Insulet (PODD) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements (Unaudited) In Q1 2024, Insulet reported significant revenue and net income growth, with a solid balance sheet and improved operating cash flow Condensed Consolidated Balance Sheets As of March 31, 2024, total assets increased to $2.62 billion, with liabilities decreasing and equity growing Condensed Consolidated Balance Sheet Data (in millions) | Account | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total current assets | $1,618.4 | $1,582.9 | | Total assets | $2,624.0 | $2,588.2 | | Total current liabilities | $432.4 | $451.2 | | Total liabilities | $1,833.3 | $1,855.5 | | Total stockholders' equity | $790.7 | $732.7 | Condensed Consolidated Statements of Income In Q1 2024, total revenue surged 23.3% to $441.7 million, significantly increasing gross profit, operating income, and net income Q1 2024 vs. Q1 2023 Income Statement (in millions, except per share data) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Total revenue | $441.7 | $358.1 | | Gross profit | $306.8 | $240.5 | | Operating income | $56.9 | $27.7 | | Net income | $51.5 | $23.8 | | Diluted EPS | $0.73 | $0.34 | Condensed Consolidated Statements of Cash Flows Operating activities generated $87.6 million in Q1 2024, a significant improvement, leading to a net cash increase of $47.0 million Cash Flow Summary (in millions) | Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net cash provided by operating activities | $87.6 | $0.5 | | Net cash used in investing activities | $(24.0) | $(42.1) | | Net cash used in financing activities | $(14.1) | $(12.1) | | Net increase (decrease) in cash | $47.0 | $(53.8) | Notes to Condensed Consolidated Financial Statements (Unaudited) Notes highlight Omnipod revenue growth, $1.4 billion total debt, increased tax rate, and potential deferred tax asset release Disaggregated Revenue (in millions) | Revenue Source | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | U.S. Omnipod | $317.7 | $259.0 | | International Omnipod | $115.3 | $98.6 | | Total Omnipod products | $433.0 | $357.6 | | Drug Delivery | $8.7 | $0.5 | | Total revenue | $441.7 | $358.1 | - Total debt was $1.40 billion as of March 31, 2024, with major components being $800.0 million in 0.375% Convertible Senior Notes and a $486.3 million Term Loan[45] - The effective tax rate increased to 6.2% in Q1 2024 from 3.4% in Q1 2023, mainly due to changes in the geographic distribution of income[62] - The company maintains a full valuation allowance against its U.S. and U.K. net deferred tax assets but believes there is a reasonable possibility of releasing it in 2024, which would recognize approximately $200 million of deferred tax assets[90] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q1 2024 revenue growth to Omnipod 5, with improved gross margin, strategic expansion, and strong liquidity Overview Insulet focuses on Omnipod platform advancements, including international expansion, new FDA indications, and enhanced manufacturing capacity - The company is advancing its Omnipod 5 platform with international launches in the U.K., Germany, and the Netherlands[66] - Insulet expects to submit results to the FDA for an expanded Omnipod 5 indication for type 2 users by the end of 2024[67] - The new manufacturing plant in Malaysia is in its final validation stages and is expected to begin producing saleable product in 2024 to meet growing demand and improve gross margins over time[70] Results of Operations Q1 2024 total revenue grew 23.3% to $441.7 million, driven by Omnipod sales, with gross margin expanding to 69.5% Revenue Growth by Segment (Q1 2024 vs Q1 2023) | Segment | Revenue Growth | Constant Currency Growth | | :--- | :--- | :--- | | U.S. Omnipod | 22.7% | 22.7% | | International Omnipod | 16.9% | 14.8% | | Total Omnipod | 21.1% | 20.5% | | Total Revenue | 23.3% | 22.8% | - Gross margin increased to 69.5% in Q1 2024 from 67.2% in Q1 2023, primarily due to higher average selling prices and improved manufacturing efficiencies[81] - SG&A expenses increased by $37.0 million (22.7%) mainly due to headcount additions to support commercial operations, international growth, and a new organizational structure[84] Adjusted EBITDA Reconciliation (in millions) | Line Item | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net income | $51.5 | $23.8 | | Interest expense, net | $1.3 | $2.9 | | Income tax expense | $3.4 | $0.8 | | Depreciation and amortization | $18.8 | $17.2 | | Stock-based compensation | $14.2 | $12.1 | | Voluntary medical device corrections | — | $(8.0) | | Adjusted EBITDA | $89.2 | $48.8 | Liquidity and Capital Resources The company maintains strong liquidity with $751.2 million in cash, $1.4 billion total debt, and increased operating cash flow Key Financial Condition Measures (in millions) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $751.2 | $704.2 | | Total debt, net | $1,401.5 | $1,415.8 | | Total stockholders' equity | $790.7 | $732.7 | | Debt-to-total capital ratio | 64% | 66% | - Net cash provided by operating activities was $87.6 million for Q1 2024, primarily due to net income and non-cash charges, with a negligible working capital cash outflow[102][103] - Capital expenditures are expected to increase in 2024 compared to 2023 due to spending on the new Malaysia manufacturing facility and other continuous improvement efforts[105] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section refers to the 2023 Annual Report on Form 10-K for a comprehensive discussion of market risk disclosures - For a discussion of market risk, the company refers to 'Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk' in its 2023 Annual Report on Form 10-K[120] Item 4. Controls and Procedures Management concluded disclosure controls were ineffective due to a material weakness in ITGCs, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2024[122] - The ineffectiveness is due to a material weakness identified in Q4 2023 related to IT general controls (ITGCs) for systems supporting financial reporting outside of North America[123] - Remediation activities are underway, including designing ITGCs over an outsourced provider's system and implementing enhanced security access controls over the company's ERP system[124][127] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in legal proceedings but does not anticipate a material adverse effect on its operations - The company does not expect the outcome of its various legal proceedings to have a material adverse effect on its results of operations[58][129] Item 1A. Risk Factors No material changes to risk factors have been reported since the 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2023[130] Other Part II Items This section confirms no unregistered equity sales, no senior security defaults, and no Rule 10b5-1 trading arrangement changes - No unregistered sales of equity securities or defaults upon senior securities were reported[131][132] - No director or officer adopted, modified, or terminated a Rule 10b5-1 trading arrangement during the quarter[134]