Tandem Diabetes Care, Inc. (TNDM) Q4 2022 Earnings Report, Transcript and Summary

Good day, and welcome to the Tandem Diabetes Care Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. It is now my pleasure to introduce Executive Vice President and Chief Administrative Officer, Susan Morrison. Susan Morrison?

Hello, everyone. Thank you for joining Tandem's 2022 fourth quarter and year-end earnings call. Today's discussion will include forward-looking statements. These statements reflect management's expectations about future events, product 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. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is highlighted in our press release issued earlier today and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K and in our other SEC filings. We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors. In addition, today's discussion includes references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations. We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. For additional information about our use of non-GAAP financial measures, please refer to our press release issued earlier today. Today's call will be led by John Sheridan, our President and CEO; and Leigh Vosseller, our Executive Vice President and Chief Financial Officer. Following their prepared remarks, we'll open up the call for questions. Thank you in advance for limiting yourself to one question before getting back into the queue. I'll now turn the call over to John.

Thanks, Susan, and welcome, everyone to today's call. In 2022, Tandem continued to expand its record high installed base to new levels with now more than 420,000 customers worldwide using the t:slim X2 for their insulin therapy needs. This, in combination with the overwhelmingly positive experience our customers report having with our technology and services demonstrates that we are advancing our mission to improve the lives of people with diabetes. Thank you to our talented employees whose efforts, passion and dedication allow us to continue to transform insulin therapy management. Before diving into results, I wanted to first take a moment to acknowledge some of our achievements from the year. First, we received FDA clearance of our mobile app that enables the t:slim X2 pump users, the bolus insulin from their iOS or Android smartphone. This was a meaningful accomplishment as we continue to be the only FDA cleared system delivering insulin through an iOS device. Next is a broad range of clinical studies completed and presented this year on our best-in-class Control-IQ technology. The strength and consistency of Control-IQ's positive clinical outcomes is substantially linked to its automated correction bolus feature, which allows us to deliver immediate and sustained improvements in outcomes across diverse populations, including people with the most poorly controlled diabetes. Lastly, I'd like to highlight our two recent acquisitions: Capillary Biomedical, the developer of the study set extended wear infusion set and AMF Medical, a developer of the Sigi Patch Pump. Both illustrates how we are executing on our strategic vision we laid out just over a year ago to increase the adoption of insulin pumps worldwide by offering a portfolio of technology solutions that meet the different needs and preferences of people living with diabetes. These advancements demonstrate our commitment to innovation even in the year that was unique in many ways. Turning to our results. In 2022, we demonstrated another year of both year-over-year top line growth even with a more challenging commercial environment than in recent past. Our sales efforts focused on expanding the worldwide insulin pump market as well as introducing the benefit of Tandem's technology to existing pumpers. In the U.S., we also focused on current t:slim users who are eligible to purchase a new Tandem pump once again. We demonstrated progress across each of these target populations, which is reflected in the fact that in each quarter throughout 2022, approximately half of our new customers in the U.S. reported that they were adopting pump therapy for the first time and the other half converted from using a different manufacturer's pump. Outside the United States, we also adoption of both new pumpers and existing pumpers of competitor pumps, although the breakdown is more difficult to quantify. Overall, we saw approximately 20% growth in people adopting our t:slim technology in more than the 25 countries we serve, with Q4 being the strongest quarter of the year. Health care provider sentiments on our Control-IQ technology remains very positive worldwide with high regard for the immediate sustained benefits it offers. This was echoed at our recent global commercial meeting, where it was great to be with such an enthusiastic team exchanging stories on the positive impact our technology makes in the lives of people with diabetes and of the excitement for the opportunities ahead. Our U.S. renewal success in 2022 was another focus of discussion. We saw a very strong growth in not only the overall number of eligible people purchasing renewal pumps, but also in the rate of renewals. Meeting the portion of people eligible to renew who actually renewed increased steadily throughout the year. This, coupled with the strong retention of our in-warranty customers demonstrates the high level of satisfaction people experience with our technology. Customer renewals are a key continued growth catalyst for our company as in 2023 and beyond, the number of people who are eligible to renew each year scales meaningfully. As we look to the year ahead, our focus will be on continuing to expand the large and growing insulin pump market, which remains just over 35% penetrated in the U.S. and typically only 10% to 20% in the geographies we serve outside the United States. The overall commercial market dynamics have remained consistent in recent months. In 2023, we are focused on creative ways to help drive awareness of our best-in-class Control-IQ technology, while preparing for multiple new product launches. Part of this preparation is in our manufacturing operations. We recently completed the transfer of our t:slim cartridge lines to our third-party manufacturer, which creates capacity for us to scale cartridge production for our newest pump, the Tandem Mobi. Operationally, we remain diligent with spending while continuing to invest in our marketing and R&D efforts and looking at opportunities to streamline and automate internal processes. Our focus is to create better leverage in our infrastructure while continuously improving the customer experience. A good example of this effort is our recent update to the back end of our customer portal. It features mobile-first responsive technology that allows for faster iterative development. This is an important capability for us from an operational perspective as it enables a scalable infrastructure that can reduce the burden of headcount intensive support costs. It's also a meaningful step as we move toward Tandem source, our second generation web-based data management application that we're planning to deploy on a scaled global rollout begin this summer. Source is designed to build on the success of our key Connect data management application through which we already have more than 0.5 million patient years of data from the t:slim users in the U.S. Source enhances clinical data visualization and provides added interface customization for health care providers to better manage their patient's care, whether remote or in person. In addition to source, we also have launch planning efforts underway for Tandem Mobi, which will expand our portfolio of diabetes solutions and offer people greater choice in how they want to wear their pump as well as how they want to operate it. As we've discussed in the past, our research shows that Mobi largely appeals to a segment of people who otherwise would not adopt insulin pump therapy with the options available today and is a catalyst for driving further market growth. We received questions from the FDA in response to our 510(k) and are preparing our responses. Clearance timing remains difficult to predict, and we are preparing for a shelled launch beginning in the second half of this year. We aim to start launch activities within one quarter following clearance. Excitingly, this is a year in which we have multiple new innovations slated to move from development to commercialization. Our commercial launch efforts are currently focused on the upcoming availability of the t:slim X2 with G7 integration. Following Dexcom's recent clearance, we are completing our final labeling updates and integration activities and our current plan is to launch with scaling availability worldwide begin later in Q2. Our goal is to be the first to market with G7 integration in an AID system, it will be rolled out to existing in-warranty t:slim X2 customers for no charge and the software update can be done by users in the convenience of their home. This will be the fourth generation of Dexcom sensors we've integrated and are proud to be delivering on our commitment to bring people with diabetes integration with the latest technologies as they are cleared by the FDA. Furthering this commitment is our work with Abbott to integrate the t:slim X2 with FreeStyle Libre technology. It's another new and exciting opportunity to bring the benefits of automated insulin delivery to more people living with diabetes. It's also a catalyst for future expansion in our shared market as insulin pump integration that with the Libre technology is not available in the United States today. Abbott is working with the FDA to receive Libre clearance for using an AID system. And once received, our goal is to commence the commercial launch of an integrated offering within one to two quarters. In addition to these near-term opportunities in our pipeline, we also have a number of clinical initiatives underway in 2023. For example, we've begun enrollment in a second feasibility study for Control-IQ 2.0, which is designed to offer enhanced personalization and even greater ease of use. In addition, we're preparing to start a pivotal study to support a type 2 indication for Control-IQ. Our last major clinical trial initiative this year is for the study set technology, which is the extended wear infusion set, that we acquired with Capillary Biomedical last year. We anticipate the data from these studies, along with our work in 2022 will underpin future regulatory filings as work to expand lately indications for Control-IQ and bring new products, features and benefits the people living with diabetes. Rounding out our R&D update. We are continuing to execute on our longer-term portfolio strategy, which centers around a fundamental understanding that there is not a one-size fit fall solution in insulin therapy management. To serve the varying needs and preferences of people living with diabetes, we require a portfolio of solutions that deliver choice. This means choice in features, choice and device form factor and choice and how users can wear and operate their pump. This is why we are working to expand our family of offerings to include a next-generation version of t:slim that will include features like wireless software updates, longer battery life and a faster processor to support future algorithms. We're also working on a consumable extension for Mobi that will allow it to be worn with a tube infusion set or a tubeless sight here to the body, providing the ultimate choice and flexibility. The newest element in our portfolio is the Sigi Patch pump, which we acquired with a privately held Swiss developer AMF Medical last month. Sigi is designed to be an ergonomic rechargeable patch pump that reduces the burden of managing diabetes through its use of a prefilled insulin cartridge and its compatibility with AID technology. Now that it's closed, we look forward to working more closely with the AMF team on product development, regulatory and the commercialization strategy. And it was a company founded on innovation and our goal is to bring new technology to the diabetes community every 12 months to 18 months. With the strength of our offerings today and our new product portfolio in front of us, we are well positioned to execute on a series of growth catalysts that will allow us to drive our near- and longer-term goals. With that, I'll now turn the call over to Leigh.

Thank you, John. Our full year 2022 sales exceeded $800 million setting quarterly records throughout the year. With this achievement, we have more than doubled our sales in three years. Pumps made up 54% of our sales as we continue to expand the insulin pump market, capture competitive share and drive success in our renewal efforts. Fourth quarter sales were $221 million on a GAAP basis and $223 million non-GAAP on 36,000 pump shipments worldwide. Our GAAP sales reflect an accounting deferral related to the recent introduction of our Tandem Choice program in the U.S., which provides a pathway for our customers to access our newest pumps. Our non-GAAP sale computed to reflect pump sales consistent with historical periods in order to better aid and measuring progress of the business. It's important to note this program does not change the economics of when or how much we are reimbursed for each t:slim X2 we sell today and none of the revenue deferred is at risk. It is merely a question of when the deferred sales will be recognized. Breaking our 2022 sales down by geography. Our U.S. sales were $589 million on a GAAP basis and $592 million on a non-GAAP basis. One of the largest growth drivers year-over-year were supply sales from a more than 20% increase in our U.S. installed base, which is now at 290,000 customers. We are also increasing our renewal numbers both in volume and rates. Related to volume, we saw a 60% increase in renewal shipments for the year. And in the fourth quarter alone, these shipments increased 75%. From a rate perspective, we have already renewed over 50% of customers whose warranties expired in 2022. Overall, we shipped 84,000 pumps in the U.S. in 2022. Fourth quarter sales in the U.S. were $166 million on a GAAP basis and $169 million on a non-GAAP basis. We shipped 24,000 pumps, reflecting an increase in both new and renewal pump shipments when compared to Q3. Turning to our progress outside the U.S. 2022 sales were $212 million, growing 19% year-over-year. The majority of the increase came from 35% growth in supply sales with our installed base reaching 130,000 customers by the end of 2022 as well as overall benefit from price increases and country mix. Customer placements grew approximately 20%, while actual pump shipments were flat year-over-year. This difference largely relates to the variation and timing of orders from our distributors. Their ordering patterns have been implanted significantly by managing logistics challenges between San Diego and their in-country warehouses. Upon completion of the transition to our European distribution center, we expect to see closer alignment of end customer demand to orders. This transition began late in the third quarter of 2022, creating a sales headwind of approximately $6 million across both pump and supply sales with the heaviest impact in the fourth quarter. Our resulting fourth quarter sales were $55 million on 12,000 pump shipments. Looking to the year ahead, we are providing 2023 worldwide sales guidance of $885 million to $900 million on a non-GAAP basis, slightly widening the range from our initial 2023 indication to a growth rate of 10% to 12%. This does not include sales from our anticipated new product launches that John discussed, which present multiple opportunities to accelerate growth. It does factor in some shift of timing related to the scale up of our distribution center in Europe. U.S. non-GAAP sales are expected to be in the range of $650 million to $660 million. This contemplates that the environment in which we have been operating in the U.S., largely remains consistent with what we have experienced in recent months and does not reflect benefit from potential new products in 2023. The reoccurring pieces of our business, both supplies and renewals are expected to make up nearly 60% of our U.S. sales expectations for the year, leading to a more predictable revenue stream as we grow. Renewals create an increasing opportunity when you consider the extent to which our business scaled four years ago and the improvement in rates that we have demonstrated this past year. Keep in mind that the overall sales in the U.S., including renewals typically decline in the first quarter from the fourth due to insurance dynamics. In the last three years, the average sequential decline for pump shipments has averaged 30%. With that in mind, U.S. sales in the first quarter are expected to be in the range of $134 million to $136 million. The remainder of the year is expected to follow historical seasonal patterns where both pump and supply sales scale up across the quarters. Sales outside the U.S. for 2023 are expected to be in the range of $235 million to $240 million. This has been a total of approximately $25 million in headwinds related to the transition of our largest European markets to the new distribution center. The impact will be heaviest in Q1 and is expected to be complete mid-year. As a result, Q1 sales outside the U.S. are expected to be lower as a percent of sales than in historical periods in the range of $34 million to $35 million. From a margin perspective, our 2022 gross margin was 52% compared to 54% in 2021. Our performance was consistent across the year and that we benefited from higher average selling prices and operational cost reductions as anticipated to offset pressures from our higher mix of supply sales. The 2 percentage point step down from the prior year was primarily attributed to certain higher cost raw materials acquired in early 2022. Our fourth quarter gross margin was 52% on a GAAP basis and 53% on a non-GAAP basis the difference due to the sales impact of the Tandem Choice program. In 2023, we expect our non-GAAP gross margin to be in line with our 2022 results at approximately 52%. The remaining inventory of the higher cost raw materials is expected to turn in the first half of 2023. Gross margin progress generally follows U.S. pump sales improving across the year in line with sales expectations. The most meaningful leverage is expected to come in future periods from new product introductions, such as Mobi and our extended wear infusion set technology. Our operating margin in 2022 of negative 12% reflected the impact of certain unique or non-recurring transactions, including a $31 million charge in the third quarter associated with the closing of the Capillary Biomedical acquisition. $12 million in the fourth quarter for facility consolidation costs as we continue to evaluate our long-term footprint in a hybrid work environment, and $4 million for the Tandem Choice program. When excluding the impact of these transactions as well as noncash stock-based compensation, our adjusted EBITDA at 7% of non-GAAP sales for 2022 was in line with our range of expectations. As we move into 2023, we expect that our adjusted EBITDA margin will be in the range of 5% to 6% of non-GAAP sales. This includes additional R&D investment for the operating costs related to our recent acquisitions of approximately 3% of sales. This increased investment in R&D will be partially offset by leverage in SG&A from productivity initiatives. Our adjusted EBITDA margin is expected to scale across the year in line with sales expectations and as benefit builds from SG&A efficiencies. To be clear, with the expected sales headwinds outside the United States against our current spending levels, we anticipate that adjusted EBITDA margins will be negative in the first half of 2023 with a return to a positive margin in the second half of the year. Turning to cash. We remain diligently focused on generating free cash flow to provide flexibility to grow the business, both organically and inorganically. Our balance sheet is strong with $617 million in total cash and investments at the end of the year compared to $624 million at the end of 2021. We generated $50 million in operating cash flow and $17 million from employee stock programs providing the opportunity to fund $35 million of strategic activities. We also invested $34 million in capital expenditures largely related to manufacturing scale-up and leasehold improvements for our new tech center, which is near completion. To summarize our 2023 outlook, worldwide non-GAAP sales are estimated to be in the range of $885 million to $900 million, including OUS sales of $235 million to $240 million. Our gross margin expectation is approximately 52% and adjusted EBITDA is estimated to be in the range of 5% to 6% of non-GAAP sales. Our non-cash P&L charges for stock compensation, depreciation and amortization are expected to be approximately $115 million, of which $95 million is associated with stock comp and $20 million with depreciation. I will now turn the call back to John.

Thanks, Leigh. Before we begin Q&A, I'd like to acknowledge the separate press release we issued today announcing that Kim Blickenstaff will be handing over the duties of Chair of our Board of Directors to our fellow Board member, Becky Robertson. Kim has been an instrumental leader for Tandem since joining the company in 2007, serving first as CEO and then his chair for several years. His strategic vision and mission driven focus on our company culture has helped build and shape Tandem from VC back to start-up to a worldwide leader in diabetes care. While serving as Chair, a focus for Kim and that of our other directors has been on evolving our Board, bringing on a number of new talented individuals with diverse perspectives and skills and expertise in consumer technology, connected health, managed care and a global expansion. Beckie Robertson joined Tandem's board in early 2019 with an impressive track record of helping medical device companies scale in her roles as an engineer and entrepreneur, a corporate executive and Board member. She's added tremendous value to our Board, bringing patient centric and strategic vision, along with experience with a range of technologies and business models. It's a natural choice for the expanded leadership position. Thank you again to Kim and Becky, and we appreciate your continued contributions to the Board of our company. And with that, I'll turn the call back over to the operator for questions.

Thank you. [Operator Instructions] And our first question comes from the line of Matt Miksic with Barclays.

Hi, Matt.

Hi. Thanks so much for taking the time. I just wanted to make sure we understand the questions around that we're getting around sort of margin direction. The investments that you're making in this coming year. I appreciate the conservatism on the top line. But could you kind of walk us through, again, maybe just the puts and takes that get you to that sort of 5% to 6% EBITDA number you mentioned?

Sure. Thanks for the question, Matt. I'll start with gross margin. Obviously, that makes a big difference in what we can achieve on the bottom line. And with the moderated sales that we have projected for this year. We didn't really anticipate much gross margin expansion. We do anticipate that we will have pricing improvements as well as cost efficiencies that will offset any product mix pressures that we may see. But the real benefit is to come in the future from new product launches, which I can talk to you in a bit. But then when you think about the puts and takes in the operating expense area, we took a lot of time to be very deliberate in thinking about which projects and programs will provide the biggest benefit or impact to the organization going forward. And so we prioritize a number of the R&D investments. We're taking measures such as consolidation of facilities as we rethink how we work in this hybrid environment and other programs along those lines. And then we're continuing to look for ways to optimize the business model. A lot of that comes from how we support our customer base and with the launch of Tandem source that will greatly improve our abilities to digitize and automate some of those customer-facing activities that we have today that require a heavy headcount burden. So when you put all those factors together and you think about where we ended 2022 at about a 7% adjusted EBITDA margin with the onset of the new acquisitions this year does put a little pressure on the bottom line, but we still felt very confident to expand those margins in the longer term.

Thank you. And our next question comes from the line of Brooks O'Neil with Lake Street Capital Markets.

Thank you for taking my question. I'm just curious, John, and Leigh, as you think about Q4 and maybe what you're beginning to see in Q1, could you just parse out what do you think are the impacts of the softening economy and the macro factors as well as give us your sense for the impact of competition and whether perhaps you're seeing anything different than you expected on the competitive side of the equation? Thanks a lot.

Hi, Brooks. Yeah. I mean I would say that if you look back to the third quarter call in November, we've seen things remain fairly consistent. And by that, I would mean it's been no better. It's been no worse. And that being said, I think that we anticipate that this is the way it's going to be throughout this year in the entire year. And so I think as we said in the prepared remarks, our intent really is to increase the awareness and benefits of Control-IQ and really focus on execution of these new product activities that we've got planned for the year because they are really going to drive the change in the growth curve of the company and get us back to a growth rate that we're used to in the past. But I would say that there's really been not much change, it's no better, no worse.

In competition, John?

Yeah. I mean, I would say the same thing with competition as well.

Okay.

Thank you. And our next question comes from the line of Chris Pasqual with Nephron Research.

Thanks for taking the questions. Just want to dig in on the U.S. guidance. As we run the math on the renewal opportunity, it seems like guidance is probably baking in new patient starts being down low-double digits this year. So first, I'd just be curious if that's right or your math gets you to a different place.

I think that's in the ballpark, Chris. One of the biggest drivers this year, especially one that we've seen some tremendous growth in that we can really count on is the renewal opportunity. And we expect that with the environment being so much to what we were seeing in the fourth quarter as we go into this year. That we will continue to see some level of pressure on new pumpers, although, we still will be adding new pumpers to the organization. It's just part of it is also the comp we had to last year, which the first half was a much healthier environment.

Right. Okay. And are you assuming any benefit from OUS renewals? You've been on the international market for a little over four years now. So it seems like that might start to flow through.

You're right. We're just at the beginning of that in 2023 and 2019 was our first full year of operations, and we shipped 20,000 pumps in that year. But keeping in mind that there is a longer lag from when you ship those pumps to when they get placed on patients. It's more of a back half phenomenon for us and really moving into 2024 is where we'll begin to see noticeable benefit.

Thanks.

Thank you. And our next question comes from the line of Steve Litchman with Oppenheimer.

Thank you. Hi, guys. Wondering if you could just touch a little bit more on internal. I think the implied guidance is low-double digits, I guess, even including that headwind you talked about in terms of the transition. So can you talk a little bit about sort of the underlying dynamics on how things are trending outside of the U.S.? And any new regions we should be focused on for you guys in terms of Control-IQ here in 2023?

Sure. I could start with saying that you can still think of the opportunity for us outside the U.S. is still about 4 million customers living with type 1 diabetes in the approximate 25 countries in which we're operating. So that would be the opportunity. And we've seen really great growth there. In fact, although hard to see on the top line because of some of the shipping dynamics, we've seen 20% growth in patient payments placements in 2022. So I think it's a great place for us to continue to push on penetration. So we're expanding the market as well as attracting competitive conversion there.

I'd also say, Steve, that this is an important week OUS as the ATD is starting today, I believe, and that we've got a symposium on Friday and which will have a number of papers that are presented. One of which is going to be the results of the Control-IQ NICE study, which is in the UK. And UK is looking at creative means to use AID technology to help people with diabetes in that country, and it's a big opportunity for us this year.

Thanks, John and Leigh. I’ll jump back in queue.

Thank care.

Thanks, Steve.

Thank you. And our next question comes from the line of Alex Nowak with Craig Hallum.

[indiscernible] everyone. I know you're not including this in the guidance, but just curious, how are we thinking about the specular eventual content on the [indiscernible] CDM launches, [indiscernible] and then also [indiscernible] Mobi. Just remind us what happened back, when G6 come online and also in base control Q4 to roll out?

Alex, we had a really hard time understanding you.

I think the question was what type of sales catalyst is the launch of our CGM partners, new sensors. And if you could maybe compare that to what we saw in the past with Control-IQ launch and the Basal-IQ Launch?

Yeah, certainly. I think that the interesting is, if you look back with Basal-IQ and with the Control-IQ is the G6 sensor had a meaningful impact and improving the overall patient experience in both products. But at the same time, we are introducing new algorithms but also had an important impact. I would say that clearly, with Basal-IQ is really the first device that reduced the burden of diabetes that people in the market had an opportunity to experience and then with Control-IQ, the first really effective AID system in addition to the great sensor. And obviously, the sensor and the finger sticks were important. I think if you look forward to this year, -- and in the case of DexCom and the G7 integration, it's a much better product. It's clearly got a painless insertion. It's got faster warm-up times and a much more ergonomic form factor, all of which are going to drive share growth for us. We think it's going to definitely be a favorable effect on sales, and we're going to see strength in our sales from that product. And as I said in the call, we anticipate that we would have the product in the scaling launch of the second half, excuse me, the second half of the -- the second quarter -- at the end of the second quarter.

Okay. Thanks for the update.

Thank you. And our next question comes from the line of Matt Taylor with Jefferies.

Hi. Thanks for taking the questions. Good afternoon. And so I wanted to ask you more about the assumptions around the U.S. the new pump tax renewals, and I know you're expecting some pressure this year. I guess, I was hoping to understand better in the second half of the year, when you get maybe some new product help and lap the competitive launch, these conditions improve, do you think that you can grow new starts, externals in the U.S. in the second half of '23 and maybe extend that thinking to if you can?

Sure. It's a great question. So I guess the first point I'll make is just a reminder that our guidance expectations for this year do not have those new product introductions in there. And so even with that, we still expect that we can expand the market with new pumpers just slightly pressured and part of that is just the baseline that we're comparing to. But with those new product launches, we do anticipate inflections in the business that we'll continue to attract more and more people from shots than what we're seeing today, just reaching a different segment, whether it's with the CGM integration or with our own Mobi product.

Okay. All right. I’ll leave it there. Thanks, Leigh.

Thank you. And our next question comes from the line of Matthew O'Brien with Piper Sandler.

Thanks for taking the question. Hey, John, and Leigh. Thanks for taking the question. I guess, over the last year or so, there's been kind of a downward trajectory to revenue guidance. And now to your point where I think we're in good shape. But as I look at the EBITDA outlook for the company this year is -- and maybe I misheard Leigh, but I think you said negative in the first half of the year adjusted and then positive in the back, that would assume a massive ramp in the back half, if I'm hearing that right. And I mean, how do you get there? I just don't want to be in another situation where you've got to cut that outlook on the EBITDA line as we put the year as some of these expenses come through. So can you just are there programs that are going to fall off or something else there to really call out that gets you up to that full year adjusted EBITDA number? Thanks.

Sure. A great deal of it is not so much tied to the spending levels themselves and as we expect that to stay moderated across the year, it’s really a function of the sales levels. So if you think about how sales are scaling, in the U.S., we have the typical seasonal curve where pump shipments start lower at the beginning of the year. In fact, coming off of Q4 pump shipments could -- our history would suggest that they could come down 30% in the first quarter. And so you have that on current spending levels. And then when you think about the OUS dynamics with that headwind that we're expecting to see in the first half and really most heavily loaded into the first quarter, it makes for a challenging sales number, which really puts pressure on that adjusted EBITDA at the beginning of the year. So the ramp through the end of the year is as much about the sales going up across the year scaling as it is about spending levels. But we are implementing programs today that I do expect to see -- start to see benefit from that on the spending side. And a lot of it would be initiatives in our customer care organization to -- for new productivities that will help drive down the cost to support the installed base as it continues to expand.

Okay. Thank you.

Thank you. And our next question comes from the line of Joanne Wuensch with Citi.

Thank you for taking the question. I just want to check a couple of things. If I put all the pieces into my model, it looks like new pumpers were down high-teens in the quarter. Is that the right math?

Let me say that's in the ballpark. You're talking about Q4. It did have the most pressure of the year in terms of new pumpers when you're looking year-over-year, I would like to highlight, though, Joanne, that going from Q3 to Q4, we did see a modest increase in new pumpers as well as renewal customers.

Okay. And then just as a follow-up, I'm just a little thoughtful on how we're going to get from essentially 3% more or less revenue growth in the first quarter to ramp to get to your full year guide. Other than easy comps since you're not including new products in there, are you assuming maybe even trialing or something else that is helping you figure out that ramp? Thank you.

Yeah. So really the ramp about separating -- it's important to separate the U.S. from the OUS markets. But the ramp across the year would follow what I would call a typical seasonal curve. The challenge is that when we're comparing year-over-year, we had a much healthier environment in the first quarter of last year and even the second quarter compared to the back half. So part of the year-over-year conversation is just about comps in the baseline and not so much about something you have -- that's beyond belief in the 2023 expectations. So if you think about renewals continuing to drive growth this year, as you think about continuing to have new pumpers come to Tandem. And then in the OUS markets, particularly with a $25 million headwind in the first half, again, mostly in the first quarter. That's really a pressure on that top line growth rate. And so -- it's as much about those elements and the comp year-over-year as it is about anything else.

Okay. Thank you.

Thank you. And our next question comes from the line of Travis Steed with Bank of America.

Hey. Thank you for taking the question. I heard your comments on things no better than worse. But curious the guidance did change, the low end went down a little bit. I just want to make sure I understood the reason for the guidance change on the revenue. And then a quick clarification, it looks like U.S. supply revenue per patient was down about 5% year-over-year. So just want to understand the math on the U.S. supply revenue. Thank you.

Sure. So starting with the guidance question. I would characterize that Travis as just -- now that we're giving guidance top to bottom on the P&L and giving it in a whole dollar number rather than a growth rate, we're starting with that typical $15 million range that we usually start the year with. And important point is that the midpoint of that range is right in line with the business, so obviously very comfortable with where consensus is sitting today from that regard. And then when looking at the supplies on a per patient basis, nothing in our data suggests that there was anything out of the norm or unusual in terms of a per person usage of supplies. And so, I don't know [indiscernible] can really just speak to from a supplies perspective. I guess, I would clarify, if you're looking at it on a worldwide basis, we did see some headwinds on supplies outside the U.S. because of the transition to the distribution center that began in the quarter. But when you look at the U.S. independently, it was really very much in line with our expectations.

Okay. Great. Thank you.

Thank you. And our next question comes from the line of Larry Biegelsen with Wells Fargo.

Hi. This is Nathan Treybeck on for Larry. Just a question in terms of the Mobi launch. Are you expecting any delay in new starts or renewals because patients will wait for the launch?

So that's something that does typically occur in advance of a new launch. But I would say it's much closer to the launch time itself and not really that far in advance. In fact, it usually doesn't begin until you get to a clearance point. So between then and when you start your commercial launches when you see sometimes some level of cost. But we're continuing to -- we have a program today to help mitigate the process (ph) as much as possible, and we'll continue to evaluate the effectiveness of that. At this point, I can say that we're not hearing anything from a field perspective that says there's even much knowledge of Mobi coming from a customer perspective. And so today, we're not seeing any profit related to it.

Thanks. And just as a follow-up, so we've seen most diabetes devices delayed at the FDA in recent years. Do you expect a few rounds of questions with Mobi? And I guess, what's a reasonable base case for launch timing?

Yeah. I mean, we are in the process of responding to the questions right now. I would say that the communications that we're having and the interaction is normal for the stage of the process. And you're right, it's -- I mean, clearance timing is difficult to predict. And the way we're dealing with that is that we're planning on a scaled launch in the second half of the year. And roughly, we would expect that to start a quarter after clearance. And I think that's just the way we're looking at it. I mean, I think that we can't control it, but we can be prepared and that's what we're planning to underpin.

Thanks.

Thank you. And our next question comes from the line of Jeff Johnson with RW Baird.

Thank you. Good evening. Hey, John. How are you? First off, I guess, first, can you just pass along, I'm sure for all of us, well, wish us to Kim. And just letting the personnel continue his generosity with Pure, Illinois is near and dear to my heart in my hometown. So if you could pass that message, John. I would appreciate it.

Absolutely.

Yeah. And then just two follow-up questions here. Just some things that have been asked. One, on the 30% normalized sequential declines for 4Q to 1Q, we do have some macro uncertainty in this environment and obviously, competitive headwinds or at least competitive uncertainties. Are you comfortable that like a normalized sequential pattern is something that can happen this year? We don't have to build in a bigger cushion there? And then just to Joanne's question, she would asked about upper teens decline in new patient starts. I just want to confirm, that's on a global basis, right? We have you down, I think, closer to 25% on a U.S. basis. I just want to make sure my math is not off on that use number. Thank you.

Sure. So starting with the sequential decline question, I would say that, that history that we've seen, I feel comfortable is going to hold true in the first quarter. And part of that is back to John's commentary that since the last earnings call, we've seen the environment maintain consistency, no better, no worse than what we've seen. And so we're comfortable that thinking about it from along the lines of those same historical seasonality trends would make sense at this point. And then in terms of new patient declines, the conversation that we've been having at least when I've been talking to patients, I've been very focused on the U.S. market. And so that's what, I would agree with the percentages that people have been commenting to and suggesting that they've come up within their models, are pretty much in line with what we have been seeing and what we're anticipating.

So sorry, just to clarify, you're down high-teens for U.S., that was a U.S. comment? Because again, I get you down 25%, and we can talk about the math offline, but I just want you're saying closer to down high-teens for U.S. new starts in the 4Q?

I would say it's in the ballpark, Jeff. And we're talking about 4Q and then as we look ahead, someone had asked the question about next year as well and I agree with their indication.

Fair enough. Thank you.

Thank you. And our next question comes from the line of Matthew Blackman with Stifel.

Good afternoon, everybody. Thanks for taking my question. Leigh, I appreciate the specific call out on the EBITDA headwind from AMF and Capillary in 2023. If I can get greedy, though, for AMF specifically, conceptually, does spend accelerate from ‘23 into '24 and '25 likely move into more intense clinical and regulatory work or should we think about it being a fairly consistent annual investment rate through commercialization? Thanks.

Sure. The way to think about it, Matt, is this -- is that even in our own, let's say, pre-AMF in our own plans, we had expected that we would be accelerating spending on our own patch pump program. And so by acquiring AMF standing down our own internal program, it's going to follow suit with what we anticipated. And so that falls in line with our original R&D expectations across the five years and meeting our operating margin targets.

Yeah. Okay. Appreciate that. Thank you.

Thank you. And our next question comes from the line of Joshua Jennings with Cowen.

All right. Good evening. Thanks for taking the question. I wanted to ask about the tech access program and just how sales have attracted the first internal expectations and maybe what's a fair amount to assume for '23 to account for the difference between GAAP sales in the non-GAAP guidance?

Sure, Josh. Thanks for the question. And so just a little bit more information on the Tandem Choice program is that today, I guess I would highlight that it doesn't change the economics of a transaction when we sell t:slim pump today. We received the same amount of cash at the same amount of time. What this program does is it offers people an opportunity for the future. So as of today, no one is making an election, people don't even have to actually be aware of it. They are all eligible to participate if they're buying a t:slim today. So there's no tracking of progress or intent to use it in the future. And the reason we're providing non-GAAP sales versus GAAP sales is today, you could probably pretty easily predict what the deferrals will be that we've reported in the fourth quarter and apply that to the future. But as soon as we get clearance for Mobi, all bets off the table because the time at which you recognize that revenue will be highly varied based on, if and when people do elect to participate in the program. And so I strongly encourage people to focus on the non-GAAP sales because we are reflecting with the same economics that you have seen from our business historically, and it's the best way to compare the progress of the business.

Great. Thank you for that. And then just on the pipeline, I just wanted to ask about piece of the next three and just any updates on development or regulatory progress for that platform? Thanks.

Well, we're -- sure. We're definitely in the middle of developing the product right now. I mean I think it's the -- we said that t:slim X3 would be available on the market shortly after Mobi's commercialized. So it's next in line. As a result of that, we're working diligently on that. We haven't given specific time frame other than to say it's going to occur after Mobi and it's going to be an important product. We believe that our portfolio is very important for the business. It's just -- there's many different segments out there and t:slim appeals to a significant portion of people living with diabetes. And so it's going to be technology enhanced. It will have wireless charging. They will have a more powerful processor, better battery life, a lot of technology enhancements that come along with that, just to extend the lifetime of the product into the distant future.

Great. Thanks.

Thank you. And this concludes today's conference call. Thank you for participating, and you may now disconnect.