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John Sheridan

Thank you, Susan, and thanks everybody for joining us today. In the first quarter, we demonstrated strong execution throughout our business. We delivered more than 20% growth for the third quarter in a row, with records first quarter sales in the United States and our highest quarter ever internationally. In addition to driving top line growth, we are delivering on key operational initiatives to strengthen and enhance our business, while increasing profitability. And in the first quarter, we demonstrated meaningful improvement in adjusted EBITDA year-over-year.
Another highlight of the quarter was FDA's clearance of Control-IQ+ for people living with type 2 diabetes, followed by the New England Journal of Medicine's publication featuring the benefits of Control-IQ-plus. I'd like to thank our employees for an impressive start of the year, which positions us to deliver on our goals in 2025 and beyond, while improving the lives of people with diabetes.
Starting with a deeper look at our Q1 performance in the US, we continue to see growth year-over-year in new pump starts and achieved a double digit increase in customers converting from multiple daily injections for the last four quarters in a row. This strength is from demand for our newest offering, Tandem Mobi, as well as our flagship pump, the t:slim X2. The product mix between these two offerings is healthy, and the demand for Mobi is on track to contribute meaningfully to our near and longer term financial goals.
Our products are expanding the large and underpenetrated insulin pump market, as approximately 2/3 of our new starts are coming from people converting from multiple daily injections. We also continue to see great loyalty from t:slim customers coming up for renewal. Renewal rates have remained at a consistently high level, along with our customer satisfaction scores, our mix of new and renewing customers remains roughly 50:50, which we anticipate will continue throughout the year.
Q1 was also our first quarter operating under our newly expanded field sales and clinical structure. This expansion and our realignment of existing territories has progressed according to plan and is now complete.
We welcomed a high caliber of talent to complement our more tenured field employees, and our territories are now poised to realize productivity gains throughout the remainder of this year. Another successful commercial initiative in Q1 was the launch of our best algorithm yet, Control-IQ+. This algorithm makes better control easy, easy to start, easy to use, and easy to personalize.
For example, our profile setting calculator is a software wizard that only requires a person's total daily insulin and weight to get them started on Control-IQ+. This is a feature that benefits both patients and healthcare providers as it simplifies and streamlines onboarding to our AID technology, which is tested, trusted and now better than ever.
Control-IQ+ launched in late March and is indicated for use by people with type 1 diabetes ages 2 and older. Following FDA's recent clearance, it's also now cleared for adults living with type 2 diabetes. The pivotal study supporting this clearance is the first and only large scale randomized control trial of automated insulin delivery in people with type 2 diabetes. It was also the most rigorous evaluation of AID for people with type 2 ever conducted and the outcomes were incredible. Significant improvements in time and range in A1c were demonstrated for the people using Control-IQ+ compared to a control group.
These results were seen cumulatively and across a broad range of ages. They were also equally demonstrated in people who chose to count carbohydrates in the study compared to people who had used a more simplified approach by entering fixed dosing at meals.
This is significant as it makes the bolus process even easier without sacrificing improvement in clinical outcomes. Also, the synergy between Control-IQ+ and GLP-1 receptor agonist use was highlighted at our ATTD presentation in March, showing how well these therapies work together. We're proud of the outcomes from our pivotal study and the tremendous accomplishment of being featured in New England Journal of Medicine.
This most recent publication marks the fourth time that our Control-IQ technology has been featured in journal, which is unprecedented accomplishment in our industry, and speaks to the strength of our studies and our AID algorithm.
We are excited about the growth potential this type two indication provides, as it more than doubles our addressable market. Control-IQ+ is now broadly available and we have begun initial commercial efforts to people with type 2 in select areas. We are using this early phase of launch to gather customer experience data on training and onboarding, as well as reimbursement and channel access, to inform our expanded launch plans and expectations for the remainder of the year. Channel access continues to be a top initiative for our company, and Leigh will discuss our Q1 progress more in her prepared remarks.
Turning to our business outside the United States, the strong sales momentum we saw exiting 2024 continued in the first quarter, where we delivered our highest quarterly sales results ever. This was driven by demand for our t:slim X2 platform, which is available with Dexcom G6 and G7 sensor integration in approximately 25 countries.
In addition to attracting new customers, we are also beginning to see customers renewing with Tandem, who first bought a pump, when we entered these markets four or five years ago. It's a meaningful opportunity, when you look at the historical pump adoption rates outside the United States, and it will serve as an additional source of growth as we look to the future. Operationally, our plans to begin direct sales OUS and select countries are progressing well.
Transition service agreements are now in place in the select countries where we would go direct in 2026, and we are developing and executing joint transition plans that are designed to ensure the proper business continuity and minimize potential disruption. We've also been furthering the efforts we began last year to hire in country talent. We are preparing to enhance our sales efforts to support and technology offerings outside the United States, both for our direct and distributor led countries.
It's a pivotal step for our company as we deepen relationships within the European diabetes community, while strengthening our financial position to accelerate sales growth and drive margin expansion. I'd now like to turn the call over to Leigh to talk about quarter one results and expectations for the year.

Leigh Vosseller

Thanks, John. As a reminder, unless otherwise noted, the financial metrics I'll be discussing today are on a non-GAAP basis. Reconciliations from GAAP to non-GAAP results can be found in today's earnings release, as well as on the Investor Center portion of our website. Please note that, 2025 sales and margins in the US are not impacted by the Tandem Choice Program, which ended in 2024.
Our Q1 performance was a strong start to the year, exceeding our guidance for both topline sales and bottom-line EBITDA, and we are on track to deliver our 2025 commitments. Worldwide, we achieved record first quarter sales of $234 million, or 22% year-over-year growth. We also improved EBITDA 5 percentage-points year-over-year, while investing in market expansion efforts, demonstrating our commitment to profitable growth.
Focusing on the US first, we delivered another Q1 record with $151 million in sales, representing a 15% increase year-over-year. This growth was driven by three factors that position us for longer term growth. First, we had healthy pump shipments to both new and renewing customers. Second, we had strong supply sales driven by a high rate of retention and improved customer utilization across our sizable install base, which was the primary factor contributing to our outperformance.
And third, we continued to improve our average selling prices. The favorable pricing came largely from our DME channel efforts, but we did realize meaningful pharmacy pricing benefit even on the small volumes we fulfilled this quarter.
This continues to reinforce that our newly launched pharmacy channel initiative provides a significant opportunity for the future. We're pleased to report that, we now have approximately 30% of US lives covered under the pharmacy benefit with a mix of commercial and government lives compared to the 20% that we shared on our last call. The contracts we have in place, plus ongoing negotiations confirm that durable pumps are well accepted under this benefit and flexibility exists for the structure of reimbursement across pumps and supplies. The contracts we have entered into so far continue to be similar in structure to our DME agreements, which are not subscription models.
We continue to scale our capabilities and gather data on our increasing pharmacy channel access. Our early experience in processing orders has been encouraging, enabling us to serve customers at significantly reduced out-of-pocket costs. This lowers the financial barrier that historically may have prevented people from adopting AID technology.
We are focused on advancing our pharmacy capabilities as part of our broader market access strategy, which remains centered around having a multichannel approach to best serve our customers, while driving volume growth and profitability through improved pricing.
Turning to markets outside the United States, we started the year off strong with all-time record sales of $84 million. This 35% year-over-year growth was driven by continued demand for t:slim, strong supply sales and early positive momentum for renewals. The first quarter benefited from nearly $5 million in orders that we originally anticipated would be placed in Q2.
This shift in timing was the largest part of our outperformance relative to Q1 guidance, and we're maintaining our expectations for the full year. Moving on to margins, our Q1 performance demonstrated progress on our path to achieving our near and long term profitability goals. Our 51% gross margin was a significant accomplishment, as it's in line with Q4 where we have historically seen a seasonal decline from the fourth to the first quarter.
This was primarily driven by a reduction in the per unit cost of pumps, with efficiencies gained in both manufacturing and nonmanufacturing costs. Demonstrating improvement in profitability is a key objective for us this year, which we delivered in Q1 as our adjusted EBITDA margin expanded at an even higher rate than gross margin, improving 5 percentage-points year-over-year.
This improvement was primarily driven by leverage gained within R&D, which was also an important offset to SG&A as we invested in our US salesforce expansion and the infrastructure for direct European operations beginning next year. In addition, we began executing our plan to drive greater efficiency within our customer support functions, which are designed to modernize the customer experience, while driving cost savings.
The benefits from these initiatives will begin to be realized in the second half of this year. As a reminder, adjusted EBITDA does not include the impact of certain nonrecurring transactions, primarily associated with the amendment of our agreement with AMS medical original shareholders. As you can see, we achieved our objectives for Q1 on both the top and bottom line, and are well-positioned for the remainder of the year. We ended the quarter with nearly $370 million in total cash and investments, and anticipate returning to positive free cash flow, both for the second half of 2025 and on a full year basis. With that, we remain confident in our ability to support key commitments, including repayment of convertible notes due in the second quarter.
As we look to the remainder of 2025, we are reaffirming our sales, gross margin and EBITDA guidance. The broader environment is very dynamic, but the building blocks for our original guidance assumptions remain intact. Starting with worldwide sales, we accept a range of $997 million to just over $1 billion, reflecting our goal to deliver double-digit growth for the second year in a row. This includes US sales in the range of $725 million to $730 million, where more than 70% of our sales for the year are expected to be generated from predictable and recurring revenue streams from supplies and renewals.
Similar to years past, we anticipate sales will step up in Q2 highlighting that the average increase across the last three years was 13%. Then, we anticipate sales will increase modestly from Q2 to Q3 with our highest sales achievement in Q4. This cadence comes from multiple factors that are the building blocks of our guidance. First is overall seasonality associated with insurance benefits. We assume this will be consistent with 2024 along with the progression of renewals, which are back half loaded based on the timing of pump sales four years ago.
Next and unique to this year is the scaling productivity of our expanded salesforce. Disruption from adding and realigning territories was well managed in the first quarter and we anticipate it will take 9 to 12 months for territories to scale to full productivity, which puts the greatest benefit in the fourth quarter.
The last of the factors I'll highlight are all of our new growth opportunities, which are more heavily weighted to the second half of the year. These include new technology launches, benefit from our encouraging ASP trends, as well as broadened pharmacy channel access and type 2 commercial efforts. Sales outside the US
are expected to be in the range of $272 million to $277 million. We anticipate sales to be relatively flat across the remainder of the year, which reflects the timing shift of approximately $5 million in sales originally anticipated for Q2 that were fulfilled in Q1, as well as approximately $15 million-$20 million of potential headwinds in the back half of this year, as we prepare to transition to direct sales in select markets beginning in 2026.
Incorporating these factors into the second quarter, specifically, we anticipate worldwide sales of approximately $238 million. For gross margin, we are reaffirming our 2025 expectations to improve gross margin to approximately 54%, and adjusted EBITDA to approximately 3% of sales. We expect to see continued margin progress across the year as pump sales increase, efficiencies are gained as Mobi scales and we demonstrate further operating leverage.
Our margin expectations incorporate minimal impact from tariffs, which we believe will be immaterial as we are employing a number of strategies for our supply chain structure and product category, including a well-established tariff exemption. It's been a strong start to the year and our results are beginning to reflect the benefits of our strategy as we deliver on our technology portfolio, demonstrate strong retention and enhance our business model.
As our business continues to mature, in addition to driving pump growth, we remain focused on improved profitability through increased pricing, executing our margin improvement initiatives and discipline cost management.
I'll now hand the call back to John.

John Sheridan

Thanks, Leigh. As you can see, we are delivering on our key objectives for 2025. This is a testament to the rigorous planning and thoughtful execution of our team. We are continuing to transform our business to achieve our longer term goals. As we look to the future, our pipeline remains the most innovative and robust in insulin therapy management.
Our distinctive technology ecosystem, includes an insulin pump systems, advanced algorithms and digital health solutions, and we are rolling out new commercial offerings under each of these pillars in 2025. Starting with our pump systems, we intend to offer two new sensor integrations in 2025. We will begin our US launch or FreeStyle Libre 3 integrated with the t:slim in the second quarter, and that will be followed by Mobi. Internationally, we plan to begin offering Libre 3 integration with t:slim in the third quarter.
We also intend to support the 15 day Dexcom G7 sensor at launch. Another feature enhancement we intend to begin offering for Mobi this year is an Android application, which will require an FDA 510(k) clearance before launch. Mobi is currently under CE Mark review. Following approval, we will begin country registration and reimbursement discussions to bring our newest pump platform to all the countries we serve. Our goal is to begin launching Mobi outside the United States, with multiple sensor integrations by the end of this year, and continue to roll out through 2026.
Infusion sets are another key part of our system, and we have been developing proprietary technology to extend wear time. We made an FDA submission for a three day indication using this technology late last year. Following its clearance, we are planning to quickly file another submission in pursuit of a seven day indication. Advanced algorithms and our commitment to AID leadership also continue to be a top priority in 2025. As discussed, we launched our Control-IQ+ algorithm in the US in the first quarter, and are planning to begin launching internationally by the end of the year, pending regulatory approval.
The last area of our portfolio, I'd like to highlight is our progress in digital health solutions. Tandem source is the foundation of our digital offerings, serving as the hub for patient therapy information, healthcare provider reporting, parent analytics, as a portal for customer sales support.
Tandem has offered a cloud platform for the past decade in the US, and last year, we began rolling out these capabilities internationally. It's an important step for our launch of the t:slim mobile bolus outside the United States that we are planning for the second quarter of this year, as well as our international launch of Mobi.
Rounding out our pipeline, are the technology solutions we plan to launch beyond 2025 that are designed to further expand our portfolio, and bring the benefits of our technology to more people living with diabetes. We're making great progress on our tubeless feature for Mobi, which is now in the verification testing and manufacturing build-out stage in support of a future 510 filing.
Development for our durable Patch Pump Sigi has moved to San Diego, allowing us to best leverage the expertise of our advanced pump development team. Lastly, we remain steadfast in our commitment to bring an industry-leading fully closed-loop algorithm to market. We recently completed a fully closed-loop feasibility trial. And in Q1, we signed a collaboration agreement with the University of Virginia's Center for Diabetes Technology to advance our R&D efforts on fully automated closed-loop systems.
In conclusion, you can see that, it's both a busy and exciting time at Tandem. The opportunities in front of us are numerous as we execute on our sales strategy, increase pharmacy channel access, scale growth into type 2 and commercialize our robust pipeline. By doing so, we are creating new possibilities for people living with diabetes, while achieving record results that align with our 2025, and longer-term financial goals to deliver sustained double-digit sales growth and profitability. Thank you for joining us today.
We look forward to keeping you updated as the company continues to progress. Operator, we'd now like to turn the call over for questions.

Question and Answer Session

Operator

(Operator Instructions) Matt Miksic, Barclays.

So I wanted to try to get a sense of how -- in addition to the performance you outlined in the quarter, how some of the salesforce changes, salesforce realignment, any of the one-time issues that came about in the fourth quarter have moderated or gotten behind you? Or are they still in process that just kind of an update on that. And I'll skip the follow-up and pass the next person.

John Sheridan

Thanks, Matt. Well, first of all, I want to say that, there were really no disruptive events that occurred in the fourth quarter. All we were doing at that point in time was hiring people. And as of the beginning of the year, and most of those people were on board, and as we exit the first quarter, the expansion is essentially complete. The territory realignment is complete. And we saw some modest disruption, but nothing more than we anticipated.
I would say that, now it takes salespeople that are new to the company, and new to the territories, about 9 to 12 months to just get accustomed up to speed, and we'll see gradual improvement in their productivity over the next several quarters. And the good news is that, we expect them to be fully on board and producing in the fourth quarter. So it's a high-quality team. They complement our existing team, and we're very happy to have them on board. And we think this is just a logical thing for the company to do based on where we are in the market.

Operator

Mathew Blackman, Stifel.

Mathew Blackman

Leigh, I wanted to ask specifically how much price played a role in the US. I think our math says about 2%-3% for pumps, maybe upwards of a 10% lift for supplies. Is that roughly right? And I guess the follow-up there is, is that the right magnitude for us to layer in going forward? Is this sustainable? Or is there something unique about the first quarter?

Leigh Vosseller

Thanks, Matt. I would say, you're in the ballpark there on the pump side and the supplies are probably closer to what you are thinking from a pump perspective. And so it's really performing again like we did last year in terms of price increase. And I think, this is the new bar to think about as we look to the rest of the year from a pricing perspective. I'll say in the US, in particular, the majority of the price benefit did come from our work in the DME channel.
But even though we only had very small volumes in pharmacy at this time, we did see a meaningful contribution from a price perspective in the first quarter. So it gives us a lot of encouragement for what this can do for the business in the long term.

Operator

Steven Lichtman, Oppenheimer.

Steven Lichtman Lichtman

So just on the salesforce expansion and realignment, great to hear it's going as expected. Understanding the ramp that you mentioned through the year, but can you talk about where you're deploying the new individuals, where you expect to see benefits? And in particular, how that will dovetail with type 2 expansion?

John Sheridan

I would say that, we've done a lot of analysis to see exactly where there is opportunities to realign, and make the territories more productive. We're not going to speak specifically to that, nor will we talk about the numbers, et cetera. I would say that, we are -- as I indicated in the prepared remarks, we are now in the process of actually doing the salesforce pilot. It's live. It's in a meaningful number of territories.
We've trained our internal people and they're out there selling right now. So that's happening with our existing team. And typically, we evaluate the salesforce size and it's something that's traditionally done near the end of the year. But I think right now, we feel good with where we're at. We've got a good plan for the existing type 1 and type 2 populations in terms of supporting them. And as we said, we're moving forward.

Operator

Brooks O'Neil, Lake Street Capital Markets.

Brooks O'Neil

This is Aaron on the line for Brooks. Congrats on the progress. I'm just curious, if you maybe had a mix in mind in terms of what you expect from pharmacy versus other channels longer term. I appreciate the color, and commentary on the progress from last quarter to now. But I guess, my question is, how do you see that dynamic sort of playing out over the next 12 months or so? Any additional color there, that would be great.

Leigh Vosseller

Great. Thanks for the question. So when we think about pharmacy this year, as we put together our assumptions from a guidance perspective, we only factored in modest contribution. And we're really just getting started there. The first quarter was really a lot about the operationalizing of it and making sure we are putting in an effective and efficient infrastructure to support this for the long term.
But I'll say, from the very early, very small volumes and very early learnings, it gives us -- it makes me super excited about this opportunity long term. And it's something that we think -- as we think about the risks and opportunities for the year, could pose more of an opportunity than we originally even anticipated. So we look forward to continuing on this journey and talking more in the future about what kind of impact, it can have on the business long-term.

Operator

Matthew O'Brien, Piper Sandler.

Matthew O'Brien

I know, Susan is going to kill me for asking two, but I'm going to. There're together.

Susan Morrison

Just one, please. Just one.

Matthew O'Brien

All right. I hate to burn it on this one then. But just the AMF write-off, is that saying anything about timing of Sigi, because I think John or Leigh kind of had in their heads that, that would be out sometime in 2027. But given the write-off, does that mean that the time frame to get this thing to market is even further out, maybe very end of the decade? I mean, how do we interpret that write-off and what it means for timing of Sigi?

John Sheridan

Thanks, Matt. I think it's actually the opposite, Matt. It turns out that the agreement we had in place had a number of contingent liabilities in it. And by terminating the agreement, it just gave us more control and flexibility over the development path. It was a great -- I think, it was a great deal for both parties.
But now we've brought the development activity back here to San Diego. We have a very experienced team of pump and system developers that are working on it. And so as I said, if anything, this is going to improve our time to market, not reduce it.

Operator

David Roman, Goldman Sachs.

David Roman

I wanted to talk on the gross margin line here for a second. Given the strength you saw in the quarter, can you help us understand what were the puts and takes keeping the gross margin at the 51% level that you had indicated given the significant strength you saw in the US here and the traction you're seeing with Mobi?

Leigh Vosseller

Sure. So I would say, first of all, we're very excited to have Mobi as part of the mix and a growing part of the mix of our business, because it's one of the most important factors in delivering on our long-term gross margin targets. So as we look at how we came in, in Q1, it really was, especially compared to a year ago, showing an improvement in pump costs, but actually both in t:slim and in Mobi because Mobi is just beginning on its journey of becoming accretive to the business. So this year, you think about the Mobi pump driving accretion. In 2026, you think about it coming from the perspective of the cartridges.
And so those will continue to build up over time. And we've often said that, Mobi gets us more than halfway to our long-term gross margin target of 65%. And maybe another piece of color today as well that, I don't think we've shared before is thinking about how to think about that progression.
And with Mobi in the mix, with what we are thinking about from a pharmacy perspective from this early evidence and also thinking about going direct in 2026, we believe we see a pathway to get to a 60% gross margin as early as next year. So we're really excited about where we are right now and where we're progressing and our ability to deliver on that.

Operator

Matt Taylor, Jefferies.

Matt Taylor

I guess, I wanted to ask, I know you made some comments in the prepared remarks about the pharmacy progress and hoping to just double-click on that. You talked about, lives covered. It does sound like you're just really getting started with those patients. I was wondering if you could give us some color on the early experience and maybe talk about how you think the uptake will be through this year and next, when it could actually be sort of a material portion of your business?

Leigh Vosseller

Yes. Thanks for the question, Matt. So first of all, we were excited to share that we've increased our percentage of lives covered in the US under pharmacy going from 20%, which was what we shared at our last earnings call to 30% now. So we're starting, I would say, at a really high mark in terms of coverage.
What we were learning in the first quarter, particularly as we were testing out the benefits with different people coming to Tandem was that it really does dramatically offer a lower out-of-pocket cost for patients. And so that can be one of the most pivotal factors in terms of addressing, one of the bigger barriers to adopting pump therapy, particularly durable pump therapy.
So we think it can create -- increase our access or our MDI expansion over time in that regard. The other element of it is in the pharmacy channel, as you're probably seeing and hearing from many of the competitors in the space, there is a pricing premium associated with it with the value that they put on these advanced algorithms and the clinical benefits from the patients. And so that really can help drive profitability for us.
And so like we said, it's very early right now, but the contracts that we have in place are really good, solid contracts that can deliver on that profitability, and we'll continue to drive it forward and give more color in the future, as it becomes a bigger piece of our business. But for 2025, still think about it as only a modest contributor.

Operator

Chris Pasquale, Nephron Research.

Chris Pasquale

I was hoping to talk about the decision to just reiterate guidance after the good 1Q. You beat consensus by about $14 million, back out the $5 million that got pulled forward OUS, you're still up $9 million. Is there anything that you're looking at now that you're more concerned about than you were at the end of the year, maybe in terms of the economy? And then does the margin guidance contemplate any impact from tariffs?

Leigh Vosseller

So when we look at the building blocks for how we put together our guidance at the beginning of the year, there's nothing that's changed about our confidence level, our ambition this year, what we think we can deliver on. It really was looking at the broader economic environment and just thinking about how dynamic it has been and how dynamic it may continue to be across this year. So, we thought at this point, despite the nice deliverable in Q1 that it was more prudent to reaffirm at this time, and then we'll continue to execute on that as we look across the year.
And then from a tariff perspective, factored in at the beginning of the year and still factored in is the minimal impact that we expect from tariffs this year. So we really don't see it being a big headwind for us.

Operator

Anthony Petrone, Mizuho Financial Group.

Anthony Petrone

Congrats on the solid quarter. Maybe a little bit just on Control-IQ type two indication, early days out there. Just a review and recap on what's baked in for guidance for type 2 MDI conversion specifically for this year and how you expect that to progress into the second half, specifically within the PBM world?

John Sheridan

I'll start off by saying it's been approved now for about a month. We have already provided about 300,000 people in the marketplace access to Control-IQ+ and all of our new pump shipments are underway. I think that when it comes to the actual benefit right now, it's too early for us to measure. But I think Leigh, you may want to comment a little bit on just what's planned in guidance and things like that.

Leigh Vosseller

Sure. So from the perspective of this year, I mean, we really just launched not too long ago, and we've only factored in modest contribution in 2025. One of the areas that you mentioned from a PBM perspective is really focused on the reimbursement element of it. So from a commercial perspective, the coverage for type 2 patient is very similar to type 1 in terms of access. And so no concerns there.
From a Medicare perspective, there is coverage, but it is a little more onerous to get someone approved. And so that's where our efforts are focused is really on -- actually from an industry-wide perspective, we're all focused on trying to improve that access through Medicare. And so that could be a bit of a gating factor initially as we think about the opportunity, but we're confident in our ability to drive it in the longer-term, both through the DME and other pharmacy channels.

John Sheridan

I'll just add one other thing, and that is that when you look at the type 2 study we did, we actually produced the first clinical data that's been available that actually evaluates the effectiveness of the C-peptide test. And so we monitor people with high and with low C-peptide results. And in both cases, we saw great results from Control-IQ. So I think this arms us and individuals that are seeking to reduce some of the burden and hurdles that people have to get over to get on to a pump with type 2, and we're excited about having that data.

Operator

Josh Jennings, TD Cowen.

Joshua Jennings

I wanted to just follow-up on your comments, Leigh, on the contracts with the pharmacy access. You mentioned that the revenue recognition will be similar to the DME channel. Has there been any limitations? Or have there been any pushback in terms of your negotiations with payers? Or is it smooth sailing and you expect every contract going forward to mirror what you have in place today?

Leigh Vosseller

Sure. Thanks for the question, Josh. So first, I'll confirm there are a couple of things we've learned in our early negotiations, which are DME pumps or durable pumps are widely accepted in the pharmacy channel. And secondly, you can employ a variety of reimbursement structures in the channel. There's no one set solution.
And so to your point, the contracts we have in place today do follow more of a DME-like model. They're not subscription-based. It doesn't mean that we might not consider something like that in the future. But for now, that's what it looks like for us as a business. And so we don't anticipate any headwinds that you may hear when people transition to a subscription model in the future.

Operator

Issie Kirby, Redburn Atlantic.

Issie Kirby

I wanted to touch upon OUS, international, a lot going on there with respect to new launches. Just wanted to ask about sort of the competitive dynamics and the win rate you're seeing internationally? And then how should we think about retention internationally? Is this going to be based on what you've seen so far, roughly comparable with the US renewal retention rate?

John Sheridan

Right. Well, I'll say that, first of all, it's a very large market that's less penetrated than the US. And the good news about it is that the healthcare systems in the OUS countries seem to see the benefit of AID systems for their patients as well as for the economics for the various country systems. So we're excited about being there. I would say that there are -- our two main competitors exist in the OUS markets, and we're competing against them.
There is the third player, a smaller player that's up and coming. That's doing reasonably well. But I would say that the competitive environment really hasn't changed in the last couple of quarters. We're holding our own and I think it's just as it is. The other thing I'll say, though, is that if you look at the technology that we're planning to bring to market, we have mobile bolus, we have source, we have FreeStyle Libre 3.
We have G7 15-day. We've also got Mobi OUS under review. So we have a tremendous amount of technology that is under review right now or in the process of being transferred. And we think that, as I said, we feel very competitive in that market today. You can see the results we're experiencing are quite good. And when we have this new technology there, it will even be better.

Operator

Larry Biegelsen, Wells Fargo.

Nathan Treybeck

This is Nathan Treybeck on for Larry. Congrats on the strong quarter. Just a question on competition in the US. What are you seeing today? And I guess, your outlook for the rest of the year when we think about Beta Bionics and the Medtronic as their Simplera Sync approval?

John Sheridan

Sure. I think that it's a large, expanding and underpenetrated market in the US And it's not a zero-sum game. I mean multiple players can be successful in this market. But I said, it's very much like the OUS countries right now.
It's very competitive, but there hasn't been a lot of changes in the last couple of quarters. And I think that we're holding our own. I mean, currently, there continues to be two large players, a scaling start-up is working on it and just making progress in the market. And we also acknowledge that there's a new competitor coming, but we're ready for it. We've understood this for a while, and we're prepared.
Relative to Simplera approval, as I understand it, it's probably a second half commercial launch. Right now, we're very close to launching FreeStyle Libre 3 in the US market. And we've got 15-day Dexcom sensor, G7 sensor coming as well. So, I think when it comes to sensor technology, we are -- we have the very best on our products.
And I think that when you look at the actual technology that is used to pump, I think we feel very confident that the pump technology that we're using is very competitive with the devices that are in the market.

Operator

Mike Kratky, Leerink Partners.

Mike Kratky

Maybe just one on the US new starts. And sorry if I missed this, can you just confirm whether you're still tracking that mid-single-digit percent growth in the US for new starts this year? And what does that assume between MDI starts versus competitive conversions?

Leigh Vosseller

Sure. Happy to speak to that. So I'll start with in the first quarter, we saw double-digit growth in MDI conversions, which is the fourth quarter in a row of that since we returned to growth last year in the second quarter. We do still, in our guidance, assume that new starts will be mid-single-digit growth year-over-year. And as you think about new starts as the mix of the business, between new and renewal, it's roughly a 50-50 mix within that new population.
It's starting to lean more towards the MDI conversions, which are roughly about 2/3 of new starts. So I'm feeling very good about our opportunities there and our ability to continue driving that with the products that we have and all the great products that John just listed out that we'll be adding this year.

Operator

Joanne Wuensch, Citi.

Anthony Petrone

This is Anthony on for Joanne. I know it's early days for OUS renewals, but are you expecting sort of a similar high rate of renewals OUS as we've been seeing in the US?

Leigh Vosseller

Yes, I would say it in crunch. We're just at the beginning of the renewal opportunity, and we're starting to see the early momentum we're hearing from our distributors, their success there. I wouldn't anticipate that we'll get to that exact same measure immediately that we share in the US, which is that we get to about a 70% capture rate within 18 months. It took us a few years to build to that here in the US, and I think the same will occur outside the US, but we have no reason to be concerned about our ability to hit that goal long-term.

Operator

Jayson Bedford, Raymond James & Associates.

Congrats on the progress here. Just a quick one from me. Have you seen -- I know it's early, but have you seen any change in the mix of your type 1 versus type 2 new user mix?

John Sheridan

I would say, Jayson, it's probably -- it's too early for us to say. As I said, we have started the programs. The people are out selling right now into the type 2 community. We continue to see good progress on the type 1 side, but I think that there's really -- we don't really have any data here we can share at this point in time. But I would imagine in the next call, that will be a different story.

Operator

William Plovanic, Canaccord Genuity.

William Plovani

Just to switch over to the P&L. I'm wondering, we did see a pretty good healthy jump up in SG&A nominally. Is this a new normal as we should look as a nominal level for the rest of the year? Or were there some onetime charges that we should think about backing out as we go into the forward quarters?

Leigh Vosseller

Sure. When you look at SG&A on a non-GAAP basis, it did increase year-over-year, and that's tied mostly to our salesforce expansion in the US also starting to make the investments in building our OUS infrastructure, all hitting that SG&A line. That step-up it took from a year ago was pretty hefty, but when you look across the rest of the year, it won't be as much of an increase across the quarters.
And that comes particularly from the fact that we have some other cost-saving initiatives under way in support of our customer service operations that will help to fund these investments that we're making in the field. So this year, we're still very focused on delivering on our profitability even with these investments, and you'll see that come through in the P&L.

Operator

Our Michael Polark, Wolfe Research.

Michael Polark

I want to make sure I understand this Sigi charge. If I look at the original agreement, there was up to CHF130 million of earn-out potential. It looks like the renegotiated agreement is CHF68 million. And so the question is, why would the AMF shareholders agree to this? If I put words in your mouth, it seems like they're getting something sooner, so not waiting as long.
And the trade-off for you is you get to maybe go faster than you otherwise would have. And I'm tying together -- tying this with the San Diego move for Sigi development. Do I have the numbers correct? Do I have the why you took this deal correct? Any color would be welcome.

John Sheridan

Yes. I mean I think that's roughly the numbers. And I would just say if you look at it on a discounted cash flow basis, it's not a bad deal for either party. And I think it's -- like I said, there is the opportunity to take control over this ourselves and not be linked to another entity, which is primarily the reason we did it. And as I said, we did it in a way that both parties, I think, were pleased with the results.

Operator

Danielle Antalffy, UBS.

Danielle Antalffy

And I was hoping, Leigh, if you could bridge us a little bit, you commented on potentially reaching 60% gross margins by early next year or by next year. I appreciate that Mobi is a part of that, but you also have the potential headwinds from shift to the pharmacy. So that's 10 points from where we are today. So just wondering if you could give a little bit more color about the puts and takes that could get you there when you do get there?

Leigh Vosseller

Yes. Great question. So I would say, there are three main drivers that, I would say, give us the confidence that we can get to 60% as early as next year. And I'll start with Mobi, and we have demonstrated proof with Mobi on the market as we're seeing the volume scale, we're achieving that cost efficiency that we anticipated. The Mobi pump this year will become accretive, which is why we are guiding to a 4 margin point or 3 margin points improvement over last year, getting to 54%.
As we turn the corner to 2026, the cartridges will start to show their benefit as well becoming more accretive. And so that alone is one of the most significant pieces. Then as we look at the early learnings from pharmacy and you categorize pharmacy as a headwind, but in our world, it's actually a tailwind. So our structure is very much CME-like, meaning that we get reimbursement for the pump as well as for the supplies. And as we look at the nature of our contracts, the early evidence of what we're seeing as we are checking patient benefits, we believe that we will get meaningful price improvement as we look ahead.
And so as we continue to penetrate pharmacy, that will also really help from a profitability perspective. And then the last piece that will only be the early beginnings of it, but as we go direct in select markets outside the US, we will see a revenue and a margin benefit there. And so the combination of those 3 factors together are what can help us to deliver on that 60% as early as 2026.

Operator

(Operator Instructions) Travis Steed, Bank of America Securities.

Stephanie L. Piazzola

This is Stephanie Piazzola for Travis. I just wanted to clarify or follow-up on the new patient numbers in the quarter. I heard the comment on double-digit growth in MDI, but curious about overall growth in new patients when you consider the competitive conversions as well.

Leigh Vosseller

Yes. So when we look at new patient starts, they were up year-over-year with the biggest driver or contributor being those MDI conversions. We do continue to see some headwinds from a competitive conversion perspective. But really, I would say that's in line with what we anticipated starting last year going into this year and in our long-term models. And so everything is moving in the right direction there.

Operator

Shagun Singh, RBC.

Shagun Singh

I was wondering if you could maybe elaborate a little bit more on your type 2 opportunity, go-to-market strategy, how you're positioning yourself versus competition? Obviously, the massive MDI population there, but how are folks deciding between your offering and competition, especially patch pumps? Any detail there would be helpful.

John Sheridan

Well, I guess I would say that, first of all, it is a large opportunity. It's, I think, roughly 3 million people in the US that have insulin-intensive diabetes. And we are working aggressively to get out there and take advantage of it. We think our pipeline lines up very well with the community.
One of the things that was very interesting about our type 2 study was just the number of subgroups we looked at. And I think the subgroups certainly indicate that it is a very segmented market. And as a result of that, we feel that having a portfolio approach to our product strategy is the right one for this significant segmentation.
So I think that right now, as we indicated, we have begun our sales initiative. We have a meaningful number of sites that we're doing, I'd say, a pilot study. We're evaluating the training, we're evaluating the materials we're using. We're basically understanding the messaging towards HCPs and we're also looking at reimbursement and market access. And so as we refine that, our intent is to move that out beyond just these sites and have it deployed throughout the entire country.
So as I said, these are -- this is just early going. It's the right thing to do. We want to make sure that when we do step on the gas that we have an effective program that will catch on. And as I said, we expect this to drive significant growth for the business going forward. Also, just finishing that saying that our -- a lot of the research that we've done recently has indicated that people who have type 2 have seen the results of these AID systems.
And I think that they're very concerned about their own health. And I think the ease of use and simplicity that comes along with the therapy benefits is making them more likely to consider that. And so we're excited about that.

Operator

And I'm currently showing no further questions at this time. This does conclude today's conference call.

John Sheridan

Shannon, let me just say one thing before we leave. I just want to say that this is a busy and exciting time for Tandem. And the team is executing at a very high level. There's numerous opportunities in front of us, such as the sales strategy, the pharmacy channel access, the type 2 expansion. We've got a robust pipeline.
And these enable us to continue achieving our results and more importantly, helping people with type 2 -- with type 2 diabetes in general. These opportunities are also -- they align with our plans to deliver sustained double-digit growth and profitability in 2025 and beyond. We're excited about where we are. Thank you.

Operator

Thank you. This does conclude today's conference call. Thank you for your participation. You may now disconnect.