Tandem Diabetes Care, Inc. (TNDM) Earnings Call Transcript

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.