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

Well, good morning, everyone. I want to welcome John Sheridan, President and CEO of Tandem Diabetes; and Susan Morrison, Senior Vice President -- Executive Vice President, excuse me, and Chief Administrative Officer. We'll obviously open this up to questions. If people have them, feel free to just wave at me, and we'll get a mic over to you, so those participating in the webcast can hear that feedback as well. So I thought maybe we spend a little bit of time just talking about recent performance, going into the pipeline a little bit and then kind of wrap up with how -- sort of contextualize performance. And you had a sort of set of 2027 goals out there, but obviously, markets have evolved, et cetera.

So maybe let's just sort of start with kind of the Q4 to Q1 dynamic. I think Q4 had some factors that didn't come in as expected, which all seem to reverse in Q1 with Q1 coming in quite a bit ahead of your expectations as well as external expectations. But maybe just help us think about the evolution of the business over the past 6 months? And is the right way to think about, take the 2 quarters together, and that's a better representation of kind of underlying trends? Or how should we think about how you started the year versus how you ended the year?

First of all, I think that we had a great year in 2024. We basically guided at the beginning of the year to 10% growth. We ended with 18%. Even though Q4, we had a little bit of a seasonality blip, I would say, it was still an exceptional quarter for us. It was, I think, the highest fourth quarter we ever had. We just saw a sort of softening of the demand in the very end of the quarter. And we have never seen that before. So that was certainly unfortunate. But I think that we've got a lot of very exciting things that are going on with the business today. I think the first quarter is representative of what we can expect as we go forward. We're changing the way we do business in many different ways. I think one of the things that happened in 2024 is we introduced Tandem Mobi, which is a smaller device. It's much more discrete, and it still uses the sort of the game-changing Control-IQ technology. And what Mobi has done for us is we've seen a substantial increase in the amount of MDI starts that we've been getting since Mobi came to market. And so we have -- since it's been on the market for 4 quarters now, and we've seen 4 quarters of double-digit growth in MDI starts. And prior to that, we were definitely feeling additional pressure. So that's an exciting part of it. The other thing about Mobi that's exciting as well is the -- it is less expensive to build. We do expect to see substantial margin benefits of that. So a substantial opportunity as we go into '25 and beyond. We just got the type 2 approval, which is very exciting as well. We expect to see meaningful growth for that over the next couple of years. The pharmacy channel is something that there was a point in time where we would have said we weren't sure we could take advantage of it. Now we're absolutely certain we can, and we're going to do everything we can to fully get into the pharmacy channel and make -- to take advantage of the benefits for the people who use our products as well as for the business because of our ASPs. So there's a lot of things that we've changed in the business over the last couple of years. And I think we're starting to finally see the benefits of those, and we expect to continue to see that happen this year and next.

Okay. Maybe we could unpack a few of those different pieces. I think if you look at the first quarter, you grew over 20%, a really strong start to the year. How should we think about some of the drivers that contributed to that? Because type 2, you got kind of midway through the quarter. So I wouldn't think that, that had a big impact. So maybe just give us a little bit of flavor of what contributed to that performance.

Well, we saw -- we have seen steady improvement in supply sales over the last couple of years. And I think it's indicative of the fact that once people start to use our product, there's very little attrition, they continue to use it. And I think the supply sale growth certainly does that. We also saw, again, MDI growth driven by Mobi. So I think that the 2 of those, I think, are probably the core of the growth that we expected.

And then as we think about Mobi specifically, I know you've been out 4 quarters now, but what is a good like framework to use to think about when the product hits its stride. You obviously have some early adopters, but when you launch a new product, it takes time to educate the market, get your customers excited, train people, et cetera. Where are we in sort of the ramp to inflection?

I think we're still in the early innings. And I say that because we still have Android. It's not iOS only today. Android is coming later this year. We have now received CE Mark OUS, and so we'll begin to get it into the OUS countries. We've got the FreeStyle Libre 3 integration coming as well, which we think is going to be meaningful. And then finally, we have the tubeless version of Mobi, which we think that really is a game changer. And I think when the Tubeless Mobi is on the marketplace, we expect that we will begin to take competitive share from other patch-oriented companies.

And what is on the timing of Tubeless Mobi?

We haven't said specifically. It's not too far out in the future. Right now, I'd say you want to -- the design is completed. We're doing validation testing, all of the work that you have to do to prepare the dossier for the FDA. We're building out the manufacturing capacity. And when you think about Mobi, it's the exact same pump that's on the market today. All Mobi is -- or excuse me, Tobi is -- it's a supply change. Instead of an infusion set, you have a tubeless infusion site and a cartridge that is modified to fit into it. So with Mobi, you can use a tubeless or a tubed option. And I think that gives people maximum versatility. And when you combine that with the algorithm that we have, we think it's going to be a winning product.

And maybe just talk a little bit about the type 2s. You had the approval now for 5-ish, 4.5 months, I think. Maybe just how -- what are you seeing in terms of uptake? I know you had some data also at ATTD. What's been the response to that? And how is that progressing?

I'd say it's still -- it's only been a few months. It's actually -- I think it was in the February, March time frame when we got it. So it's relatively early. The team is actually -- we've decided to move forward with type 2 using a pilot. And so the pilot is fully deployed. What we're looking at as we do this is we're looking to look at market access, what is the best way to get market access, how do we drive -- find what preferences that people have. We're also looking at just training physicians, making people aware of the benefits of the technology. So we're in this pilot phase right now. And I think that as we get more and more confidence that we're doing these -- that these decisions we're making are the correct ones, we'll begin to expand it. And we -- I would think by the end of the year, have broad sales coverage for the product.

And then maybe sort of -- I know it's very early since the announcement of one of your competitors to separate their Diabetes business. How should we think about the competitive dynamic unfolding as that transaction materializes?

Well, I think that they're a very capable company. The group that works in diabetes has done a nice job over the last couple of years. They've got a more competitive product in the market today. And I think what's happening is they're retaining their own renewals more effectively than in the past. So I think any time you have to separate an entity, you've got to spend quite a bit of work to figure out what's being separated, what are the organizational elements, how do things continue to go? How can you resource everything that you've been doing before. So there's likely to be disruption here in the short term is what I would anticipate. But I think once they're in the market, they've got a separate team, they're likely to be a more effective competitor. That's how I would characterize it. And so I think the good news, though, is when you look at our pipeline, when you look at the initiatives that we have underway, I feel that we will have the benefit of all of that by the time they're on the market kind of up and running.

Okay. I want to come back to the pipeline in a second. But if I just sort of reflect a little bit on what you shared so far about the drivers for Q1, you look at the rest of the year and it's like what's going on? Like I think your guidance implies about 7% growth for the balance of the year compared to the 22% in Q1. Maybe just give us a sense of what are some of the factors you considered when preparing the outlook for the rest of the year? And where are the puts and takes?

Susan, do you want to take that?

Sure. So when you look at our guidance expectations for the remainder of the year, it's important to break out what we expect in the U.S. from internationally. In the U.S., it's actually about 13% growth expectations. Outside the United States, we're preparing to go direct internationally in select countries. And so with that, there's an expectation that there may be either a slowdown in sales as we move towards that direct operation or that there may be inventory that we need to buy back. And so in the third and fourth quarter, we expect somewhere between $15 million and $20 million of headwind. And so that's what's really impacting when you look at it from an overall guide growth perspective.

And on that transition internationally, do you have the sales force in place? Are you ready to make that transition, so it's a quick -- any disruption would be it's almost an accounting disruption, right, buying back inventory or some destocking that's not an underlying business trend dynamic.

We're in the process of doing that right now. We've got a leadership team that's essentially in place for the countries that we will be going direct in. We're building on just all of the operational resources necessary to support an entity that's independent. That's all going on. We're establishing all of the IT infrastructure to support OUS. And so I think that the plan is that as soon as January 1 hits, we're going to be ready to go. And that's what we're up to. And I think that this is a natural transition that occurs in companies of our size. I mean we've been in the market now for 5 years. We have great partnerships with our distributors. And I think it makes sense from a margin benefit point of view for the business as well as I think that our own sales force can do a better job servicing the customers and just doing a better job of introducing all the new technology that we plan to bring to the OUS markets here in the next year or 2.

And I think even if you adjust for that potential headwind, you're still reflecting a slowdown in the balance of the year. So what are the factors that would contribute that beyond the adjustment on either inventory or other kind of one-off matters?

Absolutely. And so we're really looking at overall opportunities and risk. And I'd say overall in our guidance philosophy, what you see is us putting a greater weighting towards the risk side as we see things prove out.

Okay. We've historically been conservative. And I think it's the right way. We are not going to put assumptions into the guidance that we have -- unless we have high confidence that we can achieve them that we've already seen them in the market, we've seen the performance. And that's just typically -- we have a number of things that are exciting that are happening this year that aren't in the guidance. And I think that, that's essentially what happened last year as well where we started off at 10% and ended up at 18%.

Okay. One of the questions I've gotten on the type 2 population is -- how do we -- how do investors break out like early enthusiasm for having the indication for you and one of your competitors? And then we just see sort of like a flash in the pan kind of bolus of growth for lack of a better way to put it, and then kind of petering out after that. How are you thinking about the build in type 2s.

Well, so when you look at the market in the U.S., there's 2.3 million people that have insulin-intensive type 2, which means they have to basically bolus for meals and they need basal insulin every few minutes. So it's very much like the type 1 community. And it's getting larger over time. Today, roughly 100,000 people of the 2.3 million use pumps. And so it's incredibly underpenetrated. And when you compare that to the type 1, there's like maybe 1.9 million people with type 1, about 40% of them use pumps today. And we have seen steady progress over the last couple of years as AID technologies have become more and more popular. So I don't think there's going to be a bolus. I think it's going to be steady increase as the companies continue to develop new technology that's easy, that's discrete and that provides great therapy. And we've looked really carefully at the community, the type 2 community. And what we have found is that as awareness of the benefits of these AID systems is just more and more available, they're more willing to consider it. And we would have said a couple of years ago that it's 5% penetrated today, maybe we can get to 15%. I would say we think it's going to 25% to 30%, even more. And so I think the more people that are out there selling to the market only helps improve the market awareness. So I think this is a long-term substantial -- it basically doubles the size of the U.S. market for us, and it's even larger OUS. So I think it's a meaningful benefit for the company.

And how about the go-to-market strategy? I mean I think if you look at the evolution of type 1 to type 2 MDIs to now the broader type 2 population, you're going from kind of a market where you're serving endos more so now you're kind of toggling over to serving PCPs, potentially some in the pharmacy versus the DME channel. How does that influence your go-to-market strategy? Have you made the sales force investments in a PCP channel, et cetera.

I think when you look at type 2 that there are a number of people who are managed by PCPs. But there's a substantial number that once they start to use insulin, move from PCPs to endos. And so I think that we have a pilot underway right now to answer many of the questions that you just brought up. And that is what is the right size of the sales force, who are the people we will be contacting, what market access approaches do we use? All of that is underway today. So I think that it's, again, that's a large market that's out there. We're evaluating it. I think as we have more confidence with the levers that we can use that are going to be more effective, we will do that, and we'll expand it. We typically look at sales force expansions at the end of the year. And I think we just expanded in the first quarter, primarily for Type 1 to increase our share of voice in this market. I think that it's definitely something we'll be looking at. But when you look at today, the people we call on, we call on endos and high-prescribing -- high insulin prescribing PCPs. So we already have PCPs that are out there who have a substantial number of type 2s in their practice. And so it's -- I think there's a -- who we cover today, there's a big opportunity out there as of today.

Excellent. Maybe we could talk about the pipeline. I think sometimes we look at the pipeline, we think it's Mobi, Tobi and Sigi. But I think when you go actually beneath there, there's a lot of subcomponents of that, integration with CGMs, integration with Android and iOS. I mean there's sort of a lot of other pieces to some of these products. But maybe you could sort of talk us through MOBI, it sounds like you're -- that's sort of progressing as expected, but kind of give us a lay of the land across the rest of the portfolio.

So it's a large market, of course, but it's highly segmented. And because of that, I mean, people want to wear, interact with, control their devices differently. And it's very subtle. When you talk to people, there are small things about these devices that people love, and it's why they choose it. And we think having a single device in this very diverse market is not the effective strategy. So we are planning to have a portfolio approach. So we have t:slim, which has been on the market for a while for 10 years now. It's doing very well. We expect it will continue to have a long life. We're bringing Mobi to market right now. Mobi is a device that has incredible versatility in terms of how you wear it, where you wear it, and it gives people a lot of flexibility. And we do believe there's a meaningful number of people out there who would not come to pump therapy unless there's a patch device in the market. And so we have -- we see having all 3. And as you've mentioned, when you look at -- there's different sensor technologies. We want all of these devices to be able to use the best sensor technology that's available. Our algorithm is fortunately, it's an interoperable algorithm, so it can be deployed on all 3 of these devices. And so I think there's -- I think the portfolio approach with what we're taking, and we think that's going to be more meaningful in terms of just addressing the various needs of the market.

And you had an announcement this morning on a partnership with Abbott to measure ketones. Maybe just talk through that a little bit, the announcement this morning.

Sure. Well, we have been working with Abbott for years now. And we're just about ready. In fact, we're on the verge in the next couple of days of deploying the FreeStyle Libre 3 into the U.S. market, which we think is a -- that's a big deal for us. You'll see it at the ADA and we'll -- it's a -- we have a phased launch where we kind of go slow at first and gradually pick up momentum as we hit more and more KPIs for the launch. Abbott recently has indicated that they're developing a sensor that has the ability to measure insulin or glucose and ketones. And so the benefit of that is that when you look at the performance of all the algorithms on the market today, the newer algorithms really have done a good job of eliminating lows, eliminating hypoglycemia. And most of the time and range problem is highs. And highs are indicative of ketone presence. And so if there's a way for us to actually see and measure ketones earlier, we could potentially respond, first of all, just let the patient know that there's ketones, they want to consider doing a bolus. That's something simple as that, but there's also consideration for incorporating the information into the algorithm. So it does it for you. And again, I think that the time and range improvement by reducing that high hyperglycemia is meaningful. So I think it's a very exciting development. And certainly, we want to deploy it.

And I know you've pulled back from giving specific time lines or kind of target approval dates across different products in the pipeline. But maybe you can -- you touched a little bit about where you are with tubeless on -- it sounds like you're at design freeze and getting ready to prepare a filing. What's the next update we're going to get on Sigi.

Yes. I think that Sigi is a device that is in the -- it's in the design phase at this point in time. We've transitioned all of the work on Sigi's pump from Switzerland back to our facility in San Diego. We have a team of people that just finished developing Mobi and they're available and they're now -- they're jumping on Sigi as an opportunity. So I think that it's an important part of the development. We're very pleased with where we are today. One of the things that we've done over the last 2 years is substantially reduced the risk of the design. And that's -- now that we've done that, we can move more aggressively into the implementation and finalization of the design. But I think risk reduction is what we've been doing this past couple of years, and we're very satisfied with the performance.

And when you say risk reduction, is this is on product performance or manufacturability?

On both. I'd say that there's -- you want to make sure it's a safe, efficacious device, highly reliable and that it's going to meet your performance requirements over a 4-year period.

But if you think about kind of trying to put a guess on time lines, if you complete the design, have you gone through VNB or...

We haven't gone through VNB. We're still in the design process.

Okay. So it's -- and these are 510(k).

It's 510(k).

But it sounds like you wouldn't be in a position to file for another 18 months.

Are you trying to put words in my mouth. Yes, I don't think we're going to talk about it. And I think that every single time we talk about our dates, we basically are telling our competitors what's going on. And I would just prefer to -- we've decided not to do that.

Understood. Okay. Maybe we can talk about ADA coming up here.

One thing I would like to talk about, though, that I think that's really important. I think that the growth that Tandem saw over the last -- from like let's say, the '18 through 2023 time frame was really driven by the performance of the algorithm and the fact that the algorithm really differentiated itself from anything else that was in the marketplace. We licensed the algorithm for Control-IQ from a company called TypeZero, which was a spin-off out of UVA. And we did that back then because we didn't have algorithm developers. And it was also the algorithm that had the most clinical data on it in terms -- in research studies. And it's something that the FDA was very familiar with. So we just recently entered into another agreement with UVA, and they have another algorithm called AdaNet, which has the most clinical data of any fully closed loop system that's on the marketplace. And so we, as a company, are really -- this is the North Star, we think. We think we have to have the most exciting and interesting pumps on market, the best performance, most discretion, most innovative, but you've also got to have the best algorithm. And the team is really working hard to get this to market as quickly as possible. And we successfully partnered with UVA in the past, and we anticipate that, that's going to happen again. So I think it's a really important part of the business, and I think that something that's important to keep in mind.

And that's a good segue, I think, to talk about ADA a little bit. I know one of your competitors is going to have this unveiling of sorts to the investor community about on their patch pump. There's always a series of different data that come out during that meeting. What are some of the things that you want to highlight to folks ahead of ADA that you want them paying attention to for Tandem.

Yes. First of all, we're going to show the type 2 data again in the U.S. It's only been presented in Amsterdam. So I think there's an opportunity for us to show a broader community here in the U.S. the benefits of the type 2 performance. That's exciting. We've also got a pregnancy study that we've collaborated with University of Montreal in Canada to look at the effects of Control-IQ in managing diabetes in pregnant women. So that's a big deal for us, which we think is going to be a meaningful market opportunity as time goes forward. There's a lot of studies that are out there as well about Control-IQ, benefits of Control-IQ on children, et cetera. And I think that the other big thing, I believe, will be just the FreeStyle integration. So I think there's a lot going on. We're excited about it. I would say that when it comes to people demonstrating patch pumps, it's like we have acquired AMF Medical 2 years ago. And 2 years ago, their patch pump pumped, it pumped insulin. And pumping is not a big deal. It's not hard. What's hard is to make sure it's reliable and safe. And I think that takes time. It's not something that you can do overnight. And so I think that if there's -- I mean, I'm sure it will be exciting. But I think you have to understand, it's easy to show that performance, but not necessarily meaningful at this point in time.

Understood. And on your point on the algorithm, we've heard the same thing in our kind of checks on the market. What are some of the either data you're working on or studies you're working on that can further drive that point at home.

Well, I'm remiss in saying because we just talked about the ADA, UVA will be presenting a number of papers here that show the performance of the AdaNet algorithm. And basically, the system is set up basically to set it and forget it. I mean you do not have to bolus for meals if you don't want to. And the algorithm has been tested in situations where people are at home, they're eating a lot of carbs and they're not bolusing. And so the performance is real-world data. So it's a substantial improvement in simplicity, experience and a reduction of the cognitive burden. The way we're looking at this, though, is that there are devices on the market today that talk about simplicity, and you can't change anything. And that's very frustrating for the people using it because at times, they're not -- their diabetes isn't being managed well and they want to have the ability to make changes, some of the physicians -- so with the system that we're looking at, you can go into a fully closed loop mode and operate that way. But if you feel like you need to make iterative or small improvements in terms of -- you can do that at the same time. So we think that's the best of both worlds, and it's really what we're pursuing right now. And we think it's going to be the next step in diabetes therapy.

Okay. And there will be those data at ADA...

As I said, UVA has presented it -- they were at the ATTD, they'll be presenting it here. There's been quite a bit of studies. They're kind of prolific when it comes to generating data. And I think that's really important because when you generate date in these clinical studies, you have to do it with knowledge of the FDA. So the FDA has now have been taken along through all of these different studies, and they're aware of it. And that just helps improve the -- or reduce the time to market.

Okay. I want to cover a few P&L items before we go there. But maybe talk about just the channel. There's a lot of focus on this shift to pharmacy and implication. Where -- how important is that? You made a reference to that earlier on just channel and patient access. How important is that to you? And where are we in developing that opportunity.

So we've been looking at this now for a couple of years. And the real turning point for us was approval of Mobi last year. And Mobi allowed us to actually work with the payer organizations to get contracts in place for pharmacy channels. And so we have about 30% of the covered lives under contract today, and that's in a relatively short period of time. We really didn't start actively selling to the pharmacy channel until the first quarter. So from a patient point of view, it's less out of pocket. And from the patient and an HCP point of view, it's easier access. So that's really the reason we're going after it. But from a company point of view, the real benefit is that the ASPs of both the supplies and the pump are higher. So selling the same number of products, we will now see a benefit to the top line of the business. So it's something that you might imagine that we're moving as aggressively as we can. We're excited about it. There was a question, I think, maybe a year or 2 ago as to whether or not the pharmacy channel would even accept a durable product. That's certainly has been answered. And now they want us in it, and they want us in it aggressively. So we've brought on a number of team members that have done this before in many companies. And we're moving as quickly as we can. But again, it's ease of access for the patient and ease of -- and reduction in the payment point or the out of pocket. So there's a lot of benefits, and we expect this to drive meaningful growth in the business.

And what are some of the barriers that you have to knock down to broaden access to the pharmacy for you? And are there any implications to consider as relationships with the DMEs and how that transition might impact the core business.

Yes. I think that there are operational requirements that you've got to get in place, which we're, of course, working on now. There's also additional covered lives. We have 30%. We need to get that number up. So there's new agreements that we're working to get in place, and we think we will. And there's also a learning curve. I mean it's new to us. I mean we have all these experienced people in doing it, but it's still new to us. So we want to move aggressively but we want to move cautiously at the same time. Interestingly enough about the DME suppliers, many of the distributors that are in DME today are also creating hybrid business models where they do both. And I think that they see the writing on the wall to a certain extent. And so I think it makes sense for them to do that. And then as we adjudicate the sale, we can decide which channel is better for the patient. And with these distributors that have the hybrid model, we can choose either sort of a DME or a pharmacy, whatever is best for them.

Got it. And is there any risk of an air pocket in growth as this transition happens? I appreciate that. I'm sure you maintain the same guidance philosophy, you would contemplate that. But is there any dynamic that we have to that might come into play as it relates to just inventory dynamics or anything else that might disrupt the transition?

I don't think so. I think that the -- I mean, we have -- our managed care team manages both the pharmacy and the DME relationships. And so I think maintaining open dialogue, transparency, et cetera, with your partners is really important. I think that's something that the team has done a good job on. Relative to the -- again, we're in the implementation phase at a certain level on the operational side. There's different packaging, different labeling and things like that, that have to be done. We've done that, but we're continuing to expand in that area. But I think that it's really covered lives. Let's get more contracts, let's increase the covered lives. And then as you start to actually sell into the pharmacy channel, there's things you just learn. You have to -- it doesn't go as perfectly as you expect, you've got to knock down these barriers and keep moving. But that's kind of where we are today. But I think it's a big opportunity for us this year and beyond.

Okay. Excellent. Maybe we could go over to the P&L, Susan, and talk a little bit about -- I'll start with gross margins. The Q1 revenue came in much better, I think, than what people had expected and where you had kind of targeted gross margin was roughly in line at the 51-ish percent from what you had kind of laid out earlier in the year. Does this ramp from 51% to 54% for the full year. So presumably, that implies a number above that in Q4. Maybe just sort of talk us through the moving parts here on the gross margin line?

Sure. And I think that's one of the things that's exciting about 2025 is you're actually starting to see the benefit and evidence of initiatives that we started putting in place 12 to 18 months ago. And so a big piece of that is Mobi and Mobi becoming a larger mix of our business. John talked through some of the benefits there. But on the pump side, the cartridges are actually about 20% less cost of manufacturing. And on the pump, it's 10% to 15% less. And so as you see that become a greater portion of our business, you're going to see that in the gross margin. But also, we're seeing even greater benefit in the operating margin as we drive greater leverage within our business, particularly within SG&A. And I'd highlight that some of the benefit of that we're able to actually achieve while we're doing things like sales force expansion and while we're investing in going direct internationally. And so a lot of these is just time as you're starting to see that evidence of pull-through from these prior initiatives.

And is the gross margin as straightforward as, I mean, obviously, revenue scale matters. But Mobi becomes a bigger percentage of total Mobi has significantly higher gross margins, so the total corporate margin goes up? What are the other factors?

Yes, that's the big piece, but also pharmacy when you have the pricing benefit. And also, we've seen great pricing benefit even within DME, 2% to 3% increase as we're able to demonstrate the value of our products, we're able to see that nice increase in pricing. We previously had put out a longer-term target of a 65% gross margin. And I think there's been a question of how and when do you get there. And now with a nice milestone, we've been able to share that we expect to hit a 60% gross margin as early as one of the quarters in 2026. And how that impacts the full year, of course, depends on which quarter we achieve that. But you can see the benefit of this is pretty meaningful pretty quick.

And what are sort of the operational factors that need to play out to get to -- even this year, you got to be in like a high 50s gross margin in Q4 just to average out to get there. But what are some of the just operating dynamics that need to unfold to get to that number?

Yes, I think it's just primarily scale. I mean right now, we've had Mobi on the market for roughly a year. And I think that today, the pump is accretive to the t:slim pump. And we've seen the benefit of that. I think this year, it's really the supply side. And so it's just really overhead absorption. I mean, as you start a new product, you have a lot of overhead in place that's not being fully utilized and you've got to ramp up volume to do that. I think we're at that point now where we have the volume we anticipate for the capacity we have on the pump, and we're doing the same thing this year for the supplies. And so I think that you're exactly right, though, but this year, in order for us to hit 54%, we've got to exceed and end the year at a pretty high margin. And I think that we feel confident in doing that. All of the new products that we're bringing to market are designed in a way that they're less expensive to build than the previous ones. And as Susan mentioned, I think the pharmacy channel is another big opportunity for us to -- I would say we have high confidence in getting to 65% gross margin. And then we also have high confidence and commitment to getting the operating margins that we've committed to as well.

And as we think about the gross and adjusted EBITDA margin, is it pretty linear that gross margin goes up, adjusted EBITDA margin should go up at a pretty similar pace.

I would say that it's -- I mean there's certainly going to be that relationship. But the other thing that we've been doing internally, that we've been doing a lot of business process redevelopment. And we're looking at using new technologies to reduce the sort of the human involvement in customer interactions. And we expect that, that's going to drive additional leverage on the bottom line. And so I think that we could see more benefit to the bottom line based on some of these other programs that we've got going on that aren't necessarily tied to gross margin.

And is there a revenue level that you could sort of lay out for people that gets you to double-digit margins. Is that $1.2 billion, $1.5 billion.

We really haven't said revenue. We've said number of customer -- installed customer base. And when we set the goals for the company a couple of years ago, we said 1 million customers. I think the thing we are happy to report today, it's less than that now for us to get to those double-digit improvements that we've talked about. So again, I think we have a great deal of focus on this in the company, something we take very seriously. And I think you're going to start to see steady progress in that area.

Excellent. Well, I think with that, we are just at time. John and Susan, thank you for making -- thank you, everybody.

Thanks, everybody.

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