Insulet wants a bigger buyback as cash generation slows

Insulet plans about $400 million of fourth-quarter share repurchases after completing a $300 million accelerated buyback in the first quarter. It expanded its repurchase program to $1 billion in October and announced the increase with the quarterly results.

Research by Ticker Byline shows that the fourth-quarter target is nearly twice the $211.7 million of free cash flow generated in the first nine months. It also represents about 68% of September's $584.4 million cash and cash equivalents.

Insulet expects to use existing cash for the purchases. It also has a $750 million undrawn revolving credit facility, expanded in September, providing funding flexibility beyond the cash balance.

Strong device sales underpin the plan

Third-quarter revenue reached $842 million, up 19.2% as reported and 19.6% in constant currency. Adjusted earnings were $1.99 per share.

Insulet raised the lower end of its annual revenue-growth forecast to 21% to 22% in constant currency, from 20% to 22% in August. That measure removes the effect of exchange-rate changes.

Reported operating income was $189.8 million, compared with adjusted operating income of $185.2 million. The adjustment removes a $4.5 million net benefit from warranty and related costs associated with the company's voluntary device corrections.

Working capital and manufacturing absorb cash

Nine-month operating cash flow was $325.7 million and capital spending was $113.9 million. Company-reported free cash flow was $211.7 million, down from $329.5 million a year earlier.

The current report ties operating-cash pressure to working capital. Distributor-order timing raised receivables, while planned inventory building and advance material purchases supported expected demand and supply needs. Higher capital spending mainly funded manufacturing equipment and the Costa Rica plant.

The earlier $300 million buyback is separate from those free-cash-flow uses: it appears in financing activities. The new fourth-quarter target adds another substantial planned use of accumulated cash as device sales expand.

The Insulet company profile tracks the completed buybacks, new target and funding position.