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Edited Transcript of TNDM.OQ earnings conference call or presentation 5-Nov-20 9:30pm GMT

·42 min read

Q3 2020 Tandem Diabetes Care Inc Earnings Call San Diego Nov 6, 2020 (Thomson StreetEvents) -- Edited Transcript of Tandem Diabetes Care Inc earnings conference call or presentation Thursday, November 5, 2020 at 9:30:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * John F. Sheridan Tandem Diabetes Care, Inc. - President, CEO & Director * Leigh A. Vosseller Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer * Susan M. Morrison Tandem Diabetes Care, Inc. - Executive VP & Chief Administrative Officer ================================================================================ Conference Call Participants ================================================================================ * Danielle Joy Antalffy SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst * Jeffrey D. Johnson Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst * Matthew Charles Taylor UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices * Ryan Blicker Cowen and Company, LLC, Research Division - VP of Healthcare * Steven Michael Lichtman Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst * Travis Lee Steed BofA Merrill Lynch, Research Division - VP ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Ladies and gentlemen, thank you for standing by, and welcome to Tandem's Third Quarter 2020 Earnings Call. (Operator Instructions) Please be advised that today's conference may be recorded. (Operator Instructions) I would now like to hand the conference over to your host, EVP and Chief Administrative Officer, Susan Morrison. Madam, please go ahead. -------------------------------------------------------------------------------- Susan M. Morrison, Tandem Diabetes Care, Inc. - Executive VP & Chief Administrative Officer [2] -------------------------------------------------------------------------------- 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 time lines 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 2 questions before getting back into the queue. With that, I'll now turn the call over to John. -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [3] -------------------------------------------------------------------------------- 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 the 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 1; 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 health care 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 3 stages: first, the health care 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, 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 health care providers and customers' [levels] 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 injection. 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's 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 quarter, 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 for no cost. We did immediate launch of the first generation of this app this year primarily in the third quarter and nearly 50,000 people 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 time lines 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 the 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. -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [4] -------------------------------------------------------------------------------- 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 2 years of experience operating outside the U.S. As a result, we saw a $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 reflect sequential improvement from 50% in the second quarter. This includes pressure for 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. Nonmanufacturing 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 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 noncash 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 midteens 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 midteens as a percent of sales. With that, I will turn it over to the operator for questions. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Our first question comes from the line of Danielle Antalffy of SVB Leerink. -------------------------------------------------------------------------------- Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [2] -------------------------------------------------------------------------------- Congrats on a really strong quarter. I just had a question on the guidance, and I appreciate the color that you did give. And first of all, also, I'm not trying to be greedy, love to see the guidance raise, but you did put up a very, very strong view, and the guidance does imply some deceleration on a comp adjusted basis in Q4. So I was wondering if you could talk about what's baked into the guidance. I assume there's some COVID uncertainty. Are you baking anything in from a sort of -- I guess, there's no real competition coming, but just from a sort of slowdown in Q4, is there some seasonality we should be thinking of? Help us understand what's baked into that, that gets you to that comp adjusted deceleration? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [3] -------------------------------------------------------------------------------- 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 have -- met 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. 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 where we've come in now even with this COVID pandemic out there affecting us. -------------------------------------------------------------------------------- Danielle Joy Antalffy, SVB Leerink LLC, Research Division - MD of Medical Supplies & Devices and Senior Analyst [4] -------------------------------------------------------------------------------- That is super helpful, and I appreciate all that. Can I just have one follow-up, though? I mean you guys pivoted so well and added new patients at such a strong rate, even in the sort of worst of the COVID peak back in March through May. And so I guess I'm wondering, do you expect to be able to do a better job in Q4 assuming this resurgence continues? Or is it -- should we be thinking about it for the same type of impact? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [5] -------------------------------------------------------------------------------- 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 to 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 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. -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [6] -------------------------------------------------------------------------------- Yes, particularly in the OUS countries. -------------------------------------------------------------------------------- Operator [7] -------------------------------------------------------------------------------- Our next question comes from the line of Steven Lichtman of Oppenheimer & Company. -------------------------------------------------------------------------------- Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [8] -------------------------------------------------------------------------------- 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [9] -------------------------------------------------------------------------------- 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 this -- 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, 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. -------------------------------------------------------------------------------- Steven Michael Lichtman, Oppenheimer & Co. Inc., Research Division - MD and Senior Analyst [10] -------------------------------------------------------------------------------- Great. And then just secondly, in terms of another opportunity, you spoke last quarter about evaluating the type 2 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. -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [11] -------------------------------------------------------------------------------- Yes. Sure. Well, type 1 has been our priority up until this point, but we recognize that there's a large underserved type 2 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 2 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 in -- for the type 2 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 as 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. -------------------------------------------------------------------------------- Operator [12] -------------------------------------------------------------------------------- Our next question comes from Travis Steed of Bank of America. -------------------------------------------------------------------------------- Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [13] -------------------------------------------------------------------------------- I just wanted to start off broad level thinking about 2021, given the number of moving parts you have, Control-IQ comps, competitive launches, UnitedHealthcare, 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [14] -------------------------------------------------------------------------------- Well, I would say just to start off, Travis, that we remain very confident in appearing -- in achieving our longer-term objectives over the next 4 to 5 years as we've identified 0.5 million 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 -- expect those to continue. We also believe that as we drive new innovative products to the market that 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 2020 more time frame, and that's exciting for us. -------------------------------------------------------------------------------- Travis Lee Steed, BofA Merrill Lynch, Research Division - VP [15] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [16] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [17] -------------------------------------------------------------------------------- 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 2 or 3 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. -------------------------------------------------------------------------------- Operator [18] -------------------------------------------------------------------------------- Our next question comes from Matt Taylor of UBS. -------------------------------------------------------------------------------- Matthew Charles Taylor, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [19] -------------------------------------------------------------------------------- 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 time lines to new geographies? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [20] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [21] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Matthew Charles Taylor, UBS Investment Bank, Research Division - Equity Research Analyst of Medical Supplies & Devices [22] -------------------------------------------------------------------------------- Okay. That's helpful, John. I just had one follow-up. I want to know if you could give us an update on your program with Abbott now that you think the deal -- can you talk at all about how that's going or timing, anything that we should expect out of that program? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [23] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Operator [24] -------------------------------------------------------------------------------- Our next question comes from Matt O'Brien of Piper Sandler. -------------------------------------------------------------------------------- Unidentified Analyst, [25] -------------------------------------------------------------------------------- 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 9 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 on a [paying] process perspective? And are you being more cautious given the circumstances? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [26] -------------------------------------------------------------------------------- I mean as far as the telehealth goes, we were successful, as you said, transitioning back in the March time frame. We were successful in using it really in the second quarter. In the third quarter, we have seen more offices opening up. It's only recently that we heard the discussions about lockdowns. And I think that's just isolated to geographies in the Midwest that are seemingly having more of the resurgence for COVID. But I think it really -- our telehealth process is working well, and it's -- we're excited and pleased with the performance of the results we're seeing. -------------------------------------------------------------------------------- Unidentified Analyst, [27] -------------------------------------------------------------------------------- Okay. That makes sense. And then I guess, on your commentary on UnitedHealth, I think the comments on pent-up demand makes 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, [no prior auth] status through that agreement. Has that impacted your ability to get those patients at all? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [28] -------------------------------------------------------------------------------- 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 have 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. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Our next question comes from Ryan Blicker of Cowen. -------------------------------------------------------------------------------- Ryan Blicker, Cowen and Company, LLC, Research Division - VP of Healthcare [30] -------------------------------------------------------------------------------- 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [31] -------------------------------------------------------------------------------- Well, we really haven't talked about the specifics in the release for next year for competitive reasons. I can tell you that what we are interested in and as you've identified, 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. -------------------------------------------------------------------------------- Ryan Blicker, Cowen and Company, LLC, Research Division - VP of Healthcare [32] -------------------------------------------------------------------------------- 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [33] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Our next question comes from Jeff Johnson of Baird. -------------------------------------------------------------------------------- Jeffrey D. Johnson, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [35] -------------------------------------------------------------------------------- I think I was on mute there for a second. 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 4, 5-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? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [36] -------------------------------------------------------------------------------- Jeff, it's really -- thanks for the question, by the way. It was really a little bit of everything across the board. When people call in and start their insurance verification process, they come from all of those areas. And at times, when we find out that they have UnitedHealthcare insurance, that makes some of them just go on pause and say, okay, well, maybe I'll wait and see if you'll have access to that in the near future. And so what we did was we went back and combed all of those records to say anyone that we knew had been shown interest. We said, now we have access to this contract, are you still interested in moving forward? So like I said, it really came from all those pockets of opportunity. -------------------------------------------------------------------------------- Jeffrey D. Johnson, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [37] -------------------------------------------------------------------------------- All right. That's helpful. 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 (sic) [New England Journal of Medicine] 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? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [38] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [39] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Our next question comes from the line of Ravi Misra of Berenberg Capital Markets. -------------------------------------------------------------------------------- Unidentified Analyst, [41] -------------------------------------------------------------------------------- This is [Iris] on for Ravi. 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [42] -------------------------------------------------------------------------------- Well, I'd say that we absolutely intend to continue to be part of our training process. In fact, we were focused on remote training even before the pandemic began, and we were looking at programs in 2018 -- excuse me, 2019 to just to shore up the process, develop the process, so our teams could use it. We look at a much more efficient way of providing training that's more -- it's more -- that the people who actually use it just appreciate a lot more than actually haven't gone to the offices. So it's a real positive thing for us. And I think that's going to -- we're going to continue to use it. We get better customer service scores when we actually provide remote training. So it's a very positive thing for us. As far as trying to sort of quantify the effect, I'll let Leigh do that. -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [43] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Unidentified Analyst, [44] -------------------------------------------------------------------------------- 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? -------------------------------------------------------------------------------- Leigh A. Vosseller, Tandem Diabetes Care, Inc. - Executive VP, CFO & Treasurer [45] -------------------------------------------------------------------------------- Sure. So I think that probably the element that impacted it the most was really the change in our noncash 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. -------------------------------------------------------------------------------- Operator [46] -------------------------------------------------------------------------------- Our next question comes from the line of Larry Biegelsen of Wells Fargo. -------------------------------------------------------------------------------- Unidentified Analyst, [47] -------------------------------------------------------------------------------- It's [Leigh] calling in for Larry. 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [48] -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Unidentified Analyst, [49] -------------------------------------------------------------------------------- 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? -------------------------------------------------------------------------------- John F. Sheridan, Tandem Diabetes Care, Inc. - President, CEO & Director [50] -------------------------------------------------------------------------------- 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 side, the discretion really is going to be another significant improvement in the way people experience diabetes technology, and we're very excited about it. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.