Q4 2023 Tandem Diabetes Care Inc Earnings Call
John F. Sheridan: For our T-STEM and MOBI systems available today, we are working on exciting features, such as the extended wear infusion set and a tubeless wear option from MOBI. For CIGIE, we're in active development of an ergonomic patch pump that features the use of pre-filled insulin cartridges. And like all our pumps, it's rechargeable, as it's part of our commitment to sustainability.
John F. Sheridan: We have a number of clinical studies underway and plan for this year, in support of these development initiatives, will also be advancing our automated insulin delivery algorithm and expanding its indications to include people living with type 2 diabetes. As we look ahead, 2024 is positioned to be a year of tremendous opportunity for Tandem. The strengths that drove meaningful growth in the past are once again in place today. These include having a differentiated portfolio of technology solutions, highly rated customer service, our number one rated automated insulin delivery algorithm, and our international opportunities. I'd now like to turn the call over to Leigh so she can share more details on the fourth quarter results and our financial expectations for 2024.
Leigh Vosseller: 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.
Leigh Vosseller: We ended 2023 with more than 450,000 customers receiving the benefits of the T-SLIM X2 worldwide, which is 7% growth over the prior year. Our fourth quarter sales exceeded our baseline expectations at $209 million, bringing the full year to $773 million in worldwide sales. Starting with the U.S. market, this was the highest shipment quarter of the year at 21,000 pumps, including our highest ever quarter of renewal. Standard seasonal trends were evident with 24% growth in pump shipments over the third quarter.
Leigh Vosseller: The ability to buy X2 and switch later to Mobi through Tandem Choice was an appealing opportunity for many. However, as expected, there were customers who decided to wait to purchase their pump once Mobi became available. Renewals continue to meet historically high capture rates, demonstrating strong customer satisfaction and retention. In fact, many of our customers whose warranties expired in 2023 have already purchased a new T-Slim X2 pump. We also continue to see high rates of people whose warranty expired in prior years purchase a new T-Slim pump, and as a result, our total renewal shipments year-over-year grew by more than 50 percent. U.S. sales in the fourth quarter were $163 million, and sales reached $580 million for the full year.
Leigh Vosseller: Sales in both periods were once again fueled by supplies and installed-based growth, with about half of the sales for the year coming from supplies. We are now serving more than 310,000 people in the U.S., an increase of 7% compared to the end of 2022. Dynamics were similar outside the U.S., with supply sales being a meaningful contributor in the year. Our in-warranty installed base has now reached approximately 140,000 people, growing 8% over 2022. Adoption of our technology outside the U.S. has been remarkable over the past five years, as our installed base has grown to levels that took us more than eight years to achieve in the U.S. However, supply sales to support this base grew 35% year over year in the fourth quarter, this being due in large part to variability in ordering patterns in the prior year before the distribution center was fully operational across all European markets. Fourth quarter sales outside the United States were $46 million on 6,000 pump ships.
Leigh Vosseller: As anticipated, these results reflect two one-time events. The first was from a distributor in a larger market shifting their pump order into 2024 as they managed inventory levels in anticipation of T-SLIM's integration with the G7 sensor, which began rolling out internationally in January. The second one-time impact was an $8 million sales reduction related to the implementation of a new rebate structure in France associated with our existing installed base. Excluding the impact of that rebate, sales in the fourth quarter would have been more in line with recent quarterly levels. We do not anticipate the rebate will have a material effect on OUS sales going forward. Full year 2023 sales outside the United States were $193 million, reflecting both the $8 million rebate reduction in the fourth quarter, along with a $20 million headwind in the first half of the year due to our European Distribution Center transition.
Leigh Vosseller: These unique events were disruptive to our near-term results but allowed us to lay the foundation for opportunities to grow this business more efficiently and meaningfully going forward. Turning to margin performance, our 2023 growth margin was 51% compared to 52% in 2022. We saw improvement year-over-year in underlying key fundamentals, including higher average selling prices and lower manufacturing costs for pumps and cartridges. However, these benefits were offset by unfavorable product mix, with pumps representing just under half of our worldwide sales in 2023, as well as geography mix and the impact of the rebate pricing adjustment in France in the fourth quarter. The rebate adjustment was most impactful to our fourth quarter margin results. Gross margin was 51% in the fourth quarter, pressured by two percentage points by the rebate, and our adjusted EBITDA margin was 2% of sales, which was pressured by four points.
Leigh Vosseller: Despite this adjustment, we maintained positive adjusted EBITDA for the third quarter in a row as we continue to focus on operating efficiencies across the business to fund investments to support our R&D projects and new product launches. For the full year of 2023, our adjusted EBITDA margin was slightly negative at 1% of sales. Turning to cash, we funded several key initiatives in 2023, including $69 million for an acquisition, $25 million for strategic investments, and $27 million for capital expenditures primarily associated with increased manufacturing capacity for new products and the build out of our headquarters as part of our facilities consolidation efforts. We remain thoughtful about how and when to address the $288 million in convertible notes, which will become a current liability in the second quarter. Our balance sheet remains strong with $468 million in total cash and investments.
Leigh Vosseller: Looking ahead, we are excited for the opportunities that our new product launches offer in 2024 with a return to sales growth. Our non-GAAP sales guidance is approximately $850 million in 2024, or 10% sales growth, with the majority of sales coming from recurring revenue streams. This does not assume any inflection or acceleration in sales and does not reflect our bullish enthusiasm for new offerings. We will continue to gather and assess data related to new product adoption to inform updates to our guidance in upcoming courts. U.S. non-GAAP sales are expected to be $625 million, or 8% growth.
Leigh Vosseller: This contemplates a competitive environment consistent with 2023, with growth largely based on our more predictable supply and renewal sales, with a growing renewal opportunity. Looking back to pump shipments four years ago, the number of warranties expiring in 2024 alone is growing by more than 30% to approximately 70,000. We have historically renewed approximately half of new renewal opportunities within the same calendar year. Both pump and supply shipments are typically impacted by seasonal patterns across the quarters associated with insurance dynamics in the U.S. For example, first quarter pump shipments typically decline from the fourth quarter by approximately 30%.
Leigh Vosseller: This step down may be more pronounced in the first quarter of 2024 due to the mid-quarter launch of MOBI and MOBI integration with G7 planned for the second quarter. The back end of the year typically benefits from seasonality, particularly in the fourth quarter, which for the past few years has represented nearly 30% of our U.S. sales for the year. Our multi-channel managed care strategy continues to advance in an exciting way, and we anticipate signing contracts in 2024 to begin serving MOBI customers through the pharmacy channel. U.S. sales guidance does not reflect any benefit from access to the Pharmacy Channel.
Leigh Vosseller: We will update you on our progress on the expected longer-term benefit in future quarters. With that in mind, we are providing you additional direction on Q1 2024 for the first time, where we anticipate U.S. sales in the first quarter to be approximately $122 million. The remainder of the year is expected to follow historical seasonal patterns where both pump and supply sales scale up across the year. Sales outside the US for 2024 are expected to grow 17% to $225 million, taking into consideration an increasingly competitive environment.
Leigh Vosseller: This also assumes a return to pump average selling prices of approximately $2,300, which is more similar to what we experienced in years prior to 2023 and contemplates the impact of the new French rebate structure. First quarter sales are expected to be approximately $53 million, or an outside growth rate of nearly 40%. Due to an easier comparison to the sales disruption in the first quarter of 2023 from the start of our European Distribution Center operation, margins in 2024 are expected to be in line with 2023, with gross margin at approximately 51% of sales and adjusted EBITDA breaking even. While we expect to continue driving efficiencies across the business to fund new product launches and future leverage, the launch of Mobi will initially create incremental pressure. The first quarter in particular will see the greatest impact, where we expect a gross margin of approximately 48% and adjusted EBITDA of negative 15%.
Leigh Vosseller: As pump sales grow and Mobi volumes increase across the year, both margins are anticipated to improve, with adjusted EBITDA margins returning to positive in the second half of 2024 and free cash flows to follow accordingly. After volume scale, we anticipate Moby will be the greatest contributor to our longer-term gross margin target of 65 percent. To summarize our 2024 outlook, worldwide non-GEP sales are estimated to be approximately $850 million, including sales outside of the United States of $225 million. Our gross margin expectation is approximately 51 percent, and adjusted EBITDA is estimated to be break-even. Our non-cash P&L charges for stock compensation, depreciation, and amortization are expected to be approximately $120 million, of which $100 million is associated with stock comp and $20 million with depreciation.
Leigh Vosseller: We are also providing first quarter guidance with worldwide sales of approximately $175 million, a gross margin of 48%, and an adjusted EBITDA of negative 15%. I will now turn the call back to John. Thanks, Leigh. As you can see, it was a busy close to 2023 and an exciting start to 2024. Thanks to the unwavering commitment of our teams, we are now in the homestretch of completing the rollout of four new products, making significant progress on the next phase of our pipeline, and maintaining the highest levels of customer service while generating operational efficiency. The opportunity for Tandem Diabetes Care remains meaningful, and I look forward to providing you updates throughout the year as our company continues to progress. We'll now open up the call for questions. As a reminder, if you haven't already asked a question, you will need to press star 11 on your telephone. To remove yourself from the queue, you may press star 11 again.
John F. Sheridan: We ask that you please limit yourself to one question and one follow-up. Please stand by while we compile the Q&A rocket. Our first question comes from the line of Steve Lichtman of Oppenheimer & Company. Please go ahead.
John F. Sheridan: Thank you. Hi guys. Congratulations on the progress, including the recent launches. So, I guess my question, you know, I know it's very early, but what are you hearing from the field in terms of where new interest lies as it relates to Moby versus T-SLIM? Are you expecting Moby sales to really lead the way here over the next few quarters? Or do you expect it to be pretty balanced? What's the sort of initial read you're getting from the field? Hi Steve, how are you doing?
John F. Sheridan: Well, first of all, I'll say the response has really been incredibly positive from early access participants and ATPs. A lot of ATPs are actually using it, and it's certainly exceeding our expectations. I mean, it's tiny. It's very light, with an adhesive sleeve.
John F. Sheridan: It's expanding wearability options, and the cell phone control provides very discreet interactions with the system. People actually forget to have it on, and the common sentiment we're hearing is it's liberating, and it provides freedom from the burden of diabetes. I think Mobi is going to change the narrative from tube to tubeless to wearability and choice with the number one rated AIT system. And our sales force is highly motivated. There have been HCP events that have been occurring over the last several weeks. They're very well attended, you know, and I think that the response and feedback have been very positive.
John F. Sheridan: So, you know, I think it's going to, I think there's certainly going to be people out there that are interested in T-STEM, and T-STEM will continue to be a meaningful part of our revenue. I think Mobi is going to begin to accelerate as we get into the second quarter, and the G7 integration is made possible in the late spring. And I think that it'll continue to progress throughout the year. Great And then, just as a follow-up to that, you know, I know you've said that MOBI kind of allows you the first steps into the pharmacy. I know, Leigh, you mentioned that.
Leigh Vosseller: Can you talk a little bit more about sort of the next steps there and maybe a little more detail on what you mentioned in the prepared remarks? Sure, thanks, Steve. So when it comes to pharmacy, you're correct, Mobi is our introductory product into that channel, and it's proving itself, as we're having active conversations these days with different payers and PBMs. And so we feel very confident that we'll be signing a contract this year. We don't right now have anything factored in in terms of from a material perspective in 2024, but as we progress, we'll certainly give more information on that. Great, thank you. Thanks, Steve.
Leigh Vosseller: Thank you. Our next question comes from the line of Matt Miksic of Barclays. Please go ahead, Matt.
Matt Miksic: Hi, thanks so much for taking the question and, on the upside here. For more information, visit www.fema.gov and compare your estimate to our estimate.
Matt Miksic: Thank you. So, a great finish. You know, it's been, for a lot of folks, kind of a bumpy year of preparations for the future, as you talked about, John. So, one question about some of the comments you made about renewals, and some of those folks seemed like they were kind of out of warranty for a period of time and renewing. And I'm wondering if you have any, at https://www.youtube.com or the YouTube channel of your choice.
John F. Sheridan: Data points you picked up from these folks through your channels or surveys or anything that would indicate like, Where have some of these folks been, you know, what has kind of caused people to come back to Teasland or Moby. And then I have one follow-up. Sure. So, thanks for the question. So, renewals are one of the best, brightest spots that we've seen in 2023. As you mentioned, it has been quite a challenging year.
John F. Sheridan: But even with that, we have been capturing our renewals at peak rates, you know, compared to even in 2022 and what we've seen in our history. And I think it says a lot about when there are a number of new products on the market, Tandem customers are sticking with Tandem and choosing our products once again. So, for the people that have been sitting out there for a while, I mean, these are folks who are just content to use their product out of warranty.
John F. Sheridan: And as they're thinking ahead to what comes next, they're being motivated by some of the new opportunities that are being offered. For instance, the G7 integration, the Mobi switching opportunity. And so I think that's what's driving people forward who have been out there, but we've been very successful with people whose warranties have newly expired as well. In fact, everyone in 2023 whose warranties have expired, we have already renewed 50% of them.
John F. Sheridan: And so I think that's great progress for us. And I'd also say that we've said our goal is 70%, and I think that if you look back over the last couple of years, we are absolutely achieving 70%. Great. Well, congrats on that.
John F. Sheridan: The follow-up, I was curious, John, you mentioned some of the things that you're doing to expand the utility of the newly launched product, Flandreau Mobile, and T-SLIM and G7 integration and so on, but then you also mentioned CIGI. And I was wondering if you could maybe just give an update on the timeline for things like, you know, and the tubeless option for Moby, the 7 day infusion set, and maybe CIGI, levels that tell us what to expect and when. Thanks.
John F. Sheridan: Yeah, sure. Well, you know, we've talked about a portfolio of products and that being essential to address the many segments that exist within diabetes today. And, you know, our platforms are clearly T-Slim, Mobi, and Siggy.
John F. Sheridan: And, you know, we've talked about, you know, basically a technology upgrade to T-SLIM, to T-SLIM X3 that's underway. And then we're also working with the team in Switzerland to develop a rechargeable pump that uses prefilled cartridges and has a very ergonomic form factor, a patch pump. So those are additions to the platform. In addition to that, we're working on a tubeless option for Mobi. It's the exact same pump. It's just a new cartridge, and it's a sled that has an infusion site on it.
John F. Sheridan: So that's always underway as well, and we're working on an extended wear infusion set. You know, in addition to that, we've got a great deal of work going on for future enhancements to control IQ. So, honestly, I think we have the most exciting pipeline in the business. I think that, you know, we have a lot going on. And I think that our teams are making great progress, and we're very pleased with the performance.
John F. Sheridan: But I think we've chosen to basically just not pause on giving specific updates on these products from a timing point of view until we actually get closer to the commercial launch. And so that's what I think you're going to hear from us in the next couple quarters. And as we do get closer, which we expect to, we'll be more specific in the future. Okay, understood. Thanks so much.
John F. Sheridan: Thank you. Our next question comes from the line of Matthew O'Brien of Piper Center. Hey, this is Phil Han from MAP.
John F. Sheridan: Thanks for taking our questions. I guess just for starters on guidance specifically for Q1. By our math, it looks like about 15,000 pumps here in the United States.
Leigh Vosseller: You know, how many of those are renewals? How many of those do you expect to be new pumpers? And I would assume that this is the case, but is this your expectation for the last big quarter of POSI and ahead of Moby's commercial launch? Great questions, thanks. So, as we think about the MOBI trajectory, to your point, MOBI just became commercially available in the middle of the first quarter. It will become available with G7 in late spring.
Leigh Vosseller: So, we do still have a bit of this dynamic where there may be people waiting for the right feature that's appropriate for them. And so the guidance in Q1 reflects that for certain that there might be people pushing for a future quarter, but the interest is still there. And so we're really excited about that opportunity. In terms of renewal versus new shipments, we're not breaking out that piece of information.
Leigh Vosseller: But if you want to look back to what the opportunities were, you could refer back to the first quarter of 2020 as a reference point for what new opportunities become available. But again, the timing of MOBI availability with the appropriate features might still affect when people make that next purchase. Thanks.
Leigh Vosseller: And just as a quick follow-up, I guess just given all the pausing that we've seen in the market, do you expect a snapback? I know you just said, you know, might, you know, continue waiting for a specific feature. But, Outside of typical seasonality, is your current guidance baking in like an outsized Q3, Q4? What are your thoughts on cadence throughout the year?
Leigh Vosseller: Sure. So, the way we built the guidance for the year, keeping in mind that we do not, first of all, have any inflection for the new products that are coming to market. So, you can think about it as somewhat standard seasonality, maybe a little more depressed in this first quarter. I don't like to use the word depressed, but a little more pressured right now because of that MOBI timing.
Leigh Vosseller: And really thinking back to how the renewables scale, they are one of the largest pieces that are underpinning what our guidance is for this year on top of supplies. And so the way the renewal scaled 4 years ago, 35% of those don't become available until the 4th quarter. And so I would say the scale is more about when renewals become available. And then, as we get more information on the trends for the new products, we'll certainly give updates on that in future quarters. It makes sense. Thanks so much.
Leigh Vosseller: Thank you. Our next question comes from the line of Brooks O'Neill of Lake Street Capital Markets. Please go ahead. Thank you very much. Good afternoon.
Leigh Vosseller: I have a couple questions. I think the integration with Libre is one of the more exciting opportunities you have this year. Is it too early to say whether you think that could be a tailwind behind new pump purchases for you guys, or what are you seeing from the response so far? Well, I mean, first of all, hi Brooks. How are you doing?
John F. Sheridan: We've had a great deal of interest and excitement about the Freestyle Libre 2 and G7 integration. And as you know, we have the only system on the market today that offers choice and sensor integration. And all the units that we're shipping today have the latest software that enables G6, G7, and Freestyle Libre 2 implementation.
John F. Sheridan: So everything that's been shipped since the early part of January is that way, and then we've also had a significant number of tens of thousands of pumps that have been updated using the remote software update process. So, you know, we are excited about it.
Leigh Vosseller: We think it's gonna be a meaningful part of our longer-term growth. And, but we specifically don't plan to talk about pump volumes relative to the sensor integrations at this point in time. But we think it's going to be meaningful going forward. Sure, me too.
Leigh Vosseller: So the second question I had was, obviously, this. A French rebate program is something new. I was hoping perhaps Leigh could just give us a little bit more detail about what that program looks like, what's driving it, and whether you think it's something other countries in the international sphere or the EU might adopt as well. Sure. I'll go to the last part of your question first. It's very unique to France.
Leigh Vosseller: It's common for them to use a rebate structure, the first time for us, but we haven't seen this in other markets. So today, we feel like it's contained there. The biggest, most material impact we expect to see would be what we just reported in the fourth quarter. And this is from the implementation, I would say, of it. And so, if you think about it, this is a rebate liability that's associated with the installation basis already amassed in France.
Leigh Vosseller: So, as we look ahead, it will just blend into our normal ASPs as we ship new pumps and recognize that obligation alongside it. And so, I hope that we're not talking about it in the future. I think the good news is that Control IQ, as an advanced algorithm, has been differentiated from a reimbursement perspective, and we look forward to driving the business in France and all of our markets outside the US. Okay. Thank you.
Leigh Vosseller: Sure. Thank you. Our next question comes from the line of Chris Pasquale of Nephron Research.
Chris Pasquale: Your question, please, Chris. Thanks. John, the competitive landscape has evolved quite a bit over the past year, but your mix of MDI conversions versus competitive switches has stayed pretty consistent quarter to quarter. Curious how you feel about the competitive headwinds you're facing today, and do you feel like you kind of have the stage to yourself here with the Mobi launch to really make the kind of impact that you'd like? Have some of those other launches kind of gone through their initial hype cycle to clear the field for you a little bit? Yeah, thanks, Chris.
John F. Sheridan: Yeah, certainly, we think that the diabetes market is large and under-penetrated, and so there's a lot of opportunity both in the US and outside the US. I would say that when you look at the last year or so, the competitive pressures that we saw in the U.S. were pretty much in line with expectations. There was definitely pressure, but they stabilized probably early in the 2023 time frame.
John F. Sheridan: And, you know, there's a number of new entrants, and they're going to come and go. But, you know, I would say that the primary competitors we have are the two big ones, and I think you know who they are. Outside of the United States, the environment is becoming increasingly more competitive, and we've been hearing this from our distributors. It started happening roughly in the second half of last year.
John F. Sheridan: And, you know, there's been one patch entrant that was in the U.S. that's come into the market with a new device, and there's also been a smaller OUS competitor that has generated some noise and made some progress. So, you know, I think that you're exactly right, though. I think we are focused on our new products, and we think these new products position us to take advantage of these larger markets. You know, this is really the first time we'll have had a significant new product opportunity in the last, you know, 18 months, and I think that when you look at our competitors, both of them have brought new products to market. So, I think we're very focused on getting these devices to market. We've got a new, you know, we've got new sales leadership. We've got a very energized sales team, you know, and I think both in the U.S. and all U.S. markets, we think that these products are going to make a big difference and turn things around for us. Thanks.
John F. Sheridan: And then we'd just love an update on the type two opportunity, how you're thinking about that for both of the products and timelines there. Yeah, we're, you know, we're actively engaged in the clinical study. We're enrolling patients, making good progress there. You know, I think from a timing point of view, the study is probably going to get done sometime in the mid to latter half of this year, depending on the filing. And, you know, I would say that, you know, roughly, roughly rough timeframe, we'd probably see the product on the market sometime in 2025.
John F. Sheridan: I think that we believe that, you know, Mobi, with advanced sensor integrations and a Type 2 indication, it's going to be a very appealing product to the Type 2 community. And we've got, you know, we've got a lot of focus on developing the business case, the commercial strategy, the launch strategy, the product strategy for Type 2 underway as we speak. Great, thank you.
Travis Steed: Yep. Thank you. Our next question comes from the line of Travis Steed of Bank of America. Please go ahead, Travis.
Travis Steed: Hey, thanks for taking the time to answer the question. I wanted to ask about Q1 specifically, on the Q1 shipments, just kind of what you're seeing in January, February, you know, why you're starting off the Q1 revenue guide where you are, and on the margins down 15% in Q1. Just trying to get comfortable with the margin ramp over the course of the year, looking at last year's ramp, starting the year at 11.5% margin, getting, you know, to negative one or almost break So just wanted to kind of get some clarity on your conviction and the margin ramp over the course of the year. And when does MOVI actually become accretive to margins? Is that something that happens in 24 hours?
Leigh Vosseller: Yep, great question, Travis. So, MOBI is a big deal; it has a big impact on the margin profile this year. So, if you look at any year, it's not as steep of a tilt and usually follows pump sales across the year with the lowest in the first quarter, improving through the fourth quarter. With the way MOBI's scaling, we anticipate it'll be a little more pressured up front, and also not just with the COGS associated with the lower volumes that we're producing but the spending in order to effectively carry out that launch. And so, across the year, we expect that as we're building at higher volumes, we'll start to see more and more benefits. And by the time we're exiting the year, MOBI will actually start to be making a contribution to margins.
Leigh Vosseller: So, really, it's a 2025 story in terms of seeing a real difference, and we still firmly believe it's one of the best drivers of our long-term growth margin goal. It will get us more than halfway there. But this year, it's going to start, it's going to have a little steeper tilt just because we're actually going to see momentum come from MOBI and that improvement as volumes increase. Okay, helpful.
Leigh Vosseller: And maybe longer term, like, when you think about that 65% margin goal, like I like to think about it in terms of like installed base. You're at 450,000 installed base today. I think before when you gave that 65% margin goal, the goal was for 1 million installed base. Is that the right way to think about what you need in terms of patient growth to get to that 65% gross margin longer term? Yes, that's the right way to think about it. It's closely correlated to a million customers and an installed base. Great Thanks a lot.
Leigh Vosseller: Thanks, Travis. Thank you. Our next question comes from the line of Larry Biegelsen of Wells Fargo. Your question, please, Larry. Hey, this is Simran An for Larry.
Leigh Vosseller: Thanks for taking the questions here. Just starting off with Moby, how should we think about your share of new starts as Moby rolls out over the course of the year? Do you expect it will expand the market, take share from MDI and other pumps, or take share from X2? Yeah, I would say that if you look back a couple, maybe 18 months ago, you know, we would have believed that, you know, on the MDIs coming to pump therapy, we were essentially splitting at 50-50 with one of our competitors. And I think that as they brought their new device to market, that changed, and it was probably more like, you know, 65-35 or maybe 70-30.
John F. Sheridan: I would say that we absolutely believe that Mobi is going to reverse that trend, and we're going to return. We may not get all the way back to 50-50, but we are definitely going to see improvement towards taking more MDI. We also think it's going to have a favorable effect on competitive conversions as well. I mean, the form factor and wearability that comes along with this device are a substantial improvement. And when you talk to people who are using it, their response and reaction has been incredibly positive. And these are people who use a variety of different pumps besides Tandem.
John F. Sheridan: So, you know, I think that we really believe that this is a year of transition for us, and when we have, you know, Mobi with the advanced sensor integrations, I think it's going to have a meaningful, favorable effect on our new, our new pump starts. Okay, great. That's helpful.
John F. Sheridan: And maybe just a follow up on the renewal opportunity. How are you thinking about the renewal opportunity for OUS in 2024? And do the same dynamics apply OUS as in the US?
Leigh Vosseller: Yes, good question. So I would say the opportunity is really beginning in 2024 for us outside the U.S. They do have standard four-year warranties as well, much like we do here.
Leigh Vosseller: The difference is right now, in terms of expectations, we're assuming a somewhat slower ramp than what we're seeing in the U.S. right now. So think of it back to what we experienced in the U.S. years ago, as our distributors are developing their own best practices and learnings and how to go out and attract renewal customers. And so we think it's a great and growing opportunity, but we're being cautious about how we start off with it. And this will be the first year we start to see anything meaningful. Thank you. The next question comes from Mike Kratke of Lerink Park. Please go ahead.
Leigh Vosseller: Hi everyone, thanks for taking our questions. So, in your presentation today, you highlighted that less than 40% of the 1.9 million people living with type 1 diabetes in the U.S. use an insulin pump. What does your current guidance range assume as to where this goes by year-end 2024? What are the key factors that you expect to drive increased adoption for 2025 and beyond? Yeah, so we haven't given any specific color on where we think adoption will go by the end of this year, other than we think it can get to well north of 50%, even 60% in the coming years. And so a lot of that depends on how everyone's driving the market. We do believe, with the products that we're offering, that we will be the disruptors this year, and we will begin to expand the market in a way that we haven't been able to in the last 12 to 18 months. So we're very excited about what we can do to push that forward. Got it. And just maybe one clarifying one.
Leigh Vosseller: Yeah, I think you mentioned that your guidance doesn't seem to have any inflection from the new product launches. I mean, does that kind of include any kind of enthusiasm that you've talked about in terms of the movie launch and just how that impacts attrition rate or overall pump penetration? So, the way we developed the guidance for 2024 was thinking of it more along the lines of what are the predictable sources of revenue and not building in anything incremental for what the new products can do for us. So, we're very, like you said, very enthusiastic about the opportunity they bring to the table, but from a guidance perspective, we're starting with, I would say, more certainty in terms of the supply stream that we typically see, and the renewal opportunity that Just the number of renewal opportunities alone is growing more than 30%.
Leigh Vosseller: So, there are enough growth drivers in there that we can get to 10% growth worldwide. What we want to do is, while we believe that we're going to make a real difference in the market with these new products, we want to gather data and trends to use that to better inform updates in the future so that we don't get ahead of ourselves, and you don't get ahead of us. And so, right now, we're starting off with what we feel very confident in that we can see in front of us and that has good predictable patterns. Thanks very much.
Leigh Vosseller: Thank you. Our next question comes from Matt Taylor of Jeffries. Please go ahead. Hi, thanks. Can you hear me okay?
Leigh Vosseller: Yep. Amen. Hey, good afternoon.
Leigh Vosseller: Thanks. I just want to follow up on that question. And clarify, I mean, it seems like you're essentially guiding to growth just coming from Supplies and Renewals. Could you be specific about whether the guidance includes any potential for new pumps to grow? And I guess, you know, why wouldn't they grow given the easy comps and all the new products that you have and the distribution center being in place? Yep, it's a great question.
Leigh Vosseller: And so we're really focused on that build-up with the supplies that grow and the renewals that grow. And we do firmly believe the new products will make a difference. But until we see these data, these data points, we want to make sure that it's an informed addition to the guide.
Leigh Vosseller: And so right now, what's factored in is that new pumpers will be approximately flat or even slightly down from what we saw in 2023. And as we gather these data points, we'll be able to give you additional information about the direction that we're headed. But there are a lot of exciting opportunities to come. We want to make sure as well that we are basing it on trends and that they are sustainable trends. Because many times when a new product launches, you'll see a little bit of a hype cycle with people who have been waiting, and that pent-up demand coming in all at once.
Leigh Vosseller: And so we want to make sure we understand what it's going to look like after that point in the curve. Okay, thanks, we'll leave it there. Appreciate it. Awesome. Thanks, Matt.
Leigh Vosseller: Thank you. Our next question comes from the line of Danielle Antalfi of UBS. Please go ahead, Danielle.
Danielle Antalfi: Hey, good afternoon, guys. Thanks so much for taking the question. Just wanted to ask Leigh a follow-up on the potential contract with the PBM that you're maybe signing before the end of the year. This might be too early to ask this question, but, and we're not going to model this yet, obviously, but just thinking about the financial impact there. I mean, just the way the business is set up today.
Leigh Vosseller: What that could mean, again, not trying to model this right now, but just even qualitatively from a margin perspective and sort of as you make this shift and how you think about the business longer term as it relates to pharmacy versus DMV. So I think one important point is that we intend to be a multi-channel company. Our number one goal with advancing into pharmacy is to get the broadest access possible and to get to the lowest out-of-pocket cost for a patient.
Leigh Vosseller: Pharmacy can be a good addition to what we offer to DME, but there are still times where DME might be the better solution. For example, today we still have roughly 30% of our direct patients that don't even have any out-of-pocket when they buy the pump. So what we want to make sure is that we're getting the right solutions for people. What does this mean for the business long-term? When you get into the pharmacy channel, it opens the door, I would say, for other opportunities to look at your business model. It's too soon to say which way this will go, and it may vary by payer and by PDM.
Leigh Vosseller: It could look just like the DME from the overall revenue perspective, or it could look different with shifts of more dollars to supply than off of the pump. And so that's the TBD part that we'll talk about in the longer term as we have more information about the contracts that are in place and the materiality of those to the business.
John F. Sheridan: And then just a quick follow-up. As we think about integration with G7, but especially with Libre, Libre has a very large type 2, including an insulin-intensive type 2 base, and I'm just curious about how you're thinking about, you know, I hear what you're saying regarding guidance for this year, but just, you know, over the next few years and access to the very large Libre installed base, many of whom are insulin And what that could mean for Tandem. Thanks so much.
John F. Sheridan: Yeah, I mean, the product is very popular with the type two community in the US, and particularly OUS. And so we see it as a big opportunity for us longer term, as well as the type one community as well. I mean, there's a significant number of people in the US today that are using the freestyle sensor that are not using pumps.
John F. Sheridan: And so it's almost, you know, it's it's it's a clean slate for us to go after and work with Abbott to basically get people aware of the benefits that pump therapy has. So certainly, in the longer term, we think that integration with Abbott is an important part of our getting to a million people using the product in the next several years. Thank you. Thank you, and Jason Bedford of Raymond James, your line is open. Good afternoon,
John F. Sheridan: Just a couple for me, maybe. Of your G7 integration so far, what percent have been kind of internal conversions, if you will? You know, we haven't been specific about that. I don't think we're going to talk specifically about people using either of the sensors, but I will say that there's been significant uptake. I would say probably, you know, since there are like many tens of thousands who are updating, have updated their pump, you know, that is probably a larger number at this point in time. But, you know, that's about as much information that I think I can give. Fair enough. Maybe just... Working through the model, it looks like there's a bigger step up in OPEX. Where is that coming from?
Leigh Vosseller: Is it more on the R&D side, SG&A, and maybe any changes to the size of the selling effort given the new... Yeah, so the investments we're making in 2024 will continue to be similar to what we talked about in 2023, and they're focusing on advancing our program. So there are R&D investments to come, as well as investing in our sales and marketing activities to make sure that we effectively launch these products this year We are still generating savings, though, from a number of initiatives that have been underway, primarily in our customer service and customer technical support organizations. Tandem Source is the foundation that allows us to continue to improve efficiencies in how we interact with customers.
Leigh Vosseller: And so it can remove some of the requirement or need for having people on the teams available to answer phone calls 24-7, and so that's something that we're going to continue to be focused on. This year is not really a year of margin expansion overall for Tandem, though, and that's mostly because of getting Mobi out the door and getting it to scale, but we do have our sights on leveraging in the future and meeting those long-term margin targets, increasing the size, Facility is under evaluation. We're definitely looking at investing in the sales organization, no U.S. That's one of the things we are doing.
Leigh Vosseller: But, you know, the U.S. is still under evaluation. We just, as you know, Mark Novera just joined the organization, and he's working with sales leadership to evaluate that carefully for the U.S. Thank you. Our next question comes from the line of Jeff Johnson of Baird. Please go ahead, Jeff.
Leigh Vosseller: Thank you. Good afternoon, guys. Maybe just two clarifying questions at this point in the call. So, Leigh, did you say that, sorry, renewals in the US were up 50% or slightly above 50% for the year or for the fourth quarter? For the year, they were up more than 50% on shipments themselves. Okay, so our math would put renewals probably pushing the upper 12,000, maybe even, you know, not quite to 13,000. I know you don't give that number out.
Leigh Vosseller: But is our math for the fourth quarter renewal number somewhere in that 12,500 to 13,000 range, at least ballpark accurate? I would say that's a little on the high side, Jeff. I can help size up, I would guess, I would say, for the year. When you think about it, we had about 50,000 opportunities for the year, and we said we'd renewed about half of them. Also, we still have people from years prior. And so, as we think about, as John mentioned earlier, our renewal goal of 70%, so moving the needle from that 50 to 70, for instance, on that cohort from 2022 years on top of that. And so I'm not gonna really give you any specific color on Q4. Again, I would say that your number was a little bit on the high side.
Leigh Vosseller: Okay, that's helpful. That's good enough. And then, John, you mentioned in the call that you expect the MDI competitive convert kind of percentages, 50-50, where it's been quite a while, the competitive convert part of that number to go down going forward. I mean, one, how quickly and to what extent does that decline from the 50-50 mix that you've had? And I don't know if I heard in the fourth quarter, but was it close to 50-50?
John F. Sheridan: And do you just expect that ratio to maybe shift going forward? Or did it already start to move in the fourth quarter? Thank you. Yeah, I mean, I think that there are two things going on. One is we think we're going to be more successful penetrating the MDI conversions. So more people are going to move to pump therapy, which is going to obviously make the MDI conversions a larger part. At the same time, you know, when you look at competitive conversions, and renewals for our competitors also, you know, the number of installed bases is dropping.
John F. Sheridan: So I think that the number of available competitive conversions is dropping as well. So I think that's kind of the two dynamics. And, you know, I think it's I think it's just one of those gradual trends. We'll probably start to see, you know, it could be by the end of this year or early next year, it'll be more meaningful. And we can confirm that it did stay around the 50-50 mark. Yeah, it stayed 50-50 for the fourth quarter.
John F. Sheridan: But I think it's something that we're going to see in time. Yeah, that makes sense. Thanks, guys. Yeah. Thank you. Our next question comes from the line of Joanne Wuensch of Citi. Please go ahead, Joanne. Hi, this is Felipe on behalf of Joanne.
John F. Sheridan: Just quickly on the competitive environment. It seems like some of your competitors are bridging the gap on the AID offering. So I'm just wondering, have you seen any pickup in competition from two competitors? And then, maybe, one of your competitors is releasing a batch pump with an AID integration. So I'm wondering if you're feeling anything there. Well, I think I know which competitor you're talking about in the U.S. And I would say for us, at least, it's kind of hard to parse their numbers. You know, I think that, you know, what were the pump starts last year? Are they new pumps or updates? And so there are a number of things out there that really make it hard for us to figure out what's going on there.
John F. Sheridan: I will say, though, that our U.S. competitor with the two pump has got a better product in the market, and I think, as a result of that, they're doing a better job of retaining their own renewable energy resources. I would say that that dynamic has been relatively stable over the last two quarters.
John F. Sheridan: We absolutely saw an impact, but it's been relatively stable. And I think that, you know, as we bring new products to market and they become more visible in the marketplace, we do expect to see competitive conversions grow as people become familiar with the enhanced wearability and choice of our portfolio. So we think that, you know, it's a timing issue for us.
John F. Sheridan: I mean, I think that we're just getting started now in the introduction. I think in the second quarter or late spring, when the X2 with the excuse me, when Mobi with G7 is available, we'll see an uptick from that. And I think we'll see steady progress throughout the year. You know, so I think that, again, I think that our portfolio is going to help us keep the competitive conversions in our favor this year. OUS, we've been competing against the product that you're talking about in the US. We're very familiar with it. We think that Tandem still has absolutely the best AID system in the market, and we hear that from physicians.
John F. Sheridan: And I think that with the wearability options that we're providing right now and choice of sensors, we think that, in combination with our AID system, really differentiates us here and in the OUS countries. And I'll say that we're making a really focused effort to drive our portfolio and innovation and new launches in OUS to be more effective in competing against that market. Great. Just following up on Moby, I'm wondering, like, any early signs of adoption?
John F. Sheridan: And then I know the integration with G7 is going to be a big turning point, I guess. Is that when you're going to really start to see some revenue contribution? Thank you. I mean, I think the G7 integration is certainly going to help us. We're seeing very significant interest and excitement right now. It's only been a week or so.
John F. Sheridan: I think that if you talk to the sales organization, they're very pumped up. There's a great deal of interest from physicians in the marketplace. They're asking them to come into their offices and see the product. They've heard about it.
John F. Sheridan: As I said, we've had a number of HCPs who are part of our early access program who have been speaking about it. And, you know, I think it's going to be a big product for us, and it's going to exceed our expectations.
John F. Sheridan: I think we're all very excited about it. Thank you. Our next question comes from Alex Nowak of Craig Holland. Your line is open, Alec. Okay, great. Good afternoon, everyone.
John F. Sheridan: So any reason why Moby didn't launch with the G7 and Libre 3 integration, and it did launch with G6 and Libre 2? Well, I think that we have a lot of experience with G6, and we tried to control the number of variables that we're introducing. We wanted to make sure the pump itself was performing as we expect it to, and I have to say that it's been incredible how well the system has performed in the market. So it's just a fast follow to get G7 on it. And this was the intent all along. It's not that far off now as we're just talking, I know, actually weeks or just maybe two months before it's on the market.
John F. Sheridan: So, you know, it's, I think it was just, it was a strategy to minimize the variables as the product came to market so we understood exactly how it performed. And a point of clarification, Alex; it's not yet available with Libre too. You know, I think that we're going to be more cautious about discussing timelines for competitive reasons, and I think that we understand the need to have access to that information.
John F. Sheridan: So I think as we get closer and we are more confident in the availability and the specific timing, we'll share those on future calls. Okay, that sounds good. Thank you so much.
John F. Sheridan: Thank you. Our next question comes from Joshua Jennings of TD Cohen. Please go ahead, Joshua.
John F. Sheridan: Thanks for taking the question. John, I heard you just reference the early experience with MOBI and creating less of a differentiated or gap between tubed and tubeless systems. The question basically is, would investors think that Tandem is less reliant on the CIGIE patch pump development program for out-year success? Or any further follow-up on the comment you made, I think, in your remarks and one of your answers, on just how the size and footprint of MOBI could be more competitive with the tubeless options. Thanks. Sure. I mean, I think when you look at the portfolio and the specific platforms, we think there's a need for a patch pump. Absolutely. There are people out there that probably would not wear a pump unless it was a patch pump.
John F. Sheridan: But we think that the flexibility that comes along with Mobi when it has a tubed and tubeless option, as well as the wearability that it has right now just with the adhesive patch, it gives people a lot more flexibility, and it almost mitigates that tube-tubeless discussion. I think that some people are going to want to wear it as a tubed pump at certain times in their day, and they're also going to want to wear it as a patch device. And so it gives you that added element of flexibility that either a completely tubed pump or a completely patched pump doesn't have. And there are people out there that want that flexibility.
And so I think that we feel the market research really has indicated that there is a need for all three and that when we have them, we really do a much better job of addressing the various segments of use out there. Great, thanks a lot. Take care, Joshua. Thank you, and that does conclude the Q&A portion of our call. That also concludes today's conference. Thank you for participating. You may now disconnect. Thanks for watching!