Q2 2021 Tandem Diabetes Care Inc Earnings Call

Good day, and thank you for standby.

Welcome to the tandem diabetes care second quarter 2021 earnings conference call.

At this time all participants are in a listen only mode.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star 1 of your telephone.

Please be advised that today's conference is being recorded.

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I would now like to hand, the conference over to your Speaker today, Susan Morrison Executive Vice President and Chief administrative Officer. Please go ahead.

Yeah. Good afternoon, everyone and thanks for joining tandem 2021 second quarter earnings call. Today's discussion will include forward looking statements. These statements reflect managements.

Spectation about future events.

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 a.

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.

This call will be led by John Sheridan, our president and CEO, along with Brian Hansen, Our EVP and Chief commercial officer, and leave Ostler, our EVP and Chief Financial Officer.

Following the prepared remarks, well open up the call for questions. Thank.

Thank you in advance for limiting yourself to 1 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. We are pleased to report another quarter of remarkable growth that far exceeded both our most recent guidance and market expectations.

Our strength in the quarter was driven by both new customer demand and increasing renewal purchases from our installed base and as a result, our worldwide sales grew 58%.

In fact, we have now grown at rates exceeding 40% and nearly every quarter. Since we launched our first major software update on the T. Slim X 2 in late 2017.

I am proud not only on the significant progress we are making in expanding and further penetrating the only insulin pump market in the U S. But also the rapid uptake we're seeing on countries, where have just recently entered and where our business opportunity is at a very early stage.

Just as important we are continuing to provide superior care and support our customers both directly and in collaboration with our distribution partners.

At the same time, we are looking to the future by advancing our product development efforts and we are working to enhance both customers and prescribers experience with our company, while managing our business with increased leverage and efficiency.

Our worldwide install base has grown to nearly 270000 people and where we are on track to achieve our goal of having at least half a million customers by year end 2024.

On these calls we regularly talk about metrics like shipments and installed base, but behind each of these numbers are individual people and diabetes remains a very personal disease.

1 of our customers and endurance athlete in tandem ambassador named Sebastian SaaS Advil recently completed an incredible journey to raise awareness for the JD RF campaign access matters by successfully cycling across Canada, and only 14 days.

It is a stories like this that motivated here at tandem and we are proud that our teams from X to with control IQ can help people like Sebastian on adventures like this 1.

Gratulation against the bastion for your remarkable achievement and thank you for inspiring us to keep innovating.

At tandem our connection with our customers on the diabetes community is rooted deepened our company culture, no 1 knows us better than Bryan Hanson, who is connected to our customers each day, both directly and through our sales customer service and clinical teams theres been a lot of interest this past quarter and our commercial environment and so Brian joined us today.

To provide color on the quarter and his broader perspective, Brian.

Thanks, John looking back at the first half of 2021 from the second quarter in particular, it's been incredible to share on the excitement surrounding our T. Slim X 2 technology as adoption continues to build.

Our new pump shipments were the highest in our company's history and the trends have us well positioned for long term growth.

Domestically, it's been particularly encouraging to see the strong prescribing patterns behind the shipments to metrics that stood out were 1 that our number of unique prescribers on the quarter continued to increase and 2 that these health care providers are writing more prescriptions for the T Slim X 2 than ever before.

Also it is notable that the source of our sales was consistent in the second quarter with about half of our new customers converting from multiple daily injection and half converting from other pump manufacturers.

The increase in our breadth and depth of coverage is a huge credit to both our inside sales team as well as our field team and the relationships. They have established with health care providers, even through the challenges of COVID-19.

It can also be attributed to the strength of the clinical and real world data that support the tremendous physical and psychosocial benefits of our products.

It's also credit support we offer and the adjacent systems, we provide such as T connect and through our product innovation such as control IQ.

The real world data for people using control IQ technology continues to be overwhelmingly positive as John mentioned, where we hear testimonials everyday from people experiencing time in range of the 70% to 80%, 90% ranges and for the first time in their lives dramatic improvements.

While not considered a core clinical outcome. We also hear equally compelling stories from people experiencing their first good night of sleep in years.

At <unk>, we strive to provide people a positively different experience and we are delivering on that goal with control IQ technology.

Experience matters, a diabetes care and we've set a new and higher bar for what people should expect an automated insulin delivery.

This applies to our product performance training user experience and health care provider interactions.

We Miss seeing health care providers and customers face to face over the past year, but if also successfully maintained at even strengthened relationships. During this time.

Throughout Q2, we saw an increasing number of patients return to in office visits domestically and our sales and clinical teams also gradually started having more visits in person.

As people became more comfortable with in person professional interactions we saw it carry over into their personal activities to there has been a notable increase the summer and health care providers and their patients taking some well deserved vacation time that was put off earlier in the pandemic.

Summer seasonality is something we typically see particularly internationally and we expect that this is also will be reflected in our overall sales patterns in 2021.

Throughout the pandemic the amount of live interactions at varied widely by geography, and EBIT by individual office.

More recently, we're seeing greater limitations and office restrictions being put back into place as the rate of COVID-19 diagnosis has increased in some areas.

Regardless, we have proven that we can be effective both in person and remote environments.

Internationally, our distribution partners are doing a great job in navigating the excitement surrounding the launch of our new technologies and the uncertainties of the pandemic.

We had such a strong start to the year it was difficult to predict how the second quarter would play out between COVID-19 restrictions and our distribution partners working to rightsize their inventory relative to demand.

As you saw on today's results. The early evidence we are seeing combined with the large and Underpenetrated nature of these markets strengthens our conviction that our international business will be another long term growth driver for tandem.

We now have more than 60000 customers, who live outside of the United States, which is incredible as it took us twice as long to reach the size of an installed base domestically.

As a reminder, our T Slim X 2 technology is now available in more than 20 countries worldwide and we once again saw strength in orders across all geographies.

We have launch control IQ in the majority of these geographies and its reception outside the United States has mirrored the enthusiasm that we see domestically.

Notably, Canada, Germany, and France make up more than half of our total international opportunity in terms of the number of people living with type 1 diabetes, we launch control IQ in Canada in the second quarter and our distribution partners are preparing to launch control IQ in Germany and France.

We've made great progress on the first half of the year and are well positioned both domestically and internationally for the remainder of 2021 would be on with that I'll now turn the call back over to John.

Thanks, Brian.

Great job to our commercial and operations teams and everyone that tandem whose hard work and efforts made this quarter such a success.

Alongside our commercial progress this quarter I'm also very proud of the advancements we're making in our clinical programs. Our clinical research efforts are focused on improving time in range and quality of life for people living with diabetes while.

While reducing hypoglycemic events hospitalizations and the cost of managed care systems day.

<unk> generated from some of the recent research using our control IQ technology were presented at both HGTV and the Ada conferences in June the results continue to be fantastic no matter, how you cut it by age ethnicity people with type 1 or type 2 diabetes.

The next level of analysis on our control IQ technology is important as it shows high customer satisfaction and no algorithmic biases across a large and diverse population of people in real world use over extended time periods.

This research has also helped us helping inform future clinical efforts as we prioritize new feature offerings.

Pursue expanded labeling indications.

2 good examples of these efforts are kicking off now.

First in the next few months, we plan to begin our first clinical study to support expanding our control IQ labeling to include people living with type 2 diabetes.

We expect this study will be then followed by a second larger pivotal study in 2022.

The other exciting trial already in motion with our control IQ technology is an independent multi site study being conducted by Uba, Stanford and the University of Colorado We.

We intend to use this data from this study along with other data to support our future regulatory filing to reduce our age indication from age 6 to age 2 and above we plan to work as quickly as possible to bring this life changing technology to a younger population of people living with diabetes.

We are excited to move forward with both of these studies in support of our longer term regulatory strategy.

More near term Youll recall that we submitted some new features and enhancements to our control IQ technology to the FDA at the end of last year. Although we responded to early clarifying questions. We recently received substantive feedback on this filing which is a positive step in any review process, but even more so with the extended FDA review.

Timelines due to COVID-19.

Based on our most recent interactions with the FDA, we believe our best path forward is to collect and submit additional supportive clinical data some of which could come from the studies I've just touched on.

For this reason clearance timing remains difficult to predict and we expect our next pump software update will include only minor feature updates and improvements that do not require regulatory review where clearance.

We are also preparing for the launch of our mobile bolus feature for the Teasel next too which is also currently pending FDA clearance.

This highly sought after feature is designed to allow both iOS and Android users to deliver insulin from an app on their smartphone we are in the process of responding to the fda's questions and our goal remains clearance before the end of this year.

Strategically, we see great value and securing clearance for our mobile bolus feature in advance of our T sport filing as a foundational iOS and Android apps are essentially the same.

Our approach has been stepwise strategy much like how we introduced basal IQ technology, leading to control IQ introducing a personal smartphone based mobile bolus feature will enable our patients and providers to experience and therefore build confidence and trust with our system leading entities sport.

The sequential nature of these filings has rolled our anticipated T sport submission into 2022, but we believe our learnings from the mobile bolus strengthened our overall regulatory submission for T sport and ultimately reduce the total time Force review.

We will update our timing expectations for the T sport submission following our receipt of mobile bolus clearance.

Our manufacturing team began initial T sport validation builds last month, which is an important step on the manufacturing process.

The experience will be valuable in helping us shorten the time between clearance and launch.

As you can see 2022 is shaping up to be an exciting year for tandem as product pipeline. In addition, we are also working hard collaborating with our CGM partners <unk> common Abbott on the integration of their sensors we.

We are also continuing to advance our digital health projects and reached an exciting milestone in Q2.

We began limited testing on the initial version of tandem source or second generation data management platform in the United Kingdom.

With international demand for our T Slim <unk> pump rapidly increasing it heightens, our desire to offer tandem data management applications to our international customers like we do domestically with T connect.

Data and customizable reports empower health care providers caregivers and the people living with diabetes with information to help them and their therapy management.

Tandem source is our first global managed data management platform and we plan to expand our testing of the new platform in additional countries later this year.

In addition to these efforts we are bringing increased focus to the development initiatives associated with our longer term portfolio.

Across the R&D pillars of hardware platform expansion AIG leadership digital health and ecosystem advancements we are working to advance our strategy, which supports our longer term leadership position in insulin therapy management I look forward to sharing more on the upcoming quarters about these efforts, which focus on bringing innovation to the different segments of.

The diabetes community.

I'll now turn the call over to Lee to discuss more of our quarterly results and updated guidance for the year. Thank you John and good afternoon, everyone.

Our financial results for the second quarter were the strongest in our company's history as we made meaningful progress along each of our key financial objectives.

Record sales of $172 million and significant improvement across our growth operating loans adjusted EBITDA margins.

We also shipped our highest number of pumps on a quarter, reaching nearly 34000 shipments worldwide.

To put our performance and growth from our context, our pump shipments in Q2 were approximately the same as we shipped on all of 2018.

This highlights the incredible progress, we are making on expanding the market and taking market share at levels greater than years past.

Worldwide sales were $313 million on a year to date based on switches on increase of more than 50% over last year.

As our installed base has grown to nearly 270000 customers, we see ongoing cartridges and infusion set purchases, becoming a more meaningful part of our business.

In addition, we are seeing a growing number of customers become eligible for insurance reimbursement following the expiration of their typical for your warranty period and as a result, we have an increasing number of repeat customers approx.

Approximately half of our sales this year can be attributed to these reoccurring revenue streams, which enhances the predictability of our best day.

Our domestic business once again delivered strong growth on the second quarter with sales of 128 and.

An increase of 43% over the prior year.

Was primarily driven by more than 20000 pump shipments.

While the majority of our pump shipments continued to be largely made up of customers who are new to tandem. We once again experienced an increase on our customer renewed momentum.

Out of the total number of customers from these warranties have expired.

Cumulative percentage of renewing customers is once again at this quarter. We are on track to reach our cumulative renewal rate of approximately 60% by the end of 2021 compared to 55 for a follow up on some of last year.

Overall pump shipments also benefited year over year from Goldman full access to the United Health care members, an opportunity that we have.

Welcome to the third quarter of last year.

Lastly, recurring supply cash our installed based on more than 200000 customers also contributed meaningfully to our year over year sales price increasing 44%.

This brings our domestic sales on a year to date based on 131, more little representing 37% growth over the prior year.

Turning to our international results, we demonstrated another standout performance in the international market.

We achieved record sales of $45 million on our international markets for the second quarter as well as record pump shipments more than tripling to 13200.

On a year to date basis, our international sales at $82 million were more than double the prior year, representing 26% of our worldwide sales force is only 19% in the first half of 2020.

These results once again, well exceeded our expectations in a highly unpredictable environment.

And for Keith on X gene continues to gain momentum as awareness grows outside the U S, particularly with the scaling launch of control IQ.

The markets, we serve outside the U S are about 2.5 times the size of the domestic Taiwan market with pump penetration averaging about half the loss rate.

It's been challenging to predict the sales cadence internationally between scaling launches and COVID-19 restrictions.

The overall progress we've seen in the first half of 2021 further strengthens our confidence that the international markets will continue to be on longer term growth driver for tandem.

Taking into consideration our strong performance, both domestically and internationally in the second quarter, we are increasing our 2021 worldwide sales guidance to a range of $670 million to $685 million, which is a growth rate of 34% to 37%.

This includes international sales in the range of $160 million from 165 million nearly doubling our 2020 international results were.

We are confident that our technology will continue to expand the market and capture share even in this challenging environment. We continue to factor in some conservatism relating to COVID-19 average ASP.

We've seen in the past few weeks it remains highly unpredictable.

Our guidance expectations also factor on the potential for competitive noise in the market.

As we look to our anticipated cadence of sales for the rest of the year summer seasonality is expected to be reflected in the third quarter, particularly in the international market that may also be more heightened in the U S. This year.

And customers, taking the opportunity to vacation post Covid lockdowns.

Moving on to margin gross margin meaningfully increased to 54% in the second quarter up from 50% on the prior year and 52% in the first quarter.

We drove this improvement through manufacturing cost reductions from both pumped and cartridges from process efficiencies and increased production levels, particularly as we continue to transition higher volume through our third party cartridge manufacturer.

We also continue to generate cost savings on our other non manufacturing costs overall, which primarily consist of warranty customer training right royalty and digital health support costs.

From an average selling price or ASP perspective, our domestic ASP for pumps remains strong while the rapid increase in our international business has brought our global comp A&P down compared to the prior year. This is countered by a higher ESP on supplies for our growing international install base, which brings positive contribution to our supplies gross margin.

With a gross margin of 53% year to date, we remain on pace to achieve a gross margin of approximately 55% for the full year.

For adjusted EBITDA, and operating margin or sales growth far outpaced our increase in operating expenses. Despite our ongoing investments in R&D initiatives to support our near and long term product pipeline as well as our customer support infrastructure.

I said, EBITDA, which also excludes noncash stock based comp more than doubled to 14% in the second quarter from 6% in the prior year.

Have now reached an adjusted EBITDA margin of 12% on a year to date basis.

This leverage is largely attributable to the growth in our international business, where our network of distributors are responsible for much of the operating expense investment.

Operating margin took an even bigger step up to 3% in the second quarter compared to negative 11% in the prior year as our noncash stock based comp declined in absolute dollars and as a percentage of sales.

With the increase in our sales expectations. We are also narrowing our 2021 adjusted EBITDA expectations to approximately 15% of sales.

And each of the last 3 years, we have achieved a positive operating margin and net income in the fourth quarter due to the highly seasonal nature of our business, notably this is our first time, reaching this milestone in the second quarter and we expect this positive trend to continue for the remainder of the year.

We ended the quarter with total cash and investments of $545 million, an increase of $32 million in the second quarter, primarily due to strong cash flow generated from operations as well as proceeds from employee stock plan.

This brings us to accumulative increase of $60 million for the year, even as we continue just on key investment areas, including product development for heart, where software and digital health initiative.

Can you take investment and manufacturing scale up for T sport.

In summary, we have increased our 2021 worldwide sales expectations to a range of $670 million to $685 million, which.

Which includes international sales up $160 million from $165 million.

Gross margin for the full year is expected to be approximately 55% and our adjusted EBITDA expectations are approximately 15 percentage of sales are.

Our non cash charges for stock compensation depreciation and amortization are unchanged at an expectation of approximately $80 million on can you get components above cost of sales and operating expense.

With that I will turn it over to the operator for questions.

Thank you as a reminder to ask a question you will need to press star 1 on your telephone.

Draw your question press the pound key.

Ask that you please Mr yourself to 1 question.

Please standby, while we compile the Q&A roster.

Our first question comes from Steven Lichtman with Oppenheimer <unk> Company. Your line is open.

Thank you hi, guys and congratulations.

I just wanted to touch on international it sounds like with the raised guidance Youre expecting.

The momentum to continue here in the back half.

What are the key countries that we should be focused on that incremental opportunities for for you guys.

As we look out over the over the next few quarters are you seeing similar.

Attrition patterns for patients outside of the U S vs. Inside I know, it's relatively early outside of you guys, but just wondering on that front. Thanks.

Hey, this is Brian as we mentioned earlier being in over 20 countries now we're getting into quite a panoramic view of what's going on internationally and we're truly just now getting kicked off in many of these major markets. We launch control IQ in Canada in March of 2021 here, we're getting ready to launch control IQ in Germany, and France. So I think those other ones to really look at just due to the.

Size of the markets that we're competing in their debt.

Really 2021 of the rest of the year is about execution and getting those pumps out the door for us with control IQ is just hitting its stride and some other markets will be view.

Some of the major markets for us. So I think those are the ones to look at and pump adoption of those markets. There is plenty of opportunity to still be had there. So.

Very balanced growth very encouraged and our partners are super happy with the price that representing right now.

And as far as attrition is concerned both domestically international was a very small number probably early to say, but we really don't hear much of that right. Now I think again control IQ has a strong factor on that.

Thank you. Our next question comes from Rebecca Wang with SBB Leerink. Your line is open.

Hi, Thank you Rebecca on Google.

Okay. Congrats on I feel Chris I'm going on I guess my question.

No we've done.

The competitive launches are pushed out we often see a pause in the market for new product launches.

Didn't know dynamic today and in the U S with upcoming.

Cheers.

And so on.

On to control IQ.

And some other key engineering from the market is also seeing upon International Inc.

Thanks to be.

As expected, we're beginning to hear more noise around anticipated competitive launches here domestically, but recognizing that they are not FDA approved yet the specifics are fairly limited for US control IQ is here and now and we continue to promote the benefits of what we have and it's been going very well.

As for pausing Im sure Theres, some element of that occurring but at what level, it's hard to quantify I would say both domestically and internationally, we remain very very busy.

We haven't really seen too many signs of that so far.

Thank you. Our next question comes from Travis Steed with Barclays. Your line is open hi, Thanks for the question so on.

Looking at the U S guidance.

The back half of the U S is about 23% growth versus the first half and you usually do twice that so just wanted to make sure I understand what youre assuming in the U S. Here and then longer term. If you look at the 270000 patients calling the 500000 patients that's about a 20% CAGR.

Curious if you can put some color on how you think the U S could grow in relation to that 20% growth globally.

Yes.

Sure. Thanks for the question Travis Covid.

Can you the guidance for domestic in particular as you are accustomed to.

Into consideration on number of factors starting with the positive which is the great momentum we've seen from control IQ and we expect that to continue through the back half of the year for certain and of course, we always expect Q4 to be the largest quarter of the year based on how insurance deductibles reset and really pump purchasing season, but there are a couple of factors, where we've taken some caution for the back.

Half of the year, particularly I would say, it's mostly pointed towards COVID-19. There's been so much change on the market just even in the last few weeks not only the last few months, where we've seen some ups and downs openings and closings even more recently as Brian mentioned on his prepared remarks, we've seen a lot of people on a concentrated level, taking more vacations I would say this summer.

In the U S than ever before so we expect that to have some very near term pressure as we go into Q3, but for the most part we're just being cautious about the impact of Covid could have on the rest of the year altogether and then of course, we could put in.

Some conservatism around the competitive launches that may occur this year.

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

Great. Good afternoon, everyone can you expand on the discussion youre, having with the FDA with low volatile part would be absolutely fantastic for diabetic. So I'm curious does the FDA want to see more data around usability or are they still.

On somewhat concerned about cyber security or really where is there pushback.

And what sort of data do you need to submit for that and then how quickly after mobile bolus is approved credit events submit T sport.

Thanks, Alex Good question, Yes, I mean, we've been working with the FDA on this now for several quarters and early on we really focused on cyber security issues and I will say our team did a fantastic job there and I think we've really got to a point where that that's behind us I would say most of the stuff. We're focused on now really is the user experience.

An example would be training in the past, we typically would send a manual with the with the product that people would use the manual with the mobile app what the FDA has asked us to do is to incorporate the training into the App and so it's tough it's very straightforward.

It's not it's not complicated we just have to go through the process to design it in and then test it and.

We are.

We're responding to the FDA actively we've been working to collect this day to over the last couple of months, we're about ready to provide our latest response to them on the next couple of weeks and we still feel confident about this being approved.

Year, and we would agree with you. We think this is a huge product.

The ease of use the convenience and the discretion that comes along with it it's going to be really important to the entire diabetes community. So thanks for the question.

Thank you. Our next question comes from Ravi Misra with Bamberg capital markets. Your line is open.

Hi, good evening. Thank you for taking the questions. So I was just kind of cruising through your Q.

The call is going and I wanted to kind of ask about supply chain lead times in your kind of outlook towards the end of 2025 just curious.

You are expecting give or take about 25000 patients a quarter as you kind of get to that debt.

On a year and half a million target by 2024, but you've been.

Outperforming that number pretty substantially at least this quarter and kind of on average for the last couple of quarters.

Just curious you know should we think about the seasonality aside the cadence of your kind of production cycle like what kind of outperformance would you guys need to have on kind of a new patient cycles before you would run into some some constraints on the supply issues around some of the semiconductors are copper and can you help us kind of think about how that.

Kind of flow through of margins. Thanks.

Really wonky question, but I think given.

All that's going on here on just very curious to hear your take but I think it's a good question and I think debt.

Something that we're very we provide a great deal of attention to we have a great team and our manufacturing and supply chain organizations and Trust me. They are all over this.

We're working to.

Supplies in place many quarters out, but when you talk out too I mean, when you talk about just the process that we follow on on ongoing basis. We have teams that meet monthly they talk about the sales demand the potential upsize and those sorts of things and when you look at the cycle to actually bring in additional capacity for the for the automated assembly equipment.

It's a year out in time and so we're planning well ahead of the demand and we're also planning to to see the continued upside that we've been experiencing here when it comes to purchasing these these components.

And the automated systems when it comes to the manufacturing of the pump itself.

It's really a matter of just managing our suppliers carefully and just making sure that we have visibility out in time and like I said, our sales or excuse me. Our operations teams are doing a great job, there and I feel that it's at.

It's something that we're very attuned to it as important and but we feel confident in the organization Hasnt under control.

On the sales team so to the jumped on the sales that we want the sales team to pressure on just saying.

We have to continue to really be reactive, but it's again, we have a great team and they're doing a great job on I think that we are looking at that far on time as well.

Good questions. Thank you.

Our next question comes from Mathew Blackman with Stifel. Your line is open.

Good afternoon, everyone. Thanks for taking my question Lee I, just wanted to hone in a little bit more on your comments about the second half cadence in the third quarter in particular, I think historically the third quarter is somewhere like 25, 26% of annual sales, but it sounds like from your comments that it could be lower than that perhaps in the let's call. It the lower 20% range is that the.

Right way to think about it in my capturing your commentary correctly any help there would be appreciated. Thanks.

Great question, Matt and I'll talk about domestic a little bit separate from international and then I'll pull it all together with some worldwide commentary, but the way to think about it. This year is we usually see some level of vacation pressure in the summer months in the U S. But it's usually more diffused across the entire summer and then in this case, what we're seeing is a more concentrated pattern.

Vacations that are happening right now and so what we anticipate from Q2 to Q3.

Secondly is that there will be an increase still just like we've seen and we're accustomed to you I think on seasonally across the year, but it might not be at the same level that we've seen in the past as we work through this but we're very confident that linked deposits open back up and people get back to their normal schedules and things will be on track again in Q4 will be a very robust quarter, Inc.

You contrast that to the U S market.

It's very common to see this depressed depression in the third quarter when it comes to the European Summer holiday season. So we're fully expecting there to be a decline from Q2 to Q3 in the U S market like you see on many businesses across the world and again, then a rebound into the fourth quarter. So when you tie all that together on you think about it on a worldwide basis from Q2 to Q.

3 we are expecting it really this year to be in line to slightly up from.

Q3, compared to Q2, and then a very robust fourth quarter to tie up the year.

Thank you. Our next question comes from Brooks O'neil with Lake Street Capital. Your line is open.

Good afternoon, guys and congratulations on just a terrific performance here I'm curious thanks Robin sleeve. There there is 2 sides to that.

The coin in terms of constraints to your future growth.

First those things that are outside your control and second those things that.

Our generally force.

<unk> beds or used day got base within your control. So as you think about the things within your control and you think about let's call. It intermediate term growth what are the big things that.

You worry about and that you're working hard on to overcome so that you can continue to deliver the kind of performance we're seeing now.

Good question. Thanks Brooks.

I'd say that the thing that we're very focused on now as an organization is hiring and I think that across the board each of them as we grow as quickly as we do we need to bring on engineering talent we need.

Staff, our manufacturing teams and and we also need to look at the leadership of the company. So I think that we are.

We're looking at this carefully we're working with all of the teams or HR organization is doing a great job, but so hiring is something that we really have a great deal of focus on the other thing is the the technology systems that we used to actually manage the company and interact with our customers, we really want to leverage the technology to make our organization.

A lot more lean and efficient.

And so I think thats something thats. Another thing that we've got a great deal of focus on we're making really good progress there, but we're looking at using technology to eliminate voice centric communication, which will reduce the need for people on our call center operations not reduce it but it'll have this reduce the growth of these areas and really leverage the.

The financial benefits of that going forward. So I'd say, it's really the it's the people and then it's also the technology too to scale the business.

Good question.

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

Hi, Thank you for taking the question.

So I just wanted to ask you to general question on philosophically about competitive launches when youre thinking about.

Forecasting some conservatism into them how much do you think about that in general and.

On the on the timing of it when do you see that pressure is likely coming is it slightly before the launch initial launch 2 months. After just help me think about some of that specific dynamic that we could see over the next 6 to 12 months.

Sure Thanks, Matt and I will talk about it really from the perspective of how we think about it when we're building our guidance and looking forward and so that's when we started the year there with the anticipation that there was going to be a lot of competitive noise happening in the market. All at 1 time here in the back half of the year, but based on the way things have been moving through the FDA and what we've been seeing at least on.

We've been hearing we don't anticipate there is going to be that that big moat that big bolus of.

As noise I guess that would be happening all at 1 time and that it will probably be disbursed and spread out across this year, maybe into next year, a little debt and so the concentration of it was the biggest contractually we're thinking about how we put caution into our guidance. This year now as we're looking at the back half is less about the competitive noise that we think will face on it's more about the COVID-19 environment.

So not to switch gears, but thats really where we put more of our caution as we thought about the guidance for the rest of this year.

Thank you. Our next question comes from Jeff Johnson with Baird. Your line is now open.

Thank you good evening, guys or good afternoon, John I, just wanted to understand on on some of the timing you talked about on kind of the next software updates been minor did you draw a line in the sand when they could come in and so we could think about the bigger updates beyond that kind of what that timing could potentially look like number 1 and more importantly, we've seen some of them.

<unk> studies, you've talked about even.

Uba is redo released some of the rocket AP data and some other meal time, what is the challenge and taking some of that stuff and just kind of iteratively getting it into the software and getting the FDA to kind of approved Keith Neal kind of improve.

Improvement here on improvement there why does it have to be kind of a bigger package that all comes.

In a bigger.

A longer timeline in in a bigger package that goes out to users.

Yes sure.

You're referring to the fact that we had.

We had planned we're working with the FDA right now on a version of the first iteration to control IQ. If you will and there were a couple of features in there that really expect expand the population who can use that people who have different weight requirements and also people who have different insulin use requirements and we had done simulations to.

And we had used real world data to justify these changes and in our interactions with the FDA. We found out that they were going to have to do some clinical studies to make those happen. So there's a lot of other changes that we have in there either.

Things that are I think under the Hood, if you will.

Just maybe nuisance fixes and things like that that aren't really they don't really the rise to the occasion, we're going to be making those here in the near future and we will have to go back as I said and do additional clinical studies for for this initial control IQ version I mentioned, we will benefit from the type 2 study that we're doing and we will benefit.

From this this PD study that we're doing as well so I think that over time, we intend to have a cadence of.

<unk> to control IQ Dr. Pinsker has really jumped on this he has brought a great deal of focus on our strategy and he and the team are really working on clinical studies on a clinical study strategy to bring our cadence of improvements to control IQ over time, and so that's something that we're working on right now I would also say that relative to.

To the the clinical studies.

We work with a lot of different kols and institutions to to support clinical studies, we have.

A number of studies that we're funding all of those and then we also have studies where were just basically providing supplies and each of these cases, we have agreements in place and we also have access to the data. So they these studies really help us and inform us as to how control IQ performs in different settings.

On the specific question about how come it takes so long I mean right now in order to make changes we have to confirm the changes in our design process and then we have to go through some smaller clinical studies to make sure that these performed the way we do and once we are comfortable with that we have to do pivotal studies and this is just on.

A requirement from the FDA its a process they follow.

Need to make sure that they have high confidence in the safety of these changes and that's just the process we have to follow up and it's not just tandem it's everybody who's working on this and this.

Diabetes industry and I'll have to follow the same thing I hope that answers your question.

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

Hey, Good afternoon. This is Jason on for Matt Thanks for taking our questions and congrats on the results here.

Wanted to follow up on an earlier question.

On the international side, and just really specifically asking about how you might be factoring in contributions of rolling out control IQ in Germany, and France, specifically here.

Maybe how does the Canadian launch of control IQ influence your view of the penetration trajectory as you look at those 2 new markets. Thanks.

I mean, we're getting the same positive feedback from our Canadian launch that we've certainly received here in the U S and it's a life changer to those patients who are.

Coming on as those pieces are just now coming back in further quarterly visits and Thats always a great advertisement with endocrinologist and the diabetes education center that they're working with as far as Germany, and France are concerned we are near term here on launching in Germany. We will look forward to that it's a large market we've done very well there already with basal IQ so the exciting.

To get pumps updated the control IQ launch control.

Control IQ pumps is very.

Very very positive.

Same thing in France, working for all the reimbursement issues.

Issues of the things that we have to do to launch, but all of that is on track of our partners extremely excited.

<unk> is available now in France with that really sets on pump up there for success as well in fourth quarter and going into next year again, those 3 markets are the large ones and then the Benelux countries as well all new to control IQ all due to the momentum we carry on the end of the year on into next year. So again I hope that answers your question, but it looks really good for those.

They have been strong without it so we really look forward to seeing it on the other side Lee maybe some commentary on your end.

I think you covered it well I think 1 key point, what Brian just said is we've been operating remarkably well even without controlling <unk> in those markets on competing effectively income we're very excited to get them. There I think it's really going to be more of a 2020 team on the income driver.

And then this year, but.

That's great all around.

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

Yeah.

Hi, guys. Congrats on a great quarter. This is other now for Jason.

A few questions on whether if you can elaborate on the timing of that.

2 study when do you guys expect readout and also you guys have mentioned the 500000 customer goal by year end 2024.

Any tied to.

Users contemplated into that number or is that mostly type 1 at U S and international Thank you very much.

Sure. Good question I'll, just start with the second half of the question first.

The 500000 contemplates all type 1 type 2 is an opportunity to actually grow on top of that and I'll say that the.

We had.

In the past on on these calls about data that we had collected it was real world data. We have collected on the type 2 community who are using control IQ and we had hoped to use that data to <unk>.

Get the indication for for our type 2 products and conversations that we've had with the FDA. We have learned now that we need to do we need to get additional clinical data and as I mentioned, just a moment ago, we're going to have to do a smaller study it's going to start here in the next month or so it will probably take us through later in this year to complete and we will learn.

From that information and help US design, a pivotal study and the pivotal study will be run on 2022. So we're moving aggressively again as I mentioned, Jordan Pinsker is bringing a lot of focus to our our clinical organization on our clinical plans.

He is going to be driving this through tandem for the next several years and we're looking forward to it. Thank you.

Thank you on next question comes from Larry Nicholson with Wells Fargo. Your line is open.

Hi, This is lei, calling in for Larry and Thanks for taking my question you talked in past about that being no opportunity.

Such increases a lot next year and even more so in 2023 can you talk a bit about how do you get your fair share of that and along with that most of the renewals in 2023 will.

We'll be control IQ patients just remind us what's the incentive for control IQ patient to renew.

Sure. So from a renewal perspective first of all we're very focused on the customer experience because we think thats whats most important to retain the customers throughout their warranty cycle I want to keep them with us.

And for the next purchase and then from an R&D perspective, we're very focused on continuing to offer advancements in our technology, even with control IQ itself that will compel them to want to move forward with pump purchases outside of their warranty cycle software updates are only available while they are in warranty. So those are a major areas of focus on we're ramping our internal.

Resources were improving our processes, we're working very hard to get prepared for the fact that next year is going to be a major step up in terms of the opportunities that come to the market and it will be 1 of our most significant growth drivers as we look out in the longer term.

Thank you and I'm currently showing no further questions. At this time. This concludes today's conference call. Thank you for participating you may now disconnect.

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