Insulet (NASDAQ:PODD) reported second-quarter 2018 financial results after the market close on Thursday. The drug delivery company, which is a leader in tubeless insulin pump technology, delivered revenue growth of 13% year over year, while its loss per share narrowed considerably to $0.03, from $0.13.

Insulet's results: The raw numbers

Metric

Q2 2018

Q2 2017

Year-Over-Year Change

Revenue

$124.3 million

$109.8 million

13%

Operating income

$4.3 million

($3.4 million)

N/A

Net income

($1.7 million)

($7.8 million)

N/A

Earnings per share (EPS)

($0.03) ($0.13) N/A

Data source: Insulet. 

Revenue fell short of the company's guidance of $130 million to $134 million, which CEO Patrick Sullivan addressed on the earnings call: 

International Omnipod revenue was less than anticipated due to excess inventory in Europe when we transitioned from our distributor to direct operations on July 1. The impact of the excess inventory was confined to Q2 and Q3. Q4 will return to normal revenue run rate.

CFO Michael Levitz added:

Apart from the near-term impact of this channel inventory, our underlying business in Europe is very healthy with great momentum.

For context, Insulet grew revenue 21% in the first quarter and 26% in 2017. The company doesn't provide earnings guidance. Notably, Insulet turned in positive operating income in the quarter after achieving breakeven from an operating profitability standpoint in the first quarter.

For more context -- though long-term investors shouldn't pay too much attention to Wall Street's near-term estimates -- analysts had been looking for a loss of $0.13 per share on revenue of $132.9 million in the second quarter. So Insulet missed the top-line expectation, but it sailed by the earnings consensus.

A two-pane panel with upper one showing an Omnipod on a woman's lower stomach and lower one showing the handheld control device.

Image source: Insulet.

What happened with Insulet in the quarter? 

  • U.S. Omnipod's revenue jumped 19% from the year-ago quarter to $78.1 million.
  • International Omnipod's revenue increased 7% to $28.5 million. This number is net of the company's repurchase of $7.4 million in inventory from its former European distributor. 
  • Drug delivery's revenue edged down 1% to $17.7 million.
  • Gross margin came in at 66%, up 710 basis points (7.1 percentage points) from the year-ago quarter. Gross margin has been making steady solid gains, thanks largely to increased manufacturing and operational efficiencies. In the reported quarter, product mix was also a factor.
  • Insulet began its direct sales operation for Omnipod in Europe on July 1.
  • The company began a "U.S. limited market release of Omnipod DASH, [its] next-generation mobile platform, following FDA clearance in June," according to the press release.
  • It "[s]ecured in-network coverage with UnitedHealthcare for Omnipod, effective April 2018," as well as "Medicare formulary coverage with two Part D plan sponsors," effective the same month, said the press release.

What management had to say

Here's what Sullivan had to say in the press release:

We are making tremendous progress on our strategic initiatives, including launching direct operations in Europe, executing on our innovation roadmap, expanding market access, and building our U.S. manufacturing facility. Our commitment to operational excellence is driving our strong revenue growth and continuing gross margin expansion. We are on track to achieve positive operating income in 2018 and our 2021 revenue and gross margin targets.

Our updated outlook for the year reflects the short-term impact of transitioning to direct operations in Europe as we exited our distributor relationship. We are truly excited to gain control of our European business and realize the significant benefits this transition provides. The creation of Insulet Europe is just the beginning of our vision to grow Omnipod adoption around the world.

Looking ahead

Insulet posted a solid quarter after accounting for the excess inventory situation in Europe. 

The company issued its third-quarter outlook as follows: revenue of $144.5 million to $151.5 million, representing growth of 19% to 24% year over year.

Insulet revised downward its previously issued full-year 2018 revenue guidance, due to "the short-term impact of transitioning to direct operations in Europe," as Sullivan noted in his press release statement. The company now expects 2018 revenue in the range of $547 to $562 million, representing growth of 18% to 21% year over year. Its previous guidance was for revenue of $565 to $580 million, which represented growth of 22% to 25% over 2017. 

Beth McKenna has no position in any of the stocks mentioned. The Motley Fool recommends Insulet. The Motley Fool has a disclosure policy.