SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_____________________________________________________



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

~~(State or Other Jurisdiction of~~

~~Incorporation or Organization)~~

~~(I.R.S. Employer~~

~~Identification No.)~~

Registrant’s Telephone Number, Including Area Code: (~~978~~) (978) 600-7000

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ~~Yes~~x☒ No o☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ~~Yes~~x☒ No o☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company,” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x☒

Securities registered pursuant to Section 12(b) of the Act:

As of July ~~25, 2019~~,30, 2020, the registrant had ~~60,271,673~~65,650,528 shares of common stock outstanding.

PART I - FINANCIAL INFORMATION

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these condensed consolidated financial statements.

(in thousands, except share and per share data) June 30,
2019 December 31,
2018
ASSETS
Current Assets
Cash and cash equivalents $ 119,867
$ 113,906
Short-term investments 189,881
175,040
Accounts receivable trade, less allowance for doubtful accounts of $4,098 and $3,610 66,958
63,294
Unbilled receivable 11,781
13,378
Inventories 85,109
71,414
Prepaid expenses and other current assets 25,211
24,254
Total current assets 498,807
461,286
Long-term investments 62,677
140,784
Property and equipment, net 334,025
258,379
Other intangible assets, net 13,040
10,383
Goodwill 39,739
39,646
Other assets 29,435
18,266
Total assets $ 977,723
$ 928,744
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable $ 24,752
$ 25,500
Accrued expenses and other current liabilities 81,021
90,157
Total current liabilities 105,773
115,657
Convertible debt, net 607,351
591,978
Other liabilities 14,819
9,010
Total liabilities 727,943
716,645
Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 authorized; none issued and outstanding —
—
Common stock, $.001 par value, 100,000,000 authorized; 60,149,926 and 59,188,758 issued and outstanding 60
59
Additional paid-in capital 930,383
898,559
Accumulated other comprehensive loss (2,829 ) (2,905 )
Accumulated deficit (677,834 ) (683,614 )
Total stockholders’ equity 249,780
212,099
Total liabilities and stockholders’ equity $ 977,723
$ 928,744

CONSOLIDATED STATEMENTS OF OPERATIONS

The accompanying notes are an integral part of these condensed consolidated financial statements.

Three Months Ended June 30, Six Months Ended June 30,
(in thousands, except share and per share data) 2019 2018 2019 2018
Revenue $ 177,136
$ 124,262
$ 336,691
$ 247,840
Cost of revenue 60,718
42,190
113,577
89,953
Gross profit 116,418
82,072
223,114
157,887
Operating expenses:
Research and development 32,264
18,801
64,218
39,068
Sales and marketing 47,401
36,575
89,017
69,624
General and administrative 29,150
22,371
55,011
44,870
Total operating expenses 108,815
77,747
208,246
153,562
Operating income 7,603
4,325
14,868
4,325
Interest expense, net of portion capitalized (7,642 ) (7,290 ) (14,257 ) (15,208 )
Other income, net 1,923
1,686
5,977
3,368
Income (loss) before income taxes 1,884
(1,279 ) 6,588
(7,515 )
Income tax expense 482
412
808
745
Net income (loss) $ 1,402
$ (1,691 ) $ 5,780
$ (8,260 )
Net income (loss) per share:
Basic $ 0.02
$ (0.03 ) $ 0.10
$ (0.14 )
Diluted $ 0.02
$ (0.03 ) $ 0.09
$ (0.14 )
Weighted-average number of shares used in calculating net income (loss) per share:
Basic 59,844,991
58,833,498
59,601,365
58,659,111
Diluted 61,486,325
58,833,498
61,332,451
58,659,111

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ~~(LOSS)~~

~~INSULET CORPORATION~~

~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY~~

~~Consolidated Statement of Stockholders' Equity for the three months ended June 30, 2019:~~

~~Consolidated Statement of Stockholders' Equity for the three months ended June 30, 2018:~~

The accompanying ~~condensed~~ notes are an integral part of these condensed consolidated financial statements.

~~Consolidated Statement of Stockholders' Equity for the six months ended~~CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Three Months Ended June 30, ~~2019:~~2020


	Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(in millions, except share data)	Shares	Amount
Balance at March 31, 2020	63,057,874	$	0.1	$	737.9	$	(675.2)	$	(3.8)	$	59.0
Issuance of common stock	2,369,668	—		477.5		—		—		477.5
Exercise of options to purchase common stock	131,542.0	—		5.1		—		—		5.1
Issuance of employee stock purchase plan	18,685	—		2.9		—		—		2.9
Stock-based compensation	—	—		5.8		—		—		5.8
Restricted stock units vested, net of shares withheld for taxes	26,578	—		(1.6)		—		—		(1.6)
Net income	—	—		—		14.4		—		14.4
Other comprehensive income	—	—		—		—		0.2		0.2
Balance at June 30, 2020	65,604,347	$	0.1	$	1,227.6	$	(660.8)	$	(3.6)	$	563.3

Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated Other Comprehensive Loss Total
Stockholders’
Equity
(in thousands, except share data) Shares Amount
Balance at December 31, 2018 59,188,758
$ 59
$ 898,559
$ (683,614 ) $ (2,905 ) $ 212,099
Exercise of options to purchase common stock 716,687
1
23,659
23,660
Issuance for employee stock purchase plan 27,613
—
2,030
2,030
Stock-based compensation expense 14,078
14,078
Restricted stock units vested, net of shares withheld for taxes 216,868
—
(7,943 ) (7,943 )
Net income 5,780
5,780
Other comprehensive income 76
76
Balance at June 30, 2019 60,149,926
$ 60
$ 930,383
$ (677,834 ) $ (2,829 ) $ 249,780

~~Consolidated Statement of Stockholders' Equity for the six months ended~~Three Months Ended June 30, ~~2018:~~2019


	Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(in millions, except share data)	Shares	Amount
Balance at March 31, 2019	59,638,439	$	0.1	$	905.8	$	(679.2)	$	(3.1)	$	223.6
Exercise of options to purchase common stock	447,214	—		14.6		—		—		14.6
Issuance for employee stock purchase plan	27,613	—		2.0		—		—		2.0
Stock-based compensation	—	—		8.3		—		—		8.3
Restricted stock units vested, net of shares withheld for taxes	36,660	—		(0.4)		—		—		(0.4)
Net income	—	—		—		1.4		—		1.4
Other comprehensive income	—	—		—		—		0.3		0.3
Balance at June 30, 2019	60,149,926	$	0.1	$	930.3	$	(677.8)	$	(2.8)	$	249.8

Common Stock Additional
Paid-in
Capital Accumulated
Deficit Accumulated Other Comprehensive Loss Total
Stockholders’
Equity
(in thousands, except share data) Shares Amount
Balance at December 31, 2017 58,319,348
$ 58
$ 866,206
$ (707,255 ) $ (493 ) $ 158,516
Exercise of options to purchase common stock 308,369
—
9,741
9,741
Issuance for employee stock purchase plan 24,643
—
1,481
1,481
Stock-based compensation expense 15,117
15,117
Restricted stock units vested, net of shares withheld for taxes 323,035
1
(12,692 ) (12,691 )
Debt retirement (3,212 ) (3,212 )
Adoption of ASC 606 20,349
20,349
Net loss (8,260 ) (8,260 )
Other comprehensive loss (1,893 ) (1,893 )
Balance at June 30, 2018 58,975,395
$ 59
$ 876,641
$ (695,166 ) $ (2,386 ) $ 179,148

The accompanying ~~condensed~~ notes are an integral part of these condensed consolidated financial statements.


	Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(in millions, except share data)	Shares	Amount
Balance at December 31, 2019	62,685,492	$	0.1	$	749.0	$	(672.0)	$	(1.2)	$	75.9
Adoption of ASU 2016-13 (Note 1)	—	—		—		(1.1)		—		(1.1)
Issuance of common stock	2,369,668	—		477.5		—		—		477.5
Exercise of options to purchase common stock	304,374	—		11.3		—		—		11.3
Issuance for employee stock purchase plan	18,685	—		2.9		—		—		2.9
Stock-based compensation	—	—		13.7		—		—		13.7
Restricted stock units vested, net of shares withheld for taxes	226,128	—		(26.8)		—		—		(26.8)
Net income	—	—		—		12.3		—		12.3
Other comprehensive loss	—	—		—		—		(2.4)		(2.4)
Balance at June 30, 2020	65,604,347	$	0.1	$	1,227.6	$	(660.8)	$	(3.6)	$	563.3


	Common Stock					Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(in millions, except share data)	Shares	Amount
Balance at December 31, 2018	59,188,758	$	0.1	$	898.5	$	(683.6)	$	(2.9)	$	212.1
Exercise of options to purchase common stock	716,687	—		23.6		—		—		23.6
Issuance for employee stock purchase plan	27,613	—		2.0		—		—		2.0
Stock-based compensation	—	—		14.1		—		—		14.1
Restricted stock units vested, net of shares withheld for taxes	216,868	—		(7.9)		—		—		(7.9)
Net income	—	—		—		5.8		—		5.8
Other comprehensive income	—	—		—		—		0.1		0.1
Balance at June 30, 2019	60,149,926	$	0.1	$	930.3	$	(677.8)	$	(2.8)	$	249.8

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


	Six Months Ended June 30,
(in millions)	2020		2019
Cash flows from operating activities
Net income	$	12.3	$	5.8
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	18.8		11.0
Non-cash interest	22.3		15.4
Stock-based compensation	13.7		14.1
Provision for credit losses	2.6		2.0
Other	—		(0.6)
Changes in operating assets and liabilities:
Accounts receivable	(13.8)		(7.0)
Inventories	(2.8)		(14.0)
Prepaid expenses and other assets	(14.0)		(1.5)
Accounts payable, accrued expenses and other current liabilities	(13.9)		(3.5)
Other liabilities	(2.4)		(1.3)
Net cash provided by operating activities	22.8		20.4
Cash flows from investing activities
Capital expenditures	(51.7)		(91.9)
Acquisition of intangible assets	(0.5)		(5.0)
Purchases of investments	(37.9)		(39.1)
Receipts from the maturity or sale of investments	170.7		104.2
Net cash provided by (used in) investing activities	80.6		(31.8)
Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs	477.5		—
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan	14.2		25.6
Payment of withholding taxes in connection with vesting of restricted stock units	(26.8)		(7.9)
Net cash provided by financing activities	464.9		17.7
Effect of exchange rate changes on cash	(2.9)		(0.3)
Net increase in cash, cash equivalents and restricted cash	565.4		6.0
Cash, cash equivalents and restricted cash at beginning of period	213.7		113.9
Cash, cash equivalents and restricted cash at end of period	$	779.1	$	119.9

Supplemental cash flow information:
Purchases of property and equipment included in accounts payable and accrued expenses	$	4.5	$	3.0

Six Months Ended June 30,
(in thousands) 2019 2018
Cash flows from operating activities
Net income (loss) $ 5,780
$ (8,260 )
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Depreciation and amortization 11,026
7,131
Non-cash interest expense 15,372
14,427
Stock-based compensation expense 14,078
15,117
Provision for bad debts 1,969
1,586
Other (589 ) (130 )
Changes in operating assets and liabilities:
Accounts receivable and unbilled receivable (5,406 ) (7,217 )
Inventories (14,005 ) (7,959 )
Prepaid expenses and other assets (3,076 ) (4,823 )
Accounts payable, accrued expenses and other current liabilities (3,749 ) (17,873 )
Deferred revenue 190
(2,626 )
Other liabilities (1,313 ) 232
Net cash provided by (used in) operating activities 20,277
(10,395 )
Cash flows from investing activities
Purchases of property, equipment (91,949 ) (87,730 )
Acquisition of intangible assets (4,965 ) (2,207 )
Purchases of investments (39,065 ) (117,940 )
Receipts from the maturity or sale of investments 104,186
90,774
Net cash used in investing activities (31,793 ) (117,103 )
Cash flows from financing activities
Repayment of convertible debt —
(6,687 )
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan 25,690
11,206
Payments for taxes related to net share settlement of equity awards (7,943 ) (12,691 )
Net cash provided by (used in) financing activities 17,747
(8,172 )
Effect of exchange rate changes on cash (270 ) (661 )
Net increase (decrease) in cash, cash equivalents and restricted cash 5,961
(136,331 )
Cash, cash equivalents and restricted cash at beginning of period 113,906
272,577
Cash, cash equivalents and restricted cash at end of period $ 119,867
$ 136,246
Non-cash investing and financing activities:
Purchases of property and equipment included in accounts payable and accrued expenses $ 3,051
$ 12,300

The accompanying notes are an integral part of these condensed consolidated financial statements.

Table of Contents

INSULET CORPORATION

~~CONDENSED~~ NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. ~~Nature of the Business~~

~~Insulet Corporation (“Insulet”) is primarily engaged in the development, manufacturing and sale of its proprietary Omnipod~~^® System, an innovative, discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System consists of two product lines: the Omnipod Insulin Management System (“Omnipod”), which Insulet has been selling since 2005, and its next generation Omnipod DASH^TM Insulin Management System (“Omnipod DASH” or “DASH”). Insulet began a full market release of Omnipod DASH in the United States at the end of the first quarter of 2019. Collectively, these products are referred to as the “Omnipod System”.

In addition to using the Omnipod System for insulin delivery, Insulet also partners with global pharmaceutical and biotechnology companies to tailor the Omnipod System technology platform for the delivery of their drugs across other therapeutic areas. The majority of Insulet's drug delivery revenue currently consists of sales 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.~~

~~Note 2.~~ Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements reflect the consolidated operations of Insulet Corporation and its subsidiaries ~~(the~~(“Insulet” or the “Company”). The unaudited consolidated financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted ~~accounting principles~~ in the United States of America (“~~U.S.~~ GAAP”). The preparation of the consolidated financial statements in conformity with ~~U.S.~~ GAAP requires management to make use of estimates and assumptions ~~in the application of certain of its significant accounting policies~~ that ~~may materially~~ affect the reported amounts of assets and liabilities, ~~equity, revenue~~disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates. In ~~management's~~management’s opinion, the unaudited consolidated financial statements contain all normal recurring adjustments necessary for a fair statement of the interim results reported. Operating results for the three and six months ended June 30, ~~2019~~2020 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2019~~,2020, or for any other subsequent interim period.

The year-end balance sheet data was derived from audited consolidated financial statements. These unaudited consolidated financial statements do not include all of the annual disclosures required by ~~U.S.~~ GAAP; accordingly, they should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable consist of amounts due from third-party payors, customers and intermediaries and are presented at amortized cost. The allowance for credit losses reflects an estimate of losses inherent in the Company’s accounts receivable portfolio determined based on historical experience, specific allowances for known troubled accounts and other available evidence. Accounts receivable are written off when management determines they are uncollectable.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Direct Customer Receivables.—The Company measures expected credit losses on direct customer receivables using an aging methodology. The risk of loss for direct customer receivables is higher than other portfolios. The Company relies on third-party payors to accept and timely process claims and on direct consumers to have the ability to pay. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Distributor Receivables—The Company measures expected credit losses on distributor receivables using an individual reserve methodology. The risk of loss in this portfolio is low based on the Company’s historical experience. The estimate of expected credit losses considers payment history as well as credit ratings of the distributors, in addition to current conditions and supportable forecasts.

National Healthcare System Receivables—The Company measures expected credit losses on national healthcare system receivables using an individual reserve methodology. The risk of loss in this portfolio is low based on the Company’s historical experience. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Shipping and Handling Costs

Shipping and handling costs are included in selling, general and administrative expenses and were $1.9 million and $2.3 million ~~and~~ ~~$1.4 million~~for the three months ended June 30, ~~2019~~2020 and ~~2018~~,2019, respectively, and were ~~$4.9~~$3.8 million and ~~$2.5~~$4.9 million for the six months ended June 30, 2020 and 2019, respectively.

Fair Value Measurements

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. To measure fair value of assets and ~~2018, respectively.~~liabilities, the Company uses the following fair value hierarchy based on three levels of inputs:

Level 1—observable inputs, such as quoted prices in active markets for identical assets or liabilities;

Level 2—significant other observable inputs that are observable either directly or indirectly; and

Level 3—significant unobservable inputs for which there are little or no market data, which require the Company to develop its own assumptions.

Table of Contents

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 3 and 8 for financial assets and liabilities held at carrying amount on the consolidated balance sheet and Note 4 for investments measured at fair value on a recurring basis.

Reclassification of Prior Period Amounts

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. ~~Software license~~A portion of facility costs and certain information technology costs have been ~~reallocated~~allocated from selling, general and administrative to research and development expenses based on square foot and system usage, respectively. In addition, certain quality assurance costs were reclassified from research and development expenses to selling, general and administrative expenses. The net impact of these adjustments was a $0.7 million and $1.3 million increase to research and development expenses and a corresponding decrease to selling, general and administrative expenses for the three and six months ended June 30, 2020, respectively. There was no change to ~~research~~previously reported operating or net income. Further, the Company reclassified the $1.6 million change in unbilled receivables from the change in accounts and ~~development~~unbilled receivables to the change in prepaid expenses and ~~sales and marketing expenses based on license usage. These reclassifications have~~other assets in the prior year statement of cash flows. This reclassification had no effect on previously reported net ~~income.~~

cash provided by operating activities.

Recently Adopted Accounting Standards

Effective January 1, ~~2019,~~2020, the Company adopted Accounting Standards Update (“ASU”) ~~No. 2016-02,~~2016-13, ~~Leases~~Credit Losses (Topic ~~842)~~326) (“ASU ~~2016-02”~~2016-13”). ASU ~~2016-02~~2016-13 requires financial assets measured at amortized cost, such as the Company’s trade receivables and ~~its related amendments (collectively referred~~contract assets, to be presented net of expected credit losses, which may be estimated based on relevant information such as ~~ASC 842), which amends the guidance in former ASC Topic 840, Leases.~~historical experience, current conditions and future expectation for each pool of similar financial assets. The new ~~standard~~guidance also requires ~~lessees~~enhanced disclosures related to ~~recognize right-of-use (“ROU”) assets~~trade receivables and ~~lease liabilities on the balance sheet for those leases classified as operating leases.~~ associated credit losses. The Company adopted ~~ASC 842 on January 1, 2019~~ASU 2016-13 using the modified retrospective method, whereby the ~~new~~ guidance is applied prospectively as of the date of adoption and prior periods are not restated. The ~~Company elected~~cumulative effect of adopting ASU 2016-13 resulted in a $1.1 million increase to the ~~practical expedients that permit~~opening balance of accumulated deficit upon adoption related to an increase in the ~~Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification~~allowance for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. The Company also excludes leases with an expected term of less than one year from the application of ASC 842. Adoption of the lease standard had a material impactcredit losses on ~~the Company's consolidated balance sheet, which is disclosed in Note~~ 11.accounts receivable.

~~Effective January 1, 2019,~~The following table presents the ~~Company early adopted ASU 2018-15,~~ ~~Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract~~ (“ASU 2018-15”). ASU 2018-15 requires certain costs to implement a cloud computing arrangement that is a service contract to be capitalized consistent with the rules applicable to internal-use software capitalization projects. The Company adopted this new guidance effective January 1, 2019, prospectively. The Company defers

eligible costs related to the implementation of cloud computing arrangements within other current and non-current assets and amortizes such costs over the expected term of the hosting arrangement to the same income statement line as the associated cloud operating expenses. Adoption of this standard resultedactivity in the ~~Company capitalizing $0.7 million and $2.0 million of cloud computing implementation costs~~allowance for credit losses for the three and six months ended June 30, ~~2019, respectively.~~2020, comprised primarily of our direct consumer receivable portfolio. The allowance for credit losses of other portfolios is insignificant.


(in millions)	Three Months Ended June 30, 2020		Six Months Ended June 30, 2020
Credit losses at the beginning of the period	$	4.1	$	3.8
Effect of adoption	—		1.1
Credit losses at the beginning of the period after adoption	4.1		4.9
Provision for expected credit losses	2.0		2.6
Write-offs charged against allowance	(1.6)		(3.1)
Recoveries of amounts previously written-off	0.1		0.2
Credit losses at the end of the period	$	4.6	$	4.6

Effective January 1, 2020, the Company adopted 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 units’ fair value. The adoption of this guidance had no impact on the consolidated financial statements.

Note 3.2. Revenue and Contract Acquisition Costs

The following table summarizes ~~revenue from contracts with customers for~~the Company’s disaggregated revenues:



	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
U.S. Omnipod	$	128.8	$	98.1	$	245.4	$	184.2
International Omnipod	73.2		62.7		146.3		119.6
Total Omnipod	202.0		160.8		391.7		303.8
Drug Delivery	24.3		16.3		32.6		32.9
Total	$	226.3	$	177.1	$	424.3	$	336.7

During both the three and six months ended June 30, ~~2019~~2020, the Company had two customers that represented 21% of total revenue. During the three and ~~2018:~~

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2019 2018 2019 2018
U.S. Omnipod $ 98,074
$ 78,047
$ 184,177
$ 148,319
International Omnipod 62,736
28,509
119,624
66,913
Total Diabetes Revenue 160,810
106,556
303,801
215,232
Drug Delivery 16,326
17,706
32,890
32,608
Total $ 177,136
$ 124,262
$ 336,691
$ 247,840

six months ended June 30, 2019,

~~Revenue for customers comprising more than 10%~~ the Company had one customer that represented 12% of total revenue ~~were as follows:~~

Three Months Ended June 30, Six Months Ended June 30,

2019 2018 2019 2018
Amgen, Inc. * 14% 10% 13%
Ypsomed * * * 17%
Cardinal Health Inc. and affiliates 12% 13% 11% 12%

and two customers that represented 21% of total revenue, respectively.

* Represents less than 10%Table of ~~consolidated revenue.~~Contents

Deferred revenue related to unsatisfied performance obligations was included in the following consolidated balance sheet accounts in the amounts shown:

As of
(in thousands) June 30, 2019 December 31, 2018
Accrued expenses and other current liabilities $ 1,374
$ 1,184
Other liabilities 986
931
Total deferred revenue $ 2,360
$ 2,115


(in millions)	June 30, 2020		December 31, 2019
Accrued expenses and other current liabilities	$	5.0	$	3.2
Other liabilities	0.9		1.0
Total deferred revenue	$	5.9	$	4.2

Revenue recognized during the three and six months ended June 30, 2020 included in deferred revenue at the beginning of 2020 was $0.1 million and $1.6 million, respectively. Revenue recognized during the three and six months ended June 30, 2019 included in deferred revenue at the beginning of 2019 was $0.2 million and $1.1 million, respectively. Revenue recognized during the three and six months ended June 30, 2018 included in deferred revenue at the beginning of 2018 was $1.1 million and $2.4 million, respectively. No revenue was recognized during the three and six months ended June 30, 2019 and 2018 from performance obligations satisfied or partially satisfied in previous periods.

Contract acquisition costs, representing capitalized ~~commissions~~commission costs related to new ~~patient starts,~~customers, net of amortization, were included in the following consolidated balance sheet ~~accounts~~captions in the amounts shown:

As of
(in thousands) June 30, 2019 December 31, 2018
Prepaid expenses and other current assets $ 8,452
$ 7,277
Other assets 18,183
15,988
Total capitalized contract acquisition costs, net $ 26,635
$ 23,265


(in millions)	June 30, 2020		December 31, 2019
Prepaid expenses and other current assets	$	9.9	$	9.5
Other assets	19.7		19.9
Total capitalized contract acquisition costs, net	$	29.6	$	29.4

The Company had unbilled receivables of $22.3 million and $13.5 million at June 30, 2020 and December 31, 2019, respectively.

The Company recognized $2.6 million and $5.1 million of amortization of capitalized contract acquisition costs during the three and six months ended June 30, 2020, respectively. The Company recognized $2.1 million and $4.1 million of amortization of capitalized contract acquisition costs during the three and six months ended June 30, 2019, respectively.

Note 3. Cash and Cash Equivalents

The following table provides a summary of cash and cash equivalents and the level in the fair value hierarchy in which those measurements fall:


	June 30, 2020										December 31, 2019
(in millions)	Total		Level 1		Level 2		Total		Level 1		Level 2 ⁽¹⁾
Cash	$	470.3	$	470.3	$	—	$	85.3	$	85.3	$	—
Money market mutual funds	305.9		305.9		—		115.5		115.5		—
Commercial paper	—		—		—		10.0		—		10.0
Restricted cash	2.9		2.9		—		2.9		2.9		—
Total cash and cash equivalents	$	779.1	$	779.1	$	—	$	213.7	$	203.7	$	10.0

⁽¹⁾Fair value was determined using market prices obtained from third-party pricing sources.

Table of Contents

Note 4. Investments

~~Cash and Cash Equivalents~~

~~Included in the Company's cash and cash equivalents are restricted cash amounts set aside for collateral on outstanding letters of credit totaling $2.7 million at both~~ ~~June 30, 2019~~ ~~and~~ ~~December 31, 2018~~.

~~Marketable Securities~~

The ~~Company's~~Company’s short-term and long-term investments in debt securities had maturity dates that range from ~~8 days~~one month to ~~23 months as of~~two years at June 30, ~~2019. The Company’s investment portfolio included approximately 40 available-for-sale debt securities that had insignificant unrealized loss positions as of June 30, 2019 and~~ ~~December 31, 2018~~2020. ~~The Company's investments had insignificant realized~~Realized gains or losses for both the three and six months ended June 30, 2020 and 2019 ~~and June 30, 2018.~~were insignificant.

~~The Company uses the following fair value hierarchy to measure the fair value of assets and liabilities:~~

~~Level 1 — quoted prices in active markets for identical assets or liabilities;~~

~~Level 2 — observable inputs other than quoted prices in active markets for identical assets or liabilities;~~

Level 3 — unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions. The Company had no Level 3 assets or liabilities as of June 30, 2019 and December 31, 2018.

The following table provides amortized ~~cost,~~costs, gross unrealized gains and losses, fair ~~value~~values and the level in the fair value hierarchy for the ~~Company's~~Company’s investments ~~as of~~at June 30, ~~2019~~2020 and December 31, ~~2018:~~2019:


(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized (Losses)			Fair Value		Level 1		Level 2
June 30, 2019
Money market mutual funds	$	50,427	$	—	$	—		$	50,427	$	45,439	$	4,988
Total cash equivalents	$	50,427	$	—	$	—		$	50,427	$	45,439	$	4,988

(in millions)														(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Level 1		Level 2 ⁽¹⁾
June 30, 2020														June 30, 2020
U.S. government and agency bonds	$	103,776	$	69	$	(67	)	$	103,778	$	69,779	$	33,999	U.S. government and agency bonds	$	60.1	$	0.5	$	—	$	60.6	$	60.6	$	—
Corporate bonds	76,256		162		(13		)	76,405		—		76,405		Corporate bonds	0.8		—		—		0.8		—		0.8
Certificates of deposit	9,688		13		(3		)	9,698		—		9,698		Certificates of deposit	3.9		—		—		3.9		—		3.9
Commercial Paper														Commercial Paper	—		—		—		—		—		—
Total short-term investments	$	189,720	$	244	$	(83	)	$	189,881	$	69,779	$	120,102	Total short-term investments	$	64.8	$	0.5	$	—	$	65.3	$	60.6	$	4.7

U.S. government and agency bonds	$	57,647	$	294	$	(3	)	$	57,938	$	29,915	$	28,023	U.S. government and agency bonds	$	20.7	$	0.3	$	—	$	21.0	$	15.4	$	5.6
Corporate bonds	814		44		(40		)	818		—		818		Corporate bonds	2.0		—		—		2.0		—		2.0
Certificates of deposit	3,904		17		—			3,921		—		3,921		Certificates of deposit	0.5		—		—		0.5		—		0.5
Total long-term investments	$	62,365	$	355	$	(43	)	$	62,677	$	29,915	$	32,762	Total long-term investments	$	23.2	$	0.3	$	—	$	23.5	$	15.4	$	8.1

December 31, 2018
Money market mutual funds	$	47,199	$	—	$	—		$	47,199	$	47,199	$	—
Total cash equivalents	$	47,199	$	—	$	—		$	47,199	$	47,199	$	—

December 31, 2019														December 31, 2019
U.S. government and agency bonds	$	112,995	$	—	$	(486	)	$	112,509	$	69,605	$	42,904	U.S. government and agency bonds	$	94.7	$	0.3	$	—	$	95.0	$	85.0	$	10.0
Corporate bonds	56,235		—		(210		)	56,025		—		56,025		Corporate bonds	51.0		0.1		—		51.1		—		51.1
Certificates of deposit	6,506		—		—			6,506		—		6,506		Certificates of deposit	6.3		—		—		6.3		—		6.3
Commercial Paper														Commercial Paper	10.0		—		—		10.0		—		10.0
Total short-term investments	$	175,736	$	—	$	(696	)	$	175,040	$	69,605	$	105,435	Total short-term investments	$	162.0	$	0.4	$	—	$	162.4	$	85.0	$	77.4

U.S. government and agency bonds	$	90,458	$	99	$	(155	)	$	90,402	$	64,086	$	26,316	U.S. government and agency bonds	$	52.9	$	0.1	$	(0.1)	$	52.9	$	42.9	$	10.0
Corporate bonds	46,743		43		(68		)	46,718		—		46,718		Corporate bonds	2.8		—		—		2.8		—		2.8
Certificates of deposit	3,664		—		—			3,664		—		3,664		Certificates of deposit	2.7		—		—		2.7		—		2.7
Total long-term investments	$	140,865	$	142	$	(223	)	$	140,784	$	64,086	$	76,698	Total long-term investments	$	58.4	$	0.1	$	(0.1)	$	58.4	$	42.9	$	15.5

⁽¹⁾
Fair value was determined using market prices obtained from third-party pricing sources.

Note 5. ~~Convertible Debt, Net~~

~~The Company had outstanding convertible debt and related debt issuance costs on its consolidated balance sheet as follows:~~

As of
(in thousands) June 30, 2019 December 31, 2018
1.25% Convertible Senior Notes, due September 2021 $ 344,992
$ 344,992
1.375% Convertible Senior Notes, due November 2024 402,500
402,500
Unamortized debt discount (129,616 ) (143,616 )
Debt issuance costs (10,525 ) (11,898 )
Total convertible debt, net $ 607,351
$ 591,978

~~The carrying amount and the estimated fair value of the Company's convertible debt, which is based on the Level 2 quoted market prices as of June 30, 2019 and December 31, 2018 were as follows:~~

As of
June 30, 2019 December 31, 2018
(in thousands) Carrying Value Estimated Fair Value Carrying Value Estimated Fair Value
1.25% Convertible Senior Notes, due September 2021 $ 308,574
$ 693,455
$ 301,006
$ 483,851
1.375% Convertible Senior Notes, due November 2024 298,777
512,797
290,972
426,026
Total $ 607,351
$ 1,206,252
$ 591,978
$ 909,877

~~Note 6. Net Income (Loss) Per Share~~

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, excluding unvested restricted common shares. Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding and, when dilutive, potential common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method), and potential common shares from the Company's convertible debt (using the if-converted method).

~~The table below sets forth the components used in the computation of basic and diluted net income (loss) per share for the~~ ~~three and six months ended June 30, 2019~~. Because the Company reported a net loss for the three and six months ended June 30, 2018, all potential dilutive common shares have been excluded from the computation of the diluted net loss per share for three and six months ended June 30, 2018, as the effect would have been anti-dilutive.

June 30, 2019
(in thousands, except share and per share data) Three Months Ended Six Months Ended
Numerator:
Net income $ 1,402
$ 5,780
Denominator:
Basic weighted average common shares outstanding 59,844,991
59,601,365
Effect of dilutive securities
Stock options 1,479,713
1,513,886
Restricted stock units 161,621
217,200
Convertible debt —
—
Diluted shares 61,486,325
61,332,451
Net income per share:
Basic $ 0.02
$ 0.10
Diluted $ 0.02
$ 0.09

For the three and six months ended June 30, 2019, certain potential outstanding shares from stock options, restricted stock units and convertible debt were excluded from the computation of diluted net income per share because the effect of including these items was anti-dilutive. Additionally, certain performance-based restricted stock units were excluded from the computation of diluted net income per share because the underlying performance conditions for such restricted stock units had not yet been met.

~~The number of potential common share equivalents excluded from the computation of diluted net income (loss) per share for the three and six months ended June 30, 2019 and 2018 are as follows:~~

June 30, 2019 June 30, 2018
Three Months Ended Six Months Ended Three and Six Months Ended
1.25% Convertible Senior Notes 5,910,954
5,910,954
5,910,954
1.375% Convertible Senior Notes 4,319,429
4,319,429
4,319,429
Unvested restricted stock units 426,550
421,776
914,710
Stock options 181,132
231,289
3,199,238
Total 10,838,065
10,883,448
14,344,331

~~Note 7.~~ Inventories

At the end of each period, inventories were comprised of the following:


(in millions)	June 30, 2020		December 31, 2019
Raw materials	$	33.7	$	23.3
Work-in-process	37.2		40.3
Finished goods	32.8		37.4
Total inventories	$	103.7	$	101.0

Note 6. Goodwill and Other Intangible Assets, Net

The change in the carrying amount of goodwill for the six months ended June 30, 2020 was as follows:


	(in millions)
Goodwill at December 31, 2019	$	39.8
Foreign currency translation	(0.2)
Goodwill at June 30, 2020	$	39.6

Table of Contents

As of
(in thousands) June 30, 2019 December 31, 2018
Raw materials $ 17,960
$ 10,347
Work-in-process 26,979
30,222
Finished goods 40,170
30,845
Total inventories $ 85,109
$ 71,414
The gross carrying amount, accumulated amortization and net book value of intangible assets at the end of each period were as follows:


	June 30, 2020										December 31, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer relationships ⁽¹⁾	$	9.9	$	(3.3)	$	6.6	$	9.9	$	(2.8)	$	7.1
Internal-use software	11.2		(7.8)		3.4		12.0		(6.8)		5.2
Intellectual property	1.0		(0.1)		0.9		1.0		(0.1)		0.9
Total	$	22.1	$	(11.2)	$	10.9	$	22.9	$	(9.7)	$	13.2

⁽¹⁾
Includes customer relationships acquired from the Company’s former European distributor. See Note 9.

Amortization expense for intangible assets was $0.7 million and $0.6 million for the three months ended June 30, 2020 and 2019, respectively. Amortization expense for intangible assets was $1.5 million and $1.2 million for the six months ended June 30, 2020, and 2019, respectively. Amortization expense associated with intangible assets included on the Company’s balance sheet as of June 30, 2020 is expected to be as follows:


Years Ending December 31,	(in millions)
2020 (remaining)	$	1.3
2021	2.2
2022	1.6
2023	1.2
2024	1.1
Thereafter	3.5
Total	$	10.9

Note ~~8. Goodwill and Other Intangible Assets, Net~~

~~The changes in the carrying amounts of goodwill for the six months ended June 30, 2019 were as follows:~~

(in thousands)
Goodwill at December 31, 2018 $ 39,646
Foreign currency translation 93
Goodwill at June 30, 2019 $ 39,739

~~The gross carrying amount, accumulated amortization and net book value of intangible assets at the end of each period were as follows:~~

As of
June 30, 2019 December 31, 2018
(in thousands) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value
Customer and contractual relationships $ 9,850
$ (2,326 ) $ 7,524
$ 6,109
$ (1,880 ) $ 4,229
Internal-use software 10,581
(5,940 ) 4,641
11,262
(5,108 ) 6,154
Intellectual property 875
—
875
—
—
—
Total $ 21,306
$ (8,266 ) $ 13,040
$ 17,371
$ (6,988 ) $ 10,383

Amortization expense for intangible assets was $0.6 million and $0.4 million for the three months ended June 30, 2019 and 2018, respectively. Amortization expense for intangible assets was $1.2 million and $0.8 million for the six months ended June 30, 2019 and 2018, respectively.

~~Estimated future amortization expense by year is as follows:~~

Years Ending December 31, (in thousands)
2019 (remaining) $ 1,405
2020 2,547
2021 2,043
2022 1,460
2023 1,021
Thereafter 4,564
Total $ 13,040

~~Note 9.~~7. Accrued Expenses and Other Current Liabilities

The components of accrued expenses and other current liabilities were as follows:

As of
(in thousands) June 30, 2019 December 31, 2018
Employee compensation and related costs $ 34,348
$ 37,822
Professional and consulting services 12,856
14,925
Supplier purchases 3,089
7,742
Value added taxes payable 3,527
8,463
Other 27,201
21,205
Accrued expenses and other current liabilities $ 81,021
$ 90,157


(in millions)	June 30, 2020		December 31, 2019
Employee compensation and related costs	$	32.6	$	45.9
Accrued rebates	10.3		7.5
Supplier purchases	4.7		2.4
Value added taxes payable	3.9		1.8
Deferred revenue	5.0		3.2
Other	42.3		42.4
Accrued expenses and other current liabilities	$	98.8	$	103.2

Product Warranty Costs

The Company provides a four-year warranty on Personal Diabetes Managers (“PDMs”) sold in the United States and Europe and a five-year warranty on PDMs sold in Canada and may replace Pods that do not function in accordance with product specifications. The Company estimates its warranty at the time the product is shipped based on historical experience and the estimated cost to service the claims. Since the Company continues to introduce new products and versions, the anticipated performance of the product over the warranty period is also considered in estimating warranty reserves. Warranty expense is recorded in cost of ~~goods sold~~revenue in the consolidated statements of operations. Cost to service the claims reflects the current product cost. ~~A reconciliation~~

The following table is a summary of the ~~changes in~~activity related to the Company’s product warranty ~~liability is as follows:~~liability:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Product warranty liability at beginning of period	$	8.3	$	6.3	$	8.5	$	6.4
Warranty expense	2.7		3.1		5.2		5.3
Warranty claims settled	(2.9)		(2.8)		(5.6)		(5.1)
Product warranty liability at the end of period	$	8.1	$	6.6	$	8.1	$	6.6

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2019 2018 2019 2018
Product warranty liability at beginning of period $ 6,283
$ 5,386
$ 6,379
$ 5,337
Warranty expense 3,147
1,529
5,366
3,501
Warranty claims settled (2,791 ) (1,412 ) (5,106 ) (3,335 )
Product warranty liability at end of period $ 6,639
$ 5,503
$ 6,639
$ 5,503

Note 8. Convertible Debt, Net

The components of outstanding convertible debt consisted of the following:

The carrying amount and the estimated fair value of the Company’s convertible debt, which is based on the Level 2 quoted market prices, were as follows:


	June 30, 2020						December 31, 2019
(in millions)	Carrying Value		Estimated Fair Value ⁽¹⁾		Carrying Value		Estimated Fair Value ⁽¹⁾
1.375% Convertible Senior Notes, due November 2024	$	315.2	$	512.8	$	306.9	$	512.8
0.375% Convertible Senior Notes, due September 2026	595.0		867.0		581.0		840.0
Total	$	910.2	$	1,379.8	$	887.9	$	1,352.8

⁽¹⁾Fair value was determined using market prices obtained from third-party pricing sources.

~~Product warranty liability was included in the following consolidated balance sheet accounts in the amounts shown:~~

As of
(in thousands) June 30, 2019 December 31, 2018
Accrued expenses and other current liabilities $ 2,906
$ 2,701
Other liabilities 3,733
3,678
Total $ 6,639
$ 6,379

Note ~~10.~~9. Commitments and Contingencies

Between May 5, 2015 and June 16, 2015, ~~three~~3 class action lawsuits were filed by shareholders in the U.S. District Court, for the District of Massachusetts, against the Company and certain ~~individual~~then current and former executives of the Company. ~~Two~~NaN suits subsequently were voluntarily dismissed. Arkansas Teacher Retirement System v. Insulet, et al., 1:15-cv-12345, (“ATRS”) alleged that the Company (and certain then current and former executives) committed violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making allegedly false and misleading statements about the Company’s business, operations and prospects. On February 8, 2018, the parties executed a binding stipulation of settlement, under which all claims were released, and a payment was made into an escrow account for the plaintiffs and the class they purport to represent. On August 6, 2018, the Court issued an order approving the ~~settlement.~~settlement, but took the plaintiffs’ motion for fees and expenses under advisement, which motion remains pending. The Company had previously accrued fees and expenses in connection with this matter for the amount of the final settlement liability that was not covered by insurance, the amount of which was not material to the ~~Company's~~Company’s consolidated financial statements.

In addition, on April 26, 2017, a derivative action (Walker v. DeSisto, et al., 1:17-cv-10738) (“Walker”) was filed, and on October 13, 2017, a second derivative action (Carnazza v. DeSisto, et al., 1:17-cv-11977) (“Carnazza”) was filed, both on behalf of the Company, each by a shareholder in the U.S. District Court for the District of Massachusetts against the Company (as a nominal defendant) and certain individual then current and former officers and directors of the Company. The allegations in the actions are substantially similar to those alleged in the securities class action. The actions seek, among other things, damages, disgorgement of certain types of compensation or profits, and attorneys’ fees and costs. On July 11, 2018, the parties executed a binding stipulation of settlement, under which all claims were released, and a payment of attorneys’ fees and reimbursement of expenses will be paid to plaintiffs’ counsel, subject to the Court’s approval. On July 13, 2018, the plaintiffs filed a motion for preliminary approval of the settlement, which is pending. The Company expects that such fees and expenses payable to ~~plaintiff's~~plaintiff’s counsel will be covered by the ~~Company's~~Company’s insurance.

In June 2020, Roche Diabetes Care, Inc. (“Roche”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware alleging that the Company’s manufacture and sale of its Omnipod Insulin Management System, Omnipod Starter Kit and Omnipod 10 Pod Pack in the United States infringed Roche’s now-expired U.S. Patent 7,931,613. Roche is seeking monetary damages and attorneys’ fees and costs. Since the patent expired in 2019, Roche is not seeking injunctive relief and the lawsuit will have no impact on ongoing sales of the Company’s products. The Company believes that it has meritorious defenses to Roche’s claims and intends to vigorously defend against them. At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or range of estimates, of potential losses. The court has not yet set a schedule for the case.

In July 2020, the Company filed a patent infringement claim against Roche Diabetes Care Limited (“Roche Ltd.”) in the United Kingdom alleging that Roche Ltd.’s manufacture and sale of the Accu-Chek® Solo insulin pump and its consumable components infringes European Patent No. 1 335 764 in the United Kingdom. The Company is seeking an injunction to last until expiry of the patent and monetary damages.

The Company is, from time to time, involved in the normal course of business in various legal proceedings, including intellectual property, contract, employment and product liability suits. ~~Although~~Other than as described above, the Company ~~is unable to quantify~~does not expect the ~~exact financial impact of any~~outcome of these ~~matters,~~proceedings, either individually or in the ~~Company believes that none~~aggregate, to have a material adverse effect on its results of ~~these currently pending matters will have an outcome material to its financial condition or business.~~operations.

Fees Toto Former European Distributor

Following the expiration of an agreement with a former European distributor on June 30, 2018, the Company was 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. The Company recognized a liability and an associated intangible asset for this fee as qualifying sales occurred. The methodology applicable for determining the total fee under ~~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. The Company estimates that the final aggregate fee is in the range of $5 million to $55 ~~million.~~million. As of both June 30, 2020 and December 31, 2019, the Company had ~~recognized~~$2.7 million accrued related to this matter. The associated gross intangible asset was $7.8 million ~~for fees related to Omnipod devices sold to qualifying customers during the period from July 1, 2018 through~~at both June 30, 2020 and December 31, 2019.

Note ~~11. Leases~~10. Accumulated Other Comprehensive Loss

As discussed in Note 2, ASC 842 requires lessees to recognize ROU assets and lease liabilities on the balance sheet for those leases classified as operating leases. In accordance with ASC 842, the Company determines if an arrangement is a lease at inception. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. The Company uses its incremental borrowing rate in determining the present value of future payments since most of its leases do not provide an implicit interest rate. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. On January 1, 2019, upon the adoption of ASC 842, the Company recorded ROU assets of $8.8 million and operating lease liabilities of $10.8 million on its consolidated balance sheet. The difference between the approximate value of the ROU assets and the approximate value of the lease obligations is primarily attributable to a former cease-use liability.

~~The Company leases approximately 100,000~~ square feet of laboratory and office space in Billerica, Massachusetts. The lease expires in November 2022 and contains escalating payments over its life. Additionally, the Company leases approximately 29,000 square feet of warehousing space in Billerica, Massachusetts under a lease expiring in September 2019. The Company also leases international and certain other U.S. facilities. These operating leases expire at various dates through 2026, some of which may include options to extend the leases for up to 5 years, and some of which may include options to terminate the leases at certain times within the lease term. ~~In the normal course of business, it is expected that these leases will be renewed.~~

~~The Company's total operating lease cost, which is recorded in general and administrative expenses~~Changes in the ~~consolidated statements~~components of ~~operations, was $0.9 million and $1.8 million for the three and six months ended June 30, 2019, respectively. Cash paid for amounts included in the measurement~~accumulated other comprehensive loss, net of ~~lease liabilities was~~ ~~$0.8 million and $1.6 millionfor three and six months ended June 30, 2019, respectively. The future minimum undiscounted lease payments under operating leases~~tax, were as ~~of June 30, 2019 are as~~ follows:


	Three Months Ended June 30, 2020										Six Months Ended June 30, 2020
(in millions)	Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss		Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss
Balance at beginning of period	$	(5.0)	$	1.2	$	(3.8)	$	(1.6)	$	0.4	$	(1.2)
Other comprehensive income (loss)	0.6		(0.4)		0.2		(2.8)		0.4		(2.4)
Balance at the end of period	$	(4.4)	$	0.8	$	(3.6)	$	(4.4)	$	0.8	$	(3.6)

Years Ending December 31, (in thousands)
2019 (remaining) $ 1,659

2020 2,955

2021 2,899

2022 2,575

2023 269

Thereafter 561

Total future minimum lease payments 10,918

Less: imputed interest (1,089 )
Present value of future minimum lease payments $ 9,829

~~As of June 30, 2019, ROU assets and operating lease liabilities were included in the following consolidated balance sheet accounts in the amounts shown:~~


	Three Months Ended June 30, 2019										Six Months Ended June 30, 2019
(in millions)	Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss		Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss
Balance at beginning of period	$	(3.0)	$	(0.1)	$	(3.1)	$	(2.2)	$	(0.7)	$	(2.9)
Other comprehensive income	(0.4)		0.7		0.3		(1.2)		1.3		0.1
Balance at the end of period	$	(3.4)	$	0.6	$	(2.8)	$	(3.4)	$	0.6	$	(2.8)

As of June 30, 2019 (in thousands)
ROU asset:
Other assets $ 8,020

Operating lease liabilities:
Accrued expenses and other current liabilities $ 2,333

Other liabilities 7,496

Total $ 9,829

Note 11. Interest Expense

Interest expense, net was as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Contractual coupon interest	$	2.2	$	2.5	$	4.3	$	4.9
Accretion of debt discount	10.5		7.1		20.9		14.0
Amortization of debt issuance costs	0.7		0.7		1.4		1.4
Capitalized interest	(1.6)		(2.6)		(3.2)		(6.0)
Interest expense, net of portion capitalized	11.8		7.7		23.4		14.3
Interest income	(0.7)		(1.9)		(2.2)		(3.7)
Interest expense, net	$	11.1	$	5.8	$	21.2	$	10.6

Note 12. Stock-Based Compensation

~~The following table reflects the Company's stock-based compensation~~Compensation expense related to ~~share-based~~stock-based awards ~~for the three and six months ended June 30, 2019 and 2018:~~

Three Months Ended June 30, Six Months Ended June 30, Unamortized Expense Weighted Average Remaining Expense Period (Years)
($ in thousands) 2019 2018 2019 2018 At June 30, 2019
Stock options $ 1,583
$ 2,272
$ 3,223
$ 4,630
$ 10,906
2.7
Restricted stock units 6,393
4,371
10,137
9,899
39,369
2.2
Employee stock purchase plan 318
294
718
588
739
0.4
Total $ 8,294
$ 6,937
$ 14,078
$ 15,117
$ 51,014

was recorded as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Cost of revenue	$	0.1	$	0.3	$	0.2	$	0.6
Research and development expenses	2.3		2.4		5.0		4.2
Selling, general and administrative expenses	3.4		5.6		8.5		9.3
Total	$	5.8	$	8.3	$	13.7	$	14.1

~~The following summarizes stock option activity for the six months ended June 30, 2019:~~

Value (in thousands)

Remaining Contractual Term (years)

Vested or expected to vest, June 30, 2019 ⁽¹⁾

Note 13. ~~Interest Expense~~Income Taxes

~~Interest expense, net of portion capitalized was as follows:~~

~~Note 14. Income Tax Expense~~

The ~~Company's~~Company’s effective tax rate for the three and six months ended June 30, ~~2019~~2020 was ~~a positive rate of~~ ~~25.6%~~17.2% and ~~12.3%~~17.0%, compared with ~~a negative rate of~~ ~~32.2%~~25.6% and ~~9.9%~~12.3% for the ~~same periods of 2018.~~ ~~The negative effective tax rate in the 2018 periods resulted from recording state income~~three and ~~foreign taxes in jurisdictions with taxable income, mainly the United Kingdom and Canada.~~six months ended June 30, 2019. Income tax benefits have not been recorded for losses in jurisdictions where valuation allowances exist against net deferred tax ~~assets;~~assets, primarily in the United States. As of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Company maintained a full valuation allowance against its U.S. net deferred tax assets based on the determination that it is not more likely than not these future benefits will be ~~realized before expiration.~~realized. The Company had no uncertain tax positions at both June 30, 2020 and December 31, 2019.

In April 2020, new interpretations of a German tax law related to intellectual property and withholding tax were released. The Company is evaluating whether these new interpretations, applicable to corporate multinationals, will have an impact on the consolidated financial statements.

Note 14. Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed using the weighted average number of common shares outstanding and, when dilutive, common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method), and potential common shares from the Company’s convertible notes (using the if-converted method). The weighted-average number of common shares used in the computation of basic and diluted net income per share were as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
(in millions)	2020	2019	2020	2019
Weighted average number of common shares outstanding, basic	64,370,791	59,844,991	63,627,231	59,601,365
Stock options	1,086,474	1,479,713	1,129,985	1,513,886
Restricted stock units	121,248	161,621	212,971	217,200
Weighted average number of common shares outstanding, diluted	65,578,513	61,486,325	64,970,187	61,332,451

The number of common share equivalents excluded from the computation of diluted net income per share because either the effect would have been anti-dilutive, or the performance criteria related to the units had not yet been met, were as follows:


	Three Months Ended June 30,			Six Months Ended June 30,
	2020	2019	2020	2019
1.25% Convertible Senior Notes	—	5,910,954	—	5,910,954
1.375% Convertible Senior Notes	4,319,429	4,319,429	4,319,429	4,319,429
0.375% Convertible Senior Notes	3,528,400	—	3,528,400	—
Unvested restricted stock units	298,600	426,550	356,577	421,776
Stock options	66,855	181,132	52,069	231,289
Total	8,213,284	10,838,065	8,256,475	10,883,448

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Item 2. ~~Management's~~Management’s Discussion and Analysis of Financial Condition and Results of Operations

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~~2019 and in this quarterly report.

Overview

We are primarily engaged in the development, ~~manufacturing~~manufacture 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~~a 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~~up to three days at a time; and its wireless companion, the handheld Personal Diabetes ~~Manager (“PDM”).~~Manager. The Omnipod System, which features discreet and easy-to-use devices 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~~Omnipod System’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 non-insulin subcutaneous drugs across other therapeutic areas. ~~The majority~~Most of our drug delivery revenue currently consists of sales of Pods to Amgen ~~supplying~~for use in the Neulasta^® Onpro^® kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection ~~during~~after intense chemotherapy.

~~In June 2018,~~Our mission is to improve the ~~FDA cleared~~lives of people with diabetes. To assist in achieving this mission, we are focused on the following key strategic imperatives:

•delivering consumer-focused innovation;

•ensuring the best customer experience globally;

•expanding our ~~Omnipod DASH~~^TM ~~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~~global footprint; 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%.~~•driving operational excellence.

Our long-term financial objective is to sustain profitable growth. WeTo achieve this goal, we expect our efforts ~~for the remainder of 2019~~in 2020 to focus primarily on the pivotal trial in the United States for Omnipod 5, powered by Horizon™ (“Omnipod 5”), our automated insulin delivery system. In order to support our continued growth and the expected launch of Omnipod 5 in the first half 2021, we continue to focus on adding capacity to our U.S. manufacturing plant. During the first quarter of 2020, we began producing salable product on our second manufacturing line in the U.S. and ~~business model innovation~~we plan to install a third line in the second half of 2020, on which production is expected in 2021.

Additionally, in 2020, we had planned to further roll out our Omnipod DASH^TM Insulin Management System (“Omnipod DASH”), our next generation digital mobile Omnipod platform, in Europe and ~~product development, including~~Canada and enter five new countries in Western Europe and the ~~continued~~Middle East to expand the commercial sale of Omnipod and our global footprint. We are still committed to the further roll out of Omnipod DASH ~~expanding penetration~~and to entering new countries, although the timing has shifted to early 2021 primarily due to the coronavirus pandemic discussed under Recent Developments below. This change in expected timing will not have a material impact on our ~~existing markets, working with Medicare, Medicaid~~2020 revenues since we did not expect these actions to have a meaningful contribution in 2020, although they are expected to contribute to our long-term growth.

Finally, we plan to continue our product development efforts and ~~commercial payors~~expand awareness of and ~~intermediaries~~access to ~~further expand access, and ramping up production at~~ our ~~new, highly automated U.S. manufacturing facility.~~products. Achieving ~~these objectives~~the above strategic imperatives is expected to require additional investments in certain initiatives and personnel, as well as enhancements to our supply chain operation capacity, efficiency and effectiveness.

Recent Developments

~~Components~~A novel strain of ~~Financial Operations~~coronavirus (“COVID-19”) was identified in China in December 2019, and subsequently declared a pandemic by the World Health Organization in March 2020. The COVID-19 outbreak in China resulted in abnormally low production at our contract manufacturer in China during the first two months of the year, which resulted in incremental depreciation expense for under-utilized plant capacity for those two months. In response to this outbreak, we took measures to ensure our ability to continue to provide product to our customers, including providing manufacturing incentives to our contract manufacturer in China and utilizing expedited, but more costly, shipping measures to transport product from China. In addition, we implemented strict screening and additional sanitation measures.

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~~Revenue.~~ ~~We derive the majority~~China, where we manufacture a significant portion of our ~~revenue~~products, has begun to experience recovery from ~~Omnipod sales. We also sell devices based on the Omnipod System technology~~COVID-19 and we have been able 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~~produce at normal capacity since March. Additionally, our ~~product development, regulatory and clinical functions, as well as innovations related to~~second highly automated manufacturing line in 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~~plant has provided additional manufacturing redundancy to help mitigate manufacturing risks stemming from COVID-19. Once fully ramped, we expect the ~~date we produce salable product. After this date, these operational costs are included~~two highly-automated lines in ~~cost~~our U.S. manufacturing plant to provide us with capacity in the U.S. that is equivalent to all our current lines in China. Refer to Item 1A. Risk Factors for a discussion of ~~revenue.~~COVID-19 risks.

~~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


	Three Months Ended June 30,
(dollars in millions)	2020		2019		Percent Change		Currency Impact		Constant Currency⁽¹⁾
Revenue:
U.S. Omnipod	$	128.8	$	98.1	31.3	%	—	%	31.3	%
International Omnipod	73.2		62.7		16.7	%	(3.0)	%	19.7	%
Total Omnipod	202.0		160.8		25.6	%	(1.2)	%	26.8	%
Drug Delivery	24.3		16.3		49.1	%	—	%	49.1	%
Total	$	226.3	$	177.1	27.8	%	(1.0)	%	28.8	%

Three Months Ended June 30, Six Months Ended June 30,
(in thousands) 2019 2018 Change $ Change % 2019 2018 Change $ Change %
Revenue:
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 %


	Six Months Ended June 30,
(dollars in millions)	2020		2019		Percent Change		Currency Impact		Constant Currency⁽¹⁾
Revenue:
U.S. Omnipod	$	245.4	$	184.2	33.2	%	—	%	33.2	%
International Omnipod	146.3		119.6		22.3	%	(3.2)	%	25.5	%
Total Omnipod	391.7		303.8		28.9	%	(1.3)	%	30.2	%
Drug Delivery	32.6		32.9		(0.9)	%	—	%	(0.9)	%
Total	$	424.3	$	336.7	26.0	%	(1.1)	%	27.1	%

⁽¹⁾ Constant currency revenue growth is a non-GAAP financial measure, which should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. See “Management’s Use of Non-GAAP Measures.”

Revenue

Total revenue for the three months ended June 30, ~~2019~~2020 increased ~~$52.9~~$49.2 million, or ~~43%~~27.8%, to ~~$177.1~~$226.3 million, compared with $177.1 million for the three months ended June 30, ~~2018,~~2019. Constant currency revenue growth of 28.8% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix.

Total revenue for the six months ended June 30, 2020 increased $87.6 million, or 26.0%, to $424.3 million, compared with $336.7 million for the six months ended June 30, 2019. Constant currency revenue growth of 27.1% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix.

U.S. Omnipod

U.S. Omnipod revenue for the three months ended June 30, 2020 increased $30.7 million, or 31.3%, to $128.8 million, compared with $98.1 million for the three months ended June 30, 2019. This increase was primarily due to higher volumes driven by growing our customer base, and to a lesser extent, an increase in days-on-hand inventory at distributors due to both continued growth of DASH adoption and COVID-19. The increase was also due to growth through the pharmacy channel, where Pods have a higher average selling price due in ~~our International and~~ part to the fact that we offer the PDM for no charge.

U.S. Omnipod ~~revenue.~~ revenue for the six months ended June 30, 2020 increased $61.2 million, or 33.2%, to $245.4 million, compared with $184.2 million for the six months ended June 30, 2019. This increase was primarily due to higher volumes driven by growing our customer base, and to a lesser extent, an increase in days-on-hand inventory at distributors due to both continued growth of DASH adoption and COVID-19. The increase was also due to growth through the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM for no charge. For full year 2020, we expect strong Omnipod revenue growth driven by continued market penetration and volume growth of Omnipod DASH, primarily in the pharmacy channel. We expect this revenue growth to be partially offset by the impact of lower new Omnipod starts stemming from COVID-19.

International Omnipod

International Omnipod revenue for the three months ended June 30, 2020 increased ~~$34.2~~$10.5 million, or ~~120%~~16.7%, to $73.2 million, compared with $62.7 million ~~over~~for the ~~same period~~three months ended June 30, 2019. Excluding the 3.0% unfavorable impact of currency exchange,

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the remaining 19.7% increase in ~~2018. The growth in International Omnipod~~ revenue was primarily driven by ~~an increase in our customer base~~higher volumes as we continue to expand awareness and access to the Omnipod ~~as well as favorable pricing as~~and, to a ~~result of our shift to direct sales of the Omnipod~~lesser extent, an increase 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~~days-on-hand inventory at distributors due to ~~higher volumes, including the launch of~~COVID-19.

International 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~~2020 increased ~~$88.9~~$26.7 million, or ~~36%~~22.3%, to ~~$336.7~~$146.3 million, compared with $119.6 million for the six months ended June 30, 2019. Excluding the 3.2% unfavorable impact of currency exchange, the remaining 25.5% increase in revenue was primarily driven by higher volumes as we continue to expand awareness and access to the Omnipod and, to a lesser extent, an increase in days-on-hand inventory at distributors due to COVID-19. Similar to in the U.S, for the full year 2020, we expect higher International Omnipod revenue due to continued volume growth and market penetration. We expect this revenue growth to be partially offset by the impact of lower new Omnipod starts stemming from COVID-19.

Drug Delivery

Drug Delivery revenue for the three months ended June 30, 2020 increased $8.0 million, or 49.1%, to $24.3 million, compared with $16.3 million for the three months ended June 30, 2019, due to increased demand driven by COVID-19 and shift in the timing of production between the first and second quarter.

Drug Delivery revenue for the six months ended June 30, 2020 was relatively level 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~~2019. For full year 2020, we ~~continue to expand awareness of and access to the Omnipod.~~expect 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 primarilyto increase 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.demand forecast resulting from COVID-19.

Operating Expenses


	Three Months Ended June 30,														Six Months Ended June 30,
	2020						2019						2020				2019
(dollars in millions)	Amount		Percent of Revenue		Amount		Percent of Revenue		Amount		Percent of Revenue		Amount		Percent of Revenue
Cost of revenue	$	83.8	37.0	%	$	60.7	34.3	%	$	154.9	36.5	%	$	113.6	33.7	%
Research and development expenses	$	34.2	15.1	%	$	33.0	18.6	%	$	69.7	16.4	%	$	65.5	19.5	%
Selling, general and administrative expenses	$	80.8	35.7	%	$	75.8	42.8	%	$	164.7	38.8	%	$	142.7	42.4	%

Cost of Revenue

Cost of revenue for the three months ended June 30, ~~2019~~2020 increased ~~$18.5~~$23.1 million, or ~~44%~~38.1%, to ~~$60.7~~$83.8 million, compared with ~~the same period in 2018 and increased $23.6~~$60.7 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~~2019. Gross margin was 63.0% for the three months ended June 30, ~~basis points to 65.7%,~~2020, compared with 65.7% for the ~~same period in 2018.~~three months ended June 30, 2019. The ~~slight~~270 basis point decrease in gross margin ~~which we expected,~~ was primarily due to start-up costs and inefficiencies related to our new U.S. manufacturing ~~operations.~~operations, and $3.4 million for recruiting and screening expenses, expedited shipping costs and manufacturing incentives associated with our contract manufacturer in China as a result of the coronavirus pandemic. This decrease was partially offset by a higher average selling price due to growth in the pharmacy channel.

~~Gross margin~~Cost of revenue for the six months ended June 30, ~~2019~~2020 increased ~~260 basis points~~$41.3 million, or 36.4%, to ~~66.3%,~~$154.9 million, compared with $113.6 million for the ~~same period in 2018.~~six months ended June 30, 2019. Gross margin was 63.5% for the six months ended June 30, 2020, compared with 66.3% for the six months ended June 30, 2019. The ~~increase~~280 basis point decrease 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.~~operations as well as two months of higher depreciation expense for under-utilized plant capacity, recruiting and screening expenses, expedited shipping costs and manufacturing incentives totaling $6.5 million associated with our contract manufacturer in China as a result of the coronavirus pandemic. This decrease was partially offset by higher average selling price due to growth in the pharmacy channel. We expect full year ~~2019~~2020 gross margin to be ~~relatively level with 2018,~~approximately 63%, which reflects an estimated $7 to $10 million of costs resulting from the coronavirus pandemic, in addition to start-up costs and inefficiencies as ~~the benefits of~~we continue to ramp up our U.S. manufacturing operations, partially offset by continued improvements in our global manufacturing and supply chain operations and the ~~full year effect of our mid-2018 transition to direct commercial operations~~move into the pharmacy channel in ~~Europe is expected to be offset by start-up costs and inefficiencies as we ramp up our new U.S. manufacturing operations.~~the United States.

Research and Development Expenses

Research and development expenses for the three months ended June 30, ~~2019~~2020 increased ~~$13.5~~$1.2 million, or ~~72%~~3.6%, to ~~$32.3~~$34.2 million, compared with $33.0 million for the ~~same period~~three months ended June 30, 2019. This increase was primarily due to spend related to Omnipod 5, partially offset by reduced spend on Omnipod DASH, which was launched in ~~2018~~the prior year period.

Research and development expenses for the six months ended June 30, 2020 increased ~~$25.2~~$4.2 million, or ~~64%~~6.4%, to ~~$64~~$69.7 million, compared with $65.5 million for the six months ended June 30, ~~2019, compared with~~2019. This increase was primarily due to spend related to Omnipod 5, partially offset by reduced spend on Omnipod DASH, which was launched in 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~~^® ~~Horizon~~^TM 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~~2020 to increase compared with ~~2018.~~2019.

~~Sales~~

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Selling, General and ~~Marketing~~Administrative Expenses

~~Sales~~Selling general and ~~marketing~~administrative expenses for the three months ended June 30, ~~2019~~2020 increased ~~$10.8~~$5.0 million, or ~~30%~~6.6%, to ~~$47.4~~$80.8 million, compared with $75.8 million for the ~~same period~~three months ended June 30, 2019. This increase was primarily attributable to investments in ~~2018~~initiatives to support our growth, as well as headcount year over year, primarily associated with the expansion of our U.S. sales force. These increases were partially offset by a decrease in travel and entertainment expenses due to reduced activity resulting from COVID-19.

Selling general and administrative expenses for the six months ended June 30, 2020 increased ~~$19.4~~$22 million, or ~~28%~~15.4%, to ~~$89.0~~$164.7 million, compared with $142.7 million for the six months ended June 30, 2019 ~~compared with the same prior year period. These increases were~~. This increase was primarily attributable to investments in customer support and other initiatives to support our ~~mid-2018 transition to direct sales of Omnipod in Europe~~growth, as well as headcount year over year, primarily associated with the expansion of our U.S. sales force. These increases were partially offset by a decrease in travel and entertainment expenses due to reduced activity resulting from COVID-19. We expect ~~sales~~selling, general and ~~marketing~~administrative expenses for the full year ~~2019~~2020 to increase compared with ~~2018~~2019 due to ~~additional~~ expansion of our U.S. sales force and customer support personnel and investments in our operating structure to ~~support~~facilitate our continued ~~growth and the full year effect of our transition~~growth.

Non-Operating Items

Interest Expense, Net

Net interest expense increased $5.3 million to ~~direct sales in Europe.~~

~~General and Administrative~~

~~General and administrative expenses~~$11.1 million for the three months ended June 30, 2020, compared with $5.8 million for the three months ended June 30, 2019. This increase was driven by a $3.4 million increase in non-cash interest expense associated with our 0.375% Notes issued in September 2019, a $1.2 million decrease in interest income due to lower market rates and a shift in a portion of our investment portfolio to more liquid investments and a $1.0 million decrease in capitalized interest primarily due to the placement of our first U.S. manufacturing line into service during the second quarter of 2019.

Net interest expense increased ~~$6.8~~$10.6 million ~~or 30%,~~ to ~~$29.2~~$21.2 million for the six months ended June 30, 2020, compared with $10.6 million for the six months ended June 30, 2019. This increase was driven by a $6.9 million increase in non-cash interest expense associated with our 0.375% Notes issued in September 2019 and a $2.8 million decrease in capitalized interest primarily due to the placement of our first U.S. manufacturing line into service during the second quarter of 2019, as well as a $1.5 million decrease in interest income due to lower market rates and a shift in a portion of our investment portfolio to more liquid investments.

Other Income, Net

During the three months ended June 30, 2020, we had other income, net of $1.0 million, compared with $0.1 million for the ~~same period~~three months ended June 30, 2019. The increase in ~~2018 and increased $10.1~~other income was primarily driven by unrealized foreign currency gains due to the change in exchange rates.

During the six months ended June 30, 2020, we had other income, net of $1.0 million, ~~or 23%, to $55.0~~compared with $2.3 million for the six months ended June 30, 2019, ~~compared with the same prior year period. These increases were~~The decrease in other income was primarily ~~attributable to severance-related charges~~driven by a $1.8 million insurance recovery for ~~certain executives as well as increased personnel-related costs related to 2018 hires to support the establishment~~damaged inventory in excess of our ~~direct operations in Europe. We expect general~~cost received during the six months ended June 30, 2019.

Income Tax Expense, Net

Income tax expense was $3.0 million 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,~~$0.5 million for the three months ended June 30, 2020 and 2019, ~~increased $0.1~~respectively. This resulted in effective tax rates of 17.2% and 25.6% for the three months ended June 30, 2020 and 2019, respectively. The decrease in the effective tax rate was driven by a shift in expected geographic mix of income.

Income tax expense was $2.5 million ~~or 2%, to $5.7 million, compared with the same period in 2018~~ and ~~decreased $3.6 million, or 30%, to $8.3~~$0.8 million for the six months ended June 30, 2020 and 2019, ~~compared~~respectively. This resulted in effective tax rates of 17.0% and 12.3% for the six months ended June 30, 2020 and 2019, respectively. The increase in the effective tax rate was driven by a shift in expected geographic mix of income.

Adjusted EBITDA

The table below presents reconciliations of Adjusted EBITDA, a non-GAAP financial measure, to net income, the most directly comparable financial measure prepared in accordance with accounting principles generally accepted in the ~~same~~United States of America (“GAAP”):


	Three Months Ended June 30,						Six Months Ended June 30,
(in millions)	2020		2019		2020		2019
Net income	$	14.4	$	1.4	$	12.3	$	5.8
Interest expense, net	11.1		5.8		21.2		10.6
Income tax expense	3.0		0.5		2.5		0.8
Depreciation and amortization	9.9		5.9		18.8		11.0
Stock-based compensation	5.8		8.3		13.7		14.1
Adjusted EBITDA	$	44.2	$	21.9	$	68.5	$	42.3

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Non-GAAP Financial Measures

Management uses the following non-GAAP financial measures:

Constant currency revenue growth measures the change in revenue between current and prior year periods using a constant currency, the exchange rate in effect during the applicable prior year period. ~~The decrease for~~We present constant currency revenue growth because we believe it provides meaningful information regarding our results on a consistent and comparable basis. Management uses this non-GAAP financial measure, in addition to financial measures in accordance with accounting principles generally accepted in the ~~sixth-month period was primarily due~~United States (“GAAP”), to evaluate our operating results. It is also one of the performance metrics that determines management incentive compensation.

Adjusted EBITDA represents net income (loss) plus net interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation and other significant unusual items, as applicable. We present Adjusted EBITDA because management uses it as a ~~$1.9 million increase~~supplemental measure in ~~interest capitalized associated with the construction~~assessing our operating performance, and we believe that it is helpful to investors, securities analysts and other interested parties as a measure of our ~~U.S. manufacturing facility~~comparative operating performance from period to period. We recognize Adjusted EBITDA as a commonly used measure in determining business value and as such, use it internally to report results. It is also one of the performance metrics that determines management incentive compensation.

These non-GAAP financial measures should be considered supplemental to, and not a ~~$1.8 million insurance settlement received.~~substitute for, our reported financial results prepared in accordance with GAAP. In addition, the above definitions may differ from similarly titled measures used by others. Non-GAAP financial measures exclude the effect of items that increase or decrease our reported results of operations; accordingly, we strongly encourage investors to review our consolidated financial statements in their entirety.

Liquidity and Capital Resources

As of June 30, ~~2019,~~2020, we had ~~$119.9~~$779.1 million in cash and cash equivalents and ~~$252.6~~$88.8 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,~~2020, we had ~~approximately $30~~$78.7 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,~~2020, the following notes were outstanding:


Issuance Date	Coupon	Principal Outstanding (in millions)		Due Date	Initial Conversion Rate per Share of Common Stock	Conversion Price per Share of Common Stock
November 2017	1.375%	$	402.5	November 2024	10.7315	$	93.2
September 2019	0.375%	800.0		September 2026	4.4105	$	226.7
Total		$	1,202.5

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

Additional information regarding our debt issuances is provided in Note 8 to the consolidated financial statements.

Summary of Cash Flows


								Six Months Ended June 30,
	Six Months Ended June 30,
(in thousands)	2019			2018
(in millions)							(in millions)	2020		2019
Cash provided by (used in):							Cash provided by (used in):
Operating activities	$	20,277		$	(10,395	)	Operating activities	$	22.8	$	20.4
Investing activities	(31,793		)	(117,103		)	Investing activities	80.6		(31.8)
Financing activities	17,747			(8,172		)	Financing activities	464.9		17.7
Effect of exchange rate changes on cash	(270		)	(661		)	Effect of exchange rate changes on cash	(2.9)		(0.3)
Net increase (decrease) in cash and cash equivalents	$	5,961		$	(136,331	)
Net increase in cash and cash equivalents							Net increase in cash and cash equivalents	$	565.4	$	6.0

Operating Activities

Net cash provided by operating activities ~~was~~ ~~$20.3~~of $22.8 million for the six months ended June 30, ~~2019,compared with~~2020 was primarily attributable to net income, as adjusted for non-cash interest, depreciation and amortization, and stock-based compensation, partially offset by a $46.9 million working capital cash ~~used~~outflow driven by a $13.9 million decrease in ~~operating~~accounts payable, accrued expenses and other current liabilities, a $14.0 million increase in prepaid expenses and other assets and a $13.8 million increase in accounts receivable. The decrease in accounts payable, accrued expenses and other current liabilities was driven by the annual payout of cash bonuses for performance in the prior year. The increase in prepaid expenses and other assets was driven by an increase unbilled revenue resulting

from an increase in demand for our Drug Delivery product. The $13.8 million increase in accounts receivable was primarily due to an increase in International Omnipod revenue and sales in the U.S. pharmacy channel, both of which generally have longer payment terms.

Investing Activities

Net cash provided by investing activities ~~of $10.4~~was $80.6 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.

Capital Spending—Capital expenditures were ~~$91.9~~$51.7 million for the six months ended June 30, 2020 and ~~$87.7~~primarily related to equipment to increase our manufacturing capacity. Capital expenditures of $91.9 million for the six months ended June 30, 2019 ~~and 2018, respectively,~~ were primarily associated with the construction of our manufacturing and corporate headquarters facility in Acton, ~~Massachusetts~~.Massachusetts. For the full year ~~2019,~~2020, we expect capital expenditures to be relatively consistent with ~~2018~~2019 as we continue to expand manufacturing capacity ~~in our U.S. operations~~ to support our growth and ~~profitability objectives.~~the launch of Omnipod 5 in the first half of 2021. 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~~Net sales of marketable securities were ~~$65.1 million, compared with net purchases of marketable securities of $27.2~~$132.8 million for the six months ended June 30, ~~2018.~~

Financing Activities

~~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~~Net cash provided by financing activities was $464.9 million for the six months ended June 30, ~~2019~~2020, compared with net cash provided by financing activities of $17.7 million for six months ended June 30, 2019.

Issuance of Common Stock—During the six months ended June 30, 2020, we sold 2.4 million common shares for $478.7 million in an underwritten registered offering. Net proceeds from the offering were $477.5 million. The proceeds provide us with additional liquidity to mitigate risk and ~~2018, respectively. Payments~~allow us to continue investing in the growth of our business and our strategic initiatives.

Option Exercises and Payment of Taxes for ~~taxes related to net restricted share settlements~~Restricted Stock Net Settlements—Total proceeds from option exercises were ~~$7.9~~$14.2 million and ~~$12.7~~$25.6 million for the six months ended June 30, 2020 and 2019, respectively. The $11.4 million decrease in proceeds from option exercises was primarily driven by the retirement of former executives in the prior year period. Payments for taxes related to net restricted and ~~2018, respectively.~~

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 for the applicable twelve-month period could be in the range of $5 million to $55 million, of which ~~$3.8~~$5.1 million had been paid as of June 30, ~~2019.~~

The significant estimates and judgments related to establishing litigation reserves are discussed under “Legal Proceedings” in Note 109 to the consolidated financial statements included in this Form 10-Q.

Off-Balance Sheet Arrangements

As of June 30, ~~2019,~~2020, we ~~did not~~had various outstanding letters of credit and bank guarantees totaling $2.9 million, none of which is individually significant. We have ~~any off-balance sheet financing arrangements.~~restricted cash that serves as collateral for these outstanding letters of credit and bank guarantees that are included in cash and cash equivalents on our consolidated balance sheet.

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,~~credit losses, 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.~~2019, except our accounting policy for our allowance for doubtful accounts (now termed allowance for credit losses). As of January 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326), as described in Note 1 to the consolidated financial statements in this Form 10-Q.

Accounting Standards Issued and Not Yet Adopted

In ~~January 2017,~~December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU ~~2017-04,~~2019-12, Income Taxes (Topic 740): Simplifying the ~~Test~~Accounting for ~~Goodwill Impairment~~Income Taxes. (“ASU ~~2017-04”). ASU 2017-04 requires~~2019-12 eliminates certain exceptions in the current guidance regarding the approach for intraperiod tax allocations, the methodology for calculating income taxes in an ~~entity to measure~~interim period and the ~~impairment~~recognition of ~~goodwill assigned to a reporting unit~~deferred tax liabilities for outside basis differences. This new guidance also simplifies the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies such things as the ~~amount by which~~accounting for transactions that result in a step up in the ~~carrying value~~tax basis of ~~the assets and liabilities of the reporting unit, including goodwill, exceeds the reporting unit's fair value.~~goodwill. The guidance is effective for us beginning in the first quarter of ~~2020. Early~~2021 with early adoption is permitted. We ~~do not expect~~are currently evaluating the ~~adoption~~impact of this guidance ~~to impact~~on our consolidated financial statements.

In ~~June 2016,~~August 2020, the FASB issued ASU ~~2016-13,~~2020-06, ~~Credit Losses~~Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, ~~(Topic 326)~~ (“which simplifies the accounting for convertible instruments by eliminating certain separation models. Under ASU ~~2016-13”). ASU 2016-13 requires financial assets measured~~2020-06, a convertible debt instrument will generally be reported as a single liability at its amortized cost ~~such as trade receivables~~with no separate accounting for embedded conversion features. Consequently, the interest rate of convertible debt instruments will be closer to the coupon interest rate. In addition, ASU 2020-06 eliminates the treasury stock method to calculate diluted earnings per share for convertible instruments and ~~contract assets, to be presented net~~requires the use 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 if-converted method. The guidance is effective for us beginning in the first quarter of ~~2020.~~2022 with early adoption permitted. The adoption of this ~~guidance is expected to increase~~standard will have no impact on our diluted earnings per share as we calculate earnings per share using the ~~level~~if-converted method. We are currently evaluating the impact of ~~disclosures related to our trade receivables, but is not expected to have a material impact~~the remaining provisions 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 public health crises and pandemics, such as the COVID-19 global pandemic, including the duration of the outbreak, government actions and restrictive measures implemented in response, supply chain disruptions, delays in clinical trials, and other impacts to the business, or on our ability to execute business continuity plans;

•risks associated with our dependence on our principal product platform, the ~~Omnipod;~~

•our ability to reduce production costs and increase customer orders and manufacturing volumes;

•adverse changes in general economic conditions;

•the impact of healthcare reform laws;

~~our ability to raise additional funds in the future on acceptable terms or at all;~~

•the potential establishment of a competitive bid program for conventional insulin pumps;

•failure to retain key supplies and/or supplier pricing discounts and achieve satisfactory gross margins;

~~failure to retain key suppliers;~~

•our inability to secure and retain adequate coverage or reimbursement from third-party payors for the Omnipod System or future products and potential adverse changes in reimbursement rates or policies relating to the Omnipod System 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 System or our inability to enter into new license or other agreements with respect to the ~~Omnipod's~~Omnipod System’s current or future features;

•challenges to the future development of our non-insulin drug delivery ~~business;~~ product line;

•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 System or future products;

•failure of our contract manufacturers or component suppliers to comply with the U.S Food and Drug ~~Administration's~~Administration’s quality system regulations;

•potential adverse impacts resulting from a recall, or discovery of serious safety issues, of the Omnipod System;

•the potential violation of the U.S. Foreign Corrupt Practices Act or any other ~~international,~~ federal, state or ~~state~~foreign anti-bribery/anti-corruption laws or laws prohibiting ~~"kickbacks"~~“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 and other 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;~~cyber attack;

•reduced retention rates of our customer base;

•unfavorable results of clinical studies relating to the Omnipod System 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;~~Omnipod System;

•the concentration ~~of substantially all~~ of our manufacturing operations atand storage of our inventory in a ~~single location in China and substantially all~~limited number of ~~Insulet's inventory at a single location in Massachusetts;~~ locations;

•our ability to attract and retain personnel;

•our ability to ~~manage~~scale our business to support revenue growth;

•risks associated with potential future acquisitions or investments in new businesses;

•our ability to generate sufficient cash to service all of our ~~indebtedness;~~indebtedness or raise additional funds on acceptable terms or at all;

•the expansion of our distribution network;

~~our ability to successfully maintain effective internal control over financial reporting;~~

•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~~2019 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.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

~~Our financial instruments consist of cash, cash equivalents, short-term~~Refer to “Part II. Item 7A. Quantitative and ~~long-term investments, accounts receivable, accounts payable, accrued expenses, debt and long-term obligations. The primary objectives~~Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, 2019 for a discussion of our ~~investment strategy are to preserve principal, maintain proper liquidity to meet operating needs~~interest rate risk, market price sensitive instruments 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.

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods, and that such information is accumulated and communicated to management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.

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~~(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~~Act of 1934 Rules 13a-15(e) 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,15d-15(e)) 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.~~June 30, 2020. 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~~that date, our disclosure controls and procedures were ~~effective at a reasonable assurance level.~~effective.

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~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

Information regarding our material pending legal proceedings, which is incorporated herein by reference, is provided in Note 109 to the consolidated financial statements in this Form 10-Q.

Item 1A. Risk Factors

~~There have been no material changes~~Please refer to ~~our risk factors disclosed~~the “Risks Factors” section 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~~2019 for a discussion of risks to which our business, financial condition, results of operations and cash flows are subject. Other than as set forth below, there have been no material changes to the risk factors disclosed in the aforementioned Annual Report.

Our financial condition and results of operations have been and may to continue to be adversely affected by the recent coronavirus outbreak.

A novel strain of coronavirus (COVID-19) was identified in China in December 2019, and subsequently declared a pandemic by the World Health Organization in March 2020. To date, this outbreak, which has surfaced in nearly all regions around the world, and preventative measures taken to contain or mitigate the outbreak, have caused, and are continuing to cause, business slowdown or shutdown in affected areas and disruption in the financial markets globally. This has led to a significant increase in unemployment and a loss of employee-sponsored insurance coverage for many people in the United States. As a result, consumers may reduce their spending and our customer attrition rate may increase, which could have a material adverse effect on our business, sales, financial condition and results of operations.

The COVID-19 pandemic also has the potential to significantly impact our supply chain if the manufacturing plants that produce our products or product components, the distribution centers where we manage our inventory, or the operations of our logistics and other service providers, including third parties that sterilize our products, are disrupted, temporarily closed or experience worker shortages for a sustained period of time. Although China, where we manufacture a significant portion of our product, has begun to experience recovery and we are currently producing at pre-COVID-19 levels, should China suffer a COVID-19 relapse, it could hinder our ability to produce product and have a material adverse effect on our business and results of operations.

The further spread of COVID-19, and the requirements to take action to help limit the spread of the illness, may impact our ability to carry out our business as usual. For example, the COVID-19 pandemic may divert healthcare resources away from the conduct of clinical trials and interruption in the operations of the U.S. Food and Drug Administration and comparable foreign regulatory agencies, which could delay product approval timelines. Further, we could experience limitations on employee resources that would otherwise be focused on the conduct of preclinical studies and clinical trials, including because of sickness of employees or their families, the requirement for employees to avoid contact with large groups of people and the reliance on working from home. The continued spread of COVID-19 may also slow potential enrollment of clinical trials, reduce the number of eligible patients for our clinical trials and impact our ability to recruit principal investigators and site staff. As a result of the COVID-19 pandemic, including related governmental guidance or requirements, many of our employees are working from home, which may negatively impact productivity and cause other disruptions to our business. In addition, if the pandemic continues, we may experience a decline in sales activities, which may hinder new patient starts and negatively impact our revenue growth.

The extent of the impact of the COVID-19 pandemic on our business and financial performance, including our ability to execute our near-term and long-term business strategies and initiatives in the expected time frame, will depend on future developments, including the duration and severity of the pandemic, which are uncertain and cannot be predicted. In addition, the pandemic could cause an economic slowdown of potentially extended duration and lead to a global depression. Any sustained disruption in the capital markets from the COVID-19 pandemic could negatively impact our ability to raise capital. If the macro-economic disruption continues for pro-longed periods, we may need to raise additional capital and capital may not be available on acceptable terms, or at all. While we have a strong balance sheet as of June 30, 2020, in part due to the completion of a public offering of common stock in May 2020, and currently do not need to raise additional capital, should the opportunity arise to raise capital on favorable terms, we may choose to do so in order to minimize this risk. We cannot predict when the macro-economic disruption stemming from the coronavirus will ebb or when the economy will return to pre-coronavirus levels, if at all.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Item 3. Defaults Upon Senior Securities

Item 4. Mine Safety Disclosures

Item 5. Other Information

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, ~~$0.01~~$0.001 Par Value Per Share	PODD	The NASDAQ Stock Market, LLC


PART I. FINANCIAL INFORMATION

~~PART I. FINANCIAL INFORMATION~~

Item 1. Condensed Consolidated Financial Statements	3
Consolidated Balance Sheets (Unaudited) as of June ~~30, 2019~~ 3 0 , 2020 and December 31, ~~2018~~2019		3
Consolidated Statements of Operations (Unaudited) for the three and six months ended Ju ne 30 , 2020 and 2019		4
Consolidated Statements of Comprehensive Income (Unaudited) for the three and six months ended June 30, ~~2019~~2020 and ~~2018~~2019		45
~~Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2019 and 2018~~		5
Consolidated Statements of Stockholders' Equity (Unaudited) for the three and six months ended June ~~30, 2019~~ 3 0 , 2020 and ~~2018~~2019	6
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June ~~30, 2019~~ 3 0 , 2020 and ~~2018~~2019		8
~~Condensed~~ Notes to Condensed Consolidated Financial Statements (Unaudited)		9
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1917
Item 3. Quantitative and Qualitative Disclosures About Market Risk		2524
Item 4. Controls and Procedures		2524

PART II. OTHER INFORMATION
Item 1. Legal Proceedings		2625
Item 1A. Risk Factors		2625
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		26
Item 3. Defaults Upon Senior Securities		26
Item 4. Mine Safety Disclosures		26
Item 5. Other Information		26
Item 6. Exhibits		2726
Signatures		2827



	Three Months Ended June 30,						Six Months Ended June 30,
(in thousands)	2019			2018			2019			2018
Net income (loss)	$	1,402		$	(1,691	)	$	5,780		$	(8,260	)
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment, net of tax	(359		)	(741		)	(1,174		)	(1,059		)
Unrealized gain (loss) on available-for-sale debt securities, net of tax	615			(109		)	1,250			(834		)
Total other comprehensive income (loss), net of tax	256			(850		)	76			(1,893		)
Total comprehensive income (loss)	$	1,658		$	(2,541	)	$	5,856		$	(10,153	)



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Item 1.			Condensed Consolidated Financial Statements (Unaudited)


(in millions, except share and per share data)	June 30, 2020		December 31, 2019
ASSETS
Current Assets
Cash and cash equivalents	$	779.1	$	213.7
Short-term investments	65.3		162.4
Accounts receivable trade, less allowance for credit losses of $4.6 and $3.8	78.0		69.3
Inventories	103.7		101.0
Prepaid expenses and other current assets	59.6		44.6
Total current assets	1,085.7		591.0
Long-term investments	23.5		58.4
Property, plant and equipment, net	423.2		399.4
Other intangible assets, net	10.9		13.2
Goodwill	39.6		39.8
Other assets	43.8		41.1
Total assets	$	1,626.7	$	1,142.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	35.6	$	54.5
Accrued expenses and other current liabilities	98.8		103.2
Total current liabilities	134.4		157.7
Convertible debt, net	910.2		887.9
Other liabilities	18.8		21.4
Total liabilities	1,063.4		1,067.0
Commitments and contingencies (Note 9)
Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 authorized; NaN issued and outstanding	—		—
Common stock, $.001 par value, 100,000,000 authorized; 65,604,347 and 62,685,492 issued and outstanding	0.1		0.1
Additional paid-in capital	1,227.6		749.0
Accumulated deficit	(660.8)		(672.0)
Accumulated other comprehensive loss	(3.6)		(1.2)
Total stockholders’ equity	563.3		75.9
Total liabilities and stockholders’ equity	$	1,626.7	$	1,142.9



(in thousands, except share and per share data)	June 30, 2019			December 31, 2018
ASSETS
Current Assets
Cash and cash equivalents	$	119,867		$	113,906
Short-term investments	189,881			175,040
Accounts receivable trade, less allowance for doubtful accounts of $4,098 and $3,610	66,958			63,294
Unbilled receivable	11,781			13,378
Inventories	85,109			71,414
Prepaid expenses and other current assets	25,211			24,254
Total current assets	498,807			461,286
Long-term investments	62,677			140,784
Property and equipment, net	334,025			258,379
Other intangible assets, net	13,040			10,383
Goodwill	39,739			39,646
Other assets	29,435			18,266
Total assets	$	977,723		$	928,744
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable	$	24,752		$	25,500
Accrued expenses and other current liabilities	81,021			90,157
Total current liabilities	105,773			115,657
Convertible debt, net	607,351			591,978
Other liabilities	14,819			9,010
Total liabilities	727,943			716,645
Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 authorized; none issued and outstanding	—			—
Common stock, $.001 par value, 100,000,000 authorized; 60,149,926 and 59,188,758 issued and outstanding	60			59
Additional paid-in capital	930,383			898,559
Accumulated other comprehensive loss	(2,829		)	(2,905		)
Accumulated deficit	(677,834		)	(683,614		)
Total stockholders’ equity	249,780			212,099
Total liabilities and stockholders’ equity	$	977,723		$	928,744



	As of
(in thousands)	June 30, 2019		December 31, 2018
Accrued expenses and other current liabilities	$	1,374	$	1,184
Other liabilities	986		931
Total deferred revenue	$	2,360	$	2,115



	June 30, 2019
(in thousands, except share and per share data)	Three Months Ended		Six Months Ended
Numerator:
Net income	$	1,402	$	5,780
Denominator:
Basic weighted average common shares outstanding	59,844,991		59,601,365
Effect of dilutive securities
Stock options	1,479,713		1,513,886
Restricted stock units	161,621		217,200
Convertible debt	—		—
Diluted shares	61,486,325		61,332,451
Net income per share:
Basic	$	0.02	$	0.10
Diluted	$	0.02	$	0.09



	June 30, 2019		June 30, 2018
	Three Months Ended	Six Months Ended	Three and Six Months Ended
1.25% Convertible Senior Notes	5,910,954	5,910,954	5,910,954
1.375% Convertible Senior Notes	4,319,429	4,319,429	4,319,429
Unvested restricted stock units	426,550	421,776	914,710
Stock options	181,132	231,289	3,199,238
Total	10,838,065	10,883,448	14,344,331



	(in thousands)
Goodwill at December 31, 2018	$	39,646
Foreign currency translation	93
Goodwill at June 30, 2019	$	39,739



Years Ending December 31,	(in thousands)
2019 (remaining)	$	1,405
2020	2,547
2021	2,043
2022	1,460
2023	1,021
Thereafter	4,564
Total	$	13,040



As of June 30, 2019	(in thousands)
ROU asset:
Other assets	$	8,020

Operating lease liabilities:
Accrued expenses and other current liabilities	$	2,333
Other liabilities	7,496
Total	$	9,829



	Three Months Ended June 30,				Six Months Ended June 30,				Unamortized Expense		Weighted Average Remaining Expense Period (Years)
($ in thousands)	2019		2018		2019		2018		At June 30, 2019
Stock options	$	1,583	$	2,272	$	3,223	$	4,630	$	10,906	2.7
Restricted stock units	6,393		4,371		10,137		9,899		39,369		2.2
Employee stock purchase plan	318		294		718		588		739		0.4
Total	$	8,294	$	6,937	$	14,078	$	15,117	$	51,014



	Number of Options		Weighted Average Exercise Price		Aggregate Intrinsic Value (in thousands)		Weighted Average Remaining Contractual Term (years)
Outstanding at December 31, 2018	3,077,624		$	39.16
Granted	125,640		93.16
Exercised	(721,041	)	33.42		$	49,242
Forfeited / Expired	(111,604	)	48.06
Outstanding at June 30, 2019	2,370,619		$	43.35	$	180,231	5.3
Vested, June 30, 2019	1,839,054		$	37.50	$	150,573	4.5
Vested or expected to vest, June 30, 2019 ⁽¹⁾	2,309,525				$	177,471


⁽¹⁾	~~Represents total outstanding stock options as of June 30, 2019, adjusted for estimated forfeitures.~~



	Number of Shares		Weighted Average Fair Value
Outstanding at December 31, 2018	752,207		$	55.02
Granted	311,950		93.79
Vested	(307,217	)	45.36
Forfeited	(51,645	)	63.77
Outstanding at June 30, 2019	705,295		$	75.73



	Three Months Ended June 30, 2018								Six Months Ended June 30, 2018
(in thousands)	1.375%		1.25%		2.0%		Total		1.375%		1.25%		2.0%		Total
Contractual coupon interest	$	1,383	$	1,078	$	1	$	2,462	$	2,767	$	2,156	$	19	$	4,942
Amortization of debt discount and issuance costs	3,654		3,589		21		7,264		7,265		7,102		60		14,427
Total	$	5,037	$	4,667	$	22	$	9,726	$	10,032	$	9,258	$	79	$	19,369



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


Number		Description
1.1		Underwriting Agreement, dated May 12, 2020, by and among Insulet Corporation and Morgan Stanley & Co. LLC and J.P. Morgan Securities LLC, as representatives of the several underwriters named therein (Incorporated by reference to Exhibit 1.1 to the Company’s Current Report on Form 8-K filed May 15, 2020).

~~Number~~	~~Description~~

31.1	Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Executive Officer.

31.2		Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by Chief Financial Officer.

32.1*		Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, by Chief Executive Officer and Chief Financial Officer.

101		The following materials from Insulet Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, ~~2019~~2020 formatted in iXBRL (Inline eXtensible Business Reporting Language), as follows:

		(i) Consolidated Balance Sheets (Unaudited) as of June 30, ~~2019~~2020 and December 31, ~~2018~~2019

		(ii) Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019

		(iii) Consolidated Statements of Comprehensive Income ~~(Loss)~~ (Unaudited) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019

		(iv) Consolidated Statements of ~~Stockholders'~~Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019

		(v) Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, ~~2019~~2020 and ~~2018~~2019

		(vi) Condensed Notes (Unaudited) to Consolidated Financial Statements

*		This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section, nor shall it be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.



		INSULET CORPORATION (Registrant)

Date:	August ~~5, 2019~~6, 2020	/s/ Shacey Petrovic
		Shacey Petrovic
		Chief Executive Officer (Principal Executive Officer)



Date:			August 6, 2020
~~Date:~~	~~August 5, 2019~~	/s/ Wayde McMillan
				Wayde McMillan
				Chief Financial Officer (Principal Financial Officer)