Insulet Corporation (NASDAQ: PODD) — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Amounts are in U.S. dollars; financial statements are unaudited. Insulet develops and sells its tubeless Omnipod insulin-delivery system and provides drug-delivery products, including Pods used in Amgen’s Neulasta Onpro kit.
Financial performance and liquidity
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $198.0 million | $159.6 million; up 24.1% reported, 25.3% constant currency |
| Gross profit / gross margin | $126.9 million / 64.1% | $106.7 million / 66.9% |
| Operating income | $7.5 million | $7.3 million |
| Net income (loss) | $(2.1) million; $(0.03) per diluted share | $4.4 million; $0.07 per diluted share |
| Adjusted EBITDA | $24.3 million | $20.4 million; non-GAAP measure |
| Operating cash flow | $(3.6) million | $6.5 million |
| Cash and cash equivalents | $201.4 million | $213.7 million at December 31, 2019 |
| Short- and long-term investments | $181.0 million | $220.8 million at December 31, 2019 |
| Convertible notes | $1,202.5 million principal; $899.0 million net carrying value | Notes due 2024 and 2026 |
Capital expenditures were $26.9 million, primarily for manufacturing capacity. Net cash used in financing was $19.0 million, including $25.2 million of taxes paid on vested restricted stock units. Management said available liquidity was sufficient for projected operating, investing and debt-service needs for at least the next 12 months. Capital commitments were $76.5 million.
Revenue mix and changes versus prior year
- U.S. Omnipod revenue rose 35.4% to $116.6 million, supported by customer growth, Omnipod DASH and pharmacy-channel sales.
- International Omnipod revenue rose 28.5% to $73.1 million; constant-currency growth was 31.9%.
- Drug Delivery revenue fell 50.0% to $8.3 million, reflecting production timing between the first and second quarters.
- Gross margin fell 280 basis points. Operating expenses increased: R&D was $35.5 million versus $32.5 million, and SG&A was $83.9 million versus $66.9 million.
- Interest expense, net increased to $10.1 million from $4.8 million, principally due to non-cash accretion on the 2019 notes and lower capitalized interest. Q1 2019 included $2.2 million of other income, including an insurance recovery.
Outlook, risks and contingencies
- Management expected strong 2020 Omnipod revenue growth, but lower Drug Delivery revenue. It forecast full-year gross margin of approximately 63%, including an estimated $5 million to $10 million of COVID-19-related costs, alongside U.S. manufacturing ramp costs and inefficiencies.
- R&D and SG&A spending were expected to increase year over year. Full-year capital expenditures were expected to be relatively consistent with 2019.
- The U.S. second manufacturing line began producing salable product in Q1; a third line was planned for installation in the second half of 2020. The expected U.S. launch of Omnipod, powered by Horizon, remained in the first half of 2021.
- Planned Omnipod DASH expansion in Europe and Canada and entry into five new countries shifted to early 2021, primarily due to the pandemic; the company said the timing change was not expected to materially affect 2020 revenue.
- COVID-19 caused abnormally low production at the China contract manufacturer during the first two months of the quarter, as well as expedited shipping, manufacturing incentives and under-utilized capacity costs. Production returned to normal capacity in March. The filing cited potential further supply, sales, clinical-trial, regulatory and workforce disruptions, among other uncertainties.
- An arbitration in Switzerland concerns fees owed to a former European distributor. The estimated aggregate fee range was $5 million to $55 million; $5.1 million had been paid by March 31, and $2.7 million was accrued at quarter-end. The final amount depends on which customers qualify under the agreement.
- Previously settled securities and derivative matters remained subject to pending court approval of fee-related motions. The company did not expect ordinary-course legal proceedings to have a material adverse effect.
Investor verification points
- Verify the drivers and sustainability of Omnipod growth, including pharmacy-channel mix, and the expected decline in Drug Delivery revenue.
- Track gross-margin performance against the approximately 63% 2020 outlook and the disclosed pandemic and manufacturing ramp costs.
- Assess cash generation, capital commitments and capacity investment relative to the $1.2 billion principal amount of convertible notes.
- Monitor COVID-19 effects on manufacturing, customer access, clinical-trial timelines and the planned product and geographic launches.
- Follow the distributor-fee arbitration, including the wide estimated range and the difference between amounts paid and accrued.