Type 2 diabetes can be reversed with diet and exercise, but most doctors and patients find it easier to manage the disorder with medication. That's created a massive and growing opportunity for Tandem Diabetes Care (NASDAQ:TNDM). While the insulin pump developer has never been profitable, second-quarter 2019 operating results show that's going to change soon.

The medical device company reported a 290% surge in global pump shipments in Q2 2019 compared to the year-ago period, which drove a 173% increase in revenue in that span. The business reported an operating loss of just $1.8 million for the quarter. Considering Tandem Diabetes Care expects second-half 2019 revenue to grow 25% from the first-half tally, profitability appears to be on the horizon. Here's what investors need to know about the most recent results.

A hand placing blocks along an ascending graph, each block face contains one letter in the word growth.

Image source: Getty Images.

By the numbers

The company's triple-digit growth lives up to its hype. At the end of the first quarter of 2019, Tandem Diabetes Care touted that it shipped nearly 100,000 insulin pumps worldwide in the past four years. It shipped 21,258 in the second quarter alone.

That impressive growth has been driven by an obsession with simplifying the user experience of its products. The medical device company has continuously improved its flagship product, the t:slim X2 insulin pump, with both hardware and software upgrades. The increased convenience, including over-the-air software upgrades and continuous glucose monitoring, resulted in half of all new customers in the first half of 2019 being new to pump therapy.

As recent operating results clearly demonstrate, Tandem Diabetes Care has certainly benefited from making its insulin pumps among the easiest to use on the market.

Metric

First Half 2019

First Half 2018

Change (YoY)

Revenue

$159.2 million

$61.4 million

159%

Gross profit

$83.3 million

$26.5 million

214%

Gross margin

52.3%

43.1%

913 basis points

Operating expenses

$96.1 million

$55.9 million

72%

Operating income

($12.8 million)

($29.5 million)

N/A

Net income

($24.5 million)

($92.0 million)

N/A

Data source: SEC filing. YoY = Year over Year.

Consider that the business grew gross profit by nearly $57 million in the first six months of 2019 compared to the same period of 2018, but operating expenses increased by just $40 million in that span. That's an impressive stat and a winning formula for long-term success. 

Looking ahead

Management doesn't expect the growth to slow anytime soon. CFO Leigh Vosseller said: 

The record growth we achieved in the second quarter has continued to exceed our expectations. The acceleration of our sales growth drivers in recent quarters suggests that the longer-term goals we laid out a year ago may be attainable more quickly than originally anticipated, particularly with the strength of our near-term product pipeline, scaling renewal opportunity and expanding international launch. 

Management went into more detail about the faster-than-expected growth on the second-quarter conference call. The comments can be distilled into their simplest form by taking a quick look at the latest full-year 2019 guidance:

Metric

New Full-Year 2019 Guidance

Prior Full-Year 2019 Guidance

Total revenue

$350 million to $365 million

$300 million to $315 million

International revenue

$55 million to $60 million

$45 million to $50 million

Gross margin

54%

52%

Data source: Press release.

It's worth pointing out that year-over-year comparisons will weaken going forward. That's because Tandem Diabetes Care launched its latest and most advanced t:slim X2 pump in the third quarter of 2018, which set the business on its current growth trajectory. Of course, full-year revenue guidance still represents year-over-year growth of 94% at the midpoint. Investors can't complain about that.

Considering the pace of growth and the fact that the business will turn profitable in the second half of 2019, investors with a long-term mindset might find a lot to like about the stock. Shares have gained 86% in the last year, but the business is valued at $3.3 billion. That represents a price-to-sales ratio of nine, relative to the midpoint of full-year 2019 revenue guidance. That may seem frothy, but the company appears likely to earn an even higher market cap in the next few years. Besides, there aren't many places in the stock market where you can find a similar combination of growth and profits.