Tandem Earnings: Softness in the Last Quarter Has Now Become More Pressing

Coming off the heels of a weak second quarter, Tandem’s TNDM third quarter was more of the same. Though we made slight adjustments to our near-term expectations, this wasn’t enough to affect our $32 fair value estimate. While Tandem has recently made progress in containing operating expenses, the firm still has some years to go before returning to profitability. Similarly, projected returns on invested capital are likely to trail the weighted cost of capital through 2027, which keeps us from awarding Tandem any sort of economic moat at this point.

Tandem saw reported quarterly revenue fall 9% year over year, which accelerated from the low-single-digit decline seen in the second quarter. Further, the same pattern was seen in quarterly pump shipments, with third-quarter shipments down 24%, compared with the 8% decrease seen in the second quarter. We think several factors have been contributing to these results, some of which should ease over the next few quarters. For example, integrating t:slim X2 with Dexcom’s new G7 and Abbott’s Libre 2 continuous glucose monitors has taken time, and we often see patients hold off on purchases when they know that this kind of meaningful product feature is coming but not yet available. The integration with G7 should be widely available by the end of this year and a similar feature with Libre should be available early next year. This should tap some pent-up demand for t:slim X2 and its automated insulin delivery, or AID, system. Further, the rollout of the new Mobi pump should also help bring in new pump users in 2024, in addition to some existing t:slim X2 users who switch. We expect these factors to stabilize and return revenue to growth next year.

We continue to think there is long-term potential for Tandem to attract pump users and, importantly, convert patients relying on multiple daily injections to move over to a pump with AID capability.