A Change Under Center?

It seems like the folks at Tandem (NASDAQ: TNDM) who reported earnings after the market closed yesterday have no shame. While several interesting tidbits came out of the call yesterday the most interesting fact wasn’t even discussed. As the company dropped a bomb on stakeholders filing an S-3 indicating they are about to hit the capital markets again this time for a whopping $100 million. Here is what the company said about the S-3 during the call;

“The Company also filed a Form S-3 Universal Shelf Registration Statement today. The focus of this call is to discuss the Company’s financial results for the quarter ended March 31, 2018, in light of that and the SEC rules and regulations. The Company will not be discussing beyond remarks on this call or answering questions about the registration statement.”

That’s it.

Well we weren’t exactly satisfied with that statement so after the call we spoke with the company’s CFO Leigh Vosseller. Leigh explained the company wants to clean up their balance sheet and is particularly concerned about the debt coming due in March 2020. Although Ms. Vosseller did not indicate when this would happen our impression was the S-3 will be executed sooner than later. Which basically means that once again management will do what they do best and dilute the sucker while destroying stakeholder value.

While first quarter results weren’t bad there was nothing in the results that indicated the company has turned the corner. We weren’t surprised now that the company is temporarily stable financial that pump sales performed well. Nor are we shocked that the company continues to pick up their fair share of Animas patients.

As we have noted before the last thing many Animas patients want is to end up a Medtronic (NYSE: MDT) patient and while it’s cheaper for them to switch to a Medtronic system many would rather chose anything else but a Medtronic system. Now that Tandem appears to be financially stable these patients feel comfortable choosing Tandem. To us this says more about the hatred of the evil empire than it does about Tandem. The reality is had Tandem folded these same patients would have gone to Insulet (NASDAQ: PODD) or back to multiple daily injection therapy (MDI) until another system came along.

This is not to say that the Tandem system is inferior in any way, Tandem makes a great device and they have a nice pipeline too. Their system also works with the Dexcom (NASDAQ: DXCM) CGM which is the best CGM on the planet. The Tandem system has never been the problem. The problem is what it always is, management spent money like drunken sailors and have no clue on how to run a commercially viable insulin pump company.

Yet what is laughable here is that investors have come down with a severe case of amnesia. After diluting the stock shares have been on a roll. The company for the moment is finally stable financially and they do have a very nice product about to get FDA approval. However, the hard work lies ahead and the same management team that created the original mess is still in place.

Perhaps the best way to think about this is look at last nights NFL draft with the first and fourth first round picks owned by the Cleveland Browns. While its nice to have the first pick in the draft the Browns “earned” this pick by being horrible on the field. Yet this isn’t the first time the Browns have held the first pick. As we have noted before the Browns have the distinction of being one of the worst teams in the NFL.

Now one would think with all these first round picks the Browns would win now and then, well think again. As we have also noted the Browns have had several head coaching changes over the years as well. Yet this combination of high draft picks and coaching changes hasn’t changed anything on the field, they still aren’t winning. Therefore, the problem must lie elsewhere. Only problem for Browns fans is players and coaches are easy to replace owners however aren’t.

Tandem is the insulin pump equivalent of the Cleveland Browns. They have good products and a good pipeline, but they continue to lose. Yet unlike the Browns they haven’t changed coaches on the contrary management is handsomely rewarded for their poor performance. And just as its unlikely the Browns will get new owners that care about wining Tandem has Board of Directors clueless as to what it takes to win in the insulin pump market.

Tandem investors are a lot like Browns fans who are hyped today now that have Heisman Award winning Baker Mayfield as their quarterback. No disrespect to Mr. Mayfield, who is about to become a multimillionaire, but he has yet to win a single game or even play one down in the NFL. Plus, he has the additional handicap as he is no longer on the talent rich Oklahoma Sooners but now a member of the Cleveland Browns. Yet if the Browns were a stock it’d be up today on the hype, the belief that future will be better than the past.

This is exactly the situation at Tandem, investors are betting that this team that created the original mess will do a 180 and suddenly start winning. This is why Tandem has been able to continually raise money. Listen we are not going to outline again all the hurdles that lie ahead. All we will say is that management and the Board of Directors have proved two things, they are great at losing money and destroying shareholder value that’s it.

And just as Browns fans continue to hold out hope that this year will different, investors continue to pour money into Tandem falsely believing that money will cure what ails the company. To wit we will remind everyone of something Momma Kliff used to say; “Money only solves the problems money created.” Well money did not create the issues facing Tandem nor will more money make them any easier to deal with. And just based on history there is no guarantee this money will be well spent.

Listen we truly hope that Mr. Mayfield leads the Browns to the promised land. It would great to see the Browns relevant again. However, if we were looking for a quarterback to lead our team we’d take Tom Brady or Aaron Rodgers (boy that’s hard to write us being loyal Chicago Bears fans) any day for they are PROVEN winners. This is exactly what Tandem needs a proven, experienced leader at the helm. This won’t guarantee success but it’s sure better than having the equivalent of Ryan Leaf or Todd Marinovich at quarterback.