Tandem Diabetes Care, Inc.

Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care First Quarter 2025 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. 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.

Hello, everyone, and thanks for joining Tandem's first quarter 2025 earnings call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, 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, and quarterly report on Form 10-Q. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or other factors. Today's discussion will also include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. Any non-GAAP information presented should not be considered as a substitution, independently or superior, to results prepared in accordance with GAAP. Please refer to our earnings release issued earlier today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure. Leading today's call is John Sheridan, Tandem's President and CEO, who will be joined by Lee Vossler, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open up the call for questions. Thank you in advance for limiting yourself to one question before getting back in the queue. John, you may begin.

Thank you, Susan, and thanks everybody for joining us today. In the first quarter, we demonstrated strong execution throughout our business. We delivered more than 20% growth for the third quarter in a row with records first quarter sales in the United States and our highest quarter ever internationally. In addition to driving top-line growth, we are delivering on key operational initiatives to strengthen and enhance our business while increasing profitability. And in the first quarter, we demonstrated meaningful improvement in adjusted EBITDA year over year. Another highlight of the quarter was FDA's clearance of Control IQ Plus for people living with type 2 diabetes. followed by the New England Journal of Medicine's publication featuring the benefits of Control IQ+. I'd like to thank our employees for an impressive start of the year, which positions us to deliver on our goals in 2025 and beyond, while improving the lives of people with diabetes. Starting with a deeper look at our Q1 performance in the U.S., we continue to see growth year over year in new pump starts and achieved a double-digit increase in customers converting from multiple daily injections for the last four quarters in a row. This strength is from demand for our newest offering, Tandem Mobi, as well as our flagship pump, the T-Slim X2. The product mix between these two offerings is healthy, and the demand for Mobi is on track to contribute meaningfully to our near and longer-term financial goals. Our products are expanding the large and under-penetrated insulin pump market as approximately two-thirds of our new starts are coming from people converting from multiple daily injections. We also continue to see great loyalty from T-SLIM customers coming up for renewal. Renewal rates have remained at a consistently high level, along with our customer satisfaction scores. Our mix of new and renewing customers remains roughly 50-50, which we anticipate will continue throughout the year. Q1 was also our first quarter operating under our newly expanded fuel sales and clinical structure. This expansion and our realignment of existing territories has progressed according to plan and is now complete. We welcomed a high caliber of talent to compliment our more tenured field employees, and our territories are now poised to realize productivity gains throughout the remainder of this year. Another successful commercial initiative in Q1 was the launch of our best algorithm yet, Control IQ+. This algorithm makes better control easy, easy to start, easy to use, and easy to personalize. For example, our profile setting calculator is a software wizard that only requires a person's total daily insulin and weight to get them started on Control-IQ+. This is a feature that benefits both patients and healthcare providers and simplifies and streamlines onboarding to our AID technology, which is tested, trusted, and now better than ever. Control-IQ+, launched in late March, and is indicated for use by people with type 1 diabetes ages two and older. Following FDA's recent clearance, it's also now cleared for adults living with type 2 diabetes. The pivotal study supporting this clearance is the first and only large-scale randomized control trial of automated insulin delivery in people with type 2 diabetes. It was also the most rigorous evaluation of AID for people with type 2 ever conducted, and the outcomes were incredible. Significant improvements in time and range in A1C were demonstrated the people using control iq plus compared to a control group these results were seen cumulatively and across a broad range of ages they were also equally demonstrated in people who chose to count carbohydrates in the study compared to people who had used a more simplified approach by entering fixed dosing at meals this is significant as it makes the bolus process even easier without sacrificing improvement in clinical outcomes also The synergy between Control IQ Plus and GLP-1 receptor agonist use was highlighted at our ATTD presentation in March, showing how well these therapies work together. We are proud of the outcomes from our pivotal study and the tremendous accomplishment of being featured in the New England Journal of Medicine. This most recent publication marks the fourth time that our Control IQ technology has been featured in the journal, which is an unprecedented accomplishment in our industry and speaks to the strength of our studies and our AID algorithm. We are excited about the growth potential this Type 2 indication provides, as it more than doubles our addressable market. Control IQ Plus is now broadly available, and we have begun initial commercial efforts to people with Type 2 in select areas. We are using this early phase of launch to gather customer experience data on training and onboarding, as well as reimbursement and channel access to inform our expanded launch plans and expectations for the remainder of the year. Channel access continues to be a top initiative for our company, and Lee will discuss our Q1 progress more in her prepared remarks. Turning to our business outside the United States, the strong sales momentum we saw exiting 2024 continued in the first quarter, where we delivered our highest quarterly sales results ever. This was driven by demand for our T-SLIM X2 platform, which is available with Dexcom G6 and G7 sensor integration in approximately 25 countries. In addition to attracting new customers, we are also beginning to see customers renewing with Tandem, who first bought a pump when we entered these markets four or five years ago. It's a meaningful opportunity when you look at the historical pump adoption rates outside the United States, and it will serve as an additional source of growth as we look to the future. Operationally, our plans to begin direct sales OUS in select countries are progressing well. Transition service agreements are now in place in the select countries where we'll go direct in 2026. And we are developing and executing joint transition plans that are designed to ensure the proper business continuity and minimize potential disruption. We've also been furthering the efforts we began last year to hire in-country talent. We are preparing to enhance our sales efforts, support, and technology offerings outside the United States, both for our direct and distributor-led countries. It's a pivotal step for our company as we deepen relationships within the European diabetes community while strengthening our financial position to accelerate sales growth and drive margin expansion. I'd now like to turn the call over to Lee to talk about quarter one results and expectations for the year.

Thanks, John. As a reminder, unless otherwise noted, the financial metrics I'll be discussing today are on a non-GAAP basis. Reconciliations from GAAP to non-GAAP results can be found in today's earnings release, as well as on the Investor Center portion of our website. Please note that 2025 sales and margins in the U.S. are not impacted by the Tandem Choice Program, which ended in 2024. Our Q1 performance was a strong start to the year, exceeding our guidance for both top-line sales and bottom-line EBITDA, and we are on track to deliver our 2025 commitments. Worldwide, we achieved record first quarter sales of $234 million, or 22% year-over-year growth. We also improved EBITDA five percentage points year-over-year while investing in market expansion efforts, demonstrating our commitment to profitable growth. Focusing on the U.S. first, we delivered another Q1 record with $151 million in sales, representing a 15% increase year-over-year. This growth was driven by three factors that position us for longer-term growth. First, we had healthy pump shipments to both new and renewing customers. Second, we had strong supply sales driven by a high rate of retention and improved customer utilization across our sizable install base, which was the primary factor contributing to our outperformance. And third, we continued to improve our average selling prices. The favorable pricing came largely from our DME channel efforts, but we did realize meaningful pharmacy pricing benefit even on the small volumes we fulfilled this quarter. This continues to reinforce that our newly launched pharmacy channel initiative provides a significant opportunity for the future. We are pleased to report that we now have approximately 30% of U.S. lives covered under the pharmacy benefit with a mix of commercial and government lives compared to the 20% that we shared on our last call. The contracts we have in place plus ongoing negotiations confirm that durable pumps are well accepted under this benefit and flexibility exists for the structure of reimbursement across pumps and supplies. The contracts we have entered into so far continue to be similar in structure to our DME agreements, which are not subscription models. We continue to scale our capabilities and gather data on our increasing pharmacy channel access. Our early experience in processing orders has been encouraging, enabling us to serve customers at significantly reduced out-of-pocket costs. This lowers the financial barrier that historically may have prevented people from adopting AID technology. We are focused on advancing our pharmacy capabilities as part of our broader market access strategy, which remains centered around having a multi-channel approach to best serve our customers while driving volume growth and profitability through improved pricing. Turning to markets outside the United States, we started the year off strong with all-time record sales of $84 million. This 35% year-over-year growth was driven by continued demand for T-Slim, strong supply sales, and early positive momentum for renewals. The first quarter benefited from nearly 5 million in orders that we originally anticipated would be placed in Q2. This shift in timing was the largest part of our outperformance relative to Q1 guidance, and we're maintaining our expectations for the full year. Moving on to margins, our Q1 performance demonstrated progress on our path to achieving our near and long-term profitability goals. Our 51% gross margin was a significant accomplishment. as it's in line with Q4 where we have historically seen a seasonal decline from the fourth to the first quarter. This was primarily driven by a reduction in the per unit cost of pumps with efficiencies gained in both manufacturing and non-manufacturing costs. Demonstrating improvement in profitability is a key objective for us this year, which we delivered in Q1 as our adjusted EBITDA margin expanded at an even higher rate than gross margin, improving five percentage points year over year. This improvement was primarily driven by leverage gained within R&D, which was also an important offset to SG&A as we invested in our US Salesforce expansion and the infrastructure for direct European operations beginning next year. In addition, we began executing our plan to drive greater efficiency within our customer support functions, which are designed to modernize the customer experience while driving cost savings. The benefits from these initiatives will begin to be realized in the second half of this year. As a reminder, adjusted EBITDA does not include the impact of certain non-recurring transactions, primarily associated with the amendment of our agreement with AMF Medical's original shareholders. As you can see, we achieved our objectives for Q1 on both the top and bottom line and are well positioned for the remainder of the year. We ended the quarter with nearly $370 million in total cash and investments and anticipate returning to positive free cash flow both for the second half of 2025 and on a full year basis. With that, we remain confident in our ability to support key commitments, including repayment of convertible notes due in the second quarter. As we look to the remainder of 2025, we are reaffirming our sales, gross margin, and EBITDA guidance. The broader environment is very dynamic, but the building blocks for our original guidance assumptions remain intact. Starting with worldwide sales, we expect a range of $997 million to just over $1 billion, reflecting our goal to deliver double digit growth for the second year in a row. This includes US sales in the range of $725 million to $730 million, where more than 70% of our sales for the year are expected to be generated from predictable and recurring revenue streams from supplies and renewals. Similar to years past, we anticipate sales will step up in Q2, highlighting that the average increase across the last three years was 13%. Then we anticipate sales will increase modestly from Q2 to Q3, with our highest sales achievement in Q4. This cadence comes from multiple factors that are the building blocks of our guidance. First is overall seasonality associated with insurance benefits. We assume this will be consistent with 2024 along with the progression of renewals, which are back half loaded based on the timing of pump sales four years ago. Next and unique to this year is the scaling productivity of our expanded sales force. Disruption from adding and realigning territories was well managed in the first quarter, And we anticipate it will take 9 to 12 months for territories to scale to full productivity, which puts the greatest benefit in the fourth quarter. The last of the factors I'll highlight are all of our new growth opportunities, which are more heavily weighted to the second half of the year. These include new technology launches, benefit from our encouraging ASP trends, as well as broadened pharmacy channels access and type 2 commercial efforts. Sales outside the U.S. are expected to be in the range of $272 million to $277 million. We anticipate sales to be relatively flat across the remainder of the year, which reflects the timing shift of approximately $5 million in sales originally anticipated for Q2 that were fulfilled in Q1, as well as approximately $15 to $20 million of potential headwinds in the back half of this year as we prepare to transition to direct sales in select markets beginning in 2026. Incorporating these factors into the second quarter specifically, we anticipate worldwide sales of approximately $238 million. For gross margin, we are reaffirming our 2025 expectations to improve gross margin to approximately 54% and adjusted EBITDA to approximately 3% of sales. We expect to see continued margin progress across the year as pump sales increase, efficiencies are gained as MOBI scales, and we demonstrate further operating leverage. Our margin expectations incorporate minimal impact from tariffs, which we believe will be immaterial as we are employing a number of strategies for our supply chain structure and product category, including a well-established tariff exemption. It's been a strong start to the year and our results are beginning to reflect the benefits of our strategy as we deliver on our technology portfolio, demonstrate strong retention, and enhance our business model. As our business continues to mature, in addition to driving pump growth, We remain focused on improved profitability through increased pricing, executing our margin improvement initiatives, and disciplined cost management. I'll now hand the call back to John.

Thanks, Lee. As you can see, we are delivering on our key objectives for 2025. This is a testament to the rigorous planning and thoughtful execution of our team. We are continuing to transform our business to achieve our longer-term goals. As we look to the future, Our pipeline remains the most innovative and robust in insulin therapy management. Our distinctive technology ecosystem includes an insulin pump systems, advanced algorithms, and digital health solutions. And we are rolling out new commercial offerings under each of these pillars in 2025. Starting with our pump systems, we intend to offer two new sensor integrations in 2025. We will begin our U.S. launch of Freestyle Libre 3 integrated with the T-Slim in the second quarter. and that will be followed by Mobi. Internationally, we plan to begin offering Libre 3 integration with T-SLIM in the third quarter. We also intend to support the 15-day Dexcom G7 sensor at launch. Another feature enhancement we intend to begin offering for Mobi this year is an Android application, which will require an FDA 510 clearance before launch. Mobi is currently under CE mark review. Following approval, we will begin country registration and reimbursement discussions to bring our newest pump platform to all the countries we serve. Our goal is to begin launching MOBI outside the United States with multiple sensor integrations by the end of this year and continue the rollout through 2026. Infusion sets are another key part of our system, and we have been developing proprietary technology to extend wear time. We made an FDA submission for a three-day indication using this technology late last year. Following its clearance, we are planning to quickly file another submission in pursuit of a seven-day indication. Advanced algorithms and our commitment to AID leadership also continue to be a top priority in 2025. As discussed, we launched our Control IQ Plus algorithm in the U.S. in the first quarter and are planning to begin launching internationally by the end of the year, pending regulatory approval. The last area of our portfolio I'd like to highlight is our progress in digital health solutions. Tandem Source is the foundation of our digital offerings, serving as the hub for patient therapy information, healthcare provider reporting, payer analytics, and as a portal for customer sales support. Tandem has offered a cloud platform for the past decade in the U.S., and last year we began rolling out these capabilities internationally. It's an important step for our launch of the T-SWIM mobile bolus outside the United States that we are planning for the second quarter of this year. as well as our international launch of MOBI. Rounding out our pipeline are the technology solutions we plan to launch beyond 2025 that are designed to further expand our portfolio and bring the benefits of our technology to more people living with diabetes. We're making great progress on our tubeless feature for MOBI, which is now in the verification testing and manufacturing build-out stage in support of a future 510 filing. Development for our durable patch pump SIGI has moved to San Diego, allowing us to best leverage the expertise of our advanced pump development team. Lastly, we remain steadfast in our commitment to bring an industry-leading fully closed-loop algorithm to market. We recently completed a fully closed-loop feasibility trial. In a Q1, we signed a collaboration agreement with the University of Virginia's Center for Diabetes Technology to advance our R&D efforts on fully automated closed-loop systems. In conclusion, you can see that it's both a busy and exciting time at Tandem. The opportunities in front of us are numerous as we execute on our sales strategy, increase pharmacy channel access, scale growth into Type 2, and commercialize our robust pipeline. By doing so, we are creating new possibilities for people living with diabetes while achieving record results that align with our 2025 and longer-term financial goals to deliver sustained double-digit sales growth and profitability. Thank you for joining us today. We look forward to keeping you updated as the company continues to progress. Operator, we'd now like to turn the call over for questions.

Thank you. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. We ask that you please limit yourself to one question. You may re-queue for any additional questions. Please stand by while we compile the Q&A roster. Our first question comes from the line of Matt Nixit with Barclays. Your line is now open.

Oh, great. Thanks so much for taking the question. So I wanted to try to get a sense of how, in addition to the performance you outlined in the quarter, how some of the Salesforce changes, Salesforce realignment, you know, any of the sort of one-time issues that came about in the fourth quarter have kind of moderated or gotten behind you or, you know, are they still in process? That's just kind of an update on that. And I'll skip the follow-up and pass to the next person. Thanks, Matt.

Well, first of all, I want to say that there were really no disruptive events that occurred in the fourth quarter. All we were doing at that point in time was hiring people. And as of the beginning of the year, most of those people were on board. And as we exit the first quarter, the expansion is essentially complete. The territory realignment is complete. And we saw some modest disruption, but nothing more than we anticipated. I would say that now it takes salespeople that are new to the company and new to the territories about nine to 12 months to just get accustomed up to speed. And we'll see gradual improvement in their productivity over the next several quarters. And the good news is that we expect them to be fully on board and producing in the fourth quarter. So it's a high quality team. They compliment our existing team. And we're very happy to have them on board. And we think this is just a logical thing for the company to do based on where we are in the market.

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

Good afternoon, everybody. Can you hear me okay? We can. Great. Lee, I wanted to ask specifically how much price played a role in the U.S. I think our math says about 2% to 3% for pumps, maybe upwards of a 10% lift for supplies. Is that roughly right? And I guess the follow-up there is, is that the right magnitude for us to layer in going forward? Is this sustainable or is there something unique about the first quarter? Thanks.

Thanks, Matt. I would say you're in the ballpark there on the pump side and the supplies are probably closer to what you are thinking from a pump perspective. And so it's really performing again like we did last year in terms of price increase. And I think this is the new bar to think about as we look to the rest of the year from a pricing perspective. I'll say in the U.S. in particular, the majority of the price benefit did come from our work in the DME channel. But even though we only had very small volumes in pharmacy at this time, we did see a meaningful contribution from a price perspective in the first quarter. So it gives us a lot of encouragement for what this can do for the business in the long term.

Thank you. Our next question comes from the line of Steve Lichman with Oppenheimer. Your line is now open.

Thank you. Excuse me. Evening, guys. So just on the Salesforce expansion and realignment, great to hear it's going as expected. Understanding the ramp that you mentioned through the year, but can you talk about where you're deploying the new individuals, where you expect to see benefits, and in particular, how that will dovetail with Type 2 expansion?

I would say that we've done a lot of analysis to see exactly where there was opportunities to realign and make the territories more productive. We're not going to speak specifically to that, nor will we talk about the numbers, et cetera. I would say that we are, as I indicated in the prepared remarks, we are now in the process of actually doing the Salesforce pilot. It's live. It's in a meaningful number of territories. We've trained our internal people, and they're out there selling right now. So, you know, that's happening with our existing team. And, you know, typically we evaluate the sales force size, and it's something that's traditionally done near the end of the year. But I think right now we feel good with where we're at. We've got a good plan for the existing type 1 and type 2 populations in terms of supporting them. And, you know, as we said, we're moving forward.

Thank you. Our next question comes from the line of Brooks O'Neill with Lake Street Capital Markets. Your line is now open.

Hey, good afternoon, guys. This is Aaron on the line for Brooks. Thanks for taking our questions and congrats on the progress. I'm just curious if you maybe had a mix in mind in terms of what you expect from pharmacy versus other channels longer term. I appreciate the color and commentary and the progress from last quarter to now, but I guess my question is how do you see that dynamic sort of playing out over the next 12 months or so, any additional color there would be great. Thanks.

Great. Thanks for the question. So when we think about pharmacy this year, as we put together our assumptions from a guidance perspective, we only factored in modest contribution. And we're really just getting started there. The first quarter was really a lot about the operationalizing of it and making sure we are putting in an effective and efficient infrastructure to support this for the long term. But I'll say from the very, very early, very small volumes and very early learnings, it gives us, you know, it makes me super excited about this opportunity long term. And it's something that we think, you know, as we think about the risks and opportunities for the year could pose more of an opportunity than we originally even anticipated. So we look forward to continuing on this journey and talking more in the future about what kind of impact it can have on the big business long term.

Thank you. Our next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is now open.

Afternoon. Thanks for taking the questions. And I know Susan's going to kill me for asking two, but I'm going to.

Just one, please. Just one.

All right. I hate to burn it on this one then, but just the AMF write-off, is that saying anything about timing of CIGI? Because I think John or Levi kind of had it in our heads that that would be out sometime in 2027. But given the write-off, does that mean that the timeframe to get this thing to market is even further out, maybe very end of the decade? I mean, how do we interpret that write-off and what it means for timing of CIGI? Thanks.

Thanks, Matt. I think it's actually the opposite, Matt. It turns out that the agreement we had in place had a number of contingent liabilities in it. And by terminating the agreement, it just gave us more control and flexibility over the development path. It was a great, I think it was a great deal for both parties. But now we've brought the development activity back here to San Diego. We have a very experienced team of pump and system developers that are working on it. And so as I said, if anything, this is going to improve our time to market, not reduce it.

Thank you. Our next question comes from the line of David Roman with Goldman Sachs. Your line is now open.

Thank you. Good afternoon, everybody. I wanted to talk on the gross margin line here for a second. Given the strength you saw in the quarter, can we always understand what were the puts and takes keeping the gross margin at the 51% level that you had indicated given the significant strength you saw in the U.S. here and the traction you're seeing with Moby?

I'm sure. So I would say, first of all, we're very excited to have Moby as part of the mix and a growing part of the mix of our business, because it's one of the most important factors in delivering on our long-term gross margin targets. So as we look at how we came in in Q1, it really was, especially compared to a year ago, showing an improvement in pump costs, but actually both in T-SLIM and in Moby, because Moby's just beginning on its journey of becoming accreted to the business. So this year you think about the Moby pump driving accretion. In 2026, you think about it coming from the perspective of the cartridges. And so those will continue to build up over time. And we've often said that MOBI gets us more than halfway to our long-term gross margin target of 65%. And maybe another piece of color today as well that I don't think we've shared before is thinking about how to think about that progression. And with MOBI in the mix, with what we are thinking about from a pharmacy perspective from this early evidence, And also thinking about going direct in 2026, we believe we see a pathway to get to a 60% gross margin as early as next year. So we're really excited about where we are right now and where we're progressing and our ability to deliver on that.

Thank you. Our next question comes from the line of Matt Taylor with Jefferies. Your line is now open.

Hi, thanks for taking the question. I guess I wanted to ask, I know you made some comments in the prepared remarks about the pharmacy progress and hoping to just double click on that. He talked about, excuse me, lives covered. It does sound like you're just really getting started with those patients. I was wondering if you could give us some color on the early experience and maybe talk about how you think the uptake will be through this year and next, when it could actually be sort of a material portion of your business.

Yeah, thanks for the question, Matt. So first of all, we were excited to share that we've increased our percentage of lives covered in the US under pharmacy going from 20%, which was what we shared at our last earnings call to 30% now. So we're starting, I would say, at a really high mark in terms of coverage. What we were learning in the first quarter, particularly as we were testing out the benefits with different people coming to tandem, with that it really does dramatically offer a lower out-of-pocket cost for patients. And so that can be one of the most pivotal factors in terms of addressing one of the bigger barriers to adopting pump therapy, particularly durable pump therapy. So we think it can increase our access or our MDI expansion over time in that regard. The other element of it is in the pharmacy channel, as you're probably seeing and hearing from many of the competitors in this space, there is a pricing premium associated with it with the value that they put on these advanced algorithms and the clinical benefits from the patients. And so that really can help drive profitability for us. And so, like we said, it's very early right now, but the contracts that we have in place are really good, solid contracts that can deliver on that profitability. And we'll continue to drive it forward and give more color in the future as it becomes a bigger piece of our business. But for 2025, still think about it as only a modest contributor.

Thank you. Our next question comes from the line of Chris Pasquale with Nefron Research. You want to open it?

Thanks. It was something to talk about the decision to just reiterate guidance after the good one cue. You beat consensus by about 14 million, back out to 5 million that got pulled forward. OUS, you're still up nine. Is there anything that you're looking at now that you're more concerned about than you were at the end of the year, maybe in terms of the economy? And then does the margin guidance contemplate any impact from tariffs? Thanks.

Yeah, thanks for the question. When we looked at the building blocks for how we put together our guidance at the beginning of the year, there's nothing that's changed about our confidence level, our ambition this year, what we think we can deliver on. It really was looking at the broader economic environment. And just thinking about how dynamic it has been and how dynamic it may continue to be across this year. So we thought at this point, despite the nice deliverable in Q1, that it was more prudent to reaffirm at this time. And then we'll continue to execute on that as we look across the year. And then from a tariff perspective, factored in at the beginning of the year and still factored in is the minimal impact that we expect from tariffs this year. So we really don't see it being a big headwind for us.

Thank you. Our next question comes from the line of Anthony Patron with Mizuho Financial Groups. Your line is now open. Anthony, your line is open. Please check your mute button.

Oh, sorry about that. I was on mute. Thank you for fitness in and congrats on the solid quarter. Maybe a little bit just on control IQ, type two indication, early days out there. Just a review and a recap on what's baked in for guidance for Type 2 MDI conversion specifically for this year and how you expect that to progress into the second half specifically within the PBM world. Thanks again.

I'll start off by saying it's been approved now for about a month. We have already provided about 300,000 people in the marketplace access to Control IQ Plus, and all of our new pump shipments are underway. I think that when it comes to the actual benefit right now, it's too early for us to measure. But I think, Lee, you may want to comment a little bit on just what's planned and guidance and things like that.

Sure. So from the perspective of this year, I mean, we really just launched not too long ago. We've only factored in modest contribution in 2025. One of the areas that you mentioned from a PBM perspective, it's really focused on the reimbursement element of it. So from a commercial perspective, the coverage for Type 2 patient is very similar to Type 1 in terms of access, and so no concerns there. From a Medicare perspective, there is coverage, but it is a little more onerous to get someone approved, and so that's where our efforts are focused is really on actually from an industry-wide perspective, we're all focused on trying to improve that access through Medicare. And so that could be a bit of a gating factor initially as we think about the opportunity, but we're confident in our ability to drive it in the longer term, both through the DME and the pharmacy channel.

I'll just add one other thing, and that is that when you look at the type 2 study we did, we actually produced the first clinical data that's been available that actually evaluates the effectiveness of the C-peptide test. And so we monitor people with high and with low C-peptide results. And in both cases, we saw great results from Control IQ. So I think this arms us and individuals that are seeking to reduce some of the burden and hurdles that people have to get over to get onto a pump of type 2. And we're excited about having that data.

Thank you. Our next question comes from the line of Josh Jennings with TD Cowan. Your line is now open.

Good afternoon. Thank you. I wanted to just follow up on your comments, Lee, on the farm, the contracts with the pharmacy access. You mentioned that the revenue recognition will be similar to the DME channel. Has there been any limitations or have there been any pushback in terms of your negotiations with payers? Or is it smooth sailing and you expect every contract going forward to mirror what you have in place today? Thanks.

Sure. Thanks for the question, Josh. So, first off, I'll confirm there are a couple of things we've learned in our early negotiations, which are DME pumps or durable pumps are widely accepted in the pharmacy channel. And secondly, you can employ a variety of reimbursement structures in the channel. There's no one set solution. And so to your point, the contracts we have in place today do follow more of a DME-like model. They're not subscription-based. It doesn't mean that we might not consider something like that in the future. But for now, that's what it looks like for us as a business. And so we don't anticipate any headwinds that you may hear when people transition to a subscription model in the future.

Thank you. Our next question comes from the line of Issy Kirby with Breadburn Atlantic. Your line is now open.

Hi, guys. Thanks for taking my question. I wanted to touch upon OUS International. A lot going on there with respect to new launches. Just wanted to ask about sort of the competitive dynamics and the win rate you're seeing internationally. And then how should we think about retention internationally? Is this going to be based on what you've seen so far roughly comparable with the U.S. renewal retention rate? Thanks.

Right. Well, I'll say that, first of all, it's a very large market that's less penetrated than the U.S. And, you know, the good news about it is that the healthcare systems in the OUS countries seem to see the benefit of AID systems for their patients as well as for the economics for their, you know, for the various country systems. So we're excited about being there. I would say that, you know, there are two main competitors exist in the U.S. markets, and, you know, we're competing against them. There is the third player, a smaller player that's up and coming that's doing reasonably well. But I would say that the competitive environment really hasn't changed, you know, in the last couple of quarters. We're holding our own, and, you know, I think it's just as it is. The other thing I'll say, though, is that if you look at the technology that we're planning to bring to market, we have mobile bolus, we have source, we have Freestyle Liberty 3, we have G7 15-day. We've also got, you know, Mobi OUS under review. So we have a tremendous amount of technology that is under review right now or in the process of being transferred. And we think that, as I said, we feel very competitive in that market today. You can see the results we're experiencing are quite good. And when we have this new technology there, it'll even be better.

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

Hi, this is Nathan Trey back on for Larry. Congrats on a strong quarter. Just a question on competition in the U.S., What are you seeing today, and I guess your outlook for the rest of the year, you know, when we think about data bionics and animatronic as their supplier sync approval? Thanks.

Sure. I think that, you know, it's a large, expanding, and under-penetrated market, the U.S., and, you know, it's not a zero-sum game. I mean, multiple players can be successful in this market, but I said it's very much like the OUS countries right now. It's very competitive, but there hasn't been a lot of changes in the last couple of quarters. And I think that we're holding our own. I mean, currently there continues to be two large players, a scaling startup is working on it, on just making progress in the market. And we also acknowledge that there's a new competitor coming, but we're ready for it. We've understood this for a while and we're prepared. Relative to some player approval, as I understand it, it's probably a second half commercial launch. You know, right now we're very close to launching Freestyle Libre 3 in the U.S. market. And we've got the 15-day Dexcom sensor, G7 sensor coming as well. So, you know, I think when it comes to sensor technology, we have the very best on our products. And I think that when you look at the actual technology that is used to pump, I think we feel very confident that the pump technology that we're using is very competitive with the devices that are in the market.

Thank you. Our next question comes from the line of Mike Kratke with Levering Partners. Your line is now open.

Hey, everyone. Thanks for taking our questions. Maybe just one on the U.S. new starts. And sorry if I missed this. Can you just confirm whether you're still tracking that mid-single-digit percent growth in the U.S. for new starts this year? And what does that assume between MDI starts versus competitive conversions?

Sure. Happy to speak to that. So I'll start with in the first quarter, we saw double-digit growth in MDI conversions, which is the fourth quarter in a row of that since we returned to growth last year in the second quarter. We do still in our guidance assume that new starts will be mid-single-digit growth year over year. And as you think about new starts as a mix of the business, between new and renewal, it's roughly a 50-50 mix. within that new population, it's starting to lean more towards the MDI conversions, which are roughly about two-thirds of new starts. So I'm feeling very good about our opportunities there and our ability to continue driving that with the products that we have and all the great products that John just listed out that we'll be adding this year.

Thank you. Our next question comes from the line of Joanne Winch with Citi. Your line is now open.

Hey, good afternoon. This is Anthony on for Joanne. I know it's early days for OUS renewals, but are you expecting sort of a similar high rate of renewals OUS as we've been seeing in the U.S.? ?

Yes, I would say in time. We're just at the beginning of the renewal opportunity, and we're starting to see the early momentum. We're hearing from our distributors their success there. I wouldn't anticipate that we'll get to that exact same measure immediately that we share in the U.S., which is that we get to about a 70% capture rate within 18 months. It took us a few years to build to that here in the U.S., and I think the same will occur outside the U.S., but we have no reason to be concerned about our ability to hit that goal long-term.

Thank you. Our next question comes from the line of Jason Bedford with Raymond James & Associates. Your line is now open.

Good afternoon, and congrats on the progress here. Just a quick one for me. Have you seen any change in the mix of your Type 1 versus Type 2 new user mix?

I would say, Jason, it's too early for us to say. As I said, we have started the programs The people are out selling right now into the type 2 community. You know, we continue to see good progress on the type 1 side, but I think that there's really, we don't really have any data here we can share at this point in time. But I would imagine in the next call, that'll be a different story.

Thank you. Our next question comes from the line of William Plavonic with Canaccord Genuity. Your line is now open.

Great. Thanks. Good evening. Just to switch over to the P&L. I'm wondering, we did see a pretty good, healthy jump up in SG&A nominally. Is this a new normal? Is we should look at a nominal level for the rest of the year, or were there some one-time charges that we should think about backing out as we go into the forward quarters?

Sure. When you look at SG&A on a non-GAAP basis, it did increase year over year, and that's tied mostly to our Salesforce expansion in the U.S. Also starting to make the investments in building our OUS infrastructure, all hitting that SG&A line. That step up it took from a year ago was pretty hefty, but when you look across the rest of the year, it won't be as much of an increase across the quarters. And that comes particularly from the fact that we have some other cost-saving initiatives underway in support of our customer service operations that will help to fund these investments that we're making in the field. So this year, we're still very focused on delivering on our profitability, even with these investments, and I think you'll see that come through in the P&L.

Thank you. Our next question comes from the line of Michael Polark with Wolf Research. Your line is now open.

Good afternoon. Thank you. I want to make sure I understand this CIGI charge. If I look at the original agreement, there was up to 130 million Swiss franc of earn-out potential. It looks like the renegotiated agreement is 68 million. And so the question is, why would the AMF shareholders agree to this? If I put words in your mouth, it seems like they're getting something sooner, so not waiting as long. And the trade-off for you is you get to maybe go faster than you otherwise would have. And I'm tying together, tying this with the San Diego move for CIGIE development. Do I have the numbers correct? Do I have the why you took this deal correct? Any color would be welcome.

Yeah, I think that's roughly the numbers. And I would say if you look at it on a discounted cash flow basis, you know, it's not a bad deal for either party. And I think it's, like I said, there's the opportunity to take control over this ourselves and not be linked to another entity, which is primarily the reason we did it. And as I said, we did it in a way that both parties, I think, were pleased with the results.

Thank you. Our next question comes from the line of Danielle and Tulfi with UBS. Your line is now open.

Hey, good afternoon, guys. Thanks so much for taking the question. And I was hoping, Lee, if you could bridge us a little bit. So you commented on potentially reaching 60% gross margins by early next year or by next year. I appreciate that Moby's a part of that, but you also have the potential headwinds from shift to the pharmacy. So that's 10 points from where we are today. So just wondering if you give a little bit more color about the puts and takes that could get you there when you do get there. Thank you so much.

Yes, great question. So I would say there are three main drivers that I would say give us the confidence that we can get to 60% as early as next year. And I'll start with Moby, and we have demonstrated proof with Moby on the market. As we're seeing the volume scale, we're achieving that cost efficiency that we anticipated. The Moby pump this year will become accreted, which is why we are guiding to a three margin point improvement over last year, getting to 54%. As we turn the corner to 2026, the cartridges will start to show their benefit as well becoming more accretive. And so that alone is one of the most significant pieces. Then as we look at the early learnings from pharmacy, and you've categorized pharmacy as a headman, but in our world, it's actually a tailman. So our structure is very much DME-like, meaning that we get reimbursement for the pump as well as for the supply. And as we look at the nature of our contracts, the early evidence of what we're seeing as we are checking patient benefits, we believe that we will get meaningful price improvement as we look ahead. And so, as we continue to penetrate pharmacy, that will also really help from a profitability perspective. And then the last piece that will only be the early beginnings of it, but as we go direct and select markets outside the U.S., we will see a revenue and a margin benefit. And so the combination of those three factors together are what can help us to deliver on that 60% as early as 2026.

Thank you. As a reminder, to ask a question at this time, please press star 1-1 on your touchstone telephone. Our next question comes from the line of Travis Deed with Bank of America Securities. Your line is now open.

Hey, this is Stephanie Piazzolla. I'm for Travis. Thanks for taking the question. I just wanted to clarify or follow up on the new patient numbers in the quarter. I heard the comment on double-digit growth in MDI, but curious about overall growth in new patients when you consider the competitive conversions as well. Thank you.

Yes. So when we looked at new patient starts, they were up year over year with the biggest driver or contributor being those MDI conversions. We do continue to see some headwinds from a competitive conversion perspective, but really I would say that's in line with what we anticipated starting last year, going into this year, and in our long-term models. And so everything's moving in the right direction there.

Thank you. Our next question comes from the line of Shagan Singh with RBC. Your line is now open.

Great. Thank you so much. I was wondering if you could maybe elaborate a little bit more on your Type 2 opportunity, go-to-market strategy, how you're positioning yourself versus competition. Obviously, massive MDI population there, but how are folks deciding between your offering and competition, especially patch pumps? Any detail that would be helpful?

Well, I guess I would say that, first of all, it is a large opportunity. It's, I think, roughly 3 million people in the U.S. that have insulin-intensive diabetes. And we are working aggressively to get out there and take advantage of it. We think our pipeline lines up very well with the community. One of the things that was very interesting about our Type 2 study was just the number of subgroups we looked at. And I think the subgroups certainly indicate that it is a very segmented market. And as a result of that, we feel that having a portfolio approach to our product strategy is the right one for the community. this significant segmentation. So I think that right now, as we indicated, we have began our sales initiative. We have a meaningful number of sites that we're doing, I'd say, a pilot study where we're evaluating the training, we're evaluating the materials we're using, we're basically understanding the messaging towards HCPs, and we're also looking at reimbursement and market access. And so as we refine that, our intent is to move that out beyond just these sites and have it deployed throughout the entire country. So as I said, this is just early going. It's the right thing to do. We want to make sure that when we do step on the gas that we have an effective program that will catch on. And as I said, we expect this to drive significant growth for the business going forward. I'll also just finish in that saying that our You know, a lot of the research that we've done recently has indicated that, you know, people who have type 2 have seen the results of these AID systems. And I think that they're very concerned about their own health. And I think the ease of use and simplicity that comes along with the therapy benefits is making them more likely to consider that. And so we're excited about that.

Thank you. And I'm currently showing no further questions at this time. This does conclude today's conference call.

Shannon, let me just say one thing before we leave. I just want to say that this is a busy and exciting time for Tandem. The team is executing at a very high level. There's numerous opportunities in front of us, such as the sales strategy, the pharmacy channel access, the type 2 expansion. We've got a robust pipeline. You know, and these enable us to continue achieving our results and, more importantly, helping people with type 2 diabetes, with diabetes in general. These opportunities are also, they align with our plans to deliver sustained double-digit growth and profitability in 2025 and beyond. We're excited about where we are. Thank you.

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect.