Tandem Diabetes Care, Inc. Q2 FY2025 earnings call

Commercial Update - U.S.:

• Year-over-year increase in pump shipments, with renewals over half of pump shipments and continuing double-digit growth.
• People converting from MDI made up about 2/3 of new pump starts.
• Tandem Mobi received positive feedback for its versatility, with year-over-year adoption increases.
• t:slim X2 is compatible with Abbott's FreeStyle Libre 3 Plus sensor, with early access underway and full U.S. availability planned for fall.
• Type 2 diabetes commercial activities expanded, with a pilot in territories showing greater adoption, and plans to expand type 2 efforts through the remainder of the year, including selling t:slim supplies through the pharmacy channel starting in Q4.

International:

• Strong overall performance driven by demand for t:slim, increasing pump renewals, and growing supply sales.
• Preparations for Tandem Mobi's launch continued with CE Mark received, and plans to start direct sales in select countries next year, with preparations progressing well.

Margin and Financial:

• Second quarter gross margin 52%, reflecting pricing, product mix, and non-manufacturing costs.
• Mobi platform is a key driver for long-term gross margin expansion, with cost per pump improving year-over-year.
• Operating expenses grew 10% year-over-year due to SG&A investments, but savings expected in the second half.
• R&D expenses flat year-over-year, focused on efficient innovation.

Product Developments:

• Submitted Steadiset 510(k) for extended wear time, with extended wear technology incorporated in Mobi tubeless design.
• Completed fully closed loop trial, collaborating with the University of Virginia Center for Diabetes Technology, and working on Sigi patch pump platform and technology integrations with Dexcom and Abbott.

In the second quarter, Tandem achieved record sales both in the U.S. and internationally. Worldwide year-to-date sales were $475 million, a 15% growth. Q2 worldwide sales were $241 million, with U.S. sales at $170 million, a 9% increase year-over-year. The majority of growth was driven by pump and supply volumes, with 4% pricing improvement contributing to gross margin expansion. Mobi, the newest pump platform, saw year-over-year increases in adoption and represented a greater percentage of new pump starts in Q2. The flagship t:slim X2 continued to perform well, and the company made progress in type 2 diabetes commercial activities with a pilot in certain territories showing greater adoption compared to non-pilot areas. Internationally, the team delivered strong performance with $70 million in Q2 sales, driven by demand for t:slim, increasing pump renewals, and growing supply sales.

Worldwide Sales:

• Expect to achieve $1 billion in worldwide sales in 2025.

Geographic Breakdown:

• U.S. sales expected to have more moderate growth in the back half of the year, partially offset by pharmacy channel opportunity.
• International sales expected to be $300 million, with a reduced headwind from going direct operations ($10 million vs. prior $15-20 million estimate).

Margin:

• Anticipate gross margin in the range of 53% to 54% due to geographic mix change and Mobi efficiencies.
• Adjusted EBITDA guidance recast to negative 5% due to $75 million IP R&D charge related to AMF Medical.
• Expect to return to positive free cash flow in the second half of 2025.

Risks:

• Field correction notice for t:slim speaker versions with higher-than-normal failure rates, but no impact on financial expectations.
• CMS proposals regarding Medicare reimbursement for pumps, including potential shift to pay-as-you-go model and inclusion in competitive bidding, though traditional Medicare represents a small portion of business.
• Competitive pressures, including a new market entrant with a larger sales organization causing pausing in the second half.
• Inventory adjustments in international markets due to transition to direct operations in 2026.

Q: Can you give a sense of how CMS proposals might affect the business?

A: Leigh A. Vosseller said they don't believe it will have a material impact, traditional Medicare is less than 10% of sales, and transitioning to pay-as-you-go is something they've contemplated.

Q: Talk more about pharmacy progress and its materiality in 2026?

A: Leigh A. Vosseller said pharmacy channel is an exciting opportunity, bringing more volume, revenue, and profit improvement, with coverage at 30% of U.S. lives, expecting more contracts, and t:slim supplies to be in pharmacy channel starting Q4, but no specific 2026 numbers yet.

Q: Why the change in outlook for OUS sales?

A: Leigh A. Vosseller said OUS business has been performing well, with limited destocking activity and early traction in renewals, reducing the headwind from going direct to ~$10 million from prior $15-20 million.

Q: Color on U.S. renewal rate and new patient numbers?

A: Leigh A. Vosseller said renewals grew double digits, representing over half of U.S. pump shipments, expected to continue, new starts grew but MDI conversions outpaced competitive conversions due to a competitor's business evolution.

Q: Strategic view on multipump platform given competitive landscape?

A: John F. Sheridan said portfolio approach is right as market is segmented, Mobi and t:slim X2 serve different needs, and R&D spending is flat while driving innovative pipeline.

Q: Type 2 opportunity launch context?

A: John F. Sheridan said type 2 pilot in territories performed better, learned a lot, and expanding type 2 efforts to more U.S. territories.

Q: International pump starts and timing shifts?

A: Leigh A. Vosseller said there was a timing shift of orders between quarters, placements on patients grew year-over-year, and some destocking in a key market for direct operations, but placements still showed growth.

Q: Confidence in reaching 60% gross margin by end of 2026?

A: Leigh A. Vosseller said with pharmacy expansion, Mobi scaling, and seasonal sales curve, confident in achieving 60% gross margin quarterly rate by end of 2026.

Q: Libre 3 and t:slim opportunity?

A: John F. Sheridan said there are 300,000-400,000 people in U.S. using Libre 3 but not pump therapy, early access to t:slim compatibility with Libre 3 is ongoing.

Q: International rollout into 2026?

A: Leigh A. Vosseller said investing in OUS markets, building systems, hiring talent, and expecting revenue and margin benefit from direct operations.

Q: Lowered U.S. guidance and commercial evolution?

A: John F. Sheridan said commercial transformations still in process, causing delay in benefit, and new competitor with large sales force causing pausing in second half.

Q: Pharmacy contribution in Q2?

A: Leigh A. Vosseller said a few million dollars benefit from pharmacy inventory stocking, contributing to U.S. sales, with similar step down expected in Q3.

Q: U.S. pump guidance mix of new users and renewals in 2025?

A: Leigh A. Vosseller said renewals will be more than half, change in guidance due to flat to slightly down new pump starts.

Q: Type 2 renewals and retention?

A: Leigh A. Vosseller said type 2s are a small percent of shipments, no difference in retention, excited about type 2 initiatives and reimbursement.

Q: Pipeline updates on Steadiset and Tubeless Mobi?

A: John F. Sheridan said submitted Steadiset 510(k) for extended wear, plan to launch Steadiset in U.S. markets in 2026, and Tubeless Mobi with extended wear technology planned for U.S. launch in 2026.