Tandem Diabetes Care Inc Q1 FY2024 Earnings Call

Thank you for standing by. Welcome to Tandem Diabetes Care's First Quarter 2024 earnings. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Susan Morrison, EVP and Chief Administrative Officer. Please go ahead.

Hello, everyone, and thanks for joining Tandem's First Quarter 2024 Earnings Call. As a reminder, today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development timelines, 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, as updated by our most recent 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 a substitution for 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 Leigh Vosseller, our Executive Vice President and Chief Financial Officer. I'll now turn the call over to John.

Thanks, Susan, and welcome, everyone, to our call today. 2024 is off to an impressive start with a solid first quarter performance. We met key commercial milestones with a successful launch of multiple new products worldwide. We outperformed financially, demonstrating a return to growth, both in and outside the United States. Operationally, we are continuing to evolve the organization for scalable growth through investments in people, processes, and technology. We are laying the foundation for 2024 to be a transformational year for Tandem, much like when we launched our first automated insulin delivery algorithm approximately five years ago. There is growing excitement across our company as we deliver on our strategy to bring greater choice and benefits to people living with diabetes worldwide. In the first quarter, we executed on expanding our robust portfolio of delivery devices that offer choice and sensor integration, applications, and data management tools. Beginning with hardware, we marked another first for our company this quarter. We are now the only manufacturer offering multiple insulin pump form factors. This multi-platform approach is a value proposition that makes Tandem unique. We can provide people options in how they wear and operate their AID systems while benefiting from our #1 rated Control-IQ technology. Mobi took center stage this quarter, being the first miniature durable pump that delivers unmatched wearability and the freedom to disconnect. We continue to hear an overwhelmingly positive response from early users. The feedback is consistent between people new to pump therapy and those who are converting from competitive offerings. Our customers comment that they forget that they're wearing Mobi, how much they love the option to disconnect and that as a durable pump, it's more environmentally responsible than disposable devices. Health care providers highlight the benefit of being able to use the unpump button to deliver a bolus even when they're away from their phone. They also greatly appreciate the efficiency it provides to their practices with wireless connectivity to Tandem Source, our cloud-based data management platform. This type of positive feedback is incredible to hear. With Mobi just getting started on the market, it's too early to draw conclusions on trends. But customer behavior in the first quarter is supportive of our research that Mobi provides an opportunity to expand the market while meaningful demand for t:slim X2 continues. Another area of focus where we've demonstrated a competitive advantage is the speed to market with CGM integrations. As our CGM partners advance and drive adoption of sensor technology, it increases the number of people who can benefit from Tandem's AID systems. We've seen this over the years through four generations of Dexcom sensor technology and more recently, with the U.S. launch of the t:slim with Abbott Freestyle Libre 2 Plus. Tandem Mobi is currently available with Dexcom's G6 sensor compatibility. We are on track to begin offering integration with Dexcom G7 later in the second quarter. Outside the U.S. We began a successful rollout of the t:slim X2 with G7 and are working to integrate both platforms with Abbott's Freestyle Libre 3 technology worldwide in the year ahead. The next area where we've demonstrated innovation leadership is in algorithms. We're preparing for the rollout of enhancements to our #1 rated Control-IQ technology. At the end of last year, we received FDA clearance to lower the age indication for Control-IQ to age two and above and expand its feature set with options for greater personalization. As a reminder, algorithms and pumps are separately indicated for age groups. The t:slim pump has already indicated for age two and above. And in the first quarter, we received FDA clearance to lower Mobi's age indication to two and above. We are preparing to roll out the updated Control-IQ software on both pump platforms later this year. This is an exciting step in our plans to offer continuous improvement to our AID algorithms through software updates to our system. From a clinical perspective, we have numerous activities underway. Fully closed-loop technology that's designed to improve clinical outcomes while reducing the complications of diabetes management continues to be an important area of focus for us. We've also been making great progress on our clinical trials to support expanding Control-IQ's indication to people living with type 2 diabetes and expect enrollment to be completed this month. In addition, we are advancing our extended-wear infusion set technology and began clinical trial enrollment in the first quarter. Overall, our commitment to innovation and choice contributes to our customers' high satisfaction and loyalty, along with our dedicated training and customer support, reflected in our consistently strong renewal rates. As you can see, the year is off to a strong start, and we are well positioned to achieve our goals. I'd like to thank our employees from across the organization for their diligent efforts to make this possible and who continue to impress and inspire me. I'd now like to turn the call over to Leigh to discuss our Q1 results and updated sales expectations.

Thanks, John. As a reminder, unless otherwise noted, many of the financial metrics I will be discussing today are on a non-GAAP basis. For measures where there are differences, reconciliations from GAAP to non-GAAP results can be found in today's earnings release which is available on the Investor Center portion of our website. We are kicking off 2024 strong with a return to growth. Our worldwide sales in the first quarter grew 12% year-over-year to $193 million, with well over half generated through recurring supply and renewal revenue streams from our loyal customer base. In the U.S., it was an exciting quarter with our new product offerings just beginning to take hold in the market and driving first quarter sales of $131 million on approximately 15,000 pump shipments. Our renewals continue to grow double digits year-over-year with strong capture rates from a larger number of warranty expirations. Shipments to new customers continue to slightly exceed renewal purchases. As expected this year, within that new customer population, we began to see a shift in mix towards more people coming from multiple daily injections (MDI). The launch of Mobi, in particular, outperformed our expectations, generating a high level of activity from both new and renewal customers in what is typically our lowest seasonal quarter of the year. Mobi was initially available in mid-February to only our direct customers, followed by our distribution network at the end of March. We saw a benefit in the quarter from customers who have been waiting for Mobi availability since last year. At the same time, we are also aware of customers who are still waiting for the availability of the G7 integration. I would like to note that we will not be breaking up shipment details between pump platforms nor by sensor integration. As a reminder, our Tandem Mobi customers today made their purchasing decision independently of our Tandem Choice program. t:slim X2 customers who are eligible for this program have not yet made an election to participate. We look forward to offering this opportunity in the coming weeks. The accounting for Tandem Choice has complexities. Note that our deferral of sales for the program, which we report on a GAAP basis only ended with the availability of Mobi in February. Up to now, we have recorded GAAP sales deferrals that have accumulated to $31 million. As eligible t:slim users elect to switch to the Mobi platform, we will begin to report the reversal of those deferrals in our GAAP financials only. These switches will not be included in our future reports of non-GAAP pump sales or shipments. Any additional fees received or costs incurred from the Choice program will also only be in our GAAP financials. Non-GAAP sales will continue to exclude any impact of the Tandem Choice program, providing results that measure core operations as well as providing consistency for comparisons to both historical and future periods. Another highlight from our first quarter sales performance in the U.S. was a meaningful price benefit we realized through the DME channel with the improvement in average selling prices across all products from both price increases and favorable channel mix. Our success in securing higher reimbursement comes from our recognition by payers of the value that Tandem and Control-IQ bring to the health care systems. Simultaneously, we are very pleased with our progress as we pursue pharmacy channel access for Mobi and look forward to providing future updates. Turning to markets outside the U.S. Our sales grew more than 60% to $62 million on nearly 10,000 pump shipments. The large majority of our shipments are driven by market expansion and competitive conversions from the continued enthusiasm for our technology in the 25 countries where we operate today. We have a growing opportunity from renewals as warranties from our earliest customers are beginning to expire but are still in the early stages of that cycle and do not anticipate meaningful contribution this year. This quarter specifically benefited from the initial rollout of t:slim with G7 integration due to certain orders that shifted into 2024 from the fourth quarter of 2023. We also saw modest pricing favorability compared to our expectations from geographical mix and foreign currency gains. As a reminder, in 2023, we executed a distribution center transition in the first half of the year to create long-term efficiency for our European operations. This created a sales headwind in the first quarter of 2023 of approximately $18 million and higher pump ASPs than we would ordinarily anticipate due to the mix of ordering customers. With that transition complete, we expect to see reduced quarter-to-quarter variability and distributor orders, more normalized ASPs, and closer alignment to pump market demand and end customer supply ordering patterns. Moving on to margins. The outperformance in sales drove higher gross and adjusted EBITDA margins. Gross margin was 50%. This was in line with the prior year due to improvements in raw material costs and average selling prices, which combined to offset increased overhead per unit for scaling Mobi volumes and less favorable product mix. Adjusted EBITDA improved nearly 5 percentage points year-over-year to negative 7%. Operating expenses increased only 5% on 12% sales growth, which includes increased sales and marketing spend for all of our new product launches, as well as higher clinical trial costs to support advancement of our product pipeline. These investments were in part funded through facility and employee-related cost reduction initiatives in 2023 that continue to drive leverage today. From a balance sheet perspective, we took advantage of strong conditions in the convertible market to efficiently refinance existing convertible notes that were maturing in May 2025. Our total cash and investments were consistent with the end of the year at nearly $470 million. In all, we are extremely pleased with our progress in the first quarter. As a result, we are increasing our 2024 sales guidance to approximately $868 million or 12% growth year-over-year based on our first quarter sales performance. This breaks down to $634 million in the U.S. and $234 million outside the U.S. Remaining consistent with our approach to setting expectations at the beginning of the year, our sales guidance is primarily based on recurring supply and renewal revenue streams while we evaluate early purchasing behaviors for our new products as awareness grows. We are also considering the increasingly competitive environment outside the U.S. We are optimistic about our opportunities in 2024, but not changing the remaining outlook until we are able to observe sustainable trends. From a profitability perspective, we are maintaining our full-year guidance of 51% for gross margin and breakeven for adjusted EBITDA. There are many moving parts across the quarters this year, and we're considering the timing and scale of product launches, variation in the prior year baseline comps, and seasonality. Therefore, we will also provide guidance into the second quarter. Our worldwide sales are anticipated to be $205 million for the quarter. In the U.S., sales are expected to grow to approximately $150 million, reflecting impacts from the timing of customer purchases for Mobi with G7 integration late in the second quarter. Sales outside the U.S. are estimated to be slightly lower than the first quarter at approximately $55 million due primarily to the timing of certain distributor orders received in the first quarter associated with the scaling launch of t:slim X2 integration with G7. Gross margin in the second quarter is anticipated to be approximately 50% in line with the first quarter, while adjusted EBITDA is expected to improve to negative 5%. As pump sales grow and Mobi volumes increase across the year, both margins are anticipated to improve with adjusted EBITDA margins and free cash flow returning to positive in the second half of 2024. As we look ahead, the Mobi system at scale is anticipated to be a key driver of long-term margin improvement, and we remain committed to achieving our long-term goals of a 65% gross margin and 25% operating margin when we reach 1 million customers. We'll now open up the call for questions.

Our first question comes from the line of Steve Lichtman from Oppenheimer.

Congratulations on the quarter. There are several points to discuss, but to start, could you share the initial feedback you've received regarding Mobi and clarify the current distribution between Mobi and t:slim? I understand it's still early, and I'm trying to gauge how things are being allocated in the field.

What we're hearing is that Mobi is redefining wearability. It's small and versatile, and its size makes it lightweight, allowing people to forget they are wearing it. HCPs like it because of the unpump bolus button and the performance of Control-IQ. They also appreciate the automatic wireless data uploads to Source. We're just getting started, but as Leigh mentioned in the prepared remarks, we have achieved our commercial objectives. We're excited about the rest of the year, especially with the G7 implementation coming in the spring. This supports our early research indicating that Mobi is a market expander, as we've seen an increasing number of MDI and competitive conversions interested in the product. It’s been a great start, and we're very excited about it.

And Leigh, you talked about pricing and coverage. So the implied price that we saw this quarter, which obviously did come in higher, is that a good price to use in the U.S. for the remainder of the year? And any color you can provide on your sort of initial discussions on pharmacy with Mobi would be helpful.

Sure. Yes. To the first part of the question on the average selling prices, that is a good baseline to use for the remainder of the year. We're very proud of what our team has accomplished in terms of getting price increases when they're talking to the payers on the DME side of it. But to your question on the pharmacy side, we also have active conversations underway. So the whole team is extremely busy right now, and Mobi is being well received. I think what I can say right now mostly is that we're happy to be past the question of whether we can move into the pharmacy channel. Now it's just a matter of when. And so we look forward to giving updates on that progress at a future date.

Our next question comes from the line of Brooks O'Neil from Lake Street Capital Markets.

I want to be sure, Leigh, that I understand your comments about the impact of Tandem Choice. Specifically, was there any revenue recognized in Q1 that was essentially a deferral from Q4?

Thanks for the question, Brooks. So understanding that this is pretty convoluted and how this works. But the way you can think about it is from a non-GAAP basis, you won't see any impact from Tandem Choice, whether it's deferral of revenue or recognition of revenue associated with it. But on the GAAP side, what happened was when Mobi became available, eligibility ceased for people who were buying t:slim pumps. And so at that point, they're able to go ahead and pick Mobi or t:slim when they purchase their pump. So deferrals have stopped, and we accumulated $31 million in deferrals over the whole time period. When people start to make their election to switch, which will start in the coming weeks, we'll start to recognize those reversals. We'll recognize any fees that we receive and the cost to deliver the pump, but again, only in the GAAP financials. So the non-GAAP financials will be, I'll say, untainted by that program.

Okay. I'm not sure I understand it all, but that's probably normal for me. So I'll figure it out tonight. I appreciate those comments very much. I know we're excited about Mobi, I know we're excited about the sensor integrations. Let me just want to jump ahead and see if you have any updated comments on X3, Sigi, better AID, Mobi tubeless, when do you think we might begin to hear more about those? And how is the progress coming?

Well, Brooks, in our last call, we indicated that we would refrain from discussing dates for those products any further for competitive reasons. However, I want to express that we are very pleased with the progress, and we remain enthusiastic about our commitment to the roadmap. Our expectations for these products have not changed at this time. The team is doing an excellent job. We are working diligently on these initiatives and plan to bring them to market as quickly as possible.

Our next question comes from the line of Mike Kratky from Leerink Partners.

So a couple of months into the Mobi launch, can you just help us quantify what portion of the new starts? And once you overall came from Mobi and how that aligned maybe more anecdotally just with your own expectations? And then as you've gotten into the second quarter, again, maybe just qualitatively how that's tracked early on?

Sure, thanks for the question. Regarding Mobi and its share, I want to start by mentioning that it was available to a limited audience. We didn't launch it until mid-February in the first quarter, and we initially focused on our direct customers. As the quarter progressed and into the second quarter, we saw it scale up. The uptake in the first quarter exceeded our expectations, and it was robust for both new and renewing customers. As John noted earlier, the results align well with our market research and demographics. While we aren't sharing specific unit numbers, we are very enthusiastic about the opportunities this brings for us.

And then maybe just a quick follow-up. In terms of the guidance you provided, can you just confirm that, that really isn't building in any additional credit for Mobi in the second quarter just based on the step-up?

Correct. And so it's the same philosophy that we started off the year with, in that we are basing the guidance mostly on the renewal opportunity that already existed, which is a nice growth for us because just the number of warranty expirations this year alone is stepping up more than 30% from last year. Also, it's predicated on the continuing supply sales across the year. When we thought about new pumpers, we thought about it from the perspective that we could deliver as many as we did last year. Now obviously, we've taken into consideration the overachievement in the first quarter. But for the remainder of the year, it's back to those baseline expectations. What we want to see are some sustainable trends. Right now, we see data points. We haven't even drawn a line on those yet, much less developed a trend. So we'll continue to evaluate that in the coming quarters before we start factoring in any incremental sales that come from those new products.

Our next question comes from the line of Matthew Blackman from Stifel.

Could you provide some insight into the new patient growth for the first quarter? It appears there was an increase, but you also implemented a price increase. Any information you can share regarding new patient growth for the first quarter would be appreciated, including any details on the magnitude if possible. Additionally, I wanted to discuss the P&L. The SG&A number was lower than our models projected, as we expected increased spending for new product launches. Is this a timing issue, or is the low $90 million figure the right starting point, with varying spending throughout the year? Will there be more incremental spending as you continue to introduce new products?

Sure. I'll go back to the first question, which was new patient growth. And I'm going to speak to it in context of all pump shipments in the first quarter in the U.S. The information that we're able to share is that we did see new pump starts continue to exceed renewal pumps. And so when you look at the split of new versus renewal, new pumps were slightly above renewals. Within that new pump population, we've often discussed where they are coming from, and it usually has been a split of about 50-50 between the MDI conversions and the competitive conversions. This year, we expected to begin to see a shift more towards MDI, which makes a lot of sense considering that population is so much larger and all of our new products are really pointed towards meeting the needs of people who haven't chosen pump therapy before. So in the first quarter, we did start to see a slight shift in the MDI starting to outpace the growth in competitive conversion. So everything was as expected. We're really excited about how the quarter played out. Nothing really unusual to report there. And then turning to your second question, looking at SG&A. And so we did make investments in sales and marketing, in particular, thinking about the field. We had our global commercial meeting in the first quarter and really talked about the launch of the products. We also amped up our marketing spend. And the reason you probably don't see it increase as much as some of the investment actually did is because we continue to have cost efficiency programs in place where we've really focused on our customer service activities and a lot of automation, process improvement, leaning out some of those processes. And so those programs that we implemented last year are really starting to show their leverage, and they're allowing us to make more investments without growing operating expenses in total so much overall.

Our next question comes from the line of Chris Pasquale from Nephron Research.

Leigh, I wanted to follow up on the pricing commentary specifically OUS. I think you had talked about a $2,300 being the right place for the year there. It was higher in the first quarter closer to what we saw in '23. So I just wanted to double-check, is '23 still where you think things shake out?

Sure. So 2023 in the first quarter, in particular, was unusually high from a pump perspective. That was back when we were undergoing the transition to our new European distribution center. So we didn't have a natural mix of all of our distributor customers ordering in that quarter. This quarter, it was, I would say, a little more normalized. And we expected that average selling prices could look something like they did prior to the transition, which was more like the $2,300 mark. The mix was a little bit more favorable to us this time as well as we had some slight very modest foreign currency benefit there. But otherwise, I would say for now, continue to think of the $2,300 as a good baseline, and then we'll continue to discuss any favorability to that across the year.

And then, John, I know we've barely gotten the first iteration of Mobi out of the gate here. But you've highlighted flexibility of this platform as a big selling point in its current incarnation. And so I'm curious whether the feedback you've gotten so far makes you think any differently about the need to offer a true tubeless configuration of this product, if there's enough daylight between what you've got now and what you were thinking about with that to this chassis to really make it additive.

Yes. I mean I think that you're right. We're very excited about the feedback we've gotten so far. But we do believe having a tubeless version of Mobi will only drive additional demand for the product. And so we absolutely intend to continue to develop it. I can tell you that we've made a lot of good progress, and it looks awesome. And I think that people when they see it and understand what it's going to do. It just gives people the full opportunity to wear a tubed or tubeless. We're very excited about it, and we definitely continue to invest and develop it.

Our next question comes from the line of Matthew O'Brien from Piper Sandler.

Maybe John, to start, I found your comments about Mobi and market expansion interesting, especially in light of what we've observed with OP5 in this sector. Where do you believe you are expanding the market? Is it more in direct competition with OP5, perhaps in terms of pediatric patients, or is it a completely different approach where you're reaching a group of patients who previously sought options with tubing, but with improved algorithms and form factors that you can now provide?

It's a bit early for us to discuss specific groups that are starting to use the product. Over the last 18 months, OP5 has captured more MDI starts than we have historically. We believe Mobi will help us return to our previous standing, and while we may not fully achieve a 50-50 split, we do expect to increase our share of MDI starts compared to the past 18 months. Early data suggests this direction. Feedback indicates that physicians prescribing it now see it as an alternative to OP5, offering a similar form factor along with several advantages and a strong algorithm. While the competition with t:slim was challenging, Mobi's entry into the market positions us favorably. We also anticipate that the upcoming tubeless version will further enhance our offering.

I know it's early and I don't want numbers, but could you let me know the feedback or interest level from Abbott Freestyle users regarding starting on t:slim? Are you starting to see some traction, or do you need L3 before you can effectively reach that patient population?

Yes, we're really excited about the integration with Freestyle Libre 2 in the U.S., and we're currently working on Freestyle Libre 3 for both the U.S. and international markets, as well as for both t:slim and Mobi. It's still early in the launch process, but we have seen some uptake and have spoken to several individuals currently using Freestyle sensors. There are many people who are interested in the product and the benefits of an automated insulin delivery system. However, this is a market development opportunity that requires collaboration with Abbott to build it up, which includes training, marketing, and educating customers and healthcare professionals on the benefits. Although it's in the early stages, we are actively working on this partnership, and we believe it will have a significant long-term impact on our business growth.

Our next question comes from the line of Larry Biegelsen from Wells Fargo.

Leigh, I wanted to ask first about international. We typically don't see Q2 sales below Q1. So how much was shifted from Q4 of last year into Q1 of this year? And you shipped 45,000 pumps internationally in 2021 and 2022. Is there any reason you can't achieve at least this year given you're starting to see some benefit from renewals? And I had one follow-up.

Sure. So from an OUS perspective, we didn't quantify it specifically, but pointing to the fact that we are guiding to a step down from Q1, you can kind of get an idea of how much those shifted orders, I guess, I would say, were valued. And so what we saw were one large distributor in particular and a few others moved orders from the fourth quarter into the first quarter of this year, waiting for G7 to be available on the pumps. And so that was more of a one-timer, which is my I would look to Q2 as being what I would say, a more normalized run rate for what pump shipments would look like. And so in terms of just opportunity outside the U.S. and you asked about comparison to the past few years, we still see a large and growing opportunity there, not just from bringing up our renewal customers. But the market is so vastly underpenetrated and with the products that we have today and the products we are expecting to launch, we expect to continue to grow even in that new population, so expanding the market with MDIs and more competitive conversions. So we're looking forward to growing that business outside the U.S. even further.

And John, CMS is hosting the MEDCAC meeting on May 21 on health outcome studies for devices in type 1 and type 2 insulin-intensive patients. What are your expectations for the meeting? Specifically, what could this mean for the potential pump NCD review?

I'll let Leigh answer that.

Yes. So Larry, it's interesting, right? So we see this as a very positive move. The fact that they are reviewing the endpoints and inviting the diabetes community to come in and speak about it from the manufacturer's perspective. And so you can guarantee that we're going to have representatives there talking about the wealth of data that we've accumulated and what we think is the best way to look at those endpoints. And we think it's positive because that NCD is sitting out there, and it's expected to be reviewed, so we hope that this is a positive step in that direction that we'll hear something on that in the near future. But for now, there's nothing that says they're directly tied, but we're optimistic that this will be beneficial for us in the long term.

Our next question comes from the line of Danielle Antalffy from UBS.

Leigh and John, just a question on what you're seeing from a market growth perspective. I mean, we all run surveys. Our survey is actually quite bullish on what we're seeing from a market growth thinking installed base more than anything perspective here in the U.S.? I mean, based on our survey, it looks like it's tracking high teens, which I know sounds quite high relative to historical averages. Any comments there? I mean, are you seeing acceleration here given the number of integrated pumps out in the market, how technology has evolved over the last five years? Any comments there would be helpful. And then, of course, how sustainable that is? Or could it actually accelerate even further?

Yes. Great question, Danielle. And it's really hard to put a fine point on the numbers specifically trying to triangulate what everyone's reporting based on that information. But what we think today is by the time we exited 2023, that pump penetration had grown to nearly 40% in the type 1 population, and that was up from mid- to high 30% range in 2022. And so the market has seemed to have grown every year probably since about 2018. And we point to the advancement in technology. So if you think about the CGM advancements, you think about the algorithm advancements. And so we have every reason to believe that with the new product portfolio that we're offering, that will continue to grow in the future. And so we have great expectations for what this portfolio that we offer will bring to the market and how we'll be attracting new patients. And so we expect continued growth in 2024 and the long term.

How important is the business model to that growth? It seems like you are making progress on the pharmacy channel, but how critical is that aspect?

Yes, I believe it's significant. There are several factors to consider. One key aspect is our product portfolio, especially as we focus on providing choice and wearability. This approach allows us to better meet the needs of individuals who have not previously opted for pump therapy. To put this in perspective, 60% of nearly 2 million people with type 1 diabetes have not yet chosen pump therapy. Therefore, we need to address their needs in terms of product offerings. Additionally, our business model will play a crucial role, as enhancing access and reducing out-of-pocket costs will greatly improve affordability for consumers. That's why we're concentrating on both areas, believing they will work in tandem to enhance our business and expand the overall market.

Our next question comes from the line of Matt Taylor from Jefferies.

I was hoping you could spend a minute on type 2 and maybe give us an update on what you're seeing any type 2 trends? I'm curious what you would say to an investor who might be worried about GLP-1s impacting the type 2 opportunity. And then given you have now enrolled your trial, could you talk about when the data could come out, what that could show in the potential for type 2 to be a growth driver in the future?

Sure. Recently, we published data from an early study on type 2 diabetes. A significant percentage of participants in the study were using GLP-1s. They had been on these treatments for at least six months and had insulin-intensive type 2 diabetes. All were using multiple daily injections and none were meeting their diabetes targets, showing high A1Cs. After starting Control-IQ, they required less insulin and saw a substantial drop in their A1C levels. We believe that Control-IQ and AID systems available today work well alongside GLP-1s and are complementary to their usage. We don't anticipate that this will greatly reduce the demand for insulin, especially among those who currently rely heavily on it. The study is nearly complete and enrolled, lasting three months. We aim to proceed quickly and may have data to share at upcoming fall conferences, but we will see how that unfolds. While there are some uncertainties, we are preparing internally, developing our commercial strategy, and getting ready to be active in the type 2 space.

Our next question comes from the line of Joanne Wuensch from Citi.

This is Anthony on for Joanne. On the guidance for EBITDA breakeven this year, does that imply some sort of volume or user base going through Mobi to hit that just given the lower COGS profile or are you sort of able to hit that regardless of how many patients you've got on Mobi this year?

Yes, that's a great question. Mobi is in a unique position this year. Given our lower volumes and ongoing scaling, we won't see the significant gross margin benefit we anticipate for the coming years. While the beginning of this year presents some challenges, we expect improvements in the latter half, with 2025 being the year we really see a difference. Therefore, our goal of reaching breakeven this year is somewhat independent of Mobi during this initial scaling phase. We are closely monitoring the situation and ensuring that our investments are well-calibrated to drive revenue while still aiming for that breakeven target.

Got it. Helpful. And then can you just talk about what you're seeing in the competitive environment, OUS, just as Omnipod 5 starts to ramp a little bit more here?

Yes. I would say that the competitive environment outside the U.S. is within our expectations. There are two major players that have been in the market for a while. Omnipod is expanding into new markets, and another competitor, Ypsomed, is also entering these markets. There is definitely more activity internationally, and I would note that there is considerable variability since the markets are not uniform. The competitive landscape differs significantly across these markets. Our focus right now is on getting our technology into these international markets as quickly as possible, which we believe will be a strong competitive response to the current situation. There are exciting developments happening this year and next. Additionally, we are increasing our presence internationally by adding personnel in these markets to support distributors and collaborate closely with our key opinion leaders. It's crucial for us to make people aware of the technology and the company's objectives for future growth. We have a lot in the pipeline, and we're enthusiastic about it, so stay tuned.

Our next question comes from the line of Jayson Bedford from Raymond James.

Congrats on the quarter. Leigh, I thought I heard you mention some benefit from U.S. customers waiting for Mobi. And I got the impression that this was separate from the Mobi Choice dynamic. I guess, first, is that correct? And if so, is there a way to quantify this benefit? And then I'll ask my second one upfront here. Typically, you give an installed base of users. Do you have that number for this quarter?

Great. Yes. In response to your first question, Jayson, there were two main factors in the first quarter. We benefited from customers who had been waiting for Mobi from last year, which significantly contributed to the quarter's performance. However, we also noticed that some customers were postponing their Mobi purchases until the second quarter with G7. So, it was a combination of both in the first quarter. At this point, we aren't discussing real trends because we likely won't see a normalized quarter for another one or two quarters until we fully launch with the G7 integration. That said, beyond the numbers, there is a palpable level of enthusiasm and excitement within the company, with many people reaching out and a lot of activity around the product. We're eager to see how this develops into a more stable pattern. Regarding the installed base, you're correct that we didn't specifically address it this quarter. The calculation is based on a simple four-year rolling shipment model, which would indicate around 460,000 customers globally at the end of the first quarter. This includes approximately 315,000 in the U.S. and about 145,000 internationally.

Our next question comes from the line of Jeff Johnson from Baird.

Leigh, maybe just a couple of cleanups or clarifying questions at this point. On the pricing side, would we expect in the U.S. pricing for both Mobi and t:slim to be at these elevated levels, they're both at similar levels going forward? And was that price increase contemplated when you first gave guidance for 2024 last quarter?

Yes. So yes to both questions; pricing is the same for t:slim and Mobi. And the pricing benefit that we saw this quarter is really a lot of work across all of last year from our market access team negotiating price improvements with various payers and going in and talking about Control-IQ, the value proposition, and we're really just seeing it all come to fruition this quarter. And so that it's roughly the $4,000 mark for pumps you can assume for the rest of the year, and it's very much in line with what we used in our guidance expectations.

Okay. And then I was hoping you could maybe help me triangulate pump number in the U.S. a little bit better. So you've said two things, you've said that new starts a little bit higher than renewals. And then you've said that the split was a little bit higher for new starts as well. And not to parse words, but if I felt like a 55-45 split on your 15,000 U.S. number, I get like a 1,500, obviously, that's the math for the 15,000 patient difference between new starts and renewals. If I take your word that is just a little bit higher in patient numbers in new starts versus renewals, like maybe there's a 500 split. Can you help us titrate? I mean, was the split between new users and renewals, a few hundred patients, 1,000 patients, just anything so we can keep our model kind of going as we build out on these new starts versus renewals over the years? I would appreciate anything you can give there?

Yes. I mean really, it's just slightly more than half when you think about it from a new perspective. And so it was a good outcome from what we had been seeing last year and Mobi really helped drive that. And in our other new sensor integrations were also beneficial to it. And we expect over time that Mobi and the new products will continue to drive more in that new population. And keep in mind, renewal stepped up pretty significantly double digits this quarter like we've been seeing last year because of the growing opportunity base there. But I would say just roughly new is just a little more than half.

And our next question comes from the line of Josh Jennings from TD Cowen.

I was hoping to just follow up on Matt's question on the type 2 study and that indication. I think, John, you've mentioned in previous discussions about potentially, if all goes well, being able to commercialize next year in that type 2 insulin-intensive spot. I was hoping if you could just walk us through again, assuming all goes well with the data and we get into next year, just from the data and there's the submission then there's coverage, and any just timing that we should be thinking about in terms of potential to commercialize on that indication next year? And then just Mobi coming on board for that indication as well, what are the steps that are required?

I believe we are about a month away from completing enrollment, and the study lasts approximately three months. After that, we'll need to prepare the clinical report and submit it to the FDA. The FDA has reviewed this product several times, and I think the results for the type 2 community are outstanding. I genuinely expect this to be a product available in 2025, but predicting the exact timing is challenging. Our commercial team is fully prepared, and we are establishing all the necessary strategies, including sales messaging. From a reimbursement perspective, it's already being covered, and I don't foresee any issues there. I anticipate we will secure reimbursement as soon as the product is available. Once the Control-IQ algorithm receives approval for type 2, it can be used with any interoperable pump, including the t:slim and Mobi. Therefore, we plan to launch it on both products simultaneously.

And our next question comes from the line of Travis Steed from BofA.

I'll ask both upfront. Just a quick clarification on the full year guidance. I think before you'd said new starts growth would be flat to slightly down this year. Just curious if you're still expecting new patients to be flat to slightly down at this point, given what you're seeing with Mobi. And then in the U.S., it looks like the ASP at least in our model, consumables were a little lower than they had been. I don't know if that's a trade-off higher pump ASP. Just curious if there's something going on, on the concession side there? Just any color there would be helpful.

Sure. From a guidance perspective, I'm still thinking about along the lines of new starts being flat to slightly down, I would say, barring the outperformance we had in the first quarter because that's where that came from. But the way the guidance was structured initially, it's still with those thoughts in mind for the remainder of the year. And until we see some sort of trend that we can build models off of. We won't be informing anything new to guidance for the new products. So probably, at least not for another quarter or two. When it comes to your question on supply, nothing unusual from the U.S. perspective on the supply side. Supply sales grew roughly in line with the installed base growth. We continuously monitor activity in the installed base in terms of who's using the product, if we see any different signs of attrition, and we haven't seen any changes in that regard. So it's probably just noise in your numbers.

Our next question comes from the line of Michael Polark from Wolfe Research.

I just have one on this potential shift into the pharmacy channel. Leigh, I heard you say it's no longer a question of if, but when. I'm interested philosophically on how you think about managing this because as I look at it, it's a potential for a license to subscription conversion, taking a big upfront revenue recognized amount and spreading it over some period of time. So how do you think about managing that? And when you say it's a question of when, is that suggesting you will have a lot of room to manage this, if this is a desirable channel? Or is the when more just, hey, now we have to get in front of payers and get contracts up and running. Any color on this would be great.

Sure. A lot of good questions there. Probably, first, I should start off just saying what is our primary goal for the pharmacy channel. And number one, it's increasing access for patients and reducing out-of-pocket cost. Number two is when we look at the economics, it should be at least as good as or better than what we see in DME today. And what pharmacy provides for us is a unique opportunity when we think about the business model, and it will allow us to shape it in a way that could look different from DME, but also it could look just like DME. And so in some cases, I think we're going to see variability payer by payer and PBM by PBM in terms of how that shapes up. And so when we think about that in the longer term, I would say we are being very selective about which contracts we take, which ones are going to be good for the business. Just considering all options with what it comes down to it. And so we don't think this will be materially disruptive to our top line. It's going to be a multiyear build. And remember, it's focused on Mobi only. So it's not touching the whole business altogether. And so we're really excited for it. We think it will be really good for the business. And stay tuned. We look forward to giving updates as we have more conversations with payers.

Our next question comes from the line of Matt Miksic from Barclays.

Congratulations on an excellent quarter. First, I know someone earlier inquired about guidance, and I wanted to clarify your thoughts on that. I also have a follow-up regarding guidance. Focusing on renewals for now, without making any bold predictions about Mobi, did that process start in Q2? Do you expect it to begin in Q3? When do you believe you'll have enough information on that topic? A bit of insight would be appreciated, especially since it seems like things are picking up rapidly.

Sure. So it is the same philosophy for guidance now as when we started the year. The only difference is that the outperformance we had in the first quarter, we've now added into the guidance for the remainder of the year. So still heavily based on the renewal opportunity that we have in front of us, the increasing supply sales. And from a new pumper perspective, we want to see more trends. And so thinking about Mobi and watching it through its launch. It's a staged launch, and so we started with direct customers only, just shifted to the distribution channel at the end of the first quarter. G7 integration won't come until late in the second quarter. And so that's causing impact on customer behavior on when they're making their pump purchases. So I think we probably need at least the third quarter to kind of see how things settle in. The exciting part about it all is through all of this, even though it's limited data, the data points tell us that things are in line with our market research. And so we think there's great opportunity here, but we're going to be reluctant to factor anything into the guidance until we can feel more confident about how it settles out.

The other question is more general. Earlier in the call, someone inquired about your market expansion and areas where you might be experiencing more traction. Is there a noticeable trend where certain customers tend to prefer one of the platforms? Additionally, the topic of tubes versus tubeless was discussed. I understand you have a unique approach to your product portfolio and how you define your pump offerings in relation to tubeless or wearability. Could you elaborate on your philosophy as you navigate through tubeless Mobi and into Sigi?

Yes, Matt. We are closely monitoring the data we've gathered so far, including the age and duration of diabetes among Mobi users. While Leigh mentioned that it's still in the early stages of launch, and we haven't had enough time to draw definitive conclusions. We're encouraged by the number of people transitioning to Mobi from MDI, which we see as a positive trend. However, it's premature to specify characteristics of the user base, as this may not accurately represent the wider demographic. We anticipate changes in these patterns as more users adopt the system in the coming months, so we will keep you updated on developments. Regarding our portfolio strategy, we believe in providing choices for users in how they wear and control the device. Our research indicates that there are distinct groups among those with type 1 and type 2 diabetes who prefer pumps with built-in controllers and interfaces, as well as a tubeless system that is highly wearable and rechargeable. These segments are significant to the market, and we plan to continue focusing on them, believing that this strategy resonates with many individuals we engage with in our research.

Thank you. This does conclude the question-and-answer session as well as today's program. Thank you for your participation. You may now disconnect. Good day.