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. Yesx No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yesx No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting 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 x
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, $0.01 Par Value Per Share
PODD
The NASDAQ Stock Market, LLC
As of July 25, 2019, the registrant had 60,271,673 shares of common stock outstanding.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Nature of the Business
Insulet Corporation (“Insulet”) is primarily engaged in the development, manufacturing and sale of its proprietary Omnipod® System, an innovative, discreet and easy-to-use continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System consists of two product lines: the Omnipod Insulin Management System (“Omnipod”), which Insulet has been selling since 2005, and its next generation Omnipod DASHTM Insulin Management System (“Omnipod DASH” or “DASH”). Insulet began a full market release of Omnipod DASH in the United States at the end of the first quarter of 2019. Collectively, these products are referred to as the “Omnipod System”.
In addition to using the Omnipod System for insulin delivery, Insulet also partners with global pharmaceutical and biotechnology companies to tailor the Omnipod System technology platform for the delivery of their drugs across other therapeutic areas. The majority of Insulet's drug delivery revenue currently consists of sales to Amgen supplying the Neulasta® Onpro® kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection during intense chemotherapy.
Note 2. Basis of Presentation
Basis of Presentation
The accompanying financial statements reflect the consolidated operations of Insulet and its subsidiaries (the “Company”). The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions in the application of certain of its significant accounting policies that may materially affect the reported amounts of assets, liabilities, equity, revenue 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 six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019, or for any other subsequent interim period.
The year-end balance sheet data was derived from audited consolidated financial statements. These consolidated financial statements do not include all of the annual disclosures required by U.S. GAAP; accordingly, they should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018.
Shipping and Handling Costs
Shipping and handling costs are included in general and administrative expenses and were $2.3 million and $1.4 million for the three months ended June 30, 2019 and 2018, respectively, and were $4.9 million and $2.5 million for the six months ended June 30, 2019 and 2018, respectively.
Reclassification of Prior Period Amounts
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. Software license costs have been reallocated from general and administrative expenses to research and development and sales and marketing expenses based on license usage. These reclassifications have no effect on previously reported net income.
Recently Adopted Accounting Standards
Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). ASU 2016-02 and its related amendments (collectively referred to as ASC 842), which amends the guidance in former ASC Topic 840, Leases. The new standard requires lessees to recognize right-of-use (“ROU”) assets and lease liabilities on the balance sheet for those leases classified as operating leases. The Company adopted ASC 842 on January 1, 2019 using the modified retrospective method, whereby the new guidance is applied prospectively as of the date of adoption and prior periods are not restated. The Company elected the practical expedients that permit the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for any existing leases as of the effective date. The Company also excludes leases with an expected term of less than one year from the application of ASC 842. Adoption of the lease standard had a material impact on the Company's consolidated balance sheet, which is disclosed in Note 11.
Effective January 1, 2019, the Company early adopted ASU 2018-15, Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 requires certain costs to implement a cloud computing arrangement that is a service contract to be capitalized consistent with the rules applicable to internal-use software capitalization projects. The Company adopted this new guidance effective January 1, 2019, prospectively. The Company defers
eligible costs related to the implementation of cloud computing arrangements within other current and non-current assets and amortizes such costs over the expected term of the hosting arrangement to the same income statement line as the associated cloud operating expenses. Adoption of this standard resulted in the Company capitalizing $0.7 million and $2.0 million of cloud computing implementation costs for the three and six months ended June 30, 2019, respectively.
Note 3. Revenue and Contract Acquisition Costs
The following table summarizes revenue from contracts with customers for the three and six months ended June 30, 2019 and 2018:
Three Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2019
2018
2019
2018
U.S. Omnipod
$
98,074
$
78,047
$
184,177
$
148,319
International Omnipod
62,736
28,509
119,624
66,913
Total Diabetes Revenue
160,810
106,556
303,801
215,232
Drug Delivery
16,326
17,706
32,890
32,608
Total
$
177,136
$
124,262
$
336,691
$
247,840
Revenue for customers comprising more than 10% of total revenue were as follows:
Three Months Ended June 30,
Six Months Ended June 30,
2019
2018
2019
2018
Amgen, Inc.
*
14%
10%
13%
Ypsomed
*
*
*
17%
Cardinal Health Inc. and affiliates
12%
13%
11%
12%
* Represents less than 10% of consolidated revenue.
Deferred revenue related to unsatisfied performance obligations was included in the following consolidated balance sheet accounts in the amounts shown:
As of
(in thousands)
June 30, 2019
December 31, 2018
Accrued expenses and other current liabilities
$
1,374
$
1,184
Other liabilities
986
931
Total deferred revenue
$
2,360
$
2,115
Revenue recognized during the three and six months ended June 30, 2019 included in deferred revenue at the beginning of 2019 was $0.2 million and $1.1 million, respectively. Revenue recognized during the three and six months ended June 30, 2018 included in deferred revenue at the beginning of 2018 was $1.1 million and $2.4 million, respectively. No revenue was recognized during the three and six months ended June 30, 2019 and 2018 from performance obligations satisfied or partially satisfied in previous periods.
Contract acquisition costs, representing capitalized commissions costs related to new patient starts, net of amortization, were included in the following consolidated balance sheet accounts in the amounts shown:
As of
(in thousands)
June 30, 2019
December 31, 2018
Prepaid expenses and other current assets
$
8,452
$
7,277
Other assets
18,183
15,988
Total capitalized contract acquisition costs, net
$
26,635
$
23,265
The Company recognized $2.1 million and $4.1 million of amortization of capitalized contract acquisition costs during the three and six months ended June 30, 2019, respectively.
Included in the Company's cash and cash equivalents are restricted cash amounts set aside for collateral on outstanding letters of credit totaling $2.7 million at both June 30, 2019 and December 31, 2018.
Marketable Securities
The Company's short-term and long-term investments in debt securities had maturity dates that range from 8 days to 23 months as of June 30, 2019. The Company’s investment portfolio included approximately 40 available-for-sale debt securities that had insignificant unrealized loss positions as of June 30, 2019 and December 31, 2018. The Company's investments had insignificant realized gains or losses for both the three and six months ended June 30, 2019 and June 30, 2018.
The Company uses the following fair value hierarchy to measure the fair value of assets and liabilities:
Level 1 — quoted prices in active markets for identical assets or liabilities;
Level 2 — observable inputs other than quoted prices in active markets for identical assets or liabilities;
Level 3 — unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions. The Company had no Level 3 assets or liabilities as of June 30, 2019 and December 31, 2018.
The following table provides amortized cost, gross unrealized gains and losses, fair value and the level in the fair value hierarchy for the Company's investments as of June 30, 2019 and December 31, 2018:
The Company had outstanding convertible debt and related debt issuance costs on its consolidated balance sheet as follows:
As of
(in thousands)
June 30, 2019
December 31, 2018
1.25% Convertible Senior Notes, due September 2021
$
344,992
$
344,992
1.375% Convertible Senior Notes, due November 2024
402,500
402,500
Unamortized debt discount
(129,616
)
(143,616
)
Debt issuance costs
(10,525
)
(11,898
)
Total convertible debt, net
$
607,351
$
591,978
The carrying amount and the estimated fair value of the Company's convertible debt, which is based on the Level 2 quoted market prices as of June 30, 2019 and December 31, 2018 were as follows:
As of
June 30, 2019
December 31, 2018
(in thousands)
Carrying Value
Estimated Fair Value
Carrying Value
Estimated Fair Value
1.25% Convertible Senior Notes, due September 2021
$
308,574
$
693,455
$
301,006
$
483,851
1.375% Convertible Senior Notes, due November 2024
298,777
512,797
290,972
426,026
Total
$
607,351
$
1,206,252
$
591,978
$
909,877
Note 6. Net Income (Loss) Per Share
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period, excluding unvested restricted common shares. Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding and, when dilutive, potential common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method), and potential common shares from the Company's convertible debt (using the if-converted method).
The table below sets forth the components used in the computation of basic and diluted net income (loss) per share for the three and six months ended June 30, 2019. Because the Company reported a net loss for the three and six months ended June 30, 2018, all potential dilutive common shares have been excluded from the computation of the diluted net loss per share for three and six months ended June 30, 2018, as the effect would have been anti-dilutive.