TNDM

Thank you for standing by. Welcome to the Tandem Diabetes Care Q1 2026 earning conference call. At this time, all participant are in listening only mode. After the speaker's presentation. There will be a Q&A session. To ask a question during this session, you will need to press star one one on your telephone. Your will then hear an automated message advising your hand is raised. To withdraw your question, please press start one one again. Please be advised that today's conference code will be recorded. I would now like to hand the conference over to your speaker today, Susan Morrison, Executive Vice President and Chief Administrative Officer. Ma'am, please go ahead.

Hello, and welcome to Tandem's Q1 2026 earnings call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development timelines, and financial performance and operating plans, and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent annual report on Form 10-K and quarterly report on Form 10-Q. Today's discussion will also include references to both GAAP and non-GAAP financial measures. Unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis.

Please refer to our earnings release issued earlier today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure and other information regarding our use of non-GAAP financial measures. John Sheridan, Tandem's President and CEO, will be leading today's call, and he'll be joined by Leigh Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open up the call for questions. Thanks in advance for limiting yourself to one question before getting back into the queue. With that, I'll hand the call over to John.

Thanks, Susan, and welcome everyone. In the Q1 of 2026, we delivered a strong financial and operational performance, setting the stage for another successful year. This momentum reflects the dedication of our team and our commitment to execute our strategic objectives. Building on these results, we actively advanced several key initiatives that position Tandem for both immediate impact and long-term growth. By modernizing our commercial operations, reshaping our business model, and introducing new technologies, we are not only achieving notable short-term gains, but also laying the foundation for sustained growth, profitability, and innovation. I'll now walk you through updates on each of these initiatives, beginning with the modernization of our commercial organization. Globally, we have assembled a talented and impressive team.

The group is deeply committed to bringing the benefits of our technology to people living with diabetes, and we are working to further support them by strengthening our systems, infrastructure, and processes. For example, in the U.S., we continue upgrading our sales and customer management infrastructure as part of our multi-year system investment to optimize sales efficiency, enhance effectiveness, and drive deeper customer insights. Internationally, a Q1 highlight was our launch of direct commercial operations in the U.K., Switzerland, and Austria. By doing so, we are better positioned to serve our customers, strengthen HCP relationships, and drive continued growth. The transition has been progressing smoothly, and we plan to continue expanding our direct operations later in 2026 and again in 2027. This approach deepens our engagement with the diabetes community while providing Tandem greater ASP and improved margins.

The second key initiative I'll be discussing today is reshaping our U.S. business model through our transition to a multi-channel strategy. On our last call, we discussed how adopting pay as you go, or PAYG, in the pharmacy channel provides us the opportunity to bring significant advantages to customers, healthcare providers, and payers while delivering favorable economics to Tandem. Throughout March, we began executing contracts adapted for PAYG, covering both t:slim and Mobi pump supplies. We've continued to expand access with an increase to approximately 40% formulary coverage today. It's an important leading indicator for how quickly we can transition our business. Operationalizing PAYG in the pharmacy channel is an end-to-end change in the way healthcare providers prescribe our technology, the way we service customers, and the way we process and fulfill orders, and we knew this transition would take time.

It's still early in the process, and we are working to improve our efficiency and customer satisfaction by enhancing the pharmacy experience. Our early introduction of PAYG through the pharmacy reinforces our conviction in the meaningful opportunity this transition presents for our business and for our customers. I'll provide an update on our new technology across our portfolio. In March, we are excited to announce that Tandem Mobi, the world's smallest durable automated insulin delivery system, is fully available for use with Android smartphones in the U.S. By expanding to Android, we are bringing the benefits of Tandem Mobi to even more people living with diabetes, underscoring our commitment to delivering choice in diabetes technology. In the Q2, we are on track to deliver on a number of exciting new offerings.

In April, we received FDA clearance for use of Control-IQ+ in pregnant women with type 1. This is significant as it makes the t:slim X2 and Mobi the first and only commercially available AID systems cleared for use during pregnancy in the U.S. We are also awaiting CE mark for this indication in Europe. Pregnancy requires a much tighter glycemic range. This demonstrates that Control-IQ+ is designed to effectively support the unique therapy needs of pregnant women in addition to women considering pregnancy. We will be hosting a product theater highlighting pregnancy management with Control-IQ+ at the upcoming American Diabetes Association meeting in June. We are also preparing for the international launch of Abbott's FreeStyle Libre 3 Plus integration with the t:slim starting in select European countries in Q2, and scaling to additional countries throughout the year.

This integration with Abbott's latest generation sensor will allow even more CGM users to access the life-changing benefits of our Control-IQ technology. In Q2, we will begin the commercial rollout of Tandem Mobi outside the United States. This brings together the best-in-class outcomes users have come to expect with Control-IQ+ and the benefits of Mobi's form factor. Rounding out our Q2 launches, we will be upgrading both t:slim and Mobi for compatibility with Dexcom's G7 15-day sensor, ensuring we continue to provide our customers with the latest generation technologies. It is also exciting because this software update will enable Tandem pumps to provide CGM data directly to our Sugarmate app, with future plans to add insulin data. This provides visibility to sensor information across our device platforms for users and their loved ones.

These launches are designed to be global and deployable to all markets where the relevant system combinations are available, which represents an important accomplishment by our team. While progressing these new offerings to commercial availability, we also made great strides with our pipeline products. We're particularly excited about Mobi Tubeless, our novel infusion site option for the existing Mobi pumps that transforms it into a tubeless AID system, allowing for interchangeability between tubed and tubeless wear with one platform. This will be Tandem's first tubeless pump offering and the world's first with extended wear technology. We plan to file our 510(k) submission for the Mobi Tubeless in the Q2. Finally, we continue to make good progress preparing our pivotal study for Tandem's first fully closed loop system and remain on track to start it this year.

As you can see, we continue to make meaningful progress across the business while demonstrating strong financial results, which Leigh will now discuss.

Thanks, John. As a reminder, unless otherwise noted, the financial metrics discussed today will be on a non-GAAP basis. In this quarter's performance, we continued the momentum from last year by achieving new Q1 records for pump shipments and sales, as well as robust margin improvement and solid cash generation. We are reaffirming our annual 2026 guidance as we continue to execute on our bold business model transformation in both the U.S. and international markets. We set new Q1 records with more than 29,000 pump shipments worldwide and $247 million in sales. Our U.S. performance showed this achievement, where we shipped more than 19,000 pumps, representing approximately 10% year-over-year growth. Renewals continue to account for more than 50% of our shipments, and new starts were predominantly MDI patients, representing roughly two-thirds of new customers.

As John Sheridan discussed, a key milestone in the quarter was our March launch of PayGo in the pharmacy channel. Throughout the month, we successfully increased our formulary access outside of the traditional cycles for PBMs and payers. Adoption was within our range of assumptions in these first few weeks. Fewer than 5% of customers ordered a pump through their pharmacy benefit. Similarly, less than 5% of our installed base purchased their supply through this channel. Our transition and pricing assumptions for the full year of 2026 remain unchanged. U.S. sales were $161 million, growing 7% year-over-year, also representing our highest Q1 U.S. sales. This reflects a headwind of approximately $1 million from the adoption of PayGo, as well as slight pressure in infusion set sales due to a key supplier shortages.

Overall, pharmacy sales represented 6% of sales in the U.S., which was significant based on our volumes. Looking ahead to the Q2, we're confident in our ability to deliver pump shipment growth with a seasonal curve similar to 2025 and expect U.S. sales of approximately $175 million. This factors in an increasing PayGo headwind, of which the magnitude will depend on our pace of execution. Turning to our international performance, we shipped more than 10,000 pumps and are executing well on our go direct strategy. International sales totaled $86 million, representing 3% growth year-over-year. Direct channel sales increased to approximately 11% of total international sales from less than 5% historically. This is the highest international sales quarter in our history, due in part to favorable currency dynamics.

Also, as a reminder, the Q1 of 2025 included a $5 million benefit from timing of distributor orders, creating a tougher point of comparison. Our international business had a few puts and takes during the quarter compared to our original assumptions, including a delay in timing of expected headwinds from going direct, a one-time benefit in Switzerland related to the buyout of existing customer rental contracts from our former distributor, and the same infusion set shortage I referenced in the U.S. In the Q2, we expect that international sales will be approximately $80 million. This steps down from the Q1, due in part to the delayed impact of $3 million-$4 million headwinds associated with our go direct transition.

This also incorporates expected order phasing tied to Mobi availability as we scale launch, with some distributor demand shifting into the Q3. turning to margins, gross margin for the quarter exceeded expectations at 55%, an improvement of nearly 5 percentage points year-over-year and the highest Q1 gross margin in company history. Notably, we started the year higher than our full year 2025 average, reflecting continued execution on our key drivers, including pricing discipline and product cost improvements. Both operating and adjusted EBITDA margins reflect a meaningful improvement year-over-year, due largely to $75 million IPR&D costs in the prior year. Beyond that charge, we demonstrated leverage as operating expenses of $154 million remained essentially flat year-over-year. This included a slight reduction in R&D spending that offset increased commercial investments in support of global growth initiatives.

As a result, adjusted EBITDA was approximately 1% of sales, an improvement of 32 percentage points based on the IPR&D charge alone and an additional 3 points of operating leverage. Operating margin improved even more substantially by 40 points to negative 7% of sales. This was due largely to a reduction of stock-based compensation expense from 11% of sales in the 1st quarter of 2025 to 6% this quarter. With our focus on cost discipline and achieving our profitability goals, we generated $5 million in free cash flow this quarter. We also completed a convertible debt financing in February, yielding net proceeds of $276 million with 0% interest to further strengthen our balance sheet and provide flexibility as we execute against our strategic priorities.

As a result, we ended the quarter with $570 million in total cash and investments. Overall, we remain confident in our ability to deliver on our goals for 2026 and are reaffirming our 2026 financial guidance. Worldwide sales are expected to be in the range of $1.065 billion-$1.085 billion. This includes U.S. sales in the range of $730 million-$745 million, and international sales in the range of $335 million-$340 million. For the Q2, worldwide sales are expected to be approximately $255 million. We expect gross margins of 56%-57% and adjusted EBITDA of 5%-6% for the year. Q2 margins are expected to remain consistent with the Q1.

Further details on our guidance and assumptions for the year can be found in the earnings call slide deck posted in the investor center portion of our website. With that, I'll turn the call back to you, John.

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

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

As a reminder, if you would like to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. In fairness to all, we ask that you please limit yourself to one question. If you have additional questions, please reenter the queue and we will answer as many questions as time allows. One moment for our first question. Our first question is gonna come from the line of Matt Miksic with Barclays. Your line is open. Please go ahead.

Great. Thanks so much. Congrats on a really solid quarter here. Appreciate all the color and exciting to see you kind of turn the corner here into PayGo. I had one question on just the You know, as you I'm sure you noticed, one of the other pump companies in the space talked a little bit about the market, some tone or, I don't know, seasonal, you know, I don't know what it was exactly, but maybe sounded like some slowness, some temporary slowness. Great to get your perspective on that. You know, what you've seen and then also just, you know, any way that you would characterize, you know, the major drivers of the growth in the quarter.

You know, whether it's uptake in type 2, whether it's uptake through pharmacy, you know, whether it's new sensor integrations. I hate the all of the above answer, but, you know, anything you can do to kind of give us a sense of what were the major drivers for the quarter. Thanks.

Matt, I'll just start off and talk a little bit about the market and whether it's growing or not. I mean, I think, you know, it's still large and very under-penetrated. It's great to have type 2 as part of the market for us now. We're excited about the fact that we're bringing a great deal of new technology and business model changes that we believe will really help us grow new starts from MDI. If, you know, I think that if you look back in 2025, you know, there is a number of pump companies in the market. I think they all did pretty well. I would say it definitely appears to us that the market is growing.

You know, we are, like as I said, we're very excited about this year in particular because we have so much technology and business model, you know, modifications are really gonna position us for growth, this year and beyond. I'll let Leigh answer some of the questions about seasonality.

Sure. I'll just say that we didn't see anything, I would say, unusual or different from what we typically see in the DME space starting off the year. Our pump shipments came in line with where we expected, which was about a 30% sequential decline in the U.S. from the Q4. Nothing really to note there. Unfortunately or fortunately, the answer to your question about the major drivers is it really is a little bit of all of the above. We have a lot of things, as John Sheridan suggested, working in our favor this year with our new product launches, our business model transformations, and I would say as we start to gain traction, everything's coming together to drive us towards a very successful and strong growth year altogether.

Thanks, guys.

Thank you. One moment for our next question. Our next question will come from the line of Chris Pasquale with Nephron Research. Your line is open. Please go ahead.

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

Sure. You're right, there were a lot of moving parts internationally, and it varies the answer depending on if you are comparing to last year, comparing to expectations, but I'll touch on a few of those. When you look year-over-year, a significant part of the growth was coming from currency fluctuation, so there was favorability in the environment that helped that growth year-over-year. When you look at also last year, Q1 and Q2, in the Q1, it's a little bit tougher comparison for us because last year there was a shift in timing of sales. It was more favorable, about $5 million in the Q1 versus the Q2. As we go into Q2, it will be an easier comparison for us.

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

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

Great. Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Matthew O'Brien with Piper Sandler.

Afternoon. Thanks for taking my question. On Mobi, I know filing here in Q2, still nothing expected for revenue here this year in 2026. If you do get the approval late this year, is it fair to think, you know, you don't wanna disrupt what's typically a, you know, generally stronger DME part of the year, so more so bigger launch next year in 2027, so no real disruption from launching Mobi? As people are expecting Mobi, I just don't want an air pocket, you know, in any of the quarters as people are waiting for that system. Thank you.

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

You know, when it does come, let's just say we get the clearance in the second half, we have a phased commercialization process where we actually observe the product in small groups of people first, increase the size of the group of people using it, and then get to the point where we feel we've uncovered or found nothing that we would wanna make sure that we fix before it actually gets into full commercial launch. This is just a practice that we've used from the very beginning. While we do an excellent job of testing these products, you really can't find everything until you use it over time with large groups of people. We'll go through that process, and I think that we'll, you know, depends on the timing.

I think that if we can get it to the market before the Q4 starts, I think we'd wanna do that. We'll have to wait and see when the actual approval or the clearance occurs.

Thank you. One moment for our next question. Our next question is gonna come from the line of Mike Kratky with Leerink Partners. Your line is open. Please go ahead.

Hi, everyone. Thanks for taking our questions, and congrats on a great quarter. It looked like U.S. sales through the pharmacy maybe ticked down slightly from 7% in the Q4 to 6% in the Q1. Can you just talk a little bit about how that lined up with your expectations, what factors contributed to that, and what you've seen so far this quarter to support your confidence in the 15% for the year?

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

It's a very different environment. As we came into this year, the Q1, we've had two major work streams that we're focused on. One is building up the coverage, we were pleased to be able to report that we're already at approximately 40% formulary coverage. We expect that we can still increase that across the year as we look forward to the end of the year. The other piece of it was the operational piece, and that was implementing, you know, an end-to-end change in our workflows. It changed everything of how physicians prescribe, how we engage with the patients, how we process and fulfill orders. That's what we've been focused on, the execution of that piece.

It really all started late in the Q1 in the last few weeks of it, and so we're at the very early stages of it. So far, you know, we're excited about the opportunity it presents. Nothing's changed our conviction and our ability to grow and scale that across the year. We look forward to future quarters when actually we can report the headwinds that are coming from the volumes that we're bringing through.

Understood. Thanks, Leigh.

Thank you. One moment for our next question. Our next question will come from the line of David Roman with Goldman Sachs. Your line is open. Please go ahead.

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

Sure. Happy to talk about that. I would agree. I would say that we're all behaving rationally when it comes to pricing. We're excited to be in this market and take advantage of the pricing opportunity that was already set in the pharmacy channel for insulin pump products. When we thought about how to set expectations for the year, I would call them more modeling assumptions right now because it is new for us, and it's an early experience. What we said was to expect about $350 per month per patient as they order supplies. What's factored into that would be there's an array of contracts that were entered into with varying rebate structures in them. At this point, we don't have enough experience to say what that mix will look like on a sustainable basis.

That's the baseline that we've set for now. It's still the right way to think about it. As we start delivering on more volumes and gain more traction and experience, we'll be able to update those assumptions in the future.

That's great. Thanks.

Thank you. One moment for our next question. Our next question is gonna come from the line of Richard Newitter with Truist Securities. Your line is open. Please go ahead.

Hi, it's Ravi on for Rich. Thank you for taking the questions. Just two for me, and I guess I'll ask them both upfront. Just first, on the infusion sets shortage, would you mind quantifying that and, or maybe suggesting what the impact might be in 2Q? It looks like you're kind of guiding a little bit below consensus here, but reiterating for 2Q, but reiterating the full-year guide. Just curious if there's any impact from that there. Second, just on the sales force expansion, you know, seems to be a theme now running across your peers and I guess Tandem now itself.

Can you maybe talk about, you know, what the opportunity is that the sales force is gonna be going after and, you know, maybe what patient population it can unlock? Thank you very much.

Well, let me just talk a little bit about the situation with infusion sets, and Leigh can talk about guidance. First of all, I'll say that it's unfortunate, our supplier has had some capacity challenges that actually began in the Q4 but continue to pressure us in the Q1. This is both in the U.S. and internationally. We've been working very closely with them. I think we practically have daily calls with them, the operational team as well as the executive team. You know, it's a top priority for us. I would say that when you actually look at the impact, it's only a small number of SKUs that are really subject to the capacity shortages.

The unfortunate part about it is for those people who are impacted and the HCPs who support them, it's really significant. You know, we're doing everything we can to be creative. We're looking for options in terms of lengths, colors, you name it, to see if we can provide intermediate solutions until this is taken care of. We're also looking at managing inventory to do everything we can to provide as broad a coverage as possible. I will say, unfortunately, that this is something that probably won't be resolved for a quarter or two. I think we expect to see some progress in the second half of the year. You know, that's what we're dealing with right now. Like I said, we're taking it very seriously.

From the perspective of the impact, all we're sharing is that it was a modest impact in the quarter, both U.S. and internationally. We factored that same level of impact as we set the expectations for the Q2. As John said, we're managing it very closely. We're working through it. We see a line of sight to the end of this in the long term.

Thank you. One moment for our next question. Our next question will come from the line of Jeff Johnson with Baird. Your line is open. Please go ahead.

Hey, guys. Good afternoon. Leigh, I guess I'll follow up just on the comment you made there on the infusion set impact. I know you're not quantifying it, but let me go after it this way. You know, supplies missed our model by about $11 million this quarter. Very well could be that we're just bad modelers. I've been told that before. I'll probably be told that many times in the future. If, if our model missed or if you missed our model by $11 million, does a lot of that get attributed to the shortfall? Is that also, it sounds like you're assuming a similar shortfall in 2Q, even though you are trying to, I think, on some of the TruSteel move patients over to other infusion sets.

I guess I'm just trying to understand, does the year-over-year impact stay the same in Q2 as it was in Q1? Am I anywhere near ballpark based on my model points? Thank you.

Great. Thanks for the question, Jeff Johnson. I would say that that is a bit on the high side for the impact of this. I would put it more modest than that. If you think about it, there's two ways to think about the size of this. First of all, there is backorder situation, but also to John Sheridan's point, some of the ways we're helping to solve the problem for patients is offering an alternative. Just because we had some backorder situations doesn't mean that we haven't recovered sales in other ways, in order to satisfy patient needs. It's not near that big. It's something that we expect to be a bit disruptive again in the Q2, but it's something that we can work through.

We'll continue to talk more and, you know, maybe more about the modeling assumptions in the supply sales, maybe it's a little bit of price or other pieces of it that are not working there.

Thank you.

Thank you. One moment for our next question. Our next question is going to come from the line of Matthew Taylor with Jefferies. Your line is open. Please go ahead.

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

Sure.

Thank you.

Well, first of all, we're very excited to have received pregnancy clearance actually just a few days ago. It was based on data from CIRCUIT trial that was published in JAMA recently. I'm happy to say we're the first and only AID system approved for pregnancy in the U.S. for both Mobi and t:slim using Control-IQ. We also expect CE mark here this quarter. If you look at the clinical data, the control group, the Control-IQ group experienced a 12.5% improvement time in a tighter range of 63 to 140 milligrams per deciliter. That's about three more hours a day. It was for the length of the pregnancy, really substantial improvement and a great performance by the system.

You know, when it comes to the size, I would say that it's obviously pregnant women, but it's also women considering pregnancy. I, you know, I think that, you know, it's not a really large group of people. I don't think I can put a number on it at this point in time, but it's a meaningful and important group of people, and we're very happy to have this. We're now in the midst of kicking off training and events for HCPs. As I think I mentioned in the remarks that we do plan to have a symposium at the ADA.

Just real quickly, relative to Android, you know, we have a number of people that we monitor who use Android and iOS applications on our mobile apps on t:slim. I would say roughly 60% of those use iOS. Android represents a big opportunity for us. I have friends who use our product and have been waiting for Android to become available. You know, it's meaningful. It's another great opportunity for us to just drive MDI growth in 2026 and beyond. It's a meaningful addition to the portfolio.

Great. Thank you.

Thank you. As a reminder, please limit yourself to one question before reentering the queue. Our next question will come from the line of Joanne Wuensch with Citi. Your line is open. Please go ahead.

Oh, thank you so much. Sticking with the one-question rule. With Mobi being submitted in the Q2 to the FDA and on track for 2H approval, and assuming there's nothing in your guidance for it, how do we think about kicking off 2027 launching that product, and how are you preparing for it? Thank you.

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

We're gonna have a tubeless device, and I would say we feel like we have a better algorithm. I think that there's a big opportunity for us to do two things. One, I think we're gonna drive MDI conversions to our device. And at the same time, I think there's potential for competitive conversions. You know, I think that's, unless you wanted to add anything to that, Leigh, but that's pretty much what I would describe. It's a big opportunity for us. We recognize that, and we're really excited about it.

Thank you. One moment for our next question. Our next question will come from the line of Suraj Kalia with Oppenheimer. Your line is open. Please go ahead. Suraj, your phone might be on mute.

Sorry about that. John, can you hear me all right?

We can, yes.

Perfect. John, I'm gonna cheat and sneak in a two-parter if I could. To Joanne's question, John, how would you define the low-hanging fruit for seven-day Mobi? Would there be a price differential? Leigh, if I could quickly. U.S. sales were up 5%, pump units up were roughly 12%, and then, you know, obviously, there's a 6% PBM contribution. Can you help us thread the needle here? Thank you for taking my questions.

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

To your question on the Q1 in the U.S. When you look at pump shipments, you're seeing it on a rounded basis. The actual growth rate was 10%, so the spread between the growth rate on shipments and the sales growth is not as substantial as it might seem on the surface. It really is just pricing that's the differential.

Thank you. One moment for our next question. Our next question will come from the line of Barry Bijlani with Wells Fargo. Your line is open. Please go ahead.

All right. Thanks for taking the question. Leigh, I'll ask the new start question. You know, by my math, it looks like new starts were down slightly year-over-year in Q1 and down modestly sequentially by our math. Is that right? You know, do you still expect new starts in the U.S. to grow in 2026? Thanks for taking the question.

Sure. Thanks, Barry. Yes, new starts, your math is accurate when we look at it year over year and even down sequentially, mostly due to just the regular seasonal impact that we see. This was how we had structured the year in terms of our own modeling assumptions, that we would continue to see that slight decline in the Q1, but we would return to growth as we look ahead. We are very convicted in the ability to return to growth because we've been seeing improvement over the last few quarters from our low middle of last year. It's really the traction we're seeing on our new product launches. We look forward to pharmacy making a real difference there too.

Now that we've removed that cost barrier, more and more people can move to pump therapy without having to worry about an upfront cost. As we continue to build on that initiative and drive these new product launches, we do expect to see that return to growth this year.

Thank you.

Thank you. One moment for our next question. Our next question will come from the line of Michael Polark with Wolfe Research. Your line is open. Please go ahead.

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

Sure. I'm glad you asked. It's a really good question because I think there might be an assumption that it would be easy just to move people over. There is work involved to that point. First and foremost, when a customer comes in to place their quarterly order, which is usually quarterly, I should highlight, mostly not monthly. We will check their benefits to see if we have coverage for them on formulary. We'll share with them the out-of-pocket benefits, and that's the true motivator for them is, the out-of-pocket is typically lower or with copay assistance, we can make it be lower, if nothing else. Once we get them understanding and ready to move forward, it does require a new prescription.

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

Thank you. One moment for our next question. Our next question will come from the line of Priya Sachdeva with UBS. Your line is open. Please go ahead.

Hey, guys. Thanks so much for the question.

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

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

Thank you. One moment for our next question. Our next question is going to come from the line of Jayson Bedford with Raymond James & Associates. Your line is open. Please go ahead.

Hi, this is Elaine on for Jayson Bedford. Thanks for taking my question. I had a question on the gross margin and how you're thinking about the cadence for the year. You gave us guidance for Q2 and Q4, and we can get to an implied Q3. My question would be, why would it stay relatively flat for the first three quarters, at least according to my math? When we think about the year-over-year expansion, how much of it is driven by Mobi scaling versus the pharma transition? Thank you.

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

Then it should start to step up from there, scaling towards that 60% in the Q4, and that will come from our pricing benefit that we expect, both with our direct operations outside the U.S. continuing to build and with the pharmacy benefit that can come from converting more customer in the supply base to pharmacy in the U.S. I would say this year price will be a very prominent driver of gross margin, but we are continuing to see benefit from Mobi as it's scaling in volumes. For pumps, we started seeing that benefit in 2025 as we were building more. For supplies with Mobi, we're really going to start to see that difference this year. That will be a contributor to the gross margin improvement across the year.

Thank you. One moment for our next question. Our next question is going to come from the line of Jonathan Block with Stifel. Your line is open. Please go ahead.

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

Sure. I will start by saying the assumption that we've made in guidance for the year is that pump ASPs outside the U.S. with these changes with going direct should land somewhere in the $2,800-$2,900 range. We did see, I'm gonna say, extra benefit in the Q1 because of this one-time accounting benefit we got in the Switzerland market. We were able to recognize a level of revenue there because of the acquisition of certain customer rental contracts that were already in existence from our distributor. This one-time benefit is what really drove the incremental pump ASP in the 1st quarter. Otherwise, it should settle into that $2,800-$2,900 range for the rest of the year.

Thank you. One moment for our next question. Our next question is gonna come from the line of Anthony Petrone with Mizuho Financial Group. Your line is open. Please go ahead.

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

Well, regarding recalls, you know, it's unfortunate, but that's one of the things that happens in this marketplace. The real intent of the recall is to ensure that the diabetes community is aware of safety issues that might impact the use of their products. I would say it's something that happens to everybody. You know, when we have it happen, we do our very best to ensure that patients are safe, and they understand the risks. You know, I don't think there's no benefit that's gonna come from that.

You know, you don't like to see it happen, but you recognize that it's part of dealing in a market that has life-saving technology. You know, when it comes to competition in general, I would just say, you know, it's a large and expanding under-penetrated market with new entrants. I would say Q1 was consistent with our expectations. It's a very highly competitive market, but there's nothing really that specific to point to that changed. I'll also say that, you know, we are very confident in our ability to deliver new technology to the market. I think the team has done an amazing job in the last several quarters, and we continue to do it this quarter and in the second half of this year.

You know, I think it's, I think it's gonna really impact the business when it comes competitively. As well as we're now moving to, you know, the pharmacy benefit where the out-of-pocket is substantially lower, and that's gonna be a big benefit. I think that we feel very good about where we're heading competitively, but specifically to the marketplace today, you know, I don't think that It's very competitive, yeah, but nothing's really changed.

Thank you, and one moment for our next question. Our next question is gonna come from the line of Mathew Blackman with TD Cowen. Your line is open. Please go ahead.

Good afternoon, everybody. Can you hear me okay?

We can, Matt.

Great. Thanks for taking my question. Leigh, I think I heard you say 40% formulary coverage to date. I guess I'm just trying to figure out sort of the proper context. I mean, that feels like a lot of progress to date. We're, you know, just one quarter half deep in the year, but I really don't know how to frame that relative to where you need to be at the end of the year to sort of hit your goals. Could you frame that relative to your expectations where you hope to exit the year? Is the next sort of whatever percent, let's call it 60%, a heavier lift?

Just any sort of framework to think about where you are to date and where you need to be by the end of the year to hit some of these goals for pharmacy mix, et cetera. Thank you so much.

Okay, great. Happy to put some context around that. I think what's important to understand is typically, new formulary additions happen on a January 1st or July 1st cycle. We're very excited that we've been able to add this coverage across the quarter, so we're a bit off cycle here. I mean, it shows, first of all, the receptivity to us moving to this PayGo reimbursement model and then also the acceptance of our products within the channel. The team isn't stopping. I mean, I feel like when I look at my email, I see announcements every week that show another formulary addition, some bigger than and smaller than others. The team is working hard and working to drive that up across the year.

In order to achieve our goals for pharmacy this year, we're right on pace with where we need to be. I'm not gonna share a specific goal, but I think we're very well-positioned to drive the pharmacy access in order to hit the targets that we've set out.

All right. Thanks so much.

Thank you. One moment for our next question. Our next question will come from the line of Bill Plovanic with Canaccord Genuity. Your line is open. Please go ahead.

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

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

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

Thank you. One moment for our next question. Our next question is gonna come from the line of Travis Steed with Bank of America. Your line is open. Please go ahead.

Hey, thanks for the question. maybe focus on that, you know, March twenty-sixth, where you're kind of moving the PayGo into the pharmacy. Just help us understand how that went. You know, how's the trend? You're seeing kind of increasing ability to kinda ramp into April and May. the 40% coverage that you got, how much of that is kinda tier 1 at this stage?

Sure. I'll answer the first part of the question, Travis. I mean, first of all, you know, our early experience really does reinforce our conviction that this is a great opportunity for us, for the business and for our customers. You know, we're moving forward aggressively. It's our top priority. As Lee mentioned, when you know, operationalizing pharmacy is, it's, there's a lot going on there. It's a change to the physicians' processes, the way we service our customers and how we process and fulfill orders. You know, I would say that, you know, right now we're working to improve the experience. There's certainly some behavioral change that we have to work with. There's learning curve, there's efficiency opportunities. These are things that we're very focused on right now.

I'll say we have a strong team. We're making good progress. I think, you know, it starts off slow and will gradually increase as we get through the year. Again, this will be a meaningful part of our business certainly by the end of this year and as we move into 2027.

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

Okay. Thanks a lot.

Thank you. One moment for our next question. Our next question comes from the line of Shagun Singh with RBC Capital Markets. Your line is open. Please go ahead.

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

Well, Shagun, the first thing I think that's important here is that, you know, we already have 325,000 customers in the U.S. A significant portion of those use the pump today already, this is a infusion set option for them to choose. We think, you know, there's probably gonna be pretty good conversion amongst those people. You know, I think people are gonna try it out first, try both ways out and see what they like. I think that the other aspect is certainly when it comes to new starts, now that we have a tubeless product in the market, we expect to see, you know, we're gonna benefit from the fact that tubeless is very important to people.

It's a form factor that they want, and we expect to see a lot of progress there. Leigh, you wanna add anything to that?

Just to your question on pricing, to John's point, being the Mobi pump, it's the same pump hardware regardless of which infusion set they choose. When it comes to pricing, we haven't really discussed our approach yet, for now, you can think about it as being similarly priced to Mobi supplies.

Yeah, it's a supply pricing issue. It's the same pump. Obviously same price for the pump.

Thank you.

Thank you.

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

Good day, and thank you for standing by. Welcome to the Tandem Diabetes Care Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Susan Morrison, Executive Vice President and Chief Administrative Officer. Please go ahead.

Hello, and welcome to Tandem's Fourth Quarter and Year-end 2025 Earnings Call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, our product pipeline, development time lines and financial performance and operating plans and speak only as of today's date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward-looking statements, which are described in our press release issued earlier today and under the Risk Factors portion of our most recent annual report on Form 10-K. Today's discussion will also include references to both GAAP and non-GAAP financial measures. Please refer to our earnings release issued today and available on the Investor Center portion of our website for a reconciliation of these measures to their most directly comparable GAAP financial measure and other information regarding our use of non-GAAP financial measures. John Sheridan, Tandem's President and CEO, will be leading today's call, and he'll be joined by Leigh Vosseller, Executive Vice President and Chief Financial Officer. Following their prepared remarks, the operator will open the call up for questions. Thanks in advance for limiting yourself to one question before getting back into the queue. I'll now turn the call over to John.

Thanks, Susan, and welcome, everyone. 2025 was a defining year for Tandem, where we surpassed the milestone of $1 billion in sales while delivering on our mission to provide new innovations, improved outcomes and a revolutionary experience to nearly 0.5 million customers worldwide. Momentum built across the year and culminated in Q4 results where we set multiple records while delivering double-digit growth and improved profitability. Seeing the dedicated efforts and strategic focus of our entire team makes me both proud of what we've accomplished and excited for what lies ahead. In addition to our financial performance, I'm equally proud of our execution against the 3 key initiatives we prioritized at the beginning of the year, which were modernizing our commercial operations, delivering new technology and shaping our business model. Together, these changes are transformational for our company and set a strong foundation for Tandem to drive sustainable growth and profitability in 2026 and beyond. In my prepared remarks today, I'll be speaking to each of these key initiatives, starting with the modernization of our commercial organization, which positions us for strengthened execution worldwide. In the United States, we expanded our sales team and updated our sales processes. We also began implementing new systems during 2025 that will provide significant efficiencies and benefits to our sales team in 2026. In addition, we began expanding our dedicated commercial efforts for people living with type 2 diabetes. Turning to our international business. We delivered a strong performance in 2025, setting record sales once again. This accomplishment is even more impressive as we did so while preparing for direct commercial operations in the U.K., Switzerland and Austria. The transition activities went exceptionally well as our team hired talent in these countries while smoothly coordinating the distributor separations and implementing the necessary back-end infrastructure. As a result, I am proud to share that we are now live and beginning to serve customers through our direct operations in Europe. Our learnings from going direct in these countries will serve as a playbook to further expand our direct operations internationally in '26 and '27, which provides us the opportunity to deepen relationships with the diabetes community while improving both price and margins. Complementing our commercial efforts was the second key initiative for 2025, delivering new technology across our portfolio. Early in the year, we launched Control-IQ+, our next-generation automated insulin delivery algorithm that is indicated for people living with type 1 diabetes down to age 2 and for adults with type 2 diabetes, which doubles our addressable market. It's designed for easy onboarding and use. We also generated clinical evidence that allows us to use training to simplify the carb counting experience. We ended 2025 launching 2 highly sought-after pump features in the U.S., which was the launch of FreeStyle Libre 3 Plus for t:slim and Android Control for Mobi. Early response to both of these offerings has been positive and contributed to our growth in the fourth quarter. We plan to build on this momentum in 2026 and have multiple new products either imminently launching, awaiting regulatory clearance or reaching key milestones in the development path. We'll have 3 new product launches in the second quarter, which include a scaled launch of Mobi internationally, a launch of Mobi integration with the FreeStyle Libre 3 Plus beginning in the U.S. and Dexcom's 15-day sensor integration on both pumps and platforms globally. We also recently submitted a 510(k) with the FDA for a pregnancy indication for Control-IQ+ technology. Tandem is a company founded on innovation. And in 2026, we plan to uphold the ongoing commitment to redefining pump wearability with the launch of Mobi Tubeless. This will be Tandem's first patch pump offering and the world's first patch pump with extended wear technology. As a reminder, Mobi Tubeless is our novel infusion site option with the existing Mobi pump that transforms it into a tubeless patch device, allowing for interchangeability between tube and tubeless wear on one platform. We plan to file our 510(k) submission in the second quarter and are preparing for its launch in the second half of the year. In addition, our pipeline also includes SteadiSet, our extended wear infusion set technology, our next-generation Mobi featuring further miniaturization from our Sigi technology, software features such as dual glucose ketone sensor integration and our pursuit of offering the world's most robust fully closed-loop AID system. Tandem's leadership in AID has been evident since we first launched Control-IQ in 2020. We are committed to maintaining this position and plan to begin a pivotal trial for the fully closed-loop algorithm later this year in support of FDA filing in 2027. As you can see, our innovations across Tandem's pump systems, applications and insights continue to define why our pipeline is the most exciting in diabetes. Finally, our third main initiative in 2025 centered on reshaping our business model, which is expected to be one of the most impactful levers to deliver both market growth and profitability. We took significant steps to advance our pharmacy strategy across United States. Pharmacy access is widely associated with the significant advantages to offering customers with lower average out-of-pocket cost and easier onboarding. It also provides benefits to health care providers through a streamlined prescription process and a benefit to payers by providing access to technology that improves member outcomes with enhanced data visibility. As a result, manufacturers like Tandem typically receive greater economic reimbursement when serving customers through the pharmacy channel. Our first year of experience with pharmacy access proved these assumptions to be true. Therefore, in 2026, we are accelerating our efforts to increase pharmacy coverage for both t:slim X2 and Mobi platforms and plan to drive utilization of the pharmacy benefit for all our customers. A key aspect of this acceleration is our decision to adopt a pay-as-you-go reimbursement structure, which creates a near-term offset to sales while significantly strengthening our business model over time. Our business is distinctly advantaged in making this sort of a transition as we have more than 300,000 existing customers, regular ordering supplies in the U.S. By transitioning these customers to pharmacy, it provides them the channel benefits faster while helping mitigate Tandem's near-term impact to revenue. We considered a PayGo business model when we first launched into the pharmacy channel in 2025. And based on the experience we gained in payer interactions throughout the year, have decided it is strategically the right move for our business now to drive market expansion and profitability. With the addition of PayGo, Tandem will be best-in-class in all ways with products, outcomes, service, affordability and accessibility. I'd now like to ask Leigh to provide additional detail on the 2025 results and expectations for the year ahead. Leigh?

Thanks, John. 2025 was a record year for Tandem, which is highlighted by our milestone achievement of more than $1 billion in worldwide sales and multiple records in Q4, including our highest sales, gross margin and pump shipments. In 2025, worldwide sales grew 12%, our second year in a row of double-digit sales growth based on a 10% increase in the U.S. to $707 million and 15% internationally to $308 million. Focusing on the fourth quarter, our record worldwide sales of $290 million represented 15% year-over-year growth. This is the strongest sales quarter in our company's history and is of particular significance as it was achieved during a period of commercial transformation. In the U.S., our Q4 sales increased 14% to $210 million. This growth was driven by more than 27,000 pump shipments, our highest quarterly achievement. Renewals from our loyal customers made up more than half of the shipments and MDI conversions represented approximately 2/3 of customers new to Tandem, consistent with trends across the year. We also benefited from a greater portion of our supply sales through the pharmacy channel. In all, sales through the pharmacy channel nearly doubled from Q3, growing to $16 million or 7% of total U.S. sales this quarter. Only a few percent of our total installed base ordered supplies through pharmacy in Q4, creating a meaningful opportunity as we expand awareness and accessibility for our large existing base of over 300,000 customers. Internationally, we grew 17% year-over-year in the fourth quarter, delivering $80 million in sales and 11,000 pump shipments. This marks our strongest Q4 performance to date, driven by growth in both pump and supply shipments. We also realized benefit from favorable FX, offset by $4 million associated with our transition to direct operations, primarily impacting pump sales. For the full year, the total distributor destocking and inventory buyback impact was approximately $7 million, slightly lower than the $10 million we had estimated due to a partial delay in timing from 2025 to the first quarter of 2026. Turning to margins. We delivered on our commitment to improving profitability in a meaningful way. We expanded gross margin by 3 percentage points to 54% for the full year and reported our highest quarterly margin ever at 58%. This achievement stems from success in reducing product costs, driving manufacturing efficiency and executing on our pricing and channel initiatives. We managed our Q4 operating expenses well as they were essentially flat year-over-year and sequentially. This reflected investments in SG&A to support our commercial initiatives, offset by planned efficiencies throughout the organization. As a result, adjusted EBITDA was 11% of sales in the fourth quarter, a 10 percentage point improvement over the prior year. Additionally, we generated our first positive operating margin since 2021 at 3% of sales in Q4, which is an improvement of 15 percentage points over the prior year. One key contributor to this leverage was a reduction in noncash stock-based compensation to a reduced quarterly run rate of approximately $20 million. We exited the year with nearly $300 million in total cash and investments, generating free cash flow in both Q3 and Q4. We have great conviction that the combination of our differentiated portfolio of products and business model changes provide us the ability to achieve our long-term objectives of accelerated sales growth with a gross margin of at least 65% and an operating margin of 25%. Demonstration of this momentum was evident as we exited 2025. As John discussed, we are entering 2026 in the U.S. with a new value proposition as we transition to a pay-as-you-go reimbursement model in the pharmacy channel. PayGo can be a key driver for accelerated pump adoption as it eliminates the upfront payment at time of pump purchase, which has historically been one of the top barriers for adoption. A PayGo business model also lends to a more predictable revenue stream as customers purchase supplies over time, unconstrained by renewal cycles. In transition from a model where revenue is typically recognized upfront, 2026 sales growth may be more moderated. We have the added benefit that can come from shifting our sizable existing installed base into pharmacy to lessen the near-term impact to sales. In all, this transition positions us well for meaningful long-term value creation. Our new PayGo contracts are expected to be effective beginning late in the first quarter. Importantly, in 2026, pump shipments will be the key indicator of our progress in growing the market while expanding margins. Pump shipments in the U.S. are expected to increase 10% to 11% year-over-year, returning to new pump growth led by MDI conversions. Renewal pumps are expected to comprise more than half of total shipments. The catalysts enabling this growth are new technology in expanded markets and pharmacy channel access, building off last quarter's momentum and scaling across the year. Contribution from Mobi Tubeless is not included at this time as its benefit will depend on FDA clearance and launch timing. We will be providing additional metrics this year for greater visibility into the pay-as-you-go transition, which we will discuss at a high level on today's call. More details on our assumptions are provided in the earnings call slide deck posted in the Investor Center portion of our website. Starting with pumps. We anticipate that pump orders through the DME channel will still make up approximately 80% of our shipments in 2026, while we scale pharmacy access. Over the course of 2 to 3 years, we expect the ratio between the channels to flip and the majority of our shipments will be through pharmacy. When serving a customer through pharmacy, there will be no upfront reimbursement for the pump. Sales will be recognized consistent with recurring supply purchases, which are anticipated to be reimbursed at a premium of more than 4x DME, pricing in line with what is seen in the market today. The sales impact of this transition between the channels is anticipated to be the most pronounced in 2026 while we build up the percent of our installed base ordering supplies through pharmacy. Exiting 2025, our U.S. installed base was approximately 325,000 with a low single-digit percent ordering supplies through pharmacy. As a result, our 2026 U.S. sales are expected to be in the range of $730 million to $745 million based on growth in pump shipments of 10% to 11% year-over-year. This incorporates $70 million to $80 million of pricing headwinds, reflecting our adoption of a pay-as-you-go model. Pharmacy sales are expected to be approximately 15% of total U.S. sales in 2026, up from 4% in 2025. In the long term, sales through pharmacy are expected to make up more than 70%. When thinking about the cadence of U.S. sales across 2026, total pump shipments are expected to follow a seasonal curve similar to 2025. For example, in Q1 of 2025, we saw a nearly 30% decline from Q4 of 2024 due to DME deductible resets on January 1. The pharmacy penetration rate is expected to start low in the first quarter, similar to levels we saw exiting 2025 and scale linearly across the year. Turning to our international business. We began direct commercial operations in Switzerland, U.K. and Austria in the first quarter of 2026. Sales productivity in these countries is expected to scale across the year. In the fourth quarter, we plan to transition to a direct model in additional key European markets. In the direct model, ASP premiums will vary by geography, expected to be at least 30% higher than our current pricing in the individual markets. These ASP gains will partially offset an anticipated $15 million associated with distributor destocking and inventory buybacks. As a result, our 2026 international sales are expected to be in the range of $335 million to $340 million for the year. Direct sales represented approximately 5% of total international sales in 2025 and are expected to be similar in the first quarter of 2026 as we scale our direct launches. For the full year of 2026, we expect direct sales will be approximately 15% of total international sales. Overall, worldwide sales for 2026 are expected to be in the range of $1.065 billion to $1.085 billion. This incorporates $85 million to $95 million in total sales headwinds associated with our strategic business model changes. Worldwide sales are expected to be in the range of $236 million to $240 million in the first quarter. This includes approximately $10 million of headwinds split between the U.S. and international. Our clearest indicator of success in 2026 will be market expansion as measured by pump shipments and will not be evident in our sales growth expectations as we progress towards a more predictable and profitable revenue stream. We also maintain our commitment to delivering meaningful margin expansion, reflecting benefit from our pricing strategies, a focus on product cost reduction and continued spending rigor. Gross margin is expected to step up to a range of 56% to 57%, scaling from nearly 54% in the first quarter to 60% in the fourth quarter. Adjusted EBITDA is also expected to demonstrate leverage in the range of 5% to 6% for the full year of 2026. We anticipate adjusted EBITDA to be negative 2% to negative 1% of sales in Q1 due primarily to U.S. seasonality returning to positive in Q2. In summary, we now have multiple levers that can grow the business independent of new product cycles. In combination with our expansive product portfolio, we believe these business model initiatives provide the opportunity for us to deliver accelerated growth in 2027 and beyond.

Thanks, Leigh. As you can see, 2025 was a year full of tremendous accomplishments that position Tandem for increasing success. Our ongoing dedication to innovation and improving our customers' lives continues to motivate us to reach new milestones. I want to thank every member of the Tandem team for your steadfast pursuit of excellence, collaboration and adherence to our shared mission. Your contributions have driven our success and will propel us to another year of meaningful progress, impact and growth. This is an important and exciting time in Tandem's journey. We are well positioned to deliver best-in-class technology to our customers in a more streamlined and cost-effective way while advancing our global business model and creating meaningful long-term value for our shareholders. Thank you, everyone, for joining us today, and I look forward to updating you as the company continues to progress.

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

Congrats on a really strong finish here, both top line and on the EBITDA line. So I think you're going to get a lot of questions here around the new model. I appreciate all the information in the slide deck, kind of spelling it out and laying it out. And it's certainly not -- it's certainly something that folks have talked about and thought about just in diabetes generally that's moving in this direction, particularly for automated insulin delivery systems. One question, I guess, is you gave pretty good guidance on Q1, which was clear for the full year in the U.S. The OUS growth with the $15 million headwind is sort of like a 9% to 10% underlying -- is the right way to think about that kind of in the mid-teens. And so I guess you have like low double-digit U.S. shipments, mid-teens OUS kind of underlying growth to get to sort of like a low double-digit underlying sort of performance metric for next year, absent the PayGo changes?

I think that's correct, Matt. I think if you look at the overall revenue growth or shipment growth for the year, it's going to be in the line of 10% to 11%. So it's going to be double-digit growth in shipments. And we also expect to see a return to growth in new shipments. I would say that, that is the best indication of our performance next year, including the profitability because when you look at the revenue numbers, the revenue numbers are impacted by the headwinds from the pricing that comes along with PayGo. So this is a very impactful change in the business. We're very excited about it. I think when you look at it, I mean, basically, we double or more than double the revenue, the lifetime revenue from a patient, and that's a substantial change while at the same time, we are going to substantially reduce their out-of-pocket and improve the experience. So that's a real win in both sides. And like I said, we're very excited about this. It's going to be impactful. And I think when you look at the impact on the P&L, I mean, certainly, there's a revenue hit from the pricing headwind. But when you look at the gross margin, you look at adjusted EBITDA, we do show solid performance there. And as I said, shipment growth is the real numbers to look at in 2026 for us.

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

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

Sure. Happy to. So I would say there are 2 ways to think about coverage for us. I mean we do have contracts with all of the major PBMs, the top 3, which gets you about 80% of covered lives under contract. But what we're really focused on is the formulary access where we have roughly 1/3 of lives covered today. And think about that as just the beginning as we're launching into this -- the pharmacy with the pay-as-you-go model, which those contracts will be effective late in the first quarter. So at the very beginning here, I would expect low volume, but it will continue to scale up across the year to average to that 20% point that we -- that you mentioned in terms of pump shipments going out the door with a $0 upfront payment. That's a little bit separate or different from the amount of our installed base that we expect to be ordering through the channel. So think about this as a complement, while we have that headwind on the upfront piece, we have the ability to mitigate some of those headwinds by transitioning or shifting more of our current DME customers into the pharmacy channel. And similarly, that percentage will start low. We came out of the fourth quarter with less than 5% ordering through the pharmacy channel, and we expect that to scale up across the year as well. So on average for the year, you can think about that as roughly 10% of our customers across the year that will be ordering their supplies through the pharmacy channel.

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

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

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

I'll take the question about the goals and your question on attrition. So as we think about the goals, this is just the beginning, and we're working to build up additional formulary access and as well as within the formularies that we have to build up attachment from the downstream payer plans. And so what we see is over the 2 to 3 years is what it will take for us to build up to optimal coverage, if you want to call it that, where at that point, we probably will have at least 70% of our sales going through the pharmacy channel. So that's a complete flip of our business model, obviously, from where it is today. And attrition is a question that we're often asked as we think about pharmacy channel at all, where people don't necessarily have what you would call lock-in periods like they have in DME. And what we've seen in our experience in the DME channel is that even though people stay with us for 4 years because of that warranty period, we see people staying well beyond the 4 years, whether it's through another pump purchase or just staying on the pump outside of warranty because high quality of the pump, it just keeps working, so there's no need to transition. And so we feel comfortable that when people try out our technology, they stick with it. And even in this model where maybe they won't have the same sort of dynamics in terms of restrictions from switching from one to another, we think they'll stick with us.

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

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

Well, I think that, first of all, I think our team did an amazing job this year. When you think about it, we made the transition from the distributors. We actually began to hire sales force in the new markets that we're going into. And then we built and installed the infrastructure that will enable us to actually ship a product and bill for it. All of those are major tasks. And I think that it's -- we're biting off a significant amount of operations when we go into these new countries this year. Of course, we're going to 3 this year. And I think that trying to do it all at once would be just too risky. And so I think that putting it into a 2-year period is the right way to do it. As we did progress this year, we essentially got all of that done. We are now live in those 3 countries and we installed all of the infrastructure to do that. We're basically using that as a playbook now, and we're going to do the exact same thing this year for the next countries that come in 2027. So I think that we feel good about it. I think it's staged properly. And I think that when we get to 2027, I think that that's the majority of the transition that we plan to make. I think sort of in the long term, we intend to have a hybrid model where we do have direct business, and we intend to continue to work with many of the fantastic distributors that we have in the international markets. But it's gone very well, and I think it's going to go just as smoothly in '26 and '27.

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

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

Sure. Thanks for the question, Danielle. You named probably one of the biggest levers we have right now, which is pricing. As we look at the value that can come from this transition that we're making in the pay-as-you-go model, that will continue to bear great fruit for us in the next couple of years in terms of a growth perspective on revenue and profitability. But also so important to remind that we do have a number of product cost reduction initiatives in place. One of them really comes from Mobi as we continue to build and scale that part of the business. In the long term, Mobi, and we're getting very close with the pumps to being at scale. The manufacturing cost of a Mobi versus the t:slim is 10% to 15% lower. So that's one piece of it. And then as we continue to build up the cartridges and think about that contribution, that will be 20% or lower or higher, I should say, reduction in cost versus the t:slim. So as Mobi continues to grow in scale, that will continue to drive gross margin benefit, too. And then you can just take that forward and think about any new product that we launch. Part of our design principles in the R&D process are to consider that new products need to have a better margin profile than the products that we have in the market today and continue to improve upon the products that we have in the market today. And so I would say between pricing and our initiatives within the manufacturing and R&D areas, that's really what's going to drive that leverage in gross margin. And then they get a little further down the P&L to the operating margin. Similarly, we continue to look at our infrastructure and think about what's the best way, how to be most efficient. And we're constantly looking for opportunities and ways to reduce the need to hire more people in the future and just better serve our customers with a lower headcount base going forward.

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

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

I would say that while we don't have Mobi in the revenue plan, that's typically the way we've done it in the past, a little bit more conservative when it comes to uncertainty. I would say that we have high confidence we're going to get this thing approved this year. And when you consider Mobi, we'll now have -- it will have multiple sensors integration. It will have Android and it will have iOS and then it will also have a Tubeless implementation. There's nothing else like that on the market. I think as you look at the buildup, just to get to the Tubeless product, we are adding a great deal of functionality to these products. We're also expanding Mobi into the OUS markets, and we're expanding FreeStyle Libre 3 into the OUS markets as well, which has been a point of competition. I think when both those products are there, it's going to be a completely different picture. And so I think the pipeline is certainly a big piece of it. I would say that a lot of the work that we've done with the sales force in terms of improving their productivity, as we mentioned, we have a brand-new system coming online here next month, basically. That's going to substantially improve their efficiency and productivity. So we expect to see that contribute to the new starts. And then finally, I think that pharmacy, pharmacy is something that we think is going to have an impact on our business this year. So I think when you look at that, really, it's the new technology, it's the sales organization, the improvements that happened there last year. And then it's also pharmacy. I think the combination of those will drive the growth that we're going to see in 2026.

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

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

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

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

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

Sure. Happy to. So when you think about -- we're talking about the headwinds this year. This year is where we expect that to be more pronounced as we're just launching into it. And we don't yet have what I would call the cover for it coming from the supply sales or the reimbursement on supplies. So you can see, first of all, for every PayGo customer we get into the model, we're going to be getting reimbursement on supplies more than 4x what we get in DME today. So as you build up that base of customers who benefit from getting a pump with no cost upfront, that's going to be a tailwind on revenue in the coming -- in the next couple of years. And then add to it that we do have over 300,000 t:slim Mobi customers today in our existing installed base and the opportunity to shift those people from the DME to the pharmacy channel will also create a tailwind, and that's immediate benefit from one day when they're ordering in DME to the next day when they're ordering in pharmacy, you would immediately see that appreciation. And so I think what's really important this year is even though this is a near-term headwind and it does have a moderation effect on revenue growth, we're still demonstrating margin expansion at the same time. So it's showing the power of what this shift can look like in this first year and just you can imagine how much better it gets in the coming years.

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

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

Sure. So I think the way to think about it is, obviously, in this first quarter, it's going to be a very low percent of our shipment volumes that will have this effect from the PayGo reimbursement. So the bulk of those headwinds are probably going to be hitting more in the last couple of quarters of the year. And so think about it as low single-digit percentage scaling up to a number that averages to 20% for the year. And margins also, so as we have the same opportunity to transition our supply customers, similar to what we've seen in years past, margins will start lowest in the first quarter. So call it, nearly 54%, getting up to about 60% in the fourth quarter of the year. So you can think about that scaling pretty linearly across the quarters this year. I should add that in the first quarter, in particular, we factored in about $10 million of headwinds worldwide. And you can think about that as roughly split between our international operations and the transition to going direct and between the headwinds that we could see in the first quarter for the PayGo transition.

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

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

Thanks for the question, John. You're right. There are a lot of moving parts. I think at the highest level, I'll just start with the fact that we are actually very strong in the international markets and continuing to expand the market. Majority of our shipments today still come from new customers, and we're just beginning to see a more meaningful contribution from the renewal opportunities there. And then you take some of these structural pieces and you think about it. So as you come into 2026, we have the benefit from those markets that are going direct already that are going to provide that price appreciation. And so this year, you're not going to see the full effect of that 30% that you mentioned. That's the way to think about long term. Any market that goes direct, we should see a premium of approximately 30% in any given year. The pricing, when you blend it this year, direct to distribution, it's probably mid-single to high single-digit price increase building up across the year as we transition into those markets. That is, if you will, it's funding the headwinds that we're going to see in the additional markets that are going to go direct this year. So as we think about that headwind, we've sized that at about $15 million and thinking about, as I just mentioned, roughly $5 million-ish in the first quarter. And the rest of it, majority will be hitting in the back part of the year, probably the fourth quarter. But underlying all of this, we're very confident and excited about the opportunity we have in the market. Part of the reason for going direct in these markets is this puts us closer to the customer, better able to sell and the benefits of our technology and bring more people over to Tandem.

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

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

I think the most impactful element is going to be the ongoing implementation of pay-as-you-go. We do have the headwinds this year, but we are going to be making substantial progress. And as we move and get more and more of our installed base, more and more of our new customers into the pay-as-you-go model, the revenue impact of that is substantial. And so that's going to grow in time. And so I think most impactful is certainly going to be the transition to pay-as-you-go -- and as Leigh mentioned, in addition to the pumps and the supplies that come along with the new pumps, there's also the opportunity to convert the 325,000 people who are existing customers to pharmacy as well. Both of those are meaningful. We also have a very exciting pipeline. We have a lot of technology coming to the market this year. We will have the first extended wear patch in the market, and that's going to be meaningful. I think that right now, there's nobody competing with our patch competitor. And so we will have a device that has the same form factor. It will be in the pharmacy channel and has a better algorithm. So we expect that to do quite well. So -- and then beyond that, we've got a very exciting pipeline that's going to continue to come, including our move to a fully closed loop system with -- hopefully, we see that in the market in 2027 or 2028. So I think all of these things add up to our confidence as a management team that we will see growth going forward in '27 and beyond.

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

I am on a train. So if I break up here, I'll just jump back in queue. But Leigh, you mentioned that the pharmacy pricing is going to be consistent with what others are out there on a tubed pump side in the pharmacy channel. Just to put a number on that for modeling purposes, $450 a month, is that a reasonable price to dump into our model as we try to build this out? And you talked about some of your installed base maybe starting to get their supplies in the pharmacy channel. I think from your comments, it sounded like they get that same price for their supplies, but ostensibly that higher supply price is also supposed to include some amortization of the pump. So if I'm a current user that jumps into the pharmacy channel, am I also going to get that $450 a month or whatever the right number is there? Just help out.

Yes. A lot of good commentary and questions there, Jeff. So the way I'm asking people to think about it this year is we're just getting going with this, right? So we're launching into the market with these new contracts effective here late in the first quarter. And there's a mix of contract terms, I would say, within the contracts that we have. And so think about the dynamics could be whether we have preferred or nonpreferred access, which influences what the rebate looks like, how much co-pay assistance we use. So long story short, what I'm suggesting to start with this year, at least from a modeling perspective is to think about it as about $350 per month per customer. And that's going to give us the starting point as we take the time to monitor the trends to see what is the real utilization and mix across the contracts that we have and further inform you in the future for how to think about where that average state could be. But I would say that's a really good starting point. And that alone is a really great benefit versus the DME pricing that we see today. And so -- and when you think about this, asking about what does this mean for people who already bought a pump versus people who are getting a pump for the first time, it's almost like a reset, if you will. And so basically, going forward, the whole business will be structured, I would say, agnostic to whether they're getting a pump today or not, and it will be consistent pricing across the customers, if that makes sense. And so again, I would start with about $350 per month as a modeling point, and we'll continue to inform you along the way as we get more information.

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

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

Right. So I mean, we're excited about the type 2 market. It doubles the size of our addressable market in both the U.S. and OUS. In 2025, we obviously got the indication. We ran the pilot, and we went to full commercial availability in the fourth quarter. We learned a great deal in the pilot, and we actually saw a pretty significant bump in starts between the third and fourth quarter, the quarter that we actually had the full organization working on this. As we look at 2026, it's basically a core that we intend to focus on type 2 and invest in marketing and also some research relative to PCP and OUS markets. I think we've got tailwinds as we enter the market with FreeStyle Libre 3 and Mobi implementation. Obviously, Mobi Tubeless and pharmacy channel is also going to drive uptick. And relative to the C-peptide decision, it's also a potential positive for us as the Senate has asked CMS to review the NCD and make a decision in August of '26, which is not that far away. And certainly, having that go away will substantially improve Medicare's access. So we have 1 quarter with the data, and it's very positive. And I think that we're looking forward to seeing good growth in 2026 based on everything that we've got going on.

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

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

Sure. It's a great thing that I'd like to highlight. So as you do think about it, I think people have looked at our model and see that when you look back 4 years ago, the number of opportunities will decline here in the coming years a little bit from what we've seen before where we were on an uptick. And so this year, in particular, we still expect renewal shipments based on the normal model and the normal -- the waterfall that comes with it, that renewal shipments will still grow double digits year-over-year. So we have that tail of opportunities even though new opportunities in 2026 are flat versus what came to market in 2025. But I think it's a great tie-in to pharmacy. As we look ahead and think about this model, it greatly reduces the reliance on renewals as a driver for the business. It's important that we retain our customers, and we have really great retention rates, but we don't have to worry about going out every 4 years. And if a patient is comfortable with the pump they're on and it's working just fine, trying to convince them that they should buy their next pump or worrying about insurance cycles that come with it. And so I think for us, it's really important to transition these folks into the pharmacy channel where for them, it's a lower out-of-pocket. It's easier for physicians to prescribe and there's none of this worry about when I get my next pump. And so as we look ahead, where the opportunities in the U.S. at least will start to decline, that won't be a concern about our ability to grow the business. You didn't ask about international. It has nothing to do with pharmacy, but I just want to underscore our renewal opportunity outside the U.S. is growing and becoming a more meaningful contributor there, and there's a lot of room to benefit from that in the coming years.

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

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

Sure. So maybe I'll just start with the fact that in 2025, before we even had a meaningful pharmacy opportunity, we already stepped up gross margins substantially year-over-year by 3 points on an annual basis. And in 2026, I think important to understand that even with this moderated sales growth rate, we can still expand margins another 2 to 3 points. And so we expect to exit this year at about a 60% rate. And you make a good point about the headwinds, putting a little bit of pressure on margins. So that just means that it gives us more opportunity to expand those faster in the future. And so we're very focused on driving that. I mean it's a very important part of our business with everyone. We've always been focused on sales growth, but what we want to show is that we have the ability to drive margins like you see at competitive levels across the market.

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

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

Sure. I'm happy to help with that. So I'll start with the U.S. I think that's where you see probably where you're trying to untangle all the parts and pieces and how they might influence the year. From the perspective of U.S. shipments, let's start with that. And remembering that still 80% of our shipments will be through DME this year. I would expect the same seasonal curve on pump shipments. So you think about the lowest point in Q1, the highest point in Q4. And that has a heavy influence on gross margins. And I would say the way our margins have been structured historically. And so where we've always seen that pumps have the highest gross margin and supplies are or meaningfully lower than that. And so that's why you can expect a similar trajectory of gross margin across the year, starting at about 54%, scaling up to 60%. And when I say scaling up, I mean measurably stepping up across each quarter of the year because even though we have these headwinds, if you will, on the pump price with the pump going out the door at $0, we have that opportunity to continue to fuel margin expansion with the pricing benefit that will come from the supplies and the supplies we shift into the pharmacy channel. We also have the OUS business to help there. So we're going to be scaling up our direct business across the year, and that is also positive and beneficial to gross margins despite those headwinds that we expect to see there. And so I would say when you think about the revenue models and the margin models, this year, not yet too dissimilar from what you've seen from years past. But we do expect, as we look ahead, as pharmacy becomes a bigger piece of our business, it will start to level out those seasonal curves to some extent. But for now, I think I would start with similar assumptions to what you've seen before.

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

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

Absolutely. I'll start with the breakeven question. There actually a number of ways to answer that question, but maybe one way that I can help you think about the impact on the business is when you think about a PayGo customer, there's a breakeven point for an individual customer as we offer the $0 pump, and it takes a number of months in order to cover that with the supply sales for that customer. But because we have this opportunity to shift our existing customer base, you can think about it as one PayGo customer plus 2 existing customers, you break even within -- pays back within a handful of months. And so it doesn't take too long in order to pay back or to cover this headwind that we would see. And that also dovetails a little bit into the cash question. We did exit 2025 free cash flow positive. And to your point, we usually see a dip in the first quarter of the year as we pay out annual incentives, compensation and that sort of thing. This year, on an annual basis, taking all this into consideration as we make the transition, we expect to be free cash flow neutral this year. And by the end of the year, starting to ramp up back to a positive position as we move forward into 2027. We're, obviously, as we make this transition going to be very mindful of our cash balance, but I think that's a good way to think about it across the year.

Leigh, I wanted to make another point about the move to PayGo that it may not be as clear as I've spoken about it a moment ago. But as we move to PayGo, we eliminate a significant number of the barriers that we have with DME. And I think if you think about DME today, it's a problem for the physician to prescribe it. This [indiscernible] has to go and jump through hoops to provide information to justify the purchase. It's troublesome for the patient because they've got to go back and forth, provide information. It takes time. The other thing, too, is one of the most significant challenges, I think, for people these days in the DME channel is it's a large out-of-pocket. And so starting now, I mean, some people might have to pay their full deductible. And that can be $1,000 or more. And so the benefit of the pharmacy channel is that it eliminates the friction. It's easy. It's easy for the patient, and it's also very easy for the physician and their staff. And it eliminates that large upfront payment. And so the monthly payments are also -- they can be lower. And so it's a -- again, it really does address the problems that we have in DME. And I think that it does explain, I think, why we expect to see the pharmacy drive uptick in new patients, and that's going to benefit the business.

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

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

Thanks for the question. So I'll answer the last one. Nothing particular to think about in terms of unusual accounting treatment, I would say, in that regard. Think about it as a normal revenue stream as supplies are purchased over time. And the question about how to move patients. So the first thing we do is we share with them how much better the benefit can be for them from an out-of-pocket perspective. And so when you compare to DME supplies, they often have to be deductibles at the beginning of the year. So it can be a heavier out-of-pocket then. Maybe it's best at the beginning of the year. But on pharmacy, it can be more consistent and we actually have the ability ourselves to help buy down or subsidize, if you will, that co-pay. And so the main thing is helping them to understand the benefit and how much better it can be for them financially. We also -- people tell us about how much they love our customer service and they fear this change might take away that relationship they have with us, and we're reassuring them that this is good, good for you financially, and we will still maintain the same level of customer service that we have today. The only other, I would call, a small friction piece, if you will, is it does take another prescription from the physician. So we do need to get the physicians involved to write a new prescription for that patient within the pharmacy channel. None of these are insurmountable in terms of moving people over. They're just work and so that's why it's not an overnight change. It's something we have to work on over time. But we feel very confident in our ability to be able to ship those customers. And especially as we build more and more access, it can be a broader offering across the whole market.

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

Mike sorry, you got cut off the last time.

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

Great question. So first, I'll just maybe give a little more direction on the shipments in 2025. They were up well above 10%. So we did see a higher growth rate on renewal shipments. And when you think about 2026, the number of opportunities are flat compared to 2025. So that's one calculation. The growth comes from the fact that we have a tail of customers from years past. And so remembering how our renewal model works, when warranties expire over the course of about 18 months, we get to a 70% or better capture rate of people buying that next pump outside of warranty. And so what we have are still a fair amount of people from 2025, especially if you think about the people in the fourth quarter whose warranties expire that we've hardly even talked to yet. So there's still a fair number of -- a nice sizable opportunity base coming from '25 and some even left over from '24. So that's going to fuel the growth so we can still grow renewal shipments double digits in 2026. And then just wrapping it up with that concept again about pharmacy and the ability to shift people or transition them to pharmacy supplies, it will take away that reliance on driving those renewal purchases of a pump, and we can just keep them on their supplies as long as they would like without having to worry about that timing of when renewals come to market. So we're very excited, if you haven't taken that away from today about this pharmacy opportunity for us as a business. This year is going to be a great year of transition for it, and I think you're going to really see some really exciting outcomes in the coming years. And so we look forward to demonstrating those in the coming quarters.

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