Good day, ladies and gentlemen, and thank you for your patience. Welcome to Tandem’s Second Quarter 2019 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference may be recorded. I would now like to turn the call over to your host, EVP and Chief Administrative Officer, Susan Morrison. You may begin.

Thank you, Latif [ph]. Good afternoon, everyone, and thanks for joining Tandem’s Second Quarter 2019 Earnings Call. Today’s discussion will include forward-looking statements. These statements reflect management’s expectations about future events, product development timelines and financial performance and operating plans and speak only as of today’s date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q, and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors. In addition, today’s discussion will include references to adjusted EBITDA, which is a non-GAAP financial measure. Adjusted EBITDA is a key measure used by us to evaluate operating performance, generate future operating plans and make strategic decisions for the allocation of capital. Please refer to the Investor Center portion of our website for further information. Today’s call participants include: Kim Blickenstaff, our Executive Chairman; John Sheridan, our President and CEO; Brian Hansen, our EVP and Chief Commercial Officer; and Leigh Vosseller, our EVP and Chief Financial Officer. Following our prepared remarks, we’ll open up the call for questions. Thanks everyone in advance for limiting yourself to two questions, getting back into the queue. With that, I’ll turn the call over to Kim.

Thanks, Susan, and welcome everyone to today’s call. Q2 was another quarter of record highs and milestone achievements, it’s a result of our entire organization maintaining focus and executing at extremely high level. We’ve seen strong positive momentum, which positions us for an exciting back half of this year and beyond. In addition to preparing for continued to grow, our team has also been focusing on our longer-term strategic planning. We make great progress in advancing diabetes technology and position to continue addressing the primary challenges of our industry this is still remain. These include the burden of managing diabetes, which is improved with offerings like Basal-IQ technology, but continues to be significant for people with diabetes. Healthcare providers are struggling to keep up with patients’ volumes and care demands, and risk bearing entities such as the payors are focused on transitioning care to a least cost selling. As a result, patient care is evolving and we have Tandem are evolving. Overall, we are working to provide to aid in therapy management with the singular focus on diabetes, and are beginning to deliver system that have designed to be simply use and improved patient outcomes. Pump innovation and leadership remain fundamental to our success and providing the world’s best insulin delivery system and number one customer support will remain our goals along with our commitment to continues innovation. We also recognized the value of enabling an ecosystem of best-in-class partners around our devices, and Dexcom CGM is a great example of this. In addition, we believe that thoughtful expansion of our data capture and analysis platforms will drive further insights and solutions for all of our customers, which includes patients, providers and payors. Overall, we are working deepen our customer engagements and our focus is to deliver solutions not just technology. We held our Analyst Day nearly a year-ago, we shared some of this vision for our company. We also discussed that in addition to our strong short-term momentum, we also have a solid long-term growth trajectory. Today’s results are evidence that we’re delivering on the short-term momentum ahead of our prior expectations. In fact, the three to five year targets we laid out incredibly it looks more like this should have been two to three year targets. For this performance and following our strategic planning efforts, I believe, we are at strongest position of our company’s history to achieve meaningful longer term growth. We remain committed to continuing to execute in the high level and achieving the goals that we support our company and support of the diabetes community. With that, I’ll turn it over to John.

Thanks, Kim. As we’ve been working on our longer term strategy something I’ve been particularly proud of is the team’s unwavering dedication to our mission to improve the lives of people with diabetes, relentless innovation and revolutionary customer experience, is this focus that is driving our successful execution today. We are very proud of nearly 100,000 people now use a Tandem insulin pump in the United States. In addition, we’ve launched in 12 new countries in the past year and we’ve now shipped nearly 18,000 pumps outside of the United States. Our results in the second quarter that contributed to these numbers are particularly impressive our domestic shipments were in line with what we’ve achieved in our seasonally high fourth quarter last year, and we’ve already shipped more pumps worldwide in the first half of 2019 compared to all four quarters of last year combined. We are also beginning to see greater evidence that we are making progress in our longer term goal to bring the benefits of pump therapy to more people with diabetes. Historically, we estimated about 30% of the 1.6 million people with Type 1 in the United States use an insulin pump and that between 25,000 to 30,000 people convert each year from using multiple daily injections. Even with the strength we saw this quarter and continue to have about how our new customers report converting from MDI. This trend combined with other pump manufacturer results and third-party data suggests that the number of people adopting pump therapy for the first time could be doubled what it has been in the past. We felt like there is a building momentum shift in the insulin pump market over the last 18 months, and we are now beginning to see the days for it. To us this demonstrates…

Thanks, John. One incredible time to be part of Tandem, say, things are busy is an understatement, but the positive feedback we continue to receive from patients is quite motivational. Working to understand a perspective of our customers, our healthcare providers and the broader diabetes community is and always has been a pillar of our company. Market research and behavioral scientist are central in our decision making processes and recently more than 10,000 Tandem customers responded to our survey focused on satisfaction. Additionally, we recently received new insulin pump survey data for dQ&A and independent research group. The results between the two surveys were remarkably consistent and highlighted that our customers are very satisfied with the t:slim X2. In fact, our survey showed the highest satisfaction scores in the company’s history. And dQ&A’s data showed the Tandems’ customers are the most satisfied amongst the pump manufacturers. We also rank as having the highest satisfaction for our patient support services among pump manufacturers. We received positive ratings in our own survey as well with our growing customer base, as John discussed, it’s an area we are continuing best in as a service we offer is just as important as the insulin pumps we sell. And finally both surveys showed that we have a world-class net promoter score, and dQ&A highlighted the Tandem is the highest among pump manufacturers. For anyone not familiar with Net Promoter Scores, it’s a customer satisfaction benchmark that measures how likely your customers are to recommend you to a friend is intended to measures, a customer’s overall sentiment about a brand versus their perception of a singular interaction or purchase. NPS is becoming an increasingly popular measure, particularly with payors and Tandem’s excellent NPS scores are helpful in our ongoing discussions with these important business partners. In…

Thank you, Brian, and good afternoon, everyone. Q2 exceeded all expectations marking the seventh straight quarter of greater than 55% year-over-year sales growth and the fourth straight quarter greater than 70%. As you saw in today’s press release, we have increased our worldwide sales guidance again to a range of $350 million to $365 million, which includes an increase in our international sales guidance range to $55 million to $60 million. We shipped 21,300 pumps worldwide, which is a nearly 300% year-over-year increase, resulting in $93 million in sales. Our international expansion played a key role in this remarkable achievement as well as benefit from the same domestic growth drivers we have seen since late 2017, which include renewals, new pump sales from MDI users and competitor conversion. As John and Brian discussed, the U.S. market appears to be growing at an unprecedented pace. Our U.S. sales alone were $70 million in the second quarter, of which pump sales comprised 69%. This was driven primarily by 12,800 pump shipments, which were 135% higher than the second quarter of last year. This also represents a 32% increase sequentially by comparison our second quarter sequential increase in 2017 and 2018 averaged only 22%. We estimate that our domestic in-warranty installed base now exceeds 96,000 based on the cumulative number of pump shipped in the last four years. U.S. pump shipments once again reflected the doubling of renewals year-over-year to approximately 1,600, which includes sales from warranties expiring as far back as 2016. We continue to be pleased with our progress related to customer retention and renewal. Looking forward, renewals will continue to be a strong growth driver as the opportunities from warranty explorations continue to accelerate and we launch new innovation. As we think about our progress for the year-to-date we continue…

[Operator Instructions] And our first question comes from the line of Joe Wuensch from BMO Capital. Your question, please?

Thank you very much for taking the question. And just a nice quarter would really be an understatement. Two questions really, the Control-IQ data at ADA created a little bit of confusion at least among some investors that we spoke with. Can you give us a little bit of the physician feedback that you’ve been hearing after the ADA meeting?

Sure. Hi, Joanne. First of all, I just want to say that we are very pleased with the results. There is definitely a divergence of opinion between KOLs and academics, and what we describe as our initial expectations. But I think it’s really important to say that you can’t really compare results of different trials, that’s something that’s really important. I would say that the KOLs and academics are extremely pleased with the data. And they have said that to us over and over again, I mean, we met the primary, secondary outcomes. The improvement was immediate and it was maintained for the entire six months. We had 92% time in closed-loop, in the quality of life metrics over the top. And I would say that the most important element of that study was the fact that, when you look at the stratification of time in range versus A1C. There was a very wide range of A1Cs from 5.5 to 10.5 and every group improved. That was a really, really big deal. And so – I think that we’re extremely satisfied and excited, and I think this is going to be a great product as soon as it comes to market.

Thank you. And my follow-up is, as you think about and bringing that product to market, you’ve commented earlier they haven’t really become the long-term marketing plans. What does it take to launch it and not just in terms of mechanics of getting the brochure put together, but also on the expense side? Thank you.

I think that we are absolutely working in a large cross functional team to make sure that, we’re preparing ourselves for the launch. So I think, what Brian was referring to us, we can’t say this publicly, we can’t really talk about what we’re doing. But we’re definitely working to make this happen. I think that other than the obvious – other than – like you suggested the manuals and things like that. The one thing that we’re preparing to do is a little bit different, as we are working to aggressively train – the health care providers in the few weeks that’s follow the release. We believe that this is – there are differences in the Control-IQ system that require us to provide training that are important. And so we plan to do that in the two to three weeks that follow the release. And I think that’s the one big deal probably that’s been different from what we’ve done in the past.

And Joe, answer your question on the expenses, we don’t anticipate any outsize expenses in the quarter associated with the launch.

Thank you.

Thank you. Our next question comes from the line of Alex Nowak from Craig-Hallum Capital. Your question, please.

Good afternoon, everyone. I congrats on the results. John, just going back to what you said on MDI, the number of MDI users switching the pumps have certainly accelerated here over the last 18 months? How should we expect this trend to morph over the next two to three years, because obviously there’s a lot of room still up to go 30% of diabetics using a pump? But are you getting what we would call the low hanging fruit, MDI users right now? Or is this acceleration across the board in a trend that you continue for the next couple years?

Well, I don’t think we have the ability to characterize sort of the types of MDI users that are coming. But I will say that if you look at – just look at the second quarter data there was approximately 12,300 – 12,000 domestic pump sales, and you take out the renewals and that gets down to about, I mean, 5,500 MDI users. And so we basically just annualized that and they take into account seasonality. That by itself is up in 22,000 to 25,000 units per year, which is typically what happened annually for the whole industry. So you also have to take into account are Medtronic and you’ve got to take into account insulin others. So it really seems like there’s acceleration in interest that we are successfully improving market penetration. And I believe this technology, I think is the technology and ease of use is driving adoption.

Okay. Understood. And then just any update with your conversations with UnitedHealth Group, particularly after the ADA conference?

So – thanks, Alex. I really put UnitedHealth Care in the bucket with all of the major payors. It’s been really great to have the Basal-IQ data, and now with some real world data to support it. And now with the Control-IQ data, we can continue in these very engaging conversations, which I think going to be helpful in the long-term as we try to achieve our managed care objectives. So things are progressing well with all the payors.

Okay. Understood. Thank you.

Thank you. Our next question comes from the line of Brooks O’Neil from Lake Street Capital. Your question, please? Brooks O’Neil: So good afternoon, congratulations on everything. It’s fantastic. So…

Thanks, Brooks. Brooks O’Neil: It works me – I’m curious if there’s any significant difference between Basal-IQ and in Control that would preclude somebody who wanted the in control algorithm from buying Basal-IQ right now, and just getting the software update when it’s approved by the FDA?

Well, I think that the – right now, the way we plan to do this, there are going to be pumps in the marketplace that have Basal-IQ on them, when Control-IQ is available they will be able to upload their pumps with Control-IQ at for no charge as long as the pump is in warranty, it’s purchased before the end of 2020. So that’s what our plan and I think that this is important, we think this is going to – it’s going to drive uptake of the device. We’re very sensitive to people, who have diabetes and we think it’s a very important decision, and this is the right decision for us. Brooks O’Neil: I think, it’s a great decision – it’s maybe. I have just one other question for Leigh, and it’s a little bit technical and you probably know I’m not an accountant, so if I get in over my head and I apologize in advance. But I saw, I think, you commented that there was $0.4 million of expense related to the warrants. And I was curious what the total amount of non-cash warrant expense, you anticipate for the full year, so we can make sure we have our models correct?

I’m sure. And Brooks, you’re correct. It was $0.4 million in the second quarter and $13 million in the first quarter. It’s a very difficult thing to model, because it solely relies on the stock price movement, so at the end of each quarter we read value those warrants, and so again difficult to estimate our forecast. We have about $400,000 of them left there is only people continued to exercise and it will reduce the exposure in the future. Brooks O’Neil: Sure. That’s great. Thank you very much and congratulations.

Thank you.

Thank you. Our next question comes from the line of J.P. McKim from Piper Jaffray. Your question, please?

Hi, good afternoon. Congratulations on the quarter. I wanted to ask one for Brian on the international side. Can you help us understand, you talked about organic demand there? And I mean, how do we parse out maybe the numbers with Tandem and with organic, and then get to some of these new countries that you’re kind of excited about opening up as kind of new territories?

Hi, thanks for the question. So that first phase one was going into well established territories that had the distribution partners that worked with Animas, and our primary focus there was getting those Animas patients they had converted over to the Tandem pump. We’ve been surprising some of those markets and clearly in the 12 countries, they all vary a little bit, but we’ve been surprised at the demand on the organic side of those looking for a new pump, so either patients that are new to pump therapy or patients that have had their pump for four years and are ready to select the new one. Now that the Animas patients are rapidly getting to the end of that conversion period here at the end of September of this year, all their efforts can go towards getting new ones on and again that demand has been very positive for us. So we think that’s what feels the second half of this year and into 2020. And then as we look at some other markets where there wasn’t distribution partners for us to select, they were more direct type countries, those have well characterized pump markets, Germany is a good example. And those are areas for us where we’re having final conversations, hopefully getting partners in place and drive some real good organic growth there. And there probably be a few Animas patients left over there, but they just didn’t have a distribution partner for us to jump on. So it’s been surprisingly strong and surprisingly positive, we’re really pretty strongly ingrained now in the international marketplace and all the meetings and what have you, so we think it will continue to be very good for us.

J.P., I would just add that, Brian mentioned in the script that, we have begun to release Basal-IQ in all U.S. countries. And we think that’s going to have a significant uptake a more competitive offering against particularly Medtronic.

That’s helpful. And then, can you talk about upgrade and what you do either Basal or Control-IQ? Like, where are you – why are you in terms of your installed base being even on CGM like how many patients are on CGM? And is there any strategy or anything that you can partner with closely with Dexcom in terms of co-marketing or some sort of bundled offering to get everybody on CGM quicker?

I’m sure. I’ll start with the numbers, where we are today is about 50% of our customers have Basal-IQ enabled on their pump and about 70% or a little more actually have updatable pumps. So if they don’t have Basal-IQ today, people are able to access it whenever they’re ready or Control-IQ, when it comes about. And I’ll let Brian talk about the Dexcom collaboration.

Yeah. We have a great relationship with Dexcom and our counterparts, my counterparts specifically on the commercial side we work incredibly close together, I think there’s always opportunities to market with each other work we showed in the field and find those patients, who aren’t using CGM today and our algorithms, so they help driving that right now. So I see a very positive.

Thank you.

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

Hi, congratulations on another great quarter, and I appreciate the comments on the Animas business. Looking at the puts and takes, just clearly going to be some Animas next year, but a lot less than you have this year, I’m coming up with roughly $20 million to $25 million headwind. So – but still [just small] [ph] compared to the overall growth you’re seeing, it seems like [recent amount to you] [ph].

So when it comes to the Animas business, it’s really hard to understand how many people have actually made their decision, we think that we’re nearing the bulk of it that we think there will be a talent to next year. So I don’t know that’s really forecast what that amount will be. But I’d say that in terms of where our growth goes next year, we’re going to be watching Control-IQ at the end of this year and I think it’s going to be a significant driver that will continue to fuel Medtronic conversions as well as people coming from MDI.

Okay. And on doubling the direct business in the U.S., maybe comment a little bit what does it take to do that and how should we think about the incremental margin or profit dollars for each patient versus distributor? And then one other, just comment on your share of MDI patients of the last few quarters?

So I’ll start with the last one, our MDI share has been about the same, we still continue to get about 50% of our patients from the MDI population. And when I think about moving from that 25% to 50% directly, it really just comes back to those conversations that we’re having with payors today. The ability to have this clinical data to get into those offices is making a huge difference in just getting to the table, and people have been very intrigued by the information that we’re providing it’s more than just a pump now it’s really a therapy for their patients. So that’s what’s going to help us move the needle on that direct business. And then in terms of margin, we haven’t really discussed it, but that’s really – that is important to getting to our more than 60% long-term gross margin.

Great. Thank you.

Thank you. Our next question comes from the line of Mat Blackman from Stifel. Your question, please?

Good afternoon, everyone. Maybe if I could start with John, maybe I missed this. But any sense on the timing of the full publication of the Control-IQ data. I’m just curious, what additional metrics might we see in that data that we didn’t see release that ADA?

That’s good question. And I honestly can’t answer it accurately. I can say that the [indiscernible] have been submitted, I don’t even know the journals they’ve been submitted to. I would say that there are several things I do know that will be included; we’ll see a lot more quality of life metrics. There was only three or four mentioned in the data that was presented by Sue Brown at the ADA, I think a lot more quality of life metrics. And I think there will be significantly more detail on the nuance of each of the factors that were measured during the study – different this categorization looking at different groups, a lot more detail than that was presented there, it was pretty general what was shown at ADA.

All right. That’s helpful. And then maybe just shifting to international, I want to follow-up and understand when you talk about the sort of organic opportunity that you’re seeing? When you say organic, are you talking about taking from competitors other than Animas? Or are you defining that as MDI conversion or some combination of both?

This is Brian. Yeah, some combination of both for sure. And there’s other pump manufacturers outside the U.S. as well and there’s opportunities to pick up some additional pump share from those. So – but, yeah, I think those two are definitely the two main areas of growth outside of the Animas conversions.

And I would just add to that, if you think about the international markets in the U.S. where it’s been stuck at a penetration rate of about 30%, the international markets provide an even bigger opportunity where it’s been in the 10% to 20% range depending on the geography.

And any sense of what the international pump market has been growing, if you compare that to me, what the U.S. market have been growing over the last several years?

I could greatly varies by geographies and some are much larger and better characterize, some are really early on. We’ve got a hodgepodge of those, if we look at the 12 countries we’ve entered.

And I’m going to sneak one more, and I assume, when you’re going to target these next round of companies – of countries that you’d be going after the ones with more defined already established market opportunity. Is that correct?

Yeah. That would be correct.

But they also need to have the Dexcom sensors.

Yeah. Got it. All right. Thank you so much. I appreciate it.

Thank you. Our next question comes from the line of Ryan Blicker from Cowen. Your question, please?

Hi, guys. Thanks for taking my questions. Starting with another couple Animas ones, I apologize, if I missed this. But first, can you confirm whether or not Animas represented the low-20% of U.S. new patient shipments similar to recent quarter. And then can you just talk about Animas within guidance? Why is international expected to decelerate so much in the second half with your launching Basal-IQ and opening new countries? And then within the U.S., are you assuming Animas conversions declined materially in Q4 or stay stable throughout 2019?

I’m sure. There was a lot. So I’m going to start with what I remember and you can help me if I missed some of it. But coming from the U.S. side related to Animas and the way we’re thinking about it is, yes, it has been just under around 80% of our nonrenewable shipments, pretty much since they announced their exit. And so we’ve been very happy with that uptake and I think that what we’ll see is that will continue to be at about that level through the end of the year. And then, I think, we’ll start detail as we go into 2020. But I think there will still be opportunities, because people might hold on to their pumps, they will stock up on supplies, and so it doesn’t just drop off like a cliff, then with the new products we have coming in the next two years, I think we can well overcome. What that might look like as it goes away from the business. When we look at the international side of it, it’s a little bit different story there, so what we’ve seen so far really starting in the third quarter of last year through the second quarter of this year, is the compression of all this Animas business that has been waiting for us to come, people knew we were on our way, but we’re not ready to ship till the third quarter. And then, because the distributors were very motivated and they have the lift, they were able to convert those patients much more quickly. So we think it’s pretty much behind us in the international market and one thing to think about when you look at first half over second half it’s very important to remember we did come out of 2018 in a backlog situation. And so about $7 million of sales in the first half of the year really pertain to what we would have liked to have shipped in 2018. So when you put that in there, and then you go forward it’s a nice trend.

Got it. Very helpful. And then the second one on gross margin, you mentioned the ability to reach gross margin of 60% over the long-term. How should we think about long-term, is that something that could be achieved in two to three years with the great performance you put up to date relative to your prior targets? Or should we think about it that is closer to maybe five years or beyond? Thank you.

It’s more in the five year beyond category. So we really do think about it in the longer-term. I think, something that we’re really focused on and number of the drivers would be the reimbursement opportunities as well as the introduction of t:sport into the market. And then in the international business depending on how much it becomes as a percent of our overall business.

Does that answer your questions?

It does. Thank you very much.

Thank you. Our next question comes from the line of Jeff Johnson from Baird. Your question, please?

Thank you. Good afternoon, guys. Leigh, maybe I just want to go back I hate to ask all these Animas questions, but I just want to check one another thing on math? My math anyway from the added information you gave this quarter and I appreciate that additional information you’re providing. But it seems like Animas pump numbers in the U.S. have been about 2,000 pumps each of the last couple quarters. One, can I just check if that’s right, but more importantly then I back into a Medtronic or other competitive convert numbers that was almost 4,000 pumps this quarter in the U.S. Last quarter, I had backed into about a 2,000 number for that same kind of competitive ex-Animas convert. So my question really is, are we seeing a big sequential increase in the competitive converts you feel like you’re winning outside of the Animas bolus, because that’s what it seems like in my numbers that seems like what we’re hearing in our checks with docs especially with Medtronic docs? But are you guys seeing truly seeing that in your numbers of that sequentially – sequential growth of competitive converts away from other pump companies?

We absolutely are here. You’re correct.

Okay. In my numbers ballpark accurate?

Yes. So that 18% that we referenced has been pretty consistent bounces up and down a little bit, but pretty much since the fourth quarter of 2017, when they first announced their exit, we’ve seen about that level as a percent of our total of nonrenewal shipment.

And you’ve been making a lot of comments here on the international, I’m trying to make sure we understand that obviously the first half year, especially with more Animas and some backlog and some other things that were helping that international number. So if the second half international is going to be – let’s say in line with your guidance $20 million to $25 million in the second half? Should that be are jumping off point, but then how we think about next year, the quarterly pacing of revenue? Or do we need to think about an even further step down there some of that Animas comes out there, I mean, obviously you have some good guys for next year as well. So the $20 million to $25 million second half of this year can we build off that as we go forward into 2020? Or how do you think about that?

Yes. That’s a perfect way to look at the run rate and we’re really excited about getting days like go into those markets, because we will have a nice trajectory like we’ve seen in the U.S.

Thank you.

Thank you. Our next question comes from the line of Steven Lichtman from Oppenheimer. Your question, please?

Thank you. Congratulations, guys. I guess, just first, interesting to hear about some of the initiatives you’re looking at relative to managed care with the data you have in hand. Can you talk a little bit more about when we might hear more about that and you think we’ll see some in places you launch Control-IQ later this year?

It’s always hard to predict when those will come into play. I can say that we’re having engaging conversations that payors tend to move very slowly, some of them have their own cycles from when they will initiate new contracts, and some we’ll just do it based on when they’re ready. And so, I think, we will continue to see over time and we look forward to giving you information that we actually have more to share.

Okay. Great. Thanks, Leigh. And then secondly based on the renewal number that you gave, it seems like the capture rate bumped up against sequentially. What was that number in terms of you capture rate and are you seeing signs that that will continue to build here in the coming quarters?

Actually we’re seeing nice steady progress with the renewables. I think the most difficult part is that people have to remember that we’re building off a small base from the early years of opportunities, and as we continue to progress the opportunities are growing at a very rapid pace. And so it’s hard to evaluate that capture rate particularly when you have people who two years out by their warranty expiration are still making that decision to purchase. But it’s moving along very nicely, and as we continue to the build the base of opportunities coming to the table, it will be a nice growth driver for us as well.

Great. Thanks, Leigh.

Thank you.

Thank you. Our next question comes from the line of Matt Taylor from UBS. Your question, please?

Hi, thank you for taking my question. I just wanted to ask a little bit about your decision to offer the Control download for free for folks here in the U.S. And how you thought about that and what that could mean for your decision to do that or not do that in some of these U.S. countries?

Right. So we’ve been working on this decision for some time, it’s been pretty complicated. I think, just a sort of recap or we’re going to offer the no cost download to U.S. customers in warranty that [purchase upon] [ph] before the end of 2020. I think that we’re very sensitive to the impact that this decision had on our current pumpers as well as people who are considering Tandem. And I think that like Basal-IQ and Control-IQ is going to be a significant uptake. It’s going to have significant uptake. It’s going to reduce the burden and improve outcomes. And we want to do everything we can to make sure that we get – we maximize the uptake of this device – this product, I think that reducing the or eliminating the cost burden is significant going to do that. So we’re excited about it and we think it’s going to be a very substantial and successful product in 2020.

And I apologize if I missed this. Have you given the number, the score recently on the conversion or percentage of your U.S. has Basal now?

Yeah. So we have approximately half of our customers have Basal-IQ enabled on their – from today, and a little more than 70% actually have an update of all time. So they would have ability to take a Basal-IQ, if they haven’t already or straight to Control-IQ, when it becomes available.

Yeah, when you think about that, that’s a pretty tremendous opportunity basically 70% of our customer base today as the opportunity to update to a very substantially improved algorithm than what they currently have in their systems. It’s a big deal.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Ravi Misra from Berenberg Capital.

Hi, good evening. Can you hear me?

We can. Hi, Ravi.

Hey, great. Thanks for taking the question. So I wanted to ask, Brian, you’d comment on I think you mentioned earlier something about moving out demand. And I hope, you could give a little bit more color on that. And then I have a question on margins? Thanks.

So the demand from the perspective of having the Tandem Device Updater in our current pump version, right. There were a lot – yeah…

Yeah. I was wondering are you signally something about how the revenue cadence should be going over the next few quarters or just a little bit more detail on that commentary?

I think, it’s more of a comment of what would happen if we did not have the Tandem Device Updater with the announcement that Control-IQ data comes out that people start to hear, it’s potentially in review by the FDA and there’s some timeline, where that expectation may come then people pause, and don’t buy their next pump until that version comes that puts a company in a really odd position for a three, four, five, six month period, when the huge advantages of the Tandem Device Updaters those patients who buy the pump today know that especially there is no cost announcement here that they’re not going to be in a disadvantage position by getting it now matter of fact they somewhat jump to the frontline, because they simply take a quick online trading module, download the software, they’ve got Control-IQ. So we just believe that with those capabilities that we have in the X2 pump. It’s smooth out the demand beautifully for us we don’t see that pause and therefore the cadence should continue to grow at the excitement of both Basal-IQ success and Control-IQs offering at some point here in hopefully Q4.

Great. Thanks. That was helpful. And then just on the market commentary and the market dynamics, John. I’d love to hear you’re kind of best at it where the U.S. pump market is growing for Type 1. We’ve thought historically this has been sort of high-single-digit maybe sounds like low-double-digit market, but given your tremendous kind of growth over the last few quarters. Do you see this as a market that’s potentially stabilizing for the next few years in the mid-teens or even higher?

I don’t think it’s stabilizing at all, I mean, I think that the numbers that we’ve seen in the past have been sort of the low – mid- to low-single digits for the growth, I think, that’s really accelerating in our mind. It’s been the in the MDA – t he MDI conversions. The uptake in pump penetration has really been the thing that – as I think driving the uptake that we’re seeing right now.

Let’s say one of the things, technology was fairly static of the last 10 years or so, I mean there were new records. And with this software upgrade replacement model that we have rather than the old hardware replacement. We’re seeing a better, faster or more people as they’re getting rate control. So I think that’s what’s going to be saying, we’re all [indiscernible] up as – around 30% of Type 1, they’re using pumps. It’s just been a lot higher, looking at this quality of care and making insulin.

And also say that just partnering with Dexcom and having the G6 connected to our system that’s a big deal as well. I think no fingersticks is a really significant improvement and reduction in the burden that people have to face every day.

Great. Thanks. And if I could just take one last question on the gross margin commentary on the guidance raise. Leigh, can you just help us understand how much of what that kind of stock based comp neutral gross margin would have been, because it looks like you brought up the stock-based comp guidance as well. So – of that 52 to 54 bridge what would have been if the SPC number was kind of equivalent to last quarter?

Sure. So the stock-based comp has been running between 1% and 2% of the – in the press margin, and I would expect that to continue through the end of the year. We did raise it significantly, but it’s going to be spread between operating expenses and cost of goods sold.

Great. Thanks. And then just from that perspective, how do we – is kind of the exit rate for 4Q, the way to think about next year? Thanks.

Yes. I think that’s reasonable for now.

Thank you. Our final question comes from the line Danielle Antalffy from SVB Leerink. Your question, please?

Hey, good afternoon, everyone. Thanks so much for taking the question. Congrats on a really good quarter.

Thank you.

Thanks, Danielle.

Just really – yeah, no problem. Thank you, guys. Just refer to as to the puts and takes as it relates to guidance, I mean, you beat by about $25 million, $30 million, it looks like, my guess is $20 million, I can’t remember, by the way. And you’re raising guidance by $50 million at the point. So just obviously you have some level of confidence in that increased outlook for the second half of the year? And just wanted to get a little bit color from you on what the drivers of that increase level come as far is that the rate of renewal that you’re seeing is it a backlog of on Animas? Or are you seeing lower attrition rates like how – what gives you the confidence in the drivers of the back half outlook that’s also now higher?

Right. I guess, what the exciting at this time is that it comes from everything at this point, I mean, and this is how we started 2018 there were so many opportunities to grow the business. But there was a question of which ones would grow the best, which ones where we would be successful. And they all came to fruition, and we are continued to see that enthusiasm this year. We think Basal-IQ has been a big reason for that trajectory change, even into 2019 it’s been growing at a more rapid rate than last year. And so it’s based on what we’ve seen that first half that we think will continue through the end of the year.

Okay. That’s helpful. And as it relates to Control-IQ, should we be thinking about this a potentially driving a similar inflection albeit off of a larger base. But a similar inflection as we saw with Basal-IQ, is it that much of a step function improvement, obviously, the data is an improvement. But just curious how you guys are thinking about that, as it relates to – I’m not asking for 2020 guidance, but just conceptually how to think about it?

I mean, obviously, it’s just there is just a speculation on our part. But I – we absolutely think it will be a strong product. We think that when you compare the overall performance, when you look at the results from this clinical study. We really have confidence, this is going to be a great product, but we have to wait and see.

All right. Thanks so much, guys.

Thank you.

Thank you. This does conclude the question-and-answer session of today’s program. I’d like to hand the program back to Executive Chairman, Kim Blickenstaff, for any further remarks.

Thank you very much. We look forward to seeing everyone soon. We have quite a conference schedule coming up here in the fall. We’re hosting a number of bus tours in the upcoming weeks and we will be attending various conferences. We scheduled for September is the Baird Healthcare Conference in New York on September 4. There is the Dougherty & Company Conference in Minneapolis on the September 5. Morgan Stanley Healthcare Conference is on September 11 in New York, and then Lake Street Conference is on September 12 in New York as well. So thanks for joining us today. We had another big conference call getting close to 200 people. This is sort of a first for us. We really appreciate your interest and we’ll be seeing many of you in the coming months. Thank you for being on today.

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.