Tandem Diabetes Care, Inc. Aktie

Thank you. Thank you for standing by, and welcome to the Tandem Diabetes Care Second Quarter 2026 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during the session, you'll need to press star-1-1 on your telephone. If your question has been answered, and you'd like to remove yourself from the queue, simply press star 11 again. As a reminder, today's program is being recorded. And now I'd like to introduce your host for today's program, Susan Morrison, Chief Administration Officer in Investor Relations.

Please go ahead. Thank you.

Hello and welcome to Tandem's 2026 Second Quarter Earnings Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development timelines, and financial performance and operating plans. 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, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Today's discussion will also include references to both GAAP and non-GAAP financial measures. Please refer to our earnings release issued earlier today and available on the Investor Center portion of our website for a reconciliation of non-GAAP measures to their most directly comparable GAAP financial measure and our website for a reconciliation of non-GAAP measures. other information regarding our use of non-GAAP financial measures. John Sheridan, Tandem's President and CEO, and Lee Vossler, Executive Vice President and Chief Financial Officer, will be providing prepared remarks on today's call, after which the operator will open up the call for questions.

Thank you for limiting yourself. to one question before rejoining the queue. I'll now turn the call over to John.

Thanks, Susan. We appreciate everyone joining the call today. The second quarter marked an important step forward for Tandem. We are executing it against our strategic priorities while demonstrating operational momentum, improving our financial performance, and providing broader access to our technology. This progress was evident in our results, with worldwide pump shipments growing more than 10% year over year and sequentially. In the U.S., a highlight of our performance was improvements in new pump start trends, led by a standout number of people transitioning from multiple daily injection. Internationally, we saw an acceleration of adoption in the countries where we launched direct efforts earlier this year. Additional Q2 highlights included significant margin improvement, including the second highest gross margin of any quarter in our company's history.

We also advanced the global launch of new technologies while preparing to expand our portfolio with the FDA submission for Tandem Mobi's tubeless feature. We'll discuss each of these accomplishments in greater detail on the call today. I'll begin my remarks with an update on the three strategic priorities we laid out at the beginning of the year, which included reshaping our business model, modernizing a commercial organization, and delivering new technology. In March, we launched Pay-as-You-Go reimbursement in the pharmacy channel. This transition was designed to create clear benefits for customers, prescribers, and payers with better economics to tandem. During the second quarter, our focus was on early implementation. This included updating the end-to-end processes for how our technology is prescribed, how we support customers, and how our orders are processed.

We are encouraged with the momentum behind this transition and beginning to see efficiencies that are positively contributing to our results. We now have approximately 45% formulary coverage, which is already approaching the high end of our range for the goals this year. Access is a critical first step to driving PAYGO adoption, and teams are now focused on driving plan utilization. In our first full quarter offering PAYGO, U.S. sales through the pharmacy channel increased to 10%. This early traction reinforces our confidence in the pharmacy strategy and the broad-reaching benefits it can deliver. The second key initiative I'll touch on is modernizing our commercial organization to improve productivity and support profitable growth. The work has been underway for the past year, and we are pleased with the progress.

Key accomplishments include the deployment of a new CRM system to improve Salesforce efficiency and effectiveness, deeper insights into our customer base and support our global channel strategy. This includes enabling our U.S. pharmacy transition and supporting direct commercial launches internationally. Our international direct launches began earlier this year in the UK, Switzerland, and Austria, with plans for France to follow in the fourth quarter. This strategy better positions Tandem to serve our customers and healthcare providers in these markets while strengthening our financial profile. The final key initiative I'll discuss is our delivery of new technology, starting with the expansion of our global portfolio. We continue to reinforce our competitive advantage with Control IQ+, which now has the broadest indication of any AID system in the US, including pregnancy. Similarly, we strengthen our advantage internationally as we receive CE mark in Q2 for pregnancy, as well as adults living with Type 2.

Great excitement is also building internationally, as we are in the early stages of introducing Tandem Mobi outside the United States. We plan to bring our tiny pump with big outcomes to more than 10 countries by year-end, including some of our largest markets. In addition, our team has been working to broaden CGM compatibility. For Abbott's Freestyle Libre 3+, T-Slim is now compatible in seven countries outside the United States. We plan to expand to additional markets throughout the year. Dexcom's G7 15-day sensor is now compatible with Mobi and T-Slim in the US, and international markets are soon to follow. These launches are consistent with our efforts to ensure the broadest possible coverage across devices and markets.

Looking ahead, the team continues to drive long-term innovation across our pumps, infusion technology, software ecosystem, and AID algorithms. Starting with pumps, we reached an important R&D milestone in Q2 with a 510K submission for Mobi Tubeless. This new infusion site option is designed to transform the existing MobiPump into a tubeless AID system, giving users unique flexibility to choose between tubed and tubeless wear on a single hardware platform by simply changing the supplies they use. Compatible with the existing MobiPump subject to FDA compliance, the MobiPump is a single clearance. This will be Tandem's first tubeless pump offering and the world's first with extended wear technology, an important differentiator that enhances our position in this dynamic market segment. Pre-commercial preparations are actively underway. Our goal remains to begin a scaled launch this year. after which time we'll begin training our field and HCP community on the novel tubeless MOBI feature. We will also begin updating our payer contracts and completing operational activities in support of the launch.

Infusion technology is another key area of focus as we work to expand tubed and tubeless options, improve comfort, extend wear time, and simplify the user experience. To support this, we are launching AutoSoft Plus, a new infusion set designed to enable quick set changes with reliable one-handed insertion. We introduced AutoSoft Plus in Canada in late July and plan to expand to additional geographies, including the U.S. later this year. This timing is important as we continue to manage shortages from our key infusion set supplier. We believe Q2 was the period of greatest impact, and our supplier expects availability to improve through the second half of the year. The launch of AutoSoft Plus is expected to reduce the demand for the SKUs currently under allocation. Looking to the first half of 2027, we plan to provide further choice in infusion sets with a launch of SteadySet, our proprietary technology that has FDA cleared for wear up to seven days, which is now in manufacturing scale-up.

The last technology advancement I'll discuss is automated insulin delivery. Since TANID was founded, we've maintained our vision of creating an AID system worthy of the term artificial pancreas. Today we are closer to this vision than ever and excited to begin sharing more details. Under our longstanding research collaboration with the University of Virginia, we are advancing their next generation AIDANET algorithm into a compelling full-enclosed loop experience for everyone. AIDANET, which stands for automated insulin delivery as an adaptive network, has been under active development and clinical testing for the past several years. We are developing a system designed to help both type 1 and type 2 users meet the clinical time and range guidelines. whether they are new to pump therapy or long-time users. Our goal is to achieve this without meal announcements or other user inputs.

But because diabetes can vary day to day, we are also designing the system to incorporate additional user context and respond in more personalized way. This is an ambitious goal, but advancing closed-loop technology requires solving the most complex real-world use cases. Over the past two years, our development and user experience teams have been working toward that objective, culminating in FDA approval of an IDE in Q2 and positioning us to begin a pivotal study later this year. Overall, the second quarter progress reflects the strength of our execution across the priorities that we set for the year. We remain encouraged by the momentum that we are building and remain focused on translating these initiatives into broader customer impact while improving our financial performance. With that, I'll turn the call over to Lee to provide more detail on financial results.

Thanks, John. Our second quarter results reflect strong execution and accelerating progress across our strategic initiatives, which are beginning to deliver sustainable operational and financial benefits. It was a record second quarter performance worldwide for sales, pump shipments, and gross margin. Beginning with sales, we shipped approximately 33,000 pumps worldwide. This was driven by the continued demand for control IQ, new product innovations, and improved channel access. Worldwide sales totaled $255 million, increasing 6% year-over-year or 5% in constant currency. This was the 10th consecutive quarter we delivered record results for the respective sales quarter, which is a trend we plan to continue building on even during our business model transition. In the US, we shipped a Q2 record of 22,000 pumps, growing 7% year over year.

We've seen improvement in the new start trajectory with Q2 new starts nearly flat to last year, but stepping up impressively by more than 20% from Q1. Notably, new customers coming from MDI grew mid-single digits year-over-year and now represent approximately 70% of new pump starts. This improvement was driven in part by increasing enthusiasm for Tandem Mobi, which now represents more than half of our shipments to new customers, as well as the availability of a more affordable option through pharmacy. Renewals at more than half of our pump shipments continue to be a robust source of business at double-digit growth. This retention is a direct reflection of the value we place on delivering high levels of customer service, driving strong customer satisfaction. U.S. sales totaled $179 million, increasing 5% year-over-year. This reflects measurable improvement in pharmacy adoption, partially offset by the expected impact of infusion set constraints from our key supplier.

As John discussed, we continued the implementation and rollout of our PAYGO offering through the pharmacy channel that began in March. During the second quarter, our teams focused on educating patients and physicians about the offering, as well as optimizing the new processes and workflows for scale. In this first full quarter under the PAYGO structure, pharmacy pump shipments were approximately 10% of total shipments. As a reminder, pump shipments through the pharmacy channels do not include upfront reimbursement, which creates a near-term headwinter revenue when compared to a traditional DME sale. This initial pump headwind is more than offset over time by higher pricing for recurring supplies from both new PAYGO customers and and existing customers who transitioned from use of their DME benefits. In the second quarter, the initial headwind from pharmacy pumps was approximately $8 million. Yet, we still saw more than half of our sales growth driven by net favorable pricing.

This benefit came from the 6% of our U.S. install base of approximately 325,000 people who use their pharmacy benefit to purchase supplies. As a result of this meaningful early adoption of both pumps and supplies through PAYGO, sales through the pharmacy increased to 10% of total U.S. sales in Q2. In our first full quarter of offering PAYGO, pump adoption progressed slightly faster than supply conversions of existing customers and is expected to continue to do so in the third quarter. Directionally, we anticipate that each of these measures will continue to step up across the quarters as momentum builds, tracking in line to achieve the average annual modeling assumptions we illustrated at the beginning of the year. I'll also note that we are seeing a higher average monthly ASP for pharmacy supplies compared to the $350 per month originally provided for modeling purposes. We are not updating our baseline assumption at this time as we'd like to gain more experience, but needless to say, the early data is encouraging. Turning to our international performance, we shipped approximately 11,000 pumps in the second quarter, which is an increase of 19% year over year.

While shipment growth in the quarter was primarily driven by our distributor markets, we are beginning to see encouraging traction in our direct European markets from our direct sales and marketing efforts, which reinforces our expectations for sustainable top-line growth and margin expansion over time. International sales totaled $75 million, increasing 7% year-over-year or 6% in constant currency. Direct channel sales represented approximately 13% of international revenue, more than double prior year levels, as we continue executing our transition strategy. Sales reflect approximately 3 million of headwinds related to distributor inventory buybacks in markets where we have already transitioned to direct operations, as well as de-stocking ahead of future transitions. Sales for the quarter were also impacted by our key infusion set suppliers constraints, which unlike the US, were greater than anticipated this quarter. The impact was largely due to timing, as infusion sets were received late in the quarter, limiting distributor order fulfillment before quarter end. Turning to margins, gross margin was 57%, improving 5 percentage points year-over-year and 2 points sequentially.

It reflects continued execution against our key margin drivers, including price appreciation from our global channel strategies and product cost improvements as Mobeat volumes continue to scale. Operating expenses were $159 million, remaining relatively flat year over year, while we continue to invest in strategic growth initiatives in our global commercial infrastructure and product portfolio. Adjusted EBITDA margin increased to 3% of sales, demonstrating a positive result for the fourth quarter in a row. This continued improvement reflects the benefits of scale and sustained gross margin expansion while maintaining investment in future growth opportunities. Stock-based compensation expense decreased meaningfully in the quarter to $16 million, or 6% of sales, down from 11% of sales in the prior year. This improvement reflects changes made in recent years to our equity granting practices to align with benchmarks for companies of our size. We anticipate the stock base count for the year will now be approximately 65 million, lower than our original expectation of 80 million.

The reduction in this non-cash expense meaningfully contributed to the eight-point improvement in operating margin at negative 5% of sales. We ended the quarter with a healthy balance sheet including $456 million in cash and investments compared to $570 million at the end of Q1. The change reflects meaningful investments in a new CRM system to support global initiatives. and a second annual payment under the Roche Settlement Agreement, and an additional strategic investment in Secure, a private company we have invested in since 2021. The cure provides simple mealtime insulin delivery through a wearable patch, offering a low-tech option for people with insulin-dependent diabetes who are not seeking an AID system. It complements our automation-focused strategy for insulin-intensive diabetes while providing insights into a new Type 2 segment to inform our long-term strategy. Turning to our 2026 expectations, we remain confident in our ability to deliver on our goals for the year and are reaffirming our sales and margin guidance. worldwide sales are expected to be in the range of 1 billion 65 to 1 billion 85 this This includes U.S. sales in the range of $730 to $745 million and international sales in the range of $335 million to $340 million. We expect gross margins in the range of 56 to 57% and adjusted EBITDA margin of 5 to 6% of annual sales.

For the third quarter, worldwide sales are expected to be approximately $265 million. This includes $180 million in the U.S. reflecting increasing pharmacy adoption. Internationally, we expect sales of $85 million, taking into consideration seasonality typically experienced in the summer months and modest improvement in the availability of infusion sets from our supplier. Gross margin is expected to be approximately 56% and adjusted EBITDA margin approximately 2% of sales based on pharmacy pricing dynamics, as well as a planned increase in operating expenses in support of commercial initiatives. We continue to expect to achieve our highest margins for the year in the fourth quarter, driven by an increasing percent of our U.S. installed base ordering pharmacy supplies, seasonality in U.S. DME pump sales, and a larger direct presence in Europe. In closing, the strength of our second quarter performance demonstrates continued advancement against our strategic and financial objectives.

We remain focused on driving sustainable growth, expanding profitability, and delivering long-term value for our shareholders. With that, I'll turn the call back to John.

Thanks, Lee. Before we close, I want to recognize the entire Tandem team for the focus and care you continue to bring to work every day. Your efforts are helping us advance our priorities, support our customers and healthcare providers, and help us improve the quality of life for all of our patients. and sustained progress across the business. Thank you for everything you do on behalf of Tandem and the diabetes community we serve. In conclusion, our second quarter performance reflects solid execution against the priorities we set for the year and reinforces our confidence in Tandem's strategic direction. Looking ahead, we remain focused on building on this momentum, expanding customer impact through affordable and innovative technology, supporting profitable growth, and building our leadership position in diabetes technology. Thank you again for joining today. We are excited about the opportunities ahead and look forward to sharing updates on the continued execution in the upcoming quarters.

Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1-1 on your telephone. We ask that you please limit yourself to one question. You may get back in the queue as time allows. Our first question comes from the line of Matthew Blackman from TD Cowan. Your question, please.

Good afternoon, everybody. Can you hear me okay? Yep. How are you doing, Matt? Doing well, thanks, John. Maybe John or Lee, could you just maybe talk about some of the areas perhaps of friction in the pharmacy transition process that you're finding and maybe whether there've been any surprises, good or bad in that discovery process relative to the full year guide you gave Just the conviction you have today still in that full year guide for 20% of pump shift through the pharmacy, 10% for the installed base, 15% of revenue. Just, you know, anything that helps give us some confidence as well that the ramp is going as planned. Thank you.

Sure. Well, I'd say that we're actually very pleased with the early PAYGO experience. It reinforces our conviction that this is an important and meaningful opportunity for the business. I would say that the things that we experienced this quarter would be the normal learning curve that comes along with implementing a new process. As we've said, the process actually, it's an end to end change in how we do business, how the ACPs prescribe, how we service the customers and how we fulfill orders. So it's a meaningful change change to the business. But I would say there was nothing that was surprising. We feel like we're on track.

We're still continuing to work on developing efficiencies. I think that when you look at the performance, 10%, the sales went through pharmacy. That's when you think about that, it's really the first quarter of meaningful, you know, presence in the pharmacy channel. We're very happy with it. And it just continues to reinforce the fact that this is a significant opportunity for us. And we're going to continue to plug away as we have.

Thank you, John. Thank you. And our next question comes from the line of Richard Newiter.

from True Securities. Your question, please. Hi, this is Felipe on for Rich. Your largest competitor called out tension issues in the type 2 community. So I'm just wondering if you could maybe comment on your experience with type 2 patients in the quarter and if you're seeing any of those trends. Thanks for taking the question.

Yes, I think that again, just like pharmacy, the Type 2 expansion is another huge opportunity for us, and that's going to really drive growth going forward. It's an under-penetrated market, both in the US and internationally, certainly requires market development, and there's still a lot of learning to do. We're not going to talk specifically about the numbers today. It's early and there's still a lot of sources of growth that's in process. But I will say relative to attrition, that our type 2 attrition, it's really modestly higher than our type 1 rate, and it's been stable over the past five years. We've employed a strategy where we intentionally are selective and focused on patients who have the highest likelihood of success. And I think that's pretty much what's driving, you know, know, that success in the attrition for us.

You know, and as far as the indicators that I think that we want to keep track of, you know, there's the C-peptide decision with CMS. You know, we had – we went and actually spoke to CMS in the last few weeks with a consortium of others trying to eliminate the C-peptide decision, and I think we may made it very clear on what the impact is on the Medicare population of having to do this. And I think we left the meeting pretty optimistic. And it's this month, it's August, when we expect to hear results. We also expect tailwinds from Freestyle Liberty 3, from Moby Tubeless, Pharmacy Access. And, you know, we continue to invest in, I would say just digital marketing and creating awareness with PCPs and HTPs. So, you know, I think we're, again, we're very excited about this.

It's, you know, it's an important part of our strategy going forward, and we anticipate seeing growth in type 2 MDI during the year, and we'll continue to report on it as things go on.

Thank you, and our next question comes from the line of Larry Vigelson from Wells Fargo. Your question, please.

Good afternoon. Thanks for taking the question. Lee, I think US pump shipments were a little soft in Q2, year-over-year basis, sequential basis, for what we typically see and new starts were flat and I think you had expected them to be up year-over-year in Q2, I think. So is there anything to call out in Q2 and It does look like you need 12% to 13% year-over-year pump growth in the second half to reach the midpoint of the U.S. pump guidance. So what are the drivers of that acceleration in pump shipments in the second half? Thanks.

Sure, thanks for the question, Larry. So we did see, we saw strong growth. And remember, we're at the very beginning of a lot of our initiatives that we expect to gain momentum across the year. So to your question about what's really going to drive that back half strength, we have a number of new products under launch right now. And so an example of that is the would be FreeSally Race 3, which we launched late last year. Mobi Android also late last year, early into this year. And we're already seeing results from that.

We're seeing that our Mobi starts are growing to more than half of our new pump starts. We have Pharmacy, which as John spoke to earlier, it's the first full quarter of that. And it's really removing that that affordability barrier that people have had to shift to pump therapy. And so as we drive that momentum forward, those are some of the areas that we expect to really give us that back half strength. One thing I'll highlight on the new starts this quarter, while we were just short a few hundred pumps from growth, actually what we saw that MDI conversions, which arguably is the most important metric, grew mid-single digits year over year. And it's been an improving trajectory over the last few quarters. And so that's the signal that we need to support the confidence that we have for the year in terms of reaching that back cap strength and continue to see new start growth this year.

Thank you. And our next question comes to the line of Matthew O'Brien from Piper Sandler. Your question, please.

Hi, John Lee. This is Anna on for Matt. Thanks for taking our question. I guess I wanted to ask on gross margin was really strong in the quarter, you know, much better than we had modeled. And just curious to understand the thought process behind the reiterated gross margin guide, you know, given the opportunity to do so. performance there and the strong adoption you're seeing on the pharmacy side and I'm curious why it's supposed to sort of step down sequentially in the third quarter. So just any thoughts that would be helpful. Thank you.

Sure. Yes. So we are very excited to share this gross margin progress that we're making. It's something that's been a, I would say, a point of contention for many years. And to have this significant of a step up is a really good demonstration of where this can go in the future. And that's on still a relatively low percentage of sales coming from pharmacy. And so two things. really drove the strength this quarter. It was the pricing benefit from the pharmacy channel as we continue to push that adoption percentage. Also the fact that the Moby volumes are growing and scaling.

And so that's contributing from a cost perspective. As we look ahead, we guided to a point step down in Q3, but still achieving that 60% gross margin. in the fourth quarter. And that just comes from the variability as we push this pharmacy adoption. And so the two levers are really what percentage of pumps go through pharmacy at that $0 price, which actually creates a headwind on sales, which pressures the gross margin. And then you have that added benefit that comes from the people ordering supplies in the pharmacy channel. And so as we looked forward to the pacing, we anticipate that the pump adoption in PAYGO might outpace in the next quarter of the pharmacy supplies adoption. And so that just plays a little bit with the margin optics.

But in the long term, this is really going to drive great strength overall as we continue.

accelerate this initiative. Thank you and our next question comes from the line of Suraj Kalyan from Oppenheimer. Your question please.

Hi, great, thanks. This is Jacob on for Suraj. Thanks for taking the questions. I guess just looking at Toole with Moby and the ramp there, are there any gross margin dynamics we should keep in mind during the phase launch? Does it carry a different consumable mix or cost structure that could create any temporary changes in the margin before you reach scale?.

Yes, thanks for the question, Jake. It's a really important point. With any new product that you launch, you're not going to reach the full benefits until you get to a level of scale. And so, much like when we first launched Mobi a few years ago, we saw a little bit of a headwind in gross margin, but not incredibly meaningful. It just more so keeps it flattened and not necessarily scalable. continuing to step up, but there's really nothing else to speak to. We're super excited for that technology to come to market. And so the other area I would speak to as we think about a launch of a product of that magnitude would be you might see a step up in sales and marketing as we make sure that we're getting the awareness out there as quickly as possible.

Thank you. And our next question comes from the line of Joanne Wunsch from Citi. Your question, please.

Good evening and thank you for taking the question. I just want to double click on Toby and I want to confirm or ask if it has been filed with the FDA and what is your current updated timing on that launch? Thank you.

Hi, Joanne. Well, I have to say we have filed it, and we just filed it in the second quarter. Right now it's under review. We're very excited about this. It's, you know, we've made this clear. It's the first extended work patch that will be on the market. It's, you know, it's going to be a great product, and we're very excited to have it out there. When it comes to what's next, I mean, we're obviously going to be waiting clearance, but we are planning on having clearance and actually beginning the scaling launch in the second half of this year. What we have to do still is once we get the clearance, there's some things we'll probably have to do to... make changes in the documentation for the FDA.

There's training we've got to conduct with our own people, and with HCPs, there's contracts we've got to, you know, go out and start to modify. And then we initiate this Early Access Program where we put, We put patients on the product for a few weeks to a month just to make sure that it's performing the way we expect it to. So we're planning for all of this, including kind of an aggressive marketing program once it does get approved. And again, really looking forward to getting this into the market this year.

It will be a scale launch for the rest of this year. Thank you. And our next question comes from the line of Mike Kratky from LeeRink Partners. Your question, please.

Hey, everyone. Thanks for taking our questions. If you just to follow up on Matt's question earlier on the confidence in maintaining that 20% of US shipments through the pharmacy this year, I mean, it would seemingly require a fairly major step up for 3Q and 4Q. So just curious in terms of the quarterly cadence between 3Q and 4Q. that's built into your expectations there? And is that 4Q exit rate a reasonable assumption for a jump off point for 27?.

Thanks for the question, Mike. So the way I'll start first is thinking about what the opportunity is. And today we already have 45% formulary coverage. And so we're at a point where we're nearing the high end of our range of goals for this year in terms of coverage and access. And so the opportunity exists. As John talked through how we launched in the second quarter. In the early months, there are just things you learn and you have to scale and you have to adjust and you have to pivot along the way and the momentum is strong. And so we feel really good that it's going to keep growing. In fact, in the second quarter, we shipped more pumps through PAYGO than we did all of last year in our old pharmacy model.

And so it's moving in a really good direction direction and when you take away that cost for patients, it's easier to bring new patients onto the technology. So we just have to get through some of these early learnings and really start driving that awareness with HCPs and the patients that this opportunity exists. And so when we thought about second quarter, we built in a pretty hefty step up in terms of percentage, that we would expect to go through pharmacy, and a really high exit rate as well. So we haven't given any specific details on what those numbers are, but it will continue to step up meaningfully each quarter. And we feel very convicted in the ability to achieve that.

Understood. Thanks. Thank you. And our next question comes from the line of Karen Ryan from Deutsche Bank. Your question, please.

Hi there. Thanks for taking my question. I just wanted to check in on how you're tracking on converting users over to pharmacy at renewal. If you want to maybe talk about some of the patterns and trends you're seeing there and how that compares to some of the other pharmacy growth opportunities and new starts. or in warranty conversions, which I think are kind of the most attractive for you since they don't come with the pump headwind. Thanks.

Sure. So we haven't really spoken to any particular details about the sources where pharmacy is driving the most opportunity. But as you point out, I'll go through a couple of just pieces of information. For new starts, it's very attractive. Many of those folks who are coming from MDI have never moved to pump therapy because of the cost. So it's something that it makes it easier to have those conversations about what the products offer because they don't have to worry about the cost burden in mind as much. For renewal customers, where it can help when they're out of warranty would really be that they don't have to wait as long. Sometimes they go through that same cycle where they don't want to make that next purchase, their pump's still working fine, but this helps them be able to move forward more quickly with a renewal and or a switch if they were on TESOM and they want to move to MOBI, it gives them that opportunity.

We don't particularly focus on shifting our own in warranty customers over, but it does make it easier for patients who want to convert from other technologies that may be in a contract to shift to our product in the pharmacy channel. So there are many ways where we can drive this penetration. with pharmacy that will contribute to us achieving that 20% target that we've set out for the year.

Thank you. And our next question comes from the line of Jason Bedford from Raymond James. Your question, please.

Hi, this is Elena. I'm for Jason. Thanks for taking my question. I was wondering, can you share some more color on how your conversations with payers have evolved since introducing PAYGO? You mentioned seeing a higher price than your initial expectation, which sounds interesting. maybe share a little about what might be driving this and do you see an opportunity for a higher price in the future thank you.

Sure. So, from the payer perspective, I would say we already have contracts with the top three PBMs, so we have really great coverage there. And basically, anyone else that's left, we pretty much are talking to them. We're at different points or stages in our negotiation. And so, it's going very well. The new model's making a big difference in terms of getting that formulary coverage versus the model that we had last year. So we're going to continue to pursue that. And as we look ahead, it will become more about protecting and defending what we have and continuing to drive preferred access in cases where we don't have that today.

The pricing, so we had set out, I'm going to say a modeling assumption for people to start at $350,000 $350 per month per patient. The contracts that we have have varying levels of rebate associated with them and also an unknown for us is what level of copay assistance that patients might actually utilize. And so we factored in conservatively that we could do at least $350 a month. We did indeed do better than that. that in the second quarter. But I would dare say we don't have a sustainable trend necessarily to say this is the new number that it will be. So we want to monitor this over the next couple of quarters and see where it starts to shake out on a regular basis. And then we can talk more about what that looks like in the future.

I think it's fair to say that we have our I set on a higher number down the road, as we see in the market, that competitively others speak to higher price points. And so we look forward to driving towards that number ourselves.

Thank you. And our next question comes from the line of Anthony Petrone from Mizzou. Your question, please.

Hey, hello, good night. This is Dimitri Dallon for Anthony. Congrats on the print. That was pretty good across most sectors, but it looked like international supplies was maybe a little weaker than expected and I don't know if you can provide any you know color what what happened there in the quarter and maybe if anything we should be thinking about looking at the rest of the year and maybe a quick follow-up. We all look forward to movie to listen, I just feel like we haven't heard much about CIGI lately, and I don't know if we can get an update around that. Thanks.

I'll start with the supplies question internationally. So we have been, I would say, on our worldwide business managing through and supply chain constraints with infusion sets that come from a third party. It's something that began late last year, but became more impactful here in the first half of 2026. We believe the greatest impact was in the second quarter. And for us, that was the primary reason that we saw softness in supply sales in the second quarter. We did receive the level of inventory or allocation that we expected to get in the second quarter. So we can say that we believe we're on track with our supplier with what we should get this year.

It just came so late in the quarter we weren't able to turn it around and get it into distributors hands before we close the quarter. So it's really more of a timing element there. And again, we do think second quarter has the greatest impact. We'll still see some impact in the next couple of quarters, but it will lessen across the year. And at this point, we feel like we're managing well through the situation and we still feel confident in achieving our.

guidance for the year. And then relative to CIGI, I would say that we have taken their technology resources from Switzerland and brought them here to San Diego. And now we are working on, I would say, the next generation MOBI. The next generation MOBI will incorporate the CIGI technology and also some of the MOBI And that's going to come to market in a while. I would say that right now our focus really is to get Moby Tubeless to the market. And we think that Moby Tubeless is going to have a meaningful life, you know, on the order of two to three years. And in that timeframe, we'll continue to work on the next generation Moby, which, as I said, will include the technology that we have purchased from from CIGI and we think that'll be a great next product but it's not going to be in the market for a little while.

Okay, thanks, guys. Thank you. And our next question comes from the line of Travis Deed from Bank of America. Your question, please.

Hi, this is Grace Shawn for Travis. Congrats on filing Toby and being on track for the launch. Just wanted to ask how we should think about the launch ramping and uptake into 2027 with other competitors coming to market potentially end of this year and early next year with their patch pumps, and maybe any preliminary thoughts on market growth in the U.S. in 2027 and how these patches can accelerate growth?.

Right. I think when you look at the market today, there's a tube space and a tubeless space. If you look at the market growth rate in the tube space, it's single digits, maybe mid single digits. If you look at the growth rate of the market in the tubeless space, it's over 20 percent. We think getting into that market, with a tube product is going to give us access to a significantly higher interest level. And it's going to drive meaningful growth to the point where I think this will be an inflection point in our revenue curve when it's on the market and fully released. I think, as I said, there's still uncertainty from the FDA and, you know, We've got to get through our launch processes. But I would say that we do expect to have the product on the market in the second half of this year.

I would say that 2027 is really going to be a full year where we have the product in the market. I do believe it will compete effectively against all of the existing and devices that are near release as well. And I can say that we've done that through a number of markets. panels where we basically just spent a lot of time understanding what people like about what's on the market as well as tubeless MOBI. And then at the ADA, we did a number of, we had a number of had a number of seminars or sessions with physicians where we actually sat them down in the room and we showed them the product. We showed them how we needed this to transition from a tube to a tubeless device. And I have to say that the response was just overwhelmingly positive. So we think Movi tubeless is going to be a very important device. for us, it'll start this year, but I think 2027 will be the year where we really see the positive impact on not only on revenue, but on margin.

Thank you. And our next question comes from the line of John Block from Stifel. Your question, please.

Great guys. Thanks. Good afternoon. I'm just curious Lee, roughly how much higher has pharmacy been running above that initial $350 per month assumption? And maybe what that does or doesn't say about the number of people transitioning to pharmacy for supplies. In other words, if it is running decently above, I think that would imply that the number of conversions is running a little bit higher.

bit behind plan, if I've got that correct, and any thoughts why that would be the case. Yes, great question. I'm not going to speak to the difference that we saw in price versus the modeling assumption we had put out specifically. Other than your point is accurate that some of that pricing benefit was part of the reason for the overachievement in the quarter. What we did see in this early adoption phase, and this is really as there's a lot of things to work on as the volumes are coming through pharmacy. There was a little bit more of a focus on getting the Pago pumps out the door. So thinking about bringing those new patients into the family who really want a pump. And for patients who are already ordering supplies from us through DME who are happy customers, no rush to push them through.

A lot of it's a balance. because all of this takes physicians time to write new prescriptions. And so as we get the workflows going and the efficiencies driving, we'll continue to push on those conversions of existing customers. So the pump adoption slightly outpaced, I would call the patient conversion or adoption that you have there on the supply side. that may continue into the third quarter, but that it will really start to change as we get into the fourth quarter and going into next year when we have that co-pay assistance to help people, especially when they usually meet those deductible resets in the first quarter.

Perfect. Thank you. Thank you. As a reminder, ladies and gentlemen, if you do have a question at this time, please press star 1 1 on your telephone. Our next question comes from the line of Dane Reinhart from R&W Baird. Your question, please.

Hey, John Lee, thanks for the time and questions here. Just one quick one. I mean, it's been a few quarters now since you've kind of had that type two label expansion. I think you're a few quarters in now as well to really pushing with your sales force and having them go on on kind of the full offense there. So just any indications of maybe what percentage of your new starts are type two right now and just what you're seeing in that underlying market from an overall growth perspective. Thanks.

Yes, thanks, Dane. You know, I think we've chosen to stay away from actually giving specific numbers about how we're doing. And I think what we really want investors to focus on is the broader indications for adoption. And I will say that, you know, you're right, we have really, this is this year, last year was kind of piloting to understand how this year. We've really worked with the sales force, in terms of they have objectives in terms of type two sales, et cetera. And as I said, when you look at these indicators, they're all moving in a positive direction and we think that's going to drive growth over time. And I mentioned the C-peptide decision. We expect that's going to be made this month.

We expect it to be positive. We don't really know how that implementation will occur, but I think any steps in a positive direction will be good for people with type 2. And then we also have a number of structural things. Like we have pre-statal library 3, which we know is something that's going drive. It's a large market. It's under-penetrated. It's going to drive type 2 interest. Moby-Tubeless, of course, will, and so will the pharmacy access.

You know, so I think there's a lot of things that we've got lined up that are all going to have a favorable effect, but, you know, I think we've chosen not to speak directly about the numbers at this point in time. So, thank you.

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

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Next presentation. Very pleased to welcome John Sheridan, President and CEO of Tandem and Leigh Vosseller, Executive Vice President and CFO.

Very timely to have you here coming off ADA. So I thought that maybe that would be a good place to start just to talk us through kind of your reflections on the conference, key themes, both from kind of a market perspective, what you heard kind of walking the floor and talking to customers and what you thought the big takeaways for Tandem were?

Yes. It was a great conference for us. We had -- you guys probably know we received CE Mark for our pregnancy indication just a few days before the conference started. And we had a symposium on Saturday morning in which we actually went through and presented the data to a pretty large group of doctors, and that went over very well. And pregnancy is a really important indication for us. People who are pregnant that have type 1 is not necessarily a large audience.

But when you consider it's people who are considering pregnancy. So it's really anybody who has -- who's in child-bearing years, they're really the market for this because you want to be on the product before you get pregnant so that -- and you can use the exact same product during pregnancy. So important population. I thought the data was excellent, really well received. So that was a big part of the day or the weekend.

The other thing that we did is we actually had an innovation suite set aside. And in that suite, we basically took 20 doctors at a time and let them get up close and personal with Tandem Mobi tubeless system, which I thought went over incredibly well. In fact, David was in an afternoon session of that with a number of sell-side investors, did pretty much the exact same thing. I will say when we actually just put it on and show people how easy it was to do that, there were absolutely gasps in the audience, which I was pretty surprised to see that. That was a total awesome response, similar behavior from the physicians, I think a lot of excitement about it.

And the thing that's really important about the tubeless version of Mobi is that the basis of competition 4, 5 years ago was primarily therapeutic outcomes. And with Control-IQ, I think we dominated the market at that point in time and did quite well. I think over time, that's changed though. Now it's not only therapeutic outcomes, it's also form factor and market access.

And so over the last year or so, we've been working on all of those elements. We have -- we're really now in the execution phase of the pharmacy transition. We're making good progress. I'm sure we'll talk about that in a few minutes. And then we're also just about ready to commercialize our tubeless version of Mobi.

So with that, we have addressed the elements of that competitive situation that we didn't have. We now have pharmacy, we have form factor, and we have the best algorithm. And I think as a result of that, we expect to see double-digit growth. We expect to see significant growth in MDI starts, and we expect to see competitive conversions go up as well. So we're very excited about that. Like I said, it went over very well.

We had a number of papers or posters that were presented on just the ease of use of using the economic -- and I think the experiential benefits of using Control-IQ over a large population, pediatric populations and things like that, that went very well. But I would say, for us, it was a great show, and it just confirmed the strategy that we're working on.

So maybe just one kind of market-related question. It feels like it's hard to talk about diabetes or ADA without sort of facing the GLP-1 question. I mean if you think about the past 3 ADAs, it's certainly, I think, been an evolution of the conversation of GLP-1 versus diabetes technology, whether that's pumps or CGM to kind of question marks to the GLP-1s with some of these technologies to augment it, like what -- you kind of walked away from ADAs where are we with kind of the GLP-1 discussion?

I think we've kind of gotten past that hurdle last year. And I will say 2 or 3 years ago, certainly a great deal of anxiety about the impact that, that may have on people with type 2. Maybe it's going to slow the progression of type 2 and reduce or limit the growth in the insulin-intensive type 2 area.

What we've done is we've done several clinical studies. And in those studies, we've had a significant portion of the group. In fact, our pivotal study was roughly 300 people and half of the control group had used GLP-1s for at least 3 months before the study started. They had to -- these are modern GLP-1s. They had to remain on the GLP-1s throughout the study.

And when you look at the A1cs of that group before the study started, they had very high A1cs. So they may have been losing weight, but the diabetes was in very poor control. So like high single digits, low teens. It was problematic. And when they went on to Control-IQ, we saw a substantial reduction in A1c.

And I think the conclusion from that study as well as several others before that is that the -- it's a complementary situation where you need both. You need both of them really, I think, to manage the weight and diabetes control. And I think that's pretty much -- I mean, I think our competitors have been saying the exact same thing. It's a complementary situation. And I think now it's been confirmed in multiple clinical studies. So I think it's no longer the risk that people had perceived. It was, like I said, 2 years ago.

And I want to dive into your portfolio, but one more kind of broader question to ask, which is you talked about form factor meeting one of the kind of unmet needs for Tandem in the marketplace. But when you go on ADA, there's so many different presentations about time in range, up from 66 to 67, okay.

Then you hear about form factor and then you hear about closed-loop algorithm. I mean there are a lot of features that can inform patient and physician decision-making around prescribing a technology. How do you think those kind of rank in terms of how do you think about the interplay between those different features? And are there different things that matter to different populations?

Well, it's a very segmented market. And people have different opinions on how they want to wear, control, interact with the device. And so that being the case, we believe that you have to have choice in the market and just having a single pump with a single sensor. It just -- it's not going to work because I said, people really want to have differences and they want to have choice.

So I think that, as I said, form factor is a significant issue these days. And I think the patient population, there's definitely a market for form factor for a tubeless form factor out there. And I think physicians, when they have a patient that comes in that's using pens and needles and they ask for a patch device that has an AID system on it, which, of course, one of them does, they're going to put them on that product.

I will say that one of the things that I continue to feel very good about is when you talk to the general physician community, they will tell you and tell us that we have the best algorithm on the market today. And so I think that -- so again, we're going to eliminate that form factor advantage here in the not-too-distant future. And so in that case, it comes back to the algorithm.

And I think our system has better control, and there's immediate and sustained improvement in that control over time. So again, I think that when you look at the tubed market today, the tube market is growing slowly. It's growing maybe mid-single digits. If you look at the tubeless market, it's growing in excess of 20%. And so we want to participate in that market and take advantage of that opportunity, which I think we're going to do in the second half of this year.

Have you filed Mobi tubeless?

Well, you know the answer to this. And what we have said is that we will file in the second quarter. We're not going to tell people exactly when. I will say absolutely confident that we will file in the second quarter. And I think we'll probably talk about it on the second quarter call.

Okay. Fair enough -- transition, which is obviously a huge part of not just 2026, but sort of your commercial strategy going forward. I thought, Leigh, on Saturday, you provided some very helpful perspective on just the mechanics and flow through the pharmacy. Maybe you just kind of update us on where we are and maybe just sort of reiterate some of those comments you made?

Sure. Absolutely. So for us, pharmacy this year is a race and restart. We talked a lot last year about launching into the pharmacy channel where we started with just the Mobi pump and supplies. And we went in with a business model that looks very similar to what it looks like in the DME space.

And so this year, when we started the year, we decided that the best approach for us to maximize the pharmacy opportunity is to launch with a pay-as-you-go model. And so what that meant was when we came at the beginning of the year, we really had to restart. While we had contracts last year with formulary coverage, we had to go back and renegotiate every single one of them for the new pricing structure.

So the first quarter for us was really about building up the opportunity, so getting that formulary coverage to get us started, and it was also about the operations. And so it was implementing the system that we needed to launch pharmacy at scale with a model of this sort. And so we did a really good job, I would say, outperformed our own expectations in terms of market access. We had a goal this year of getting to 40% to 50% formulary coverage. And as we exited the first quarter, we were already at 40%.

And that's really important, too, because we were able to do that off cycle from the normal formulary. So when we talk to payers and PBMs today, they're already thinking about 2027, and we brought them back to this year, and we were able to make this change at a pretty rapid pace. And we're not done. I would say there's still a great chance we'll be at 50% by end of the year. We have a number of things in the works we're still looking at. And Mobi tubeless with approval will give us another chance to talk to people this year that can also help with growing that formulary coverage.

So then when you turn to the operations side of things, it's not as easy as just turning on a switch, you have access. There's work you have to do. And it's not insurmountable, but maybe underappreciated operationally, how this changed every one step in the process. And so it changes how we engage with the patients. When we talk to them now, we have to talk about 2 different benefits and help them understand the value of each and which one might work best for them. It changes how the physician writes their prescriptions to us. And so there is a way they can do it in DME, which was a little bit more flexible with a lot of engagement with us.

In pharmacy, it's a little bit more rigid, if you will, and so very structured in the type of information they have to share. So it may result in some back and forth with the physicians as they're getting used to the new way to prescribe. It changes how we engage with our distributors. It's the same distributors that we use for DME. They also have a pharmacy capability, but how we operate within our own system and how we hand over referrals to them to process all changed. And so that's what we were working on in the first quarter. And we were fortunate to have everything in place to kick off the launch in March.

And so we started with -- with only the month of March, we started with about -- with just less than 5% of our shipments going through pharmacy for that free PayGo pump and then less than 5% of our customers ordering through pharmacy in our installed base. So that number of customers was relatively the same in Q4 and Q1 because we were focused on the operations piece of it, we weren't really trying to drive that throughput and that's what the coming months and quarters are about. It's about continuing to iterate on our learnings from the process and to drive more volume. And so you can expect to see month-over-month, quarter-over-quarter, an increase in the throughput. And so for us to achieve the goals that we laid out at the beginning of the year.

And maybe just on the script, one thing that I didn't appreciate was so if I'm a Tandem user and I come up for renewal and I'm ordering supplies, if I'm already ordering through DME, I would call it order supplies. You would check my benefits. If I can order through the pharmacy, you go contact my physician to rewrite the script. And is that a digital engagement? Or is there -- how seamless is that engagement on the script amendment?

Yes. So I would say when we're -- when the engine is running smoothly, it's going to be pretty seamless. But today, it does require another prescription from the physician and this is at a point when they don't normally have to write a prescription. And so that's where there's just this new interaction that physicians aren't necessarily prepared for. They're used to focusing on the pumps and the therapy, getting patients going.

Once they've gotten them on the supplies, it's not something they have to ordinarily reconsider. And so we're reaching out and asking them to engage in the process. And so it creates a little bit of extra work for everybody in the whole channel or the whole work stream. And so that's why it's not necessarily something that you can just flip on overnight. But again, it's not insurmountable by any means, just behavior change that we have to manage through.

We do have examples, though, of patients who express interest in a pump and they don't interact with Tandem at all. They get the prescription. It goes through this channel, and they get their pump in a couple of days. And that's kind of the model we are working to get to, not there yet, but we definitely know we've been -- we've proven it now many, many times. And there's learning curve issues we're dealing with on a general basis, which I think are all attractable. And I think when you look at the market, people have been there and they've done that and they're in the channel, we expect to be there just as successfully as they have been.

And I think we always get a lot of questions on price in the pharmacy. I think when you introduced the $350 number, you were very clear about your -- the reason why the $350 number is what you represented in guidance but was not necessarily your go-to-market pricing strategy. Maybe just sort of clarify how you're thinking about pricing and what you're seeing so far as you work through the transition?

Yes. So as we thought about, we had to look at the array of contracts that we signed with different rebate percentages across them. And then we also had to anticipate what we think might be required from a co-pay assistance perspective. And so if you think about from the co-pay assistance, we're not just competing with others and what their out-of-pocket is, it's actually competing with our own DME channel. So what we want to make sure is that for the patient, it's the lowest out-of-pocket if they were to shift into the pharmacy channel.

And without any history to show evidence of how these might even out over time in a sustainable trend, we gave a modeling assumption. It's not meant to be the price point. It's not our goal pricing. It was just to say, while we're getting started, as we're learning, this is a good baseline to think about what the average monthly rate would be for supplies in our business.

And as we continue to gather more information -- and again, we're still actually measuring our time in pharmacy in really weeks, barely months at this point. So as we move through this year, we'll continue to inform you more regularly at what that might look like and how to think about the future. It's really just about us as we're taking these initial steps, making sure that we have everyone grounded appropriately.

Very helpful. And then as we think about just the evolution, there are kind of 2 pieces to it, right? There's the new patients going to the pharmacy, but then there's also the existing installed base converting that. I think you said existing installed base potentially to be 80% converted within -- by the end of year 3. Is that right or wrong? And how should we think about those 2 moving pieces?

Sure. So actually, the other way around. So this year, we expect for pumps going out the door that about 20% will go out in the pharmacy model for free, basically. Starting low, as I mentioned, first quarter, less than 5%. So obviously, you have to exit above 20% to average that for the year. In 2 to 3 years, 80% of pumps could be going through that channel.

And then in the meantime, what we'll be doing is building up the installed base who's ordering in pharmacy through the payroll model as they get a pump, but also converting customers over time. So as patients come up for renewal, we'll check their benefits, as we said earlier, and we'll encourage them to shift over to the pharmacy channel.

So the key metric we'll really be looking for, for the future is not the individual parts and pieces, but just pharmacy sales as a percent of U.S. sales. This year, we expect it to average 15%. In 2 to 3 years, we expect to be around 70%. And because of the pricing power there, that does not mean 70% of customers have to be ordering through pharmacy, it's much less than that. And that gives us the opportunity to continue to drive that installed base over the next couple of years as we build up formulary access.

Okay. Maybe we could turn back to kind of the pharmacy business and the interplay with actual performance of the pump franchise. It's a little bit hard to necessarily get a great view of market share because each of you provide different KPIs and metrics of pump shifts or new patient starts. So we're getting a lot of different data points from you and your competitors. But what do you think is happening in terms of underlying market share for Tandem, both in terms of new patient starts and also the renewal population?

Yes. I think that the fact that now one of our competitors is now public, and we could actually see the data, it will be a lot clearer because that's something we haven't been and let's see, we haven't had to estimate that over the last couple of years. I would say that we've had the first quarter data, and I think there was some concern that the market is slowing down based on the first quarter.

And I would say it's just not enough data to make that assertion. If you look at 2025, I think all of the pump companies did quite well. There was growth. I think we saw the penetration rate increase. And if anything, when you look at 2026, there's more technology coming to market that's going to reduce the burden. It's going to make it easier to use. It's going to enhance the performance.

And I think those are the factors that drive growth as well as, I think, reducing out-of-pocket. So all of these things are happening in 2026. I think I anticipate that we'll continue to see growth in '26 and beyond. And I think that there's seasonality that's impacting the first quarter. We saw seasonality in line with the way we normally see it. There was no surprises for us. I do think that there's some macro factors that could be impacting the performance in that quarter.

Certainly, people are concerned about the cost of gas and inflation. I think they're being more cautious when it comes to spending. But that's why moving into the pharmacy channel right now is so important because they can significantly reduce their out-of-pocket and really offset that concern.

And as you kind of take a look back at the past couple of years, do you think -- have you gained share, lost share, held share in each of those categories with new patient starts or renewals?

I think our renewals have done quite well. I mean we continue to see a greater percentage of people renewing in time, and now it's over 70%. And it's -- one of the things I'm very proud of is when you look back at the most competitive period when one of our competitors came to market with a patch, you would think at that point, we would have lost people.

In fact, if anything, we saw people renew faster and more people renew. So I think once you become a member of the Tandem family, you stay with it, and that's because we do things like we give away technology for free if you're in warranty, and we also provide excellent service. So I think on renewals, we did see continued performance.

I think on new starts, certainly, we did see a reduction in MDI during that period. But I think over the last couple of quarters, we're starting to see improvement. I mean, we're still losing share, but we're losing less share. And as we move into the second quarter of the year, we expect to see growth there again. So -- and then on competitive conversions, I think that most of the competitive conversions we've had over time have come from Medtronic, but Medtronic is now doing a much better job of retaining their competitive conversion.

So on the new start side, we've lost some, but we expect with the things that we're doing now, our strategy is intended to get back to the point where we see double-digit growth. We see growth in new starts, and that's primarily where we want to see it.

And retention should be a big opportunity if you right? If you go back and trace your trajectory to 2019, '20, '21, '22, you had a period of really strong outsized performance in all of those patients and some of them have already passed renewal, but some of them are still on the forward in the renewal pool. So it seemed like that and converting them to pharmacy is a big opportunity.

I think that we're going to certainly try to convert people who are just, as they come up through purchase supplies to pharmacy. But once a person is renewing and they have -- they see the opportunity to renew for 0 out-of-pocket, that $1,000 during DME has been a real -- it has been a problem. And just by taking that way, I think, if anything, we'll see the renewal...

Out-of-pocket cost rank in terms of either barriers to renewal or barriers to pump adoption in general?

I'd say -- I mean, I can't tell you where it is. And I'd say it's a significant concern. And I think that people are always thinking about it. That's why I think that's why we have seasonality because they wait until the fourth quarter when there's -- the deductible has been met, and that's why they -- that's why we see the lion's share of purchases in the back half of the year.

And how are you going to handle the Mobi to tubeless handoff? And are you going to -- a period of time where patients who someone gets Mobi today, but you get approval for tubeless in 2 weeks, you're going to let them swap it out. How are you thinking about that?

Well it's a -- Mobi tubeless is -- it's the exact same pump that's on the market today. So there's a significant number of people out there that have Mobi today. And what they do today is they buy a cartridge that works with a tube, and then we have the infusion set. And so that's -- so it's the cartridge and the infusion set are the supplies people purchase today.

With Mobi tubeless, we have a different cartridge and we have an infusion plate. And the infusion plate has adhesive on the one side and it has an inserter on the top. And so you would put the adhesive on your body, you would insert the cannula and then you take the cartridge that is the tubeless cartridge, put it on the same Mobi pump and you slip it into the plate, and that's how it works.

So it's really -- it's about providing new supplies to an existing Mobi user or it's about having somebody purchase a new Mobi with the tubeless supplies. So we expect that a significant portion of people in the marketplace will be interested in trying out the tubeless option. And I would imagine that some people would want to have both tube and tubeless and they can because that's the way this thing works. So there's really nothing on the market that's going to give people the opportunity to try.

And when it comes to wearability, there's nothing like it on the market today. And I think that the other benefit of it is that infusion plate, it's the infusion plate that uses the SteadiSet technology. So it's an extended wear infusion plate. So it will last for 7 days, which reduces the amount of time you have to insert a cannula by -- it doubles that amount of time.

And what you do, simply, is you just take the pump off you change the cartridge when you run out of insulin in your cartridge and you fill it back up and then you put it back on. And so that's one of the great things about the product is you can just take it off when you want to. You could charge it, you can do all sorts of things. But again, it's a great variety of options when it comes to wearability.

And is there any -- I don't know if best to ask this question, of these product transitions, there's some sort of weirdness in the gross margin as you ramp a product, are you selling more pieces or anything that investors need to just be aware of just from a mechanics standpoint when you launch tubeless Mobi?

You're right. We typically do see some level of headwind when we launch a new product until we get to a level of volume and scale to leverage all the benefits from the fixed overhead. We had something similar with Mobi, but what you may remember is it didn't -- we didn't go backwards. It really just I guess, kept us about even as we got through the early parts of the launch. And so I would say Mobi tubeless has similar expectation. It might initially have a little bit of a buffer on being able to increase gross margin, but it shouldn't necessarily drive it backwards.

Very helpful...

And we saw an awesome year. Our first quarter was awesome when it came to gross margin, and we also saw positive EBITDA, which is the first time we've seen that in quite a while.

And maybe it's a good segue to talk a little bit about the P&L implications of the pharmacy transition because there's a lot to it. There's a pricing piece and the revenue, but it's a very different profile P&L for a step to the pharmacy, if you think about the fully loaded P&L versus what is sold through DME because I would think that the incremental SG&A and R&D allocated to that are needed to support that almost nothing. So maybe just talk us through kind of the broader P&L implications as we think through the pharmacy transition.

Yes, it is a very different infrastructure. So for the DME business today, because of all the labor that goes into getting someone prescribed in on the technology, we have hundreds of people in the organization, customer service folks that are supporting doctors and patients through that journey.

And so for this year, in particular, we're still supporting primarily a DME base at least right now. And we've built the infrastructure to support pharmacy, which is more technology-based. And so there will be some incremental variable costs, but it will be nothing like the DME space. And so we'll be able to grow and scale pharmacy with little incremental cost.

And as we transition more and more out of DME, we'll start to get leverage on that side as well. And so this year, you can think about it in SG&A, those costs are almost -- we're doubling up to some extent. And the next couple of years, you'll start to see more leverage in SG&A.

And how are you -- as you generate some of that incremental profitability, where are you thinking about putting it from an investment standpoint? I appreciate that there's a degree of profitability you want to achieve, but that will create a lot of room to redeploy resources. And where what's on your mind for where you think that might go?

I think we have opportunities to continue to invest in the commercial team. I think that advertising, marketing dollars are something that we don't have the benefit some of our competitors have when it comes to the ability to do that. And certainly, I think we'd like to, and I think we would use that just to make increased awareness in the market.

And then certainly on technology, I mean, we're always looking for additional technology for the company. And while there's no silver bullets out there that are really opportunities for us right now, over time, that may change. And I think having additional cash on hand to enable us to take advantage of that is something we're certainly considering.

Maybe it's a good opportunity just on the commercial side to touch on 2 things. One is international doesn't get a lot of airtime, but it is a nice growth driver for you and you're also going through a transition OUS from distributor to direct. Maybe you could touch on the OUS commercial dynamics, but also maybe talk about Chief Commercial Officer transitioning sometimes when those things happen, people want to read into it is an indicator of something from an underlying business basis. It didn't sound that way from your comments over the weekend, but maybe you could just address both.

So first of all, I just -- over the last year, we've definitely invested in sales and commercial. Specifically, last year, we added to the sales organization. We've been working on improving the systems that they use to improve -- to manage how they interact with physicians to prioritize, take -- keep track of the interactions that they've got and just make them more efficient in the field.

And so I think that these productivity improvements are in process of being implemented right now. They're significant. And again, it really automates a great deal of the stuff that they used to do in paper and by doing that, I think we expect to see benefits from that.

And then the other investment was really in going direct OUS. And so in 2025, we really spent the entire year developing the systems necessary to run a business directly. And so I mean, we were depending entirely on distributors at the end of '24, and we had to put in the infrastructure to basically to order, to basically supply chain, to manage customer service. All of that stuff has been done. So it was a pretty heavy lift in '25.

In '26, we've gone direct in 3 countries. In the first quarter, we went direct in Switzerland, Austria and the U.K. We have another country. We're planning to go direct in at the end of this year. And then we have several more that we plan to go direct in, in 2027. So I mean, the process is in place. We've got almost like a cookie cutter that we can use to go from country to country.

We've expanded the sales organization in the countries that we are direct in. We're planning on doing that right now with the sales organization that is in the back half of this year. And so I think from an operational point of view, the team has done an excellent job. I think having our own sales team, having our own operations in the OUS countries, there's 2 benefits. One is you have closer relationships with the HCPs. You could help them understand the technology better. You can interact with patients more than we have in the past.

And then we have a great deal of technology that we've developed that's now available in the U.S. with our own team in country, we can do a more effective job of getting the technology into the OUS markets faster, and we think that's very important.

And when you think of the OUS markets, it's twice the diabetes -- type 1 diabetes community is twice the size or more than twice the size and it is in the U.S., and it's much less penetrated. And so I think there's huge opportunity there. So we definitely want to continue to invest, bring technology, grow the -- our own capabilities -- and direct operation. We still have many -- sense to go direct. And so we'll probably exist in a hybrid format for quite a while. And I think we're looking to take advantage of the big opportunities first.

And maybe just cover the CCO also...

Yes, sure. So we hired a CCO. About Mark Novara, he is a very good person, capable guy. We hired him about 2.5 years ago. I would say his strength is, in particular, in strategic planning and decision-making. And so he really helped the team come up with the strategy that we're employing right now.

I think if you look at what's happened over the last 2.5 years, I think it's now moved from developing a strategy to execution. And I think that execution is something that was not necessarily a strength of his. And so we've just decided to move on. I think that if you look at the team he has right below, he's got a number of executives that are VPs or senior VPs that are all quite capable and doing an excellent job. And so there's definitely been some shuffling of the deck. But we do have executives that report to me that have experience in sales, market access, all of those areas.

And so we've realigned the team, but we still have high confidence in executing and there's a great deal of focus on executing. And we feel like doing it this way. We're going to continue on the plan. We'll probably do things faster than we were before. And we have a high degree of confidence in where we're going.

I'll just say that in terms of bringing somebody else into the team at this point, we kind of want to get -- we want to wait until we get past this heavy execution phase because if we bring somebody in now, they're going to want to do things differently or change or they're going to question stuff. And we don't want that distraction, honestly. And so let's get through this period of time and maybe later in the year, we'll start to look for a replacement.

And the other area you talked about incremental investment is on technology. And it seems like just walking around ADA, the theme of the meeting seems to be very much automation, automation, automation. Where -- you maybe give us some perspective on your view on what fully closed loop means, what your fully closed-loop algorithm, how -- what's...

Yes. Well, I'll say that everybody knows that we partnered with them back in the 2015 time frame. We licensed Control-IQ from -- it was a company called TypeZero, which was a spin-out from UVA. And we've now employed that and improved the technology. We continue to work with them.

And one of the reasons that we went with Control-IQ to begin with is that they had the most significant amount of clinical data on the algorithm, and it was excellent. And so today, we find ourselves in a similar situation where they have an algorithm that's called AIDANET. It's been tested in feasibility studies quite a bit in the last year or 2. And that's what we're working to implement right now, AIDANET.

And so it works -- it's basically a system that is -- you can set it and forget it. You can basically turn it on and not interact with the system at all, and it will control your blood sugar just as effectively as the system we have today does. However, if you feel like you want to interact with the system, it will allow you or the physician to go in and make changes to optimize the system.

And I think that's a very important part because I know there are systems in the market that don't allow you to do that today. And I know physicians and patients find it very frustrating. So that's something that we intend to initiate our pivotal study for here in the second half of this year. And I think that's going to be -- we're very excited about that.

In addition to that, there's also optimization of the interface on the mobile app, which I think simplification is something that makes a great deal of sense to do in line with having the fully closed loop system on the market. And so that's certainly happening. And we have a very capable team of mobile developers that are working on that right now. And it's really exciting to see the work that's going on there.

And then finally, if you look at the product -- the hardware, we have Mobi tubeless coming to market right now. But a couple of years ago, we acquired Sigi. Sigi has a number of very interesting technologies that we're employing. And I think that the way to think of Sigi now is really not -- it's not going to be a Sigi product. It's going to be the next-generation Mobi. And I think we will bring that to market.

And we think Mobi tubeless that is today, as it is today, will be very successful in the market for a few years. And so now we have time to go ahead and optimize the next-generation Mobi, which will be smaller, and it will employ a number of differentiating features in addition to this optimized mobile app that we think will really make it a killer product in the market.

Excellent. That's a great place to wrap up. And John and Leigh, thank you for making the trip to Miami. We look forward to getting the next update in early August.

Good to see you, David. Thank you very much.

Thank you.

Thank you.

[Audio gap]

Tandem Diabetes -- Leigh Vosseller, Executive Vice President and CFO; and Susan Morrison, Executive Vice President and Chief Accounting Officer, right?

Administrative...

Administrative Officer. CAO, right? I think, Leigh, you wanted to start with some opening remarks.

Sure. Just a few comments on how we're kicking off the year, which is strong. We're celebrating a number of records that we've achieved, and this is in the midst of a number of transformational changes in the business as we are strengthening our business model. And so some of the records, I mean, many on the P&L this time.

We had record shipments, record sales for our first quarter. We had record gross margin -- it's our highest first quarter gross margin ever. And it's really important to make that distinction because this is a quarter when we usually see seasonal pressure on margins, on cash flow. We also demonstrated free cash flow positive this quarter.

So everything has started off really strong. We're excited to demonstrate some of the things that we're putting into effect as we talk about the coming quarters, but the launch of the PayGo model in pharmacy really just kicked off late in the first quarter. We started shipping direct in some of our markets outside the U.S. And so I would say we're firing on all cylinders, and we have a number of ways now that we can drive revenue different than before where we were heavily dependent on product innovation cycles, but we also have those as an opportunity this year as well. So it's really certainly an exciting time for us.

Right. Great. Maybe just kind of post Q1, you beat expectations on revenue. There was some shifting around some of the headwinds in Q1 to Q2. Maybe just kind of talk about some of the timing things and kind of what gives you confidence in the Q2 guide of $175 million in the U.S., and $80 million internationally.

Yes. So it really comes back to the 2 big business model transformations. And so we had to make a number of assumptions about how those would pace across the year in terms of execution.

For PayGo, we really just got started in March, when it comes down to the implementation of that. So the way to think about it is at the beginning of the year, we were kicking off, focusing on amending and updating the contracts to adjust to this new model. And March is when we put the infrastructure into place to actually start taking orders. And so right on pace with where we expect it to be.

For the year, we anticipate, because we're transitioning -- because we're giving up the revenue on the pump and putting it to the supplies, that it would create a revenue headwind. And so we had said it could be up to $5 million in the first quarter. We were just getting started. So it wasn't -- we weren't quite sure how it would spread across. But now we see that, that's going to push across, and we're expecting it to increase linearly across the year.

The second piece of it is the timing of the headwind on our transition to going direct outside the U.S. And so that comes about because as we launch into new markets, we have distributors who are destocking their inventory in preparation. And at the very end of the last day, we buy back whatever is on their shelves. And so we saw about $1 million of headwind there where we had originally expected about $5 million. And so the timing of those were the influencing factor for the outperformance with strong fundamentals underneath that. And so we remain confident in the guide for the rest of the year.

Second quarter, in particular, we were thinking about how those headwinds continue to play out. And so in the U.S., there's a number of factors underlying how that guidance was put together. It starts with delivery of pump shipments. And so we pointed people to that being what you want to watch this year because revenue might not track the same as it has in years past as we make these transitions.

So we expect that we will see a similar seasonal curve to what we did in years past. From Q1 to Q2, that means pump shipments step up about 20%. So we factored that in, again, with an increasing scale of the headwinds for the transition to PayGo. And that's been a common question of how do I think about that spreading. It really just will continue to escalate across the months of the year. And as expected, I mean, we saw April step up from March. And so it's moving down the path that we expect to see to drive towards those assumptions we set for the full year.

Outside the U.S., there are so many things to talk about, Travis, so many puts and takes. Outside the U.S., in the transition to going direct, we expect some of the headwind to shift into the second quarter. So $3 million to $4 million because of the inventory buyback situation. But also, we're launching Mobi outside the U.S. for the first time. It will start scaling in a few markets in the second quarter, but some not until the third quarter. So we think the distributors will push the timing of their orders into the third quarter preparing for that Mobi launch. So those are the things that we took into consideration when we set up the expectations for Q2 and we feel very good about where we're headed.

Great. Maybe just digging in a little more on the pharmacy side. Maybe the first question, the Q1 '26 pharmacy percentages versus Q4, why is that not comparable?

Yes, it's a great question. When you think about pharmacy for Tandem, last year, it was a whole different design. So last year, it was structured much more like the DME contracts, where there was reimbursement for the pump. And in fact, it was only for Mobi in the pharmacy channel to start with. And so we were getting a premium for a pharmacy pump versus a DME pump, and then we had revenue for the ongoing supplies piece. When we came into this year, it's almost, you could say, a race and reset. So it was a start over at the beginning of the year, resetting all the contracts to this pay-as-you-go model. So Q4 still had pump revenue in it in the pharmacy.

When you look at Q4 to Q1, there was a slight step down in the revenue dollars related to pharmacy. And the majority of that really did come from the pump dollars zeroing out when it came to that aspect. There was a little bit on the supply side. I would put those factors probably in the noise level category, a number of contributions to it. You have your traditional -- you have some seasonal timing when people order in the fourth quarter sometimes at higher levels and don't reorder right away in the first quarter, maybe not until the second quarter.

We did have a little bit of impact from an infusion set shortage from one of our key suppliers, which impacted pharmacy and DME alike. And then just the normal noise around distributors, sometimes the stocking patterns. But really, the biggest difference I would point to the pump difference.

How do we think about the pharmacy mix Q2, Q3, Q4?

Sure. So in the first quarter, keeping in mind, we really didn't set up the infrastructure and kick it off until the last few weeks of the quarter. So really didn't expect much to happen at this time. We gave a few metrics for to think about really 2 different work streams for pharmacy or 2 ways we're measuring success there.

One is how many people buy a pump under the PayGo model. So essentially giving them a pump for free. And that ended up being about less than 5% of our shipments in the quarter, which was very much in line with our range of assumptions. The other element is how many people in our installed base. So we have 320-ish thousand people in the U.S. today. How many of those people in their recurring supply order that we could convert over into the pharmacy. And that happened to be about less than 5% as well.

So both of those, it's a different way to think about it for the year, what the average will be. But we expect from Q1, it will continue to step up each quarter across the year, growing in a percentage towards the overall average goal for the year.

Maybe just talk a little bit more about what happened in March with the launch of PayGo?

Sure. So it's very interesting. I think there is the assumption that it's on, you just go and you go crazy. What we really do, I said at the beginning, we were focusing on getting the contracts in place really in those first few months. So we had to get them transitioned over. So every contract we had had to be amended. And for those first few months, we weren't even pushing pharmacy with patients or physicians. We just needed to get everything right set. Then we kicked off and we implemented the infrastructure. And you can think about it is this is not insurmountable. It's just the nature of the launch. There was an end-to-end change in the processing, so how we engage with the patients, how a physician writes and sends a script into Tandem, how our employees move the script from one end of the funnel to the other, ultimately to fulfillment. And so a lot of people had to change what they do on a day-to-day basis. A lot of physicians have to change their approach. And so you can think about our employees, we can train them and have them ready to go live.

With physicians, we have to reach thousands of people and train them on the new approach. It's not hard. It's just a matter of getting to them all, making sure they understand it. And that's really the big effort that was going on and still going on today. But that's where the focus was when we turned it on in March, is getting everyone lined up to understand the new flow of things. And so it's just the nature of being early in the cycle.

Are all the contracts amended at this point?

So we -- there are still some. So we've got the major PBM contracts amended, and now we're really focused on the formulary additions. And we've been very successful there. And this is probably the most important metric from the first quarter is, I guess, what opportunity did we build for ourselves. So how many people actually have access through the pharmacy channel. And so basically, you think about starting over at 0, you get your PBM contracts amended and you have some automatic formularies that you have. But then we've also added formularies by going out and talking to different payers and employer groups and getting them signed up for it. And so we've grown now to approximately 40% coverage on formularies.

If you think about what does that mean, where are we versus where we expected to be, our goal for the year was to be somewhere 40% to 50% coverage. And so the fact that we're already at the low end of that range is very meaningful. And also important to note, we're doing this off cycle. So there are traditional cycles when you go out and you get additions to formulary coverage.

It's typically a January 1 or July 1 time frame depending on which payer you're talking to, which PBM cycle it is. And we're doing this as we go along the way. And so we've made great strides towards building what I would call that opportunity for ourselves, which puts us in the right place we need to be to achieve the pharmacy metrics that we've laid out in the assumptions for our guidance this year.

Can you talk a little bit more about -- because there's turning on the PBM contracts, but there's also talking to the payers and getting those on formulary. Like how are those conversations going with payers to say, oh, I'll cover this in pharmacy.

Yes, going very well. So it's improved a lot, I would say, even since a year ago when we first started going into the channel, there was still a lot of question about how to handle a product that was formerly DME as a shift over to the pharmacy channel. And there was no preset way or established reimbursement model. And so we learned a lot across the year in our conversations. And we built up a fair amount of formulary coverage last year, but we realized to get to the optimal long-term coverage for the business, we needed to think about a shift in the model.

So as we gathered those learnings, it was late in 2025 where we decided to add t:slim supplies to the pharmacy channel contracts. And then as we shifted into this year, we said, what we really need to make this transition. And it's important -- we're not going to be able to dabble in it or go slowly or do a little bit here, a little bit there. We needed to go full bore. And so that's where we got to for 2026 is to really drive this hard and as fast as we can.

When you think about the incentive for an existing patient, the payer is paid for in the DME channel last year, the incentive to allow them to come to the pharmacy channel. How is that going in those conversations?

Yes. So it's an interesting topic. When we go to the pharmacy side, they're not talking about where did they acquire their pump versus where they are today. It's -- payers are accustomed to patients and moving between different plans. It happens naturally when employers change plans. So there's a lot of shifting all the time, which is why I would say many times when you talk to payers about the economics, they take a very short-term view on it, and they look usually more at 2- and 3-year reimbursement cycles, not long-term value necessarily.

So when they're comparing a few years in pharmacy to a few years in DME with an upfront payment, it's not too dissimilar. So there's not a lot of question or conversation around that. It's really on the pharmacy side, they're very focused on volume. We've done a great job, our team, I should say, of helping the payers and the PBMs understand the value of what we offer, the true clinical value that comes with being on our product.

So the fact that people have better outcomes, which means their A1c improves, which means they have better sleep, which means they have better health overall, which means it might reduce the drugs that they have to take, it can reduce the hospitalizations that they experience. And so they see that financial benefit lined up against what we can offer. And with our large installed base of customers and the value they place on volume, they're willing and ready for us to drive to that channel.

Do you find in the pharmacy channel, like selling on your clinical data matters more than in the DME channel?

I think it does. I think it was starting to resonate with the DME channel, but certainly more so in pharmacy. And back to that idea that they can view a patient across the spectrum in terms of what they pay for them.

In the DME channel, there's not that same capability, if you want to call it that, because the types of products in DME don't usually drive that kind of value to the overall health of a patient, not like in the pharmacy, which was designed for drugs, which have many other benefits. And so it's just a different animal.

We hear a lot that payers are willing to pay more in the pharmacy because they have more visibility on their patients. Like is that -- like what does that mean?

Yes, that's certainly what we're seeing. So I mean, this -- the pricing bar was set in the market when we came into it. And so we're excited to go in and take the same advantage of it as everyone else.

For us, it's helpful to us from an economic perspective, for sure. But the other piece of it is, it's really the value it provides to the patients and the doctors. And so the value pharmacy provides to a patient, which is they can go from DME, where they pay $1,000 to get on a pump, and that's at the optimal point. That's -- if they've met their deductible, that's how they move forward.

In pharmacy, they might have an out-of-pocket, but we have the ability to help assist them with that. And so we can get the co-pay down. And so since we're doing the PayGo model now, it went from whatever their out-of-pocket was to 0. So now all they have to think about as an individual is being able to pay for their supplies over time, and that's where we can make the biggest difference for them.

On the PBM incentives, obviously, rebates matter. How are you thinking about volume and dollars rebates? I think your competitors, one of the things they talk about is like the amount of dollars and rebates they pay -- not necessarily on a percentage basis -- is a lot bigger than anybody else's. And so that matters to the PBM.

Yes. So it kind of doesn't matter how you think about it. For us, it's a volume play. And so regardless of the percentages, they can get more rebates from us just because we have so many customers we can offer to them. And so that resonates very well.

Taking an existing patient from the DME to the pharmacy, what all is involved in that process?

Yes. When -- so it starts with the patient typically orders once a quarter. And so when they go to place their first -- their supply order, what we do is we take the information and we will check their benefits in both channels. If we have formulary coverage for that patient, we will offer back to them: here's an opportunity for you, here's the out-of-pocket. Again, we can influence how much that is versus what their DME benefit might be. So we get them to understand it. And when they say, yes, I want to move forward, then we have to talk to the physician because it does require a new prescription.

So anyone that switches, and that's where sometimes it can take time. That's why it's not immediate and simple to go, great, I'll just switch you over. There's a little work involved in doing that. And that's not something that we naturally have to do today for supply orders. So it creates more effort, which means our teams that are usually focused on pumps now have to be focused a little bit more and differently on getting supply orders. Our distributors have to do the same. And it may mean that our physicians have to take a pause from their routine activities and also then write this new prescription when they ordinarily would not.

So nothing insurmountable. But I think what it helps people appreciate is it does take some effort to get people shifted over.

So you know what a patient's co-pay is in the DME, as you have that visibility?

Absolutely.

So you can incentivize that patient through a lower co-pay to make that transition over patient by patient.

Yes.

What's the -- how involved and how can you help the bottleneck being get the patient back to the doctor to get a script, like how involved in that process can you be and kind of move that along?

Very. So our teams, that's what their job is, is that they need to call the physician. They need to get them to write the script that's needed and get it into the system so we can get it processed. And there's also a time element. So if a physician doesn't get there, I'm going to say, in time to get it back to us, patients need their supplies. So we might have to move forward with the DME order this time, but put them in the queue for next time thinking about what that next script might look like.

It's probably early, but any sense for, I guess, patients saying yes to go to the pharmacy channel versus no? And why would they say no?

Yes. Interesting dynamic. Some people, I think just naturally, there's a skepticism like, I don't know what you mean by this, why would it be cheaper, what's the difference here. Some people are like -- oh, I'm comfortable, I like where I get my supplies today; I don't need to make any changes.

So there's an education that needs to come with this for us to help people understand. And it's new. And so we look forward to continuing to help educate people, physicians and patients alike, and they might be more inclined to get their physicians' advice before they make any changes like that. But it's just human nature, I would say.

Any sense for like is -- are patients incentivized on deductibles in the pharmacy versus DME, given all those things that they're buying?

Yes. So there are -- we have always experienced the deductible challenge, I would say, in the DME channel, which is why you see such a seasonal curve to our business. Pharmacy also has deductibles in many cases. What we saw was the deductible impact has been more pronounced in DME as more of the diabetes companies have moved into pharmacy, and so they're not using up their DME benefits as fast. And so it will help with us being in the same channel as the CGMs, for example, because that will help people meet their deductibles more quickly if they have them. And so that's something that we're still gaining that experience. We definitely know the seasonality in DME. In pharmacy, it appears there may be some there as well, and that's what we're going to be learning as we go.

You're doing co-pay buydowns, right, on all these patients?

Yes.

Does the tier matter in the pharmacy that you're on then at that point?

It does. And so that's part of the gross to net. And so where you land on the tiers influences the patients' out of pocket. And that's where the learnings as we've negotiated this year, our structure and understanding what the net will ultimately shake out to be is understanding our levers for when we negotiate in the future.

So is it -- very simply, is it worth it to pay a higher rebate in order to pay less co-pay assistance if you're on a higher tier? So we are looking at all that and taking that calculus into consideration.

So is the math basically, if you go Tier 2, you pay a higher rebate, but you have to buy down the co-pay versus you go Tier 3, is it kind of co-pay buy down versus rebate? Is that the math you're doing?

Yes, yes, it is. And it does -- it varies by payer and PBM too. So there's a lot of factors to consider.

But the idea is that basically to the patient, there's kind of very little out-of-pocket cost or it's incentivizing them.

Yes, yes.

Any other reason why it matters to be on like Tier 2 versus Tier 3 from your perspective?

I would say that's the primary. We also will learn things this year. I mean, our volumes are very low right now. So we're getting -- the information we're gathering today falls more into the anecdote category as opposed to real trends. And so as we continue to drive the penetration and execute on this, we'll gather more information that can inform us as we think about future conversations.

Great. New starts, though, a common question I got was they were down low single digits in Q1 year-over-year, but you're still guiding to -- I think, 10% to 11% for the year.

So the guidance for the year for pump shipments in total is 10% to 11% growth. That's a combination of renewals and new starts. So maybe a few points here to highlight. Renewals, I think a lot of people have said -- oh, you won't see growth this year, Tandem, because your opportunities didn't grow this year.

We still have a fair amount of people from older cohorts that give us the opportunity to drive growth in renewals. From a new start perspective, just back to 2025, we were seeing some pressure, particularly in the last 12 to 24 months as we were seeing a declining opportunity from some competitive conversions. And we probably hit the low point, if you want to call it that, middle of '25. So since then, we've been recovering and new starts are improving, and we expect them to return to growth in the second quarter.

So where we landed in the first quarter was very much in line with where our expectations were in terms of trending out of it. It's the pharmacy opportunity and the new products that we're launching that are really going to help drive that new start strength and the fact that we won't have that headwind from the decline in the competitive conversions that we were seeing.

New starts growing again in Q2 in the U.S., right?

Yes.

Like low single-digit growth or...?

We haven't given a specific figure, but that it will return to growth.

How do we think about it kind of in the back half of the year kind of beyond Q2?

Yes. So what we'll start to see is renewals still have really strong growth in the early half of the year, new starts returning to growth, and it will start to turn around as we go out the back half and into next year. You'll start to see new starts being the key driver. And we do have high confidence that we can return to that.

When you think about pharmacy, it removes one of the #1 barriers. There's 60% of people not using pumps today, and a big piece of that is cost. So especially people who've wanted a tubed pump with that DME headwind that you have for a patient from the out-of-pocket cost, taking that away can make a big difference in people's ability to move forward with pump therapy. That's one lever.

We also have the other levers with all of our new product introductions that are underway that can also help drive that strength. And so we feel very confident that we will be able to turn that around for MDI conversions and really start to drive the growth in the future.

Do you kind of get back to high single-digit new start growth longer term like in '27?

We expect -- so our long-term goal is, just generally speaking, double-digit growth for the business. And so we do need to return to a real strength in driving more people to Tandem for pump there.

It sounds like you're betting really on just the market accelerating, right?

I think the market accelerating with us being a big contributor to that.

Okay. From pharmacy and new...

Pharmacy and new products. Keep in mind, we -- you'll get to products, I think, eventually. But we are going to be -- we have new products today between new CGM integrations. We have new indications. But one that we're going to be doing now is the market has somewhat been divided between tubed and tubeless category. We're stepping into the tubeless category this year, which is going to be a significant difference in terms of the opportunity base.

Do you think Tobi is competitive enough in the tubeless market?

Yes, it's our entry into that segment of the market.

Yes. How do you think it stacks up though, compared to some of the other patch pumps that are coming on the market?

Sure. The feature I'd highlight is that you're able to wear it for 7 days. And so the fact that you're able to change your insulin within that 7 days, but the plate stays on your body, that's a huge advantage for people. And so when we see that, and then it's also a durable pump, so you're able to recharge it during that period. You're not throwing away coin cell batteries and electronic board every 3 days and that ability again to change that insulin separate from the infusion site, I think those are some really standout features in addition to being able to deliver bolus insulin directly from the pump. You don't need to have the controller in order to be able to do that.

Then how -- when, let's say, Tobi is successful, like where do we see it in your metrics? Is it new starts accelerating? Is it mix the pharmacy moving forward at a faster rate? Like how do we see it in your numbers?

I think new start is going to be the primary contributor because we are able to enter this new segment. I think it will benefit across all of those metrics, but new starts is where I'd focus.

Have you filed it yet at this point, Tobi?

We will announce it on earnings calls. We're very sensitive letting the consumer market know about these because it's not yet available. So our marketing teams, our sales teams, they can't answer any product questions or anything yet. And so what we said is we'll file it in the second quarter. We're confident in that timing, and then we're planning for launch before the end of the year.

Is there a sense that we have seen shipments slow down ahead of product launches in the past?

That's what's so cool about this product is it's interchangeable. The pump is exactly the same. So if you bought a Mobi pump a year ago or a year from now, you're able to use it either with a tube or a tubeless cartridge. And so because of that, it allows as soon as we get clearance, we can really market that and making sure that people are aware it's the exact same pump. And then when they do their regular supply orders, it's just how do you want to wear your device.

Okay. And then margins this quarter already really strong before the pharmacy comes through. So I don't know if there's anything you'd call out on Q1 margins. To me, it was a surprise.

A very nice surprise, wasn't it?

Yes.

So we grew our margins 5 percentage points year-over-year. That's the biggest step-up we've had in margin, our highest Q1 margin in our history. Another notable point is that it was higher than our overall average for 2025. That's the first time I think our first quarter has exceeded the prior year because we usually see that seasonal step down. And it comes from the power of pricing.

So when you think about even that small percentage through pharmacy was 6% of sales in the first quarter, it made that much of a difference in terms of margin improvement. We also still have margin or price improvement in the DME channel, and we're starting to see the benefit of being direct outside the U.S. So all of those pieces together were a strong contributor. But that's not to say we're not doing things on the product side. We also had improvement in our product costs as Mobi continues to grow and scale. We're leveraging that overhead from it being a new product at smaller volumes. We're gaining experience with it. And so that will also continue to be a contributor going forward.

When -- before we were talking about like the pharmacy percentages, Q2 stepping up Q3 kind of sequentially over the year, will that show up in margins immediately?

So what we've guided to for now is Q2 margins roughly in line with the first quarter. The step-up in revenue from Q1 to Q2 is more on the supply sales. And globally, when you think about it, pumps still have the highest gross margin versus supplies. But that will be a contributor in Q3 and Q4 as we scale upwards to our 60% goal for the fourth quarter of this year. So you'll continue to see good progress.

Some conservatism built into Q2, though?

So it's -- I would say that we're always thoughtful about all of the moving parts, a lot of puts and takes. We have much more visibility into the next quarter than we do for the remainder of the year. So we think about those movements when we built that assumption.

How do you think about like kind of profitability, maybe '27? Is '27 a year where like the business starts to really turn on the profitability side?

Yes. I would argue that it's turning quite a bit this year, I guess, compared to what we've seen in years past. But yes, -- it's -- people often tell me it's hard to model pharmacy without seeing a big upside there. And so we're very focused on head down execution this year so we can really drive that. But that pricing difference can make a huge difference from profitability. But I'll say we're not solely relying on price. I mentioned product cost improvements is important. We're also very focused on disciplined spending from the operating expense side, ensuring that we're making the right investments, looking for ways to fund those investments with efficiencies in the organization because there comes a day -- you don't want to just rely solely on one factor. So we need to make sure that we have the good cost structure in place to go with the pricing benefit.

How are you thinking about market share in the pump market? And other companies are launching new products too, you're launching new products. So from a competitive standpoint, do you think you're taking share and from who?

I think we are growing the market. We are bringing more people on to pump therapy. There's always going to be some level of share exchange. And we have seen increasingly as we enter or become more competitive with patch pumps, where that's an area that we are able to pull from. But in general, our focus is bringing people from multiple daily injection on to pump therapy. 60% of the market presents a huge opportunity.

Very fair answer. Anything that I haven't covered that you wanted to touch on?

Yes. I think another thing I'll highlight is the good retention of our customers. And so there's a lot of transition going on, and we're not just focused on the next new customer. We're really focused on the customers that we have today, improving that customer experience, making sure it's the best ever. And we monitor our retention trends very closely through our renewal behaviors, but also just supply ordering patterns and what we see is continued strong retention up through the first quarter. And so I think that's very important for people to understand.

There's sometimes -- there's a question of if you go into pharmacy, will people stay with you? We've demonstrated in many ways multiple times even when patients are offered the choice. In warranty, they could switch to pharmacy for the past few years. Out of warranty, they could switch to other products, they stick with us. And so we feel really good about this transition that we're making, keeping the customers we have happy and with us and attracting the next level of new customers.

Great. Anything left for you, Susan?

I just wanted to say thanks so much for having us again, and it's a really exciting time for our company across the business and globally.

All right. Great. Thanks for coming.

Thank you.

Thanks for having us.

Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Morrison, Executive Vice President and Chief Administrative Officer. Ma'am, please go ahead.

Hello, and welcome to Tandem's First Quarter 2026 Earnings Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development time lines and financial performance and operating plans and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent annual report on Form 10-K and quarterly report on Form 10-Q.

Today's discussion will also include references to both GAAP and non-GAAP financial measures. Unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. 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 and other information regarding our use of non-GAAP financial measures. John Sheridan, Tandem's President and CEO, will be leading today's call, and he'll be joined by Lee Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open up the call for questions. Thanks in advance for limiting yourself to one question before getting back into the queue. With that, I'll hand the call over to John.

Thanks, Susan, and welcome, everyone. In the first quarter of 2026, we delivered a strong financial and operational performance, setting the stage for another successful year. This momentum reflects the dedication of our team and our commitment to execute our strategic objectives. Building on these results, we actively advanced several key initiatives that position Tandem for both immediate impact and long-term growth. By modernizing our commercial operations, reshaping our business model and introducing new technologies, we are not only achieving notable short-term gains, but also laying the foundation for sustained growth, profitability and innovation. I'll now walk you through updates on each of these initiatives, beginning with the modernization of our commercial organization.

Globally, we have assembled a talented and impressive team. The group is deeply committed to bringing the benefits of our technology to people living with diabetes, and we are working to further support them by strengthening our systems, infrastructure and processes. For example, in the United States, we continue upgrading our sales and customer management infrastructure as part of our multiyear system investment to optimize sales efficiency, enhance effectiveness and drive deeper customer insights. Internationally, a Q1 highlight was our launch of direct commercial operations in the U.K., Switzerland and Austria.

By doing so, we are better positioned to serve our customers, strengthen HCP relationships and drive continued growth. The transition has been progressing smoothly, and we plan to continue expanding our direct operations later in 2026 and again in 2027. This approach deepens our engagement with the diabetes community while providing Tandem greater ASP and improved margins. The second key initiative I'll be discussing today is reshaping our U.S. business model through our transition to a multichannel strategy.

On our last call, we discussed how adopting pay-as-you-go or PAYGO in the pharmacy channel provides us the opportunity to bring significant advantages to customers, health care providers and payers while delivering favorable economics to Tandem. Throughout March, we began executing contracts adapted for PayGo, covering both t:slim and Mobi pump supplies. We've continued to expand access with an increase to approximately 40% formulary coverage today. It's an important leading indicator for how quickly we can transition our business.

Operationalizing PayGo in the pharmacy channel is an end-to-end change in the way health care providers prescribe our technology, the way we service customers and the way we process and fulfill orders, and we knew this transition would take time. It's still early in the process, and we are working to improve our efficiency and customer satisfaction by enhancing the pharmacy experience. Our early introduction of PayGo through the pharmacy reinforces our conviction in the meaningful opportunity this transition presents for our business and for our customers.

Finally, I'll provide an update on our new technology across our portfolio. In March, we are excited to announce that Tandem Mobi, the world's smallest durable automated insulin delivery system, is fully available for use with Android smartphones in the U.S. By expanding to Android, we are bringing the benefits of Tandem Mobi to even more people living with diabetes, underscoring our commitment to delivering choice in diabetes technology. In the second quarter, we are on track to deliver on a number of exciting new offerings.

In April, we received FDA clearance for use of Control-IQ+ in pregnant women with type 1. This is significant as it makes the t:slim X2 and Mobi, the first and only commercially available AID systems cleared for use during pregnancy in the U.S. We are also awaiting CE Mark for this indication in Europe. Pregnancy requires a much tighter glycemic range. This demonstrates that Control-IQ+ is designed to effectively support the unique therapy needs of pregnant women in addition to women considering pregnancy.

We will be hosting a product theater highlighting pregnancy management with Control-IQ+ at the upcoming American Diabetes Association meeting in June. We are also preparing for the international launch of Abbott's FreeStyle Libre Free Plus integration with the t:slim starting in select European countries in Q2 and scaling to additional countries throughout the year. This integration with Abbott's latest generation sensor will allow even more CGM users to access the life-changing benefits of our Control-IQ technology. Additionally, in Q2, we will begin the commercial rollout of Tandem Mobi outside the United States. This brings together the best-in-class outcomes users have come to expect with Control-IQ+ and the benefits of Mobi's form factor.

Rounding out our Q2 launches, we will be upgrading both t:slim and Mobi for compatibility with Dexcom's G7 15-day sensor, ensuring we continue to provide our customers with the latest generation technologies. It is also exciting because this software update will enable Tandem pumps to provide CGM data directly to our SugarMate app with future plans to add insulin data. This provides visibility to sensor information across our device platforms for users and their loved ones. These launches are designed to be global and deployable to all markets where the relevant system combinations are available, which represents an important accomplishment by our team. While progressing these new offerings to commercial availability, we also made great strides with our pipeline products.

We're particularly excited about Mobi Tubeless, our novel infusion side option for the existing Mobi pumps that transforms it into a tubeless AID system, allowing for interchangeability between tubed and tubeless wear with one platform. This will be Tandem's first tubeless pump offering and the world's first with extended wear technology. We plan to file our 510(k) submission for the Mobi tubeless in the second quarter. Finally, we continue to make good progress preparing our pivotal study for Tandem's first fully closed loop system and remain on track to start it this year. As you can see, we continue to make meaningful progress across the business while demonstrating strong financial results, which Lee will now discuss.

Thanks, John. As a reminder, unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. In this quarter's performance, we continued the momentum from last year by achieving new first quarter records for pump shipments and sales as well as robust margin improvement and solid cash generation. We are reaffirming our annual 2026 guidance as we continue to execute on our bold business model transformation in both the U.S. and international markets.

We set new first quarter records with more than 29,000 pump shipments worldwide and $247 million in sales. Our U.S. performance drove this achievement where we shipped more than 19,000 pumps, representing approximately 10% year-over-year growth. Renewals continue to account for more than 50% of our shipments and new starts were predominantly MDI patients, representing roughly 2/3 of new customers.

As John discussed, a key milestone in the quarter was our March launch of Paygo in the pharmacy channel. Throughout the month, we successfully increased our formulary access outside of the traditional cycles for PBMs and payers. Adoption was within our range of assumptions in these first few weeks. Fewer than 5% of customers ordered a pump through their pharmacy benefit. Similarly, less than 5% of our installed base purchased their supply through this channel. Our transition and pricing assumptions for the full year of 2026 remain unchanged. U.S. sales were $161 million, growing 7% year-over-year, also representing our highest first quarter U.S. sales.

This reflects a headwind of approximately $1 million from the adoption of PAYGo as well as slight pressure in infusion set sales due to a key supplier shortages. Overall, pharmacy sales represented 6% of sales in the U.S., which was significant based on our volumes. Looking ahead to the second quarter, we're confident in our ability to deliver pump shipment growth with a seasonal curve similar to 2025 and expect U.S. sales of approximately $175 million. This factors in an increasing PGO headwind, of which the magnitude will depend on our pace of execution.

Turning to our international performance. We shipped more than 10,000 pumps and are executing well on our go-direct strategy. International sales totaled $86 million, representing 3% growth year-over-year. Direct channel sales increased to approximately 11% of total international sales from less than 5% historically. This is the highest international sales quarter in our history due in part to favorable currency dynamics. Also as a reminder, the first quarter of 2025 included a $5 million benefit from timing of distributor orders creating a tougher point of comparison.

Our international business had a few puts and takes during the quarter compared to our original assumptions, including a delay in timing of expected headwinds from going direct, a onetime benefit in Switzerland related to the buyout of existing customer rental contracts from our former distributor and the same infusion set shortage I referenced in the U.S. In the second quarter, we expect that international sales will be approximately $80 million. This steps down from the first quarter due in part to the delayed impact of $3 million to $4 million headwinds associated with our go-direct transition. This also incorporates expected order phasing tied to Mobi availability as we scale launch with some distributor demand shifting into the third quarter.

Turning to margins. Gross margin for the quarter exceeded expectations at 55%, an improvement of nearly 5 percentage points year-over-year and the highest first quarter gross margin in company history. Notably, we started the year higher than our full year 2025 average, reflecting continued execution on our key drivers, including pricing discipline and product cost improvements. Both operating and adjusted EBITDA margins reflect a meaningful improvement year-over-year due largely to $75 million IP R&D costs in the prior year. Beyond that charge, we demonstrated leverage as operating expenses of $154 million remained essentially flat year-over-year. This included a slight reduction in R&D spending that offset increased commercial investments in support of global growth initiatives. As a result, adjusted EBITDA was approximately 1% of sales, an improvement of 32 percentage points based on the IP R&D charge alone and an additional 3 points of operating leverage.

Operating margin improved even more substantially by 40 points to negative 7% of sales. This was due largely to a reduction of stock-based compensation expense from 11% of sales in the first quarter of 2025 to 6% this quarter. With our focus on cost discipline and achieving our profitability goals, we generated $5 million in free cash flow this quarter. We also completed a convertible debt financing in February, yielding net proceeds of $276 million with 0% interest to further strengthen our balance sheet and provide flexibility as we execute against our strategic priorities. As a result, we ended the quarter with $570 million in total cash and investments.

Overall, we remain confident in our ability to deliver on our goals for 2026 and are reaffirming our 2026 financial guidance. Worldwide sales are expected to be in the range of $1.065 billion to $1.085 billion. This includes U.S. sales in the range of $730 million to $745 million and international sales in the range of $335 million to $340 million. For the second quarter, worldwide sales are expected to be approximately $255 million. We expect gross margins of 56% to 57% and adjusted EBITDA of 5% to 6% for the year. Second quarter margins are expected to remain consistent with the first quarter. Further details on our guidance and assumptions for the year can be found in the earnings call slide deck posted in the Investor Center portion of our website. With that, I'll turn the call back to you, John.

Thanks, Lee. Before I wrap up our prepared remarks, I'd like to extend my thanks to the full Tandem team. Your unwavering dedication, commitment to innovation and teamwork have been the driving force behind our achievements. I also appreciate your resolve as we continue to navigate shortages from our infusion set supplier. And while they may only impact a small percentage of our customers, the impact on them and the health care providers is significant. I appreciate the extra care and service that you are providing during this time. Thank you, everyone, for all you do.

In conclusion, we are encouraged by the start to the year and are confident in our strategic direction that we have set. Our operational and commercial goals are firmly in focus, and we are committed to providing best-in-class technology to our customers in a more efficient and cost-effective way, while advancing our global business model and driving meaningful long-term value for our shareholders. Thank you again for joining us today. We are excited about our opportunities ahead and look forward to sharing our progress in the upcoming quarters.

[Operator Instructions] Our first question is going to come from the line of Matt Misk with Barclays.

Congrats on a really solid quarter here. I appreciate all the color and exciting to see kind of turn the corner here into Paygo. So I had one question on just as I'm sure you noticed one of the other companies in the space talked a little bit about the market, some tone or, I don't know, seasonal, I don't know what it was exactly, but maybe sounded like some slowness, some temporary slowness. So great to get your perspective on that, what you've seen? And then also just any way that you would characterize the major drivers of the growth in the quarter, whether it's uptake in type 2, whether it's uptake through pharmacy, whether it's new sensor integrations, I hate the all of the above answer, but anything you can do to kind of give us a sense of what were the major drivers for the quarter?

Matt, I'll start off and talk a little bit about the market and whether it's growing or not. I mean I think it's still large and very underpenetrated. It's great to have type 2 as part of the market for us now. We're excited about the fact that we're bringing a great deal of new technology and business model changes that we believe will really help us grow new starts from MDI. I think that if you look back in 2025, there is a number of pump companies in the market. I think they all did pretty well. And I would say it definitely appears to us that the market is growing. And we are -- like as I said, we're very excited about this year, in particular, because we have so much technology and business model modifications that are really going to position us for growth this year and beyond. And I'll let Lee answer some of the questions about seasonality.

Sure. I'll just say that we didn't see anything, I would say, unusual or different from what we typically see in the DME space starting off the year. Our pump shipments came in line with where we expected, which was about a 30% sequential decline in the U.S. from the fourth quarter. So nothing really to note there. And then -- and unfortunately or fortunately, the answer to your question about the major drivers is it really is a little bit of all of the above. We have a lot of things, as John suggested, working in our favor this year with our new product launches, our business model transformations. And I would say, as we start to gain traction, everything is coming together to drive us towards a very successful and strong growth year altogether.

Our next question will come from the line of Chris Pasquale with Nephron Research.

I was hoping you could dig in a little bit on the international business. International pump revenue was up despite pump shipments in that segment being down. You talked about a couple of onetime items. So were those two things related? And could you maybe quantify some of the one-timers that you had this quarter, just so we can think about the go-forward run rate?

Sure. So you're right, there were a lot of moving parts internationally, and it varies the answer depending on if you're comparing to last year, comparing to expectations, but I'll touch on a few of those. And so -- when you look year-over-year, a significant part of the growth was coming from currency fluctuations. So there was favorability in the environment that helped that growth year-over-year. When you look at also last year, first quarter and second quarter in the first quarter is a little bit tougher comparison for us because last year, there was a shift in timing of sales. It was more favorable about $5 million in the first quarter versus the second quarter.

So as we go into Q2, it will be an easier comparison for us. And within the quarter, compared to when we set our guidance expectations, there were also a few moving parts. And one was just simply that we had estimated a headwind of approximately $5 million for going direct in certain international markets. And we're seeing a bit of a timing difference there. So we've realized about $1 million of that, and we expect $3 million to $4 million to push into the second quarter. Also, we did have some favorability in our Swiss market, just a onetime, I would say, accounting benefit that we had, which was largely offset by some of the infusion set noise that we saw as we're managing through some of these shortages we're seeing in the quarter.

So I think that it's a lot, but maybe the underlying comment I should make is that overall, we're very excited about the international operations. We still see strong demand in the market for our products. And in the markets where we've gone direct, we're already hearing a very positive reception to us in the market as we're closer now to the physicians and the patients.

Our next question will come from the line of Matthew O'Brien with Piper Sandler.

On Tobii, I know filing here in Q2, still nothing expected for revenue here this year in '26? And then if you do get the approval late this year, is it fair to think you don't want to disrupt what's typically a generally stronger DME part of the year, so more so bigger launch next year in '27. So no real disruption from launching Tobi or as people are expecting Tobi, I just don't want an air pocket in any of the quarters as people are waiting for that system.

Thanks, Matt. Yes. I mean I think that when it comes to our submission, we're on track to submit it this quarter. We also plan on getting clearance in the second half. There's some uncertainty with the FDA, but they've been doing a really nice job lately in getting things done quickly. And as you know, when it comes to guidance, we typically don't include new products yet until they're actually in the market.

When it does come, let's just say we get the clearance in the second half, we have a phased commercialization process where we actually -- we observe the product in small groups of people first, increase the size of the group of people using it and then get to the point where we feel we've uncovered or found nothing that we would want to make sure that we fix before it actually gets into full commercial launch. This is just a practice that we've used from the very beginning. And while we do an excellent job of testing these products, you really can't find everything until you use it over time with the large groups of people. So we'll go through that process. And I think that will it depends on the timing. I think that if we can get it to the market before the fourth quarter starts, I think we'd want to do that. But we'll have to wait and see when the actual approval or the clearance occurs.

Our next question is going to come from the line of Mike Kratky with Leerink Partners.

Congrats on a great quarter. It looked like U.S. sales through the pharmacy maybe ticked down slightly from 7% in the fourth quarter to 6% in the first quarter. So can you just talk a little bit about how that lined up with your expectations? What factors contributed to that? And what you've seen so far this quarter to support your confidence in the 15% for the year?

Sure. Great question. So I think most importantly, starting off is you really can't compare our pharmacy experience this year in 2026 to what we saw in 2025. It's a whole different world with the change in the business model that we have going on. For example, last year, our pharmacy contracts included reimbursement for the pump that was a premium to even what we get in DME. So it's a very different environment.

As we came into this year, the first quarter, we've had 2 major work streams that we're focused on. One is building up the coverage. And so we were pleased to be able to report that we're already at approximately 40% formulary coverage, and we expect that we can still increase that across the year as we look forward to the end of the year. The other piece of it was the operational piece, and that was implementing an end-to-end change in our workflows. And so it changed everything is how physicians prescribe, how we engage with the patients, how we process and fulfill orders. And so that's what we've been focused on the execution of that piece.

And it really all started late in the first quarter in the last few weeks of it. And so we're at the very early stages of it. And so far, we're excited about the opportunity it presents. Nothing's changed our conviction in our ability to grow and scale that across the year. And so we look forward to future quarters when actually we can report the headwinds that are coming from the volumes that we're bringing through.

Our next question will come from the line of David Roman with Goldman Sachs.

This is Phil on for David. I think maybe touch on pricing. So I saw on the slides that it was reiterated, and I think I heard in your comments as well, Lee, we heard from a competitor yesterday that so far, it sounds like everybody is acting rationally or fairly, I think, maybe was the term they used. Can you talk about how negotiations around pricing have gone so far? And what is baked into that 350 number expectation for the year? What level of conservatism is in there?

Sure. Happy to talk about that. I would agree, I would say that we're all behaving rationally when it comes to pricing. We are excited to be in this market and take advantage of the pricing opportunity that was already set in the pharmacy channel for insulin pump products. And when we thought about how to set expectations for the year, I would call them more modeling assumptions right now because it is new for us, and it's an early experience. And so what we said was to expect about $350 per month per patient as they order supplies. And what's factored into that would be there's an array of contracts that were entered into with varying rebate structures in them.

And at this point, we don't have enough experience to say what that mix will look like on a sustainable basis. And so that's the baseline that we've set for now. It's still the right way to think about it. And as we start delivering on more volumes and gain more traction and experience, we'll be able to update those assumptions in the future.

Our next question is going to come from the line of Richard Noder with Truist Securities.

It's Ravi on for Rich. So just 2 for me, and I guess I'll ask them both upfront. Just first on the infusion set shortage, would you mind quantifying that and -- or maybe suggesting what the impact might be in 2Q? Because it looks like you're kind of guiding a little bit below consensus here, but reiterating the -- for 2Q, but reiterating the full year guide. So just curious if there's any impact from that there? And then second, just on the sales force expansion, this is -- seems to be a theme now running across your peers and I guess, Tandem now itself. Can you maybe talk about what the opportunity is that the sales force is going to be going after and maybe what patient population it can unlock?

Well let me just talk a little bit about the situation with infusion sets and Lee can talk about guidance. First of all, I'll say that it's unfortunate and our supplier has had some capacity challenges that actually began in the fourth quarter that continue to pressure us in the first quarter. And this is both in the U.S. and internationally. We've been working very closely with them. I think we practically have daily calls with them, the operational team as well as the executive team. And it's a top priority for us. I would say that when you actually look at the impact, it's only a small number of SKUs that are really subject to the capacity shortages. But the unfortunate part about it is for those people who are impacted and the HCPs who support them, it's really significant. And we're doing everything we can to be creative.

We're looking for options in terms of lengths, colors, you name it, to see if we can provide intermediate solutions until this is taken care of. And we're also looking at managing inventory to do everything we can to provide as broad a coverage as possible. But I will say, unfortunately, that this is something that probably won't be resolved for a quarter or 2. I think we expect to see some progress in the second half of the year, but that's what we're dealing with right now. As I said, we're taking it very seriously.

From the perspective of the impact, all we're sharing is that it was a modest impact in the quarter, both U.S. and internationally. And we factored that same level of impact as we set the expectations for the second quarter. And so as John said, we're managing it very closely. We're working through it. And so we see a line of sight to the end of this in the long term.

Our next question will come from the line of Jeff Johnson with Baird.

Lee, I guess I'll follow up just on the comment you made there on the infusion set impact. I know you're not quantifying it. But let me go after it this way. You missed -- supplies missed our model by about $11 million this quarter, very well could be that we're just bad modelers. I've been told that before. I'll probably be told that many times in the future. But if our models -- or if you missed our model by $11 million, does a lot of that get attributed to the shortfall? And is that also -- it sounds like you're assuming a similar shortfall in 2Q, even though you are trying to, I think, on some of the true steals move patients over to other infusion sets. I guess I'm just trying to understand, does the year-over-year impact stay the same in Q2 as it was in Q1? And am I anywhere near ballpark based on my model points?

Great. Thanks for the question, Joe. I would say that is a bit on the high side for the impact of this. It was -- I put it more modest than that. And if you think about it, there's a couple of ways to think about the size of this. So first of all, there's back order situation. But also to John's point, some of the ways we're helping to solve the problem for patients is offering an alternative. And so just because we have some back order situation, it doesn't mean that we haven't recovered sales in other ways in order to satisfy patient needs. And so it's not near that big. It's something that we expect to be a bit disruptive again in the second quarter, but it's something that we can work through. And we'll continue to talk more and maybe more about the modeling assumptions in the supply sales, maybe it's a little bit of price or other pieces of it that are not working there.

And our next question is going to come from the line of Matthew Taylor with Jefferies.

This is Matt on for Matt Taylor. I wanted to ask a little bit on kind of product expansion. First one on your clearance for type 1 pregnant women. And then the second one on the second one, actually, you kind of answered that one, but sticking with pregnant women, can you help us maybe frame the size of that opportunity and how incremental that could be? And then maybe a third one on adding Android capability. Is there any analog we can look at for thinking how that adds any sort of incremental growth in the coming quarters?

Well, first of all, we're very excited to have received pregnancy clearance in actually just a few days ago. And it was based on data from CURCUIT trial that was published in JAMA recently. I'm happy to say we're the first and only AID system approved for pregnancy in the U.S. for both Mobi and t:slim using Control-IQ. And we also expect CE Mark here this quarter. If you look at the clinical data, the control group, the Control-IQ group experienced a 12.5% improvement in a tighter range of 63 to 140 milligrams per deciliter, and that's about 3 more hours a day, and it was for the length of the pregnancy. So really substantial improvement and a great performance by the system. When it comes to the size, I would say that it's obviously pregnant women, but it's also women considering pregnancy. So I think that it's not a really large group of people. I don't think I can put a number on at this point in time, but it's a meaningful and important group of people, and we're very happy to have this.

We're now in the midst of kicking off training and events for HCPs. And as I think I mentioned in the remarks that we do plan to have a symposium at the A DA. Just real quickly, relative to Android, we have a number of people that wanted to use Android and iOS applications on our mobile apps on t:slim. And I would say roughly 60% of those use iOS. And so Android represents a big opportunity for us. I have friends who use our product and have been waiting for Android to become available. So it's meaningful. It's another great opportunity for us to just drive MDI growth in 2026 and beyond. So it's a meaningful addition to the portfolio.

[Operator Instructions] And our next question will come from the line of Joanna Wuensch with Citi.

Sticking with the one question rule. With Tobi being submitted in the second quarter to the FDA and on track for second half approval and assuming there's nothing in your guidance for -- how do we think about kicking off 2027 launching that product? And how are you preparing for it?

I think for launching the product, as I mentioned, we have a phased commercial process to release it. We're hoping that we actually get it on the market this year. But I think that when it comes, we'll have to see what the timing looks like. When you think about when you think about the market today, there really is a tube market and a tubeless market. And the tube market is growing maybe single digits, low single digits, whereas the tubeless market is growing in double digits in the 20% range. And so a significant opportunity.

And I think that when you look at the competition that's out there today, we're in the pharmacy now. We're going to have a tubeless device. And I would say we feel like we have a better algorithm. And so I think that there's a big opportunity for us to do 2 things. One, I think we're going to drive MDI conversions to our device. And at the same time, I think there's potential for competitive conversions. So I think that's -- unless you want to add anything, but that's pretty much what I would describe. It's a big opportunity for us. We recognize that, and we're really excited about it.

Our next question will come from the line of Suraj Kalia with Oppenheimer.

[Technical Difficulty] John, I'm going to cheat and sneak in a 2-parter, if I could. To Joanne's question, John, how would you define the low-hanging fruit for 7-day Tobii? Would there be a price differential? And Lee, if I could quickly, U.S. sales were up 5%, pump units up were roughly 12%. And then obviously, there's a 6% PBM contribution. Can you help us thread the needle here?

I think the financial benefit, Suraj, is the fact that the infusion plate last 7 days, whereas an infusion set lasts 3 today. And so there's a margin benefit from having that extended time. It's also a substantial customer experience improvement and that they don't have to change the product as frequently. So I think that all this stuff adds up, and we're doing everything we can to get gross margin up. So this is certainly a help in that. But I think the real benefit here is customer experience, and that's where our focus is.

And to your question on the first quarter in the U.S. And so when you look at pump shipments, you're seeing it on a rounded basis, the actual growth rate was 10%. So the spread between the growth rate on shipments and the sales growth is not as substantial as it might seem on the surface. So it really is just pricing that's the differential.

Our next question will come from the line of Larry Biegelsen with Wells Fargo.

So Lee, I'll ask the new start question. By my math, it looks like new starts were down slightly year-over-year in Q1 and down modestly sequentially by our math. Is that right? And do you still expect new starts in the U.S. to grow in 2026?

Sure. Thanks, Larry. So yes, new starts were -- your math is accurate when we look at it year-over-year and even down sequentially, mostly due to just the regular seasonal impact that we see. And this was how we had structured the year in terms of our own modeling assumptions that we would continue to see that slight decline in the first quarter, but we would return to growth as we look ahead. And we are very convicted in the ability to return to growth because we've been seeing improvement over the last few quarters from our low middle of last year. And it's really the traction we're seeing on our new product launches.

And then we look forward to pharmacy making a real difference there, too. Now that we've removed that cost barrier, more and more people can move to pump therapy without having to worry about an upfront cost. And so as we continue to build on that initiative and drive these new product launches, we do expect to see that return to growth this year.

Our next question will come from the line of Michael Polark with Wolfe Research.

I'm interested in learning about the process to convert someone in the base to pick up supplies at pharmacy. So I get the incentive for a new user with no upfront. But for that compliant happy user through DME, how do you get them to the pharmacy? What does the outreach from you to them look like? What is the outreach from you to a physician look like? And can you remind me for the -- on the financial incentive, how different is patient out-of-pocket for supplies only in the DME versus pharmacy?

Sure. I'm glad you asked. It's a really good question because I think there might be an assumption that it would be easy just to move people over, but there is work involved to that point. And so first and foremost, when a customer comes in to place their quarterly order, which is usually quarterly, I should highlight, mostly not monthly, but we will check their benefit to see if we have coverage for them on formulary. And then we'll share with them the out-of-pocket benefits. And that's the true motivator for them is the out-of-pocket is typically lower or with co-pay assistance, we can make it be lower, if nothing else.

And so once we get them understanding and ready to move forward, it does require a new prescription. So that requires reaching out to the physician to get them involved to have them write the prescription. And so getting their attention and time to focus on that. In some cases, they want to focus on customers who haven't yet moved to pump therapy, but it's a process. And so that's something that we're working on, and it is one of the key drivers as we look ahead to really maximize this pharmacy opportunity. It's not only bringing more patients to Tandem, but it is converting that existing base we have because if you think about the multiples you see when you move -- if you could easily move 300,000 people and get that price benefit, that makes a significant difference on our revenue growth and our margins. And so it is one of the activities we're very much focused on.

Our next question will come from the line of Priya Sachdeva with UBS.

So much for the question. Really nice to see the cash flow generation in the quarter. So in Q1, which has typically been a heavy cash burn quarter for you guys, would love to maybe hear about what changed this quarter and then how sustainable is this level of cash generation going forward?

Sure. Thanks, Priya. So I mean, a lot of this comes from the cost discipline that we have. So while we're focused on growing revenue, we're also equally focused on driving improved margins. And this year, we demonstrated a 1% positive EBITDA in the first quarter, and I believe that's the first time we've done that since 2022. To your point, Q1 is a tougher quarter because of the seasonal dynamics in our business. And so it's really meaningful to us that we were able to show positive EBITDA and the cash flow generation. So I appreciate that you noticed that.

And our next question is going to come from the line of Jayson Bedford with Raymond James & Associates.

This is Elaine on for Jason. I had a question on the gross margin and how you're thinking about the cadence for the year. You gave us guidance for 2Q and 4Q, and we can get to an implied 3Q. So my question would be, why would it stay relatively flat for the first 3 quarters, always according to my math. And when we think about the year-over-year expansion, how much of it is driven by Mobi scaling versus the pharma transition?

Sure. Thanks, Elaine. So it's a great question. First, I'll start with the Q1 to Q2 being relatively flat. A little bit of that is really just product mix. When you look at our where revenue will go from Q1 to Q2, both U.S. and internationally, more of that step-up is coming from supplies. And globally, even though supplies are going to have a better gross margin eventually in the U.S. with our new reimbursement model in pharmacy, today, supplies will we still have a lower gross margin than pumps.

So it's really just reflective of the product mix going into the second quarter. And then it should start to step up from there, scaling towards that 60% in the fourth quarter, and that will come from our pricing benefit that we expect both with our direct operations outside the U.S. continuing to build and with the pharmacy benefit that can come from converting more customers to that -- in the supply base to pharmacy in the U.S. And so I would say this year, price will be a very prominent driver of gross margin, but we are continuing to see benefit from Mobi as it's scaling in volumes for pumps. We started seeing that benefit in 2025 as we were building more for supplies with Mobi. We're really going to start to see that difference this year. So that will be a contributor to the gross margin improvement across the year.

Our next question is going to come from the line of John Block with Stifel.

Great guys. Maybe I'll just follow up on an earlier international question. Just when I look at that international pump ASP, the actual ASP seemed to step up really nicely from recent quarters. And so just Lee, any color how much is FX? How much is the direct transition? Does this even trend higher from the current 1Q result just as that business -- or at least pardon me, the business percent that is direct continues to increase? And maybe most importantly, any way to think about, call it, like an exit '26 pump ASP as we head into the following year?

Sure. So I will start by saying the assumption that we've made in guidance for the year is that pump ASPs outside the U.S. with these changes with going direct should land somewhere in the $2,800 to $2,900 range. We did see, I'm going to say, extra benefit in the first quarter because of this onetime accounting benefit we got in the Switzerland market. We were able to recognize the level of revenue there because of the acquisition of certain customer rental contracts that were already in existence from our distributor. So this onetime benefit is what really drove the incremental pump ASP in the first quarter. Otherwise, it should settle into that $2,800 to $2,900 range for the rest of the year.

And our next question is going to come from the line of Anthony Petrone with Mizuho Financial Group.

Maybe on the U.S. side, competitor had a recall announcement. FDA came out in April, sort of reported more adverse events on one of the primary competitors. Just wondering what the chatter is out there. Is that creating any opportunities just for share capture and certainly, as you look to Mobi or even otherwise. So just a little bit on the competitive dynamics in the quarter. And then in terms of the follow-up on spend as you get ready for the Mobi launch, just thinking a little bit on the DTC end of things. Is there a big DTC campaign that's planned around Mobi tubeless?

Well, regarding recalls, it's unfortunate, but that's one of the things that happens in this marketplace. And the real intent of the recall is to be sure that the diabetes community is aware of safety issues that might impact the use of their products. And I would say it's something that happens to everybody. And when we have it happen, we do our very best to ensure that patients are safe and they understand the risk. So I don't think that's going to give us -- there's no benefit that's going to come from that. You don't like to see it happen and -- but you recognize that as part of dealing in a market that has life-saving technology.

When it comes to competition in general, I would just say it's a large and expanding underpenetrated market with new entrants. I would say Q1 was consistent with our expectations. It's a very highly competitive market, but there's nothing really specific to point to that changed. I'll also say that we are very confident in our ability to deliver new technology to the market. I think the team has done an amazing job in the last several quarters, and we continue to do it this quarter and in the second half of this year.

And I think it's going to really impact the business when it comes competitively. And as well as we're now moving to the pharmacy benefit where the out-of-pocket is substantially lower, and that's going to be a big benefit. So I think that we feel very good about where we're headed competitively. But specifically to the marketplace today, I don't think it's very competitive, but nothing has really changed.

Our next question is going to come from the line of Matthew Blackman with TD Cowen.

[Technical difficulty] Lee, I think I heard you say 40% formulary coverage to date. I guess I'm just trying to figure out sort of the proper context. I mean that seems like a lot of progress to date. We're just 1.5 quarters deep in the year. But I really don't know how to frame that relative to where you need to be at the end of the year to sort of hit your goals. So could you frame that relative to your expectations where you hope to exit the year? Is the next sort of whatever percent, let's call it, 60% heavier lift? Just any sort of framework to think about where you are to date and where you need to be by the end of the year to hit some of these goals for pharmacy mix, et cetera?

Okay. Great. Happy to put some context around that. So first of all, I think what's important to understand is typically, new formulary additions happen on January 1 or July 1 cycle. And so we're very excited that we've been able to add this coverage across the quarter. So we're a bit off cycle here. I mean it shows, first of all, the receptivity to us moving to this pay reimbursement model and then also the acceptance of our products within the channel. And so the team isn't stopping.

I mean I feel like when I look at my e-mail, I see announcements every week that show another formulary addition, some bigger than smaller than others. But still, the team is working hard and working to drive that up across the year. In order to achieve our goals for pharmacy this year, we're right on pace with where we need to be. I'm not going to share a specific goal, but I think we're very well positioned to drive the pharmacy access in order to hit the targets that we've set out.

And our next question will come from the line of Bill Plovanic with Canaccord Genuity.

Zach on for Bill. So as for the type 2 ramp, can you give more context as to how that's going? You've talked about in the past difficulties you have with the C-peptide testing requirements. Can you just give us an update on what's happening there?

Sure. Well, first of all, we're really excited about type 2. It's a big opportunity and not unlike -- it's even less penetrated than the type 1 market U.S. and internationally. And really, our focus is on market development at this point in time. I'm not going to talk specifically about numbers today. We really want to see sustained trends before we report numbers. And so that's -- we're going to wait a little while, but it's early for us. That being said, there's many positive sources of growth that are happening right now in type 2 and in the near future. We expect tailwinds from FreeSalLivery 3 from Mobi Android, Mobi Tubeless pharmacy. Those are all great.

We do anticipate positive news from Medicare access, and we think they're going to get rid of the peptide requirement, but we'll have to wait and see. And as far as the company goes, right now, we're focused on just creating awareness clinically and on the product benefits, but big market underpenetrated. We've got a lot of positive things going on. We're excited about it. And we do anticipate seeing growth in type 2 starts, MDI starts this year.

And our next question is going to come from the line of Travis Steed with Bank of America.

Maybe focus on that March 26 where you're kind of moving the Paygo into the pharmacy. Just help us understand how that went? How is the trend? Are you seeing kind of increasing ability to kind of ramp into April and May? And the 40% coverage that you got, how much of that is kind of Tier 1 at this stage?

Sure. I'll answer the first part of the question, Travis. I mean, first of all, our early experience really does reinforce our conviction that this is a great opportunity for us for the business and for our customers. So we're moving forward aggressively. It's our top priority. As Lee mentioned, when operationalizing pharmacy is -- there's a lot going on there. It's a change to the physicians' processes. the way we service our customers and how we process and fulfill orders. I would say that right now, we're working to improve the experience. There's certainly some -- there's behavioral change that we have to work with. There's learning curve, there's efficiency opportunities. And these are things that we're very focused on right now. But also we have a strong team, and we're making good progress. And so I think it starts off slow and will gradually increase as we get through the year. And again, this will be a meaningful part of our business certainly by the end of this year and as we move into 2027.

And then just a quick comment on your question about tiering. We have a variety of our contracts where we're on different tiers. And the real difference that it makes to us at least is the amount of rebate that you pay in the various tiers. And then the influence that has on the patient out of pocket and the amount of co-pay assistance that we might have to use. And so we're not sharing any breakdown of any of our contracts in particular, but we are on Tier 1 and S Tier 2 and Sun Tier 3 and some. So it does vary across the board.

Our next question comes from the line of Shagun Singh with RBC Capital Markets.

I just had a quick question on Mobi Tubeless, and I apologize if it's been asked already. Can you maybe talk about how you think about the mix between the different products that you will be selling with Mobi Tubeless coming on board? How we should think about pricing? How do you expect to compete with the current patch pump form factor more from MDIs or competitive share gains? And then just anything you can share on the go-to-market strategy that you haven't already discussed?

Shagun, the first thing I think that's important here is that we already have 325,000 customers in the U.S., a significant portion of those use the pump today already. And this is an infusion set option for them to choose. And so we think there's probably going to be pretty good conversion amongst those people. I think people are going to try it out first, tried both ways out and see what they like. And I think that the other aspect is certainly when it comes to new starts, now that we have a tubeless product in the market, we expect to see -- we're going to benefit from the fact that tubeless is very important to people. It's a form factor that they want, and we expect to see a lot of progress there. Leigh, do you want to add anything to that?

Just to your question on pricing, to John's point, with being the Mobi pump, it's the same pump hardware regardless of which infusion set they choose. And then when it comes to pricing, we're pricing -- we never only discussed our we haven't discredit our approach yet, except that for now, you can think about as a similarly priced to supplies.

Yes. But it's a supply pricing issue. It's the same pm, obviously, same price for the par.

Thank you. This will conclude today's question-and-answer session. Ladies and gentlemen, this will also conclude today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.

Move on to the next presentation. And thank you, everybody, who has come physically into the room and that the snow didn't stop you from getting here. So thank you for that. And for everybody who is listening on the webcast. But this session is all about Tandem. And I'm absolutely thrilled to have Leigh and Susan here. So thank you so much for coming.

Thank for having us.

So what's funny is I had an entire set of questions that I had written before your earnings call. And then I wrote a second set of questions and some overlap, but I need to start with the fourth quarter and to start thinking about what you were the most surprised by when the numbers started coming together or maybe you just knew it all in advance, and it was perfect as planned. But as the numbers were coming together and you were preparing for that call, what really stood out for you?

Sure. I mean there are a number of things which makes us excited going into 2026 as well because this really underpins and gives us the momentum that we were looking for. And I'll start, were we surprised? I don't know if surprised is the word, but what we were happy to see is that everything was coming together. And so you may remember when we started in 2025, we talked a lot about a huge commercial transformation that we were undergoing. We were expanding our sales force. We were offering new tools to our teams. We are putting new systems into place, teaching them different ways to target and just approach the market. And that created some disruption. And we did expect disruption. It was disruptive for a bit longer than we expected. But in the fourth quarter, it really all started coming together.

So we saw the sales force continue to grow in productivity across the year. And then we added to that with the launch of FreeStyle Libre 3 with t:slim. We also launched Mobi with Android late in the quarter. That was something we've been selling Mobi without access to Android operating system customers. And so that's a big add for us. We also trained the whole sales force to start selling type 2 because that was a slow rollout across the year. So a number of things coming together in a positive way. And then the decision that we made to shift t:slim supplies into the pharmacy channel really is, I think, the last big thing that precipitated the baseline for what we're looking at for 2026.

And so it was just great to see we set a number of records sales, shipments, I mean, every margins, everything you could think about. And I think maybe I should add margins as being a very important element. We've been able to demonstrate revenue growth in the past, but one of the criticisms has been that you're not expanding your margins, and we did that in a really big way in the fourth quarter. So we couldn't have been more excited to share that news when we came out last week.

Okay. Was there a moment where you carried the one and you went, "Oh, wow".

A little bit.

Okay. That's good to know. I think most of my questions are on the U.S. pharmacy moment. So I'm going to actually pivot and start early on OUS. I know, right, shocking. We're just going to go all out. It is called unplugged. And if you think about the OUS pharmacy -- not pharmacy, OUS direct sales force, that's been the progress for quite some time. And can you walk through where you are in that transformation and how you're thinking about which geographies where you're just like checking the box and then which geographies you're like, yes, that one needs more help.

Yes. Yes. So what you're highlighting, it was a super busy year for us altogether because everything I just named was about the U.S. and its performance. But outside the U.S., we were preparing ourselves to go direct in a number of markets which means we had to hire direct sales forces. We had to put more leadership in the countries. We had to navigate the transition with our distributors, put all new systems into place. And we got all of that done last year. So we were ready and went live in Switzerland, Austria and the U.K. here in the first quarter. And that's just the beginning. So we're getting started there. We're engaging with customers. We're getting great responses. It's going very well so far.

We're also preparing for the next wave. And so we have more markets to be named. We're not going to share that today, but in the fourth quarter and the first quarter of '27 that we're thinking about. And it's a great benefit for us as an organization. We get the benefit of eliminating the middleman so that we get all of the reimbursement directly. So in any given market, the ASP uplift is at least 30%, which is tremendous for the business. Now this year, it's still -- direct sales will still only be about 15% of our sales. But you can see this could be a great dynamic going forward as we continue to launch in more markets direct. So we're just super excited about that opportunity also to be close to the customer.

So we actually get those engagement with the customers, with the physicians. We're setting our own reimbursement policies with the reimbursement agencies. And so all of that, we believe, will help us to grow the volumes too at a faster rate than we've been able to before. So it's good for the business overall. And I'm glad you asked about it first because it keeps getting missed, I think, with all of the hype around the pay-as-you-go model, which is super exciting, but it is a big part of our business that's growing, and we're excited about the opportunities there.

So I think in '26, there's a $15 million headwind from OUS. Now is that something that you get to the end of the year and you're like, okay, we got that done. Or is it $10 million in '27 and made up that number and so on and so forth?

Sure. So maybe just reflecting on 2025, we saw about a $7 million headwind from this transition. And it was in 2 pieces really across the year, what we were seeing is some of the distributors were just not replenishing their inventory levels as they were selling through to patients. And that equated to about $3 million. And then in the fourth quarter, we saw about $4 million, and that was mostly due to some inventory -- buying back some inventory. Not all of that was completed in the fourth quarter.

So we're going to have a little that falls into the first quarter of '26, which is about $5 million of the $15 million you mentioned. The other $10 million, same thing, I expect it mostly to come around late in the year. It could trickle across the Q2 and Q3, and that should be the amount that is -- that we expect to see for the launches we expect in the fourth quarter and early '27.

So that will roll into maybe early '27 and then...

It should be done until we announce our next wave of markets. But I'll say right now, these are the ones that we're focused on. We don't have anything yet to share about future transitions.

Okay. That's very helpful. Currently, you're operating in 25 countries. There's got to be a certain number where you're like we really sell here, but not so much there. Is that the right way to think about it?

I just -- I guess I would just say there are different sizes. And so some markets are bigger than others. But every market that we're in, we have a big presence there, if you will. But in comparison to Germany or France, there are some much smaller markets. But we are in the markets where the reimbursement is good and there is an opportunity there. And so we wouldn't have spent the effort, the time the dollars to go there if there wasn't real opportunity for us as a business.

Okay. I want to talk a little bit about the U.S. market. And before we get to the pay-as-you-go business model, there's a lot of products that you have coming out. And I feel like in post earnings, I've spent more time on the pharmacy channel than like Pivot. So I need to think about. Talk us through how you're thinking about those products coming along over the next couple of quarters and how you think about sort of maybe -- and these are my words, rolling contribution as you look forward?

And I love the term rolling contribution because these are really scaling efforts. So as Leigh commented to, in the fourth quarter, we saw the launch of FreeStyle Libre 3 on t:slim. We'll be bringing that technology outside the United States. We'll be bringing the Mobi platform outside the United States. And then in the U.S., we'll be launching Dexcom 15-day technology, for example. So we have all of these different feature sets that we're expanding our addressable audience for.

The other one I would highlight is Mobi Android capability, very early access in the fourth quarter that we'll be expanding here in the first quarter. And so all of these are going to build throughout the year. But the first half of the year is really starting with how do we expand these addressable markets also with type 2. And then from here, we'll look to layer on new technologies, not just broadening what's available in certain markets.

And you didn't mention Tobi.

Because that's the new one, right? And that's the -- well, and I think that's where -- that's not part of the scaling launch that we've already started. That will be new. And so for anyone not familiar with a tubeless feature for Mobi, which we affectionately call Tobi, it really is a new cartridge that's used on the same Mobi pump that's available today, and we'll be submitting in the second quarter to the FDA. And it really features some important aspects.

The first one being extended wear technology. So this is Tandem's first patch pump that we'll be offering that can be worn for up to 7 days. You're also able to change the infusion site separate from when you change your insulin. So especially people who have higher volume insulin needs, the opportunity to not have to change your site at that every single time, that's a huge burden relief for people. And as we look to what drives adoption, to your point, it's technology as well as affordability, ease of use, greater clinical outcomes. And so a number of the items that we have with Tobi allow us to address those pieces.

And so you're looking for that launch in the second half of the year?

We are. We're preparing -- we're scaling up manufacturing. We're preparing for commercial launch in the back half of the year.

And if I'm a new patient sitting in front of my endocrinologist today, are they talking to me about Tobi? Are they aware of it? Or is it starting blank?

It's unfortunately, at this point, we're not able to talk about it because you can't promote an unapproved product.

So physicians are unaware.

So physicians are unaware. And that's where this is a novel idea. physicians aren't familiar with being able to all of a sudden change the wearability device so dramatically. And so we're excited for the opportunity to begin talking about this. And -- but at this point, we have to just wait a little bit longer until we get to that clearance.

So if you get approval, I'm making this up October, then becomes a physician education. And again, this isn't in your model or in your guidance for -- so it's really building towards 2027.

That's correct.

Do you think of patients -- I mean -- okay, so I'm not going into my endocrinologist, I'm going in November after the approval. do you think they will say, hang on, I don't have availability of it yet. How do you think -- I'm really trying to get to the idea of are you creating a backlog or a list of wait list for lack of a better term, for these patients? Or is this something that just is going to evolve over 2027 at some stage?

I think that's what's exciting about it is a patient who buys a Mobi pump today can use it in a tubeless form as soon as that new supply is available. So it's the same pump. So as soon as awareness builds, people are able to buy Mobi. And as soon as the tubeless feature becomes available, they can just wear it as a patch.

So in the United States, of the new patients that came along in the quarter, were they all Mobi? I mean -- or are they largely Mobi, still some t:slim holdouts? I mean I'm trying to think about with all of these products which are coming out, how to think about adoption?

Yes. It's still a healthy mix, which is what we anticipated when we launched Mobi. It's interesting. There are certain people, for example, with higher volume insulin needs. The 300 units associated with t:slim is a driver for their adoption to the t:slim product, particularly with people living with type 2. For Mobi, we're just launching the Android capability. So that's been half of the market that we really haven't been able to access.

And so we look at this as a portfolio approach because there's not a one-size-fits-all solution for people who want -- how they want to wear and how they want to operate their device. So that's really the appeal for Tandem is we have Control-IQ, the best algorithm that's available, immediate and sustained outcomes. So then the question is, how do you want to wear and operate your device? And we've got a solution for that.

Okay. When you think about manufacturing and building towards manufacturing, do you continue that portfolio of products?

Yes.

You phase out at some stage?

So we will always be evaluating and it's really about market demand. If there's enough market demand to support maintaining the manufacturing, maintaining the R&D and the sustaining activities, we would keep it on the market. So it's something we'll continue to evaluate. If everyone is sort of drifting to one product, it would say that maybe we don't need the whole portfolio anymore. But right now, everything that we're seeing suggests the portfolio is the right approach.

Sigi stopped being a stand-alone product, and it sounds like now it's the Sigi technology side of something.

Exactly.

Okay. So for those not familiar with the wonders of Sigi, can you walk through all of that, please?

Sure. So Sigi is a technology that we acquired from AMF Medical about 2 years ago. And one of the big feature of it is that it's miniaturized. And so when we look at discretion for people adopting technology, miniaturization is a very important driver. So to your point, how do you make sure from a manufacturing standpoint that you're driving economies of scale? We identified by furthering the Mobi line from a manufacturing perspective, but also from a brand equity perspective. People are starting to become aware of and really loving the Mobi offering. And so what we found is by taking that Sigi technology and incorporating it within the Mobi product, we're able to get a lot of those feature benefits that originally were contained within Sigi and launch it within a patch pump building off of the Mobi brand today.

And so that's where it's really been a shift where we don't -- we didn't see a world where we would have 3 different pump offerings. We see where it's a screen on pump, and that's the t:slim platform. And then there's a screen -- mobile control of it. And so that's where really we see the Mobi platform evolving to. And we see it first launching with the tubeless feature, obviously, on Mobi, and then we'll continue to optimize that form factor.

A lot to talk about. And then you have a variety of different CGMs. We talked about Libre 3. We talked about Dexcom 15-day. And then you threw out there on the call a dual ketone CGM integration.

Yes. That's an exciting technology. Abbott has been working on this, and they've been a great partner of ours. And so as there's advancements within CGM or ketone sensing, we want to say, how can we incorporate that within our insulin delivery technology, either using the information to draw awareness to the patient or eventually being able to incorporate something like that within an algorithm. So lots of opportunities, I think, that can build over time, but we're excited about this first step with the partnership.

Okay. So I'm keeping track of all stuff. I have my little spreadsheet, columns and rows and stuff like that. How do you envision -- and this is a question both for Tandem's offerings as well as everybody has new offerings that are coming out. How do you envision physicians making choices?

I think that first starts with the outcomes because for us with Control-IQ goes back to the immediate and sustained outcomes we deliver. But the next step is really then how much does the patient want to interact with their device. And that's where we're moving toward a fully closed-loop system that provides patients the optionality to either engage with their system or not. And then it goes to the wearability, operability and allowing people to make the choice that works best with them and with their insurance coverage. And so our portfolio approach is really designed around appealing to each of those factors.

So one of the really cool things having covered this space for a long time is I remember it was just type 1 patients, just insulin dependent and you got a pump and you were happy with it. And now it's all insulin-dependent patients and you have a variety of different choices. What I'm getting at is why doesn't every insulin-dependent diabetic, type 1 or 2 wear this technology and use it.

Yes. I think it really comes down to 3 reasons. One is, does it relieve the burden enough? And that could be a mental burden. Does the algorithm relieve it? Does it allow you to think about your diabetes less? Can you wear it in a way that you're comfortable operating it and also just from a discretion perspective. The other piece is, are you getting the outcomes? People have to say it has to be worth it. You have to make the outcomes good enough and more so than what I'm able to achieve independent of that. And then the other piece is just affordability, and we hear that again and again that that's been a large barrier for adoption.

Yes. Do you find that the physicians that you deal with, there's like Tandem physician and they're just going to prescribe Tandem all day long or I also cover contact lenses and frequently will be like, okay, I'm an ophthalmologist and I only prescribe these 2, even though I have a choice of 4. They sort of get comfortable with either the salesperson or the portfolio. Is that the right way to think about the evolution of decision treat for diabetes management also?

I think physicians want their patients to adopt the technology because it's going to give them better outcomes. And then the question is what's most important to this patient in order to stick with the technology? And then how do they optimize that? And that's where I think Tandem with our algorithms with our outcomes, we've been able to really drive there's multiple decision points and that you don't have to sacrifice a decision about wearability in order to get the best outcomes with our portfolio.

Okay. So your answer is you don't see a Tandem doctor.

You're going to have some loyal. This is the way or people who may be very much more comfortable with one technology or another. We've also found that even with the expansion of our sales force, for example, there were some places where we weren't calling on as frequently. And so they maybe didn't know about our full portfolio of offerings and how to make sure they're supporting their patients with it. So I think a piece of this is on Tandem and the effectiveness of our sales force, and we've been really pleased with the strides they've been making in being able to just reach out to new health care providers and making sure they're aware of what Tandem has to offer.

Okay. I have more questions on different topics, but I do want to spend some time now talking about the pharmacy channel. This is -- I feel like we've sat across from each other, many times to talk about what does it take to get a tube into the pharmacy. And so one of the questions I get like why is now the time that is possible to get the tube pump into the pharmacy?

Yes. I would say that the thinking has evolved over the years. And so there was only one player in the channel with a fully disposable product, which fit more of this, I don't call it the standard definition of what would be in pharmacy. And then I think what started to happen is as other durable pumps, we were talking about pharmacy, considering it, the players on the insurance side looked at it and said, we need more competition in this category. So they started to be more open to hearing about a durable pump, the possibility of reimbursing for that through the pharmacy channel. So they can manage a category all in one place.

And this came about also when Mobi first launched, we were using Mobi as our first chance to step in and start that education. And I think this all came together around the same time. And so with us, -- you may remember 2 years ago, we were saying t:slim in the DME channel. It works well. We have a big franchise there. We don't want to mess that up. Pharmacy, we want to test out the ability to put a durable pump there. Let's do that with Mobi. It will be straddling the line between DME and pharmacy. And then with Sigi, we can be ready with all of our learnings to go directly into pharmacy.

And so we came into 2025 with that thought in mind, launched Mobi into the channel. The nature of the contracts we had structured initially were all DME like, if you will. So reimbursement for the pump upfront and then reimbursement for the supplies along the way, all at a little bit of a premium level to what we see in DME already. And as we progressed across the year, we were seeing and basically proving out all our beliefs about the pharmacy channel. Yes, we could see lower out-of-pocket for the patient. You can influence that with co-pay assistance. Yes, it is easier for the physician. It's a more streamlined ordering process. It's more electronic, more automated. So it's efficiencies within their practice. And so if they are on the fence of which product to recommend and if that's going to make the decision, we want to be there with them.

For the payers, they get a benefit, too. They get better visibility to data about their members or their subscribers. They actually can see what products they're using, what drugs they're actually prescribing or selling for those patients as well, and they can manage their population health in a better way than they could with what they have in DME. So they just don't have the visibility there. And then, of course, from the manufacturer side, all of us are able to enjoy the benefits of a higher reimbursement stream there. It's just the nature of that channel, how they reimburse, how they pay.

And so you win in all 4 ways. And when we were seeing this, we decided why don't we start taking t:slim supplies in the channel? Because now we feel like we have enough information that we don't have to worry about damaging a business that's working just fine. We can't take advantage of those benefits as well. And through that, as we were evaluating how do we continue to get more coverage, that's why we decided that basically, it made sense that if you go full pay-as-you-go model, that will allow us to get to optimal access across the board. And so here we are, we made the decision.

It was also important for us to know as a business that we could weather the transition period because obviously, in a real true pay-as-you-go model, you're getting no reimbursement for the pump where we've been enjoying $4,000 a pump, both revenue and cash all along. And so we're at a stable place in our business. We were positive free cash flow in the back half of the year, and we felt like it was the right time that we could actually move forward with this type of model. And so we kicked it off. And here we are ready to go in a big way, not just dabble in it or step in lightly, we're ready to go and accelerate as fast as we can.

Okay. So the first foray was with the t:slim consumables.

Yes.

And can you share or maybe you already have them, I missed it, the percentage more -- the higher ASP that you're getting in channel pharmacy versus channel DME?

Sure. When you look at it over the 4-year life of the patient, the reimbursement is expected to be 2x what we see in DME. And the difference is the way it's structured is since you're not getting reimbursement on the pump, there is more placed on the supplies over time. So when you compare DME to pharmacy supplies, it's more than 4x what we see in DME. And so it's a substantial benefit for the business. What it does is it helps build on a more predictable recurring consistent revenue stream so that you don't have to look at our business and the number of pumps we sell in any given quarter dictate how good our revenue will be or how good our margins will look.

And so this way, it really flips the model where pumps have generated the highest gross margin and supplies are always a bit of a drag on the margin, it will turn that around. And now the supplies will have a healthy margin that will help us expand our gross margins more rapidly than we were able to without making this shift.

Okay. So over 4 years, 2x higher ASP per supplies. You don't get a pump revenue. Over 4 years, it's benefit. It's better for you to be getting this.

Absolutely.

And did you just say 4x?

4x when you look at a supply -- a month of supplies for a DME patient today versus a month of supplies in pharmacy. That's the 4x. When you look at it on a life where the pump was included before in DME, that's where you get the 2x overall.

Okay. This year, you're taking a $35 million headwind. Same question I asked was it $45 million?

It's $70 million to $80 million.

In the U.S. Yes. I'm sorry, I'm getting my companies mixed up.

It's large.

Large. Okay. So this year, it's $70 million to $80 million. Yes. Same question I asked for OUS. Next year?

So that's the beauty of this model. In 2026, we are assuming about 20% of the pumps we ship will go through pharmacy. And I should probably highlight, it does create -- it tempers the revenue growth this year. So the metric we want people to be focused on is total pumps that we're shipping. So I want to just start there for a second. Pump shipments are expected to grow 10% to 11% year-over-year. So you start with that as your baseline, and then we assume 20% of those will go through the pharmacy channel. So on day 1, we're losing $4,000. It's going to take time to make up that differential with the recurring supply stream.

And if you just look at a single pay-as-you-go patient, it takes many months. It can be over a year before that single patient can break even or pay for itself. But when you look at it in perspective of we have over 300,000 people in our existing installed base with the opportunity to shift some of those to the pharmacy channel. And so for every patient who gets a free pump of PayGo pump, if we ship to patients from our existing installed base. So think about all the people who are ordering supplies already have already have a pump in hand, we break even in a matter of 5 or 6 months on both revenue and gross profit.

So what happens, to your point, the long way to get to your answer -- to your question about 2027 is this year, it tempers the revenue growth. But what it does is it pays off -- it multiplies when you get into 2027. Every patient you get on the pay-as-you-go model as fast as you can will accelerate the growth in the future. So it's -- the headwinds we expect are most pronounced here in the early phase in this first year. But after this, we'll expect to see a really great revenue growth just from price alone. And as Susan said, one of the barriers is cost. It will bring more people and will allow more people to enjoy the benefits of pump therapy.

Now when you think about it, this rolling revenue stream phrase really is working because you actually are getting your hit in '27 to total revenue, but you're building your additional higher ASP consumables over the next 4 years to keep within that time frame. Is there a way to think about if it's $70 million to $80 million this year, what a headwind might be next year?

Well, the beauty of this is we're going to be focused on shifting our existing patients and the PayGo patients we shift to this year, they will start helping to pay for themselves and others as well. And so we don't -- we really expect that we'll start to be past the headwind phase, if you will. There will still be -- every time we give away a pump, it's a headwind, but we have enough other opportunities. It's a self-funding model in a way.

Okay. So 20% this year, is it 20% next year?

So what we've shared is -- so in fact, that's -- I'm going to go here for a second. Very important question is let's talk about some of the metrics we shared this year. The metric that we want to be focused on for the long term is what percent of our U.S. sales are going through pharmacy. And so we said less than 5% in 2025. In 2026, that will grow to about 15%. And as we transition through this model, in 2 to 3 years, pharmacy sales should be 70% or more. So that helps maybe think a little bit about the transition and the timing of it. The metrics we gave this year were to help people get grounded because understandably, someone could get lost very quickly. And if people don't understand how we get there, then we'll lose everyone's interest fast.

And so importantly, this year, we shared that think of 20% of pumps are going through pharmacy out of the 10% to 11% growth, that also the supplies, so the customer base of our installed base on average this year, about 10% will be ordering supplies in pharmacy. And both of those metrics are averages for the year. So you think about it as starting off low and exiting at a higher rate than that. So it's going to be something -- it won't necessarily be linear, but we're going to be working to grow it month over month over month as we go across the next few years.

Okay. What drives your confidence that 10% to 11% pump shipment growth in the U.S. is sustainable?

Yes. So it's a very exciting year. I mean how long did we already spend talking about all the new product launches. So that's one big piece that we've always relied on in the business to grow shipments and sales. Now we're adding pharmacy, which is another layer, which means we don't have to -- we don't -- won't see these spikes in growth around product cycles or new product launches. We can grow it in other ways by removing that cost barrier. So those are the new products, the expanded market with type 2 as well as pharmacy will help grow that.

But one thing I'll highlight is a lot of our revenue shipment growth -- revenue shipment, our shipment growth in recent years has been based on renewals. That's been a very large revenue stream for us. Renewals are still expected to grow low double digits in 2026. So when you take that as an underpinning, it does -- your new starts don't have to grow as much, but we will be returning to new start growth. And it's all of those factors coming together that will get us there. And it's more than just you have to believe it can happen. I think Q4 was a real demonstration that it can happen. We really started to execute with our sales force productivity and just the beginnings of these new products that we launched that we can make a change in how we grow.

Some of the patient that ships the pump, you're shipping it, who ships it to them?

So we have a partner that will deliver the pump. We still use our same network of distributors to fulfill all the pharmacy orders when it comes to the supplies. And so that's -- in our model, it's very helpful because what we've seen sometimes is people have to get new distribution network. So it's more overhead, if you will, just managing all of that. And then how do you keep all your partners happy when some are in the business that you're going away from. But we're using the same network of distributors. Most of the large distributors we've worked with in the past have all developed their own pharmacy capability, but they want to stay in the game. And so they're going to be our same partners yesterday in DME, tomorrow in pharmacy.

And if you're giving the patient a pump for free essentially, how do you make sure they use it? And can you take it back?

So all great questions. Great question. So it's been a hot topic of, oh my gosh, are you going to start losing customers because now they can freely move anywhere they want, anytime they want. And so we, of course, don't have the pharmacy experience yet, but we have a lot of experience in DME with retention. And so a few interesting data points. Number one, customers who buy a pump from Tandem in the 4-year warranty period, they can leave. They can't go to another durable pump because the insurance won't reimburse it, but they could have gone to an offering that was in pharmacy already.

So there is nothing to stop them from going and trying out other products. And we did -- we have heard at a very small level of people that have trialed other products, but this is the important point. They almost always come back to us. And there's the value of people who get on our product using the algorithm, it's the best algorithm. And when they try anything else, it doesn't compare. So we have a very sticky base.

Also people, we have 70% of our people at least within an 18-month time frame, buy a second pump from us. So we have good retention in terms of people who also when they're out of warranty could go anywhere else they want to go, but they still choose to come back to us. And we have many customers who just use their pump halfly out of warranty. And so our -- we expect our retention to be similar in pharmacy because of these different examples of what we experience today, and it's because of the power of our products and the algorithm in particular.

And is there -- how are you going to monitor that? I'm anticipating the earnings call where you were like, well, okay, it went down a little bit, but we have these new patients. Not saying that you're going to do that, but how are you monitoring it? So it's -- you're on track?

Yes, yes. So what we -- obviously, we will know how many kits that we're selling in pharmacy. So they're kitted differently. There's -- and so we know exactly what was a pharmacy sale versus what was a DME sale, even if our distributors are managing it. That's piece one. We also have Tandem Source, which is the platform where people upload their data. So we can see that people are actually consistently on the product. And we use Tandem Source for so many reasons, but one is to understand retention.

Is there a world where insurers will have a preferred pump or a preferred provider or whatever the phraseology may be? And how do you think about that?

Yes. I mean, so that's the nature of pharmacy is that there are different -- the formulary has preferred and nonpreferred status. There's different tiers within the formulary. All those exist. And so it just comes down to as we learn more about preference for our products and what tier and what formulary that we are on, what's the right mix of co-pay insurance to use and rebate structure. And so the way you get the best access, the most preferred is through your rebating system.

And so we have a mixture of some preferred access, some nonpreferred, and we'll be seeing the utilization across those as we launch into this because the contracts actually go live in March. And so we haven't actually officially kicked off the pay-as-you-go. It will be in March. And so we'll start to see what works, what doesn't. And basically, every year, you get another shot at it because the payers and PBMs reevaluate their formularies pretty much annually.

Okay. What really stood out to me on the fourth quarter was your profitability? And walk us through what drove that. I think I already know the answer, but let's do it anyway. And then how you think about that, not just for '26, but building from that.

Sure, sure. So we did -- we had a tremendous fourth quarter. Our gross margin was 58%, and that's the highest we've ever shown the world. And so we were excited to get to report that. Again, one of the biggest sticking points for our business is you don't show margin expansion. And really, price was the primary driver. We do have Mobi growing in volume as a part of the business. That's what we've talked about for years, Mobi having a lower cost profile than t:slim. And it is getting there.

So we're getting to the scale on the pump where we're already seeing that benefit. The cartridges, we're still building up the installed base. I mean it takes a lot to become a big enough percent of our installed base to make a meaningful difference. But in '26 and even in '27, we'll show more of that with the Mobi contribution. But pricing was one of the biggest drivers. if you recall, that's when we launched t:slim supplies in the pharmacy channel. So even with less than 5% of our base ordering supplies in the pharmacy, we doubled pharmacy sales from Q3 to Q4, and that was one of the big margin drivers.

Excellent. I have 8 whole minutes left, and I have a very long list. I'm sure you've been talking to a lot of investors as I have since last Thursday night. What do you think people need some clarity on? And what do you think people are like, "Yes, I get".

Yes. So I'll start with that, yes, we get it. really people are penciling the math out for 2027 and 2028 and basically saying like, I don't even care about '26 anymore. I can't wait for that to come. And so where we wondered if there would be a concern of, I don't like to see low revenue growth, I think people are accepting of the fact that it could be low. And if we go fast and hard, it could be lower, but it pays big rewards in the future. So I think people are really getting -- embracing that and can see that as a business. This is really good for us for revenue and margin in the long term.

One point that I think we've talked a lot about retention with people, this understanding of will people move around and will you lose your customers. And I think another important point about patients is it's not easy to just switch pumps all the time. So first of all, you have to get a prescription and your physician at some point can say, what are you doing? Why do you need so many pumps? But then secondly, they have to get trained and they have -- it's part of their life. It's a life-saving device. And so people aren't just going to willingly go out and move from product to product. And so -- and we feel very confident with what we offer.

I think the other thing that's been coming up a great deal is we talked about the -- for modeling purposes, again, we are giving a lot of extra data points this year. We gave price comparisons. And we said, for supply, start with $350 a month. It's a good place to start from a modeling perspective. And so that -- I think that raised a lot of questions from folks like, oh, are you doing some special pricing strategy? Are you trying to undercut? Are you playing a different game than everyone else? And the answer is a firm no. We see what pharmacy pays today. We want to take advantage of every dollar that we can get from it just like everyone else. We feel like on the merit of our products, we can sell competitively if we're all doing it at the same pricing.

For us, we just don't have the data and the experience yet. And so back to what I said earlier, we have a mix of preferred access with nonpreferred. We know there's going to be some level of co-pay assistance. We just wanted to give people a starting point. Just as you're thinking about the business, don't get ahead of us, let us gather some trends and see that mix of utilization. And for now, just think about it as $350 a month. And after the course of a couple of months or a couple of quarters, we'll get a better idea of where that's shaking out. And then we can give more firm targets based on real experience and not just our estimations.

Excellent. So when we merge together this time next year, what do you think we're talking about?

Oh my gosh, the success we've had in pharmacy and all the customers we brought to the table...

And how much customers are loving the tubeless feature for Mobi as well as our full rollout of our portfolio features, the fact that FreeStyle Libre 3 will be launched internationally on the t:slim, which is so exciting, the fact that Mobi Android will be broadly available. So we'll have this full suite of products that people can really grab on to. And I can't wait at that point. I'm hopefully that we're talking about a pivotal study that's happening for fully closed loop.

There you go. Well, Leigh and Susan, thank you so much for coming. And it's great to see you.

You as well. Thank you for having us.

Thanks for having us.

Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

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

Hello, and welcome to Tandem's Fourth Quarter and Year-end 2025 Earnings Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development time lines and financial performance and operating plans and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent annual report on Form 10-K.

Today's discussion will also include references to both GAAP and non-GAAP financial measures. Please refer to our earnings release issued 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 and other information regarding our use of non-GAAP financial measures.

John Sheridan, Tandem's President and CEO, will be leading today's call, and he'll be joined by Leigh Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open the call up for questions. Thanks in advance for limiting yourself to one question before getting back into the queue.

I'll now turn the call over to John.

Thanks, Susan, and welcome, everyone. 2025 was a defining year for Tandem, where we surpassed the milestone of $1 billion in sales while delivering on our mission to provide new innovations, improved outcomes and a revolutionary experience to nearly 0.5 million customers worldwide. Momentum built across the year and culminated in Q4 results where we set multiple records while delivering double-digit growth and improved profitability. Seeing the dedicated efforts and strategic focus of our entire team makes me both proud of what we've accomplished and excited for what lies ahead.

In addition to our financial performance, I'm equally proud of our execution against the 3 key initiatives we prioritized at the beginning of the year, which were modernizing our commercial operations, delivering new technology and shaping our business model. Together, these changes are transformational for our company and set a strong foundation for Tandem to drive sustainable growth and profitability in 2026 and beyond.

In my prepared remarks today, I'll be speaking to each of these key initiatives, starting with the modernization of our commercial organization, which positions us for strengthened execution worldwide. In the United States, we expanded our sales team and updated our sales processes. We also began implementing new systems during 2025 that will provide significant efficiencies and benefits to our sales team in 2026. In addition, we began expanding our dedicated commercial efforts for people living with type 2 diabetes.

Turning to our international business. We delivered a strong performance in 2025, setting record sales once again. This accomplishment is even more impressive as we did so while preparing for direct commercial operations in the U.K., Switzerland and Austria. The transition activities went exceptionally well as our team hired talent in these countries while smoothly coordinating the distributor separations and implementing the necessary back-end infrastructure. As a result, I am proud to share that we are now live and beginning to serve customers through our direct operations in Europe.

Our learnings from going direct in these countries will serve as a playbook to further expand our direct operations internationally in '26 and '27, which provides us the opportunity to deepen relationships with the diabetes community while improving both price and margins.

Complementing our commercial efforts was the second key initiative for 2025, delivering new technology across our portfolio. Early in the year, we launched Control-IQ+, our next-generation automated insulin delivery algorithm that is indicated for people living with type 1 diabetes down to age 2 and for adults with type 2 diabetes, which doubles our addressable market. It's designed for easy onboarding and use. We also generated clinical evidence that allows us to use training to simplify the carb counting experience.

We ended 2025 launching 2 highly sought-after pump features in the U.S., which was the launch of FreeStyle Libre 3 Plus for t:slim and Android Control for Mobi. Early response to both of these offerings has been positive and contributed to our growth in the fourth quarter.

We plan to build on this momentum in 2026 and have multiple new products either imminently launching, awaiting regulatory clearance or reaching key milestones in the development path. We'll have 3 new product launches in the second quarter, which include a scaled launch of Mobi internationally, a launch of Mobi integration with the FreeStyle Libre 3 Plus beginning in the U.S. and Dexcom's 15-day sensor integration on both pumps and platforms globally.

We also recently submitted a 510(k) with the FDA for a pregnancy indication for Control-IQ+ technology. Tandem is a company founded on innovation. And in 2026, we plan to uphold the ongoing commitment to redefining pump wearability with the launch of Mobi Tubeless. This will be Tandem's first patch pump offering and the world's first patch pump with extended wear technology. As a reminder, Mobi Tubeless is our novel infusion site option with the existing Mobi pump that transforms it into a tubeless patch device, allowing for interchangeability between tube and tubeless wear on one platform. We plan to file our 510(k) submission in the second quarter and are preparing for its launch in the second half of the year.

In addition, our pipeline also includes SteadiSet, our extended wear infusion set technology, our next-generation Mobi featuring further miniaturization from our Sigi technology, software features such as dual glucose ketone sensor integration and our pursuit of offering the world's most robust fully closed-loop AID system.

Tandem's leadership in AID has been evident since we first launched Control-IQ in 2020. We are committed to maintaining this position and plan to begin a pivotal trial for the fully closed-loop algorithm later this year in support of FDA filing in 2027. As you can see, our innovations across Tandem's pump systems, applications and insights continue to define why our pipeline is the most exciting in diabetes.

Finally, our third main initiative in 2025 centered on reshaping our business model, which is expected to be one of the most impactful levers to deliver both market growth and profitability. We took significant steps to advance our pharmacy strategy across United States. Pharmacy access is widely associated with the significant advantages to offering customers with lower average out-of-pocket cost and easier onboarding. It also provides benefits to health care providers through a streamlined prescription process and a benefit to payers by providing access to technology that improves member outcomes with enhanced data visibility. As a result, manufacturers like Tandem typically receive greater economic reimbursement when serving customers through the pharmacy channel.

Our first year of experience with pharmacy access proved these assumptions to be true. Therefore, in 2026, we are accelerating our efforts to increase pharmacy coverage for both t:slim X2 and Mobi platforms and plan to drive utilization of the pharmacy benefit for all our customers. A key aspect of this acceleration is our decision to adopt a pay-as-you-go reimbursement structure, which creates a near-term offset to sales while significantly strengthening our business model over time.

Our business is distinctly advantaged in making this sort of a transition as we have more than 300,000 existing customers, regular ordering supplies in the U.S. By transitioning these customers to pharmacy, it provides them the channel benefits faster while helping mitigate Tandem's near-term impact to revenue. We considered a PayGo business model when we first launched into the pharmacy channel in 2025. And based on the experience we gained in payer interactions throughout the year, have decided it is strategically the right move for our business now to drive market expansion and profitability. With the addition of PayGo, Tandem will be best-in-class in all ways with products, outcomes, service, affordability and accessibility.

I'd now like to ask Leigh to provide additional detail on the 2025 results and expectations for the year ahead. Leigh?

Thanks, John. 2025 was a record year for Tandem, which is highlighted by our milestone achievement of more than $1 billion in worldwide sales and multiple records in Q4, including our highest sales, gross margin and pump shipments.

In 2025, worldwide sales grew 12%, our second year in a row of double-digit sales growth based on a 10% increase in the U.S. to $707 million and 15% internationally to $308 million.

Focusing on the fourth quarter, our record worldwide sales of $290 million represented 15% year-over-year growth. This is the strongest sales quarter in our company's history and is of particular significance as it was achieved during a period of commercial transformation.

In the U.S., our Q4 sales increased 14% to $210 million. This growth was driven by more than 27,000 pump shipments, our highest quarterly achievement. Renewals from our loyal customers made up more than half of the shipments and MDI conversions represented approximately 2/3 of customers new to Tandem, consistent with trends across the year.

We also benefited from a greater portion of our supply sales through the pharmacy channel. In all, sales through the pharmacy channel nearly doubled from Q3, growing to $16 million or 7% of total U.S. sales this quarter. Only a few percent of our total installed base ordered supplies through pharmacy in Q4, creating a meaningful opportunity as we expand awareness and accessibility for our large existing base of over 300,000 customers.

Internationally, we grew 17% year-over-year in the fourth quarter, delivering $80 million in sales and 11,000 pump shipments. This marks our strongest Q4 performance to date, driven by growth in both pump and supply shipments. We also realized benefit from favorable FX, offset by $4 million associated with our transition to direct operations, primarily impacting pump sales. For the full year, the total distributor destocking and inventory buyback impact was approximately $7 million, slightly lower than the $10 million we had estimated due to a partial delay in timing from 2025 to the first quarter of 2026.

Turning to margins. We delivered on our commitment to improving profitability in a meaningful way. We expanded gross margin by 3 percentage points to 54% for the full year and reported our highest quarterly margin ever at 58%. This achievement stems from success in reducing product costs, driving manufacturing efficiency and executing on our pricing and channel initiatives.

We managed our Q4 operating expenses well as they were essentially flat year-over-year and sequentially. This reflected investments in SG&A to support our commercial initiatives, offset by planned efficiencies throughout the organization. As a result, adjusted EBITDA was 11% of sales in the fourth quarter, a 10 percentage point improvement over the prior year. Additionally, we generated our first positive operating margin since 2021 at 3% of sales in Q4, which is an improvement of 15 percentage points over the prior year.

One key contributor to this leverage was a reduction in noncash stock-based compensation to a reduced quarterly run rate of approximately $20 million. We exited the year with nearly $300 million in total cash and investments, generating free cash flow in both Q3 and Q4.

We have great conviction that the combination of our differentiated portfolio of products and business model changes provide us the ability to achieve our long-term objectives of accelerated sales growth with a gross margin of at least 65% and an operating margin of 25%. Demonstration of this momentum was evident as we exited 2025.

As John discussed, we are entering 2026 in the U.S. with a new value proposition as we transition to a pay-as-you-go reimbursement model in the pharmacy channel. PayGo can be a key driver for accelerated pump adoption as it eliminates the upfront payment at time of pump purchase, which has historically been one of the top barriers for adoption. A PayGo business model also lends to a more predictable revenue stream as customers purchase supplies over time, unconstrained by renewal cycles.

In transition from a model where revenue is typically recognized upfront, 2026 sales growth may be more moderated. We have the added benefit that can come from shifting our sizable existing installed base into pharmacy to lessen the near-term impact to sales. In all, this transition positions us well for meaningful long-term value creation. Our new PayGo contracts are expected to be effective beginning late in the first quarter.

Importantly, in 2026, pump shipments will be the key indicator of our progress in growing the market while expanding margins. Pump shipments in the U.S. are expected to increase 10% to 11% year-over-year, returning to new pump growth led by MDI conversions. Renewal pumps are expected to comprise more than half of total shipments. The catalysts enabling this growth are new technology in expanded markets and pharmacy channel access, building off last quarter's momentum and scaling across the year.

Contribution from Mobi Tubeless is not included at this time as its benefit will depend on FDA clearance and launch timing. We will be providing additional metrics this year for greater visibility into the pay-as-you-go transition, which we will discuss at a high level on today's call. More details on our assumptions are provided in the earnings call slide deck posted in the Investor Center portion of our website.

Starting with pumps. We anticipate that pump orders through the DME channel will still make up approximately 80% of our shipments in 2026, while we scale pharmacy access. Over the course of 2 to 3 years, we expect the ratio between the channels to flip and the majority of our shipments will be through pharmacy.

When serving a customer through pharmacy, there will be no upfront reimbursement for the pump. Sales will be recognized consistent with recurring supply purchases, which are anticipated to be reimbursed at a premium of more than 4x DME, pricing in line with what is seen in the market today. The sales impact of this transition between the channels is anticipated to be the most pronounced in 2026 while we build up the percent of our installed base ordering supplies through pharmacy.

Exiting 2025, our U.S. installed base was approximately 325,000 with a low single-digit percent ordering supplies through pharmacy. As a result, our 2026 U.S. sales are expected to be in the range of $730 million to $745 million based on growth in pump shipments of 10% to 11% year-over-year. This incorporates $70 million to $80 million of pricing headwinds, reflecting our adoption of a pay-as-you-go model. Pharmacy sales are expected to be approximately 15% of total U.S. sales in 2026, up from 4% in 2025.

In the long term, sales through pharmacy are expected to make up more than 70%. When thinking about the cadence of U.S. sales across 2026, total pump shipments are expected to follow a seasonal curve similar to 2025. For example, in Q1 of 2025, we saw a nearly 30% decline from Q4 of 2024 due to DME deductible resets on January 1. The pharmacy penetration rate is expected to start low in the first quarter, similar to levels we saw exiting 2025 and scale linearly across the year.

Turning to our international business. We began direct commercial operations in Switzerland, U.K. and Austria in the first quarter of 2026. Sales productivity in these countries is expected to scale across the year. In the fourth quarter, we plan to transition to a direct model in additional key European markets.

In the direct model, ASP premiums will vary by geography, expected to be at least 30% higher than our current pricing in the individual markets. These ASP gains will partially offset an anticipated $15 million associated with distributor destocking and inventory buybacks. As a result, our 2026 international sales are expected to be in the range of $335 million to $340 million for the year.

Direct sales represented approximately 5% of total international sales in 2025 and are expected to be similar in the first quarter of 2026 as we scale our direct launches. For the full year of 2026, we expect direct sales will be approximately 15% of total international sales.

Overall, worldwide sales for 2026 are expected to be in the range of $1.065 billion to $1.085 billion. This incorporates $85 million to $95 million in total sales headwinds associated with our strategic business model changes. Worldwide sales are expected to be in the range of $236 million to $240 million in the first quarter. This includes approximately $10 million of headwinds split between the U.S. and international.

Our clearest indicator of success in 2026 will be market expansion as measured by pump shipments and will not be evident in our sales growth expectations as we progress towards a more predictable and profitable revenue stream. We also maintain our commitment to delivering meaningful margin expansion, reflecting benefit from our pricing strategies, a focus on product cost reduction and continued spending rigor.

Gross margin is expected to step up to a range of 56% to 57%, scaling from nearly 54% in the first quarter to 60% in the fourth quarter.

Adjusted EBITDA is also expected to demonstrate leverage in the range of 5% to 6% for the full year of 2026. We anticipate adjusted EBITDA to be negative 2% to negative 1% of sales in Q1 due primarily to U.S. seasonality returning to positive in Q2.

In summary, we now have multiple levers that can grow the business independent of new product cycles. In combination with our expansive product portfolio, we believe these business model initiatives provide the opportunity for us to deliver accelerated growth in 2027 and beyond.

Thanks, Leigh. As you can see, 2025 was a year full of tremendous accomplishments that position Tandem for increasing success. Our ongoing dedication to innovation and improving our customers' lives continues to motivate us to reach new milestones. I want to thank every member of the Tandem team for your steadfast pursuit of excellence, collaboration and adherence to our shared mission. Your contributions have driven our success and will propel us to another year of meaningful progress, impact and growth.

This is an important and exciting time in Tandem's journey. We are well positioned to deliver best-in-class technology to our customers in a more streamlined and cost-effective way while advancing our global business model and creating meaningful long-term value for our shareholders.

Thank you, everyone, for joining us today, and I look forward to updating you as the company continues to progress.

[Operator Instructions] Our first question comes from the line of Matt Miksic from Barclays.

Congrats on a really strong finish here, both top line and on the EBITDA line. So I think you're going to get a lot of questions here around the new model. I appreciate all the information in the slide deck, kind of spelling it out and laying it out. And it's certainly not -- it's certainly something that folks have talked about and thought about just in diabetes generally that's moving in this direction, particularly for automated insulin delivery systems.

One question, I guess, is you gave pretty good guidance on Q1, which was clear for the full year in the U.S. The OUS growth with the $15 million headwind is sort of like a 9% to 10% underlying. Is the right way to think about that kind of in the mid-teens. And so I guess you have like low double-digit U.S. shipments, mid-teens OUS kind of underlying growth to get to sort of like a low double digit low double-digit underlying sort of performance metric for next year, absent the PayGo changes?

I think that's correct, Matt. I think if you look at the overall revenue growth or shipment growth for the year, it's going to be in the line of 10% to 11%. So it's going to be double-digit growth in shipments. And we also expect to see a return to growth in new shipments.

I would say that, that is the best indication of our performance next year, including the profitability because when you look at the revenue numbers, the revenue numbers are impacted by the headwinds from the pricing that comes along with PayGo. So this is a very impactful change in the business. We're very excited about it. I think when you look at it, I mean, basically, we double or more than double the revenue, the lifetime revenue from a patient, and that's a substantial change while at the same time, we are going to substantially reduce their out-of-pocket and improve the experience. So that's a real win in both sides. And like I said, we're very excited about this. It's going to be impactful.

And I think when you look at the impact on the P&L, I mean, certainly, there's a revenue hit from the pricing headwind. But when you look at the gross margin, you look at adjusted EBITDA, we do show solid performance there. And as I said, shipment growth is the real numbers to look at in 2026 for us.

Our next question comes from the line of Mathew Blackman from TD Cowen.

Can you hear me okay?

We can hear, Matt.

Great. A lot to chew on a lot to ask. I guess I'll ask the expectation of 20% -- roughly 20% of pumps in 2026 going through the pharmacy. Can you give us some context on where you are from today on a coverage and contracting standpoint and where you'd expect to be exiting the year? Just trying to reconcile the 20% mix versus maybe where you are on the contracting side, what progress you've made there?

Sure. Happy to. So I would say there are 2 ways to think about coverage for us. I mean we do have contracts with all of the major PBMs, the top 3, which gets you about 80% of covered lives under contract. But what we're really focused on is the formulary access where we have roughly 1/3 of lives covered today. And think about that as just the beginning as we're launching into this -- the pharmacy with the pay-as-you-go model, which those contracts will be effective late in the first quarter.

So at the very beginning here, I would expect low volume, but it will continue to scale up across the year to average to that 20% point that we -- that you mentioned in terms of pump shipments going out the door with a $0 upfront payment. That's a little bit separate or different from the amount of our installed base that we expect to be ordering through the channel. So think about this as a complement, while we have that headwind on the upfront piece, we have the ability to mitigate some of those headwinds by transitioning or shifting more of our current DME customers into the pharmacy channel.

And similarly, that percentage will start low. We came out of the fourth quarter with less than 5% ordering through the pharmacy channel, and we expect that to scale up across the year as well. So on average for the year, you can think about that as roughly 10% of our customers across the year that will be ordering their supplies through the pharmacy channel.

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

On a nice quarter here and on the bold move here. And as Matt and Miksic said upfront, this has been, I guess, talked about for a long time, John, this pay-as-you-go model. So my questions are really why now? Why is this the right time? And the long-term pharmacy goals, why is 80% the right number in 2 to 3 years? I assume that excludes Medicare fee-for-service. And how are you thinking about attrition changing with the pay-as-you-go model?

Well, we have been thinking about this for a while. And I think in the fourth quarter, we gained a lot of experience just in our pharmacy business. We've had conversations with a number of payers. And we think it's very doable. We've been looking at -- we've talked about pharmacy for a while now. And I think it's absolutely the right time to make this transition. We've got a number of other things that are very positive when it comes to the business. So as I said, this is a very impactful decision for us, but it's the right one, and we're very excited about it.

I'll take the question about the goals and your question on attrition. So as we think about the goals, this is just the beginning, and we're working to build up additional formulary access and as well as within the formularies that we have to build up attachment from the downstream payer plans. And so what we see is over the 2 to 3 years is what it will take for us to build up to optimal coverage, if you want to call it that, where at that point, we probably will have at least 70% of our sales going through the pharmacy channel. So that's a complete flip of our business model, obviously, from where it is today.

And attrition is a question that we're often asked as we think about pharmacy channel at all, where people don't necessarily have what you would call lock-in periods like they have in DME. And what we've seen in our experience in the DME channel is that even though people stay with us for 4 years because of that warranty period, we see people staying well beyond the 4 years, whether it's through another pump purchase or just staying on the pump outside of warranty because high quality of the pump, it just keeps working, so there's no need to transition. And so we feel comfortable that when people try out our technology, they stick with it. And even in this model where maybe they won't have the same sort of dynamics in terms of restrictions from switching from one to another, we think they'll stick with us.

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

I appreciate all the additional info and the different metrics this quarter is going to be helpful to track these initiatives as they go forward. John, I wanted to ask about the international transition. When you first sort of talked about this, it seemed like it was largely going to be a 2025 headwind. But now it sounds like it's going to have a significant impact on 2026 and possibly even beyond depending on sort of what other countries you're getting into late this year. Can you talk about why it's such a protracted process? And how do we think about the point at which you completed this transition to direct?

Well, I think that, first of all, I think our team did an amazing job this year. When you think about it, we made the transition from the distributors. We actually began to hire sales force in the new markets that we're going into. And then we built and installed the infrastructure that will enable us to actually ship a product and bill for it. All of those are major tasks.

And I think that it's -- we're biting off a significant amount of operations when we go into these new countries this year. Of course, we're going to 3 this year. And I think that trying to do it all at once would be just too risky. And so I think that putting it into a 2-year period is the right way to do it. As we did progress this year, we essentially got all of that done. We are now live in those 3 countries. and we installed all of the infrastructure to do that. We're basically using that as a playbook now, and we're going to do the exact same thing this year for the next countries that come in 2027.

So I think that we feel good about it. I think it's staged properly. And I think that when we get to 2027, I think that that's the majority of the transition that we plan to make. I think sort of in the long term, we intend to have a hybrid model where we do have direct business, and we intend to continue to work with many of the fantastic distributors that we have in the international markets. But it's gone very well, and I think it's going to go just as smoothly in '26 and '27.

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

Really congrats on a good quarter and for making this move here. I guess, Leigh, just on the leverage, that was really nice to see in the quarter. Good to see in the guidance and the commitment to that. I'm just curious what the different levers are here. Obviously, ultimately, pricing in the pharmacy and the significantly higher ASP there is helping. But maybe talk a little bit about the levers going forward in '26 but also as you think over the next few years.

Sure. Thanks for the question, Danielle. You named probably one of the biggest levers we have right now, which is pricing. As we look at the value that can come from this transition that we're making in the pay-as-you-go model, that will continue to bear great fruit for us in the next couple of years in terms of a growth perspective on revenue and profitability. But also so important to remind that we do have a number of product cost reduction initiatives in place. One of them really comes from Mobi as we continue to build and scale that part of the business.

In the long term, Mobi, and we're getting very close with the pumps to being at scale. The manufacturing cost of a Mobi versus the t:slim is 10% to 15% lower. So that's one piece of it. And then as we continue to build up the cartridges and think about that contribution, that will be 20% or lower or higher, I should say, reduction in cost versus the t:slim. So as Mobi continues to grow in scale, that will continue to drive gross margin benefit, too. And then you can just take that forward and think about any new product that we launch.

Part of our design principles in the R&D process are to consider that new products need to have a better margin profile than the products that we have in the market today and continue to improve upon the products that we have in the market today. And so I would say between pricing and our initiatives within the manufacturing and R&D areas, that's really what's going to drive that leverage in gross margin.

And then they get a little further down the P&L to the operating margin. Similarly, we continue to look at our infrastructure and think about what's the best way, how to be most efficient. And we're constantly looking for opportunities and ways to reduce the need to hire more people in the future and just better serve our customers with a lower headcount base going forward.

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

I'd love to talk about the acceleration that you're expecting on the new pump shipment side here in '26. It's one of the better numbers we've seen over the last several years. And I know you have Mobi coming out with Libre 3 Plus and then the 15-day, but you're not assuming any benefit from tubeless here in '26. So why the confidence in the ability to do that without especially that patch kind of product here in '26 and maybe deconstruct how you get there to see that kind of acceleration?

I would say that while we don't have Mobi in the revenue plan, that's typically the way we've done it in the past, a little bit more conservative when it comes to uncertainty. I would say that we have high confidence we're going to get this thing approved this year. And when you consider Mobi, we'll now have -- it will have multiple sensors integration. It will have Android and it will have iOS and then it will also have a tubeless implementation.

There's nothing else like that on the market. I think as you look at the buildup, just to get to the tubeless product, we are adding a great deal of functionality to these products. We're also expanding Mobi into the OUS markets, and we're expanding FreeStyle Libre 3 into the OUS markets as well, which has been a point of competition. I think when both those products are there, it's going to be a completely different picture.

And so I think the pipeline is certainly a big piece of it. I would say that a lot of the work that we've done with the sales force in terms of improving their productivity, as we mentioned, we have a brand-new system coming online here next month, basically. That's going to substantially improve their efficiency and productivity. So we expect to see that contribute to the new starts.

And then finally, I think that pharmacy, pharmacy is something that we think is going to have an impact on our business this year. So I think when you look at that, really, it's the new technology, it's the sales organization, the improvements that happened there last year. And then it's also pharmacy. I think the combination of those will drive the growth that we're going to see in 2026.

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

On the great quarter. Maybe to start, just wanted to circle back on some of the Tubeless Mobi commentary. Did I have that right, you said planning on submitting the 510(k) submission in the second quarter of this year is the first part?

That's correct. Yes, we plan on submitting in the second quarter. We have had a great deal of very responsive support from the FDA. And so we do feel highly confident that we'll get it approved in the second half of the year.

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

I get your comments on pharmacy shift and going to flip in a few years. Can you talk about at a high level, how that's going to impact P&L and sales growth in '27 and '28 in more detail. It's a little bit confusing as you're going to continue to have that shift through the next few years.

Sure. Happy to. So when you think about -- we're talking about the headwinds this year. This year is where we expect that to be more pronounced as we're just launching into it. And we don't yet have what I would call the cover for it coming from the supply sales or the reimbursement on supplies. So you can see, first of all, for every PO customer we get into the model, we're going to be getting reimbursement on supplies more than 4x what we get in DME today. So as you build up that base of customers who benefit from getting a pump with no cost upfront, that's going to be a tailwind on revenue in the coming -- in the next couple of years.

And then add to it that we do have over 300,000 t:slim Mobi customers today in our existing installed base and the opportunity to shift those people from the DME to the pharmacy channel will also create a tailwind, and that's immediate benefit from one day when they're ordering in DME to the next day when they're ordering in pharmacy, you would immediately see that appreciation.

And so I think what's really important this year is even though this is a near-term headwind and it does have a moderation effect on revenue growth, we're still demonstrating margin expansion at the same time. So it's showing the power of what this shift can look like in this first year and just you can imagine how much better it gets in the coming years.

Our next question comes from the line of Shagun Singh from RBC Capital Markets.

I was wondering if you can shed some light on cadence through the year. So the $70 million to $80 million revenue headwind, how do we see it through the year? I think you indicated that this will be effective, I believe you said in late Q1 '26. So anything you can share on cadence on sales and margins, that would be helpful.

Sure. So I think the way to think about it is, obviously, in this first quarter, it's going to be a very low percent of our shipment volumes that will have this effect from the PayGo reimbursement. So the bulk of those headwinds are probably going to be hitting more in the last couple of quarters of the year. And so think about it as low single-digit percentage scaling up to a number that averages to 20% for the year.

And margins also, so as we have the same opportunity to transition our supply customers, similar to what we've seen in years past, margins will start lowest in the first quarter. So call it, nearly 54%, getting up to about 60% in the fourth quarter of the year. So you can think about that scaling pretty linearly across the quarters this year.

I should add that in the first quarter, in particular, we factored in about $10 million of headwinds worldwide. And you can think about that as roughly split between our international operations and the transition to going direct and between the headwinds that we could see in the first quarter for the PayGo transition.

Our next question comes from the line of John Block from Stifel.

I'll pivot to international. And maybe, Leigh, you can talk to some of those moving parts. It seems like you've got, call it, 30 -- call it 3% revenue growth from the extra 30% price on an incremental 10% of volumes. I'm guessing your FX tailwind, I don't know, is 4%, 5%. Then you got this headwind from the move to direct. So maybe you can just flush it out what's the underlying growth. It seems like it might be 7%, 8%, high single digits and compare that to how you exited the year, which seems on a really, really good trajectory of mid- to high teens.

Thanks for the question, John. You're right. There are a lot of moving parts. I think at the highest level, I'll just start with the fact that we are actually very strong in the international markets and continuing to expand the market. Majority of our shipments today still come from new customers, and we're just beginning to see a more meaningful contribution from the renewal opportunities there. And then you take some of these structural pieces and you think about it.

So as you come into 2026, we have the benefit from those markets that are going direct already that are going to provide that price appreciation. And so this year, you're not going to see the full effect of that 30% that you mentioned. That's the way to think about long term. A market that goes direct, we should see a premium of approximately 30% in any given year.

The pricing, when you blend it this year, direct to distribution, it's probably mid-single to high single-digit price increase building up across the year as we transition into those markets. That is, if you will, it's funding the headwinds that we're going to see in the additional markets that are going to go direct this year. So as we think about that headwind, we've sized that at about $15 million and thinking about, as I just mentioned, roughly $5 million-ish in the first quarter. And the rest of it, majority will be hitting in the back part of the year, probably the fourth quarter.

But underlying all of this, we're very confident and excited about the opportunity we have in the market. Part of the reason for going direct in these markets is this puts us closer to the customer, better able to sell and the benefits of our technology and bring more people over to Tandem.

Our next question comes from the line of Travis Steed from Bank of America Securities.

I wanted to ask about the quote in the press release you're talking about accelerating sales growth in 2027 and beyond. It's been a while since I've seen you guys talk about a year ahead. I just want to see what kind of is driving that visibility and confidence, how much of that is pay-as-you-go versus Mobi and as you kind of look forward and plan ahead?

I think the most impactful element is going to be the ongoing implementation of pay-as-you-go. We do have the headwinds this year, but we are going to be making substantial progress. And as we move and get more and more of our installed base, more and more of our new customers into the pay-as-you-go model, the revenue impact of that is substantial. And so that's going to grow in time.

And so I think most impactful is certainly going to be the transition to pay-as-you-go -- and as Leigh mentioned, in addition to the pumps and the supplies that come along with the new pumps, there's also the opportunity to convert the 325,000 people who are existing customers to pharmacy as well. Both of those are meaningful. We also have a very exciting pipeline. We have a lot of technology coming to the market this year. We will have the first extended wear patch in the market, and that's going to be meaningful. I think that right now, there's nobody competing with our patch competitor. And so we will have a device that has the same form factor. It will be in the pharmacy channel and has a better algorithm. So we expect that to do quite well.

So -- and then beyond that, we've got a very exciting pipeline that's going to continue to come, including our move to a fully closed loop system with -- hopefully, we see that in the market in 2027 or 2028. So I think all of these things add up to our confidence as a management team that we will see growth going forward in '27 and beyond.

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

I am on a train. So if I break up here, I'll just jump back in queue. But Leigh, you mentioned that the pharmacy pricing is going to be consistent with what others are out there on a tubed pump side in the pharmacy channel. Just to put a number on that for modeling purposes, $450 a month, is that a reasonable price to dump into our model as we try to build this out? And you talked about some of your installed base maybe starting to get their supplies in the pharmacy channel.

I think from your comments, it sounded like they get that same price for their supplies, but ostensibly that higher supply price is also supposed to include some amortization of the pump. So if I'm a current user that jumps into the pharmacy channel, am I also going to get that $450 a month or whatever the right number is there? Just help out.

Yes. A lot of good commentary and questions there, Jeff. So the way I'm asking people to think about it this year is we're just getting going with this, right? So we're launching into the market with these new contracts effective here late in the first quarter. And there's a mix of contract terms, I would say, within the contracts that we have. And so think about the dynamics could be whether we have preferred or nonpreferred access, which influences what the rebate looks like, how much co-pay assistance we use.

So long story short, what I'm suggesting to start with this year, at least from a modeling perspective is to think about it as about $350 per month per customer. And that's going to give us the starting point as we take the time to monitor the trends to see what is the real utilization and mix across the contracts that we have and further inform you in the future for how to think about where that average state could be. But I would say that's a really good starting point. And that alone is a really great benefit versus the DME pricing that we see today.

And so -- and when you think about this, asking about what does this mean for people who already bought a pump versus people who are getting a pump for the first time, it's almost like a reset, if you will. And so basically, going forward, the whole business will be structured, I would say, agnostic to whether they're getting a pump today or not, and it will be consistent pricing across the customers, if that makes sense. And so again, I would start with about $350 per month as a modeling point, and we'll continue to inform you along the way as we get more information.

Our next question comes from the line of Jason Bedford from Raymond James & Associates.

This is Elaine on for Jason. I wanted to ask a question on type 2. So could you please give us some color on the progress there? There was also an update to the ADA guidelines recently on C-peptide testing. How does this new guideline help with your discussions with CMS? And can this lead to an inflection in type 2 new starts?

Right. So I mean, we're excited about the type 2 market. It doubles the size of our addressable market in both the U.S. and OUS. In 2025, we obviously got the indication. We ran the pilot, and we went to full commercial availability in the fourth quarter. We learned a great deal in the pilot, and we actually saw a pretty significant bump in starts between the third and fourth quarter, the quarter that we actually had the full organization working on this.

As we look at 2026, it's basically a core that we intend to focus on type 2 and invest in marketing and also some research relative to PCP and OUS markets. I think we've got tailwinds as we enter the market with FreeStyle Libre 3 and Mobi implementation. Obviously, Mobi Tubeless and pharmacy channel is also going to drive uptick. And relative to the C-peptide decision, it's also a potential positive for us as the Senate has asked CMS to review the NCD and make a decision in August of '26, which is not that far away. And certainly, having that go away will substantially improve Medicare's access. So we have 1 quarter with the data, and it's very positive. And I think that we're looking forward to seeing good growth in 2026 based on everything that we've got going on.

Our next question comes from the line of Richard Newitter from Truist.

This is Felipe on for Rich. Just in the context of renewal pump shipments, we get a lot of questions about a potential drop-off in 2027, considering the prior 4-year drop-off in new patient starts. I'm just wondering if you could help give us some context on how you're thinking about, I guess, out-year pump shipments and how that fits into your strategy with pharmacy and maybe any potential offset you can get in pharmacy if there is a potential drop-off in pump shipments in 2027?

Sure. It's a great thing that I'd like to highlight. So as you do think about it, I think people have looked at our model and see that when you look back 4 years ago, the number of opportunities will decline here in the coming years a little bit from what we've seen before where we were on an uptick. And so this year, in particular, we still expect renewal shipments based on the normal model and the normal -- the waterfall that comes with it, that renewal shipments will still grow double digits year-over-year. So we have that tail of opportunities even though new opportunities in 2026 are flat versus what came to market in 2025.

But I think it's a great tie-in to pharmacy. As we look ahead and think about this model, it greatly reduces the reliance on renewals as a driver for the business. It's important that we retain our customers, and we have really great retention rates, but we don't have to worry about going out every 4 years. And if a patient is comfortable with the pump they're on and it's working just fine, trying to convince them that they should buy their next pump or worrying about insurance cycles that come with it.

And so I think for us, it's really important to transition these folks into the pharmacy channel where for them, it's a lower out-of-pocket. It's easier for physicians to prescribe and there's none of this worry about when I get my next pump. And so as we look ahead, where the opportunities in the U.S. at least will start to decline, that won't be a concern about our ability to grow the business.

You didn't ask about international. It has nothing to do with pharmacy, but I just want to underscore our renewal opportunity outside the U.S. is growing and becoming a more meaningful contributor there, and there's a lot of room to benefit from that in the coming years.

Our next question comes from the line of David Roman from Goldman Sachs.

This -- it's Phil on for David. Probably directed at Leigh, I wanted to double-click on the gross margin trajectory, a lot of emphasis and fairly so on sales and sales cadence moving forward. But logically, there's a headwind to gross margin this year with the sales transition. Can you talk about sort of the trajectory or the exit rate from maybe this year or when things normalize in '27 for underlying gross margins and help quantify what the headwind is maybe this year that's going to lift next year or beyond?

Sure. So maybe I'll just start with the fact that in 2025, before we even had a meaningful pharmacy opportunity, we already stepped up gross margins substantially year-over-year by 3 points on an annual basis. And in 2026, I think important to understand that even with this moderated sales growth rate, we can still expand margins another 2 to 3 points. And so we expect to exit this year at about a 60% rate.

And you make a good point about the headwinds, putting a little bit of pressure on margins. So that just means that it gives us more opportunity to expand those faster in the future. And so we're very focused on driving that. I mean it's a very important part of our business with everyone -- we've always been focused on sales growth, but what we want to show is that we have the ability to drive margins like you see at competitive levels across the market.

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

There's a lot going on in 2026, both in the U.S. and outside the United States. You've sort of addressed sort of how to think about the first quarter, but can you help me understand revenue and, I guess, gross margins, the progression throughout the year? I mean, not to give specific second, third or fourth quarter guidance, but maybe ratios or something just to sort of lay the groundwork so we set the models up correctly.

Sure. I'm happy to help with that. So I'll start with the U.S. I think that's where you see probably where you're trying to untangle all the parts and pieces and how they might influence the year. From the perspective of U.S. shipments, let's start with that. And remembering that still 80% of our shipments will be through DME this year. I would expect the same seasonal curve on pump shipments. So you think about the lowest point in Q1, the highest point in Q4. And that has a heavy influence on gross margins.

And I would say the way our margins have been structured historically. And so where we've always seen that pumps have the highest gross margin and supplies are or meaningfully lower than that. And so that's why you can expect a similar trajectory of gross margin across the year, starting at about 54%, scaling up to 60%. And when I say scaling up, I mean measurably stepping up across each quarter of the year because even though we have these headwinds, if you will, on the pump price with the pump going out the door at $0, we have that opportunity to continue to fuel margin expansion with the pricing benefit that will come from the supplies and the supplies we shift into the pharmacy channel.

We also have the OUS business to help there. So we're going to be scaling up our direct business across the year, and that is also positive and beneficial to gross margins despite those headwinds that we expect to see there. And so I would say when you think about the revenue models and the margin models, this year, not yet too dissimilar from what you've seen from years past. But we do expect, as we look ahead, as pharmacy becomes a bigger piece of our business, it will start to level out those seasonal curves to some extent. But for now, I think I would start with similar assumptions to what you've seen before.

Our next question comes from the line of William Plovanic from Canaccord Genuity.

So I was just -- if you can help us out with this transition on the PayGo model, how many months to breakeven on that in your models? And then I don't think you talked about free cash flow in 2026. Do you expect free cash flow positive in '26? How should we think of the quarter cadence of the cash burn? Typically, Q1 is a heavy cash burn quarter. So just so there's no surprises. Can you help us with that?

Absolutely. I'll start with the breakeven question. There actually a number of ways to answer that question, but maybe one way that I can help you think about the impact on the business is when you think about a PayGo customer, there's a breakeven point for an individual customer as we offer the $0 pump, and it takes a number of months in order to cover that with the supply sales for that customer. But because we have this opportunity to shift our existing customer base, you can think about it as one PayGo customer plus 2 existing customers, you break even within -- pay back within a handful of months. And so it doesn't take too long in order to pay back or to cover this headwind that we would see. And that also dovetails a little bit into the cash question. We did exit 2025 free cash flow positive.

And to your point, we usually see a dip in the first quarter of the year as we pay out annual incentives, compensation and that sort of thing. This year, on an annual basis, taking all this into consideration as we make the transition, we expect to be free cash flow neutral this year. And by the end of the year, starting to ramp up back to a positive position as we move forward into 2027. We're, obviously, as we make this transition going to be very mindful of our cash balance, but I think that's a good way to think about it across the year.

Leigh, I wanted to make another point about the move to PayGo that it may not be as clear as I've spoken about it a moment ago. But as we move to PayGo, we eliminate a significant number of the barriers that we have with DME. And I think if you think about DME today, it's a problem for the physician to prescribe it. This author has to go and jump through hoops to provide information to justify the purchase. It's troublesome for the patient because they've got to go back and forth, provide information. It takes time.

The other thing, too, is one of the most significant challenges, I think, for people these days in the DME channel is it's a large out-of-pocket. And so starting now, I mean, some people might have to pay their full deductible. And that can be $1,000 or more. And so the benefit of the pharmacy channel is that it eliminates the friction. It's easy. It's easy for the patient, and it's also very easy for the physician and their staff. And it eliminates that large upfront payment. And so the monthly payments are also -- they can be lower. And so it's a -- again, it really does address the problems that we have in DME. And I think that it does explain, I think, why we expect to see the pharmacy drive uptick in new patients, and that's going to benefit the business.

Our next question comes from the line of Suraj Kalia from Oppenheimer & Company.

This is Seamus on for Suraj. Can you just talk about what you need to do to move patients from the DME to the pharmacy? Anything that you can do to, I guess, make that faster -- move that faster through that channel to that channel? And then with pay-as-you-go, as you move towards pharma, do you have to account for anything as a percent of bad debt or uncollectible as you switch to those contracts?

Thanks for the question. So I'll answer the last one. Nothing particular to think about in terms of unusual accounting treatment, I would say, in that regard. Think about it as a normal revenue stream as supplies are purchased over time. And the question about how to move patients. So the first thing we do is we share with them how much better the benefit can be for them from an out-of-pocket perspective.

And so when you compare to DME supplies, they often have to be deductibles at the beginning of the year. So it can be a heavier out-of-pocket then. Maybe it's best at the beginning of the year. But on pharmacy, it can be more consistent -- and we actually have the ability ourselves to help buy down or subsidize, if you will, that co-pay. And so the main thing is helping them to understand the benefit and how much better it can be for them financially.

We also -- people tell us about how much they love our customer service and they fear this change might take away that relationship they have with us, and we're reassuring them that this is good, good for you financially, and we will still maintain the same level of customer service that we have today. The only other, I would call, a small friction piece, if you will, is it does take another prescription from the physician. So we do need to get the physicians involved to write a new prescription for that patient within the pharmacy channel.

None of these are insurmountable in terms of moving people over. They're just work and so that's why it's not an overnight change. It's something we have to work on over time. But we feel very confident in our ability to be able to ship those customers. And especially as we build more and more access, it can be a broader offering across the whole market.

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

Mike sorry, you got cut off the last time.

No, no worries. I should have asked both upfront. So that's on me. But thank you for circling back. So I wanted to ask about the U.S. renewal opportunities. I think in 2025, it was up around 18% just for the opportunities, if I have my numbers right, and renewal shipments was up closer to around 10%. So if renewal opportunities is effectively flat for 2026, what's giving you confidence that you can really grow that double digits this year? And is there any kind of risk around that?

Great question. So first, I'll just maybe give a little more direction on the shipments in 2025. They were up well above 10%. So we did see a higher growth rate on renewal shipments. And when you think about 2026, the number of opportunities are flat compared to 2025. So that's one calculation. The growth comes from the fact that we have a tail of customers from years past. And so remembering how our renewal model works, when warranties expire over the course of about 18 months, we get to a 70% or better capture rate of people buying that next pump outside of warranty.

And so what we have are still a fair amount of people from 2025, especially if you think about the people in the fourth quarter whose warranties expire that we've hardly even talked to yet. So there's still a fair number of -- a nice sizable opportunity base coming from '25 and some even left over from '24. So that's going to fuel the growth so we can still grow renewal shipments double digits in 2026.

And then just wrapping it up with that concept again about pharmacy and the ability to shift people or transition them to pharmacy supplies, it will take away that reliance on driving those renewal purchases of a pump, and we can just keep them on their supplies as long as they would like without having to worry about that timing of when renewals come to market.

So we're very excited, if you haven't taken that away from today about this pharmacy opportunity for us as a business. This year is going to be a great year of transition for it, and I think you're going to really see some really exciting outcomes in the coming years. And so we look forward to demonstrating those in the coming quarters.

Thank you. At this time, I am showing no further questions. This concludes today's conference call. Thank you for participating. You may now disconnect.

Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded.

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

Hello, everyone, and welcome to Tandem's Third Quarter 2025 Earnings Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development timelines and financial performance and operating plans and speak only as of today's date.

There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent quarterly report on Form 10-Q.

Today's discussion will also include references to both GAAP and non-GAAP financial measures. 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 and other information regarding our use of non-GAAP financial measures.

John Sheridan, Tandem's President and CEO, will be leading today's call, and he'll be joined by Leigh Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open up the call for questions. Thanks in advance for limiting yourself to one question before getting back into the queue.

I'll now turn the call over to John.

Thank you, Susan. Good afternoon, everyone, and welcome to our call today. In the third quarter, we achieved significant strategic milestones and delivered record Q3 sales. This year has represented a period of transformation for Tandem, and we are doing the right thing to position our company for success.

Our substantial progress is starting to become evident in our financial results and serves as a testament to our strategic vision, hard work and the collective dedication of our entire team. There are three primary initiatives that we've been prioritizing to evolve our business, which will be the focus of my prepared remarks today. These include modernization of our commercial operations, driving innovation and reshaping our business model.

In the U.S., we are beginning to see measurable benefits from our commercial changes implemented throughout the year. We have redefined end-to-end processes, begun deploying new technology platforms and restructured the organization to deepen our capabilities and to improve efficiencies. As a result, we're beginning to see improved sales productivity and effectiveness and plan to build on this momentum in the coming quarter and years.

Pump shipments for Q3 met our expectations with favorable underlying sales trends and September was our strongest month of the quarter. About two-thirds of our new customers continue to adopt our technology for multiple daily injections. We also continue to see a healthy mix of both t:slim and Mobi adoption, highlighting the value of our portfolio approach in the highly segmented market.

Outside the U.S., our commercial transformation is focused on preparing for direct operations in Europe. We have executed well against our transition plans, and I've been impressed with the high-caliber experienced people joining us. Our direct sales initiatives will begin in the U.K., Switzerland and Austria in early 2026, with additional countries to follow later in the year.

In some locations, we've already started to hire our sales reps. Many of these individuals currently sell our technology through a distributor, which helps support a smooth transition. Establishing direct international operations is a critical step to strengthen our financial position by accelerating sales growth and driving margin expansion.

It's also an opportunity to deepen our relationships with the European Diabetes Community and bring the benefits of Tandem's incredible technology to more people living with diabetes worldwide. Our second business initiative is focused on driving innovation. We have several recent and upcoming launches, which deliver on our portfolio promise of expanding choice.

For example, the potential for Mobi is still not fully unlocked. We are awaiting FDA clearance for our Mobi Control app for Android, which is currently only available in iOS. Adding Android capability is an exciting opportunity as it significantly expands the worldwide addressable market. In addition, last week, we announced that t:slim X2 is now fully available with Abbott's FreeStyle Libre 3 Plus integration in the U.S., marking the first step in a broader global rollout.

This integration has been in the early access phase of launch in the U.S. over the past several months with positive user feedback. We're excited to offer integration with Abbott's latest generation sensor as it provides even more CGM users access to the life-changing benefits of our Control-IQ+ algorithm. We are expanding the international rollout of our Source Cloud Infrastructure, which supports both the expansion of Mobi outside the United States and enables iOS and Android mobile applications for t:slim X2.

Our t:slim mobile app is now live in 5 countries with another 7 scheduled for deployment before the end of the year and the remaining to follow soon after. This is a milestone in bringing our data management solutions to users worldwide and a testament to the world-class capabilities we are building in this space.

Lastly, we continue to receive positive feedback from people with Type 2 diabetes who experienced real-world results similar to those in our study in the New England Journal of Medicine earlier this year. Control-IQ+ offers immediate and sustained improvement even without carb counting and regardless of bolus strategy, including when people don't bolus at all. Importantly, we're seeing that insulin-dependent people using GLP-1s get even better outcomes when used with Control-IQ+.

In line with our expectations, t:slim's screen display resonates strongly with the Type 2 users, along with a 300-unit reservoir as it reduces the frequency of cartridge changes, helping reduce the daily burden of diabetes. Following this positive feedback, we expanded our Type 2 commercial efforts, moving from pilot to full promotion of Control-IQ+ for people with Type 2 diabetes. The market is highly underpenetrated and requires development.

We're seeing evidence as the territories that participated in our pilot launch activities are now the most productive in bringing our technology to people with Type 2. Serving this population is a focus for us because it offers meaningful longer-term growth opportunity, doubling our addressable market in the U.S. The third initiative driving our business transformation is shaping our business model to drive growth and improve gross margin and profitability.

We have been identifying and implementing changes to increase efficiency through leaner operations, greater automation and the implementation of new processes and systems. A major focus of reshaping our business model has been our pursuit and advancement of a multichannel reimbursement strategy. There are two key pharmacy-related accomplishments this quarter.

First, we've successfully increased pharmacy benefit coverage for Tandem Mobi to more than 40% of U.S. lives, a milestone we plan to build on in 2026. The next highlight is that we started selling t:slim supplies to our large existing customer base through the pharmacy benefit in September. As you recall, we previously shared this was a goal for Q4, and it's now off to a great start.

Early uptake has been encouraging with customers citing affordability, convenience and simplified refills as the top reasons for switching to their pharmacy benefit. This supports our thesis that pharmacy access is not only more efficient for Tandem, but also more appealing to our customers.

Operationalizing pharmacy access for new and existing customers required significant internal effort. We've assembled a skilled team of market access and pharmacy distribution leaders with experience across leading PBMs, pharma and med tech organizations, enabling faster contracting and smooth implementation. Their expertise has accelerated this strategic shift, making our AID technology more affordable and accessible while establishing a scalable foundation for future growth.

As you can see, we've meaningfully advanced our key initiatives in support of Tandem's mission and financial goals. I want to thank our employees as taking on these initiatives simultaneously has been quite an undertaking. The team's efforts are making a positive impact and starting to yield tangible results, positioning Tandem as a continued global leader in diabetes care.

I'll now turn the call over to Leigh, who will expand on our third quarter results and future expectations. Leigh?

Thanks, John. As a reminder, unless otherwise noted, the financial metrics I will be discussing today are on a non-GAAP basis. Reconciliations from GAAP to non-GAAP results can be found in today's earnings release as well as on the Investor Center portion of our website. Please note that 2025 sales and margins in the U.S. are no longer impacted by the Tandem Choice program, which ended in 2024.

2025 continues to be a strong year for Tandem. With revenue of $249 million, we once again set record third quarter sales. Our top line outperformance was primarily driven by ASP increases on both pumps and supplies in the U.S. as well as favorable foreign currency dynamics. Another highlight of the quarter was our profitability as our gross margin increased 3 percentage points year-over-year and adjusted EBITDA returned to positive.

In the U.S., third quarter sales were approximately $176 million, marking our highest third quarter to-date and our second highest quarter ever. Pricing was the primary contributor, providing significant benefit from both the DME and pharmacy channels. Notably, pricing alone increasingly contributed to year-over-year revenue growth this year, driving 2% growth in Q1, 4% in Q2 and 5% in Q3.

This is due in part to the scaling of our pharmacy business to 5% of U.S. sales this quarter. We are excited by the potential for future pharmacy contribution as we further expand into the channel. Pump shipments in the U.S. were over 20,000. Consistent with our expectations, this was slightly down from Q2 following the pharmacy stocking benefit that we recognized in Q2. We continue to see strong demand for our portfolio of products led by renewals from our large and loyal customer base.

Renewals continue to track to our historical capture rate of more than 70% of eligible customers within 18 months after warranty expiration. Turning to our performance outside the United States. We achieved $74 million in sales, delivering another record third quarter. Total international sales primarily increased year-over-year due to favorable movements in foreign currency exchange rates.

Pump shipments were just over 9,000 as we continue our preparations to go direct in select European countries next year. True market demand remains strong with end-user pump placements growing double digits year-over-year. In addition to our strong worldwide sales performance, we also demonstrated significant margin improvement. Our Q3 gross margin of 54% increased approximately 3 percentage points year-over-year and increased approximately 2 percentage points compared to Q2.

Like sales, this reflects meaningful benefit from higher ASPs. The combination of price, channel benefit and scaling reductions in Mobi costs underpin both our near- and long-term gross margin goals. Turning to our operating cost structure, we continue to prioritize spending towards resources that will drive top line growth, generate efficiency and strengthen our competitive position. Operating expenses increased 4% year-over-year, primarily attributed to SG&A investments.

The SG&A increase reflects commercial investments in sales infrastructure, including U.S. sales force expansion, costs to support direct operations in Europe and initiatives aimed at streamlining our operations. R&D costs declined year-over-year, a result of our commitment to investing in the development of highly innovative products for our customers while maintaining disciplined resource allocation and strategic portfolio management.

We remain committed to enhancing efficiencies throughout the organization to strengthen our operating margin leverage. To further this initiative, we completed an organizational restructuring in the third quarter. Our Q3 operating expenses include approximately $3 million in costs associated with this restructuring, which are expected to deliver financial benefits in the coming quarters.

In addition, in recent years, we updated our incentive stock grant practices to more closely align with benchmarks, culminating in a $5 million reduction in noncash stock-based compensation and costs compared to the prior year. As a result of our top line growth and cost optimization efforts, Q3 marked a return to positive adjusted EBITDA and free cash flow, and we ended the quarter with $319 million in total cash and investments.

Looking at 2025 overall, we are on track to achieve double-digit growth at a milestone of $1 billion in worldwide sales. This includes U.S. sales of approximately $700 million, assuming a seasonal pump shipment curve that is consistent with our 2024 experience, where nearly 30% of shipments occurred in the fourth quarter. It also reflects greater strength from pricing as we capitalize on the launch of t:slim supplies with the pharmacy benefit. Outside the U.S., we anticipate sales of approximately $300 million.

This represents 12% growth year-over-year, even with approximately $10 million in headwinds assumed for distributor inventory destocking and inventory buybacks in advance of taking certain markets direct in early 2026. We are reaffirming our 2025 gross margin expectation in the range of 53% to 54% of sales, with Q4 expected to be an all-time gross margin record in the mid- to high 50s. We are also reaffirming our adjusted EBITDA expectations of negative 5% of sales.

As a reminder, our expectation was 3% prior to a change in treatment of an in-process research and development charge in the first quarter, which impacted adjusted EBITDA by 8 percentage points. We are focused on carrying our momentum from 2025 forward to the year ahead. We have a number of exciting opportunities across the P&L going into 2026. And while we are not providing guidance today, I would like to frame up some of the key baseline assumptions to think about for next year.

In the U.S., we anticipate returning to new pump growth driven by MDI conversions from new product introductions and increased pharmacy access. Renewal opportunities from pumps sold in 2022 will be flat year-over-year at 80,000, but we still expect low double-digit sales growth based on the tail of customers who have not yet renewed from years past. Overall, more than 70% of our U.S. sales are expected to be generated by recurring and predictable revenue streams of renewals and supplies from our installed base of more than 300,000 customers.

Additionally, the improved pricing we achieved this year foreshadows the value we can unlock with the multichannel market access strategy. We have contracts with all the major PBMs and are positioned well for increasing pharmacy channel access. We are also focused on optimizing our operations for volumes at a larger scale.

Our fourth quarter progress will provide valuable information to guide the level of benefit to come from channel mix assumptions in 2026, and we look forward to providing you with a more detailed update on our year-end earnings call. Turning to our international expectations, we anticipate driving further market expansion and increasing contribution from renewals as well as growth from our direct operations that will scale across the year.

We anticipate that nearly 15% of our international sales will be generated from direct market sales, up from less than 5% in 2025. The primary benefit of going direct will initially be from ASP uplift, which may be variable in each market. Generally, though, over the full year life of a patient, ASPs are anticipated to be at least 30% higher in a direct market versus our current distributor pricing. 2026 is also positioned to be an exciting year for both gross and operating margin leverage.

We anticipate another step function improvement in gross margins from the combined benefit of lower product costs as Mobi scales and pricing contribution. Our goal is to deliver gross margin of at least 60% in Q4 2026.

We are also focused on driving continued adjusted EBITDA improvement compared to the initial 3% operational target we set for 2025 as well as positive free cash flow. In summary, as we continue to execute our strategy, I remain confident in achieving our financial objectives.

I'll now turn the call back to you, John.

Thanks, Leigh. To wrap up our prepared remarks, I have a few additional updates on our initiative to drive innovation throughout our product pipeline, which remains the most exciting insulin therapy management. In the recent quarters, we have been refining our road map to best leverage our deep technology portfolio that we have developed through organic investments and key acquisitions.

Starting with Mobi Tubeless, which transforms Mobi into the world's first extended wear patch pump with a novel new cartridge and infusion site, Mobi becomes a solution for people who want to go 100% tubeless, people who prefer to use traditional infusion sets and people who want a choice and interchanging wear options. Our market research shows that offering a tubeless wear mode for Mobi significantly increases user preference.

When implemented with extended wear, user preferences increases even higher. We expect Mobi Tubeless to be our first commercial offering featuring extended wear technology. We have prioritized its launch ahead of SteadySet, our extended wear infusion set based on the high level of market enthusiasm for extended wear patch pump.

We are entering the final stages of Mobi Tubeless testing to support a 510(k) submission. Manufacturing scale-up activities are happening in parallel to reduce the time between clearance and the commercial launch in 2026. Rounding out our platform update, we have also been refining the design of our Sigi Patch Pump, which we acquired from AMF Medical. Bringing Sigi development to San Diego earlier this year produced a great outcome.

The team identified opportunities to combine the best of our Mobi and Sigi platforms together, creating development synergies, enabling further miniaturization and enhancing competitive differentiation. We are excited about what this means for the Sigi technology as part of our tubeless roadmap.

From a commercial perspective, we anticipate marketing this pump as our next-generation Mobi, building on the growing brand recognition of this new product family. Finally, I want to acknowledge the work of our team and our partners at the University of Virginia's Center for Diabetes Technology for their progress in developing fully closed-loop technology for Tandem's platforms.

Our vision for fully closed loop is to give people the ability to interact with their pump as much or as little as they like. We remain committed to advancing these R&D efforts quickly, and our goal is to start a pivotal study for our new fully closed-loop algorithm next year. In conclusion, we began this year focused on business transformation, and I am proud of the progress we are making that positions Tandem for future success.

As we approach year-end, we have an energized commercial organization, growing product momentum and a sharpened focus on our forward-looking road map. Tandem's achievements this year reflect our strategic vision and deep commitment to innovation in diabetes care.

We have made measurable progress in modernizing our commercial operations, driving innovation and evolving our business model. Looking ahead, our focus remains on delivering meaningful solutions for people living with diabetes, fostering operational excellence and positioning Tandem for continued leadership and success in the global market.

We appreciate your ongoing support and look forward to sharing further progress in the future quarters. Thank you again for joining us today.

[Operator Instructions] Our first question comes from Matt Miksic with Barclays.

Congrats on a really strong quarter. So I wanted to get a sense of as we head into next year, maybe just kind of a broad question in terms of cadence. I know you may not give much color today on 2026 outlook, although I'm sure you get a lot of questions on it, but I'll ask mine around the idea of cadence.

Some of the new products, the continued progression into pharmacy, some of the geographic initiatives that you've undertaken taking all those into account, can you maybe give us a sense of acceleration catalysts and sort of progressive growth throughout the year, if you were to map it out today, steering clear of what the headline number will be is and I'm sure you're going to get more questions on that. But that color would be great.

Matt, a lot to unpack there. Yeah, I think what I'll do is I'll kind of give you a sense of what the pipeline is going to look like. And then I'll let Leigh talk more about the pharmacy channel and some of the other initiatives that we've got going on. So I think that you can tell from the call here that we are really trying to increase our focus on what really matters for the business.

Certainly, we are very excited about Mobi, and we think it really will be the workhorse for the company in the not-too-distant future. As we just explained in the call, we're waiting to get the Mobi Android approval here this -- before the end of the year. I think as you move into 2026, we're going to be moving Mobi to O-U.S. countries.

We intend to implement FreeStyle Libre 3 and we also intend to implement the tubeless version of Mobi. And so I think when you think about that and when you include that with Control-IQ, I mean, that's a powerful product. And I think it's going to really significantly change the competitive dynamic that we face in the marketplace today.

So we're certainly very excited about it. And I would say we feel very confident we're going to make these things happen in 2026. And I think it's going to have a market effect on the business. Leigh, do you want to talk a bit about the pharmacy work that we're doing?

Sure. I think to sum it up, just based on John's comments, the way you can think about it is these are building across the year in 2026. So a lot of them just began that full commercial rollout. A lot of things are in flight. We're very excited with our pharmacy progress. There's more to build on there.

And our business transformation in the U.S. that we've been investing in, we're starting to see the green shoots from a productivity perspective coming out of our commercial team. And so a lot of these things are going to be coming to fruition and building across the year in 2026. And so that's how you can think about the cadence.

And it also is not just the top line, but it flows down through the bottom line as well because we'll also begin to show more leverage across the year from these investments that we've made as we're generating the return on the top line. So you can also expect seasonality, but the building of the margin expectations and the EBITDA expectations as revenue grows.

Our next question comes from Larry Biegelsen with Wells Fargo.

Leigh, I wanted to focus my question on price and the uplift you can get from the supplies going through the pharmacy. So on price, the 5% benefit in Q3, where do you see that going in 2026? And you're launching the t:slim supplies in the pharmacy this quarter. Any incremental color on what the pricing uplift is and how long the transition will take? How do we think about your current supply revenue per user at about $1,000 going forward?

Sure. Thanks, Larry. It's a good question. We obviously haven't given a lot of color yet on how to think about it. One thing I'll point out is that as we've seen price increases across this year, and it's been increasingly a contributor to our revenue growth, the balance of it was really from DME in the first half of the year.

And in the third quarter, it flipped around and the balance of it is coming from the pharmacy operations. And so as we go into Q4, I think you can back in pretty easily into what we're expecting from a pricing benefit on supplies. And that's probably a good way between Q3 and Q4, what you're seeing to think about as a baseline as we step into 2026.

And as we accumulate more data and trends and information from our progress in the fourth quarter, the level of coverage that we expect to have as we step into the beginning of the year, when we give our guidance assumptions at the year-end earnings call, we can give a lot more color on how to think about that build. But I would say what you're seeing now is a solid baseline.

Our next question comes from Chris Pasquale with Nephron Research.

Leigh, I wanted to follow up on the guidance and the comment around seasonality. A year ago, 4Q didn't come together quite the way you guys expected, resulted in sales coming in below guidance. So can you just expand on what exactly you're assuming happens this time around? Is it similar to last year or a return to sort of what would have been normal in previous years?

Yeah. Thanks for the question, Chris. So when we built the seasonal curve expectations for 2025, we absolutely factored in our experience in 2024, which, to your point, was a bit more muted at the end of the year than what we had seen in years past. So what's underpinning, I guess, I would say, the fourth quarter shipments.

Last year, we saw about 30% of the full year shipments landing in the fourth quarter. That's probably a good place to start for this year. And just the breakdown between new and renewal, you can still think about it as renewal being a little more than half.

And a lot of that step-up from Q3 to Q4 is really underpinned by the new renewal opportunities coming to market in the fourth quarter. And so I think that's a great starting point. So just to sum it all up, I would say very similar to what we saw in 2024.

Our next question comes from Danielle Antalffy with UBS.

Leigh, thanks for the color on the renewal pumps. I guess just curious, I'm not sure if you guys can give any insights or clarity on what percentage renewals pump shipped -- excuse me, given that this was, I think you said a historically high quarter.

So I don't know if it's easier to ask a question like percent that's new patients to pump or new patients to Tandem pump versus renewals or what. But I guess just trying to get a sense of like what number of new patients have come on to Tandem in the last quarter? And that's it for me.

Sure. Thanks for the question, Danielle. Happy to take it. So I would say the trends have remained consistent across each of the quarters this year where renewals have been a little bit more than half of the shipments.

And then in the new start population, MDI conversions have been about 2/3 of the shipments. And so we did see continued pressure in the third quarter, and we expect again in the fourth quarter for new starts. And that was factored into our updated guidance expectations we talked about last quarter, where we said there would be a slight decline year-over-year.

But I'll point back to all the opportunities that John laid out earlier from our initiatives between new product introductions, between pharmacy access and just our commercial transformation really taking hold and taking root. And we really expect to see a turnaround in that new start number and expect to return to growth in 2026.

Our next question comes from David Roman with Goldman Sachs.

You've got [ Jamie ] on for David today. Appreciated some of the building blocks you gave for 2026. I wanted to focus on the comment around returning to new pump growth driven by MDI conversions. And just getting a sense of what you're seeing in the market today, both in Type 1 and Type 2 and how you're expecting that to evolve both in terms of just market growth and competitive dynamics to get to that assumption that you've provided for 2026?

Thanks for the question. I would say that if you look at the basis of competition today, it's changed dramatically over the last couple of years. And I would say that form factor is a very important element of that and so is market access. And if you look at these transformational objectives that we've got going on right now, we're certainly focused on increasing our presence in the pharmacy channel.

And we certainly think that by doing that, you reduce the out-of-pocket for patients, and it's easier for the physician to prescribe it. So I think that getting to the pharmacy channel is something that we think will definitely positively affect our MDI uptake. And then at the same time, if you look at the innovation that we've got going on, we have things that are in the works.

These things are on deck and are going to happen. And so I mean, as of right now, as I mentioned, we just got the FreeStyle Libre 3 approval. That's gone out broadly in the U.S. We expect to get Mobi Android approved here shortly. And we have a number of other product-related feature enhancements that are going to really improve that, I think, the competitive basis of Mobi in the marketplace.

So I think the combination of both of those really will affect MDI growth and get us to return to the point where we actually see growth in MDIs and the company will go back to double-digit growth like we've seen consistently in the past.

Our next question comes from Mike Kratky with Leerink Partners.

Congrats on the great quarter. I appreciate all the recent progress on gaining pharmacy traction. I think you mentioned over 40% of pharmacy coverage for Mobi. So can you just clarify how much of that 40% coverage you can actually get paid for in the pharmacy today? And what are the main milestones that can help bridge that gap, if any?

Sure. Thanks for the question, Mike. The way to think about our pharmacy coverage is starting with, we have contracts with all the major PBMs. The 40% we provide is really the payer lines that are attached to those contracts today. And as you can expect in any payer environment, some access is better than others.

And that's what we've been working on across this year is improving our access both within the plans that we have and expanding that access through pull-through. And so as we think about pharmacy, it's been a measured approach this year. There's a lot to be ready for an organization of our size to be able to scale efficiently.

So there's a lot of operational aspects with how we take an order, how we fulfill an order, how we communicate with patients and physicians on the way this will work in the future. And so that's what we've been doing in 2025 is shoring up access, preparing for us to step into 2026 and really push pharmacy at a much larger scale next year.

Our next question comes from Matthew O'Brien with Piper Sandler.

This is [ Anna ] on for Matt. So I guess I just wanted to ask specifically on the gross margin guide. I mean there was some solid improvement in Q3, so that was good to see. But you're still guiding to 53% to 54% for the full year, and you said mid- to high 60s in the fourth quarter, which is a pretty meaningful step-up. So just wondering sort of what's baked into the assumptions there and what gets you to the full year target?

Sure. I appreciate the question. And so just to confirm, the fourth quarter is expected to be our all-time high, which is in the mid- to high 50s. And that's a launching point as we go into next year where we usually see a modest step down. But by the end of next year, we expect to be at 60% in the fourth quarter.

And so what drives that step up this year, when you look at the drivers of our business that impact gross margin, the single biggest contributor has always been pumps, and it's pumps in the U.S. And so pumps come first. International has a little bit of pressure because of the pricing dynamics using distributors there.

And then supplies have been the smallest contributor to gross margin. So as pumps does become a bigger percent of our business, you usually see margins scale. What I'll add to that is, I would say, the newer information is as we continue to penetrate pharmacy with our launch of t:slim supplies in the pharmacy channel. So think about the large installed base that we have and being able to get that price appreciation, that's also factored into contributing to our gross margin step-up in the fourth quarter of this year.

So we are really excited about what pharmacy can deliver for us as a business because I think you're seeing measurable benefit already with just the small volumes that we had. So you can only imagine where this could go in the long term as we continue to broaden our access.

Our next question comes from Richard Newitter with Truist Securities.

It's [ Filipe ] on for Rich. Just on the pharmacy channel, you and a few of your competitors are entering the channel pretty quickly. So I'm just trying to understand or can you help us understand why we should or shouldn't see more competitive rebating strategies in the channel as more players enter. And just like what are overall expectations for pricing in the channel over the long-term?

Yeah. Thanks, Felipe. When we think about this, this is something as we've looked at over the years, there was a time when durable pumps weren't even accepted in the channel. And there is also always the concern that when you get into the pharmacy channel in any category that there will be price erosion over time.

When we looked at our opportunity in the near-term for us, there's a significant step-up opportunity when you compare the DME to our base business today. So it makes sense for us to enter into that category, especially with the access we think we can offer to patients with a lower out-of-pocket cost. In the long term, it could mean pricing pressure.

But for us, what we're doing is we're getting in, we're building a stable business off of it. We're preparing for that possibility if we're going to take full advantage of it in the near term as we enter that channel. And I think with all of us in the channel together, we all hope to get that pricing premium to continue to support our margins in the long-term. So it is a risk, but it's something that we think is we can mitigate and it's worth going into despite that.

I'd also just say that when you look at the two pump competitors that are out there today, their volume in the pharmacy channel is very low and probably will be for a while. I think -- ultimately, I think it's going to be Tandem with one of the large entity that have meaningful volume in the market. And I think we'll have to see how that dynamic plays out.

Our next question comes from Joanne Wuensch with Citibank.

I want to go back to something that you said about Sigi. And if I heard you correctly, you were calling it a next-generation Mobi. Maybe I just misunderstood that. But could you please sort of clarify how you think about launching that product into the market?

Sure. Well, I'll start off by saying that Mobi Tubeless is going to be the first extended wear pump in the market, and it's going to be a patch pump. And we've done quite a bit of research on Mobi Tubeless, and it scored very well. I mean availability of tubeless wear and Control-IQ provided meaningful uptake in user preference.

And then with the implementation of extended wear capabilities, we also saw further increases in preference. So I think that we're seeing this great enthusiasm for Mobi. And as an extended wear product, it really gives us confidence that it's going to do very well in the marketplace. As we begin to see the design come together and based on this high level of enthusiasm, we believe that we only need one tubeless product on the market at a time.

And we absolutely plan to continue to invest in Sigi's development. But on a forward-going basis, it's best to think about it as the next-generation Mobi product and part of the growing brand and product of that family. We want to give Mobi room to run, and I think it's going to do very, very well.

Our next question comes from Suraj Kalia with Oppenheimer & Co.

Hopefully, you can hear me all right. Perfect. So John, one question for you and one for Leigh, and I'll pose them upfront. John, you mentioned the fully closed-loop system. Obviously, it needs an input signal. I was curious if you could indicate which CGM or which camp are you leaning towards for the autonomous fully closed-loop system? And Leigh, for you, I just wanted to follow up on Danielle's question, right?

And please correct me if my math is wrong. So U.S. pump revs down 2% year-over-year, price 5% benefit. So am I right in thinking units were down 7%? And I guess my real question then would be, if I look at patients that are switching or starting new from MDI versus repeat patients, where will -- how should we think about relative softness in these two buckets? Hopefully, my math is right, but please correct me if I'm not.

Well, I can tell you that when it comes to the fully closed-loop system, that it's going to work with all of the CGMs that are currently integrated with our product. The CGMs are interoperable, and it's really the fully closed-loop algorithm that matters. And so we're -- our team is doing a great job, and we've got a great collaboration going on with UVA right now in the Center for Diabetes Technology.

I would say that the partnership with UVA has been something that's been ongoing. And if you look back to 2016, it largely resulted in Control-IQ. And we chose to work with UVA back then is because they had the most amount of clinical data for an AID system at that point in time. And the FDA was very, very familiar with the product as well. And so today, we find ourselves in a very similar position.

We're working with UVA again, and we're working with them to implement their fully closed loop algorithm. And so once again, their algorithm has the most amount of clinical data that's out there, and it's very familiar to the FDA. So we're working expeditiously to get the system ready for trial. And as I said in the prepared remarks, our plans are to implement the fully closed loop pivotal study next year.

And to your question on new pump starts. So the way to think about it in the third quarter is, first of all, I'll remind you that in the second quarter, we had a small stocking dynamic. And so if you normalize for that between Q2 and Q3, you would see pump shipments roughly flat, which is a normal seasonal trend.

When you break it down between renewal and new pumps, we did see strong growth in renewal pumps as we have been demonstrating. But as we expected, new pumps continue to be slightly pressured. And when you further break down new pumps and focus on MDI conversions versus competitive conversions, the competitive conversions have been a large reason why we've seen some headwinds in new pump starts this year.

One of the primary competitors that has been a big contributor, I would say, to our competitive conversions has started to retain more of their own customers and have less to share, I guess, I would say. So at the end of the day, we are very focused on the MDI conversion part of the population. And we've already -- I think you've heard many of the opportunities we've listed out that can really help drive and stimulate growth in MDI conversions as we look ahead.

Our next question comes from Jayson Bedford with Raymond James & Associates.

This is [ Elaine ] on for Jason. So you had a nice beat outside the U.S., especially in supplies. Can you talk about what drove the strength there? Did you see any impact from stocking or preparing to go direct? And also, you talked about a $10 million headwind. Is that more weighted towards third quarter or the fourth quarter?

Sure. So on our O-U.S. performance this quarter, I would say underlying trends were pretty much in line with our expectations. The outperformance is mostly attributed to a few million dollars benefit from foreign currency dynamics that worked in our favor this quarter. But to those underlying trends, what you're seeing are the effect of what the distributors are ordering from us.

When you see what happens in the end market, we actually showed low double-digit growth in our placements in the market. The -- what's being shipped out the door is being impacted somewhat, as you mentioned, by the transition to going direct. What we've seen across this year is some destocking from some of the distributors as they're working down their inventory levels.

So that's a part of the $10 million headwind we factored into our expectations. We expect to see a bit stronger impact from that in the fourth quarter as we near the actual launch in those markets and potentially have to enter into an inventory buyback situation. And so -- but the underlying market dynamics are really strong outside the U.S. We look forward to taking some of these markets direct ourselves and being able to even further accelerate that growth looking ahead.

Our next question comes from William Plovanic with Canaccord Genuity.

So I really wanted to dive into Type 2 here. You're 1 or 2 on label with it. It's been a big driver for one of your competitors. And I just -- I know you're just going to full launch. Is this something that you're really waiting for Mobi Tubeless before you kind of go full out and see a bigger impact? Is this waiting for pharmacy or is it you just got past the pilot phase and it's just -- it's only because you just got past the pilot phase?

Okay, Bill. I would say that.

And John, if I could also, what percentage of new patient starts were Type 2 this quarter? I don't know if you shared that. Sorry for interfering.

Yeah, sure. No problem. I would say that we're certainly leveraging the lessons from the pilot, and there's a lot of great information that comes back on our marketing, training and the sales execution. But as you say, you're right, we kind of evaluate the performance of the pilots, and now we're moving to full commercial launch. The pilot territories were very productive.

And I think that we're getting very positive feedback from physicians and patients that they're seeing the same experiences that we saw in our new -- in our Type 2 trial, immediate sustained results that have simplification of the bolus process, and they're [indiscernible] with GLP-1 use. The preference so far, it's leaned towards screen displays and 300-unit reservoirs.

And so t:slim is interestingly enough, the preference for most people, and that's fine. And I think that that's where we're going to go. Market development is needed, and certainly, we're going to do that. And I think having additional competitors out there doing market development at the same time is a positive thing for us.

And pharmacy channel and tubeless are only going to improve the uptake. So I think we're going to start full blast here. It's actually started. We started in the third quarter. We're continuing to move aggressively with the products that we've got in the marketplace. But as we do access more of the pharmacy channel, we do get [ moving ] tubeless, we think that's going to also significantly improve our performance in that market.

And certainly, it doubles the size of the addressable market for us. And so we're going to do everything we can to take advantage of that. And I will say we haven't said specifically what the number of starts that we have, and I'm not sure we're going to talk about that specifically in the future either.

Our next question comes from Michael Polark with Wolfe Research.

I want to just make sure I fully understand the updated comments on Tubeless Mobi. I heard 510(k) submission entering final stages. I also heard commercial launch in 2026. So if I were to assume you have 510(k) in by the end of the year, count 6 months, it's kind of midyear approval, 2H '26 launch. Is that a reasonable way to think about it?

Two other pieces of this, I continue to hear the emphasis on extended wear. So is the best assumption that when this product comes to market, it will have the 7-day set exclusively? And then on manufacturing ramping in parallel, the expectation is you will be ready for kind of big bang introduction when these other boxes get checked or still would be a process post approval to ramp supply?

Yeah. I mean I think we understand the importance of Mobi Tubeless in the marketplace. And we think that product is going to really help us return to a very competitive position. So as a result of that, I indicated in the prepared remarks, we are going to prioritize Mobi Tubeless over SteadySet.

We are going to introduce Mobi Tubeless first with the extended wear. So it will have 7 days when it does come to market. And we'll have SteadySet. I mean we're not deprioritizing SteadySet, but I think that you know that there's a great deal of enthusiasm for Mobi Tubeless. It's certainly going to drive business opportunity for us. And I think if we work one product versus two, we can get it to market faster.

And we know Mobi Tubeless is going to sell a lot of pumps. So I think that -- we think this is a really important initiative. We haven't said specifically on the timing. We have said 2026, but I can guarantee you, we're doing everything we can, as I just indicated, prioritizing it over other products to make sure we bring it to market as fast as possible. And we think it's going to be a great product and really, again, differentiate Tandem in the marketplace again.

Our next question comes from Jeff Johnson with Baird.

I think most of my questions have been answered. Maybe just back on the U.S. pharmacy comments. There were 5% of revenues this quarter. Can you just remind us what the breakdown is supplies versus pumps in that? I know you have the 40% lives under coverage for Mobi. Are you getting many pumps there?

And Leigh, I think you and I have talked in the past on the pharmacy side that some of your pharmacy contracts even on the Mobi side may not be straight pay-as-you-go models where you kind of take that 4-year total price and just divide it by 48 months that you might actually get more Mobi revenue upfront and more supplies over those 48 months. But just kind of maybe refresh us on what structure of some of those pharmacy contracts might look like with Mobi as well.

Thanks for the questions, Jeff. So just to your comment about the 5% and where is the balance I would say that it's all been Mobi so far, except we -- we did introduce t:slim supplies in the channel in September. So it's a balance between pump and supplies before. It will start to lean more towards supplies as we look ahead in Q4 because there's such a large opportunity with t:slim with the large installed base that we have.

So it will start to lean in the other direction on the supply side. And then in terms of the reimbursement model, you have a good memory there. We -- our contracts today are pretty much all structured like a traditional DME reimbursement model, not the price point necessarily, but how the breakdown is between pumps and supplies with reimbursement upfront for the pump and then ongoing reimbursement for the supplies.

This hasn't been a headwind for patient adoption because we have such a great ability to influence the out-of-pocket for the patients with co-pay assistance programs. So we still get the same benefit with patients, and it's keeping the same structure in place that we've been accustomed to with DME. As we look ahead, in order to get the maximum or the most optimal access on pharmacy, we are looking at other reimbursement models.

And we would consider anything from the DME-like model we have today all the way to a more pay-as-you-go model and anything in between, if you will. So it's something that you can -- we'll share more in the future as we get more coverage and we talk about the expansion of our pharmacy program. But for now, they are all that DME-like structure.

[Operator Instructions] Our next question comes from Travis Steed with Bank of America Securities.

This is Stephanie Piazzola on for Travis. I just wanted to follow up on a comment that John made about getting back to the double-digit growth you've seen in the past. And just wanted to clarify if that was referring to expectations for MDI patient growth next year specifically or over time and if that was a U.S. or a worldwide comment.

Yeah. Thanks for the question, Stephanie. I'll answer for John on that one. So we have often said that our goal long term is to have sustained double-digit growth with a dual focus on profitability. And that's what John was referring to, not any particular piece or part or period, but that's just what our financial goal is. And we look forward with all these opportunities to demonstrate and execute on that looking ahead.

Our next question comes from Jon Block with Stifel.

Leigh, [ I had ] revenues up $25 million Q-over-Q for the fourth quarter and a similar amount for EBITDA. So call it like roughly 100% drop-through on the incremental revenue to get to the EBITDA margin guidance of negative 5% on the fly math is always dangerous. But that's where I'm sort of spitting out for the model to get to the $1 billion and the negative 5% margin.

So it's a high drop-through. I'm calculating the current drop-through in the most recent quarter and impressive, 50%, 60% but not 100%. So maybe if you could just bridge us. Obviously, you've got the gross margin. But then what are some of the other things that we should think about? I'm guessing is some of that the restructuring that you alluded to on the call. Any color would be great.

Sure. Happy to take that. So when you look at Q3 to Q4, the implied revenue step-up is mostly coming from the U.S. business. And as I mentioned earlier, there are the pump shipments stepping up in line with what we've typically seen seasonally. And when you have more pump shipments, we generally see a higher gross margin.

But we have a particular assumption for price improvement on supplies in the fourth quarter as we've introduced t:slim into the pharmacy channel. So that really benefits the gross margin, which is [ P1 ], and you already acknowledge that's a nice step-up. And then dropping through to the bottom line, the incremental benefit is coming from that leverage we expect to see in our spending.

As you mentioned, we did initiate a restructuring in the third quarter, which will yield benefit, but also just our entire commercial transformation that's underway. Part of it was changing the shape of how we go to market and make ourselves more competitive. And part of that is how to streamline and automate and improve our processes internally for how we engage with patients and the pump orders and the supply orders and so on. And so we are beginning -- we are expecting to start to see the benefit of that as we exit this year and going into 2026, we'll build on that even further.

So again, we're very excited about what the future holds for us here. We look forward to demonstrating this profitability improvement that everyone has been waiting so eagerly for and continue to drive the business in a positive way with all the new innovations, business model changes and the transformation that we have going on right now. Thank you.

This concludes today's question-and-answer session and conference call. Thank you for participating. You may now disconnect.