Insulet Corporation (NASDAQ: PODD) — Q3 2021 Form 10-Q
Reporting period: Three and nine months ended September 30, 2021. Unaudited consolidated financial statements; amounts below are in U.S. dollars, millions except per-share data. Insulet develops and sells its Omnipod insulin-delivery system and also supplies drug-delivery products.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $275.6 | $234.0 | $791.1 | $658.3 |
| Gross profit / margin | $188.7 / 68.5% | $151.8 / 64.9% | $538.9 / 68.1% | $421.2 / 64.0% |
| Operating income | $33.7 | $23.8 | $76.3 | $58.8 |
| Net income (loss) | $12.6 | $11.6 | $(12.4) | $23.9 |
| Diluted earnings (loss) per share | $0.18 | $0.17 | $(0.18) | $0.36 |
| Adjusted EBITDA (non-GAAP) | $55.7 | $42.3 | $143.1 | $110.8 |
- Q3 revenue rose 17.8% reported and 16.9% at constant currency. Omnipod revenue was $260.3, up 22.7%; Drug Delivery revenue was $15.3, down 30.1%.
- For the first nine months, revenue increased 20.2% reported and 17.5% at constant currency. U.S. Omnipod revenue grew 22.1%; international Omnipod grew 21.5% reported (13.6% constant currency). Drug Delivery revenue was broadly unchanged at $55.5.
- Gross margin improved year over year, with management citing manufacturing efficiencies and a higher average selling price from U.S. pharmacy-channel growth. SG&A increased 31.7% in Q3 and 35.6% year to date, mainly reflecting staffing, advertising, international expansion, and a shift toward commercial activities.
Cash, liquidity and debt
- At September 30, cash and cash equivalents were $856.6, versus $907.2 at December 31, 2020. Total assets were $1,998.9 and stockholders’ equity was $497.9.
- Reported total debt was $1,285.9, including $28.9 current and $1,257.0 long-term. Debt included $800.0 principal of 0.375% convertible notes due 2026, $12.1 of 1.375% convertible notes due 2024, a $498.8 term loan, equipment financings and a mortgage. The $60 revolving credit facility had no borrowings outstanding.
- In May, Insulet borrowed $500 under a seven-year secured term loan, receiving $489.5 net, to help fund its repurchase of 1.375% notes. In June it repurchased $370.4 principal for cash and shares, recording a $40.1 extinguishment loss; further note conversions generated a $1.5 loss in Q3. In October, the company announced redemption of remaining 1.375% notes, with redemption scheduled for November 15, 2021.
- Nine-month operating cash flow was $(42.6), compared with $67.0 provided in the restated prior-year period. The 2021 outflow included a $175.0 working-capital use, notably inventory growth of $108.1, receivables growth of $35.5 and prepaid/other asset growth of $32.7. Capital expenditures were $80.1; financing activities provided $42.2.
- Management stated existing liquidity should fund projected operating, investing and debt-service needs for at least the next twelve months. It had hedged $480 of term-loan exposure, fixing 96% of that loan’s LIBOR exposure at 4.20% through April 2025.
Outlook, commentary and risks
- Management expected 2021 gross margin of 68%–69%, and strong U.S. Omnipod growth and higher international Omnipod revenue, with growth partly offset by lingering COVID-19 effects and competition. It expected Drug Delivery revenue to grow based on forecast demand. Full-year R&D and SG&A were expected to increase year over year; capital expenditures were expected to decrease versus 2020.
- Omnipod 5 was under FDA review. Management expected clearance and a limited commercial release late in Q4 2021; the timing shift was not expected to materially affect 2021 revenue. Expansion to ages two to six was planned for 2022, dependent on clearance timing. The company had completed enrollment in a type 2 feasibility study and planned further studies.
- The third automated U.S. manufacturing line began producing salable product in Q2. Insulet expanded into Turkey during Q1 and Australia during Q3, and launched Omnipod DASH in Canada during 2021.
- COVID-19 impacts, supply-chain dependence, manufacturing scale-up, reimbursement and market access, competition, product and regulatory execution, and the company’s ability to service debt were identified among material risks.
- A Roche patent-infringement case in the U.S. seeks unspecified damages and fees. Insulet said it could not reasonably estimate potential losses, which could be material; a trial was scheduled for July 2022. The patent’s expiration means Roche was not seeking an injunction affecting ongoing sales. Separately, a U.K. patent claim Insulet brought against Roche resulted in a ruling for Roche, with no injunction or damages awarded.
- Insulet restated the nine-month 2020 cash flow statement for a presentation error affecting operating and investing line items. The company said the error was not material and did not affect net income or the change in cash; 2020 cash-flow comparisons in this filing are restated.
Most important facts for investors to verify
- Whether Omnipod 5 received FDA clearance and launched on the expected timetable, and the commercial uptake and margin impact.
- Whether inventory and receivables growth converts to sales and cash, and whether manufacturing capacity supports demand without eroding margins.
- How debt service, convertible-note redemptions or conversions, and interest costs affect future cash flow and share count.
- The outcome and potential financial exposure of the Roche U.S. litigation, which Insulet could not estimate.
- Revenue and receivable concentration: two customers represented 25% of nine-month revenue and 27% of receivables at quarter-end. A distributor related to a board member’s spouse contributed $13.8 of Q3 revenue and $19.3 year to date.