# Insulet Corp: Form 10-Q for the period ended Jun 30, 2019

- Company: [Insulet Corp](/companies/podd.md) (CIK 1145197)
- Form: 10-Q
- Filed: 2019-08-06
- Accepted by EDGAR: Aug 5, 2019, 17:57 ET
- Period: 2019-06-30
- Accession: 0001145197-19-000033
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1145197/000114519719000033/podd-2019x06x3010q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1145197/000114519719000033/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2019-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 3 months, 2019-04-01 to 2019-06-30 | $177.1m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Revenue | 6 months, 2019-01-01 to 2019-06-30 | $336.7m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax |
| Cost of revenue | 3 months, 2019-04-01 to 2019-06-30 | $60.7m | us-gaap:CostOfGoodsAndServicesSold |
| Cost of revenue | 6 months, 2019-01-01 to 2019-06-30 | $113.6m | us-gaap:CostOfGoodsAndServicesSold |
| Gross profit | 3 months, 2019-04-01 to 2019-06-30 | $116.4m | us-gaap:GrossProfit |
| Gross profit | 6 months, 2019-01-01 to 2019-06-30 | $223.1m | us-gaap:GrossProfit |
| Research and development | 3 months, 2019-04-01 to 2019-06-30 | $32.3m | us-gaap:ResearchAndDevelopmentExpense |
| Research and development | 6 months, 2019-01-01 to 2019-06-30 | $64.2m | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 3 months, 2019-04-01 to 2019-06-30 | $7.6m | us-gaap:OperatingIncomeLoss |
| Operating income | 6 months, 2019-01-01 to 2019-06-30 | $14.9m | us-gaap:OperatingIncomeLoss |
| Interest expense | 3 months, 2019-04-01 to 2019-06-30 | $7.6m | us-gaap:InterestExpense |
| Interest expense | 6 months, 2019-01-01 to 2019-06-30 | $14.3m | us-gaap:InterestExpense |
| Income tax | 3 months, 2019-04-01 to 2019-06-30 | $482.0k | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2019-01-01 to 2019-06-30 | $808.0k | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2019-04-01 to 2019-06-30 | $1.4m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2019-01-01 to 2019-06-30 | $5.8m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2019-04-01 to 2019-06-30 | $0.02 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2019-01-01 to 2019-06-30 | $0.09 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2019-04-01 to 2019-06-30 | $0.02 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2019-01-01 to 2019-06-30 | $0.10 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2019-04-01 to 2019-06-30 | 61,486,325 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2019-01-01 to 2019-06-30 | 61,332,451 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2019-01-01 to 2019-06-30 | $20.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2019-01-01 to 2019-06-30 | $91.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2019-06-30 | $119.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2019-06-30 | $498.8m | us-gaap:AssetsCurrent |
| Total assets | at 2019-06-30 | $977.7m | us-gaap:Assets |
| Current liabilities | at 2019-06-30 | $105.8m | us-gaap:LiabilitiesCurrent |
| Total liabilities | at 2019-06-30 | $727.9m | us-gaap:Liabilities |
| Long-term debt | at 2019-06-30 | $607.4m | us-gaap:LongTermDebtNoncurrent |
| Shareholders' equity | at 2019-06-30 | $249.8m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 31,109 characters.

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 and involve 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 ended December 31, 2018 and in this quarterly report.

### Overview

We are primarily engaged in the development, manufacturing and sale of our proprietary Omnipod System (“Omnipod”), an innovative, discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes. There are two primary types of insulin therapy practiced today: multiple daily injection (“MDI”) therapy using syringes or insulin pens; and pump therapy using insulin pumps. Insulin pumps are used to perform continuous subcutaneous insulin infusion, or insulin pump therapy, and typically use a programmable device and an infusion set to administer insulin into the person’s body. Insulin pump therapy has been shown to provide people with insulin-dependent diabetes with numerous advantages relative to MDI therapy. We estimate that approximately one-third of the Type 1 diabetes population in the United States and less than one-fifth of the Type 1 diabetes population outside of the United States use insulin pump therapy. An even smaller portion of the Type 2 diabetes population in and outside of the United States who are insulin-dependent use insulin pump therapy. The Omnipod System features two discreet, easy-to-use devices: a small, lightweight, self-adhesive disposable tubeless Omnipod device (“Pod”) that is worn on the body for approximately three days at a time; and its wireless companion, the handheld Personal Diabetes Manager (“PDM”). The Omnipod System communicates wirelessly, provides for virtually pain-free automated cannula insertion and eliminates the need for traditional MDI therapy or the use of traditional pump and tubing. We believe that the Omnipod’s unique proprietary design and features allow people with insulin-dependent diabetes to manage their diabetes with unprecedented freedom, comfort, convenience, and ease.

We have been selling the Omnipod since 2005 and currently sell both direct to customers, through distribution partners and most recently through the pharmacy channel. The Omnipod is currently available in multiple countries in Europe, as well as in the United States, Canada and Israel. On July 1, 2018 we assumed all commercial activities (including, among other things, distribution, sales, marketing, training and support) for our Omnipod System across Europe following the expiration of an agreement with our former European distributor.

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. The majority of our drug delivery revenue currently consists of sales of Pods to Amgen supplying the Neulasta® Onpro® kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection during intense chemotherapy.

In June 2018, the FDA cleared our Omnipod DASHTM Insulin Management System (“Omnipod DASH”) for commercial distribution. The Omnipod Dash is our next-generation digital mobile Omnipod platform, featuring a secured Bluetooth enabled Pod and PDM with a touch screen color user interface supported by smartphone connectivity. We began a full market release of Omnipod DASH in the United States at the end of the first quarter of 2019.

During the second quarter of 2019, we began producing product from our new highly-automated manufacturing facility in Acton, Massachusetts. We expect that, following start up related activities, the new facility will allow us to lower our manufacturing costs, increase supply redundancy, add capacity closer to our largest customer base and support growth.

#### Second Quarter 2019 Revenue Results:

Total revenue increased 43% year over year to $177.1 million and consisted of the following:

- U.S. Omnipod revenue of $98.1 million, an increase of 26%;
- International Omnipod revenue of $62.7 million, an increase of 120%; and
- Drug Delivery revenue of $16.3 million, a decrease of 8%.

Our long-term financial objective is to sustain profitable growth. We expect our efforts for the remainder of 2019 to focus primarily on product and business model innovation and product development, including the continued roll out of Omnipod DASH, expanding penetration in our existing markets, working with Medicare, Medicaid and commercial payors and intermediaries to further expand access, and ramping up production at our new, highly automated U.S. manufacturing facility. Achieving these objectives is expected to require additional investments in certain initiatives and personnel, as well as enhancements to our supply chain operation capacity, efficiency and effectiveness.

### Components of Financial Operations

*Revenue.* We derive the majority of our revenue from Omnipod sales. We also sell devices based on the Omnipod System technology to global pharmaceutical and biotechnology companies for the delivery of their drugs across therapeutic areas.

*Cost of revenue.* Cost of revenue consists primarily of raw material, labor, warranty, inventory scrap and excess and obsolescence adjustments, overhead costs such as freight-in and depreciation, and the cost of products we acquire from third-party suppliers.

*Research and development.* Research and development expenses consist primarily of personnel costs, license fees and outside service expenses within our product development, regulatory and clinical functions, as well as innovations related to our global supply chain and manufacturing process. Research and development expenses also include engineering and operational costs, such as training and start up activities, associated with our newly constructed U.S. manufacturing facility up until the date we produce salable product. After this date, these operational costs are included in cost of revenue.

*Sales and marketing.* Sales and marketing expenses consist primarily of personnel costs within our sales, marketing, reimbursement support and customer care functions, as well as sales commissions paid to our sales representatives, and costs associated with promotional activities and participation in industry trade shows. Commission costs that are direct and incremental to obtaining a new customer are capitalized and amortized to sales and marketing expense over the expected period of benefit.

*General and administrative.* General and administrative expenses consist primarily of salaries and other related costs for personnel serving the executive, finance, legal, information technology support and human resource functions, as well as legal fees, accounting fees, insurance costs, bad debt expenses, shipping and handling costs, and facilities-related costs, including depreciation of office property and equipment.

### Results of Operations

*(in thousands)*

| Revenue: | Three Months Ended June 30, 2019 | 2018 | Change $ | Change % | Six Months Ended June 30, 2019 | 2018 | Change $ | Change % |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| U.S. Omnipod | **$98,074** | $78,047 | $20,027 | 26% | **$184,177** | $148,319 | $35,858 | 24% |
| International Omnipod | **62,736** | 28,509 | 34,227 | 120% | **119,624** | 66,913 | 52,711 | 79% |
| Total Diabetes Revenue | **160,810** | 106,556 | 54,254 | 51% | **303,801** | 215,232 | 88,569 | 41% |
| Drug Delivery | **16,326** | 17,706 | (1,380) | (8)% | **32,890** | 32,608 | 282 | 1% |
| Total revenue | **177,136** | 124,262 | 52,874 | 43% | **336,691** | 247,840 | 88,851 | 36% |
| Cost of revenue | **60,718** | 42,190 | 18,528 | 44% | **113,577** | 89,953 | 23,624 | 26% |
| Gross profit | **116,418** | 82,072 | 34,346 | 42% | **223,114** | 157,887 | 65,227 | 41% |
| Gross margin | **65.7%** | 66.0% |  |  | **66.3%** | 63.7% |  |  |
| Operating expenses: |  |  |  |  |  |  |  |  |
| Research and development | **32,264** | 18,801 | 13,463 | 72% | **64,218** | 39,068 | 25,150 | 64% |
| Sales and marketing | **47,401** | 36,575 | 10,826 | 30% | **89,017** | 69,624 | 19,393 | 28% |
| General and administrative | **29,150** | 22,371 | 6,779 | 30% | **55,011** | 44,870 | 10,141 | 23% |
| Total operating expenses | **108,815** | 77,747 | 31,068 | 40% | **208,246** | 153,562 | 54,684 | 36% |
| Operating income | **7,603** | 4,325 | 3,278 | 76% | **14,868** | 4,325 | 10,543 | 244% |
| Interest expense and other, net | **(5,719)** | (5,604) | (115) | 2% | **(8,280)** | (11,840) | 3,560 | (30)% |
| Income (loss) before income taxes | **1,884** | (1,279) | 3,163 | 247% | **6,588** | (7,515) | 14,103 | 188% |
| Income tax expense | **482** | 412 | 70 | 17% | **808** | 745 | 63 | 8% |
| Net income (loss) | **$1,402** | $(1,691) | $3,093 | 183% | **$5,780** | $(8,260) | $14,040 | 170% |

### Revenue

Total revenue for the three months ended June 30, 2019 increased $52.9 million, or 43%, to $177.1 million, compared with three months ended June 30, 2018, primarily due to continued growth in our International and U.S. Omnipod revenue. International Omnipod revenue increased $34.2 million, or 120%, to $62.7 million over the same period in 2018. The growth in International Omnipod revenue was driven by an increase in our customer base as we continue to expand awareness and access to the Omnipod as well as favorable pricing as a result of our shift to direct sales of the Omnipod in Europe following the expiration of our distribution agreement on June 30, 2018. U.S. Omnipod revenue increased $20.0 million, or 26%, to $98.1 million, primarily due to higher volumes, including the launch of Omnipod DASH. Drug Delivery revenue decreased $1.4 million, or 8%, to $16.3 million over the same period in 2018 due to lower volume during the current period.

Total revenue for the six months ended June 30, 2019 increased $88.9 million, or 36%, to $336.7 million, compared with the six months ended June 30, 2018, due to strong growth in our International and U.S. Omnipod revenue. International Omnipod revenue increased $52.7 million, or 79%, to $119.6 million, due to the continued adoption of our product in existing international markets and more favorable pricing as a result of our shift to direct sales of the Omnipod in Europe. U.S. Omnipod revenue increased $35.9 million, or 24%, to $184.2 million, primarily due to growth in our customer base as we continue to expand awareness of and access to the Omnipod. Drug Delivery revenue was up 1% year over year.

For 2019, we expect strong Omnipod revenue growth driven by continued penetration in our existing markets, partially offset by lower Drug Delivery revenue. Internationally, we expect higher revenues primarily due to increasing sales volume as a result of greater awareness and availability of the Omnipod and the full year effect of more favorable pricing for the first half of the year as a result of our mid-2018 transition to direct sales in Europe. In the U.S., we expect higher revenues primarily due to an increase in sales volume as a result of expanded payor coverage, greater awareness and availability of the Omnipod, the launch of Omnipod DASH and additional expansion of our U.S. sales force.

### Cost of Revenue

Cost of revenue for the three months ended June 30, 2019 increased $18.5 million, or 44%, to $60.7 million, compared with the same period in 2018 and increased $23.6 million, or 26%, to $113.6 million for the six months ended June 30, 2019, compared with the same prior year period. These increases in cost of revenue were driven by higher sales volumes as well as start-up costs and inefficiencies related to our new U.S. manufacturing operations, partially offset by continued improvements in manufacturing and supply chain operations.

### Gross Margin

Gross margin for the three months ended June 30, 2019 decreased 30 basis points to 65.7%, compared with the same period in 2018. The slight decrease in gross margin, which we expected, was primarily due to start-up costs and inefficiencies related to our new U.S. manufacturing operations.

Gross margin for the six months ended June 30, 2019 increased 260 basis points to 66.3%, compared with the same period in 2018. The increase in gross margin was primarily due to favorable pricing following the expiration of our former distribution agreement in Europe and lower product cost as a result of continued improvements in manufacturing and supply chain operations. As expected, these increases were partially offset by start-up costs and inefficiencies related to our new U.S. manufacturing operations. We expect full year 2019 gross margin to be relatively level with 2018, as the benefits of continued improvements in manufacturing and supply chain operations and the full year effect of our mid-2018 transition to direct commercial operations in Europe is expected to be offset by start-up costs and inefficiencies as we ramp up our new U.S. manufacturing operations.

### Research and Development

Research and development expenses for the three months ended June 30, 2019 increased $13.5 million, or 72%, to $32.3 million, compared with the same period in 2018 and increased $25.2 million or 64%, to $64 million for the six months ended June 30, 2019, compared with the same prior year period. These increases were primarily due to an increase in research and development expenses related to Omnipod DASH and our Omnipod® HorizonTM automated insulin delivery system. Research and development expenses also increased due to engineering and operational costs, such as training and start up activities, associated with our newly constructed U.S. manufacturing facility. We expect research and development spending for the full year 2019 to increase compared with 2018.

### Sales and Marketing

Sales and marketing expenses for the three months ended June 30, 2019 increased $10.8 million, or 30%, to $47.4 million, compared with the same period in 2018 and increased $19.4 million, or 28%, to $89.0 million for the six months ended June 30, 2019, compared with the same prior year period. These increases were primarily attributable to investments to support our mid-2018 transition to direct sales of Omnipod in Europe as well as the expansion of our U.S. sales force. We expect sales and marketing expenses for the full year 2019 to increase compared with 2018 due to additional expansion of our U.S. sales force and customer support personnel to support our continued growth and the full year effect of our transition to direct sales in Europe.

### General and Administrative

General and administrative expenses for the three months ended June 30, 2019 increased $6.8 million, or 30%, to $29.2 million, compared with the same period in 2018 and increased $10.1 million, or 23%, to $55.0 million for the six months ended June 30, 2019, compared with the same prior year period. These increases were primarily attributable to severance-related charges for certain executives as well as increased personnel-related costs related to 2018 hires to support the establishment of our direct operations in Europe. We expect general and administrative expenses for 2019 to increase compared with 2018 as we continue to grow our business and make investments in our operating structure to support growth as well as due to the full-year effect of our transition to direct commercial operations in Europe.

### Interest Expense and Other, Net

Interest expense and other, net, for the three months ended June 30, 2019 increased $0.1 million, or 2%, to $5.7 million, compared with the same period in 2018 and decreased $3.6 million, or 30%, to $8.3 million for the six months ended June 30, 2019 compared with the same prior year period. The decrease for the sixth-month period was primarily due to a $1.9 million increase in interest capitalized associated with the construction of our U.S. manufacturing facility and a $1.8 million insurance settlement received.

### Liquidity and Capital Resources

As of June 30, 2019, we had $119.9 million in cash and cash equivalents and $252.6 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.

To lower our manufacturing costs, increase supply redundancy, add capacity closer to our largest customer base and support growth, we constructed a highly-automated manufacturing facility in Acton, Massachusetts, from which we began producing product during the second quarter of 2019. This facility also serves as our global headquarters. Capital expenditures in both 2018 and 2019 were above historic levels due to funding the construction of the Acton facility and related equipment purchases. From the purchase of the facility in late 2016 through June 30, 2019, capital expenditures for the construction of the Acton facility and related equipment purchases have been approximately $270 million. In 2019, we expect to invest additional capital in this facility to support our growth, funded by our existing cash and investments as well as cash generated from operations. As of June 30, 2019, we had approximately $30 million in capital commitments.

### 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 June 30, 2019, the following notes were outstanding:

| Issuance Date | Coupon | Principal Outstanding (in thousands) | Due Date | Initial Conversion Rate per Share of Common Stock | Conversion Price per Share of Common Stock |
| --- | ---: | ---: | --- | ---: | ---: |
| September 2016 | 1.250% | $344,992 | September 2021 | 17.1332 | $58.37 |
| November 2017 | 1.375% | 402,500 | November 2024 | 10.7315 | $93.18 |
| Total |  | $747,492 |  |  |  |

### Summary of Cash Flows

*(in thousands)*

| Cash provided by (used in): | Six Months Ended June 30, 2019 | 2018 |
| --- | ---: | ---: |
| Operating activities | **$20,277** | $(10,395) |
| Investing activities | **(31,793)** | (117,103) |
| Financing activities | **17,747** | (8,172) |
| Effect of exchange rate changes on cash | **(270)** | (661) |
| Net increase (decrease) in cash and cash equivalents | **$5,961** | $(136,331) |

#### Operating Activities

Net cash provided by operating activities was $20.3 million for the six months ended June 30, 2019, compared with net cash used in operating activities of $10.4 million for the six months ended June 30, 2018. The $30.7 million increase in cash provided by operating activities was primarily due to the generation of $5.8 million of net income for the six months ended June 30, 2019, compared with an $8.3 million net loss in the comparative prior year period as well as favorable working capital.

#### Investing Activities

During the six months ended June 30, 2019, net cash used in investing activities was $31.8 million, compared with net cash used in investing activities of $117.1 million for the six months ended June 30, 2018.

*Capital Spending—*Capital expenditures were $91.9 million and $87.7 million for the six months ended June 30, 2019 and 2018, respectively, primarily associated with the construction of our manufacturing and corporate headquarters facility in Acton, Massachusetts. For the full year 2019, we expect capital expenditures to be relatively consistent with 2018 as we continue to expand capacity in our U.S. operations to support our growth and profitability objectives. We expect to fund our capital expenditures using a combination of existing cash and investments as well as cash generated from operations.

*Purchases and Sales of Investments—*During the six months ended June 30, 2019, net sales of marketable securities were $65.1 million, compared with net purchases of marketable securities of $27.2 million for the six months ended June 30, 2018.

#### Financing Activities

During the six months ended June 30, 2019, net cash provided by financing activities was $17.7 million, compared with net cash used in financing activities of $8.2 million for the six months ended June 30, 2018.

*Option Exercises and Issuance of Shares Under Employee Stock Purchase Plan (“ESPP”)—*Total proceeds from option exercises and issuance of common stock under ESPP were $25.7 million and $11.2 million for the six months ended June 30, 2019 and 2018, respectively. Payments for taxes related to net restricted share settlements were $7.9 million and $12.7 million for the six months ended June 30, 2019 and 2018, respectively.

*Debt Repayment—*During the six months ended June 30, 2018, we paid $6.7 million to settle all of our outstanding 2% Notes.

### Commitments and Contingencies

Following the expiration of an agreement with a former European distributor on June 30, 2018, we were required to pay a quarterly per-unit fee for Omnipod sales to certain customers of the former European distributor for a one-year period through June 30, 2019. We recognized a liability and an associated intangible asset for this fee as qualifying sales occurred. The methodology applicable for determining the total fee under the distribution agreement is subject to an active arbitration proceeding in Switzerland. The final amount of the fee could vary significantly depending on the number of customers who count for purposes of calculating the fee under the terms of the agreement. We estimate that the final aggregate fee could be in the range of $5 million to $55 million, of which $3.8 million had been paid as of June 30, 2019.

We lease facilities in Massachusetts, California, and the United Kingdom. Refer to Note 11 to the consolidated financial statements included in this Form 10-Q for further information regarding our leases.

### Legal Proceedings

The significant estimates and judgments related to establishing litigation reserves are discussed under “Legal Proceedings” in Note 10 to the consolidated financial statements included in this Form 10-Q.

### Off-Balance Sheet Arrangements

As of June 30, 2019, we did not have any off-balance sheet financing arrangements.

### Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

We believe that our accounting policies for revenue recognition, fair value measurements, accounts receivable and allowance for doubtful accounts, inventories, product warranty costs, convertible debt, commitments and contingencies and stock-based compensation are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. There have been no significant changes to the above critical accounting policies or in the underlying accounting assumptions and estimates used in such policies from those disclosed in our annual consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K filed for the year ended December 31, 2018.

### Accounting Standards Issued and Not Yet Adopted

In January 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017-04, *Simplifying the Test for Goodwill Impairment (“*ASU 2017-04”). ASU 2017-04 requires an entity to measure the impairment of goodwill assigned to a reporting unit as the amount by which the carrying value of the assets and liabilities of the reporting unit, including goodwill, exceeds the reporting unit's fair value. The guidance is effective for us beginning in the first quarter of 2020. Early adoption is permitted. We do not expect the adoption of this guidance to impact our consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, *Credit Losses (Topic 326) (“*ASU 2016-13”). ASU 2016-13 requires financial assets measured at amortized cost, such as trade receivables and contract assets, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions, and future expectation for each pool of similar financial assets. The new guidance also requires enhanced disclosures related to trade receivables and associated credit losses. The guidance is effective for us beginning in the first quarter of 2020. The adoption of this guidance is expected to increase the level of disclosures related to our trade receivables, but is not expected to have a material impact on our consolidated financial statements.

### FORWARD-LOOKING STATEMENTS

This quarterly report on Form 10-Q contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations and financial condition.

The outcomes of the events described in these forward-looking statements are subject to risks, uncertainties and assumptions. These risks and uncertainties include, but are not limited to:

- risks associated with our dependence on our principal product platform, the Omnipod;
- risks associated with our ability to design, develop, manufacture and commercialize future products;
- our ability to reduce production costs and increase customer orders and manufacturing volumes;
- adverse changes in general economic conditions;
- impact of healthcare reform laws;
- our ability to raise additional funds in the future on acceptable terms or at all;
- supply problems or price fluctuations with sole source or third-party suppliers on which we are dependent;
- the potential establishment of a competitive bid program for conventional insulin pumps;
- failure to retain supplier pricing discounts and achieve satisfactory gross margins;
- failure to retain key suppliers;
- international business risks;
- our inability to effectively operate and grow our business in Europe following the expiration of an agreement with our former European distributor on June 30, 2018;
- regulatory, commercial and logistics risks associated with selling our products in Europe in light of the uncertainty related to the timing and terms of the separation of the United Kingdom from the European Union (Brexit);
- our inability to secure and retain adequate coverage or reimbursement from third-party payors for the Omnipod or future products and potential adverse changes in reimbursement rates or policies relating to the Omnipod or future products;
- failure to retain key payor partners and their members;
- adverse effects resulting from competition;
- technological change and product innovation adversely affecting our business;
- changes to or termination of our license to incorporate a blood glucose meter into the Omnipod or our inability to enter into new license or other agreements with respect to the Omnipod's current or future features;
- challenges to the future development of our non-insulin drug delivery business;
- our ability to protect our intellectual property and other proprietary rights;
- conflicts with the intellectual property of third parties, including claims that our current or future products infringe or misappropriate the proprietary rights of others;
- adverse regulatory or legal actions relating to the Omnipod or future products;
- failure of our contract manufacturers or component suppliers to comply with the U.S Food and Drug Administration's quality system regulations;
- the potential violation of the Foreign Corrupt Practices Act or any other international, federal or state laws prohibiting "kickbacks" or protecting the confidentiality of patient health information or other protected personal information, or any challenge to or investigation into our practices under these laws;
- product liability lawsuits that may be brought against us, including stemming from off-label use of our product;
- breaches or failures of our product or information technology systems, including by cyberattack;
- reduced retention rates of our customer base;
- unfavorable results of clinical studies relating to the Omnipod or future products, or the products of our competitors;
- future publication of articles or announcement of positions by diabetes associations or other organizations that are unfavorable to the Omnipod;
- the concentration of substantially all of our manufacturing operations at a single location in China and substantially all of Insulet's inventory at a single location in Massachusetts;
- our ability to attract and retain personnel;
- our ability to manage our growth;
- fluctuations in quarterly results of operations;
- risks associated with potential future acquisitions or investments in new businesses;
- our ability to generate sufficient cash to service all of our indebtedness;
- the expansion of our distribution network;
- our ability to successfully maintain effective internal control over financial reporting;
- the volatility of the trading price of our common stock;
- risks related to future sales of our common stock or the conversion of any of our convertible debt;
- potential limitations on our ability to use our net operating loss carryforwards; and
- anti-takeover provisions in our organizational documents.

The risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018 and in this Quarterly Report could cause our results to differ materially from those expressed in forward-looking statements. In addition, there may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. Actual results could differ materially from those projected in the forward-looking statements; accordingly, you should not rely upon forward-looking statements as predictions of future events. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.

## Market risk

As filed, 2,146 characters.

Our financial instruments consist of cash, cash equivalents, short-term and long-term investments, accounts receivable, accounts payable, accrued expenses, debt and long-term obligations. The primary objectives of our investment strategy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. To minimize our exposure to an adverse shift in interest rates, we invest mainly in short-term investments and cash equivalents. We do not believe that a 10% change in interest rates would have a material impact on the fair value of our investment portfolio or our interest income.

As of June 30, 2019, we had outstanding convertible debt on our consolidated balance sheet of $607.4 million, net of unamortized discount and issuance costs totaling $140.1 million. Changes in the fair value of our outstanding debt, which could be impacted by changes in interest rates, are not recorded in these consolidated financial statements as the debt is accounted for at cost less unamortized discount and issuance costs. The fair value of the debt, which is disclosed in Note 5 to the consolidated financial statements, is also impacted by changes in our stock price.

Our business is subject to risks, including, but not limited to: unique economic conditions, changes in political climate, differing tax structures, other regulations and restrictions, and foreign exchange rate volatility. A substantial portion of our operations are located in the United States; however, as our business in markets outside of the United States continues to increase, we will be increasingly exposed to foreign currency exchange risk related to our foreign operations. Fluctuations in the rate of exchange between the United States dollar and foreign currencies, primarily the Euro, British Pound and Canadian Dollar, could adversely affect our financial results, including our revenues, revenue growth rates, gross margins, income and losses as well as assets and liabilities.

We will continue to monitor and evaluate our internal processes relating to foreign currency exchange, including the potential use of hedging strategies.

## Controls and procedures

As filed, 2,028 characters.

### Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer, evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2019. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of June 30, 2019, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at a reasonable assurance level.

### Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended June 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 320 characters.

There have been no material changes to our risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2018. Refer to Part I, Item 1A. “Risks Factors” in our Annual Report for a discussion of risks to which our business, financial condition, results of operations and cash flows are subject.

Filed Aug 6, 2019.
Source: SEC EDGAR, the filing index for accession 0001145197-19-000033. Last ingested by Listed: Nov 14, 2026, 12:01 ET. No prices; not investment advice.