Good afternoon. My name is Kathy and I will be your conference operator today. At this time, I would like to welcome everyone for the Q2 2012 Insulet Corporation Earnings Call. [Operator Instructions] After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] I will now like to turn the call over to Mr. Brian Roberts, Chief Financial Officer. Sir, you may begin.

Thank you. Good afternoon, everyone. Thank you for joining us for our second quarter 2012 conference call. I'm Brian Roberts, Chief Financial Officer of Insulet. And joining me on the call today is Duane DeSisto, our Chief Executive Officer. Before I get started, I'd like to remind everyone that our discussion today may include forward-looking statements as defined under the securities laws. We intend these forward-looking statements to be covered by the Safe Harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Securities Exchange Act and are making the statement for purposes of complying with those Safe Harbor provisions. These forward-looking statements reflect our current views about our plans, intentions, expectations, strategies and prospects, which are based on the information currently available to us and on assumptions we have made. There are risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Information concerning the Company's potential risks and uncertainties is highlighted in the Company's press release issued earlier today, and in the Risk Factor section of the Company's SEC filings, including the Company's annual report on Form 10-K for the year ended December 31, 2011 and the Company's quarterly report on Form 10-Q for the quarter ended March 31, 2012. These risk factors apply to our oral and written comments. We assume no obligation to update publically any forward-looking statements whether as a result of new information, future events or otherwise. I'd also like to remind you that the guidance we're offering today represents a point-in-time estimate of our future performance. You'll find a link to the webcast of this call, as well as to today's press release at myomnipod.com in the Investor section. And with that, I'll turn the call over to Duane.

Thanks, Brian. Good afternoon, everyone. Our second quarter 2012 performance was highlighted by acceleration on our core OmniPod business, which grew by nearly 30% year-over-year. The investments we made in sales and marketing over the past six months have begun to provide a return more quickly than we originally anticipated. Since January 1st, we have added approximately 20 members to our commercial team, including a new inside sales capability which launched on May 1st. These new investments coupled with the completion of the infrastructure -- integration of the Neighborhood Diabetes acquisition have resulted in a high powered commercial team driving increased patients demand. In the second quarter, referrals swelled by more than 20% year-over-year, the highest rate of increase in a quarterly period since 2009. While internally we are all eagerly anticipating the approval of the next generation OmniPod, our external message about the benefits of the current OmniPod continues to resonate to patients and healthcare professionals that there is no reason to wait. Patients are starting the therapy on the current OmniPod System and immediately enjoying the features such as no tubing, a discreet watertight design and automatic cannula insertion. Customers clearly continue to appreciate that the OmniPod System gives them the freedom to do what they want, when they want, without the hassles of conventional style pumping. With demand accelerating in the OmniPod business, our operations team has kept pace by increasing production volumes, improving quality and driving cost efficiencies. We manufactured more than 1.4 million OmniPods in the second quarter, a record level of production. This has allowed us to build our inventory levels, which will help facilitate the transition from the current OmniPod production line to the next generation OmniPod line. Importantly, we have not sacrificed quality as we have increased production quantity. We're very proud…

Thanks, Duane. Revenue increased by 58%, $51 million in the second quarter compared to $32.2 million in the second quarter of 2011. On an organic basis excluding the impact of the June 2011 acquisition of Neighborhood Diabetes, the OmniPod business accelerated in the quarter to nearly a 30% year-over-year rate of growth. We're seeing early returns in our commercial investments as referrals increased by more than 20% year-over-year. Revenue increased by $38.3 million or 63% to $98.8 million in the six months ended June 30, 2012, compared to $60.5 million in the comparable period in 2011. Gross profit for the quarter improved by 54% to $22.3 million compared to a gross profit of $14.5 million in the second quarter of 2011. Our gross margin was approximately 44% in the second quarter, an increase of about 130 basis points from the first quarter. The improvement is primarily the result of higher production, favorable pricing of certain components in the supply chain and reduced warranty cost, which ultimately drove the cost per pod below $14 for the period. For the six months ended June 30, 2012, gross profit increased by $14.5 million to $42.6 million, this represents an increase of 52% as compared to the same period in 2011. Operating expenses for the second quarter were $32.9 million compared to $29.5 million in the second quarter of '11 and $31.2 million in the first quarter of 2012. The year-over-year increase is primarily related to the additional of Neighborhood Diabetes. Sequentially the increase is primarily related to the ongoing processes for the next generation OmniPod and the additions to our commercial team in the first quarter. Operating expenses for the third and fourth quarters should return to approximately $31 million to $32 million per quarter, as R&D costs normalize to around approximately $5…

Thanks, Brian. In summary, the first half of 2012 has been excellent for Insulet and we believe 2012 will continue to be a very strong year in total. We are very encouraged by the acceleration of our sales performance year-to-date. We're optimistic that the momentum from the second quarter will continue to the remainder of the year. We have made substantial progress in manufacturing both the current OmniPod as well as in preparing for the launch of the next generation OmniPod product. We are certainly eager to receive FDA clearance for the next generation OmniPod and when it is received we are confident that we will be poised for the product launch in conversion of the U.S. customer base. And with that operator, please open up for calls.

[Operator Instructions] We have a question from Danielle Antalffy of Leerink Swann.

My first question is on next gen pod approval. Duane and Brian, does this now push, it sounds like now, we're pushing off that, sort of -- I don’t want to overstate this, but drop that date to get the patients transitioned by year-end fully. Is that true? Should be expect this now to weaken through first quarter of 2013? Can you give some color on updated timing on that front?

Sure, it's the obvious question, I think Danielle, where we are -- and for everybody on the phone there give a little color to it. I think the labeling change is already done, obviously. That wasn't a big deal when the comment that we had. And then second thing regime a factors and if you go through what we have to do. It's relatively -- our proposal is relatively small and it's about 30 people, it'll probably take us a little over a week to do. So a lot of this, I think from our side, we think we can turn this very, very quickly. We feel really good that we have a clear understanding what the expectation is from the agency. We just need them to sign off on it, and they get through that. So honestly, I am getting out of the prediction business here. I think is there still a shot? Sure there's still a shot. But I mean, I think from our standpoint, it's pretty straightforward on what we have to do, but obviously, it's getting very tight.

Got it. That makes sense. Then just thinking about this year's guidance, how much is the entire $5 million on the top end of the range, is that entirely due to Neighborhood Diabetes. It looks like OmniPod growth is actually a little bit stronger, at least than we had expected. So just trying to get a sense of the puts and takes to the guidance.

It's Brian. I think there are a couple of factors that are involved. Primarily, I would say is Neighborhood and just the timing of us getting the cross-selling opportunities up and running that we talked about in the last call, basically got that started earlier in Q2. Keep that going, I think that provides the momentum in the back half of the year. But it will take some time for us to build, as well as changing kind of their overall strategy to be focusing more on the payers. That's what I should we just look at the top end of our guidance for Q3 here, $57 million would get you -- would force to get to $225 million means you probably have nearly $70 million in Q4, and that probably is just a little bit too high. But overall, we feel very, very comfortable with the $210 million to $220 million range. And the good news I think with coming out of this quarter, is a couple of things. One, very clearly, we saw an acceleration of OmniPod in Q2, and it's clear that people aren't waiting overall, but we still believe, some are too. Right, so we are really encouraged, and I think excited by the level of referral demand that came in the door in Q2 and seeing investments in the commercial team started to pay off. We are also very encouraged by the fact that we were able to start to build some gross margins in Q2, both on the back of the improved quality, as well as just the lot of work we have been doing around through the supply chain, and what it does is, regardless of the timing of the approval or not, we think we are so well on track to be able to hit our goal here of getting the premium cash breakeven by the end of the year. So from that perspective, it certainly takes some of the pressure off of trying to get everybody converted over by the end of the year, and making sure that we couldn't do it. Lastly, the fact that we have a little bit of additional time, I wouldn't underestimate the opportunity for us to be able to derisk this transition. It just gives that much more time for us to make sure everything across the manufacturing, the commercial, and the operational teams is ready to go.

The next question is from Kim Gailun from JPMorgan.

I guess first question is follow-up to Danielle's on the timing here. Just to be clear on it, it sounds like at this point, you are looking at about three months to FDA approval. So I am thinking like mid to late November. Is that reasonable, is that what you are trying to convey?

I think what I am trying to convey, and hopefully this won't sound like a cop out, I think I know my piece. I think we are a little, as a company I think we are a little disappointed with the additional human factors work that we had to do. I think we felt pretty good about it, but it's pretty clear that these are their final comments, and obviously, they hold a right to do something else. They made it pretty clear, this was kind of final comments. We feel good that we have a clear understanding from what we think right now, the plan we submitted, on how quickly we could execute that. We still have to hear back from the agency. We have to execute the plan correctly, and people have to pass this, and we have to make sure those changes work, and then we have to get back in. So obviously, it's pushing us towards into the fourth quarter, and I'd be guessing if I picked the date any more, because I have been wrong, and I will readily admit, we missed this now two, three quarters in a row. But I guess I will keep telling you, I only control half this equation, we have been pretty good on that half.

I guess just in terms of the timing, so what you are waiting on now, is to hear back from FDA on what you have proposed. Is that fair?

That is fair. Just to make it clear, we submitted, what we believe, we had a conference call with them to get their understanding of what those questions were, there was a little more than a handful user interface, things they wanted to see us do something with. We have tackled those, whether it be change of PDM, improve the labeling, change the user manual. We laid out a protocol to verify that these in fact work, and we are going to wait until we hear back from the agency to make sure they are comfortable with that, and they believe the protocol is an appropriate one. And then we will execute it, and that execution from customer to doing it to writing a new form and resubmitting, will probably take four to six weeks. So all the other time in between is going to be kind of wavy.

Okay. Then a separate question on the referral commentary. So you have indicated that you have had a 20% year-over-year increase in referrals, and that that was up, that was the best quarter you had seen since '09, how does that 20% compare to what you saw over, say like the last four quarters on average and then, does that referral rate currently have a reliable correlation with new patient adds?

Net patient adds will kind of continue through Q3, because of the timing -- as those referrals came in from 10th of June and then those convert typically a month or so later. Overall, referral growth rate, it was a significant uptick from what we have seen over the last few quarters. We probably haven't put a number on it, but like I said, overall it was pretty encouraging, because originally when we made the investments to the commercial team, we were expecting that we'd take them on average, six months or so to become effective. I think what we saw was because these are resources going into existing territories, as well as this inside sales capability, and the team has done a real nice job of kind of laying out the roles and responsibilities of adding inside sales in, it became effective much, much sooner.

Okay. So just to push a little bit, are we talking about 20%, comparing to say 10% to 15% over the last four quarters?

On average probably a little bit better than that. Over 20% in Q2.

Your next question is from Ben Andrew of William Blair.

Duane, just wanted to clarify, make sure it's clear to me. All the changes in human factor, kind of components, are just software, right? There is no hardware change that you are looking at, either in the handheld, or certainly not the pod?

Ben, I think even better than I can -- with the exception of one screen, all the ones are putting in typically a confirmation screen to enter it, and then you kind of slide entering whatever the particular detail is, and then you slide in the screen right behind that that just is what you wanted to do, yes or no. So you are correct. It's either that or a user manual change or a labeling change.

Any material cost to do that at this point, because obviously you guys have been sort of preparing for a launch and yet not ready to go?

I can tell you that those changes are done, we are in the process of just validating the software now.

Then, I know you are probably not going to want to answer this, but I will try anyways. After you submit, say four to six weeks, from when you hear from them on this round, did they give you any expectation of being willing to move quickly with that, given the late timing of this last round from them, or is it kind of starting the 90-day clock and hope for something better?

Look, so they committed to nothing. Here if I'm an optimist, one encouraging point that they made is both us and them have a lot of time and effort into this to get to this point, and it's not a big, we are not submitting thousands of pages for them to review. It's a relatively small submission. Having said that, they have committed nothing.

Just one other topic for me, the rollout, as you think about obviously gaining more experience, more manufacturing ramps supporting estimate at this point, does this delay give you the opportunity to move faster when you do get the approval and launch it, or you still go through a very deliberate process, that may take three, six months to get you fully rolled out to all the customers?

I think the best way for us to roll it out to all the customers is when they place the reorder. Now what we do know, there is some pent-up demand for this product. We do know that patients are -- they are trying to gauge whatever they have in their clauses, trying of gauge the timing of that right to get it all to the finish line at the first time. I think there will be an uptick, but from our standpoint, the easiest way to ensure that we reach all the patients is you place the reorder and then you get the new product. That by far is going to be the simplest easiest way to ensure that it's fair and aboveboard with everybody. So now like I said, I think a lot of patients they are pretty -- they are pretty smart. They are paying attention to everything that's being said by the new product and they kind of time it perfectly. So they use up their last pod and can immediately leap into the new one. Ben, I think that's why we're pretty encouraged by this quarter to see this kind of uptick in demand and people. Message is resonating with people that look you might as well get started. The opportunity is good and you will get the new product. So I think from that side, our commercial and marketing teams are doing a good job, pounding that message out there that the best way to get this new product is to get on it now.

And then last question I guess, I will take a second last one is the gross margin trajectory. As you roll this out kind of late this year into early next, does this push out the timeframe to get to something like a 60% plus gross margin by maybe a quarter or can you still move quickly as you maybe some -- can you roll out faster here?

I mean Ben, I mean it's obviously a function of exactly when it gets approved and then how quickly we're able to start the roll-out process. As Duane noted, majority of our customers will ultimately reorder over the course of the three month period. So it's still reasonable to assume that at first quarter product launch will be the time that the most folks move and then the quarter after that is when we see the majority of the gross improvement come through.

Your next question is from Tom Gunderson of Piper Jaffray.

It's Dan Garofalo on for Tom. Guys, just switching gears a little bit, I was just wondering if you could provide some additional color around Ypsomed with how things have progressed with the full quarter of shipments and how the initial feedback's been with the next-gen product?

Sure. I think look we're going to shift numbers of patients because I mean they are publicly held company also, but the feedback's been excellent. I mean we are very, very encouraged with the size of product, ease of use, how much more discreet people feel it is versus current product. It's been very, very positive and then there has been some constructive feedback on people looking at this thing that in terms of some tweaks to maybe the user manual on a couple of these things that we are going to do to help them out, but we are very, very encouraged by what we are seeing.

Great. Last quarter I think you commented on the amount of shipments during the quarter and I was just curious if you would be willing to offer that for us this quarter?

No, sorry, probably I don't really have the number for you.

Caught me on just an off moment last quarter. It's hard to back up again.

Okay. And just a couple of quick housekeeping items. As far as the attrition rates and then the Abbott revenue which we are willing to provide that for us?

Yes. I think Abbott was like 1.7 in the quarter and attrition actually stayed basically flat right about 9%. Again I think we probably are 10, 20 basis points favorable from last quarter but basically no change.

[Operator Instructions]. You have a question from Ben Haynor of Feltl & Company.

On gross margin on OmniPod, the improvement there that you saw, can you give us a sense of how large that might have been either year-over-year, quarter-over-quarter?

Yes. I mean just look sequentially we grew the gross margin 130 basis points in total. And I would tell you that it's pretty much all on the back of the OmniPod. We did a lot of work over the course -- the first half of the year to really drive through pricing stuff through the supply chain to be able to gain further improvement. As Duane pointed out in his remarks, we have seen nine consecutive months of customer calls coming to our customer support group going down which means we have been able to lower some warranty expense, as well as been the little bit of an increase in overall product, but basically 130 basis points sequential increase now really on the back of OmniPod.

Okay, great. And then one other quick one, how is the SFDA process progressing in China?

It is rolling slowly forward. I don't how -- that one I wouldn't even -- [indiscernible] I would tell you it's going slowly. Our partners at Ypsomed are helping us, but it is right out of the box, it's pretty much a two-year process and we are getting there, but it's going slowly.

[Operator Instructions]. You have a question from Steve Lichtman from Oppenheimer.

Just a few positive clarifications. Just have you guys been able to start capturing the test strip revenue through Neighborhood that you guys had talked about been able to drop the test strips in the box, has that begun?

Yes. We basically started at the beginning of May. And so we have a minimal amount of it in the second quarter as we kind of continue to kind of get our feet wet across plans and get going on it, but we have started and hopefully it will be a little bit of a driver of growth for us in the back half of the year.

Okay. And then in terms of the response time from FDA obviously passes and necessary mean future, but over the last several iterations, the pace between you guys has been quicker I know and your average response time seems like it's been between 3 or 4 weeks from FDA after your submission, is that going to -- is that a fair characterization?

That's fair, yes.

Okay. And then just last clarification. Brian, if the OpEx does kick back down 31, 32 in the last couple quarters here then that $32 million to $38 million range, would it seem like you come in at the low end of the range. Is there anything I am missing as to why you would coming at the mid upper range on that operating loss for the year?

I mean overall I mean it's obviously always little bit of fluctuation across all the numbers, I mean little bit of a range is probably appropriate, but again we are very pretty comfortable that we are going to get the OpEx back on that range and then ultimately get the breakeven. So what the range will but...

Your next question is from Robert Goldman of CL King.

One of the follow-up on the question on international, I do hear that you are just not in a position to give the dollar amount of OmniPod sales international, but could you speak to growth rates either year-on-year or sequential quarter for international? And then the second piece of the international question, if you wouldn't mind just reminding me as when do you book the sale with international, is it when you ship it to Ypsomed or when Ypsomed ship it to a customer and is it rational to assume that Ypsomed is now building inventory?

Hi, Bob, it's Brian. Yes, couple of things. So again it's the summer season in Europe which we all know is lot of vacation time. I mean as you can imagine, especially like in the UK over this past few weeks, there is not a lot going over there. So I think it's fair to assume Ypsomed has really not built very much inventory yet on the next generation OmniPod. Overall, sales levels from Q1 to Q2 probably pretty consistent, slight uptick in Q2 but not dramatic. On an overall basis I would answer your question to say if you look at what our U.S. business did from year one to year two, back in the day it effectively tripled and we assumed that the international business will kind of follow that same suit year one to year two from '11 to 2012. I mean the majority of the markets that Ypsomed has really being driving, they are really now into their second full year with most of them either kicking off to the very end of 2010 or the beginning part of 2011. So they have all, with the exception of Austria, which obviously just launched the last few months, there is pretty much anniversary those. We would expect that trend to continue. But overall they have done a great job and I think again we are expecting the pace of next generation OmniPod rollout in Europe to pick up now once we get kind of into September and through the fall. And the goal is to have them all converted over by the end of the year.

There are no further questions.

Thanks everyone for joining us today in the third quarter which already started to be an interesting one for us and we look forward to updating you in the future. Thank you.

This concludes today's conference call. You may now disconnect.