Tandem Diabetes (TNDM)

Diabetes technology company Tandem Diabetes Care (NASDAQ:TNDM) beat Wall Street’s revenue expectations in Q1 CY2025, with sales up 22.3% year on year to $234.4 million. The company expects the full year’s revenue to be around $1 billion, close to analysts’ estimates. Its GAAP loss of $1.97 per share was significantly below analysts’ consensus estimates.

Company Overview

With technology that automatically adjusts insulin delivery based on continuous glucose monitoring data, Tandem Diabetes Care (NASDAQ:TNDM) develops and manufactures automated insulin delivery systems that help people with diabetes manage their blood glucose levels.

The consumer-focused healthcare technology industry aims to improve accessibility, affordability, and convenience for patients seeking healthcare services. These companies typically leverage digital platforms to offer services such as prescription discounts, telemedicine consultations, and wellness products. Their business models often benefit from recurring revenues via subscription plans or marketplace commissions. The primary advantages of this sector include the scalability of digital platforms and growing consumer demand for on-demand healthcare. However, challenges arise from heavy reliance on marketing to acquire and retain customers, evolving regulatory backdrops, and continuing to convince newer cohorts (especially older individuals who tend to have more healthcare needs) that healthcare can be accessed online. Looking ahead, the industry stands to gain from tailwinds such as increasing consumer comfort with telehealth, rising healthcare costs driving demand for cost-saving tools, and broader adoption of personalized, digital-first healthcare. Technological advancements, including AI-powered health assessments and seamless user experiences, are likely to further enhance growth prospects. Conversely, headwinds include heightened competition from large tech companies entering the healthcare space or large healthcare companies investing in digital technologies.

Tandem Diabetes Care competes with Insulet Corporation (NASDAQ:PODD), which makes the tubeless Omnipod insulin delivery system, Medtronic (NYSE:MDT), a medical device giant with a diabetes division that produces insulin pumps, and privately-held Ypsomed, a European medical technology company that manufactures insulin pumps and injection systems.

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $982.8 million in revenue over the past 12 months, Tandem Diabetes is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, Tandem Diabetes’s sales grew at an impressive 20% compounded annual growth rate over the last five years. Its growth beat the average healthcare company and shows its offerings resonate with customers.

Long-term growth is the most important, but within healthcare, a half-decade historical view may miss new innovations or demand cycles. Tandem Diabetes’s annualized revenue growth of 10.8% over the last two years is below its five-year trend, but we still think the results were respectable.

We can dig further into the company’s revenue dynamics by analyzing its number of pump shipments, which reached 17,000 in the latest quarter. Over the last two years, Tandem Diabetes’s pump shipments averaged 1% year-on-year growth. Because this number is lower than its revenue growth, we can see the company benefited from price increases.

This quarter, Tandem Diabetes reported robust year-on-year revenue growth of 22.3%, and its $234.4 million of revenue topped Wall Street estimates by 6.8%.

Looking ahead, sell-side analysts expect revenue to grow 3.9% over the next 12 months, a deceleration versus the last two years. This projection doesn't excite us and suggests its products and services will face some demand challenges.

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Tandem Diabetes’s high expenses have contributed to an average adjusted operating margin of negative 7.6% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

Analyzing the trend in its profitability, Tandem Diabetes’s adjusted operating margin decreased by 12.9 percentage points over the last five years. The company’s two-year trajectory also shows it failed to get its profitability back to the peak as its margin fell by 3.1 percentage points. This performance was poor no matter how you look at it - it shows its expenses were rising and it couldn’t pass those costs onto its customers.

In Q1, Tandem Diabetes generated a negative 14.7% adjusted operating margin. The company's consistent lack of profits raise a flag.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Tandem Diabetes’s earnings losses deepened over the last five years as its EPS dropped 57.3% annually. We tend to steer our readers away from companies with falling EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, Tandem Diabetes’s low margin of safety could leave its stock price susceptible to large downswings.

In Q1, Tandem Diabetes reported EPS at negative $1.97, down from negative $0.65 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Tandem Diabetes to improve its earnings losses. Analysts forecast its full-year EPS of negative $2.78 will advance to negative $1.04.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Tandem Diabetes has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 2.3%, subpar for a healthcare business.

Taking a step back, we can see that Tandem Diabetes’s margin dropped by 3.8 percentage points during that time. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the trend continues, it could signal it’s in the middle of an investment cycle.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Tandem Diabetes’s five-year average ROIC was negative 20.6%, meaning management lost money while trying to expand the business. Its returns were among the worst in the healthcare sector.

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Tandem Diabetes burned through $3.80 million of cash over the last year, and its $452.5 million of debt exceeds the $368.6 million of cash on its balance sheet. This is a deal breaker for us because indebted loss-making companies spell trouble.

Unless the Tandem Diabetes’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Tandem Diabetes until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

We were impressed by how significantly Tandem Diabetes blew past analysts’ revenue, sales volume, and EBITDA expectations this quarter. On the other hand, its EPS missed significantly due to a non-recurring facility impairment charge. Overall, this quarter had some key positives. The stock traded up 5.5% to $17.75 immediately following the results.

Updated: June 23, 2025 at 11:35 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own Tandem Diabetes, you should also grasp the company’s longer-term business quality and valuation.

Tandem Diabetes falls short of our quality standards. Although its revenue growth was impressive over the last five years, it’s expected to deteriorate over the next 12 months and its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, the company’s declining EPS over the last five years makes it a less attractive asset to the public markets.

Tandem Diabetes’s EV-to-EBITDA ratio based on the next 12 months is 34.6x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.