates as thought of historically. For example, individuals with higher hemoglobin A1c and those who have not had access to technology in the past did very well on Control-IQ. There was also data presented that highlighted a significant reduction in adverse events in pediatric Control-IQ users, which is particularly encouraging as we prepare to pursue lowering its age indication from users as young as six down to ages two and above. As you'll recall, we are supporting a multi-site study to evaluate the use of Control-IQ in this pediatric age population, and we intend to use the data to support a regulatory submission by the end of 2022. We will also be pursuing an expanded labeling indication for people living with Type 2 diabetes. Our Type 2 feasibility study is on schedule to start this month, and will inform our pivotal trial that we plan to conduct next year. We've also begun enrollment in our first clinical trial for Control-IQ with an expanded feature set, and we plan to provide additional color on that later this year. As you can see, we've been very active with our clinical efforts, and the FDA has been responsive to our requests, approving IDEs for upcoming studies this quarter. Our team at the FDA is also continuing to review our 510(k) for the t:slim X2 mobile bolus feature that we submitted about a year ago. We responded to all questions from the FDA in late August and continued to prepare for launch. Three of our other key R&D initiatives for 2022 — our t:sport pump, as well as the integrations with Dexcom's G7 sensor and Abbott's Libre technology — are also continuing to progress. Each of these have dependencies: for example, t:sport is dependent on obtaining the mobile bolus clearance in advance of providing a regulatory timeline for submission, and integrations with our CGM partners depend on their obtaining FDA clearances. However, our own development work is able to continue unimpeded at this time. Looking beyond 2022, our product pipeline is something we haven't given investors much visibility into, but internally we've been putting increasing attention on our longer-term strategy for driving growth and innovation over the next five years. We'd like to take the time to share a vision with you, which is more expansive than we can cover on a call like today's. So we invite you to join us for an R&D Day event, which will take place virtually on Monday, December 6. Participation details and registration can be found on the Investor Center portion of our website. We look forward to sharing more on our strategy and vision with you at that time. In the meantime, we are focused on a strong finish to 2021 and setting up 2022 to be another successful year. With that, I'll now turn the call over to Leigh.

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

Thank you. The operator provided instructions. Our first question comes from the line of Matt O'Brien of Piper Sandler. Your line is open.

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

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

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

Yes, our international team is frequently in touch with our distributors, and they've been very upbeat about Control-IQ. We're just getting started in France and Germany, but initial demand has been very strong, and we think we've got a long runway there for success. In other smaller markets, we're capturing significant market share with Control-IQ, and we're seeing significant success in capturing new tenders. The excitement that we've seen here in the U.S. is being replicated outside the U.S.; these are underpenetrated markets and we think we have a long runway. We're quite excited about it.

Very helpful. Thank you.

Thank you. The operator provided instructions. Our next question comes from the line of Danielle Antalffy of SVB Leerink. Your line is open.

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

Sure, it's good to hear from you, Danielle. Our plans are to get our current product to get Control-IQ approved for the Type 2 community first. Right now we have just less than 10% of the people in our installed base who are Type 2, and they're seeing incredible results using Control-IQ just in terms of managing their therapy. We have a lot of confidence that this will be impactful for the Type 2 community. We're focused on getting through these clinical studies: we'll start a smaller study this month that will inform the design of a pivotal study next year. We would expect that sometime late 2022 or 2023, we'd be in a position to submit the application for FDA approval, with a probable 2023 approval. We're spending internal resources to evaluate opportunities to develop additional products for Type 2: people are looking at the clinical benefits, feature sets, and access. Access is something we need to research, specifically with the pharmacy channel, and I'll let Leigh comment on that.

Sure. When people refer to the pharmacy channel, they're usually referring to the simplification of the ordering process or the perceived simplification of the ordering process. There's a lot of research to be done about what it might take for the Type 2 space if it's different, but we believe that we can optimize that upfront ordering process and still leverage the structure we built around DME so that we can make it just as simple and streamlined. That wouldn't necessarily be a barrier or a change that we would have to make in the long term.

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

I think it's hard to put a broad generalization on reimbursement through pharmacy being one way. Depending on where you're structured in the tiers of formularies, it might vary: you might have a basic copay, or you might have coinsurance that still looks like it does in the DME channel. That's part of what we'll continue to evaluate as well to see if we can make a difference there. For now, we'll continue to focus on optimizing the DME experience and evaluate whether or not we need to make a change.

Okay, thanks so much, guys.

Take care.

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

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

Sure. It was a highly unusual quarter in terms of the market dynamics that we were experiencing. John walked through that it started with an intensive vacation season, then turned into a Delta variant surge. We are confident that we will still see a strong Q4 because it's routine for people to hit their deductibles and move forward with purchases. I think the difference this year was that we saw that come a bit later than we're accustomed to. In the past, things usually pick up right after Labor Day when people get back to routine. This time we saw it come more in October, so we're still very excited about where we're headed for Q4. I think it just made what is usually a modest step up from Q2 to Q3 a bit more flat.

Right, right. I wanted to circle back on the commentary you had on sales force expansion. Maybe you could give us a sense for what going from 95 to 110 territories means in terms of runway, how long until maturity, and what the next few years might look like in terms of continued sales force expansion?

Sure. We've seen incredible growth over the last few years and as a result our clinical teams and sales force have industry-leading productivity. This time of year the sales team reviews territory productivity and makes decisions on what is needed to handle current demand and plan for next year. Adding 15 territories right now is what they feel will support current demand and get us through 2022. They're always assessing this, and we feel this is the right number now. It should get us where we need to be; we may reassess next year. As we add field members we also add internal support teams that help the field and clinical teams, which improves overall productivity. We're hoping to have these people in place by the beginning of the year so we can start off strong.

Okay, thanks for the context, John. Thanks.

Take care, Matt.

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

Quick questions: if you think about the puts and takes over the next 12 months, such as potential for competition, a bigger sales force, and tailwinds like new product launches, how do you see the puts and takes over the next year? The Street is kind of at the low end modeling 20% growth, so just thinking about the next 12 months.

I think the factors that have made us successful in the past largely exist now and likely more so because our pipeline for next year is strong: mobile bolus, Tandem Source, integrations with CGM companies, and hopefully t:sport next year as well. The pipeline is the most important thing and it's driving adoption. We're seeing significant growth in conversions from MDI, and about half of our new customers are converting from MDI. Competitive entrants will come, but current competitive launches are expected to be slow to ramp. t:sport will compete effectively against patch products. We're confident in our competitive position and see Control-IQ doing very well next year, supported by the pipeline driving growth.

On the Virtual R&D Day, is there any additional color? Are you planning on updating the 500,000 patients long-range plan for 2024 at the R&D Day? Will it be product focused or include software investments made over the past year?

The R&D Day will be really focused on R&D and our vision for the next five years. It will include both software and hardware. I think there will be other times to talk about financial objectives. It's a broad presentation of our strategy and vision and we think it will show how we're driving growth for the next five years and beyond.

Great, looking forward to it. Thanks a lot.

You too. Thanks. Take care, Travis.

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

Good afternoon. I have one question with two elements. First, recognizing that most insurance plans reset at the end of December, do you feel the late start to the fourth quarter bump will limit your ability to fulfill or sell pumps in the strong seasonal fourth quarter? Second, have you seen any benefit or impact from the delayed competitive launches, and if so, how do you think that's affected you? Thanks a lot.

When it comes to deductibles resetting, it's such a powerful force to move people through the purchasing cycle that we don't anticipate any problem managing everyone that needs to come through with the capacity we have in place. We prepare for this all year long and know this volume will come, so we feel competent in being able to process everyone who comes to the table.

Brooks, we raised guidance for the fourth quarter as well, which reflects confidence in our capacity. I was in the field with our salesforce recently and had great conversations with the team to understand what they were hearing and seeing. As we indicated on the second quarter call, we expected the second half of this year to be primarily impacted by COVID and very little competitive activity. That's exactly what's happening: the main issue this quarter was COVID, not significant chatter about new competitive products. There's still uncertainty because of the FDA, and we'll have to wait and see when competitors get through that process.

Absolutely. Thanks a lot.

Take care, Brooks.

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

Great. Good afternoon, everyone. Back to the mobile bolus: you responded to questions in August to the FDA. So is the FDA review clock still ticking? Aren't you pretty close to the 90-day review window for a 510(k)? Also, curious if the delay relates to the cybersecurity notices we've seen issued by the FDA recently in adjacent areas?

Alex, you're right — we got questions back in the spring, and we submitted our responses in August. We had initial conversations confirming receipt, but since then there hasn't been meaningful communication. The issues in the recent response weren't about cybersecurity — that was addressed earlier and the FDA is pleased with our approach and design. The recent response had to do with how patients interact with the system and a lot to do with training. We revised our training approach to be more in the app rather than in a manual, which constituted most of the work. The FDA is very busy supporting COVID-related work and some of their staffing and timelines are not what they were previously. We are hoping and planning for approval, but as we move further into November it seems less likely to happen this month — we'll wait to see what transpires.

Understood. Once you get mobile bolus approval, how quickly can you pivot that into a submission for t:sport?

We need to see the lessons learned from the mobile bolus feedback and determine how much work would be required to apply any changes to t:sport. As soon as we get response and approval, we'll discuss the timing for t:sport.

Okay, appreciate it. Thank you.

Yes. Take care.

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

Thanks for taking the questions. You've talked about the renewal opportunity, which becomes a much bigger deal as you lap the significant new customer gains from a few years ago. Can you give us updated metrics on how you're doing converting those patients who are ready for a new pump today and how you're approaching maximizing renewals over the next couple of years to get as many patients as possible to purchase a second pump?

When I think about the renewal opportunity, our team has been focused on this for many years and we've learned a lot of lessons. We've implemented changes in process efficiencies, how we approach patients, and most importantly our retention activities along the way. It's not like a patient hears from us again for the first time four years after they bought their first pump; we've maintained contact which improves renewal metrics. Right now we're tracking to about a 60% cumulative renewal rate by the end of this year, which is a significant step up compared to the end of last year. This positions us well as the number of renewal opportunities increases dramatically — if you look back to 2017 versus 2018, the number of pumps we shipped practically doubled. So we're looking at opportunity counts for next year that are meaningfully larger than this year. We think we're in a good spot and are pleased with progress.

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

Thank you. John, you talked about the momentum you guys were seeing internationally but also said you're relatively early on regarding Control-IQ expansion. Can you put more color around that, qualitative or quantitative? Where are you on the rollout in France and Germany, what other countries are you targeting near-term, and your outlook for continuing that international momentum?

Absolutely. We have about 300,000 patients worldwide and more than two-thirds — roughly 200,000 — are using Control-IQ, which is very exciting. We have about 30 million patient days of data in our databases that help us understand performance and drive product development. In France and Germany we're early and seeing strong initial interest; it's only been a month or two since we started to push the products in those areas, and we think there is a long runway. The 20-plus countries we're in represent almost 2.5 times the population that we serve in the U.S., so these are large, underpenetrated markets with great technology. We think it's a winning formula and expect sustained momentum.

Great, thanks. I'll jump back in queue.

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

Hi, this is Anthony on for Joanne. Thanks for taking our question. I understand it might be early, but to the extent you can, what initial labeling should we expect for t:sport in terms of Type 1 versus Type 2? And what manufacturing steps do you need to take for that launch? Thanks.

Right now, the t:slim pump platform is indicated for both Type 1 and Type 2. The part that requires regulatory approval is the algorithm; Control-IQ has to be approved for Type 2. Shortly after we introduce t:sport, my expectation is that we'll have a Type 2 indication; t:sport will probably be introduced initially with a Type 1 indication and then followed by Type 2 as approvals come through. For manufacturing, we're building the product now. We've established manufacturing capability, we're building units, evaluating and testing them, letting R&D teams use them. The organization is wearing them and we're building up manufacturing capabilities as we speak. The device looks great, we're excited about it, and we need to get to market so everyone can see it.

Great, thanks.

The next question comes from Ravi Misra of Berenberg Capital Management. Your line is open.

Hi, good evening, thanks John. Regarding the international sales and the roughly $3 million number that Leigh mentioned, can you talk a little more about that timing benefit? As you go forward and prepare for the R&D day, will you lay out more of the international strategy for markets beyond Europe? How should we think about the rest of the world; there are a lot of people with diabetes beyond Europe. What timeframe should we expect for getting into those markets?

Thanks Ravi. On the $3 million benefit in the third quarter, that came through supply sales in international markets and was due to timing of when supplies were ordered — basically inventory rebalancing. The variability in ordering patterns has been more difficult to model, so we wanted to highlight that this was an incremental benefit to assist modeling. Regarding where we go next, 2022 will be about building depth in the markets we're in rather than major new expansions. There's a lot of room to run in existing countries and we want to capitalize on that before taking too many steps forward.

Relative to pipeline and international, we've transitioned quickly over the last several years and now think like an international company. Our pipeline projects factor into our international strategy. There's some regulatory complexity overseas; the U.S. benefits from interoperability initiatives that aren't as developed outside the U.S. We won't go into exhaustive detail at R&D Day, which will focus on vision, but in time we'll speak more about international strategy because it's a huge opportunity and we want to take advantage of it.

Thank you. Our next question comes from Matthew Blackman of Stifel. Your line is open.

Good afternoon. Thanks for taking my question. John, you mentioned starting a Control-IQ enhancement study. Is that the Control-IQ 2.0 study being run at UVA that started late in the summer, and if so, when might we see that data? Is it possible to see it at ADA or ATTD, any color would be appreciated.

Yes, we have Control-IQ 1.5, which includes modest functional changes and then Control-IQ 2.0, which is what we're investigating now in a smaller study at UVA. We did market research to determine desirable features, designed and implemented those features, modeled and tested them, and are now in clinical studies. We'll likely iterate through features, generate information, share with the FDA, and then decide what Control-IQ 2.0 will look like and design a pivotal study. Our clinical team is excited and wants to present data; I don't know if we'll be in a position to do that as early as ADA or ATTD, but everything we do clinically we will ultimately share with the broader community because it should further excitement and growth for Tandem.

Thanks, John.

Sure, thanks. Take care, Matt.

Thank you. Our next question comes from Jayson Bedford of Raymond James. Your line is open.

Hi, this is Pavan Surabhi in for Jayson. One quick question: is there any timing update you can provide on the Dexcom G7 integration and Libre integration? What more has to be done for those two things to happen? Thanks.

We've been working with Abbott for about a year and are making great progress. Tandem is focused on integrating the sensor technology into our pump, and Abbott is focused on addressing their issues related to iCGM designation and AID systems. Those activities are happening in parallel; Abbott's FDA clearance will be the critical path for that integration. For Dexcom, we've integrated three generations of their sensors already and are experienced at this. We anticipate being able to introduce the product within months after their FDA approval. We're moving aggressively and resourcing these initiatives; they are exciting and will drive interest in our products.

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

Looks like we have one more.

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

Hey, guys. Sorry, I appreciate your squeezing me in here. I was thinking about Dexcom and Abbott integrations: the over-bolus feature works in conjunction with Apple and Android phones as well. Would it be reasonable to think there might be other ways you can work with Apple or Android manufacturers down the road?

Yes. Once we integrate the technology onto a phone there's a wide range of opportunities. There's a watch integration, for example; if we can integrate with Apple and the phone, a watch integration isn't far away. There are many phone features we can leverage: ordering supplies, texting customer support, opening instructional videos in-app — these reduce burden, increase convenience and discretion for users. There's a tremendous amount of opportunity once we enter the mobile space, and we intend to take advantage of it. We'll talk more about this on R&D Day; it's a really exciting opportunity for us and for people using our systems.

Great, thank you very much, John.

Take care, Brooks.

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