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Operator: Good day and thank you for standing by. Welcome to Tandem Diabetes Care First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. 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, Chief Administrative Officer. Please go ahead.

Susan Morrison: Hello, everyone, and welcome to Tandem’s First Quarter Earnings Call for 2023. We’d like to remind everyone that today’s discussion will include forward-looking statements. These statements reflect management’s expectations about future events, product development timelines and financial performance and operating plans and speak only as of today’s date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our other SEC filings.

We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors. Today’s discussion will also include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. Any non-GAAP information presented should not be considered as a substitution independently or superior to results prepared in accordance with GAAP. Please refer to our earnings release, quarterly report on Form 10-Q and the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure.

Today’s call participants include John Sheridan, our President and CEO. Brian Hansen, our Executive Vice President and Chief Commercial Officer; and Leigh Vosseller, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, we’ll open up the call for questions. Thank you in advance for limiting yourself to one question before getting back into the queue. John, you’re welcome to begin.

John Sheridan: Thanks, Susan, and thank you everyone, for joining us on today’s call. We’re coming out of the first quarter with confidence about our ability to achieve our key operational and commercial goals we set for this year. We continue to expand the insulin pump market while capturing competitive share and grow the number of Tandem customers purchasing a t:slim once again. This is a meaningful achievement in a highly competitive environment and a testament to our talented employees and our number one rated t:slim X2 with Control-IQ technology. Internally, our teams continue to prepare for the launch of multiple new products in 2023. I’ll talk more about each of these later in my comments. But overall, there’s an enthusiasm at Tandem as we approach being able to offer another wave of innovative products to the diabetes community.

With these launches, we’ll be building upon our reputation for offering high-quality products and services that reduce the burden of diabetes management. We set our high bar with our easy-to-use t:slim X2 with Control-IQ technology. It continues to deliver outstanding clinical and quality of life improvements across a wide range of ages and demographics of people living with Type 1 diabetes. This was recently highlighted in multiple publications, including the New England Journal of Medicine and Diabetes Technology and Therapeutics. The amount of positive data we are amassing for our market-leading AID capabilities is unrivaled. The New England Journal publication was the third time our t:slim was featured in the journal. This time focusing on the benefits of our Control-IQ technology for very young children.

Diabetes Technology and Therapeutics recently published a meta-analysis of three randomized Control-IQ trials that demonstrated the immediate and sustained clinical benefit of our system. What this meta-analysis shows is that regardless of age, people with the highest baseline hemoglobin A1c and the lowest time in the range experienced the greatest benefit, which is important as we work to bring the benefits of our technology to more people living with diabetes. Our technology is not only making a positive clinical impact, but we are also making a positive impact on the environment. By choosing a t:slim pump, our customers have kept more than 20 million batteries out of landfills since 2012. This is an important part of our longer-term product strategy as we look forward to similar environmental benefits from our future product offerings.

Is this kind of performance and impact, combined with the customer experience our teams provide that sets Tandem apart and allows us to continue growing our installed base, three years following the launch of Control-IQ. I’d now like to ask Brian and Leigh to spend a few minutes talking about our performance in the first quarter, the broader commercial environment and our expectations for the remainder of the year. Brian?

Brian Hansen: Thanks, John. In my role, I get to spend quite a bit of time with health care providers and their patients and their personal stories they share quickly put into perspective why our t:slim X2 insulin pump is rated number one. It’s number one in terms of overall satisfaction, number one in terms of clinical outcomes, number one in ease of use and number one in reducing burden. There is also a broad acknowledgment that Control-IQ technology continues to be best-in-class. Our automated correction bolus feature, customized profiles, superior overnight control and ability to disconnect continue to be strong selling features. This is why over the past several years, including into Q1 of this year, approximately half of our new customers report adopting insulin pump therapy for multiple daily injections, demonstrating that we are furthering our long-term goal to expand the insulin pump market.

As we look at the broader commercial environment, the start to the year was largely consistent with what we’ve seen exiting 2022. While there were pressures associated with the competitor’s new product launch in the United States, which created noise and delayed decision-making. The experience we’ve gained selling in this environment will benefit us in the back half of this year. Our sales team is excited about the increasing number of in-person diabetes education and advocacy events and our clinical specialists are training more patients in person, which our customers report as a very positive experience. These interactions with our team contribute to overall customer satisfaction which remains high for our technology and our services. It’s why we’ve not seen a change in our modest attrition rate over the past few years.

We monitor this in multiple ways, including through the incredible amount of therapy data regularly uploaded by our customers through our t:connect platform and renewal purchases. In fact, the number of repeat customers purchasing a new pump from Tandem once again increased meaningfully in Q1. It’s also encouraging based on renewal opportunity this year is significantly higher than 2022 and continues to climb over the next few years in line with our historical pump shipments. The impact of the U.S. economic environment has also been consistent over the past several quarters. The more comprehensive payment plans now available to our customers have helped address this pressure, but it has also highlighted that there are some misconceptions held by patients and physicians about the affordability of insulin pump therapy through the DME channel.

Our data shows, on average, the cost for a direct Tandem customer is less than $50 monthly for our system and nearly a third pay zero out of pocket for the pump itself. Our commercial team is focused on driving customer awareness of these facts to counter the perception of cost as a barrier to choosing the t:slim X2 for pump therapy. Outside the United States, there isn’t the same pricing sensitivity as most people are covered under government health care plans where little or no additional payments are required to adopt pump therapy. Related to our international scaling activity, we continue to work through the logistics of the inventory transition to our European distribution center, which was largely done in the first quarter. We’ve now onboarded our distributors in France and Germany, which are two of the largest countries we serve.

And once completed in the second quarter, this European distribution center will support roughly 70% of our sales outside the United States. We’re already hearing positive feedback from our distribution partners that is easing the supply chain process. We now serve approximately 25 countries worldwide and in 2023, we’ll be focused on bringing the benefits to more people living with diabetes in those countries. As we have noted, most of these countries are only 10% to 20% penetrated, which presents an exciting longer-term opportunity. Overall, we continue to be mindful of our competition and will capitalize on the valuable knowledge we have gained so far to inform our commercial strategy as they expand their launches worldwide. We remain excited about the t:slim X2 system we offer today as well as the future technology right around the quarter.

We are starting to receive customer and health care provider inquiries about Mobi and their early signs of anticipation building, reinforcing conviction and our strategy of offering a true portfolio of pumps to meet the needs of more people living with diabetes. With that, I will now turn the call over to Leigh.

Leigh Vosseller: Thank you, Brian. As a reminder, unless otherwise noted, the financial metrics I’ll be discussing today are on a non-GAAP basis. Reconciliations to GAAP can be found in today’s earnings release as well as on the Investor Center portion of our website. Worldwide sales in the first quarter were $171 million, which was in line with the high end of our expectations and excludes the deferral associated with the U.S. Tandem Choice program that launched in late 2022. Nearly half our sales were driven by 23,000 pump shipments. There were multiple unique factors in the quarter resulting in year-over-year comparisons that are not necessarily reflective of the progress of our business, such as the impact on sales of the ongoing operational transition to our European distribution center.

Beginning with our results in the U.S., total sales were $133 million. We experienced typical seasonal trends in our first quarter performance associated with the insurance deductible resets. For example, the average sequential decline for pump shipments in the U.S. historically was approximately 30%. In the first quarter of 2023, the decline was 28% as we shipped 17,000 pumps. While the majority of these shipments were to new customers, renewals also provided a meaningful contribution in the quarter with strong growth year-over-year. We maintained the improvements we saw last year in our renewal rates on an increased number of new opportunities, which underscores our high customer satisfaction. Turning to supplies. We saw an increase in both our cartridges and infusion set sales in line with growth in our in-warranty installed base to approximately 300,000 people at the end of the first quarter.

Similar to pumps and our historical experience, we saw insurance-related seasonality in the first quarter impacting customer ordering patterns. Overall, our direct mix of business in the U.S. and therefore, our pricing was consistent with 2022 at approximately 35% of sales. We are reaffirming our non-GAAP sales expectations in the U.S. for the full-year in the range of $650 million to $660 million based on our current referral trends for new customers and strong renewal rates. We assume that sales will increase across the quarters and that the year will be back-end loaded due to normal seasonality. Considering the sequential step-up from Q1 to Q2, historical trends show a great deal of variability. The bottom end of the range has been a low double-digit increase over Q1, which is a good starting point for how to think about this year as customers anticipate new product launches from our partners, competitors and even our own Mobi launch.

Outside the U.S., our sales in the first quarter were $38 million. We shipped approximately 6,000 pumps bringing our estimated in-warranty customer base outside the United States to 130,000 people. This is a 30% increase in the number of our customers outside the U.S. compared with Q1 of last year. A big focus for our internal operations and supply chain team in the quarter was the continued transition to utilization of the European distribution center that Brian discussed. This is a positive move for our business, reducing logistical supply chain challenges, strengthening international distributor relations and bringing closer correlation between our pump shipments and pump placements on patients. The first quarter impact of this transition was approximately $18 million, reflected in our pump and supply sales.

Although we have substantially completed the onboarding of the participating market, we anticipate approximately $7 million of remaining sales headwinds in the second quarter based on current distributor inventory levels. These pressures were partially offset in the first quarter by pricing benefit from the actual mix of the ordering countries. Consistent with our previously provided guidance, our full-year expectations for OUS business are in the range of $235 million to $240 million. Turning to margins. Our gross margin in the first quarter was in line with our expectations at 50% of sales. Similar to our experience in recent quarters, we benefited from higher average selling prices and reduced manufacturing costs which were offset by unfavorable product mix.

While our supplies gross margin modestly improved over last year, our growing installed base of customers drove the proportion of lower-margin supply sales higher overall. Additionally, the impact of lower sales and higher costs associated with raw materials acquired in early 2022 further pressure gross margins. Those higher material costs combined with greater freight costs reduced gross margin by one percentage point. We anticipate that these higher inventory costs will be materially behind us in the second half of this year and maintain our expectations of approximately 52% gross margin for the full-year. From an operating expense perspective, we continue to diligently manage spending, prioritize investments in future growth opportunities and pursue additional measures to create efficiencies within the organization.

In relation to those efforts, we recognized a onetime $79 million charge for our in-process R&D associated with the closing of the AMF Medical acquisition as well as $3 million in cash and noncash severance costs in the quarter. Beyond these unique items, our increase in Q1 baseline spending compared to the fourth quarter was primarily associated with ongoing operational costs related to our recent acquisitions and Mobi development scale-up costs. When excluding the onetime transactions as well as depreciation, amortization and noncash stock-based compensation, our adjusted EBITDA margin was negative 12%. This was in line with our expectations, particularly in light of the sales impact of the European distribution center transition. We anticipate that our adjusted EBITDA margin will improve in the second quarter to negative mid-single digits with a return to positive margins in the second half of the year when the distribution center transition is complete.

Therefore, we are maintaining our expectations for adjusted EBITDA to be in the range of 5% to 6% on a full-year basis. We closed the quarter with total cash and investments of $520 million. Notably, we utilized $69 million in cash for the closing of the AMF Medical acquisition in the first quarter, but remain in a strong balance sheet position. To summarize our 2023 outlook, which is provided on a non-GAAP basis, our worldwide sales are estimated to be in the range of $885 million to $900 million, including sales outside the United States of $235 million to $240 million. Our gross margin expectation is approximately 52% and adjusted EBITDA is estimated to be in the range of 5% to 6% of sales. Our noncash P&L charges for stock compensation, depreciation and amortization are expected to be approximately $115 million, of which $95 million is associated with stock comp and $20 million with depreciation.

As a reminder, unless otherwise stated, the financial metrics I discussed today are on a non-GAAP basis. Please refer to our earnings release and the Investor Center portion of our website for a reconciliation to the most directly comparable GAAP financial measure. I will now turn the call back to John.

John Sheridan: Thanks, Leigh. Delivering on innovation is what drove Tandem to its leadership position in insulin therapy management. We are committed to continue doing so by serving the varying needs and preferences of people living with diabetes, the majority of whom use multiple daily injections today. This requires a true portfolio of solutions that center around simplification and delivering choice. This means choice in features, choice in device form factor and choice in how users can wear and operate their pump. We’ll continue delivering on this vision in 2023 as we plan for our upcoming new product introductions. Our goal starting this Fall is for the t:slim X2 to be the first FDA-cleared insulin pump integrated with multiple CGM sensors.

Choice of more than one CGM is not only a differentiator, it’s a true realization of interoperability and opens the door for more people to adopt our technology. This empowers users to make the best sensor decision for their needs and preferences. Our t:slim X2 pump in the market are capable of being remotely updated to integrate with Dexcom’s G7 and Abbott’s FreeStyle Libre sensors. These no-cost software updates will be offered to all X2 users within their warranty period. We find that launching our products in a metered fashion provides the best experience for our health care providers, customers and internal teams. The key phases, including starting with internal walkabout testing, followed by scaling availability in the United States and debt internationally.

We’ve been working closely with Dexcom to finalize our Control-IQ integration with G7 and to coordinate its launch. Walkabout testing has been taking place and launch will scale across the upcoming months, followed by our international rollout. We’ve also been working diligently on the integration of Abbott’s FreeStyle Libre 2 and Libre 3 sensors. Walkabout testing using Libre 2 is also underway. And we plan to start a scaled launch in the U.S. in the third quarter with Libre 3 as a fast follow-up. We believe this path will allow Libre customers to enjoy the benefits of our Control-IQ technology as we finalize the integration with Libre 3. Outside the United States, we intend to launch directly with the Libre 3 sensor as the implementation path aligns with our target launch timing.

The next new technology we are preparing to launch the following FDA clearance is a Tandem Mobi system. As a reminder, the Mobi pump is about half the size of the t:slim and operated by a smartphone through a mobile application. It’s designed to expand our portfolio of diabetes solutions and offer people greater choice in how they wear and operate their pump. Our dialog with the agency remains constructive as we work through the process of FDA review and responding to questions. In the meantime, we continue to prepare for its launch in the second half of the year. As you can see, we are making great progress with our future products in addition to the strength that we offer in our t:slim X2 today. We have historically introduced new diabetes technologies at an industry-leading pace.

So it’s particularly noteworthy that we will be bringing multiple new products to market in the coming months. Our employees are extraordinary. And I’d like to express our thanks to everyone for your efforts in making both Tandem and our technology offerings positively different. We remain confident in our ability to achieve our goals for the year which focuses on successful executing our business plan, supporting our customers and building shareholder value. With that, I’d like to ask the operator to open the call up for questions.

Operator: And our first question is from Matt Miksic with Barclays. Your line is open.

Matthew Miksic: Hi, thanks for taking the question. And congrats on a really solid quarter here. So maybe, John, if you could describe this the walkabout process and the sort of the ramp-up of the integration that you talked about, a little bit different than the sort of clearance and launch cadence that we’re used to. And then I just have one follow-up.

John Sheridan: Sure. Well, the sequence of release is really going to follow the sequence of the FDA approvals for both Dexcom and Abbott. So Dexcom will be first, and then that will be followed by Abbott. And as I said in the prepared remarks, we conduct this walkabout testing really to help us understand and optimize system performance and customer experience. It’s followed by a scaled launch, which is going to happen in the upcoming months. And we would expect to see meaningful — a meaningful number of customers using the t:slim G7 in the third quarter. So I think that when it comes to the international launch, it will follow the U.S. launch. It will occur on a country-by-country basis for G7, and it will commence relatively — in a relatively short time frame after the U.S. launch starts.

When it comes to the Abbott product, we’re also in the walkabout testing phase right now, and that scaled launch process is going to be delayed a little bit compared to Dexcom. It will happen in the third quarter. And so I think that it will happen in the third quarter, we would see meaningful numbers of people using the system as we enter the fourth quarter.

Matthew Miksic: That’s great. Thanks so much for the color. And one follow-up, if I could, John. We talked about this process. And we pick up on this a little bit when we talk to clinicians and how they’re seeing patient choice kind of enter new patients considering the two leading closed-loop systems out there in the market. It seems to have kind of stabilized in sort of a 60%, 70% of new patients may be flowing to the other system in the very anecdotal checks that we’ve performed. But what’s your sense? I mean is it sort of crested? Is it stable? Is there anything else coming up in the narrative and dialog that clinicians are having with patients that gives us a sense of what the environment is like at the moment?

John Sheridan: Yes, Matt, I think you’re right. I think we sort of see the situation as having stabilized. There still is pressure for sure but it’s not any better, it’s not any worse. So it has been entering this year. I think we probably expect to see the pressure for another quarter or two until we start to see the benefits of these new technologies, new ways of innovation come to market in the second half. And so we would agree with your characterization.

Operator: One moment for our next question. And our next question is from Steven Lichtman with Oppenheimer. Your line is open.

Steven Lichtman: Thank you. Good evening everyone. So just one question and then just one quick clarification just in terms of making — it looks like you’re making nice progress on the integration with the CGM that is not embedded in guidance, right? Any sort of contribution you get in the latter part of the year. That’s just a clarification. And then just going back, Brian, to some of your comments about some of the experiences you’ve learned in terms of competing with the newer products in the market and that could help you in the back half of the year. Can you talk a little bit more about what that means I think you had talked a little bit about the pricing dynamics and some clarifications there. If you can clarify what you mean by that and what you’ll be putting in place? Thanks.

Brian Hansen: Sure. So Leigh, you want to catch the first one?

Leigh Vosseller: Sure. I’ll start by confirming that we do not have any new product contribution in the guidance for this year.

Brian Hansen: And to my piece, I commented earlier that first quarter was a lot like fourth quarter. The environment is pretty stable right now from a COVID perspective, we’re not seeing those challenges, maybe a few staffing challenges. So now we sit with some of the economic pressures. And I think we’ve addressed those very well. And obviously, the competitive piece as part of the prepared remarks is something that we see. I would say most of our conversations with our health care providers start with the strength of Control-IQ and the support that they get from the Tandem team. And then we take a look at that six or nine month window now that the competitive product has been available on the market. Those patients are coming back to the endocrinologists with feedback, and we can see how they’re doing.

The physicians can see how they’re doing, and again, it highlights the strength of our product and to some extent, the strength of their products. We feel very good about our offering and continue to lean into the size, the touchscreen, the ability to disconnect all the features that folks have liked, and our team has done a tremendous job there. So anytime there is a product introduction like that, it takes a little while to kind of play out and that pent-up demand and early excitement, but I think we’re moving into a more stable environment now going into Q2 and the rest of the year.

Steven Lichtman: Great. Thanks.

Brian Hansen: Appreciate it.

John Sheridan: Thanks, Steve.

Operator: One moment for our next question. And our next question is from Chris Pasquale with Nephron Research. Your line is open.

Christopher Pasquale: Yes, thanks. John, one question on Mobi and then one just on the model. Are you expecting any slowdown in pump shipments as Mobi gets closer to the finish line here. You talked about anticipation starting to build, we have seen in the past when you guys have launched new products, a bit of an air pocket in front of that. Is that contemplated in your outlook for the year?

Leigh Vosseller: I’ll take that one, Chris. Yes, we — any time a new product is introduced into the market, whether it’s a competitive product or our own product, we tend to see noise in advance of it. It’s usually the strongest in the time from when FDA approval comes around that timeframe up until the point it’s actually released on the market. So when we look at the cadence of how sales will spread across the year, we’re taking that into consideration, which is part of the reason when we talk about the sequential step-up into Q2, when we think that noise might begin, we’re cautioning you just start on the end of the low double-digit step-up, which is the low end of the range that we’ve seen historically.

Christopher Pasquale: Okay. That’s helpful. And then just looking at the international pump revenue this quarter, there was a pretty big delta between pumps shipped and the revenue you guys recognized there seem to imply a step-up in ASP. Is that just because of mix? Or is there another dynamic happening there related to the distribution center?

Leigh Vosseller: It actually is related to the distribution center, but it is a price benefit. So if you think about the sales headwind that we saw was within particular countries. And so it was a different mix of ordering countries within the quarter than what we would see on a normalized basis which gave us that price benefit this quarter. It’s not something though that I would model in or expect to continue for the future.

Christopher Pasquale: Okay, thank you.

Operator: Thank you. One moment for our next question. Our next question comes from Brooks O’Neil with Lake Street Capital Markets. Your line is open.

Brooks O’Neil: Good afternoon. So the last few product innovations you guys have delivered have largely been delivered through the free software download and I know we’re anticipating that for the integration with G7 and Libre products. How do you view the impact to your revenue line from those free software download versus the impact you might anticipate from Mobi which is a complete new form factor?

John Sheridan: I’m going to say that — hi Brooks, first of all, how are you doing? I would say that.

Brooks O’Neil: I am doing well.

John Sheridan: We expect to see — good. We expect to see favorable revenue impact from the G7 launch. It’s a brand-new form factor. It’s got a faster start-up time. I’ve talked to people who are using it and it really is — people really do like it. So we think that there’s going to be a positive impact, as Leigh mentioned. We also think that it could help us with renewals to have people renew sooner. So that’s all good. I think that Abbott, when you think about Abbott, there’s quite a large number of people with Type 1 that are using the Abbott sensors that are not using pump therapy today. So that may represent even a bigger opportunity than what we see with the Dexcom. I do think that when we bring Mobi to market, it’s a brand-new form factor.

It’s going to be controlled by the mobile app. It’s got the discretion and the ease of use, just the simplicity of interacting with a system that’s on a mobile app. We think that’s going to have a positive effect on sales. I think that all three of them are going to have a positive effect. And I think that probably, we will see some effect in the latter part of this year. But the good news about 2024 as we get the full benefit of these products, including Tandem Source, which we haven’t talked much about, through the entire year of 2024.

Brooks O’Neil: Got it. Thank you very much.

John Sheridan: Thank you.

Operator: One moment for our next question. And our next question is from Larry Biegelsen with Wells Fargo. Your line is open.

Nathan Treybeck: Hi, this is Nathan Treybeck on for Larry. Can you talk about how new starts trended in Q1 relative to renewal and the underlying drivers? And I guess what you’re seeing in April so far? Thanks.

Leigh Vosseller: Sure. So the way this quarter shaped up, as John and Brian both said, it was pretty stable, I would say in consistent with the type of environment we were seeing in the fourth quarter. So as we came into the year, we anticipated that overall pump shipments in the U.S. would follow typical sequential trends, which is a decline of about 30%. And in this quarter, indeed, the decline was about 28% for new and renewal. Renewal pumps are continuing to grow to be a bigger piece of the pumps that we ship, but new pump starts are actually still the majority there. And so I would say if the dynamics are the same and that we’ve seen consistent strong renewals even in the light of this environment, and new pump versus where or where we have seen the pressure. But as we’ve talked about, we still firmly believe we have the best product out there, and we continue to fight for that new market share.

Nathan Treybeck: Great. And if I could just follow-up. In terms of new competition, so your competitor recently got approval for their 780G pump in the U.S. How are you thinking about the competitive landscape once that this is on the market? Thanks.

John Sheridan: Well, we’ve been competing against that product now in OUS countries for many quarters. And while we know that once the product does come to market, as I said sometime this summer, we expect them to step up promotion. But we think we have a better product. We think we have the confidence and trust of the endo community in the States. And when you look at the new device, it’s certainly a better device, but it’s still the same form factor, and it has a sensor that requires fingersticks. So while there’s new competitive products in the market, first of all, it’s not a surprise. We’ve been expecting this for a while. And it hasn’t changed our conviction. We remain confident in our ability to hit our goals for the year even with this coming to market midyear.

Nathan Treybeck: Thank you.

Operator: One moment for our next question. Our next question comes from Danielle Antalffy with UBS. Your line is open.

Danielle Antalffy: Hey, good afternoon everyone. Thanks so much for taking the question. I just have two questions, if I could. One, on the competitive environment. And that’s really around what’s factored in. I mean, I think we were all a little surprised about the recent product approval from one of the major competitors. So what’s factored into the guide there? And then my second question, I’ll just ask it now. And John, you did touch on this a little bit, but just trying to think about the opportunity that exists here with Libre integration, given the size of their installed base. And obviously, it’s a smaller installed base or they have less market share, I should say, in type 1. But is this something that you think could be an inflection driver and sort of change the tide here back to accelerating growth? Or is this more muted? I mean, how should we be thinking about this? I appreciate it’s not in ’23 numbers, but as we look at ’24, et cetera. Thanks so much.

Leigh Vosseller: Sure. Thanks for the questions, Danielle. I’ll take the first one about what’s factored in the guidance in relation to the competitive environment. We do always when a new product is being introduced factoring that there will be noise in the market. And in fact, we have been anticipating, I guess, you would say, the approval of this product now for a year or two. So it’s something that we’ve always assumed could be just right around the corner. And so now we have more certainty about the timing. And so as we look into Q2, we think it will be noisy, which is why when we look at our historical range of how Q1 usually transitions into Q2, we expect to be on the low end of that in the low double-digits in terms of sequential growth with that kind of noise that’s coming in the market and also add to it that there’s going to be conversations people who might be waiting for G7 to be available on the pump as well as people starting to talk about Mobi.

And so that’s what we’ve thought about from a competitive perspective and the noise that could come this year.

John Sheridan: And Danielle, regarding Libre, I think the first thing to say that’s important is that we’re all about providing choice. And we are not engaged in any of the competitive sort of competition between the sensor companies. All we’re trying to do is provide a device that has a choice of sensors so that people who have a natural tendency to choose Dexcom can and if they have an interest in Abbott, they can do that also. But that being said, there — as we understand it, there’s approximately 300,000 people who have type 1 in the U.S. that use the Abbott sensor. And so certainly, that becomes an opportunity for us to take advantage of that community. If we even get 30% or 35% penetration with that community, there’s — it’s 100,000 people that are potential candidates for pump therapy.

So I think that there is a big opportunity with the Abbott device, and I think it’s also larger outside the United States. So we look at it as a growth driver that’s going to — it’s really an important growth driver that allows us to get to the numbers we’ve talked about in 2027 time frame. So it’s an important part of our pipeline going forward.

Danielle Antalffy: Thank you.

Operator: One moment for our next question. Our next question comes from Matt Taylor with Jefferies.

Matthew Taylor: Hi, thanks for taking the question. Hey, John and Leigh, I just wanted to follow-up on that line of thinking about the Abbott opportunity. And John, you just mentioned 30% to 35%. Have you done market research on the percentage of people that could convert? Or how do you think about the opportunity overall for them to convert to MDIs and they haven’t done that previously. And your opportunity within that?

John Sheridan: Yes. And as I said, I think that there’s about 300,000. And if you look at the current penetration rate of pump therapy in the U.S., it’s about 35%. So in my mind, that kind of defines as a starting point. We certainly are going to have to sell to them, help convince them of the benefits of pump therapy and just work the process. But I think that when we set a goal for ourselves, I think that’s a reasonable starting point. And I think as they become more and more familiar with the benefits of pump therapy, connected up to a sensor that they’re comfortable with. We think that represents a significant opportunity for growth in the upcoming couple of years.

Matthew Taylor: Maybe just one color. I mean that makes sense. Could you help us think about the time frame that you would expect some of those folks to convert? And what are the key factors? And whether they’re converting quarter one or quarter six after the integration?

John Sheridan: I think that the — I think it’s going to — it’s not going to be overnight for sure. I think there’s definitely going to be a selling process, pro promotion, co-marketing process that’s going to have to happen. But I think that it does represent a large opportunity for us. And I think it’s something that our sales force is excited to get involved in.

Matthew Taylor: Right. Thank you.

Operator: One moment for our next question. Our next question comes from Matthew O’Brien with Piper Sandler. Your line is open.

Matthew O’Brien: Thanks for taking that question. And this one’s for Leigh. And I guess it does have two parts. It’s not a singular question. But Leigh, is there any demonstrable change as far as MDI patients or competitive conversions you wanted to call out in the quarter? And then more importantly, as I look at the model here, and you guys are sticking with the U.S. number for the full year and based on your commentary, which I think you said low double digits off of what you just put up in the U.S. when I do that math, I’m getting like 42% of the full-year number is which you should generate in the first half. Historically, it’s been — last year, it was 47%. The year before that, it was 44%. So it’s just a big ramp in the back half of the year with a competitor making more noise in the space, not including Mobi et cetera.

I mean, why are you confident to be able to get back to — get up to 650 even at the low end of the range? I mean, can you really walk us through how you get there?

Leigh Vosseller: Sure. Thanks for the questions, Matt. I’ll start with the first one on how new pumpers broke down. It again remained consistent at that 50-50 mix of about 50% coming from MDI and 50% from competitive conversions. So no change in those dynamics there today. But again, just to remark that renewals are becoming a much bigger contribution to our pump shipments every quarter. And that leads to the second part of your question about the U.S. this year and why we’re so confident in the back half. First, I would say 2022 probably isn’t a good comp for how the first half and second half split, just based on the dynamics across the year, it was a much healthier environment in the first half than it was in the second half.

And so a 40-60 split isn’t too unusual for what we’ve seen in our history. And this year, the conviction comes from the fact that partially more of our business is coming from recurring revenue streams. So more like 60% this year, which is higher than what we’ve seen in the past when you factor in the supply sales stream that we see from our large installed base as well as renewals growing pretty significantly. If we look four years ago, there were about 50,000 people. They bought Tandem pumps in the U.S., up from 30,000 the year before. And those have a strong seasonal scale to them. So when you just think about normal seasonality, you think about the predictability of renewals coming and the predictability of supplies. It seems pretty normal for us to be able to achieve that kind of year, and we have a high level of conviction in doing that.

Matthew O’Brien: Got it. Thank you.

Operator: One moment for our next question. Our next question comes from Jayson Bedford with Raymond James. Your line is open.

Jayson Bedford: Good afternoon. Just may be a couple of questions. They’re probably more — excuse me to Leigh. On international, the historical kind of sequential dynamics are kind of all over the place. You called out the $7 million expected impact from the distributor dynamic this year in 2Q. Any direction you can give us on international revenue in 2Q?

Leigh Vosseller: So I think, Jayson, the way to look at it is — we gave a headwind that hit us in the fourth quarter of about $6 million. It was about $18 million in Q1. So when you add those back, I mean considering there’s still a little bit of variability in there because we haven’t fully transitioned, that gets you to almost what I would call a normalized run rate type of number. So you can use that to think about what to build off as you look forward for our OUS business. We’re still very excited about the opportunities there with — we have new product introductions that come outside the U.S., and there’s a lot of excitement about Control-IQ. And so there’s still great growth opportunity there. It’s just we need to work through these headwinds here in the near-term.

Jayson Bedford: Okay. And just the up low double-digit comment that you’ve made here, that was related to the U.S. business, right?

Leigh Vosseller: Yes. Thanks for asking that for clarification. It’s U.S. pump shipments, which is what I’m really referring to. When we look at our traditional seasonal patterns there, that seems like a good place to think about the starting point for Q2 of this year.

Jayson Bedford: Okay. And then just to true up kind of the apples-to-apples comparison here. I appreciate the 430,000 in-warranty user comment. What was the in-warranty installed base exiting ’22? Just want to make sure we’re comparing the installed base on an apples-to-apples basis.

Leigh Vosseller: Sure. It was off the top. I think was about 420,000. There’s one thing I’d like to point out there. I think it’s a question I’ve gotten a number of times is how they translate that installed base number into what is an ordering base number and/or how do view attrition. And that installed base number that we provide is intended to be representative of who is in warranty in any given period. And while I think it’s a good directional tool for modeling supplies, so looking at renewal opportunities, it’s not the way to measure attrition because it’s straight math. So as you add new people into the warranty base and you drop off people whose warranties have expired. That’s not how the ordering patterns work. We have people who have stopped using the pump in-warranty.

We have many people who use the pump out of warranty. So it’s not necessarily a way to think about attrition, but it is good directionally for modeling, like I said, supplies and thinking about renewal opportunities.

Jayson Bedford: And your comment is you don’t believe…

Susan Morrison: Jayson, I’m going to need to ask you to jump back in the queue.

Jayson Bedford: Yes, sorry.

Susan Morrison: That’s okay. Thanks.

Operator: One moment for our next question. . Our next question comes from Joanne Wuensch with Citi. Your line is open.

Joanne Wuensch: Good evening. I’m just going to get my head around season two is the only thing difference between that and the previous season, the addition of G7 and Libre 3. And then part of that is, so you’ll be going to market with Mobi as well as t:slim 2. How does your sales force sort of decide, which one it’s selling on which day? Thank you.

John Sheridan: So Joanne, I just want to be sure I understand. Right now, we have t:slim X2 on the market. And we are going to add the capability for G7 and Libre 2 and 3 to t:slim X2. So we will be providing a software update to the current installed base so that they can actually update, can use these new sensors as they come to market. We are also working on the t:slim X3, which is a technology upgrade to t:slim X2 and that’s something that’s going to be coming out here in the near future. And it’s essentially just to make sure that we just preserve the life of the t:slim product because it’s been on the market for about 10 years right now. So there’s a number of technology upgrades that will enhance the capability, microprocessing skills, I think our capabilities as well. But I just want to be sure I understand the question when you’re asking. I’m not sure if I did.

Joanne Wuensch: Yes, you did. I probably didn’t say it as clearly as you answered it. But t:slim 3 is coming out at the end of this year also. I’m just trying to get my head around how many new things you’re talking about in the second half of the year?

John Sheridan: Well, right now, we have four new products. We have Tandem Source, which is something we really haven’t talked about that much. And that’s coming out here in the relatively near future. As we talked about the two sensor integrations, we expect to start scaling launch here in the near future with G7, and we’ll start the scaling launch of that in the third quarter. And then we’re waiting for approval on Mobi. And so there’s really four products that we’re looking at happening here in the fourth — sorry, the third and fourth quarter of this year. Tandem t:slim X3 is it’s out in time. It will be the next product but we haven’t been specific about when it’s going to be available to the marketplace. But it’s out there probably 12 to 18 months from now.

Joanne Wuensch: Perfect. Thank you so much.

John Sheridan: You’re welcome.

Operator: One moment for our next question. Our next question comes from Matthew Blackman with Stifel. Your line is open.

Mathew Blackman: Good afternoon everybody. Thanks for taking my question. I’ve got one clarification question for Leigh and then a bigger picture question. Maybe, Leigh, just to start, I’m not sure if we’re doing the math right, and you gave us some different metrics to play with at this time. But on renewals, was the 1Q number something approaching 5,000 pumps, something in that neighborhood. Just any help there. And then I guess a sort of a follow-up question, and this is probably for John and/or Brian. I was hoping you’d give us some sense of your strategy in a primary care channel. There’s obviously still some opportunity in endo offices, but it seemed to be a large still untapped cohort of type 1 and type 2 intensive that use PCPs. I know today, you target high-prescribing insulin docs and that capture some of the opportunity, but do you need to go deeper and broader than that?

And if so, what could that look like? And frankly, why wouldn’t that be an initiative that you’d be starting now, if you aren’t already? Thanks, there’s a lot in there, I apologize.

Leigh Vosseller: Yes. I thought, I’ll give you a quick response to the renewals question. The information that we’ve shared is that renewals continue to be strong. And so what’s important to note is that the rate at which we convert customers when the warranties expire, it was consistent again this quarter with last year, even first quarter. So comparing a healthier environment to what we’re seeing today, which is a little bit more challenged, but it says a lot about our own customers and how they really want to — they really want to stick with their product. They love the product, they love our customer service and everything that we offer. In terms of the number — another piece of information that might be useful. I mentioned the sequential decline for pump shipments from the fourth quarter to the first quarter, it was approximately the same for both the renewal population and the new population.

And so renewals are becoming a bigger percent of what we ship each quarter, and we expect that to continue throughout the year as the number of opportunities grow. But new pumpers will still be the majority. And so hopefully, that’s a little bit of information to help you understand the renewals trajectory.

John Sheridan: Brian, why don’t you take the question on primary care physicians?

Brian Hansen: Yes. We definitely do see primary care physicians where there is a desire to interact with a pump company like Tandem. And I would say all of our territories have a certain percentage of PCPs that they do call on. We work very closely with our CGM partners as well who have moved into that space more aggressively. And when they start to get inquiries about pump therapy or the opportunity to work with their patients, they pull us into several of those meetings. And as physicians become more comfortable with that, we certainly will spend time with anyone who is interested in learning more about pump therapy, explaining to their patients and quite frankly, getting trained on it and support them just like we would in endocrinology office.

But clearly, the majority of our time is spent in our big diabetes education centers where we see the type 1s predominantly sitting as we start to look at type 2 more aggressively in the future with Control-IQ and our future products, that becomes probably a bigger piece of our strategy to grow in the primary care space.

Mathew Blackman: All right. Thank you.

Brian Hansen: Yes.

Operator: One moment for our next question. Our next question comes from Joshua Jennings with TD Cowen. Your line is open.

Joshua Jennings: Hi, good afternoon. Thanks for taking the questions. Wanted to ask about the cost per month for patient for pumps is less than $50. Does that include the expenses related to CGM and the accessories or confusion sets within the DME channel? And can patients access infusion sense on reservoir and CGMs using their pharmacy benefit and pair them with Tandem pump t:slim X2 through the DME channel? Then, I have one follow-up.

Brian Hansen: I’ll take that one. Yes. So the infusion sets cartridges are only available through the DME channel today. And that $50 or less per month does not factor in the CGM portion of their therapy is just strictly the pump is spread out over time as well as the infusion sets and cartridges necessary to operate the system.

Joshua Jennings: Can Tandem patients access their CGM through their pharmacy benefit instead of the DME to cut down on costs for the CGM?

Brian Hansen: Absolutely. They have a choice if they want to get it in conjunction with their pump supplies or they can separate those two and get those through the pharmacy channel. If their benefits allow it, it works for them, there’s no hesitation to do that if available for them.

Joshua Jennings: Great. And then just on checking with endocrinologists and the very positive feedback, clearly, as you’re all well aware of the Control-IQ algorithm, sometimes we get feedback on just cross-trial comparisons being challenging. So my question is, one, can you just remind us of the road map of enhancing the Control-IQ algorithm go? And then how are you thinking about investing in a head-to-head trial against your competition? Would that be worthwhile to kind of formally put the stake in the ground at the Control-IQ algo was the premier solution?

John Sheridan: Yes, sure. We are and have been since 2015, significantly expanding our internal capabilities to develop algorithms, and we have been working on it since that time. 2015 was when we first establish the relationship with TypeZero. And I think that we established that relationship because we didn’t have the capabilities initially. But certainly, we have been since then. And we continue to work with a number of universities and other institutions to just improve the knowledge and to run clinical studies and just get — just better feedback on the performance and ideas on where we ought to be heading. So I will say that, as you know, we probably have our second clinical study underway right now to evaluate certain features for Control-IQ.

We would — we expect that, that’s going to inform a pivotal study that would be run sometime next year. And that study would be — what would be required to get clinical approval for that next-generation system. I think some of the key features that we’ve talked about in the past have just been simplification of the bolus workflow personalization. And then just — there’s a number of things that I think we can do to just improve the overall experience and potentially make the algorithm more aggressive. So that’s what we’re working on right now. And I think that as we get closer to define a pivotal study, we’ll talk more about what the specifics are. In addition to that, we are working on, I will call it, Control-IQ 1.5. And this is an algorithm that’s going to enable a broader cross-section of people with big larger body mass and also the younger children that have smaller body masses to use the system, and there will be a few features that are going to be available in that, and that will be available in a relatively short period of time, probably sometime next year.

But most of the work that we’re focused on right now is really on Control-IQ 2.0. And we’re also looking beyond that. I mean certainly, we are working towards ultimately getting a fully closed-loop system, but that’s going to be out in time.

Joshua Jennings: Great. And then any ambitious to hold support or invest in the head-to-head trial with competitive technologies?

John Sheridan: I think, Joshua, right now, there’s just a lot of clinical data out there. And I think we feel like clinical data stands for itself, and it’s strong. And I think we compete quite well both from the sort of the clinical information as well as the real-world data. So at this point in time, I don’t think we see the need to do that. And I think that when you talk to people about it, they certainly agree with us that our device is the best on the market.

Joshua Jennings: Understood. Thanks a lot John.

John Sheridan: You’re welcome. Take care.

Operator: One moment for our next question. Our next question comes from Travis Steed with Bank of America Securities. Your line is open.

Stephanie Piazzola: Hi, this is Stephanie Piazzola on for Travis. Thanks for taking the question. Heard the clarification on the U.S. pump shipments up low double-digits next quarter, but wanted to see how we should think about overall Q2 revenue on a sequential basis. The Street is at $215 million. So wanted to see if you had any thoughts there. And then on the Q2 EBITDA margin guide of negative mid-single digits previously, it seems like it would be flat in Q2. So I was wondering if that’s gotten worse versus before? And if so, why?

Leigh Vosseller: Thanks for the question, Stephanie. So starting with sales worldwide in Q2. I think it was very important to get the information about where we think U.S. pump shipments trend because that’s one of the biggest drivers, which is I would expect a softer expectation than what people have right now. And it’s really an anticipation that the market could be noisy in the second quarter, but we think it’s temporary. It’s really just ahead of some really exciting products that are around the corner for us. And until the newest competitive product starts coming out to market, which we feel will compete effectively against. The other piece that I think is really important to understand about the expectations for Q2 is how the distribution center transition outside the U.S. is impacting the year.

So originally, I had given the guidance that it’s $25 million for the year and only said heavily in the first quarter. So now I think it’s important to take note that, that $7 million will be a headwind in the second quarter, which I think also will often expectations from where they are today. And so I think we want to be cautious as we step into Q2 and the environment that we’re in. But we feel like everything that we’re talking about, they’re all just temporary items, and we feel convicted that we can achieve the second half after what we see in the second quarter. To your question about the EBITDA. A lot of that is just translating what’s happening from the OUS market. So as you think about the sales trajectory, we’re closely managing costs, but it’s really the sales that are influencing what EBITDA looks like.

What it looked like in the first quarter and what we expect it to look like in the second quarter. So once we get past that transition, EBITDA to start to track more closely to pump sales across the year. And so we do fully expect to be back to positive in the third quarter and for the back half of the year.

Operator: One moment for our next question. Our next question comes from Alex Nowak with Craig-Hallum.

Alexander Nowak: Okay. Great. Good afternoon everyone. One is just the latest on the back and forth that the FDA and the Mobi submission. Has there been any questions that have been raised, kind of soft clock? Have you moved into labeling discussions? Just where does that stand?

John Sheridan: We’re having a constructive dialogue with them right now. It’s — I would say that there’s — it’s a — we’re at a point where we’re responding to questions and we’re actually in the process of answering some questions, which, in some cases, take time because there might be additional testing and things like that, that’s going on. I would say it’s constructive. And I think that it’s basically encouraging that we see a lot more activity from the FDA in the last couple of quarters, right, as we’ve said in the past, though, it’s difficult to predict exactly when we would expect to get approval. And so the organization is preparing that that’s going to happen in the second half of this year, and it will take us roughly a quarter to have the device on the market from the time we actually received the clearance.

Alexander Nowak: Okay. That makes sense. And then in the past, you’ve talked about the operating cost base that, well, I guess, if you look at the operating cost base, you have doubled that size of the expense lines versus 2021, but the revenues hasn’t doubled. Now I know a lot has been happening the last two years, but you’re also getting ready for a lot of new product enhancements coming. So I mean, how should we start thinking about efficiencies and margins over the next couple of quarters, next year or so when these new products come online? Should a lot of that start to drop to the bottom line? And just help me get back to this free cash flow positive territory that we’re pretty close at but now we’re a little bit further away.

Leigh Vosseller: Right. So I’ll start just the first half of this year is in orally pressured by this transition that we’re seeing outside the U.S. So that’s one of the biggest pressure points that preventing us from being positive on an EBITDA line for this past quarter and this upcoming quarter. What it takes is we’re prudently managing our spending. So we’re looking very closely at where we’re putting our dollars, where are the right places to make investments and where — and more importantly, can we find the efficiencies, not only for right now, but for the longer term. So we continue to focus closely on a lot of our customers facing services that we offered moving to more automated or digital solutions. And that’s where Tandem Source as a new product will really come into play.

And not only will be very helpful from the physician perspective and the efficiency it can create in their practices but also internally and how we can offer patients something that’s more like a retail experience as opposed to a lot of the — today with the required human interaction. And so as we look forward, that’s one of our biggest opportunities for the longer term to create efficiencies within the operating expense line to help us drive those margins up. And we still remain confident that we can achieve our long-term objectives there.

Operator: And we have our final question comes from Mike Polark with Wolfe Research. Your line is open.

Michael Polark: Hey, good afternoon. Thank you for taking the questions. I have a question about this kind of emerging, bring your own sensor paradigm. Do you have any early flavor for whether Control-IQ algorithm performs similarly with the Dexcom products as Libre? Or are you sorting that out now? And kind of if you could speculate what’s the future state of this? Are the pumps and sensors indifferent? Or might there be some quality and performance variances that you eventually know about in one, two, three years?

John Sheridan: I think that we’ve carefully evaluated the Abbott sensor, and I think we feel very confident that it will perform very well with Control-IQ. We will — we plan on using the sensor data as soon as we initiate the sensor session to power the system and to actually inform Control-IQ. So we have confidence that the system is going to work well. I think it just comes down to personal preferences. I mean some people prefer one sensor over the other. And I think that it just gives people a choice. I mean, what’s going to happen is there will simply just be a touchscreen on the system, and you’ll be able to choose whichever sensor you prefer. And I think that’s the idea here is just to give people a choice.

Michael Polark: Thank you. And a boring follow-up. Reporting change supplies now instead of infusion sets and cartridges. Is that permanent? Or will there be a breakout in some other materials? And if not, why the change?

Leigh Vosseller: Sure. You’re right. We did make that change this quarter. And frankly, the relationship between cartridges and infusion has been so consistent that it seemed like an unnecessary level of detail. So the way it has been tracking, you can usually see that infusion set sales run about 2x to 2.5x cartridge sales, and it really just follows the use pattern of the patient. So there’s not a lot of variation there.

Michael Polark: Thank you.

Operator: And this concludes today’s conference call. Thank you for participating. You may now disconnect.