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This Diabetes Company's Q1 Earnings Reflect the Resiliency of Its Business Model

By Beth McKenna – May 31, 2020 at 10:05PM

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The COVID-19 pandemic is presenting a headwind, but Insulet's recurring-revenue-generating business model helps insulate it.

Insulet (PODD 4.85%) earlier this month reported first-quarter 2020 results. The tubeless insulin pump specialist's results were quite strong, especially in light of the COVID-19 pandemic. 

In 2020, shares of the healthcare company are up 10.2% through the end of May, outpacing the broader market, which is down about 5% because of the pandemic. Insulet stock remains a huge winner over the intermediate and long terms. Over the past five years, it's gained 567%, versus the broader market's 60% return.

Here's how the quarter worked out for Insulet and its investors.

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

Image source: Insulet.

Insulet's key numbers


Q1 2020

Q1 2019



$198 million $159.6  million 24%

Operating income

$7.5 million $7.3 million 2.7%

Net income

($2.1 million) $4.4 million N/A. Flipped to negative from positive.

Earnings per share (EPS)

($0.03) $0.07  N/A. Flipped to negative from positive.

Data source: Insulet. 

Revenue easily beat Insulet's guidance of growth of 17% to 20% year over year. For context, in the prior quarter, revenue grew 27% year over year.

The year-over-year decline on the bottom line was driven by an increase in interest expense.

What happened with Insulet in the quarter?

  • Gobal Omnipod revenue surged 33% year over year to $189.7 million.
  • U.S. Omnipod revenue jumped 35% to $116.6 million.
  • International Omnipod revenue rose 29% to $73.1 million. 
  • Drug delivery revenue declined 50% to $8.3 million. On the earnings call, CFO Wayde McMillan said this was due to "a shift in timing of production, which ... is reflected in the greater-than-normal revenue growth we expect from this product line in the second quarter."
  • Gross margin was 64.1%, down from 66.9% in the year-ago period, but in line with the prior quarter's 64%. Just over half the negative impact (1.6 percentage points of the total 2.8 percentage points) was due to COVID-19-related safety costs. As with the prior quarter, the ramp-up of the company's manufacturing capabilities at its new Massachusetts facility also negatively affected gross margin relative to a year ago.
  • The company built "extensive virtual training and support capabilities to continue to service new and existing customers" during the pandemic. 

What management had to say

Here's what CEO Shacey Petrovic had to say in the press release:

Insulet entered 2020 with positive momentum, making progress toward our strategic objectives and achieving strong revenue growth ahead of expectations. The efficiency and redundancy we have built in our supply chain and manufacturing operations enabled us to meet customer demand without interruption during this challenging time. We believe that our proven, durable annuity business model will continue to generate double-digit revenue growth in 2020. We remain confident we have the right strategic framework to effectively advance our mission, drive sustainable long-term growth throughout our global business, and to continue to create shareholder value.

On the earnings call, CFO McMillan quantified what Petrovic termed the company's "annuity business model," or what others might consider a razor-and-blade model: "Historically, new Omnipod starts within any given quarter contributed approximately 10% of revenue." In other words, the vast majority of quarterly revenue has come from existing Omnipod users purchasing new pods.

The Omnipod has no upfront cost, as it's a pay-as-you-go product, which means sales should hold up better in a recessionary environment relative to products that have considerable upfront costs.

Looking ahead

Insulet's Q1 results were quite robust despite headwinds presented by the pandemic. 

Unlike many companies, it didn't lower or pull its full-year 2020 guidance. Management reaffirmed its previously issued 2020 outlook of revenue growth of 14% to 18% over 2019. However, it did say that it now expects revenue to come in at the low end of this outlook. The company doesn't issue earnings guidance. 

Due to the pandemic, Insulet's U.S. launch of its Omnipod Horizon automated insulin delivery system, which uses a DexCom (DXCM 7.05%) continuous glucose monitor (CGM) to dose insulin, has been pushed back. Management now expects this launch to occur in the first half of 2021, rather than in late 2020, Petrovic said on the earnings call.

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

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Insulet Corporation Stock Quote
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$244.27 (4.85%) $11.30
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