Insulet Corporation — Q1 2018 Form 10-Q
Reporting period: Three months ended March 31, 2018. Insulet develops, manufactures and sells its Omnipod tubeless insulin delivery system and also supplies drug-delivery products to pharmaceutical and biotechnology companies.
Financial performance
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Revenue | $123.6 million | $101.7 million; up 21% |
| U.S. Omnipod revenue | $70.3 million | Up 18% |
| International Omnipod revenue | $38.4 million | Up 53% |
| Drug Delivery revenue | $14.9 million | Down 12% |
| Gross profit / margin | $75.8 million / 61.4% | $59.4 million / 58.4% |
| Operating income (loss) | Break-even | Loss of $5.3 million |
| Net loss | $6.6 million; $0.11 per share | $10.0 million; $0.17 per share |
| Operating cash flow | Use of $4.3 million | Use of $21.8 million |
| Investing cash flow | Use of $56.0 million | Use of $42.3 million |
Revenue growth reflected increased Omnipod sales, partly offset by fewer drug-delivery shipments to Amgen. Gross margin improved 300 basis points, mainly from supply-chain improvements, partly offset by European distributor sales mix. Operating expenses rose 17% to $75.8 million, including higher R&D, commercial investment and corporate costs.
Comparability is affected by adoption of ASC 606 on January 1, 2018. The company reported Q1 2018 net loss of $6.6 million; it estimates net loss would have been $10.5 million under the former accounting guidance. ASC 606 increased reported revenue by $1.6 million and reduced sales and marketing expense by $2.4 million versus that former basis. Adoption had no net effect on cash flows.
Balance sheet and liquidity
- Cash and cash equivalents were $203.1 million; short- and long-term investments totaled $313.0 million. Management said liquidity was sufficient for projected operating, investing and debt-service needs for at least 12 months.
- Convertible debt had a $573.3 million net carrying value, including $3.5 million current; principal outstanding was approximately $751.2 million. Q1 interest expense was $7.9 million, including substantial non-cash discount accretion.
- Total assets were $829.8 million, total liabilities $659.2 million, and stockholders’ equity $170.6 million at March 31, 2018.
- Cash and cash equivalents declined by $69.4 million during the quarter. Capital expenditures were $35.4 million, although reported cash payments exclude certain purchases payable at quarter-end.
Outlook, developments and risks
- Management expected strong 2018 revenue growth, driven by U.S. and international expansion and the planned shift to direct European distribution, partly offset by lower drug-delivery revenue. It expected 2018 gross margin to increase versus 2017, and R&D, sales and marketing, and G&A expenses to rise. The company expected near-term net losses; no specific full-year revenue or earnings guidance was provided.
- Insulet planned to take over European distribution on July 1, 2018, after the distributor agreement expires June 30. The transition was expected to raise average European customer pricing and, after transition costs, be accretive. A per-unit fee on qualifying sales to certain distributor customers over the following 12 months was estimated at $10 million to $55 million.
- The Acton, Massachusetts manufacturing facility was under construction, with production planned to begin in early 2019. Construction-in-progress was approximately $110 million; total facility and related equipment capital spending was expected to approach $200 million by production start.
- The company submitted a 510(k) application for its next-generation DASH system in January 2018; commercial release depends on FDA clearance. It also cited Medicare Part D coverage guidance and work toward Medicaid access.
- Key exposures include reliance on Flex as the sole-source Omnipod contract manufacturer; customer concentration, including Ypsomed at 27% and Amgen at 12% of Q1 revenue; execution and cost risks in the European transition and facility build; and foreign-exchange exposure as European operations become more direct. The company reported a securities class-action settlement agreement subject to court approval and related derivative actions; accrued residual exposure not covered by insurance was described as immaterial.
Investor verification priorities
- Track organic Omnipod growth and whether the Q1 gross-margin improvement persists as European distribution changes.
- Monitor European transition execution, operating costs, qualifying customer sales and the final distributor fee within the disclosed estimate.
- Compare reported results across periods with the ASC 606 accounting change in mind, particularly revenue, commissions and drug-delivery recognition.
- Assess Acton project spending, production timing and liquidity alongside ongoing cash burn and debt service.
- Verify DASH regulatory progress, Medicare/Medicaid coverage uptake, Amgen shipment trends and supply continuity with Flex.