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 due to the current environment resulting from the COVID-19 pandemic. We now expect to begin our limited commercial release in the second half of the year; however, 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 by the end of 2021. 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. We are in the process of installing a third highly automated manufacturing line on which salable product is expected in 2021. 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 expect to enterAustralia later this year. Additionally, we are working on our strategy to enter larger markets, such asAsia andLatin America . 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. 15 --------------------------------------------------------------------------------
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Results of Operations
Revenue
Three Months Ended March 31,
Percent Currency Constant
(dollars in millions) 2021 2020 Change Impact Currency (1)
U.S. Omnipod $ 143.3 $ 116.6 22.9 % - % 22.9 %
International Omnipod 89.9 73.1 23.0 % 9.6 % 13.4 %
Total Omnipod 233.2 189.7 22.9 % 3.7 % 19.2 %
Drug Delivery 19.1 8.3 130.1 % - % 130.1 %
Total revenue $ 252.3 $ 198.0 27.4 % 3.5 % 23.9 %
(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 March 31, 2021 increased $54.3 million ,
or 27.4%, to $252.3 million , compared with $198.0 million for the three months
ended March 31, 2020 . Constant currency revenue growth of 23.9% 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 March 31, 2021 increased $26.7
million , or 22.9%, to $143.3 million , compared with $116.6 million for the three
months ended March 31, 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 March 31, 2021
increased $16.8 million , or 23.0%, to $89.9 million , compared with $73.1 million
for the three months ended March 31, 2020 . Excluding the 9.6% 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. 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 partially offset by the impact of lower new customer starts in 2020
stemming from COVID-19 and related challenges.
Drug Delivery
Drug Delivery revenue for the three months ended March 31, 2021 increased $10.8
million , or 130.1%, to $19.1 million , compared with $8.3 million for the three
months ended March 31, 2020 , due to increased demand for Amgen's Neulasta®
Onpro® kit which includes our pods, and to a lesser extent, lower production
levels in prior year, both driven by COVID-19. For full year 2021, we expect
drug delivery revenue to decline or grow slightly dependent upon forecasted
demand.
Operating Expenses
Three Months Ended March 31,
2021 2020
Percent of Percent of
(dollars in millions) Amount Revenue Amount Revenue
Cost of revenue $ 84.8 33.6 % $ 71.1 35.9 %
Research and development expenses $ 40.7 16.1 % $ 35.5 17.9 %
Selling, general and administrative
expenses $ 110.5 43.8 % $ 83.9 42.4 %
Cost of Revenue
Cost of revenue for the three months ended March 31, 2021 increased $13.7
million , or 19.3%, to $84.8 million , compared with $71.1 million for the three
months ended March 31, 2020 . Gross margin was 66.4% for the three months ended
March 31, 2021 , compared with 64.1% for the three months ended March 31, 2020 .
The 230 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, 110 basis points of favorable foreign currency
exchange, and a 100 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
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margin to be in the range of 67% to 70%, 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.
Research and Development Expenses
Research and development expenses for the three months ended March 31, 2021
increased $5.2 million , or 14.6%, to $40.7 million , compared with $35.5 million
for the three months ended March 31, 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 March 31,
2021 increased $26.6 million , or 31.7%, to $110.5 million , compared with $83.9
million for the three months ended March 31, 2020 . This increase was primarily
attributable to an increase in direct to consumer advertising spend,
year-over-year headcount additions, mainly sales and customer service personnel,
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. These increases
were partially offset by a decrease in travel and entertainment expenses due to
reduced activity resulting from COVID-19. We expect selling, general and
administrative expenses to increase in 2021 compared with 2020 due to expansion
of our sales force and customer support personnel, 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 $3.3 million to $13.4 million for the three
months ended March 31, 2021 , compared with $10.1 million for the three months
ended March 31, 2020 . This increase was driven by $1.6 million of cash interest
expense associated with the mortgage and equipment financings that occurred in
the fourth quarter of 2020 and a $1.3 million decrease in interest income due to
lower market rates and a shift in a portion of our investment portfolio to more
liquid investments.
Other Expense, Net
During the three months ended March 31, 2021 , we had other expense of $2.6
million , primarily driven by unrealized foreign currency losses due to the
change in exchange rates.
Income Tax Expense, Net
Income tax expense was $0.3 million for the three months ended March 31, 2021 ,
compared with an income tax benefit of $0.5 million for the three months ended
March 31, 2020 , resulting in effective tax rates of 114.3% and 18.4% for the
three months ended March 31, 2021 and 2020, respectively. The increase in the
effective tax rate was primarily driven by a $0.5 million discrete tax expense
in the United Kingdom due to the recording of a full valuation allowance against
net deferred tax assets. We no longer expect to realize the deferred tax assets
as a result of additional costs in the United Kingdom associated with a transfer
of intellectual property that occurred during the three months ended March 31,
2021 .
Adjusted EBITDA
The table below presents reconciliations of Adjusted EBITDA, a non-GAAP
financial measure, to net loss, the most directly comparable financial measure
prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP"):
Three Months Ended March 31,
(in millions) 2021 2020
Net loss $ - $ (2.1)
Interest expense, net 13.4 10.1
Income tax expense (benefit) 0.3 (0.5)
Depreciation and amortization 12.8 8.9
Stock-based compensation expense 8.6
7.9
Adjusted EBITDA $ 35.1 $ 24.3
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
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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 March 31, 2021 , we had $820.7 million in cash and cash equivalents and
$29.5 million of investments in marketable securities. 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. As of March
31, 2021 , we had $80.3 million in capital commitments.
In May 2021,we entered into a senior secured credit agreement, which includes a
$500 million seven year senior secured term loan B (the "Term Loan") for net
proceeds of approximately $490 million . The Term Loan bears interest at a rate
of LIBOR plus 3.25%, with a 0.50% LIBOR floor, and contains a leverage and fixed
charge coverage ratios, both of which are measured upon the occurrence of future
debt. In addition, the Term Loan contains other customary covenants, none of
which are considered restrictive to our operations. We intend to use the
proceeds to pay down a portion of our outstanding convertible senior notes due
in 2024 and/or to fund investments.
Under the same agreement, we obtained a $60 million three year senior secured
revolving credit facility (the "Credit Facility"), which bears interest at a
rate of LIBOR plus an applicable margin of 2.75% to 3.25% based on out net
leverage ratio. The 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.
Convertible Debt
To finance our operations and global expansion, we have periodically issued
convertible senior notes, which are convertible into our common stock. As of
March 31, 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% $ 402.5 November 2024 10.7315 $ 93.18
September 2019 0.375% 800.0 September 2026 4.4105 $ 226.73
Total $ 1,202.5 (1) Per
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