INSULET CORPORATION The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in this quarterly report. The following discussion may contain forward-looking statements that reflect our plans, estimates and beliefs, which are subject to risks, uncertainties and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed under the headings "Risk Factors" and "Forward-Looking Statements" in both our annual report on Form 10-K for the year endedDecember 31, 2020 and in this quarterly report. Overview We are primarily engaged in the development, manufacture and sale of our proprietary Omnipod® System ("Omnipod"), a continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device ("Pod") that is worn on the body for up to three days at a time; and its wireless companion, the handheld Personal Diabetes Manager. The Omnipod System, which features discreet and easy-to-use devices communicates wirelessly, provides for virtually pain-free automated cannula insertion and eliminates the need for traditional multiple daily injection therapy, using syringes or insulin pens, or the use of traditional pump and tubing. In addition to the diabetes market space, we have partnered with pharmaceutical and biotechnology companies to tailor the Omnipod System technology platform for the delivery of subcutaneous drugs across other therapeutic areas. Most of our drug delivery revenue currently consists of sales of pods to Amgen for use in the Neulasta® Onpro® kit, a delivery system for Amgen's white blood cell booster to help reduce the risk of infection after intense chemotherapy. Our mission is to improve the lives of people with diabetes. To assist in achieving this mission, we are focused on the following key strategic imperatives: •expanding access and awareness; •delivering consumer-focused innovation; •growing our global addressable market; and •driving operational excellence. Our long-term financial objective is to sustain profitable growth. To achieve this goal, we expect our efforts in 2021 to focus primarily on our planned launch of the Omnipod® 5 Automated Insulin Delivery System ("Omnipod 5"), which is currently under review with theU.S. Food and Drug Administration ("FDA"). This review is taking longer than we had anticipated. We now expect to receive FDA clearance and launch our limited commercial release in the second half of the year, most likely late in the fourth quarter. This shift in timing is not expected to have a material impact on 2021 revenue. In addition, we continue our efforts to expand the Omnipod 5 indication to preschoolers ages two to six, however the timing of our FDA submission is contingent upon the timing of Omnipod 5 clearance. We are now planning for this expanded indication in 2022. In addition, we completed enrollment in our Type 2 feasibility study and plan to conduct additional studies with the goal to further expand Omnipod 5's indication to Type 2 users. In order to support our continued growth and the planned launch of Omnipod 5, we continue to focus on adding capacity to ourU.S. manufacturing plant. During the quarter, we began producing salable product on our third highly automated manufacturing line. In 2021, we launched Omnipod DASH® Insulin Management System ("Omnipod DASH"), our next generation digital mobile Omnipod platform, inCanada . We are also continuing to expand internationally in a targeted and strategic manner. During the first quarter of 2021, we increased our global footprint by expanding intoTurkey and we also expect to enterAustralia this year. Further, we are working on our strategy to enter additional markets in new regions. Finally, we plan to continue our product development efforts and expand awareness of and access to our products. Achieving the above strategic imperatives is expected to require additional investments in certain initiatives and personnel, as well as enhancements to our supply chain operation capacity, efficiency and effectiveness. 17 --------------------------------------------------------------------------------
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Results of Operations
Revenue
Three Months Ended June 30,
Percent Currency Constant
(dollars in millions) 2021 2020 Change Impact Currency (1)
U.S. Omnipod $ 150.5 $ 128.8 16.8 % - % 16.8 %
International Omnipod 91.6 73.2 25.1 % 11.7 % 13.4 %
Total Omnipod 242.1 202.0 19.9 % 4.3 % 15.6 %
Drug Delivery 21.1 24.3 (13.2) % - % (13.2) %
Total revenue $ 263.2 $ 226.3 16.3 % 3.8 % 12.5 %
Six Months Ended June 30,
Percent Currency Constant
(dollars in millions) 2021 2020 Change Impact Currency (1)
U.S. Omnipod $ 293.8 $ 245.4 19.7 % - % 19.7 %
International Omnipod 181.5 146.3 24.1 % 10.7 % 13.4 %
Total Omnipod 475.3 391.7 21.3 % 4.0 % 17.3 %
Drug Delivery 40.2 32.6 23.3 % - % 23.3 %
Total revenue $ 515.5 $ 424.3 21.5 % 3.7 % 17.8 %
(1) Constant currency revenue growth is a non-GAAP financial measure which
should be considered supplemental to, and not a substitute for, our reported
financial results prepared in accordance with GAAP. See "Management's Use of
Non-GAAP Measures."
Total revenue for the three months ended June 30, 2021 increased $36.9 million ,
or 16.3%, to $263.2 million , compared with $226.3 million for the three months
ended June 30, 2020 . Constant currency revenue growth of 12.5% was primarily
driven by higher volume and, to a lesser extent, favorable sales channel mix.
Total revenue for the six months ended June 30, 2021 increased $91.2 million , or
21.5%, to $515.5 million , compared with $424.3 million for the six months ended
June 30, 2020 . Constant currency revenue growth of 17.8% was primarily driven by
higher volume and, to a lesser extent, favorable sales channel mix.
U.S. Omnipod
U.S. Omnipod revenue for the three months ended June 30, 2021 increased $21.7
million , or 16.8%, to $150.5 million , compared with $128.8 million for the three
months ended June 30, 2020 . This increase was primarily due to higher volumes
driven by growing our customer base, and to a lesser extent, an increase due to
growth through the pharmacy channel, where Pods have a higher average selling
price due in part to the fact that we offer the PDM for no charge. This increase
was partially offset by a decrease in days-on-hand inventory at distributors
since COVID-19 supply chain urgency has normalized.
U.S. Omnipod revenue for the six months ended June 30, 2021 increased $48.4
million , or 19.7%, to $293.8 million , compared with $245.4 million for the six
months ended June 30, 2020 . This increase was primarily due to higher volumes
driven by growing our customer base, and to a lesser extent, an increase due to
growth through the pharmacy channel, where Pods have a higher average selling
price due in part to the fact that we offer the PDM for no charge. For full year
2021, we expect strong U.S. Omnipod revenue growth driven by volume growth of
Omnipod DASH, primarily in the pharmacy channel, benefits of our efforts to
drive expanded access and awareness, and further growth in our Omnipod customer
base.
International Omnipod
International Omnipod revenue for the three months ended June 30, 2021 increased
$18.4 million , or 25.1%, to $91.6 million , compared with $73.2 million for the
three months ended June 30, 2020 . Excluding the 11.7% favorable impact of
currency exchange, the remaining 13.4% increase in revenue was primarily driven
by higher volumes as we continue to expand awareness and access to the Omnipod.
International Omnipod revenue for the six months ended June 30, 2021 increased
$35.2 million , or 24.1%, to $181.5 million , compared with $146.3 million for the
six months ended June 30, 2020 . Excluding the 10.7% favorable impact of currency
exchange, the remaining 13.4% increase in revenue was primarily driven by higher
volumes as we continue to expand awareness and access to the Omnipod, partially
offset by a decrease in days-on-hand inventory at distributors since COVID-19
supply chain urgency has normalized. For full year 2021, we expect higher
International Omnipod revenue due to continued volume growth and market
penetration aided by the full launch of Omnipod DASH throughout our
international markets. We expect this revenue growth to be
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partially offset by the lagging impact of lower new customer starts in 2020 and
the first half of 2021 stemming from COVID-19 and related challenges.
Drug Delivery
Drug Delivery revenue for the three months ended June 30, 2021 decreased $3.2
million , or 13.2%, to $21.1 million , compared with $24.3 million for the three
months ended June 30, 2020 , due to elevated volume in the prior year due to the
COVID-19 pandemic.
Drug Delivery revenue for the six months ended June 30, 2021 increased $7.6
million , or 23.3%, to $40.2 million , compared with $32.6 million for the six
months ended June 30, 2020 , due to increased demand for Amgen's Neulasta® Onpro®
kit which includes our pods. For full year 2021, we expect drug delivery revenue
to decline or grow slightly dependent upon forecasted demand.
Operating Expenses
Three Months Ended June 30,
2021 2020
Percent of Percent of
(dollars in millions) Amount Revenue Amount Revenue
Cost of revenue $ 80.5 30.6 % $ 83.8 37.0 %
Research and development expenses $ 40.1 15.2 % $ 34.2 15.1 %
Selling, general and administrative
expenses $ 116.3 44.2 % $ 80.8 35.7 %
Six Months Ended June 30,
2021 2020
Percent of Percent of
(dollars in millions) Amount Revenue Amount Revenue
Cost of revenue $ 165.3 32.1 % $ 154.9 36.5 %
Research and development expenses $ 80.8 15.7 % $ 69.7 16.4 %
Selling, general and administrative
expenses $ 226.8 44.0 % $ 164.7 38.8 %
Cost of Revenue
Cost of revenue for the three months ended June 30, 2021 decreased $3.3 million ,
or 3.9%, to $80.5 million , compared with $83.8 million for the three months
ended June 30, 2020 . Gross margin was 69.4% for the three months ended June 30,
2021 , compared with 63.0% for the three months ended June 30, 2020 . The 640
basis point increase in gross margin was primarily driven by improved
manufacturing and supply chain efficiencies, 130 basis points of favorable
foreign currency exchange, a 120 basis point decrease in COVID-19 related costs,
and a higher average selling price due to growth in the pharmacy channel. These
increases were partially offset by expected higher production costs as we
continue to scale U.S. manufacturing.
Cost of revenue for the six months ended June 30, 2021 increased $10.4 million ,
or 6.7%, to 165.3, compared with $154.9 million for the six months ended June
30, 2020 . Gross margin was 67.9% for the six months ended June 30, 2021 ,
compared with 63.5% for the six months ended June 30, 2020 . The 440 basis point
increase in gross margin was primarily driven by improved manufacturing and
supply chain efficiencies, higher average selling price due to growth in the
pharmacy channel, 120 basis points of favorable foreign currency exchange, and a
110 basis point decrease in COVID-19 related costs. These increases were
partially offset by expected higher production costs as we continue to scale
U.S. manufacturing. For full year 2021, we expect gross margin to be in the
range of 68% to 69%, which reflects expected revenue growth both in the U.S. and
internationally, including in the pharmacy channel, and the benefits of
continued improvements in manufacturing and supply chain operations. In
addition, we expect to benefit from lower COVID-19 related costs.
Research and Development Expenses
Research and development expenses for the three months ended June 30, 2021
increased $5.9 million , or 17.3%, to $40.1 million , compared with $34.2 million
for the three months ended June 30, 2020 . This increase was primarily due to
year-over-year headcount additions to support our continued investment in
development of Omnipod products.
Research and development expenses for the six months ended June 30, 2021
increased $11.1 million , or 15.9%, to $80.8 million , compared with $69.7 million
for the six months ended June 30, 2020 . This increase was primarily due to
year-over-year headcount additions to support our continued investment in
development of Omnipod products. We expect research and development spend for
the full year 2021 to increase compared with 2020 as we continue to invest in
advancing our innovation and clinical pipeline.
Selling, General and Administrative Expenses
Selling general and administrative expenses for the three months ended June 30,
2021 increased $35.5 million , or 43.9%, to $116.3 million , compared with $80.8
million for the three months ended June 30, 2020 . This increase was primarily
attributable to year-over-year headcount additions, mainly to support
international expansion, information technology, sales, and customer service
personnel, an
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increase in direct to consumer advertising spend, as well as a shift in
resources and certain costs from our Omnipod 5 clinical efforts to our
commercial strategy as we mature as a company.
Selling general and administrative expenses for the six months ended June 30,
2021 increased $62.1 million , or 37.7%, to $226.8 million , compared with $164.7
million for the six months ended June 30, 2020 . This increase was primarily
attributable to year-over-year headcount additions, mainly to support
international expansion, information technology, sales, and customer service
personnel, an increase in direct to consumer advertising spend, a shift in
resources and certain costs from our Omnipod 5 clinical efforts to our
commercial strategy as we mature as a company, as well as commercial costs
related to international expansion. We expect selling, general and
administrative expenses to increase in 2021 compared with 2020 due to expansion
of our sales force, direct-to-consumer advertising, investments to expand market
acceptance and access for our products, and investments in our operating
structure to facilitate operational efficiencies and continued growth.
Non-Operating Items
Interest Expense, Net
Net interest expense increased $5.3 million to $16.4 million for the three
months ended June 30, 2021 , compared with $11.1 million for the three months
ended June 30, 2020 . This increase was driven by $4.6 million of cash interest
expense associated with the $500 million senior secured term loan B (the "Term
Loan") entered into in May 2021 , and the mortgage and equipment financings that
occurred in the fourth quarter of 2020 and a $0.5 million decrease in interest
income due to lower market rates and a shift in a portion of our investment
portfolio to more liquid investments.
Net interest expense increased $8.6 million to $29.8 million for the six months
ended June 30, 2021 , compared with $21.2 million for the six months ended June
30, 2020 . This increase was driven by $6.2 million of cash interest expense
associated with the Term Loan entered into in May 2021 , and the mortgage and
equipment financings that occurred in the fourth quarter of 2020 and a $1.8
million decrease in interest income due to lower market rates and a shift in a
portion of our investment portfolio to more liquid investments.
Loss on Extinguishment of Debt
During the three and six months ended June 30, 2021 , we incurred a $40.1 million
loss on extinguishment of debt related to the repurchase of a portion of our
1.375% Convertible Senior Notes due November 2024 ("1.375% Notes"). Refer to
Note 8 to the consolidated financial statements for additional information.
Other Income (Expense), Net
During the three months ended June 30, 2021 , we had other income, net of $1.8
million , compared with $1.0 million for the three months ended June 30, 2020 .
The $0.8 million increase in other income was primarily driven by unrealized
foreign currency gains due to the change in exchange rates.
During the six months ended June 30, 2021 , we had other expense of $0.8 million ,
compared with income of $1.0 million for the six months ended June 30, 2020 . The
$1.8 million decrease in other income was primarily driven by unrealized foreign
currency losses due to the change in exchange rates.
Income Tax Expense, Net
Income tax benefit was $3.4 million for the three months ended June 30, 2021 ,
compared with an income tax expense of $3.0 million for the three months ended
June 30, 2020 , resulting in effective tax rates of 12.1% and 17.2% for the three
months ended June 30, 2021 and 2020, respectively. The decrease in the effective
tax rate was primarily driven by the jurisdictional distribution of profits and
losses. In the United States , we have net operating loss carryforwards that
reduce taxable profits and a full valuation allowance against net deferred tax
assets.
Income tax benefit was $3.1 million for the six months ended June 30, 2021 ,
compared with an income tax expense of $2.5 million for the six months ended
June 30, 2020 , resulting in effective tax rates of 11.2% and 17.0% for the six
months ended June 30, 2021 and 2020, respectively. The decrease in the effective
tax rate was primarily driven by the jurisdictional distribution of profits and
losses. In the United States , we have net operating loss carryforwards that
reduce taxable profits and a full valuation allowance against net deferred tax
assets. Additionally, we have not recorded tax benefits for current year losses
in the United Kingdom due to valuation allowance requirements following a
transfer of intellectual property that occurred during the three months ended
March 31, 2021 .
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Adjusted EBITDA
The table below presents reconciliations of Adjusted EBITDA, a non-GAAP
financial measure, to net (loss) income, the most directly comparable financial
measure prepared in accordance with accounting principles generally accepted in
the United States of America ("GAAP"):
Three Months Ended June 30, Six Months Ended June 30,
(in millions) 2021 2020 2021 2020
Net (loss) income $ (25.0) $ 14.4 $ (25.0) $ 12.3
Interest expense, net 16.4 11.1 29.8 21.2
Income tax (benefit) expense (3.4) 3.0 (3.1) 2.5
Depreciation and amortization 15.2 9.9 28.0 18.8
Stock-based compensation expense 9.0 5.8 17.6 13.7
Loss on extinguishment of debt 40.1 - 40.1 -
Adjusted EBITDA $ 52.3 $ 44.2 $ 87.4 $ 68.5
Non-GAAP Financial Measures
Management uses the following non-GAAP financial measures:
Constant currency revenue growth represents the change in revenue between
current and prior year periods using a constant currency, the exchange rate in
effect during the applicable prior year period. We present constant currency
revenue growth because we believe it provides meaningful information regarding
our results on a consistent and comparable basis. Management uses this non-GAAP
financial measure, in addition to financial measures in accordance with
accounting principles generally accepted in the United States ("GAAP"), to
evaluate our operating results. It is also one of the performance metrics that
determines management incentive compensation.
Adjusted EBITDA represents net income (loss) plus net interest expense, income
tax expense (benefit), depreciation and amortization, stock-based compensation
and other significant unusual items, as applicable. We present Adjusted EBITDA
because management uses it as a supplemental measure in assessing our operating
performance, and we believe that it is helpful to investors, and other
interested parties as a measure of our comparative operating performance from
period to period. Adjusted EBITDA is a commonly used measure in determining
business value and we use it internally to report results.
These non-GAAP financial measures should be considered supplemental to, and not
a substitute for, our reported financial results prepared in accordance with
GAAP. In addition, the above definitions may differ from similarly titled
measures used by others. Non-GAAP financial measures exclude the effect of items
that increase or decrease our reported results of operations; accordingly, we
strongly encourage investors to review our consolidated financial statements in
their entirety.
Liquidity and Capital Resources
As of June 30, 2021 , we had $854.6 million in cash and cash equivalents and
$17.5 million of investments in marketable securities. Additionally, we have a
$60 million three year senior secured revolving credit facility ("Revolving
Credit Facility"), which expires in 2024. At June 30, 2021 , no amount was
outstanding under the Revolving Credit Facility. The Revolving Credit Facility
contains a covenant to maintain a certain leverage ratio, in addition to other
customary covenants, none of which are considered restrictive to our operations.
We believe that our current liquidity will be sufficient to meet our projected
operating, investing and debt service requirements for at least the next twelve
months.
Debt
To finance our operations and global expansion, we have periodically issued
convertible senior notes, which are convertible into our common stock. As of
June 30, 2021 , the following notes were outstanding:
Principal Conversion Price
Outstanding per Share of
Issuance Date Coupon (in millions) Due Date Conversion Rate (1) Common Stock
November 2017 1.375% $ 32.1 November 2024 10.7315 $ 93.18
September 2019 0.375% 800.0 September 2026 4.4105 $ 226.73
Total $ 832.1
(1) Per $1,000 face value of notes.
In July 2021 , $20.0 million in principal of 1.375% Notes were converted into
approximately 215,000 shares, which we expect to result in a loss on
extinguishment of debt of approximately $2 million .
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Table of Contents During the three months endedJune 30, 2021 , we obtained a$500 million seven year Term Loan for net proceeds of$489.5 million , which we used to fund the cash portion of repurchase of the 1.375% Notes dueNovember 2024 . Additional information regarding our debt is provided in Note 8 to the consolidated financial statements.
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