Tandem Diabetes Care Inc
NASDAQ:TNDM
Earnings Call Analysis
Q3-2023 Analysis
Tandem Diabetes Care Inc
The company exceeded expectations with third-quarter sales reaching $194 million worldwide, showing robust growth driven by U.S. sales, which were $138 million from 17,000 pump shipments. This performance was supported by a significant number of new customers adopting pump therapy for the first time and others switching from competitors. A consistently high retention rate also played a key role, with supply sales growing by 10% in line with an increase in the U.S. installed base to 308,000 users.
In Europe, the company faces disruptions, including reduced orders from a major distributor in anticipation of a new product release. Consequently, baseline expectations for sales outside the U.S. have been adjusted to $190 million for the year, assuming no significant new distributor orders for the remainder of the year.
The company maintained a stable gross margin of 51% of sales in the third quarter, in line with the previous year. Operational cost savings and improving average selling prices helped to offset margin pressures from high-cost raw materials and product mix changes. Adjusted EBITDA margin remained positive at 1% of sales, and operating expenses were controlled, remaining flat compared to the same quarter last year. The strong cash and investment position of approximately $500 million ensures financial flexibility for strategic investments.
The company projects worldwide sales of $765 million for the full year 2023, with unchanged gross margin guidance of 51% and an adjusted EBITDA of at least breakeven. Early expectations for baseline 2024 sales growth start at 10%, with confidence in the company's potential growth due to multiple new products launching in the U.S. and internationally.
The new Mobi product is expected to be a revenue driver in the first quarter, while G7 is anticipated to have full market availability before the end of the quarter. Additionally, Abbott's early access phase for a new product is set to begin in the upcoming weeks, with revenue contributions expected in the first quarter.
Despite headwinds, pump shipments remained stronger than expected, particularly renewals driven by the Tandem Choice program. This strength underpins the company's confidence in achieving their breakeven EBITDA goal for the year, bolstered by predicted sales increase in the fourth quarter.
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Thank you for standing by, and welcome to Tandem's Third Quarter 2023 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to EVP and Chief Administrative Officer, Susan Morrison. Madam, you may begin.
Hello, everyone, and thanks for joining Tandem's 2023 Third Quarter Earnings Call.
As a reminder, 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, quarterly report on Form 10-Q and in our other SEC filings.
We assume no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or other factors. Today's discussion will also include references to a number of GAAP and non-GAAP financial measures. Non-GAAP financial measures are provided to give our investors information that we believe is indicative of our core operating performance and reflects our ongoing business operations.
We believe these non-GAAP financial measures facilitate better comparisons of operating results across reporting periods. Any non-GAAP information presented should not be considered as a substitution, independently or superior to results prepared in accordance with GAAP. Please refer to our earnings release, quarterly report on Form 10-Q and the Investor Center portion of our website for a reconciliation of these measures to their most direct comparable GAAP financial measure.
Leading today's call is John Sheridan, Tandem's President and CEO who will be joined by Leigh Vosseller, our Executive Vice President and Chief Financial Officer. Dr. Jordan Pinsker, our Medical Director, will also be joining for the Q&A portion of today's call. I'll now turn the call over to John.
Thanks, Susan, and welcome, everyone, to today's call. In the third quarter and throughout 2023, Tandem has focused on bringing the benefits of our #1 rated AID system to more people living with diabetes worldwide -- along with providing customer care excellence and making operational progress throughout our business.
It's been a transitional time for Tandem as we prepare for the company's next phase of growth through our portfolio of innovation. We are executing on multiple near-term product launches while implementing scalable systems and processes to support our global operations and leverage our infrastructure.
Reflecting on our third quarter results, our overall performance was above our baseline expectations, primarily due to the U.S. market. Over the past few weeks, I have had an opportunity to attend some of our regional sales meetings across the United States and was excited and encouraged by my conversations.
My first takeaway is that the t:slim X2 and with Control-IQ continues to be the best AID system available. This is also reflected in third-party research and our own customer satisfaction surveys. It's evident in our low attrition and higher percentage of customers choosing to purchase a new t:slim X2 from Tandem after their warranty expires.
My next takeaway is that overall competitive dynamics remain stable. Some products are newer than others, but the noise from the other AID offerings is in line with our expectations, and the diabetes community is learning more about what these products are and what they are not.
Lastly and most overwhelmingly, is the high level of enthusiasm and anticipation for our new sensor integrations and for Mobi Pump platform. Our sales team shared that some new and renewing t:slim customers are pausing as they wait for Mobi and G7 launches and are excited for their availability. These products are at various stages in the release process, and we are highly encouraged by the performance in the hands of our early users.
Starting with CGM additions, I am proud of our teams to have demonstrated leadership in AID sensor integration. Developing pump and algorithm software for the compatibility with a new sensor is an extensive process, and the technical work is just part of the effort it takes to bring a newly integrated system to market.
I would like to express our thanks to our CGM partners for their collaborations as we work to launch the t:slim X2 with the DexCom G7 and Abbott's FreeStyle Libre sensors. The steps to bring the DexCom G7 integrated system to market are well underway, and we made great progress in the early release phases.
We are proud to be rolling out the first AID system in the world to use DexCom's G7 sensor data and are planning for full availability of G7 across the U.S. by year's end. We've also been preparing for the launch of the t:slim X2 integration with the Abbott FreeStyle Libre 2 sensor. Based on where we are and being mindful of the upcoming holiday season, we plan to initiate the U.S. launch of t:slim with Freestyle Libre 2 later this quarter with broad availability early in the new year.
This new integrated offering is an incredible accomplishment for our teams as we bring the benefits of AID technology to Abbott's customers in the U.S. for the first time. Now turning to Mobi. In my 10 years with Tandem, I've had the privilege of being part of launching many new innovations that have reduced the burden of diabetes and improved clinical outcomes.
The excitement around the launching of Mobi is among the highest I've ever seen and there is incredible interest by the health care providers, people using MDI and current pumpers to learn more and gain access to our new pump technology. The most common feedback we hear is that people are surprised and thrilled about Mobi's tiny size and the option that enables for wearability, including on-body wear via a patch accessory or clipped on to a waste band or easily tucked into a jean coin pocket.
Beyond body wear options, combined with the ability to disconnect if needed, is a new paradigm. This distinguishes Tandem Mobi from on-market patch bumps. And of course, they also appreciate the benefit and discretion of its mobile app operation. For these reasons, we believe that Tandem Mobi is positioned to expand the insulin pump market and further our mission to improve the lives of more people living with diabetes.
Our release of Tandem Mobi began in October with a limited number of users and will scale through the quarter. Throughout this process, we monitor key criteria and performance metrics, not only for the pump but also for all the surrounding systems and processes across the company. We feel this rigor ultimately leads to a stronger commercial offering for customers and health care providers and delivers a positively different experience that Tandem has built its reputation upon.
We are tracking to our plan to begin offering Mobi more broadly in the U.S., beginning early in 2024. Simultaneously, with each of these new launches, we are developing plans for our new products in countries we serve internationally. Reflecting on our overall business outside the United States, our third quarter aligned with our base expectation, which contemplates the European summer holiday season as well as competitive activities.
During this period, our distribution partner in 1 of the largest European countries experienced capacity constraints and disruptions to its sales activities because their focus was on rolling out a t:slim software update to their installed base. Software updatability is still a relatively new offering outside the United States, especially at such a large scale and individual health care systems sometimes have different requirements for who does the update where and how they occur.
Our commercial team has been very responsive in helping this distribution partner identify opportunities for process efficiency and to minimize constraints based on best practices from the U.S. and other geographies. We're also working through the timing of G7 integration availability in our key European markets. Much like the U.S., enthusiasm is high for this new offering and our preparations for launch are actively underway.
This is impacting our distributors' fourth quarter forecast, which they are adjusting anticipation of this launch occurring just after the first of the year. It is rare and exciting to have an opportunity to like this 1 in front of us. with so many new product launches in flight worldwide, each of which individually has the opportunity to change the trajectory of our business going forward.
It's also an ideal time for us to welcome Mark Novara as our EVP and Chief Commercial Officer. Mark will succeed Brian Hanson, who we thank for his passion and leadership along with laying the foundation for Mark's long-term success at Tandem. As you saw from the press release issued this afternoon, Mark brings strategic and operational global experience in diabetes as well as medical devices.
He has a successful track record of delivering above-market growth, best-in-class customer experience and scalable commercial operations. His knowledge in leading global commercial functions will be critically important as we prepare for the launch of multiple new products in the coming weeks and months, and we welcome him to our leadership team.
2023 has been a complicated year of transition, but we remain focused on executing diligently to scale our operations in preparation for this exciting next phase of growth. I'd now like to turn the call over to Leigh to share more on the 3Q results and financial expectations. Leigh?
Thank you, John. As a reminder, unless otherwise noted, the financial metrics I'll be discussing today are on a non-GAAP basis. Reconciliations to GAAP can be found in today's earnings release as well as on the Investor Center portion of our website.
Third quarter sales were above our baseline expectations at $194 million worldwide, primarily due to sales in the U.S. We shipped 25,000 pumps and supply sales grew 10% in line with our installed base, which is now nearly 445,000 customers. U.S. sales in the third quarter were $138 million on 17,000 pump shipments.
We experienced the anticipated near-term pressure previously discussed as customer enthusiasm builds for the upcoming broad availability of our new products. There were also a number of highlights in our performance. First, we continue to expand the U.S. insulin pump market as half of our new customers reported adopting pump therapy for the first time with the remaining half converting from competitors.
Next, our consistently strong retention rate is reflected in our supply sales, which grew 10% in line with our U.S. installed base that has now reached 308,000 people. Another highlight was our continued high capture rate of renewal opportunities. In fact, renewals grew sequentially to nearly half of the pumps we shipped in the quarter.
Consistent with our expectations, our renewal customers have shown the greatest interest in using our Tandem Choice program. This program offers in-warranty t:slim X2 customers the ability to take advantage of end-of-year health insurance benefits with the low switching cost for Tandem Mobi in the future.
New customers have been more inclined to defer the timing of their purchase until our new products are fully available. Forecasting the timing of customer purchases remains a challenge in the near term. Seasonal trends as deductibles are met and consistency in renewal and supplies ordering patterns provide a level of predictability, particularly as our renewal opportunity step up nearly 20% in the fourth quarter compared to the third quarter.
As a result, we are reaffirming our U.S. sales baseline of $575 million for 2023. Outside the U.S., sales in the third quarter were $55 million in alignment with our base expectation, which contemplated typical commercial dynamics during the European summer holiday season as well as competitive activities. We shipped 8,000 pumps across our OUS markets and grew our installed base year-over-year by more than 10% to 136,000.
As John discussed in the back half of this year, we are working through some disruptions in Europe. For example, we were recently notified that 1 of our largest distributors materially reduced pump orders for the fourth quarter when planning for the upcoming release of t:slim G7 just after the first of the year.
While we have not included G7 in a meaningful way in our 2023 forecast, we also did not include an assumption for a meaningful disruption to orders in Europe in advance of G7. In addition, we are analyzing the potential financial impact of the newly enacted reimbursement for Control-IQ in France with its related rebate structures. With these factors in mind, we are updating our baseline expectation outside the U.S. to $190 million for the year, which assumes no meaningful new orders are placed by our distributors outside the U.S. for the remainder of the year and allows for up to $10 million for the initial impact of the change in reimbursement in France.
Moving on to margins. Our gross margin of 51% of sales in the third quarter was consistent with the prior year. We have spoken to certain high-cost raw materials over the last year, which were creating margin pressure of up to 2 percentage points in any given quarter.
In the third quarter, these costs fell to less than 1% of sales. We continued making meaningful progress by driving additional operational cost savings across all products through lean activities and other manufacturing efficiencies as well as improving average selling prices. These benefits were offset by the impact of geography and product mix with pumps worldwide, representing 45% of sales in the third quarter of 2023 compared to 53% in the prior year.
Our adjusted EBITDA margin remained positive this quarter at 1% of sales as we continue to benefit from cost savings initiatives across the organization and as we prioritize investments in R&D and marketing. Our operating expenses sequentially declined for a second time this year to $121 million and were flat compared to the third quarter of the prior year despite year-over-year increases in costs associated with our acquisitions.
We are reaffirming both our gross margin and adjusted EBITDA expectations for the full year 2023. We ended the quarter with approximately $500 million in total cash and investments and our strong balance sheet provides us financial flexibility to strategically invest in our business.
In summary, our worldwide sales expectations for the full year 2023 are $765 million, which includes sales outside the U.S. of $190 million. Our gross margin guidance remains unchanged at 51% and adjusted EBITDA is expected to be at least breakeven. The margins include recurring noncash P&L charges of about $110 million, of which $95 million is associated with stock compensation and $15 million with depreciation and amortization.
As we look to opportunities for future growth, we have strong conviction in Tandem's ability to lead in diabetes management. We believe it was important and prudent for us to set early expectations for baseline 2024 sales growth starting at 10% at our last earnings call. We will learn a great deal in the next 6 months that will better inform our thoughts on the catalyst for growth next year as we scale the launches of multiple new products, both in the United States and internationally.
We look forward to sharing these earnings with you in the upcoming quarters as we pursue the longer-term goals we've set for our business. With that, I'll turn the call back to you, John.
Thanks, Leigh. As we look at Tandem's near and longer-term strategy, we are focused on meaningfully expanding the insulin pump adoption by people living with type 1 diabetes across all our markets and evolving our products and services to attract people living with type 2 diabetes who use insulin intensive therapy.
Our analysis shows that in the U.S., there are more than 1 million people living with Type 1 diabetes who are currently not getting the benefits of insulin pump therapy and 3x that opportunity in the countries we serve internationally. In addition, there are well over 2 million people in the U.S. living with type 2 diabetes who are already insulin-dependent and do not use a pump today.
It's an immense worldwide opportunity. To expand pump penetration from its minority position today requires innovation as people have vastly different needs and preferences that motivate their pump purchasing decision. Our new pump platforms and CGM sensor integrations address many of these current unmet customer needs.
We also believe our industry-leading algorithm, the user and payer-facing benefits of our dual device portfolio and the degree of flexibility afforded by the modularity of the Tandem system will help us to drive demand in the years ahead as we enter the next product -- to further drive our pump adoption opportunity, we've also been busy in advantage of our clinical initiatives.
Results from the Control-IQ post-market study were recently published in Diabetes Technology and Therapeutics. The data showed that approximately 3,000 people with type 1 diabetes, down to age 6 using Control-IQ for 1 year. Adverse events related to severe hypoglycemia and DKA occurred at much lower rates than historic public data for people on standard of care therapy.
We are in late-stage discussions with the FDA regarding a submission under review for enhancements to our Control-IQ algorithm. These advancements represent another exciting milestone for Tandem as we will lower the age indication for our algorithm and expand its feature set with options for greater personalization. It's part of our ongoing commitment to expanding the user reach of our AID system portfolio, and bringing new features to people with diabetes across all the markets we serve.
We also made progress on enrolling participants in our clinical trial in support of expanding our label indication for our next-generation Control-IQ algorithm to include people living with type 2 diabetes. In the past few months, we've seen meaningful research on the use of GLP-1s and SGLT2s in the treatment of insulin-dependent diabetes.
At Tandem, we look at both devices and therapeutics as part of a broad continuum of care for people living with diabetes. This was reflected in the clinical diabetes publication earlier this year. of a study on glycemic outcomes people with type 2 diabetes, where most participants were using GLP-1 and/or SGLT2 therapy in addition to insulin delivered by our t:slim X2 with Control-IQ technology.
The results highlighted the benefits of using Control-IQ with these additional therapies, which gave the best outcomes when used together with time in the range of 76% with no hypoglycemic events. Heading up our clinical efforts is Dr. Jordan Pinsker, who joined Tandem in 2021, and as a leading endocrinologist and prominent thought leader in artificial pancreas research.
He's been a primary investigator in numerous clinical trials on automated insulin delivery systems prior to joining Tandem and brings extensive knowledge in patient care and the epidemiology of type 1 and type 2 diabetes. We've asked Dr. Pinsker to join the Q&A portion of our call today as he's been helping us to contextualize how the different drugs currently available along with those in the research stages playing our longer-term opportunity.
As you can see, this is an extremely busy time at Tandem. I'd like to thank our employees for their perseverance, diligent focus on execution and continued heartfelt care for our customers. Together, we will be working hard to close out 2023 with eye in the future and the next chapter at Tandem. I'd like to now turn the call back to the operator for questions.
[Operator Instructions] Our first question comes from the line of Steve Lichtman of Oppenheimer & Company.
I guess starting in the U.S. pump shipments held up better than expected given the acute headwinds, particularly on the renewal side, I guess. So can you talk to what you're seeing in terms of the pattern there? Are patients taking advantage of Tandem Choice? What are you seeing on the renewal side that is driving the particular strength during this period?
Yes. Thanks for the question, Steve. And so what we're seeing is and pretty much what we anticipated with renewal customers, they would be more inclined to take advantage of their end-of-year insurance benefits, considering they already know how to use Tandem t:slim X2. They already know how to use Control-IQ.
So it's a much easier proposition for them to consider buying a t:slim today while they're out of warranty and then using the Tandem Choice program to switch when Mobi is available. So that's why we didn't see much, if any, disruption on the renewal side. In fact, our renewal rates were consistently strong with what we've been seeing for the past 4, 5, 6 quarters now.
It's the new customers where we expected to see the pressure, the new customer potential, I would say, when you think about the transition to a new pump the fact that they have to learn a whole new pump today and they would switch to a different pump around the turn of the year. So those are the folks that we expect to take more advantage of or actually defer and wait until 2024 to make their purchase. So things played out pretty much like we anticipated in that regard.
Okay. Got it. And then as a follow-up maybe for you, John or Dr. Pinsker, you talked about certainly the GLP-1 discussion over the last few months. I think relative to pumps, 1 thing I'd look to get your opinion on, is what drives penetration. So overall, the penetration is low. I think we estimate 5% or 6% in the intensive type 2. So regardless of sort of the impact on top from GLP-1s, what do you see as the drivers of pump utilization from where it is today?
Steve, I think it's largely driven by reducing the burden of diabetes -- just managing diabetes is complex. It's that basically every moment of every day, you've got to think about it. And the pumps in the AID systems are basically providing better therapy, and they get less burdensome to use. You don't have to think as much about managing diabetes.
So we think technology drives adoption and continue to develop technology that reduces the burden of diabetes is really the way to get the pump adoption up from mid-30s today to the mid-60s in the next couple of years. Jordan, do you want to add anything to that?
I would. Steve, I'd like to offer some insights into GLP-1 use that we are seeing. John alluded to earlier, our data shows the effects of these newer medications are really complementary with Control-IQ use. We saw in the recently published paper in clinical diabetes that when Control-IQ was used by people with type 2 diabetes, those using the GLP-1s had even better final results than the overall cohort.
Their time and range improved from 61%, not meeting their glycemic targets to 76% after 6 weeks. Now these individuals still needed insulin. They were not meeting their glycemic goals at baseline, and they showed tremendous improvement with Control-IQ use. So we think providers are really going to realize how well patients do with our system.
And as we move forward toward progressing in our type 2 diabetes pivotal trial, we expect to see similar results in that larger trial as well. I'd like to add, we're seeing very meaningful number of participants in our pivotal trial using these adjuvant medications other than insulin. And they're also using quite a bit of insulin, and they're in the trial because they're not meeting their glycemic target at baseline.
So we expect that they're going to show significant improvements in their outcomes as well. And I think that gives us great confidence in the future and as awareness of these outcomes becomes more pronounced over time. We intend to highlight these results from the studies.
Our next question comes from the line of Brooks O'Neil of Lake Street Capital Markets.
I guess I'd like to try to get a little bit of clarification around what I think are 2 pauses now, I want to clarify and be sure I understand that the pause that we anticipated related to Mobi in Q4 is pretty much what you're seeing in the U.S.
It sounds to me like the additional $20 million reduction in guidance for the year, all of which will obviously come or most of it, I guess, will come in Q4 is related to a pause related to the launch of G7. So maybe you could just help us understand exactly when you think mobile will launch in the U.S. and when it might launch OUS. And then also when you're thinking about integrations with Dexcom and app.
Well, right now, we actually have people using Mobi in our -- sort of our early access phase. We talked about this before that in the fourth quarter, we would have people using it probably for the entire quarter.
And the idea here is really to understand how the system informs and make sure that it's an excellent customer experience. And so during this time frame, if there are issues at surface, we'll fix them. And we do not want to go to higher numbers of people using the product. We're confident that it's running the way we expect it to.
So I would say that Mobi is going to be more of a first quarter product for us in terms of revenue. That being said, when it comes to G7. G7 is also -- it's a little further along in terms of its launch, and we would anticipate that it's -- we have a number of people using it today. That number is growing.
And I think that before the end of the quarter, we'll have full availability to the market for G7. And so I think that as we said in the call, we're seeing pausing in the U.S. for both Mobi and for G7. We think that again, Mobi is more of a Q1 product and G7, we'll start to see sales near the end of this quarter.
[indiscernible] about Abbott.
Yes. Well, with Abbott, I think that Abbott is going to enter into that early access phase here in the next few weeks. And I think that is that -- so that's going to be roughly in the closer to the holiday season, we're definitely going to have people wearing it, but we won't really begin to see revenue until we hit the first quarter.
Okay. Leigh, I didn't mean to interrupt you.
You're fine, Brooks. I wanted to add a point of clarification on the change in guidance outside the U.S. I would say it's not all pointed to the timing of G7, although that was a meaningful piece of it. There are a few different moving parts there.
About half of it is related to new product launches. It's not just when they roll out, but it's also how they're rolled out. What we find is that in our distributor markets at times, when they're pushing a new offering, they may be distracted from what I would call routine selling activities as they're supporting their existing installed base.
And we saw some of that in the third quarter, which contributed to this change. We're also seeing some order timing change because of the G7 launch coming right after the first of the year. And then the other element is related to our reimbursement change that we are anticipating in France. And so it's really multifactorial in terms of it's not all because of G7 necessarily.
Okay. Got that. That's very helpful clarification.
Our next question comes from the line of Joanne Wuensch of Citi.
This is actually Anthony on for Joanne. One on the EBITDA guidance, I see that breakeven for the year was maintained. That implies a pretty substantial step up, I think, in the fourth quarter. Can you just talk to what gives you confidence in hitting that breakeven goal for the year?
I'm sure. Happy to talk about it. It starts with -- and we do expect a step-up in fourth quarter sales from the third quarter. And as we sell more pumps, it does drop more profit to the bottom line.
I'll also add that we've demonstrated a pretty, I would say, incredible progress across our operating expenses this year. This will be the second quarter in a row we've seen a reduction of operating expenses as we continue to manage costs, implement efficiencies, which allows us to slow down on some of the hiring that we've been doing, particularly in some of our customer support functions where the benefits of our infrastructure and Tandem stores are really starting to help with that efficiency opportunity and our expenses in the third quarter were actually flat to the prior year.
So as we look at continued cost containment, improvement on the top line, all of that contributes to our ability to meet our adjusted EBITDA guidance of at least breakeven for this year. And you've seen now for Q2 and Q3, we've been positive in both quarters.
Great. That's helpful. And then on the U.S. new pumpers, correct me if I heard you wrong, but I heard about a little -- maybe a little bit less than half renewal. If I plug that in, I get U.S. new pumpers, naive pumpers down year-over-year in like the high 40s. A, is that correct math? And then b, is that how we should be thinking about the fourth quarter in terms of renewals versus new pumpers?
Yes. So you're correct in that renewals were just under half of our shipments this quarter, which does imply that new pumpers declined, and that goes back to an earlier point in the conversation about the impact that we're seeing for people waiting for Mobi, even to some extent, people waiting for G7 as we get to our full availability here in the fourth quarter.
That tends to impact the new pumpers more so than the renewal pumpers. As we go into the fourth quarter, part of the reasons we have confidence and continue to drive that step up from Q3 to Q4 is that our renewal opportunities will grow. So the number of new warranties expiring in the fourth quarter actually is stepping up from Q3, about 20%.
And so it could be that renewals will continue to move closer to that 50-50 mark in terms of -- versus new pumpers, but stay tuned on that as we see the behavior of people that are considering tandem for the first time as they're meeting their end of year deductible.
Our next question comes from the line of Matt Taylor of Jefferies.
I guess I wanted to ask you, a little bit for high-level help on the phasing of contributions next year from Mobi and the sensors. I guess just given this pause that we've seen -- do you expect a snapback as you get full release? Is it going to be different than normal seasonality? Or should we think about more normal seasonality on the back of all these new products through the year next year?
Yes. Thanks for the question, Matt. So when you think about when you have a new product launch, you have a number of things happen. And so even though we're seeing some pent-up demand right now, it tends to still be gated by people's insurance.
And when they will meet their deductible, what it looks like at the beginning of the year. And so I would say 2 factors would cause me to think at this point that we might have a heavier back half loaded year, which would be people working with their insurance plans, but also just as momentum grows on these products as there's more awareness as people begin to experience it, physicians see the experiences with it.
It will start encouraging more people to move forward with purchases. And so I would still think about it as a scale across the year like we would typically see with the back end being more -- potentially with the back end being more heavily loaded than in years past because of the timing of product launches.
All right. And maybe just 1 follow-up. You have the sensor integration of MB both big catalysts. Can you help us understand the relative impact of each as Mobi a lot bigger than the sensors or vice versa? Or are they both equal contributors. Help us understand which is going to be the bigger driver and approximately how much if you could?
Yes, I would say that the feedback we've received so far on Mobi is but overwhelmingly positive. People have been really surprised by how small it is, the flexibility in terms of locating on their body. And I mean it's really exceeded our -- we knew it was going to be positive, but it's really exceeded our expectations.
And so I would expect that Mobi is going to be a positive driver of revenue as soon as it's available. And that I would expect to see turnaround driven by it. That being said, there's also a lot of interest that we're hearing from the field and the G7 integration. And so I think that people are pausing, waiting for now.
So I think it's definitely going to have an effect as well, probably not as much as Mobi will. I think that Abbott is -- there's a lot of people out there today that usually Abbott sensor, hundreds of thousands that don't use pump technology. So it might be slower to get those people into Tandem product over time, but it's a meaningful longer-term opportunity for us.
So I think that Mobi is going to be the driver. We're going to definitely see very favorable benefits from the G7 implementation. And then Abbott longer term is going to really have a favorable effect on growth.
Our next question comes from the line of Connor Chamberlain of Craig Hallum.
This is Conor on for Alex. Can you compare the current market pause to similar dynamics that you've seen in the past with Control-IQ, Basal-IQ or even Medtronic 670G launch.
Sure. You just highlighted, I think, all of them that we've been through across the years. And the level of impact from any new product launch does vary kind of depending on the circumstances around it.
The 670G, I would say, was the most impactful at that time for a variety of reasons. The pause we saw in advance of Control-IQ was much lighter considering that it was purely a software update. And so you would think that people would be okay with moving forward and buying the pump because the software update is pretty simple, but so many times, you may see people who decide that it's just easier to wait when they buy the next pump.
So for a sensor integration, we do see some level of pausing. And so we're excited to bring it on to market with that new software on it for the people who are waiting for it. But I would say Mobi is on the higher end of the pause with the change in form factor. And the excitement that's building as more and more people are hearing about it, the momentum is growing on that.
And so I would say it's on the -- if you want to call it the more extreme or the higher end of what a pause might look like.
Great. Got it. And then do you have any visibility on how long the disruption is for the OUS distribution partners is expected to last? And then when can we expect a normalization there?
Sure. So this was very recent information as we were learning about some of these disruptions we were seeing in Europe and really contained to 2 key markets. And unfortunately, fortunately, they're growing very rapidly and have large installed bases. But as that happens, they're still adjusting to that.
So they're kind of what I would call a start-up phase. And we're working expeditiously to help them with best practices, how to manage through product rollout. And so I think that once we get past the back half of this year, we will be through that, particularly because part of it is really about the G7 timing coming right after the first of the year.
It's just something that we're working through right now and hope that we don't see these sorts of disruptions in the future. But considering they were 2 of our larger markets, when they have these types of activities going on, it's obviously much more material to the business overall.
our next question comes from the line of Jayson Bedford of Raymond James.
Just on the international dynamic, does the distributor sell other pumps? Or is it just tandem? And I just want to kind of ring fence this? Is this a tandem distributor issue? Or do you think competition is at play here?
So this is truly a -- I hate to call it issue, a tandem distributor situation or disruption. And it's really about -- they are selling only tandem pumps. And so for example, in the third quarter, there was a software rollout in 1 of the markets. And so because their installed base is so large and just the way the system works in that particular market, the distributors had to be more hands-on with those rollouts with the customers as opposed to the way the process works in the U.S. where it's very simple.
It's in the customers' hands. We're here to support as needed. But in this case, in many cases a person had to be there with the customer. So long story short, they're very focused on that software update activity. And what that means is they don't get to pursue their normal selling activities. And so that's the sort of disruption that we were seeing there. And from a competitive perspective, we weren't seeing any different dynamics than what we've been seeing in -- up to now in terms of competition in the market.
And Jason, that behavior is driven by the health care system in that market. It's a requirement that they have in terms of the way software updates are actually performing.
Okay. Okay. That's helpful. And then just a quick one, and I hate to stop with this. But the 10% Mobi for next year is the new baseline, the 7 65 here in '23?
Yes, off of the new baseline. At this point and thinking about the fact that we put that 10% out very early, and it was meant to be directional only as a baseline. I would encourage people to use that now off of which to grow the 10%.
Our next question comes from the line of Danielle Antalffy of UBS.
This is actually Priya on for Danielle. I guess if I could continue on 2024 and that 10% growth, if you guys could maybe just lay out some of the headwinds and tailwinds and what it assumes from a share loss perspective versus current rates, stabilization or improvement? And then 1 follow-up, if I could.
I'm sure. So that 10% directional, I'll call it, baseline that we put out there was really just to give people a starting point based on the adjustments we made to guidance this year. What we needed to do is for people to all get into the same place essentially.
And when you think about it, to get to that 10% it's really about -- it's assuming that the market environment next year is similar to what we're seeing this year. And obviously, we have much greater ambition about next year with all these products we have coming to market, each of them individually can make a substantial change in our opportunity and growth profile.
But for now, we wanted to set the baseline off of which we can we can talk about future opportunities as we get more clarity on timing of rollouts and those types of pieces of information.
Okay. Great. And then I guess on international, is there any way that you could quantify underlying demand OUS and what growth could have been ex these capacity constraints? And how confident you are in continued strong double-digit growth there? And that's all.
Sure. I think 1 piece of information I can share, right? So we have had -- it's difficult to see as an outsider looking in from a shipment perspective, what's really happening behind the scenes. And while we are seeing disruption in a couple of top markets, it's more about timing, but I can tell you that in a handful of markets that make up a substantial portion of our OUS business, we're seeing growth rates when we look at their placements of pumps on patients in strong double digits.
I'm talking about 20% to 30%. We even have 1 pretty significant market growing 30% plus year-over-year. So the demand is still very strong. There's -- people really love Control-IQ. It's a vastly underpenetrated market. The opportunity exists. We have to work through some of these near-term disruptions that we're seeing, but we still feel very confident in the growth potential for that part of the business.
Our next question comes from the line of Matt Miksic of Barclays.
So I wanted to try to get a sense, I know there's been some questions around turning the corner into in 2024 and the product launches and how they might start to impact growth. And so I had a couple of questions around that subject.
And first was, it seems like DexCom when they were talking about the sensors required for integration. It felt like those were going to be available this quarter, but maybe a touch later than originally planned or something like that. And I just wanted to make sure we understand that, that was in alignment with your original planning and most recent planning or if your current guidance reflects absorbing that any delays that they might have been? And I have 1 follow-up.
Matt, yes, I think like on the call they had last week, they indicated that they're shipping the new hardware globally. And we have been coordinating product availability for our early access launch customers through them using the DME channels.
So we don't think it's going to have an issue on the quarter or next year's availability as well. And I think it's -- we anticipate things are going to move smoothly as we get more and more people on the system.
Okay. So this was maybe -- what was -- by the end of the quarter, later in the quarter, kind of expectations? And on that basis, you're still comfortable? And then obviously, heading into next year with supply coming and to support the launch? It sounds like...
Yes, I think that we're expecting that as we progress through this quarter, we will be moving to general availability, and it will be available for all who want to use the product in that system going forward.
That's great. And then I guess, I should have mentioned also, just like the Libre side, any sort of nuances in your updated guidance related to prior expectations there?
Do you want to get that, Leigh?
And so in fact, when we think about 2023, we didn't factor in any new product opportunities into the guidance that we laid out. And so anything that would have occurred this year is going to be upside to the numbers that we have in terms of new product launches.
Okay. That's clear. Then the 1 follow-up just into next year. Not to move the process of sales of t:slim with sort of, call it, an option for Mobi. As we get into the first quarter and we started thinking about what kind of demand and growth that could show in terms of units and uptake.
Is there -- how -- what -- how should we be thinking about sort of the cross currents or the offsets to that, that might -- not in terms of revenues, but in terms of like new Mobi some of that's going to be sort of Mobi, I guess, conversions and some of that's going to be new mobile users. Any way that you can sort of sketch out the various puts and takes to that early I'm thinking first quarter, maybe first half performance metrics that can help us maybe set our expectations properly.
Sure. And so I think I'm understanding your question correctly. It's really -- probably we'd be discussing the business next year when we have these moving parts related to Tandem Choice as well as selling pumps to people for the first time, if you will.
And so as we've talked about Tandem Choice all along, it's an opportunity for people to switch. And so for example, if we have a person who buys a t:slim here in the fourth quarter, and they become a switcher to Mobi. We won't be reporting that as a sale, a unit for sale. We will take that out of the numbers.
And what we will share with you would be information related to people that are actually purchasing pumps with insurance value attached to it. And so we won't be co-mingling switchers with -- and switchers being people from a tandem pump to a Mobi pump. If they're truly a renewal and out of warranty, that would be a different situation, that's a normal sale. So we'll be talking about metrics that would be very comparable to what we've discussed this year and what we would be discussing in the future for the business.
Our next question comes from the line of Dane Reinhardt of Baird.
I guess the first one, could you just help clarify maybe the Francis a little bit? I know going into that market or with the recent study you're kind of expecting premium reimbursement and now kind of based on the disclosure in the 10-K, it's talking about potentially affecting your ability to generate revenues there with the rebates. So can you just kind of help us flesh that issue out a little bit and get a better understanding there?
Sure. I can give you a bit more color. So as you know, any time you bring the rebate conversation into -- it rebates into a conversation, it actually means complexity. And what we're talking about that we have the potential to see coming up here in the fourth quarter is really thinking about our installed base that we already have.
So think about, if you want to call it pumps in the channel where people already on pump. It's assessing how many people already have Control-IQ, how many people can update to Control-IQ, the timing of when they might the length of time they have left in their warranty to be eligible for that opportunity and just how the value gets allocated across the entire selling chain here.
And so there's a lot of complexities that come into it. And what we wanted to do is make you aware that you can think of it as almost like an implementation type activity that we have to assess what is the impact today on day 1 of what that rebate structure looks like on our business. And so there's a wide range of possibilities here.
And so we're giving you it could be up to $10 million, but we will have that worked out by end of the year and be able to better clarify the impact of that on our business.
Okay. And then the second one, kind of going back to that 10% baseline for next year. And I know it's kind of a baseline or even maybe flower for that. But I think you could almost probably get to that 10% just based on renewals that's growing, you'll even have potentially some international renewals and then with supply revenue growth.
So can you just help us understand in that 10% as a baseline, would that even kind of take into consideration new users in the U.S. being down year-over-year? And then if you do get growth, that's kind of all upside from there. What does that imply just on a new user perspective?
Yes. Thank you. I mean actually, you spelled it out perfectly well there. it's really predicated very heavily on the recurring pieces of our revenue, which are supplies that have been very predictable.
It's the step up in renewal opportunities growing from 50,000-ish warranty expirations this year to 70,000 plus next year in the U.S. alone. And to your point, we'll start to see renewal opportunities for the OUS markets become available to us. And so in order to achieve that 10%, you don't have to believe that new pumpers even grow next year.
And that was the point, as you said, of setting the baseline because we have -- we're very convicted that with our new products, we will turn that trajectory around. But just as a starting point, it's that we want to put this out there as a number that people could see a line of sight to pretty easily.
Our next question comes from the line of Joshua Jennings of TD Cowen.
Wanted to discuss the pharmacy channel and just learned if are there any updates on discussions or negotiations with payers on opening that door for Mobi and Slgi any change to the team's optimism or confidence that door can be opened and is what are next steps for that process.
Yes, thank you. It's a great question. We've talked about the possibility of moving into the pharmacy channel with movie, which is something that people see as a challenge potentially because it's a durable pump much like the t:slim. But as we've been starting these conversations now that we have approval for Mobi and can really talk about in earnest with the different payer and PBM organizations, our confidence builds every single day in terms of the opportunity for us to make that sort of transition. . And so all I can share today is we're still in the early phases, but we're actively engaged in conversations. We're building out the organizational capabilities making sure that we're ready and make this a reality. And so no specific updates I can offer today, stay tuned on that, but our optimism is really high.
Yes, I just -- it's 1 of our key strategic initiatives for the business. And we have a lot of resources focused on it.
As there are no further questions in queue, that does conclude the Q&A portion and our call for today. Thank you for participating. You may now disconnect.