Tandem Diabetes Care is buzzing. The successful launch of their Mobi pump, the first miniature durable pump in the market, has sent a surge of excitement through the diabetes community. Analysts are eagerly dissecting the Q1 2024 earnings call , focusing on the "Mobi effect" and its potential for market expansion. But while everyone is fixated on the shiny new object, a subtle yet profound shift is taking place within Tandem's customer base, one that might signal the construction of a competitive advantage that's flying under the radar.

The key lies in the evolving nature of Tandem's renewal customer. For years, Tandem, like other pump manufacturers, has relied on a combination of new customer acquisitions and renewals to fuel growth. New customers, attracted by cutting-edge technology and innovative features, form the initial wave of adoption. Renewals, customers choosing to stay within the Tandem ecosystem when their warranties expire, represent the bedrock of a sustainable business.

Traditionally, these two groups have followed predictable patterns. New customer acquisition is driven by market expansion, capturing those new to pump therapy, and competitive conversions, luring users from other platforms. Renewals, on the other hand, are a function of customer satisfaction and retention.

But a careful examination of Tandem's recent earnings calls , coupled with the insights from their Q1 2024 transcript , reveals a deviation from this standard narrative. Tandem's renewal customer is no longer just a passive reflection of satisfaction. They are becoming active agents of market expansion.

The evidence is in the numbers. Tandem's Q4 2023 earnings call highlighted historically high renewal capture rates, exceeding even the robust figures from 2022. Interestingly, many of these renewals came from customers whose warranties had expired in prior years, individuals content to use their out-of-warranty pumps until compelled by a compelling reason to upgrade.

The Q1 2024 transcript provides further confirmation of this trend. While not disclosing precise figures, Leigh Vosseller, Tandem's CFO, emphasized the double-digit year-over-year growth in renewals, fueled by strong capture rates and a larger pool of warranty expirations. Notably, new customers only "slightly exceeded" renewal purchases.

This subtle shift signifies a powerful dynamic. Tandem's renewal customer is not just renewing; they are actively choosing to upgrade to newer technology, even before their warranties expire. They are becoming a source of new pump sales, mirroring the behavior typically associated with new customer acquisition.

This phenomenon can be attributed to two key factors. Firstly, Tandem's commitment to continuous innovation, exemplified by their rapid integration of new CGM technologies and the introduction of Mobi, creates a compelling incentive for existing customers to upgrade. The ability to seamlessly switch to Mobi through their Tandem Choice program further enhances this appeal.

Secondly, the evolving reimbursement landscape, with Tandem actively pursuing pharmacy channel access for Mobi, is potentially lowering out-of-pocket costs for renewals, making upgrades more financially feasible.

What does this mean for Tandem? The emergence of the "active renewal customer" could be creating a powerful moat, a competitive advantage that's difficult to replicate.

Consider this hypothesis: as Tandem continues to innovate and expand its product portfolio, coupled with potential improvements in access and affordability through the pharmacy channel, they could foster a self-sustaining cycle of upgrades within their existing customer base. Renewals, traditionally a stable but passive revenue stream, could become an engine of growth, driving incremental sales beyond the predictable supply purchases.

Let's crunch some numbers. If Tandem's installed base grows to 500,000 by the end of 2024, and assuming a conservative 60% renewal rate, that's 300,000 potential renewal customers. If even 20% of those opt for an early upgrade, motivated by new technology and lower out-of-pocket costs, that's an additional 60,000 pump sales, a significant boost to Tandem's top line.

Of course, this is just a hypothesis, and many factors could influence these trends. However, the silent shift within Tandem's renewal customer base is a data point worth watching. It could be the first sign of a powerful and sustainable competitive advantage, one that's being quietly constructed while the market's attention is fixated elsewhere.

Sales Breakdown: Q1 2024 vs Q4 2023

The following chart illustrates the sales breakdown between US and OUS markets for Tandem, comparing Q4 2023 and Q1 2024 data taken from earning calls transcripts .

"Fun Fact: Did you know that Tandem's t:slim X2 pump was the first touchscreen insulin pump on the market? This innovation revolutionized the user experience, making diabetes management more intuitive and user-friendly."