UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

_____________________________________________________


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

For the quarterly period ended ~~September 30, 2020~~March 31, 2021


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

Commission File Number 001-33462

INSULET CORPORATION

(Exact name of Registrant as specified in its charter)

Delaware

04-3523891

(State or Other Jurisdiction of
Incorporation or Organization)

(I.R.S. Employer
Identification No.)

100 Nagog Park

Acton

Massachusetts

01720

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s Telephone Number, Including Area Code: (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 ☒ No ☐

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 ☒ No ☐

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,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 ☒

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


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

As of ~~October 28, 2020,~~April 30, 2021, the registrant had ~~65,927,871~~66,271,242 shares of common stock outstanding.

TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheets (Unaudited) as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020			3
Condensed Consolidated Statements of Operations (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~			4
Condensed Consolidated Statements of Comprehensive ~~Income~~ Loss (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~			5
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~			6
Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~			87
Notes to Condensed Consolidated Financial Statements (Unaudited)			98
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1815
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2621
Item 4. Controls and Procedures			2621

PART II. OTHER INFORMATION
Item 1. Legal Proceedings			2622
Item 1A. Risk Factors			2722
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			2722
Item 3. Defaults Upon Senior Securities			2722
Item 4. Mine Safety Disclosures			2722
Item 5. Other Information			2822
Item 6. Exhibits			2822
Signatures			2923

Table of Contents

PART I - FINANCIAL INFORMATION


Item 1.			Condensed Consolidated Financial Statements (Unaudited)

INSULET CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)


(in millions, except share and per share data)	(in millions, except share and per share data)	September 30, 2020		December 31, 2019		(in millions, except share and per share data)	March 31, 2021		December 31, 2020
ASSETS	ASSETS					ASSETS
Current Assets	Current Assets					Current Assets
Cash and cash equivalents	Cash and cash equivalents	$	838.1	$	213.7	Cash and cash equivalents	$	820.7	$	907.2
Short-term investments	Short-term investments	58.6		162.4		Short-term investments	29.5		40.4
Accounts receivable trade, less allowance for credit losses of $3.6 and $3.8		85.4		69.3
Accounts receivable trade, less allowance for credit losses of $4.0 and $2.9, (Note 15)						Accounts receivable trade, less allowance for credit losses of $4.0 and $2.9, (Note 15)	97.9		83.8
Inventories	Inventories	124.9		101.0		Inventories	170.1		154.3
Prepaid expenses and other current assets	Prepaid expenses and other current assets	53.4		44.6		Prepaid expenses and other current assets	73.6		63.0
Total current assets	Total current assets	1,160.4		591.0		Total current assets	1,191.8		1,248.7
Long-term investments		0.5		58.4
Property, plant and equipment, net	Property, plant and equipment, net	449.2		399.4		Property, plant and equipment, net	497.9		478.7
Other intangible assets, net	Other intangible assets, net	10.4		13.2		Other intangible assets, net	29.7		28.7
Goodwill	Goodwill	39.7		39.8		Goodwill	39.8		39.8
Other assets	Other assets	50.4		41.1		Other assets	80.9		77.0
Total assets	Total assets	$	1,710.6	$	1,142.9	Total assets	$	1,840.1	$	1,872.9
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY					LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities	Current Liabilities					Current Liabilities
Accounts payable	Accounts payable	$	57.0	$	54.5	Accounts payable	$	59.1	$	54.1
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	118.2		103.2		Accrued expenses and other current liabilities	110.7		138.1
Current portion of long-term debt						Current portion of long-term debt	15.7		15.6
Total current liabilities	Total current liabilities	175.2		157.7		Total current liabilities	185.5		207.8
Convertible debt, net		921.5		887.9
Long-term debt, net						Long-term debt, net	1,051.6		1,043.7
Other liabilities	Other liabilities	18.9		21.4		Other liabilities	17.7		17.8
Total liabilities	Total liabilities	1,115.6		1,067.0		Total liabilities	1,254.8		1,269.3
Commitments and contingencies (Note 9)	Commitments and contingencies (Note 9)					Commitments and contingencies (Note 9)	0		0
Stockholders’ Equity	Stockholders’ Equity					Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 authorized; NaN issued and outstanding	Preferred stock, $.001 par value, 5,000,000 authorized; NaN issued and outstanding	0		0		Preferred stock, $.001 par value, 5,000,000 authorized; NaN issued and outstanding	0		0
Common stock, $.001 par value, 100,000,000 authorized; 65,871,736 and 62,685,492 issued and outstanding		0.1		0.1
Common stock, $.001 par value, 100,000,000 authorized; 66,213,670 and 66,017,444 issued and outstanding						Common stock, $.001 par value, 100,000,000 authorized; 66,213,670 and 66,017,444 issued and outstanding	0.1		0.1
Additional paid-in capital	Additional paid-in capital	1,244.7		749.0		Additional paid-in capital	1,248.3		1,264.3
Accumulated deficit	Accumulated deficit	(649.2)		(672.0)		Accumulated deficit	(666.3)		(666.3)
Accumulated other comprehensive loss		(0.6)		(1.2)
Accumulated other comprehensive income						Accumulated other comprehensive income	3.2		5.5
Total stockholders’ equity	Total stockholders’ equity	595.0		75.9		Total stockholders’ equity	585.3		603.6
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	1,710.6	$	1,142.9	Total liabilities and stockholders’ equity	$	1,840.1	$	1,872.9

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

Table of Contents

INSULET CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(in millions, except share and per share data)	(in millions, except share and per share data)	2020		2019		2020		2019			(in millions, except share and per share data)	2021		2020
Revenue		$	234.0	$	192.1	$	658.3	$	528.8
Revenue (Note 15)											Revenue (Note 15)	$	252.3	$	198.0
Cost of revenue	Cost of revenue	82.2		69.0		237.1		182.6			Cost of revenue	84.8		71.1
Gross profit	Gross profit	151.8		123.1		421.2		346.2			Gross profit	167.5		126.9
Research and development expenses	Research and development expenses	38.8		31.3		108.5		96.8			Research and development expenses	40.7		35.5
Selling, general and administrative expenses	Selling, general and administrative expenses	89.2		74.8		253.9		217.5			Selling, general and administrative expenses	110.5		83.9
Operating income	Operating income	23.8		17.0		58.8		31.9			Operating income	16.3		7.5
Interest expense, net	Interest expense, net	(11.4)		(7.7)		(32.6)		(18.3)			Interest expense, net	(13.4)		(10.1)
Loss on extinguishment of debt		0		(6.4)		0		(6.4)
Other income (expense), net		1.0		(1.8)		2.0		0.5
Income before income taxes		13.4		1.1		28.2		7.7
Income tax expense		(1.8)		(0.3)		(4.3)		(1.1)
Net income		$	11.6	$	0.8	$	23.9	$	6.6
Other expense, net											Other expense, net	(2.6)		0
Income (loss) before income taxes											Income (loss) before income taxes	0.3		(2.6)
Income tax (expense) benefit											Income tax (expense) benefit	(0.3)		0.5
Net loss											Net loss	$	0	$	(2.1)

Net income per share:
Net loss per share:											Net loss per share:
Basic	Basic	$	0.18	$	0.01	$	0.37	$	0.11		Basic	$	0	$	(0.03)
Diluted	Diluted	$	0.17	$	0.01	$	0.36	$	0.11		Diluted	$	0	$	(0.03)
Weighted-average number of common shares outstanding:
Weighted-average number of common shares outstanding (in thousands):											Weighted-average number of common shares outstanding (in thousands):
Basic	Basic	65,717,820		60,743,211		64,329,181		59,986,163			Basic	66,113		62,884
Diluted	Diluted	66,827,692		62,335,679		65,598,197		61,728,018			Diluted	66,113		62,884

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

Table of Contents

INSULET CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~INCOME~~LOSS

(UNAUDITED)

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2020 2019 2020 2019
Net income $ 11.6 $ 0.8 $ 23.9 $ 6.6
Other comprehensive income (loss), net of tax:
Currency translation adjustment 3.3 (1.8) 0.5 (3.0)
Unrealized (loss) gain on available-for-sale debt securities (0.3) 0 0.1 1.3
Total other comprehensive income (loss), net of tax 3.0 (1.8) 0.6 (1.7)
Comprehensive income (loss) $ 14.6 $ (1.0) $ 24.5 $ 4.9


	Three Months Ended March 31,
(in millions)	2021		2020
Net loss	$	0	$	(2.1)
Other comprehensive loss, net of tax:
Foreign currency translation adjustment	(2.1)		(3.4)
Unrealized (loss) gain on available-for-sale debt securities, net of tax	(0.2)		0.8
Total other comprehensive loss, net of tax	(2.3)		(2.6)
Comprehensive loss	$	(2.3)	$	(4.7)

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

Table of Contents

INSULET CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended ~~September 30, 2020~~March 31, 2021


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total Shareholders’ Equity
(dollars in millions)	Shares (in thousands)	Amount
Balance at December 31, 2020	66,017	$	0.1	$	1,264.3	$	(666.3)	$	5.5	$	603.6
Exercise of options to purchase common stock	43	—		1.5		—		—		1.5
Stock-based compensation expense	—	—		8.6		—		—		8.6
Restricted stock units vested, net of shares withheld for taxes	153	—		(26.1)		—		—		(26.1)
Other comprehensive loss	—	—		—				(2.3)		(2.3)
Balance at March 31, 2021	66,213	$	0.1	$	1,248.3	$	(666.3)	$	3.2	$	585.3

Three Months Ended ~~September 30, 2019~~March 31, 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 June 30, 2019 60,149,926 $ 0.1 $ 930.3 $ (677.8) $ (2.8) $ 249.8
Exercise of options to purchase common stock 471,356 — 17.3 — — 17.3
Stock-based compensation expense — — 6.6 — — 6.6
Restricted stock units vested, net of shares withheld for taxes 8,195 — (0.3) — — (0.3)
Conversion feature of 0.375% Notes, net of issuance costs — — 207.8 — — 207.8
Extinguishment of conversion feature on 1.25% Notes, net of issuance costs — — (438.6) — — (438.6)
Issuance of shares for debt repayment 1,157,492 — 194.4 — — 194.4
Purchase of capped call options — — (85.4) — — (85.4)
Net income — — — 0.8 — 0.8
Other comprehensive loss — — — — (1.8) (1.8)
Balance at September 30, 2019 61,786,969 $ 0.1 $ 832.1 $ (677.0) $ (4.6) $ 150.6


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Total Shareholders’ Equity
(dollars in millions)	Shares (in thousands)	Amount
Balance at December 31, 2019	62,685	$	0.1	$	749.0	$	(672.0)	$	(1.2)	$	75.9
Adoption of ASU 2016-13(1)	—	—		—		(1.1)		—		(1.1)
Exercise of options to purchase common stock	173	—		6.2		—		—		6.2
Stock-based compensation expense	—	—		7.9		—		—		7.9
Restricted stock units vested, net of shares withheld for taxes	200	—		(25.2)		—		—		(25.2)
Net loss	—	—		—		(2.1)		—		(2.1)
Other comprehensive loss	—	—		—		—		(2.6)		(2.6)
Balance at March 31, 2020	63,058	$	0.1	$	737.9	$	(675.2)	$	(3.8)	$	59.0

(1) The Company recorded a cumulative effect adjustment to retained earnings to reflect the adoption of Accounting Standards Update 2016-13, Credit Losses (Topic 326). Refer to Note 2 of Item 8 of our Annual Report on Form 10-K for the year ended December 31, 2020.

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

~~Table of Contents~~

~~Nine Months Ended September 30, 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 December 31, 2019 62,685,492 $ 0.1 $ 749.0 $ (672.0) $ (1.2) $ 75.9
Adoption of ASU 2016-13 (Note 1) 0 — — (1.1) — (1.1)
Issuance of common stock 2,369,668 — 477.5 — — 477.5
Exercise of options to purchase common stock 568,830 — 21.9 — — 21.9
Issuance for employee stock purchase plan 18,685 — 2.9 — — 2.9
Stock-based compensation — — 20.3 — — 20.3
Restricted stock units vested, net of shares withheld for taxes 229,061 — (26.9) — — (26.9)
Net income — — — 23.9 — 23.9
Other comprehensive income — — — — 0.6 0.6
Balance at September 30, 2020 65,871,736 $ 0.1 $ 1,244.7 $ (649.2) $ (0.6) $ 595.0

~~Nine Months Ended September 30, 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 December 31, 2018 59,188,758 $ 0.1 $ 898.5 $ (683.6) $ (2.9) $ 212.1
Exercise of options to purchase common stock 1,188,043 — 40.9 — — 40.9
Issuance of shares for employee stock purchase plan 27,613 — 2.0 — — 2.0
Stock-based compensation expense — 20.7 — — 20.7
Restricted stock units vested, net of shares withheld for taxes 225,063 — (8.2) — — (8.2)
Conversion feature of 0.375% Notes, net of issuance costs — — 207.8 — — 207.8
Extinguishment of conversion feature on 1.25% Notes, net of issuance costs — — (438.6) — — (438.6)
Issuance of shares for debt repayment 1,157,492 — 194.4 — — 194.4
Purchase of capped call options — — (85.4) — — (85.4)
Net income — — — 6.6 — 6.6
Other comprehensive loss — — — — (1.7) (1.7)
Balance at September 30, 2019 61,786,969 $ 0.1 $ 832.1 $ (677.0) $ (4.6) $ 150.6

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

Table of Contents

INSULET CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)


		Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Cash flows from operating activities	Cash flows from operating activities					Cash flows from operating activities
Net income		$	23.9	$	6.6
Net loss						Net loss	$	0	$	(2.1)
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	29.7		18.8		Depreciation and amortization	12.8		8.9
Non-cash interest	Non-cash interest	33.6		24.3		Non-cash interest	11.8		11.1
Stock-based compensation		20.3		20.7
Loss on extinguishment of debt		0		6.4
Stock-based compensation expense						Stock-based compensation expense	8.6		7.9
Provision for credit losses	Provision for credit losses	3.1		2.6		Provision for credit losses	1.9		0.6
Other	Other	0.3		1.9		Other	2.1		0.8
Changes in operating assets and liabilities:	Changes in operating assets and liabilities:					Changes in operating assets and liabilities:
Accounts receivable	Accounts receivable	(19.9)		(6.8)		Accounts receivable	(17.3)		(14.6)
Inventories	Inventories	(22.9)		(20.0)		Inventories	(17.9)		4.8
Prepaid expenses and other assets	Prepaid expenses and other assets	(16.8)		(4.0)		Prepaid expenses and other assets	(14.1)		0.7
Accounts payable, accrued expenses and other current liabilities		36.1		(1.7)
Other liabilities		(2.4)		2.7
Net cash provided by operating activities		85.0		51.5
Accounts payable						Accounts payable	5.0		(12.1)
Accrued expenses and other liabilities						Accrued expenses and other liabilities	(28.0)		(9.6)
Net cash used in operating activities						Net cash used in operating activities	(35.1)		(3.6)
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(88.5)		(114.6)		Capital expenditures	(32.9)		(26.9)
Acquisition of intangible assets	Acquisition of intangible assets	(8.3)		(6.4)		Acquisition of intangible assets	(0.5)		(0.5)
Purchases of investments	Purchases of investments	(37.9)		(63.9)		Purchases of investments	0		(38.0)
Receipts from the maturity or sale of investments	Receipts from the maturity or sale of investments	200.0		165.3		Receipts from the maturity or sale of investments	10.7		78.8
Net cash provided by (used in) investing activities		65.3		(19.6)
Net cash (used in) provided by investing activities						Net cash (used in) provided by investing activities	(22.7)		13.4
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Proceeds from issuance of common stock, net of issuance costs		477.5		0
Proceeds from issuance of convertible notes, net of issuance costs		0		780.2
Repayment of convertible debt		0		(453.6)
Purchase of capped call options		0		(85.4)
Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan		24.8		42.9
Repayment of equipment financings						Repayment of equipment financings	(3.2)		0
Repayment of mortgage						Repayment of mortgage	(0.6)		0
Payment of withholding taxes in connection with vesting of restricted stock units	Payment of withholding taxes in connection with vesting of restricted stock units	(26.9)		(8.2)		Payment of withholding taxes in connection with vesting of restricted stock units	(26.1)		(25.2)
Net cash provided by financing activities		475.4		275.9
Proceeds from exercise of stock options						Proceeds from exercise of stock options	1.5		6.2
Net cash used in financing activities						Net cash used in financing activities	(28.4)		(19.0)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1.3)		(1.8)		Effect of exchange rate changes on cash	(0.3)		(3.1)
Net increase in cash, cash equivalents and restricted cash		624.4		306.0
Cash, cash equivalents and restricted cash at beginning of period		213.7		113.9
Cash, cash equivalents and restricted cash at end of period		$	838.1	$	419.9
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	(86.5)		(12.3)
Cash, cash equivalents and restricted cash at beginning of period (Note 3)						Cash, cash equivalents and restricted cash at beginning of period (Note 3)	922.0		213.7
Cash, cash equivalents and restricted cash at end of period (Note 3)						Cash, cash equivalents and restricted cash at end of period (Note 3)	$	835.5	$	201.4

Supplemental noncash information:	Supplemental noncash information:					Supplemental noncash information:
Purchases of property and equipment included in accounts payable and accrued expenses	Purchases of property and equipment included in accounts payable and accrued expenses	$	4.7	$	10.2	Purchases of property and equipment included in accounts payable and accrued expenses	$	4.1	$	8.4
Purchases of intangible assets included in accounts payable and accrued expenses						Purchases of intangible assets included in accounts payable and accrued expenses	$	1.4	$	0
Lease liabilities arising from obtaining right-of-use assets	Lease liabilities arising from obtaining right-of-use assets	$	2.1	$	5.1	Lease liabilities arising from obtaining right-of-use assets	$	0.5	$	0

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

Table of Contents

INSULET CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

Note 1. 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 (“Insulet” or the “Company”). The unaudited consolidated financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates. In 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 nine~~ months ended ~~September 30, 2020~~March 31, 2021 are not necessarily indicative of the results that may be expected for the full year ending December 31, ~~2020,~~2021, 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 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, ~~2019.~~2020.

~~Accounts Receivable~~Cloud Computing Arrangements

As of March 31, 2021 and ~~Allowance~~December 31, 2020, the Company had net capitalized implementation costs of $33.4 million and $24.2 million, respectively. Amortization expense recorded for ~~Credit Losses~~

~~Trade accounts receivable consist of amounts due from third-party payors, customers~~three months ended March 31, 2021 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.2020 was insignificant.

Shipping and Handling Costs

Shipping and handling costs are included in selling, general and administrative expenses and were ~~$3.2~~$2.1 million and ~~$2.2~~$1.9 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively, and were $7.0 million and $7.1 million for the nine months ended September 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 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.

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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.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising expenses were ~~$10.0~~$9.4 million and ~~$3.4~~$2.7 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively and $15.6 million and $8.6 million for the nine months ended September 30, 2020 and 2019,~~ respectively.

~~Reclassification of Prior Period Amounts~~

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. A portion of facility costs and certain information technology costs have been 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 wa~~s a $0.6 million and $1.9 million increase to research and development expenses and a corresponding decrease to selling, general and administrative expenses for the~~ ~~three and nine months ended September 30, 2019, respectively~~. ~~There was no change to previously reported operating or net income.~~ ~~Further, the Company reclassified the $0.9 million chang~~e in unbilled receivables from the change in accounts and unbilled receivables to the change in prepaid expenses and other assets in the prior year statement of cash flows. This reclassification had no effect on previously reported net cash provided by operating activities.

Recently Adopted Accounting Standards

Effective January 1, ~~2020,~~2021, the Company adopted Accounting Standards Update ~~(“ASU”~~("ASU") ~~2016-13,~~2019-12, ~~Credit Losses~~Income Taxes (Topic ~~326)~~740): Simplifying the Accounting for Income Taxes ~~(“ASU 2016-13”)~~. ASU 2016-13 requires financial assets measured at amortized cost, such as the Company’s trade receivables and contract assets, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions and future expectation for each pool of similar financial assets. The new guidance also requires enhanced disclosures related to trade receivables and associated credit losses. The Company adopted ASU 2016-13 using the modified retrospective method, whereby the guidance is applied prospectively as of the date of adoption and prior periods are not restated. The cumulative effect of adopting ~~ASU 2016-13~~ ~~resulted in a $1.1 million increase to the opening balance of accumulated deficit upon adoption related to an increase~~2019-12 eliminates certain exceptions in the ~~allowance~~current guidance regarding the approach for ~~credit losses on accounts receivable.~~

~~The following table presents~~intraperiod tax allocations, the ~~activity~~methodology for calculating income taxes in an interim period and the ~~allowance~~recognition of deferred tax liabilities for credit losses for the three and nine months ended September 30, 2020, comprised primarily of our direct consumer receivable portfolio. The allowance for credit losses of other portfolios is insignificant.

(in millions) Three Months Ended September 30, 2020 Nine Months Ended September 30, 2020
Credit losses at the beginning of the period $ 4.6 $ 3.8
Effect of adoption 0 1.1
Credit losses at the beginning of the period after adoption 4.6 4.9
Provision for expected credit losses 0.5 3.1
Write-offs charged against allowance (1.6) (4.7)
Recoveries of amounts previously written-off 0.1 0.3
Credit losses at the end of the period $ 3.6 $ 3.6

~~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.outside basis differences. The adoption of this guidance ~~had no~~did not have a significant impact on ~~the~~our consolidated financial statements.

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Note 2. Revenue and Contract Acquisition Costs

The following table summarizes the Company’s disaggregated ~~revenues:~~revenue:


		Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019			(in millions)	2021		2020
U.S. Omnipod	U.S. Omnipod	$	132.3	$	109.4	$	377.7	$	293.6		U.S. Omnipod	$	143.3	$	116.6
International Omnipod	International Omnipod	79.8		67.8		226.1		187.4			International Omnipod	89.9		73.1
Total Omnipod	Total Omnipod	212.1		177.2		603.8		481.0			Total Omnipod	233.2		189.7
Drug Delivery	Drug Delivery	21.9		14.9		54.5		47.8			Drug Delivery	19.1		8.3
Total		$	234.0	$	192.1	$	658.3	$	528.8
Total revenue											Total revenue	$	252.3	$	198.0

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, the Company had ~~one customer~~two customers that in aggregate represented ~~11%~~24% and 22% of total revenue, respectively. At March 31, 2021, the Company had two customers that in aggregate ~~represented 21%~~accounted for 22% of ~~total revenue, respectively. During both the~~ ~~three and nine months ended September 30, 2019,~~ ~~the Company had one customer that represented 11% of total revenue. At September 30, 2020, the company had~~consolidated net accounts receivable, compared with one customer that accounted for ~~12% of consolidated net accounts receivable. No customer accounted for more than 10%~~15% of consolidated net accounts receivable ~~balance~~ at December 31, ~~2019.~~2020.

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


(in millions)	(in millions)	September 30, 2020		December 31, 2019		(in millions)	March 31, 2021		December 31, 2020
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	4.3	$	3.2	Accrued expenses and other current liabilities	$	3.5	$	5.4
Other liabilities	Other liabilities	0.9		1.0		Other liabilities	1.2		1.0
Total deferred revenue	Total deferred revenue	$	5.2	$	4.2	Total deferred revenue	$	4.7	$	6.4

During ~~both~~ the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company recognized ~~insignificant~~$3.7 million and $1.4 million of revenue, respectively, that was included in deferred revenue at the beginning of 2020 and 2019, respectively. During the nine months ended September 30, 2020 and 2019, the Company recognized $1.7 million and $1.1 million of revenue included in deferred revenue at the beginning of 2020 and 2019, respectively.each period.

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


(in millions)	(in millions)	September 30, 2020		December 31, 2019		(in millions)	March 31, 2021		December 31, 2020
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	10.4	$	9.5	Prepaid expenses and other current assets	$	11.5	$	11.0
Other assets	Other assets	20.7		19.9		Other assets	22.8		21.9
Total capitalized contract acquisition costs, net	Total capitalized contract acquisition costs, net	$	31.1	$	29.4	Total capitalized contract acquisition costs, net	$	34.3	$	32.9

The Company recognized ~~$2.7~~$2.9 million and ~~$2.3~~$2.5 million of amortization of capitalized contract acquisition costs during the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, respectively. The Company recognized $7.8 million and $6.4 million of amortization of capitalized contract acquisition costs during the nine months ended September 30, 2020 and 2019,~~ respectively.

The Company had unbilled receivables of ~~$15.2~~$16.6 million and ~~$13.5~~$11.6 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Note 3. Cash and Cash Equivalents

The following table provides a summary of cash and cash equivalents:


(in millions)	March 31, 2021		December 31, 2020
Cash	$	167.0	$	164.6
Money market mutual funds	650.9		739.8
Restricted cash	2.8		2.8
Total cash and cash equivalents	820.7		907.2
Restricted cash included in other assets	14.8		14.8
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows	$	835.5	$	922.0

The restricted cash included in other assets on the consolidated balance sheet is held as a compensating balance against long-term borrowings.

All cash and cash equivalents ~~and the level~~are Level 1 in the fair value ~~hierarchy in which those measurements fall:~~

September 30, 2020 December 31, 2019
(in millions) Total Level 1 Level 2 Total Level 1
Level 2 (1)
Cash $ 298.4 $ 298.4 $ 0 $ 85.3 $ 85.3 $ 0
Money market mutual funds 535.9 535.9 0 115.5 115.5 0
Commercial paper 0 0 0 10.0 0 10.0
Restricted cash 3.8 3.8 0 2.9 2.9 0
Total cash and cash equivalents $ 838.1 $ 838.1 $ 0 $ 213.7 $ 203.7 $ 10.0

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

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Note 4. Investments

The Company’s ~~short-term and long-term~~ investments in debt securities had maturity dates that range from one month to ~~two years~~nine months at ~~September 30, 2020~~March 31, 2021. Realized gains or losses for both the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were insignificant.

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


(in millions)	(in millions)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Level 1		Level 2 (1)		(in millions)	Amortized Cost		Gross Unrealized Gains		Fair Value		Level 1		Level 2 (1)
September 30, 2020
March 31, 2021														March 31, 2021
U.S. government and agency bonds	U.S. government and agency bonds	$	52.7	$	0.4	$	0	$	53.1	$	53.1	$	0	U.S. government and agency bonds	$	25.1	$	0.1	$	25.2	$	25.2	$	0
Corporate bonds	Corporate bonds	2.8		0		0		2.8		0		2.8		Corporate bonds	2.8		0		2.8		0		2.8
Certificates of deposit	Certificates of deposit	2.7		0		0		2.7		0		2.7		Certificates of deposit	1.5		0		1.5		0		1.5
Total short-term investments	Total short-term investments	$	58.2	$	0.4	$	0	$	58.6	$	53.1	$	5.5	Total short-term investments	$	29.4	$	0.1	$	29.5	$	25.2	$	4.3

Certificates of deposit		$	0.5	$	0	$	0	$	0.5	$	0	$	0.5
Total long-term investments		$	0.5	$	0	$	0	$	0.5	$	0	$	0.5

December 31, 2019
December 31, 2020														December 31, 2020
U.S. government and agency bonds	U.S. government and agency bonds	$	94.7	$	0.3	$	0	$	95.0	$	85.0	$	10.0	U.S. government and agency bonds	$	35.1	$	0.2	$	35.3	$	35.3	$	0
Corporate bonds	Corporate bonds	51.0		0.1		0		51.1		0		51.1		Corporate bonds	2.8		0.1		2.9		0		2.9
Certificates of deposit	Certificates of deposit	6.3		0		0		6.3		0		6.3		Certificates of deposit	2.2		0		2.2		0		2.2
Commercial Paper		10.0		0		0		10.0		0		10.0
Total short-term investments	Total short-term investments	$	162.0	$	0.4	$	0	$	162.4	$	85.0	$	77.4	Total short-term investments	$	40.1	$	0.3	$	40.4	$	35.3	$	5.1

U.S. government and agency bonds		$	52.9	$	0.1	$	(0.1)	$	52.9	$	42.9	$	10.0
Corporate bonds		2.8		0		0		2.8		0		2.8
Certificates of deposit		2.7		0		0		2.7		0		2.7
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. Inventories

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


(in millions)	(in millions)	September 30, 2020		December 31, 2019		(in millions)	March 31, 2021		December 31, 2020
Raw materials	Raw materials	$	27.3	$	23.3	Raw materials	$	34.3	$	30.7
Work-in-process	Work-in-process	57.2		40.3		Work-in-process	60.1		59.6
Finished goods	Finished goods	40.4		37.4		Finished goods	75.7		64.0
Total inventories	Total inventories	$	124.9	$	101.0	Total inventories	$	170.1	$	154.3

Note 6. Goodwill and Other Intangible Assets, Net

The ~~change in the~~ carrying amount of goodwill ~~for the nine months ended September 30, 2020~~ was ~~as follows:~~


	~~(in millions)~~
~~Goodwill at December 31, 2019~~	$	~~39.8~~
~~Foreign currency translation~~	~~(0.1)~~
~~Goodwill at September 30, 2020~~	$	~~39.7~~

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$39.8 million at both March 31, 2021 and December 31, 2020.

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

September 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)
$ 9.8 $ (3.4) $ 6.4 $ 9.9 $ (2.8) $ 7.1
Internal-use software 11.3 (8.2) 3.1 12.0 (6.8) 5.2
Intellectual property 1.0 (0.1) 0.9 1.0 (0.1) 0.9
Total $ 22.1 $ (11.7) $ 10.4 $ 22.9 $ (9.7) $ 13.2

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


	March 31, 2021						December 31, 2020
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net Book Value		Gross Carrying Amount		Accumulated Amortization		Net Book Value
Customer relationships	$	43.4	$	(19.6)	$	23.8	$	43.3	$	(18.3)	$	25.0
Internal-use software	13.5		(9.0)		4.5		11.4		(8.6)		2.8
Intellectual property	1.6		(0.2)		1.4		1.1		(0.2)		0.9
Total intangible assets	$	58.5	$	(28.8)	$	29.7	$	55.8	$	(27.1)	$	28.7

Amortization expense for intangible assets was ~~$0.7~~$1.7 million and $0.8 million for ~~both~~ the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019. Amortization expense for intangible assets was $2.2 million and $1.9 million for the nine months ended September 30, 2020, and 2019,~~ respectively. ~~Amortization expense associated with intangible assets included on the Company’s consolidated balance sheet as~~

Table of ~~September 30, 2020 is expected to be as follows:~~Contents

Years Ending December 31, (in millions)
2020 (remaining) $ 0.7
2021 2.2
2022 1.7
2023 1.2
2024 1.1
Thereafter 3.5
Total $ 10.4

Note 7. Accrued Expenses and Other Current Liabilities

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


(in millions)	(in millions)	September 30, 2020		December 31, 2019		(in millions)	March 31, 2021		December 31, 2020
Employee compensation and related costs	Employee compensation and related costs	$	45.9	$	45.8	Employee compensation and related costs	$	36.3	$	53.1
Professional and consulting services						Professional and consulting services	17.4		19.1
Accrued rebates	Accrued rebates	9.8		7.5		Accrued rebates	14.9		13.1
Supplier purchases	Supplier purchases	5.4		2.4		Supplier purchases	3.5		7.1
Income taxes payable						Income taxes payable	3.2		5.0
Value added taxes payable	Value added taxes payable	4.9		1.8		Value added taxes payable	2.7		5.0
Deferred revenue		4.3		3.2
Short-term lease liability		4.6		3.6
Warranty liability		3.2		4.7
Accrued interest		2.3		1.7
Accrued interest on debt						Accrued interest on debt	2.5		1.8
Other	Other	37.8		32.5		Other	30.2		33.9
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	118.2	$	103.2	Accrued expenses and other current liabilities	$	110.7	$	138.1

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 obligation 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 revenue in the consolidated statements of operations. Cost to service the claims reflects the current product cost. Reconciliations of the changes in the Company’s product warranty liability were as follows:


	Three Months Ended March 31,
(in millions)	2021		2020
Product warranty liability at beginning of period	$	6.7	$	8.5
Warranty expense	2.6		2.5
Warranty claims settled	(2.6)		(2.7)
Product warranty liability at the end of period	$	6.7	$	8.3

Note 8. Debt

The components of debt consisted of the following:


(in millions)	March 31, 2021		December 31, 2020
1.375% Convertible Senior Notes due November 2024	$	402.5	$	402.5
0.375% Convertible Senior Notes due September 2026	800.0		800.0
Equipment financing due May 2024	20.7		22.2
Equipment financing due November 2025	34.7		36.4
5.15% Mortgage due November 2025	69.1		69.7
Unamortized debt discount	(241.5)		(252.5)
Debt issuance costs	(18.2)		(19.0)
Total debt	1,067.3		1,059.3
Less: current portion	15.7		15.6
Total long-term debt	$	1,051.6	$	1,043.7

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

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2020 2019 2020 2019
Product warranty liability at beginning of period $ 8.1 $ 6.6 $ 8.5 $ 6.4
Warranty expense 3.1 3.3 8.3 8.6
Warranty claims settled (4.2) (3.1) (9.8) (8.2)
Product warranty liability at the end of period $ 7.0 $ 6.8 $ 7.0 $ 6.8

~~Note 8. Convertible Debt, Net~~

~~The components of outstanding convertible debt consisted of the following:~~

(in millions) September 30, 2020 December 31, 2019
1.375% Convertible Senior Notes, due November 2024 $ 402.5 $ 402.5
0.375% Convertible Senior Notes, due September 2026 800.0 800.0
Unamortized debt discount (263.4) (294.8)
Debt issuance costs (17.6) (19.8)
Total convertible debt, net $ 921.5 $ 887.9

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:


		September 30, 2020				December 31, 2019					March 31, 2021				December 31, 2020
(in millions)	(in millions)	Carrying Value		Estimated Fair Value (1)		Carrying Value		Estimated Fair Value (1)		(in millions)	Carrying Value		Estimated Fair Value (1)		Carrying Value		Estimated Fair Value (1)
1.375% Convertible Senior Notes, due November 2024		$	319.5	$	512.8	$	306.9	$	512.8
0.375% Convertible Senior Notes, due September 2026		602.0		1,022.8		581.0		840.0
1.375% Convertible Senior Notes due November 2024										1.375% Convertible Senior Notes due November 2024	$	328.4	$	1,127.0	$	323.9	$	1,104.2
0.375% Convertible Senior Notes due September 2026										0.375% Convertible Senior Notes due September 2026	616.4		920.6		609.2		902.0
Total	Total	$	921.5	$	1,535.6	$	887.9	$	1,352.8	Total	$	944.8	$	2,047.6	$	933.1	$	2,006.2

(1) Convertible debt is classified as Level 2 in the fair value hierarchy. Fair value was determined using ~~market prices obtained from third-party pricing sources.~~the Company's quoted stock price and the contractual conversion rate.

The fair values of the mortgage and equipment financings approximate their carrying values.

Note 9. Commitments and Contingencies

Legal Proceedings

Between May 5, 2015 and June 16, 2015, 3 class action lawsuits were filed by shareholders in the U.S. District Court, for the District of Massachusetts, against the Company and certain then current and former executives of the Company. 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, 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 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 counsel will be covered by the Company’s insurance.

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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~~including OmniPods, Personal Diabetes Managers, and ~~Omnipod 10 Pod Pack~~other components of the system, and kits in the United States infringed Roche’s now-expired U.S. Patent 7,931,613. Roche is seeking monetary damages ~~in the form of a reasonable royalty~~ 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. The court has set a trial date of July 25, 2022. 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, which could be material.

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®~~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. Roche Ltd. has responded to the complaint and argues that the patent is invalid and not infringed. Trial is scheduled to begin on May 11, 2021.

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. Other than as described above, the Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its results of operations.

~~Fees to Former European Distributor~~

~~Following the expiration~~

Table 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 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. As of both September 30, 2020 and December 31, 2019, the Company had $2.7 million accrued related to this matter. The associated gross intangible asset was $7.8 million at both September 30, 2020 and December 31, 2019.Contents

Note 10. Accumulated Other Comprehensive ~~Loss~~Income (Loss)

Changes in the components of accumulated other comprehensive ~~loss,~~income (loss), net of tax, were as follows:


		Three Months Ended September 30, 2020						Nine Months Ended September 30, 2020							Three Months Ended March 31, 2021
(in millions)	(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		(in millions)	Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Income
Balance at beginning of period	Balance at beginning of period	$	(4.4)	$	0.8	$	(3.6)	$	(1.6)	$	0.4	$	(1.2)	Balance at beginning of period	$	5.2	$	0.3	$	5.5
Other comprehensive income (loss)		3.3		(0.3)		3.0		0.5		0.1		0.6
Other comprehensive loss														Other comprehensive loss	(2.1)		(0.2)		(2.3)
Balance at the end of period	Balance at the end of period	$	(1.1)	$	0.5	$	(0.6)	$	(1.1)	$	0.5	$	(0.6)	Balance at the end of period	$	3.1	$	0.1	$	3.2


	Three Months Ended March 31, 2020
(in millions)	Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss
Balance at beginning of period	$	(1.6)	$	0.4	$	(1.2)
Other comprehensive (loss) income	(3.4)		0.8		(2.6)
Balance at the end of period	$	(5.0)	$	1.2	$	(3.8)

Three Months Ended September 30, 2019 Nine Months Ended September 30, 2019
(in millions) Foreign Currency Translation Adjustment Unrealized Gain on Available-for-sale Securities Accumulated Other Comprehensive Loss Foreign Currency Translation Adjustment Unrealized (Loss) Gain on Available-for-sale Securities Accumulated Other Comprehensive Loss
Balance at beginning of period $ (3.4) $ 0.6 $ (2.8) $ (2.2) $ (0.7) $ (2.9)
Other comprehensive (loss) income (1.8) 0 (1.8) (3.0) 1.3 (1.7)
Balance at the end of period $ (5.2) $ 0.6 $ (4.6) $ (5.2) $ 0.6 $ (4.6)

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Note 11. Interest Expense, Net

Interest expense, net was as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020
Contractual coupon interest		$	2.1	$	2.6	$	6.4	$	7.5
Contractual interest										Contractual interest	$	3.7	$	2.1
Accretion of debt discount	Accretion of debt discount	10.6		8.2		31.5		22.2		Accretion of debt discount	11.0		10.4
Amortization of debt issuance costs	Amortization of debt issuance costs	0.7		0.7		2.1		2.1		Amortization of debt issuance costs	0.8		0.7
Capitalized interest	Capitalized interest	(1.5)		(2.1)		(4.7)		(8.1)		Capitalized interest	(1.9)		(1.6)
Interest expense, net of portion capitalized	Interest expense, net of portion capitalized	11.9		9.4		35.3		23.7		Interest expense, net of portion capitalized	13.6		11.6
Interest income	Interest income	(0.5)		(1.7)		(2.7)		(5.4)		Interest income	(0.2)		(1.5)
Interest expense, net	Interest expense, net	$	11.4	$	7.7	$	32.6	$	18.3	Interest expense, net	$	13.4	$	10.1

Note 12. Stock-Based Compensation Expense

Compensation expense related to stock-based awards was recorded as follows:


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020
Cost of revenue	Cost of revenue	$	0.1	$	0.3	$	0.3	$	0.9	Cost of revenue	$	0.1	$	0.1
Research and development expenses	Research and development expenses	2.3		2.2		7.3		6.4		Research and development expenses	1.9		2.7
Selling, general and administrative expenses	Selling, general and administrative expenses	4.2		4.1		12.7		13.4		Selling, general and administrative expenses	6.6		5.1
Total	Total	$	6.6	$	6.6	$	20.3	$	20.7	Total	$	8.6	$	7.9

Note 13. Income Taxes

The Company’s effective tax rate was 114.3% and 18.4% for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~was 13.3% and 15.3%, compared with 24.7% and 14.1% for the three and nine months ended September 30, 2019.~~respectively. Income tax benefits have not been recorded for losses in jurisdictions where valuation allowances exist against net deferred tax ~~assets, primarily in the United States. As of September 30, 2020 and December 31, 2019, the~~assets. The Company ~~maintained~~had a full valuation allowance against its ~~U.S.~~ net deferred tax assets ~~based on~~in the ~~determination that it is not more likely than not that these future benefits will be realized.~~United Kingdom and the United States at March 31, 2021, and a full valuation allowance against its net deferred tax assets in the United States at December 31, 2020. The Company had no0 uncertain tax positions at both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

~~In April 2020, new interpretations~~

Table of a German tax law related to intellectual property and withholding tax were released. Based on the Company's interpretation of the German tax law, there was no effect on the consolidated financial statements.Contents

Note 14. Net ~~Income~~Loss Per Share

Basic net ~~income~~loss per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net ~~income~~loss 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~~Since the Company reported a net loss for three months ended March 31, 2021 and 2020, all potential dilutive common shares ~~used in the computation of basic and diluted net income per share were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
(in millions) 2020 2019 2020 2019
Weighted average number of common shares outstanding, basic 65,717,820 60,743,211 64,329,181 59,986,163
Stock options 978,657 1,370,792 1,082,247 1,514,245
Restricted stock units 131,215 221,676 186,769 227,610
Weighted average number of common shares outstanding, diluted 66,827,692 62,335,679 65,598,197 61,728,018

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

Three Months Ended September 30, Nine Months Ended September 30,
2020 2019 2020 2019
1.25% Convertible Senior Notes 0 2,055,786 0 2,055,786
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 3,528,400 3,528,400
Unvested restricted stock units 272,992 455,876 272,877 455,824
Stock options 65,331 7,858 56,522 136,342
Total 8,186,152 10,367,349 8,177,228 10,495,781


	Three Months Ended March 31,
(in thousands)	2021	2020
1.375% Convertible Senior Notes due November 2024	4,319	4,320
0.375% Convertible Senior Notes due September 2026	3,528	3,528
Restricted stock units	455	538
Stock options	831	1,614
Total	9,133	10,000

Note 15. Related Party Transactions

In February 2021, the Company entered into a distribution agreement, the terms of which are consistent with those prevailing at arm's-length. The spouse of one of the members of the Company’s Board of Directors is an executive officer of the distributor. During the three months ended March 31, 2021, the Company recorded $2.8 million of revenues from the distributor, all of which was included in net accounts receivable on the condensed consolidated balance sheet at March 31, 2021.

Note ~~15.~~16. Subsequent Events

In ~~October 2020,~~ May 2021,the Company entered into a ~~$70~~senior secured credit agreement, which includes a $500 million seven year senior secured term loan ~~secured by~~B (the “Term Loan”) for net proceeds of approximately $490 million. The Term Loan bears interest at a ~~mortgage of its facility located in Acton, Massachusetts. The loan has a five-year term and an interest~~ rate of ~~approximately 5.2%. The monthly payment is~~LIBOR plus 3.25%, with a 0.50% LIBOR floor, and contains a leverage and fixed charge coverage ratios, both of which are measured upon the occurrence of future debt. In addition, the Term Loan contains other customary covenants, none of which are considered restrictive to the Company’s operations.

Under the same agreement, the Company obtained a $60 million three year senior secured revolving credit facility (the “Credit Facility”), which bears interest at a rate of LIBOR plus an applicable margin of 2.75% to 3.25% based on the Company’s net leverage ratio. The Credit Facility contains a ~~20-year amortization period with~~covenant to maintain a certain leverage ratio, in addition to other customary covenants, none of which are considered restrictive to the ~~final payment of the outstanding principal due in 2025.~~

In the fourth quarter of 2020, the Company entered into 2 equipment financing transactions secured by machinery and equipment associated with 2 of its highly automated manufacturing lines located in Acton, Massachusetts. The first transaction was in the amount of approximately $37 million with a term of 60 months and an interest rate of approximately 4.5%. The second transaction was in the amount of $23 million with a term of 42 months and an interest rate of approximately 5.4%.Company’s operations.

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Item 2. 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~~which are subject to 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, ~~2019~~2020 and in this quarterly report.

Overview

We are primarily engaged in the development, manufacture and sale of our proprietary Omnipod® System (“Omnipod”), ~~an innovative,~~a 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 a person’s body. Insulin pump therapy has been shown to provide people with insulin-dependent diabetes with numerous advantages relative to MDI therapy. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device (“Pod”) that is worn on the body for up to three days at a time; and its wireless companion, the handheld Personal Diabetes 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~~multiple daily injection therapy, using syringes or insulin pens, or the use of traditional pump and tubing. We believe that the 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.

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. Most of our drug delivery revenue currently consists of sales of ~~Pods~~pods to Amgen for use in the Neulasta® Onpro® kit, ~~an innovative~~a delivery system for Amgen’s white blood cell booster to help reduce the risk of infection after intense chemotherapy.

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

•expanding access and awareness;

•delivering consumer-focused innovation;

•~~ensuring the best customer experience globally;~~

•~~expanding~~growing our global ~~footprint;~~addressable market; and

•driving operational excellence.

Our long-term financial objective is to sustain profitable growth. To achieve this goal, we expect our efforts in ~~2020~~2021 to focus primarily on our planned launch of the ~~development in the United States of~~ Omnipod® 5 ~~powered by Horizon™~~Automated Insulin Delivery System (“Omnipod 5”), ~~our automated insulin delivery system. We completed~~which is currently under review with the first phase of our Omnipod 5 pivotal trial in October and during the third quarter, we began enrolling pediatric patients ages two to six years old in the next phase of our Omnipod 5 pivotal study. In addition, during the third quarter, we received U.S. Food and Drug Administration (“FDA”) ~~clearance for an~~. This review is taking longer than we had anticipated due to the current environment resulting from the COVID-19 pandemic. We now expect to begin our limited commercial release in the second half of the year; however, this shift in timing is not expected to have a material impact on 2021 revenue.

In addition, we continue our efforts to expand the Omnipod 5 indication to preschoolers ages two to six by the end of 2021. In addition, we completed enrollment in our Type 2 feasibility study ~~for individuals~~and plan to conduct additional studies with the goal to further expand Omnipod 5’s indication to Type 2 ~~diabetes.~~users.

In order to support our continued growth and the ~~expected~~planned 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 highly automated manufacturing line in the U.S. and we~~We are in the process of installing a third highly automated manufacturing line on which salable product is expected in 2021. ~~During the third quarter,~~

In 2021, we ~~installed two manufacturing lines at a new contract manufacturer in China.~~

~~Additionally, in 2020, we planned to further roll out our~~launched Omnipod DASHTM® Insulin Management System (“Omnipod DASH”), our next generation digital mobile Omnipod platform, in ~~Europe and Canada and enter five new countries in Western Europe and the Middle East~~Canada. We are also continuing to expand internationally in a targeted and strategic manner. During the ~~commercial sale~~first quarter of ~~Omnipod and~~2021, we increased our global ~~footprint. In the third quarter,~~footprint by expanding into Turkey and we ~~began the roll out of Omnipod DASH in our international markets. We~~expect to enter Australia later this year. Additionally, we are ~~still committed to entering new countries, although the timing for some 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~~working on our ~~2020 revenues since we did not expect these actions~~strategy to ~~have a meaningful contribution in 2020, although they are expected to contribute to our long-term growth.~~enter larger markets, such as Asia and Latin America.

Finally, we plan to continue our product development efforts and expand awareness of and access to our products. Achieving 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~~

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. 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

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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.

We have been able to produce at normal capacity since March. Additionally, our second highly automated manufacturing line in our U.S. manufacturing plant has provided additional manufacturing redundancy to help mitigate manufacturing risks stemming from COVID-19. Refer to ~~Item 1A. Risk Factors~~ ~~for a discussion of COVID-19 risks.~~

Results of Operations

Three Months Ended September 30,
(dollars in millions) 2020 2019 Percent
Change Currency
Impact
Constant
Currency (1)
Revenue:
U.S. Omnipod $ 132.3 $ 109.4 20.9 % — % 20.9 %
International Omnipod 79.8 67.8 17.7 % 5.3 % 12.4 %
Total Omnipod 212.1 177.2 19.7 % 2.1 % 17.6 %
Drug Delivery 21.9 14.9 47.0 % — % 47.0 %
Total $ 234.0 $ 192.1 21.8 % 1.9 % 19.9 %
Revenue


		Nine Months Ended September 30,											Three Months Ended March 31,
(dollars in millions)	(dollars in millions)	2020		2019		Percent Change		Currency Impact		Constant Currency (1)		(dollars in millions)	2021		2020		Percent Change		Currency Impact		Constant Currency (1)
Revenue:
U.S. Omnipod	U.S. Omnipod	$	377.7	$	293.6	28.6	%	—	%	28.6	%	U.S. Omnipod	$	143.3	$	116.6	22.9	%	—	%	22.9	%
International Omnipod	International Omnipod	226.1		187.4		20.7	%	(0.1)	%	20.8	%	International Omnipod	89.9		73.1		23.0	%	9.6	%	13.4	%
Total Omnipod	Total Omnipod	603.8		481.0		25.5	%	(0.1)	%	25.6	%	Total Omnipod	233.2		189.7		22.9	%	3.7	%	19.2	%
Drug Delivery	Drug Delivery	54.5		47.8		14.0	%	—	%	14.0	%	Drug Delivery	19.1		8.3		130.1	%	—	%	130.1	%
Total		$	658.3	$	528.8	24.5	%	—	%	24.5	%
Total revenue												Total revenue	$	252.3	$	198.0	27.4	%	3.5	%	23.9	%

(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 ~~September 30, 2020~~March 31, 2021 increased ~~$41.9~~$54.3 million, or ~~21.8%~~27.4%, to ~~$234.0~~$252.3 million, compared with ~~$192.1~~$198.0 million for the three months ended ~~September 30, 2019.~~March 31, 2020. Constant currency revenue growth of ~~19.9% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix.~~

Total revenue for the nine months ended September 30, 2020 increased $129.5 million, or 24.5%, to $658.3 million, compared with $528.8 million for the nine months ended September 30, 2019. Constant currency revenue growth of ~~24.5%~~23.9% 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 ~~September 30, 2020~~March 31, 2021 increased ~~$22.9~~$26.7 million, or ~~20.9%~~22.9%, to ~~$132.3~~$143.3 million, compared with ~~$109.4~~$116.6 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This increase was primarily due to higher volumes driven by growing our customer base, and to a lesser extent, an increase 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.

~~U.S. Omnipod revenue for the nine months ended September 30, 2020 increased $84.1 million, or 28.6%, to $377.7 million, compared with $293.6 million for the nine months ended September 30, 2019.~~ This increase was primarily due to higher volumes driven by growing our customer base, and to a lesser extent, an increase 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,~~2021, we expect strong U.S. Omnipod revenue growth driven by ~~continued market penetration and~~ volume growth of Omnipod DASH, primarily in the pharmacy ~~channel. We expect this revenue~~channel, benefits of our efforts to drive expanded access and awareness, and further growth ~~to be partially offset by the impact of lower new~~in our Omnipod customer ~~starts stemming from COVID-19.~~base.

International Omnipod

International Omnipod revenue for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$12.0~~$16.8 million, or ~~17.7%~~23.0%, to ~~$79.8~~$89.9 million, compared with ~~$67.8~~$73.1 million for the three months ended ~~September 30, 2019.~~March 31, 2020. Excluding the ~~5.3%~~9.6% favorable impact of currency

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exchange, the remaining ~~12.4%~~13.4% increase in revenue was primarily driven by higher volumes as we continue to expand awareness and access to the Omnipod.

International Omnipod revenue for the nine months ended September 30, 2020 increased $38.7 million, or 20.7%, to $226.1 million, compared with $187.4 million for the nine months ended September 30, 2019. This 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 For full year ~~2020,~~2021, we expect higher International Omnipod revenue due to continued volume growth and market ~~penetration.~~penetration aided by the full launch of Omnipod DASH throughout our international markets. We expect this revenue growth to be partially offset by the impact of lower new customer starts in 2020 stemming from ~~COVID-19.~~COVID-19 and related challenges.

Drug Delivery

Drug Delivery revenue for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$7.0~~$10.8 million, or ~~47.0%~~130.1%, to ~~$21.9~~$19.1 million, compared with ~~$14.9~~$8.3 million for the three months ended ~~September 30, 2019,~~March 31, 2020, due to increased demand for ~~Amgen's~~Amgen’s Neulasta® Onpro® kit which includes our pods, and to a lesser extent, lower production levels in prior year, both driven by COVID-19.

Drug Delivery revenue for the nine months ended September 30, 2020 increased $6.7 million, or 14.0%, to $54.5 million compared with $47.8 million for the nine months ended September 30, 2019, due to increased demand f~~or Amgen's Neulasta~~® ~~Onpro~~® ~~kit which includes our pods,~~ ~~driven by COVID-19~~. For full year ~~2020,~~2021, we expect ~~Drug Delivery~~drug delivery revenue to ~~increase due to a higher demand forecast resulting from COVID-19.~~decline or grow slightly dependent upon forecasted demand.

Operating Expenses


		Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
		2020				2019				2020				2019					2021				2020
(dollars in millions)	(dollars in millions)	Amount		Percent of Revenue		Amount		Percent of Revenue		Amount		Percent of Revenue		Amount		Percent of Revenue		(dollars in millions)	Amount		Percent of Revenue		Amount		Percent of Revenue
Cost of revenue	Cost of revenue	$	82.2	35.1	%	$	69.0	35.9	%	$	237.1	36.0	%	$	182.6	34.5	%	Cost of revenue	$	84.8	33.6	%	$	71.1	35.9	%
Research and development expenses	Research and development expenses	$	38.8	16.6	%	$	31.3	16.3	%	$	108.5	16.5	%	$	96.8	18.3	%	Research and development expenses	$	40.7	16.1	%	$	35.5	17.9	%
Selling, general and administrative expenses	Selling, general and administrative expenses	$	89.2	38.1	%	$	74.8	38.9	%	$	253.9	38.6	%	$	217.5	41.1	%	Selling, general and administrative expenses	$	110.5	43.8	%	$	83.9	42.4	%

Cost of Revenue

Cost of revenue for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$13.2~~$13.7 million, or ~~19.1%~~19.3%, to ~~$82.2~~$84.8 million, compared with ~~$69.0~~$71.1 million for the three months ended ~~September 30, 2019.~~March 31, 2020. Gross margin was ~~64.9%~~66.4% for the three months ended ~~September 30, 2020,~~March 31, 2021, compared with 64.1% for the three months ended ~~September 30, 2019.~~March 31, 2020. The 80230 basis point increase in gross margin was primarily ~~due to~~driven by improved manufacturing and supply chain efficiencies, higher average selling price due to growth in the pharmacy channel, 110 basis points of favorable foreign currency exchange, and to a ~~lesser extent, product mix, partially offset by start-up costs and inefficiencies related to our new U.S. manufacturing operations.~~

Cost of revenue for the nine months ended September 30, 2020 increased $54.5 million, or 29.8%, to $237.1 million, compared with $182.6 million for the nine months ended September 30, 2019. Gross margin was 64.0% for the nine months ended September 30, 2020, compared with 65.5% for the nine months ended September 30, 2019. ~~The 150~~100 basis point decrease in ~~gross margin was primarily due to start-up costs and inefficiencies~~COVID-19 related to our new U.S. manufacturing 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 $7.6 million associated with our contract manufacturer in China as a result of the coronavirus pandemic. This decrease wascosts. These increases were partially offset by expected higher ~~average selling price due to growth in the pharmacy channel. We expect full year 2020 gross margin to be approximately 64%, which reflects an estimated $9 to $10 million of~~production costs ~~resulting from the coronavirus pandemic, in addition to start-up costs and inefficiencies~~ as we continue to ~~ramp up our~~scale U.S. ~~manufacturing operations, partially offset by~~manufacturing. For full year 2021, we expect gross

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margin to be in the range of 67% to 70%, which reflects expected revenue growth both in the U.S. and internationally, including in the pharmacy channel, and the benefits of continued improvements in ~~our global~~ manufacturing and supply chain ~~operations and the move into the pharmacy channel in the United States.~~operations.

Research and Development Expenses

Research and development expenses for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$7.5~~$5.2 million, or ~~24.0%~~14.6%, to ~~$38.8~~$40.7 million, compared with ~~$31.3~~$35.5 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This increase was primarily due to ~~spend related~~year-over-year headcount additions to support our continued investment in development of Omnipod 5.

Research and development expenses for the nine months ended September 30, 2020 increased $11.7 million, or 12.1%, to $108.5 million, compared with $96.8 million for the nine months ended September 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 the prior year period.~~products. We expect research and development ~~spending~~spend for the full year ~~2020~~2021 to increase compared with ~~2019.~~2020 as we continue to invest in advancing our innovation and clinical pipeline.

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Selling, General and Administrative Expenses

Selling general and administrative expenses for the three months ended ~~September 30, 2020~~March 31, 2021 increased ~~$14.4~~$26.6 million, or ~~19.3%~~31.7%, to ~~$89.2~~$110.5 million, compared with ~~$74.8~~$83.9 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This increase was primarily attributable to an increase in direct to consumer advertising spend, year-over-year headcount additions, mainly sales and customer service personnel, as well as ~~the pilot of~~a shift in resources and certain costs from our ~~direct-to-consumer advertising campaign. These increases were partially offset by~~Omnipod 5 clinical efforts to our commercial strategy as we mature as a ~~decrease in travel and entertainment expenses due to reduced activity resulting from COVID-19.~~

Selling general and administrative expenses for the nine months ended September 30, 2020 increased $36.4 million, or 16.7%, to $253.9 million, compared with $217.5 million for the nine months ended September 30, 2019~~. This increase was primarily attributable to year-over-year headcount additions, mainly sales and customer service personnel, as well as the pilot of our direct-to-consumer advertising campaign.~~company. These increases were partially offset by a decrease in travel and entertainment expenses due to reduced activity resulting from COVID-19. We expect selling, general and administrative expenses ~~for the full year 2020~~ to increase in 2021 compared with ~~2019~~2020 due to expansion of our ~~U.S.~~ sales force and customer support personnel, direct-to-consumer advertising, investments to expand market acceptance and access for our products, and investments in our operating structure to facilitate ~~our~~operational efficiencies and continued ~~growth, including the launch of our pilot direct-to-consumer advertising campaign.~~growth.

Non-Operating Items

Interest Expense, Net

Net interest expense increased ~~$3.7~~$3.3 million to ~~$11.4~~$13.4 million for the three months ended ~~September 30, 2020,~~March 31, 2021, compared with ~~$7.7~~$10.1 million for the three months ended ~~September 30, 2019.~~March 31, 2020. This increase was driven by ~~a $2.4~~$1.6 million ~~increase in non-cash~~of cash interest expense ~~primarily~~ associated with ~~our 0.375% Notes issued~~the mortgage and equipment financings that occurred 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 $0.6 million decrease in capitalized interest, primarily due to~~ the ~~placement of our second U.S. manufacturing line into service during the first quarter of 2020.~~

Net interest expense increased $14.3 million to $32.6 million for the nine months ended September 30, 2020, compared with $18.3 million for the nine months ended September 30, 2019. This increase was driven by a $9.3 million increase in non-cash interest expense, primarily associated with our 0.375% Notes issued in September 2019 and a $3.4 million decrease in ~~capitalized interest primarily due to the placement of our first and second U.S. manufacturing lines into service during the second quarter of 2019 and the first~~fourth quarter of 2020 ~~respectively, as well as~~ and a ~~$2.7~~$1.3 million decrease in interest income due to lower market rates and a shift in a portion of our investment portfolio to more liquid investments.

~~Loss on Extinguishment of Debt~~

During the three and nine months ended September 30, 2019, we recognized a $6.4 million loss on extinguishment of debt related to the repurchase of $225.0 million in principal of our 1.25% Convertible Senior Notes due September 2021, the remainder of which were repurchased during the fourth quarter of 2019.

Other ~~Income,~~Expense, Net

During the three months ended ~~September 30, 2020,~~March 31, 2021, we had other ~~income of $1.0 million, compared with other~~ expense of ~~$1.8~~$2.6 million, ~~for the three months ended September 30, 2019. The increase in other income was~~ primarily driven by unrealized foreign currency ~~gains~~losses due to the change in exchange rates.

During the nine months ended September 30, 2020, we had other income, net of $2.0 million, compared with $0.5 million for the nine months ended September 30, 2019, The increase in other income was primarily driven by unrealized foreign currency gains due to the change in exchange rates, partially offset by a ~~$1.8 million insurance recovery for damaged inventory in excess of our cost received during the~~ ~~nine months ended September 30, 2019~~.

Income Tax Expense, Net

Income tax expense was ~~$1.8 million and~~ $0.3 million for the three months ended ~~September 30,~~March 31, 2021, compared with an income tax benefit of $0.5 million for the three months ended March 31, 2020, ~~and 2019, respectively. This resulted~~resulting in effective tax rates of ~~13.3%~~114.3% and ~~24.7%~~18.4% for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The ~~decrease~~increase in the effective tax rate was primarily driven by a ~~shift in expected jurisdictional mix of income.~~

~~Income~~$0.5 million discrete tax expense ~~was $4.3 million and $1.1 million for~~in the ~~nine~~United Kingdom due to the recording of a full valuation allowance against net deferred tax assets. We no longer expect to realize the deferred tax assets as a result of additional costs in the United Kingdom associated with a transfer of intellectual property that occurred during the three months ended ~~September 30, 2020 and 2019, respectively. This resulted in effective tax rates of 15.3% and 14.1% for the nine months ended September 30, 2020 and 2019, respectively. The increase in the~~March 31, 2021. ~~year-to-date~~ e~~ffective tax rate was driven by a shift in expected jurisdictional mix of income.~~

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Adjusted EBITDA

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


		Three Months Ended September 30,				Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		2020		2019		(in millions)	2021		2020
Net income		$	11.6	$	0.8	$	23.9	$	6.6
Net loss										Net loss	$	—	$	(2.1)
Interest expense, net	Interest expense, net	11.4		7.7		32.6		18.3		Interest expense, net	13.4		10.1
Income tax expense		1.8		0.3		4.3		1.1
Income tax expense (benefit)										Income tax expense (benefit)	0.3		(0.5)
Depreciation and amortization	Depreciation and amortization	10.9		7.8		29.7		18.8		Depreciation and amortization	12.8		8.9
Stock-based compensation		6.6		6.6		20.3		20.7
Loss on extinguishment of debt		—		6.4		—		6.4
Stock-based compensation expense										Stock-based compensation expense	8.6		7.9
Adjusted EBITDA	Adjusted EBITDA	$	42.3	$	29.6	$	110.8	$	71.9	Adjusted EBITDA	$	35.1	$	24.3

Non-GAAP Financial Measures

Management uses the following non-GAAP financial measures:

Constant currency revenue growth represents 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. 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

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financial measure, in addition to financial measures in accordance with accounting principles generally accepted in the 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 supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, and other interested parties as a measure of our comparative operating performance from period to period. Adjusted EBITDA is a commonly used measure in determining business value and we 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 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 ~~September 30, 2020,~~March 31, 2021, we had ~~$838.1~~$820.7 million in cash and cash equivalents and ~~$59.1~~$29.5 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. As of ~~September 30, 2020,~~March 31, 2021, we had ~~$67.4~~$80.3 million in capital commitments.

In ~~October 2020, the Company~~May 2021,we entered into a ~~$70~~senior secured credit agreement, which includes a $500 million seven year senior secured term loan ~~secured by~~B (the “Term Loan”) for net proceeds of approximately $490 million. The Term Loan bears interest at a ~~mortgage of its facility located in Acton, Massachusetts. The loan has a five-year term and an interest~~ rate of ~~approximately 5.2%. The monthly payment is based on a 20-year amortization period with the final payment of the outstanding principal due in 2025.~~

In the fourth quarter of 2020, the Company entered into two equipment financing transactions secured by machinery and equipment associated with two of its highly automated manufacturing lines located in Acton, Massachusetts. The first transaction was in the amount of approximately $37 millionLIBOR plus 3.25%, with a ~~term~~0.50% LIBOR floor, and contains a leverage and fixed charge coverage ratios, both of ~~60 months and an interest rate~~which are measured upon the occurrence of ~~approximately 4.5%. The second transaction was in~~future debt. In addition, the ~~amount~~Term Loan contains other customary covenants, none of ~~$23 million with a term of 42 months and an interest rate of approximately 5.4%.~~

which are considered restrictive to our operations. We intend to use the proceeds ~~from~~to pay down a portion of our outstanding convertible senior notes due in 2024 and/or to fund investments.

Under the ~~loan and equipment financing transactions for general corporate purposes.~~

~~Table~~same agreement, we obtained a $60 million three year senior secured revolving credit facility (the “Credit Facility”), which bears interest at a rate of ~~Contents~~

LIBOR plus an applicable margin of 2.75% to 3.25% based on out net leverage ratio. The Credit Facility contains a covenant to maintain a certain leverage ratio, in addition to other customary covenants, none of which are considered restrictive to our operations.

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 ~~September 30, 2020,~~March 31, 2021, the following notes were outstanding:


Issuance Date	Issuance Date	Coupon	Principal Outstanding (in millions)		Due Date	Initial Conversion Rate per Share of Common Stock	Conversion Price per Share of Common Stock		Issuance Date	Coupon	Principal Outstanding (in millions)		Due Date	Conversion Rate (1)	Conversion Price per Share of Common Stock
November 2017	November 2017	1.375%	$	402.5	November 2024	10.7315	$	93.18	November 2017	1.375%	$	402.5	November 2024	10.7315	$	93.18
September 2019	September 2019	0.375%	800.0		September 2026	4.4105	$	226.73	September 2019	0.375%	800.0		September 2026	4.4105	$	226.73
Total	Total		$	1,202.5					Total		$	1,202.5

(1) Per $1,000 face value of notes.

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

Summary of Cash Flows


		Nine Months Ended September 30,					Three Months Ended March 31,
(in millions)	(in millions)	2020		2019		(in millions)	2021		2020
Cash provided by (used in):
Cash (used in) provided by:						Cash (used in) provided by:
Operating activities	Operating activities	$	85.0	$	51.5	Operating activities	$	(35.1)	$	(3.6)
Investing activities	Investing activities	65.3		(19.6)		Investing activities	(22.7)		13.4
Financing activities	Financing activities	475.4		275.9		Financing activities	(28.4)		(19.0)
Effect of exchange rate changes on cash	Effect of exchange rate changes on cash	(1.3)		(1.8)		Effect of exchange rate changes on cash	(0.3)		(3.1)
Net increase in cash and cash equivalents		$	624.4	$	306.0
Net decrease in cash, cash equivalents and restricted cash						Net decrease in cash, cash equivalents and restricted cash	$	(86.5)	$	(12.3)

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Operating Activities

Net cash ~~provided by~~used in operating activities of ~~$85.0~~$35.1 million for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was primarily attributable to net ~~income,~~loss, as adjusted for ~~non-cash interest,~~ depreciation and amortization, non-cash interest, and stock-based compensation expense, partially offset by a ~~$25.9~~$72.3 million working capital cash outflow. The working capital outflow was driven by a ~~$22.9~~$28.0 million decrease in accrued expenses and other liabilities, a $17.9 million increase in inventories, a ~~$19.9~~$17.3 million increase in accounts receivable, and a ~~$16.8~~$14.1 million increase in prepaid expenses and other assets, partially offset by a ~~$36.1~~$5.0 million increase in accounts ~~payable,~~payable. The decrease in accrued expenses and other ~~current liabilities.~~liabilities was driven by the annual payout of cash bonuses for performance in the prior year. The increase in inventories was driven by a planned inventory build ~~associated with the further roll out of Omnipod DASH throughout the remaining European countries we serve.~~to satisfy demand. The 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. The increase in prepaid expenses and other assets was driven by an increase in cloud computing implementation costs and unbilled revenue resulting from an increase in demand for our Drug Delivery product. Finally, the increase in accounts payable ~~accrued expenses and other current liabilities~~ was driven by timing of payments.

Investing Activities

Net cash used in investing activities was $22.7 million for the three months ended March 31, 2021, compared with net cash provided by investing activities ~~was $65.3~~of $13.4 million for the ~~nine~~three months ended ~~September 30, 2020, compared with net cash used in investing activities of $19.6 million for nine months ended September 30, 2019.~~March 31, 2020.

Capital Spending—Capital expenditures were ~~$88.5~~$32.9 million and $26.9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, respectively, and primarily related to the purchase of equipment to increase our manufacturing capacity. Capital expenditures of $114.6 million for the nine months ended September 30, 2019 were primarily associated with the construction of our manufacturing and corporate headquarters facility in Acton, Massachusetts. For the full year 2020, although weWe expect capital expenditures for 2021 to ~~be lower than 2019,~~increase compared with 2020 as we continue to ~~expand manufacturing capacity and~~further invest in ~~technology~~our global manufacturing operations to support our ~~growth and the launch of Omnipod 5.~~growth. We expect to fund our capital expenditures using ~~a combination of~~ existing cash and ~~investments as well as cash generated from operations.~~investments.

Purchases and Sales of Investments—~~Net sales~~Proceeds from maturities of marketable securities were ~~$162.1~~$10.7 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with ~~$101.4~~net proceeds from maturities of $40.8 million for the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. The ~~increase in net sales of marketable securities~~$30.1 million decrease was driven by athe prior year shift in a portion of our investment portfolio to investments ~~that are~~ classified as cash ~~equivalents due to the sale of certain long-term investments prior to maturity.~~equivalents.

Financing Activities

Net cash ~~provided by~~used in financing activities was ~~$475.4~~$28.4 million for the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared with net cash ~~provided by~~used in financing activities of ~~$275.9~~$19.0 million for ~~nine~~three months ended ~~September 30, 2019.~~

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March 31, 2020.

~~Issuance of Common Stock~~Debt Repayments—~~During~~Total debt repayments were $3.8 million for the ~~nine~~three months ended September 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 liquidityMarch 31, 2021, primarily related to ~~mitigate risk and allow us to continue investing in the growth of~~principal payments on our ~~business and our strategic initiatives.~~equipment financings.

Option Exercises and Payment of Taxes for Restricted Stock Net Settlements—Total proceeds from option exercises were ~~$24.8~~$1.5 million and ~~$42.9~~$6.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The ~~$18.1~~$4.7 million decrease ~~in proceeds from option exercises~~ was primarily driven by ~~the retirement of~~fewer option exercises by our former ~~executives in the prior year period.~~chief executive officer. Payments for taxes related to net restricted and performance stock unit settlements were ~~$26.9~~$26.1 million and ~~$8.2~~$25.2 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. The $18.7 million increase in payments for taxes related to restricted stock net settlements was primarily due to a higher achievement percentage on performance stock units vested in the first quarter of 2020 compared to the prior year.

~~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. 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 $5.1 million had been paid as of September 30, 2020.

Legal Proceedings

The significant estimates and judgments related to establishing litigation reserves are discussed under “Legal Proceedings” in Note 9 to the consolidated financial statements included in this Form 10-Q.

Off-Balance Sheet Arrangements

As of ~~September 30, 2020,~~March 31, 2021, we had various outstanding letters of credit and bank guarantees totaling $2.8 million, none of which is individually significant. We have 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 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~~Our accounting policies for revenue recognition ~~accounts receivable and allowance for credit losses, product warranty~~ and contingencies 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 for the year ended December 31, ~~2019, except our accounting policy for our allowance for doubtful accounts (now termed allowance for credit losses). As~~2020.

Table 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.~~Contents

Accounting Standards Issued and Not Yet Adopted

~~In December 2019, the Financial Accounting Standards Board (“FASB”) issued ASU 2019-12,~~ ~~Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.~~ ASU 2019-12 eliminates certain exceptions in the current guidance regarding the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and the recognition of 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 accounting for transactions that result in a step up in the tax basis of goodwill. The guidance is effective for us beginning in the first quarter of 2021 with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on our consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies the accounting for convertible instruments by eliminating certain separation models. Under ASU 2020-06, a convertible debt instrument will generally be reported as a single liability at its amortized cost 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 requires the use of the if-converted method. The guidance is effective for us beginning in the first quarter of ~~2022 with early adoption permitted. We plan to early adopt ASU 2020-06~~2022. Based on the carrying value of our convertible debt as of March 31, 2021, the adoption of this guidance on January 1, ~~2021, which~~2022 is expected to result in an approximate $330

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million decrease in additional paid in capital from the derecognition of the bifurcated equity component, ~~$250~~$210 million increase in debt from the derecognition of the discount associated with the bifurcated equity component and ~~$80~~$130 million decrease to the opening balance of accumulated deficit, representing the cumulative interest expense recognized related to the amortization of the bifurcated conversion option. We expect to write-off the related deferred tax liabilities with a corresponding adjustment to the valuation allowance, resulting in no net impact to the cumulative adjustment to retained earnings. Adoption of this standard will have no impact on our diluted earnings per share as we calculate earnings per share using the if-converted method.

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 System, and our ability to design, develop, manufacture and commercialize future products;

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

•adverse changes in general economic conditions;

•the impact of healthcare reform laws;

•supply problems or price fluctuations with sole source or third-party suppliers on which we are dependent;

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

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

•international business risks, including regulatory, commercial and logistics risks associated with selling our products in Europe in light of the uncertainty related to the separation of the United Kingdom from the European Union (Brexit);

•our inability to secure and retain adequate coverage or reimbursement from third-party payors for the Omnipod 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 System’s current or future features;

•challenges to the future development of our non-insulin drug delivery 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;

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•failure of our contract manufacturers or component suppliers to comply with the FDA’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 federal, state or foreign anti-bribery/anti-corruption laws or laws prohibiting “kickbacks” or protecting the confidentiality of 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 cyber-attack;

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•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 System;

•the concentration of our manufacturing operations and storage of our inventory in a limited number of locations;

•our ability to attract and retain personnel;

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

•fluctuations in quarterly results of operations;

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

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

•the expansion of our distribution network;

•the volatility of the trading price of our common stock;

•risks related to future sales of our common stock or the conversion of any of our convertible debt;

•potential limitations on our ability to use our net operating loss carryforwards; and

•anti-takeover provisions in our organizational documents.

The risk factors discussed in “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 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

Refer to “Part II. Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 for a discussion of our interest rate risk, market price sensitive instruments and foreign currency exchange risk.

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 (“the Exchange Act”), 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 defined in ~~the Securities and Exchange Act of 1934~~ Rules 13a-15(e) and 15d-15(e)) under the Exchange Act) as of ~~September 30, 2020.~~March 31, 2021. Based on the evaluation, our chief executive officer and chief financial officer concluded that, as of that date, our disclosure controls and procedures were effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended ~~September 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 9 to the consolidated financial statements in this Form 10-Q.

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Item 1A. Risk Factors

Please refer to the “Risks Factors” section in our Annual Report on Form 10-K for the year ended December 31, ~~2019~~2020 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~~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 experienced a 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.

As a result of the COVID-19 pandemic, we have taken steps to protect the health and safety of our employees and have transitioned to a remote work environment for those that can perform their job function outside of our facilities. The remote work environment has increased risks associated with our information technology systems and networks, including cyber-attacks, computer viruses, disruptions, or shutdowns that could result in a failure to protect our information technology systems and data integrity.

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 interrupt the operations of the FDA 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 customer 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 September 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

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

~~Table of Contents~~

Item 5. Other Information

None.

Item 6. Exhibits


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 ~~September 30, 2020~~March 31, 2021 formatted in iXBRL (Inline eXtensible Business Reporting Language), as follows:

						(i) Condensed Consolidated Balance Sheets (Unaudited) as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020

						(ii) Condensed Consolidated Statements of Operations (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

						(iii) Condensed Consolidated Statements of Comprehensive ~~Income~~Loss (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

						(iv) Condensed Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~

						(v) Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 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.Furnished herewith.

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SIGNATURES

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.


		INSULET CORPORATION (Registrant)

Date:	~~November 4, 2020~~May 6, 2021	/s/ Shacey Petrovic
		Shacey Petrovic
		Chief Executive Officer (Principal Executive Officer)



Date:	~~November 4, 2020~~May 6, 2021	/s/ Wayde McMillan
		Wayde McMillan
		Chief Financial Officer (Principal Financial Officer)

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Years Ending December 31,	(in millions)
2020 (remaining)	$	0.7
2021	2.2
2022	1.7
2023	1.2
2024	1.1
Thereafter	3.5
Total	$	10.4


	Three Months Ended September 30, 2019						Nine Months Ended September 30, 2019
(in millions)	Foreign Currency Translation Adjustment		Unrealized Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss		Foreign Currency Translation Adjustment		Unrealized (Loss) Gain on Available-for-sale Securities		Accumulated Other Comprehensive Loss
Balance at beginning of period	$	(3.4)	$	0.6	$	(2.8)	$	(2.2)	$	(0.7)	$	(2.9)
Other comprehensive (loss) income	(1.8)		0		(1.8)		(3.0)		1.3		(1.7)
Balance at the end of period	$	(5.2)	$	0.6	$	(4.6)	$	(5.2)	$	0.6	$	(4.6)