Insulet Corporation (NASDAQ: PODD) — Q1 2021 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless noted. Insulet develops and sells the Omnipod tubeless insulin-delivery system and supplies drug-delivery products, including Pods used in Amgen’s Neulasta Onpro kit. Amounts below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / comparator |
|---|---|---|
| Revenue | $252.3 million | $198.0 million; up 27.4% reported, 23.9% constant currency |
| Gross profit / gross margin | $167.5 million / 66.4% | $126.9 million / 64.1% |
| Operating income | $16.3 million | $7.5 million |
| Net income (loss) | Approximately break-even; shown as $0.0 million | $(2.1) million |
| Adjusted EBITDA (non-GAAP) | $35.1 million | $24.3 million |
| Cash from operations | $(35.1) million | $(3.6) million |
| Capital expenditures | $32.9 million | $26.9 million |
Omnipod revenue was $233.2 million, including U.S. revenue of $143.3 million and international revenue of $89.9 million. Drug Delivery revenue was $19.1 million. Operating expenses were $40.7 million for R&D and $110.5 million for SG&A. SG&A rose 31.7%, principally reflecting higher advertising and personnel costs.
At March 31, cash and cash equivalents were $820.7 million, short-term investments were $29.5 million, and total cash, cash equivalents and restricted cash were $835.5 million. Total debt carrying value was $1.067 billion, including $1.052 billion of long-term debt; convertible-note principal totaled $1.203 billion. Current liabilities were $185.5 million versus current assets of $1.192 billion. Management said existing liquidity was expected to cover projected operating, investing and debt-service needs for at least 12 months. Capital commitments were $80.3 million.
Changes and drivers
- Revenue growth was primarily volume-driven, with a contribution from favorable sales-channel mix. U.S. Omnipod grew 22.9%; international Omnipod grew 23.0% reported, including a 9.6% favorable currency impact; Drug Delivery rose 130.1%, reflecting higher Neulasta Onpro demand and lower prior-year production during COVID-19.
- Gross margin improved 230 basis points. Management cited manufacturing and supply-chain efficiencies, pharmacy-channel mix, favorable currency and lower COVID-related costs, partly offset by costs of scaling U.S. manufacturing.
- Operating cash use increased to $35.1 million, including a $72.3 million working-capital outflow. Drivers included bonus payments, planned inventory build, higher receivables and prepaid expenses.
- Cash, cash equivalents and restricted cash declined $86.5 million during the quarter. Capital expenditures primarily supported manufacturing capacity.
- Net interest expense increased to $13.4 million from $10.1 million, including higher cash interest on mortgage and equipment financing and lower interest income. Q1 2021 also included $2.6 million of other expense, primarily unrealized foreign-currency losses.
Outlook, risks and contingencies
- Management expected 2021 gross margin of 67%–70%, R&D and SG&A expense to increase versus 2020, and capital expenditures to increase. It expected strong U.S. Omnipod growth and international growth, partly offset by lower international new-customer starts in 2020 related to COVID-19. Drug Delivery revenue was expected to decline or grow slightly, depending on demand forecasts.
- FDA review of Omnipod 5 was taking longer than anticipated amid the COVID-19 environment. Insulet expected a limited commercial release in the second half of 2021 and said the timing shift was not expected to materially affect 2021 revenue. It also planned to pursue an indication for children ages two to six by year-end and further studies for Type 2 users.
- Insulet was adding U.S. manufacturing capacity, including a third automated line, with salable product expected in 2021. The company expanded into Turkey in Q1 and expected to enter Australia later in 2021.
- In May 2021, after quarter-end, Insulet entered into a $500 million, seven-year secured term loan, with approximately $490 million net proceeds, and a $60 million revolving credit facility. It intended to use term-loan proceeds to repay part of its 2024 convertible notes and/or fund investments; the new facilities carry interest and covenant requirements.
- Roche’s U.S. patent-infringement suit seeks monetary damages over a patent that expired in 2019; no injunction is sought. Insulet said it could not estimate potential losses, which could be material. A separate Insulet patent case against Roche in the U.K. had a trial scheduled for May 2021.
- Key stated risks include COVID-19 effects, reliance on Omnipod, manufacturing and supplier capacity, reimbursement and competition, product and regulatory risks, intellectual-property disputes, and the ability to service debt. Management reported no material changes to the risk factors in its 2020 Form 10-K.
Important facts for investors to verify
- Confirm the reported near-zero Q1 2021 net result: the statements show net loss of $0.0 million after $0.3 million pretax income and $0.3 million tax expense; the EPS note also refers to a net loss for 2021.
- Track Omnipod 5 FDA review and launch timing, and whether the expected 2021 release and revenue impact were realized.
- Assess whether gross-margin improvement, revenue growth and the higher operating expense base translated into sustainable profitability and operating cash flow.
- Review the use and cost of the May 2021 term-loan proceeds, repayment of convertible notes, facility covenants and total debt burden.
- Monitor the Roche litigation and any change in the company’s ability to estimate potential exposure.
- Consider customer concentration: two customers represented 24% of Q1 revenue, and two customers represented 22% of net receivables at quarter-end. A related-party distributor generated $2.8 million of Q1 revenue, all included in quarter-end receivables.