Item 8. Financial Statements and Supplementary Data

Our financial statements as of December 31, 2022 and 2021 and for each of the three years in the period ended December 31, 2022, and the Report of the Registered Independent Public Accounting Firm are included in this report as listed in the index.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248)			42
Consolidated Balance Sheets as of December 31, 2022 and 2021			44
Consolidated Statements of Operations for the Years ended December 31, 2022, 2021 and 2020			45
Consolidated Statements of Comprehensive Income for the Years ended December 31, 2022, 2021 and 2020			46
Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2022, 2021 and 2020			47
Consolidated Statements of Cash Flows for the Years ended December 31, 2022, 2021 and 2020			48
Notes to Consolidated Financial Statements			49

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Insulet Corporation

Opinions on the financial statements and internal control over financial reporting

We have audited the accompanying consolidated balance sheets of Insulet Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of operations, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control*—*Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in the 2013 Internal Control*—*Integrated Framework issued by COSO.

Change in accounting principle

As discussed in Note 2 to the financial statements, the Company changed its method of accounting for convertible debt in 2022 due to the adoption of Accounting Standards Update 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.

Basis for opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and limitations of internal control over financial reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical audit matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Contract Dispute

As described further in note 17 to the financial statements, the Company entered into an Asset Purchase Agreement as part of the resolution to an ongoing contract dispute. Pursuant to this agreement the Company made a one-time payment of $25.0 million to the counterparty for the acquisition of developed technology, patents, and the release of future obligations. This amount was allocated between the intangible assets acquired and the settlement component based on estimated fair values. We identified the accounting for the resolution of the contract dispute as a critical audit matter.

The principal considerations for our determination that the accounting for the resolution of the contract dispute is a critical audit matter are (1) applying the accounting guidance for allocating the consideration paid, which is complex and requires judgement and (2) estimating the allocation of the fair value of those elements. These considerations heightened the complexity surrounding the design and execution of audit procedures to respond to this risk.

Our audit procedures related to the contract dispute resolution included the following, among others.

• We consulted with our national office resources regarding management’s accounting conclusion that the transaction consisted of multiple elements to be valued and that consideration paid should be allocated using estimated fair values.

• With the assistance of valuation professionals with specialized skills and knowledge, we tested management’s fair value of the identified intangible assets. This included an assessment of the appropriateness of the methodology, inputs and key assumptions used, particularly the selection of the relief from royalty method to value the intangible assets, prospective financial information, royalty rates, the probability factor related to defending the patent asset and the selection of the discount rate.

Variable consideration – Rebates to Intermediaries

As described further in note 2 to the financial statements, the Company provides for certain rebates for sales of its product through intermediaries. The Company estimates variable consideration related to rebates to pharmacy benefit managers based on historical experience adjusted for revenue growth, market trends and events, individual agreements, product mix and, as available, channel inventory data. We identified the rebate estimate as a critical audit matter.

The principal consideration for our determination that the rebate estimate is a critical audit matter is the level of judgement and complexity surrounding the design and execution of audit procedures to respond to this risk due to the subjectivity of the adjustments to historical experience based on recent product variation and volume.

Our audit procedures related to the rebate estimate included the following, among others.

• We tested the design and operating effectiveness of controls related to management’s process to determine rebates, including the completeness and accuracy of the underlying data used in management’s estimation.

• We tested the completeness and accuracy of inputs into the calculation as follows: inspected source documents on a sample basis to test historical rebates, compared revenue growth rates to other audited schedules, and performed sensitivity analyses on the subjective adjustments to historical experience.

• We performed retrospective analysis comparing amounts invoiced to and paid by the Company to previously estimated amounts.

/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2016.

Boston, Massachusetts

February 23, 2023

INSULET CORPORATION

CONSOLIDATED BALANCE SHEETS

			As of December 31,
(in millions, except share and per share data)			2022						2021
ASSETS
Current Assets
Cash and cash equivalents			$	674.7					$	791.6
Accounts receivable trade, net			140.9						135.2
Accounts receivable trade, net — related party			64.7						25.8
Inventories			346.8						303.2
Prepaid expenses and other current assets			86.9						74.0
Total current assets			1,314.0						1,329.8
Property, plant and equipment, net			599.9						536.5
Other intangible assets, net			75.5						36.6
Goodwill			51.7						39.8
Other assets			210.0						106.1
Total assets			$	2,251.1					$	2,048.8
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable			$	30.8					$	37.7
Accrued expenses and other current liabilities			301.0						164.3
Accrued expenses and other current liabilities — related party			5.4						1.7
Current portion of long-term debt			27.5						25.1
Total current liabilities			364.7						228.8
Long-term debt, net			1,374.3						1,248.8
Other liabilities			35.7						14.9
Total liabilities			1,774.7						1,492.5
Commitments and contingencies (Note 17)
Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 shares authorized; none issued and outstanding			—						—
Common stock, $.001 par value, 100,000,000 authorized; 69,511,286 and 69,178,691 issued and outstanding			0.1						0.1
Additional paid-in capital			1,040.6						1,207.9
Accumulated deficit			(584.3)						(649.5)
Accumulated other comprehensive income (loss)			20.0						(2.2)
Total stockholders’ equity			476.4						556.3
Total liabilities and stockholders’ equity			$	2,251.1					$	2,048.8

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

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

			Years Ended December 31,
(in millions, except share and per share data)			2022						2021						2020
Revenue			$	1,055.4					$	1,040.6					$	904.4
Revenue from related party			249.9						58.2						—
Total revenue			1,305.3						1,098.8						904.4
Cost of revenue			499.7						346.7						322.1
Gross profit			805.6						752.1						582.3
Research and development expenses			180.2						160.1						146.8
Selling, general and administrative expenses			587.8						466.0						384.0
Operating income			37.6						126.0						51.5
Interest expense, net			(26.7)						(61.2)						(45.1)
Loss on extinguishment of debt			—						(42.4)						—
Other (expense) income, net			(1.1)						(1.9)						3.3
Income before income taxes			9.8						20.5						9.7
Income tax expense			(5.2)						(3.7)						(2.9)
Net income			$	4.6					$	16.8					$	6.8
Net income per share:
Basic			$	0.07					$	0.25					$	0.11
Diluted			$	0.07					$	0.24					$	0.10
Weighted-average number of common shares outstanding (in thousands):
Basic			69,375						67,698						64,735
Diluted			69,910						68,579						65,946

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

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			Years Ended December 31,
(in millions)			2022						2021						2020
Net income			$	4.6					$	16.8					$	6.8
Other comprehensive income (loss), net of tax
Foreign currency translation adjustment			(10.3)						(11.9)						6.8
Unrealized gain on cash flow hedges			32.5						4.5						—
Unrealized loss on available-for-sale securities			—						(0.3)						(0.1)
Total other comprehensive income (loss), net of tax			22.2						(7.7)						6.7
Comprehensive income			$	26.8					$	9.1					$	13.5

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

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

			Common Stock												Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive (Loss) Income						Total Stockholders’ Equity
(dollars in millions)			Shares (in thousands)						Amount
Balance, December 31, 2019			62,685						$	0.1					$	749.0					$	(672.0)					$	(1.2)					$	75.9
Adoption of ASU 2016-13 (Note 2)			—						—						—						(1.1)						—						(1.1)
Issuance of common stock			2,370						—						477.5						—						—						477.5
Exercise of options to purchase common stock			674						—						25.7						—						—						25.7
Issuance of shares for employee stock purchase plan			38						—						6.0						—						—						6.0
Stock-based compensation expense			—						—						35.9						—						—						35.9
Restricted stock units vested, net of shares withheld for taxes			250						—						(29.8)						—						—						(29.8)
Net income			—						—						—						6.8						—						6.8
Other comprehensive income			—						—						—						—						6.7						6.7
Balance, December 31, 2020			66,017						0.1						1,264.3						(666.3)						5.5						603.6
Exercise of options to purchase common stock			364						—						15.4						—						—						15.4
Issuance of shares for employee stock purchase plan			36						—						8.1						—						—						8.1
Stock-based compensation expense			—						—						34.4						—						—						34.4
Restricted stock units vested, net of shares withheld for taxes			176						—						(28.2)						—						—						(28.2)
Extinguishment of conversion feature on 1.375% Notes, net of issuance costs			—						—						(808.5)						—						—						(808.5)
Issuance of shares for debt extinguishment			2,586						—						722.4						—						—						722.4
Net income			—						—						—						16.8						—						16.8
Other comprehensive loss			—						—						—						—						(7.7)						(7.7)
Balance, December 31, 2021			69,179						0.1						1,207.9						(649.5)						(2.2)						556.3
Adoption of ASU 2020-06 (Note 2)			—						—						(207.7)						60.6						—						(147.1)
Exercise of options to purchase common stock			147						—						6.9						—						—						6.9
Issuance of shares for employee stock purchase plan			53						—						9.4						—						—						9.4
Stock-based compensation expense			—						—						40.9						—						—						40.9
Restricted stock units vested, net of shares withheld for taxes			132						—						(16.8)						—						—						(16.8)
Net income			—						—						—						4.6						—						4.6
Other comprehensive income			—						—						—						—						22.2						22.2
Balance, December 31, 2022			69,511						$	0.1					$	1,040.6					$	(584.3)					$	20.0					$	476.4

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

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended December 31,
(in millions)			2022						2021						2020
Cash flows from operating activities
Net income			$	4.6					$	16.8					$	6.8
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			63.2						57.4						55.4
Stock-based compensation expense			40.9						34.4						35.9
Non-cash interest expense			5.8						40.2						45.2
Loss on extinguishment of convertible debt			—						42.4						—
Provision for credit losses			4.2						3.1						3.3
Other			2.8						1.2						0.8
Changes in operating assets and liabilities:
Accounts receivable			(12.9)						(45.5)						(13.7)
Accounts receivable — related party			(38.9)						(25.8)						—
Inventories			(49.1)						(154.4)						(50.5)
Prepaid expenses and other assets			(36.8)						(46.7)						(34.1)
Accounts payable			(2.4)						(15.6)						7.1
Accrued expenses and other liabilities			133.9						22.7						27.8
Accrued expenses and other liabilities — related party			3.7						1.7						—
Net cash provided by (used in) operating activities			119.0						(68.1)						84.0
Cash flows from investing activities
Capital expenditures			(122.9)						(111.9)						(129.0)
Investments in developed software			(12.9)						(10.8)						(37.5)
Acquisition of a business			(26.0)						—						—
Acquisition of intangible assets			(21.5)						—						—
Cash paid for investments			(7.8)						—						—
Receipts from the maturity or sale of marketable securities			—						40.0						218.4
Cash paid for marketable securities			—						—						(37.9)
Net cash (used in) provided by investing activities			(191.1)						(82.7)						14.0
Cash flows from financing activities
Repayment of convertible debt			—						(460.9)						—
Proceeds from issuance of term loan, net of issuance costs			—						489.5						—
Repayment of term loan			(5.0)						(2.5)						—
Proceeds from equipment financings, net			—						43.1						60.0
Repayment of equipment financings			(17.4)						(17.8)						(1.4)
Proceeds from mortgage, net of issuance costs			—						—						68.3
Repayment of mortgage			(2.1)						(2.0)						(0.3)
Payment of debt issuance costs			—						(4.0)						(0.5)
Prepayments of financing lease obligation			(15.3)						—						—
Proceeds from issuance of common stock, net			—						—						477.5
Proceeds from exercise of stock options			6.9						15.4						25.7
Proceeds from issuance of common stock under employee stock purchase plan			9.4						8.1						6.0
Payment of withholding taxes in connection with vesting of restricted stock units			(16.8)						(28.2)						(29.8)
Net cash (used in) provided by financing activities			(40.3)						40.7						605.5
Effect of exchange rate changes on cash			(4.3)						(5.5)						4.8
Net (decrease) increase in cash, cash equivalents, and restricted cash			(116.7)						(115.6)						708.3
Cash, cash equivalents, and restricted cash, beginning of year			806.4						922.0						213.7
Cash, cash equivalents, and restricted cash, end of year (Note 6)			$	689.7					$	806.4					$	922.0
Supplemental cash flow information (Note 24)

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

INSULET CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1**. Nature of the Business**

Insulet Corporation (the “Company”) is primarily engaged in the development, manufacture, and sale of its proprietary Omnipod® System, a continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device (“Pod”) that the user fills with insulin and wears directly on the body for up to three days at a time, which delivers personalized doses of insulin, and the Personal Diabetes Manager (“PDM”) or Controller, a wireless, handheld device that programs the Pod with the user's personalized insulin-delivery instructions and wirelessly monitors the Pod’s operation.

The Omnipod System includes: the Omnipod Insulin Management System (“Classic Omnipod”), its next generation Omnipod DASH® Insulin Management System (“Omnipod DASH”), and its newest generation Omnipod® 5 Automated Insulin Delivery System (“Omnipod 5”). Omnipod DASH features a secure Bluetooth enabled Pod and PDM with a color touch screen user interface supported by smartphone connectivity. Omnipod 5, which builds on our Omnipod DASH mobile platform, is a tubeless automated insulin delivery system, that integrates with a continuous glucose monitor (“CGM”) to manage blood sugar and is fully controlled by a compatible personal smartphone or Omnipod 5 Controller. The CGM is sold separately by a third party.

The Company generates most of its revenue from sales of the Omnipod System, which is sold in the U.S., Europe, Canada, the Middle East, and Australia. The Omnipod System is sold either directly to end-users or indirectly through intermediaries. Intermediaries include independent distributors who resell the Omnipod to end-users and wholesalers who sell the Company’s product to end-users through the pharmacy channel in the United States.

Substantially all of the Company’s Drug Delivery revenue consists of sales of pods to Amgen for use in the Neulasta® Onpro® kit, a delivery system for Amgen’s Neulasta to help reduce the risk of infection after intense chemotherapy.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements reflect the consolidated operations of Insulet Corporation and its subsidiaries. The 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 amount 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.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated.

Foreign Currency Translation

The assets and liabilities of the Company’s foreign subsidiaries are translated into U.S. dollars using exchange rates as of the balance sheet date, while income and expenses of foreign subsidiaries are translated using the average exchange rates in effect for the related month. The net effect of these translation adjustments is reported in accumulated other comprehensive income (loss) within stockholders’ equity on the consolidated balance sheet. Net realized and unrealized (losses) gains from foreign currency transactions are included in other (expense) income, net in the consolidated statement of operations and were $(1.3) million, $(2.0) million and $3.2 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Cash and Cash Equivalents

The Company considers all highly liquid investments with maturities of 90 days or less at the time of purchase to be cash equivalents. Cash equivalents may include money market mutual funds, commercial paper, and U.S. government and agency bonds, that are carried at cost, which approximates their fair value. Restricted cash required to be set aside in connection with equipment financings or that serves as collateral for outstanding letters of credit and bank guarantees is included in other assets and cash and cash equivalents on the consolidated balance sheet.

Investments

The Company has investments in equity securities of privately held companies in which the Company’s interest is less than 20%, the Company does not exercise significant influence over the investee, and the investment does not have a readily determinable fair value. These investments are carried at cost less impairment, if any. If an observable price change in orderly transactions for the identical or similar investment in the same issuer is identified, the investment is measured at its fair value as of the date that the observable transaction occurred with the adjustments reflected in other (expense) income, net in the Company’s consolidated statements of operations.

In 2022, the Company made strategic investments in two companies in the amount of $5.0 million and $2.8 million. As of December 31, 2022 and December 31, 2021, the total carrying value of the Company’s investments in equity securities without readily determinable fair values was $8.7 million and $0.9 million, respectively. As of December 31, 2022 and 2021, there were no impairments or adjustments to the Company’s equity investments without readily determinable fair values.

The Company may also invest in marketable securities, including certificates of deposit, commercial paper, U.S. government and agency bonds, and corporate bonds, which are classified as available-for-sale and carried at fair value with unrealized gains and losses recorded as a component of accumulated other comprehensive income (loss) in stockholders’ equity on the consolidated balance sheet. Investments with a stated maturity date of more than one year from the balance sheet date and that are not expected to be used in current operations are classified as long-term investments on the consolidated balance sheet. The Company reviews investments for other-than-temporary impairment when the fair value of an investment is less than its amortized cost. If an available-for-sale security is other than temporarily impaired, the loss is included in other (expense) income, net in the consolidated statement of operations.

Accounts Receivable and Allowance for Credit Losses

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326) (“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 in the allowance for credit losses on accounts receivable.

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

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.

Inventories

Inventories are stated at the lower of cost or net realizable value, with cost determined under the first-in, first-out method. The Company reduces the carrying value of inventories for those items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments, or other economic factors in order to state inventories at net realizable value. Factors influencing these adjustments include inventories on hand compared to estimated future usage and sales.

Contract Acquisition Costs

The Company incurs commission costs to obtain a contract related to new customer starts. These costs are capitalized as contract assets in other assets on the consolidated balance sheet, net of the short-term portion included in prepaid and other current assets. Costs to obtain a contract are amortized to selling, general and administrative expense on a straight-line basis over the expected period of benefit, which considers future product upgrades. These costs are periodically reviewed for impairment.

Derivative Instruments

The Company is exposed to certain risks relating to its business operations. Risks that relate to interest rate exposure are managed by using interest rate swaps. The Company recognizes derivative instruments as either assets or liabilities at fair value on the consolidated balance sheet. Changes in a derivative financial instrument’s fair value are recognized in earnings unless specific hedge criteria are met, in which case changes in fair value are recognized as adjustments to other comprehensive income. The Company has designated its interest rate swap contracts as cash flow hedges.

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.

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 6 and 15 for financial assets and liabilities held at carrying amount on the consolidated balance sheet and Notes 16 for derivative instruments measured at fair value on a recurring basis.

Property, Plant and Equipment

Property, plant and equipment is stated at cost less accumulated depreciation. Major improvements are capitalized, while routine repairs and maintenance are expensed as incurred. Depreciation for property, plant and equipment, other than land and construction in progress, is based upon the following estimated useful lives using the straight-line method:

Building and building improvements			20 to 39 years
Leasehold improvements			Lesser of lease term or useful life of asset
Machinery and equipment			2 to 15 years
Furniture and fixtures			3 to 5 years

The Company assesses the recoverability of assets whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. The Company recognizes an impairment loss if the carrying amount of a long-lived asset is not recoverable based on its undiscounted future cash flows. The impairment loss is measured as the difference between the carrying amount and the fair value of the asset.

Business Combinations

The Company recognizes the assets and liabilities assumed in business combinations based on their estimated fair values at the date of acquisition. The Company allocates the purchase price in excess of net tangible assets acquired to identifiable intangible assets. The Company assesses the fair value of assets, including intangible assets, using a variety of methods and each asset is measured at fair value from the perspective of a market participant. Assets recorded from the perspective of a market participant that are determined to not have economic use for the Company are expensed immediately. Any excess purchase price over the fair value of the net tangible and intangible assets acquired is allocated to goodwill. Transaction costs and restructuring costs associated with a business combination are expensed as incurred.

Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price of an acquired entity over the amounts assigned to assets and liabilities assumed in a business combination. The Company performs an assessment of its goodwill for impairment annually on October 1 or whenever events or changes in circumstances indicate there might be impairment. Goodwill is evaluated for impairment at the reporting unit level.

The Company may assess its goodwill for impairment initially using a qualitative approach to determine whether conditions exist that indicate it is more likely than not that the fair value of a reporting unit is less than its carrying value. If management concludes, based on its assessment of relevant events, facts, and circumstances that it is more likely than not that a reporting unit’s carrying value is greater than its fair value, then a quantitative analysis will be performed to determine if there is any impairment. Alternatively, the Company may elect to initially perform a quantitative analysis instead of starting with a qualitative analysis. The Company would record an impairment loss to the extent that the carrying value of the reporting unit’s goodwill exceeds its fair value.

Intangible assets acquired in a business combination are recorded at fair value, while intangible assets purchased or software developed for internal-use are recorded at cost and are stated at cost less accumulated amortization. Intangible assets with finite useful lives are amortized based on the pattern in which the economic benefits of the assets are estimated to be consumed over the following estimated useful lives of the assets:

Customer relationships			14 years
Internal-use software			3 to 5 years
Developed technology			13 to 15 years
Patents			8 to 15 years

Amortization expense is included in selling, general and administrative expenses in the consolidated statement of operations. The Company reviews intangible assets for impairment by comparing the fair value of the assets, estimated using an income approach, with their carrying value. If the carrying value exceeds the fair value of the intangible asset, the Company recognizes an impairment equal to the difference between the carrying value of the asset and the present value of future cash flows. The Company assesses the remaining useful life and the recoverability of intangible assets whenever events or circumstances indicate that the carrying value of an asset may not be recoverable using undiscounted cash flows.

Cloud Computing Arrangements

The Company capitalizes costs incurred to implement cloud computing arrangements that are service contracts within other current and non-current assets and amortizes such costs over the expected term of the hosting arrangement using the straight-line method to the same income statement line as the associated cloud operating expenses. The Company assesses the recoverability of capitalized implementation costs in accordance with the policy disclosed under Property, Plant and Equipment.

Leases

The Company determines if an arrangement includes a lease at inception. Lease agreements generally have lease and non-lease components, which are accounted for separately. At lease commencement, the Company recognizes operating lease liabilities equal to the present value of the lease payments and operating lease assets representing the right to use the underlying asset for the lease term. The Company assesses if it is reasonably certain to exercise lease options to extend or terminate the lease for inclusion or exclusion in the lease term when the Company measures the lease liability. As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The Company’s incremental borrowing rate reflects a secured rate that considers the term of the lease, the nature of the underlying asset and the economic environment. The Company excludes leases with an expected term of one year or less from recognition on the consolidated balance sheet. Operating lease assets includes lease payments made prior to lease commencement and excludes lease incentives and initial direct costs incurred. Lease expense is recognized on a straight-line basis over the lease term.

Contingencies

The Company records a liability on the consolidated balance sheet for loss contingencies when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a known or probable loss is a range, and no amount within the range is a better estimate than any other, the minimum amount of the range is accrued. If a loss is reasonably possible but not known or probable, and can be reasonably estimated, the estimated loss or range of loss is disclosed.

Product Warranty

The Company provides a four-year warranty on its PDMs and Controllers 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. Costs to service the claims reflect the current product cost, reclaim costs, shipping and handling costs and direct and incremental distribution and customer service support costs. 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.

Revenue Recognition

Revenue is recognized when a customer obtains control of the promised products. The amount of revenue recognized reflects the consideration the Company expects to be entitled to receive in exchange for these products. To achieve this core principle, the Company applies the following five steps:

*•*Identify Contracts with Customers. The Company’s contracts with its direct customers generally consist of a physician order form, a customer information form and, if applicable, third-party insurance (payor) approval. Contracts with the Company’s intermediaries are generally in the form of master service agreements against which firm purchase orders are issued. At the outset of the contract, the Company assesses the customer’s ability and intention to pay, which is based on a variety of factors including historical payment experience or, in the case of a new intermediary, credit references and other available financial information pertaining to the customer and, in the case of a new direct customer, an investigation of insurance eligibility.

*•*Identify Performance Obligations. The performance obligations in contracts for the delivery of the Omnipod to new end-users, either directly to end-users or through intermediaries, primarily consist of the PDM/Controller and the initial and subsequent quantity of Pods ordered. In the Company’s judgment, these performance obligations are capable of being distinct and distinct in the context of the contract in that the customer can benefit from each item in conjunction with other readily available resources and the transfer of the PDM/Controller and the Pods is separately identifiable in the contract with the customer.

*•*Determine Transaction Price. The price charged for the PDM/Controller and Pods is dependent on the Company’s pricing as established with third-party payors and intermediaries. The Company provides a right of return for sales of its Omnipod to new end-users and certain of our distributors and wholesalers. The Company also provides for certain rebates and discounts for sales of its product through intermediaries. These rights of return, discounts, and rebates represent variable consideration and reduce the transaction price at the outset of the contract based on the Company’s estimates, which are primarily based on the expected value method using historical and other data (such as product return trends or forecasted sale volumes) related to actual product returns, discounts, and rebates paid in each market in which the Omnipod is sold. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the contract will not occur; otherwise, the Company reduces the variable consideration. The variable consideration in the Company’s contracts is not typically constrained and the Company’s contracts do not contain significant financing components.

*•*Allocate Transaction Price to Performance Obligations. The Company allocates the transaction price to each performance obligation based on its relative stand-alone selling price, which is determined based on the price at which the Company typically sells the deliverable or, if the performance obligation is not typically sold separately, the stand-alone selling price is estimated based on cost plus a reasonable profit margin or the price that a third party would charge for a similar product or service.

• Recognize Revenue as Performance Obligations are Satisfied. The Company transfers the Omnipod at a point in time, which is determined based on when the customer gains control of the product. Generally, intermediaries in the United States, obtain control upon shipment based on the contractual terms, including right to payment and transfer of title and risk of ownership. For sales directly to end-users and international intermediaries, control is generally transferred at the time of delivery based on customary business practices related to risk of ownership, including transfer of title.

The Company’s Drug Delivery product line includes sales of a modified version of the Omnipod to pharmaceutical and biotechnology companies who use the Company’s technology as a delivery method for their drugs. For the majority of this product line, revenue is recognized, with an associated unbilled receivable, as the product is produced pursuant to the customer’s firm purchase commitments. The Company has an enforceable right to payment for performance completed to date and the inventory has no alternative use to the Company. Judgment is required in the assessment of progress toward completion of in-process inventory. The Company recognizes revenue over time using a blend of costs incurred to date relative to total estimated costs at completion and time incurred to date relative to total production time to measure progress toward the satisfaction of its performance obligations. The Company believes that both incurred cost and elapsed time reflect the value

generated, which best depicts the transfer of control to the customer. Contract costs include third-party costs as well as an allocation of manufacturing overhead.

Research and Software Development Costs

Internal research and development costs are expensed as incurred. Research and development expenses include salary and benefits, allocated overhead and occupancy costs, clinical trial and related clinical manufacturing costs, contract services, and other costs.

Costs incurred in the research, design, and development of software embedded in products to be sold to customers are charged to expense until technological feasibility of the ultimate product to be sold is established. The Company’s policy is that technological feasibility is achieved when a working model, with the key features and functions of the product, is available for customer testing. Software development costs incurred after the establishment of technological feasibility and until the product is available for general release are capitalized, provided recoverability is reasonably assured. Capitalized software development costs are amortized over their estimated useful life and recorded within cost of revenues.

Shipping and Handling Costs

The Company does not typically charge its customers for shipping and handling costs associated with shipping its product to its customers unless non-standard shipping and handling services are requested. These shipping and handling costs are included in selling, general and administrative expenses and were $12.8 million, $10.5 million, and $10.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising expenses were $41.2 million, $44.1 million, and $30.0 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Stock-Based Compensation Expense

The Company measures stock-based compensation on the grant date based on the fair value of the award and recognizes the compensation expense over the requisite service period, which is generally the vesting period. The amount of stock-based compensation expense recognized during a period is based on the portion of the awards that are expected to vest. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates.

Income Taxes

The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates that will be in effect in the years in which the differences are expected to reverse. The Company reviews its deferred tax assets for recoverability considering historical profitability, projected future taxable income, and the expected timing of the reversals of existing temporary differences and tax planning strategies. A valuation allowance is provided to reduce the deferred tax assets if, based on the available evidence, it is more likely than not that some or all the deferred tax assets will not be realized. The effect of a change in enacted tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. Interest and penalties are classified as a component of income tax expense.

Concentration Risk

*Credit Risk—*Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents and accounts receivable. The Company maintains most of its cash, and investments with a limited number of financial institutions that have a high investment grade credit rating. See Notes 4 and 7 for customer concentration.

*Supply Risk—*The Company’s Drug Delivery product is currently produced at a single contract manufacturer. Additionally, the Company uses different types of semiconductor chips, which are sourced from external suppliers, in the manufacturing of its products. While the Company has multiple suppliers of semiconductor chips, each type is typically sourced from a single supplier. Supply chain disruptions, supplier shortages, logistic delays, or quality problems could result in manufacturing delays, increased costs, or a possible loss of sales, which could adversely affect operating results.

Recently Adopted Accounting Standards

Convertible Debt

Effective January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2020-06, Debt – Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity using the modified retrospective method for convertible debt instruments outstanding as of the date of adoption. Under ASU 2020-06, a convertible debt

instrument is generally reported as a single liability at its amortized cost with no separate accounting for embedded conversion features. Consequently, the effective interest rate of convertible debt instruments is closer to the coupon interest rate under the new guidance. The following table shows the adjustments made to the consolidated balance sheet as of January 1, 2022 as a result of adopting the new guidance.

(in millions)			As Reported Prior to ASU 2020-06						Adjustments						As Adjusted Under ASU 2020-06
			December 31, 2021						January 1, 2022						January 1, 2022
Long-term debt, net(1)			$	1,248.8					$	147.1					$	1,395.9
Additional paid-in-capital(2)			$	1,207.9					$	(207.7)					$	1,000.2
Accumulated deficit(3)			$	(649.5)					$	60.6					$	(588.9)

(1) The increase in debt resulted from the derecognition of the discount associated with the embedded conversion feature, offset by the remaining debt issuance costs reclassified out of equity.

(2) The decrease in additional paid-in-capital resulted from the derecognition of the embedded conversion feature and debt issuance costs bifurcated to equity.

(3) The decrease to accumulated deficit represents the cumulative interest expense recognized related to the amortization of the bifurcated conversion option and debt issuance costs.

In addition to the adjustments in the table above, the Company wrote-off the related deferred tax liabilities with a corresponding adjustment to the valuation allowance, resulting in no net impact to the cumulative adjustment recorded to accumulated deficit. Adoption of this standard had no impact on the Company’s diluted earnings per share as the Company historically calculated earnings per share using the if-converted method.

Reference Rate Reform

ASU 2020-04, Reference Rate Reform (Topic 848) – Facilitation of the Effects of Reference Rate Reform on Reporting and ASU 2021-01, Reference Rate Reform (Topic 848) – Scope allow companies to elect optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform (e.g., discontinuation of the London Interbank Offered Rate (“LIBOR”)) if certain criteria are met. During the fourth quarter of 2022, the Company elected to apply optional expedients for contract modifications to all eligible debt instruments and hedging relationships affected by the transition from LIBOR to the Secured Overnight Financing Rate (“SOFR”). Accordingly, the Company did not have to assess whether the contract modification should be accounted for as a debt extinguishment. Additionally, the Company was not required to dedesignate hedging relationships when the contractual terms changed. The adoption of these standards had no impact on our consolidated financial statements.

Note 3. Segment and Geographic Data

The Company operates under one reportable segment. Operating segments are defined as components of an enterprise for which separate financial information is available that is evaluated on a regular basis by the chief operating decision-maker (“CODM”) in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company has concluded that its Chief Executive Officer (“CEO”) is the CODM as the CEO is the ultimate decision maker for key operating decisions, determining the allocation of resources and assessing the financial performance of the Company. These decisions, allocations, and assessments are performed by the CODM using consolidated financial information, as the Company’s current product offering primarily consists of the Omnipod System and drug delivery device based on the Omnipod platform.

Geographic information about revenue, based on customer location, is as follows:

			Years Ended December 31,
(in millions)			2022						2021						2020
United States(1)			$	942.3					$	738.9					$	596.4
International			363.0						359.9						308.0
Total			$	1,305.3					$	1,098.8					$	904.4

(1) Includes U.S. Omnipod and Drug Delivery revenues.

Geographic information about long-lived assets, net, excluding goodwill and other intangible assets is as follows:

			As of December 31,
(in millions)			2022						2021
United States			$	453.2					$	445.4
China			87.6						84.1
Malaysia			51.6						—
Other			7.5						7.0
Total			$	599.9					$	536.5

Note 4. Revenue and Contract Acquisition Costs

The following table summarizes the Company’s disaggregated revenues:

			Years Ended December 31,
(in millions)			2022						2021						2020
U.S. Omnipod			$	884.8					$	651.5					$	526.9
International Omnipod			363.0						359.9						308.0
Total Omnipod			1,247.8						1,011.4						834.9
Drug Delivery			57.5						87.4						69.5
Total revenue			$	1,305.3					$	1,098.8					$	904.4

The percentages of total revenue for customers that represent 10% or more of total revenue was as follows:

			Years Ended December 31,
			2022						2021						2020
Distributor A			19%						*						*
Distributor B			17%						12%						10%
Distributor C			*						10%						11%
Distributor D			16%						*						*

• Represents less than 10% of revenue for the period.

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

			As of December 31,
(in millions)			2022						2021
Accrued expenses and other current liabilities			$	16.1					$	3.5
Other liabilities			1.6						1.5
Total deferred revenue			$	17.7					$	5.0

Revenue recognized from amounts included in deferred revenue at the beginning of each respective period was as follows:

			As of December 31,
(in millions)			2022						2021						2020
Deferred revenue recognized			$	2.1					$	4.4					$	1.8

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

			As of December 31,
(in millions)			2022						2021
Prepaid expenses and other current assets			$	15.2					$	13.3
Other assets			31.3						26.1
Total capitalized contract acquisition costs, net			$	46.5					$	39.4

The Company recognized $14.6 million, $12.3 million, and $10.6 million of amortization of capitalized contract acquisition costs for the years ended December 31, 2022, 2021, and 2020, respectively.

Note 5. 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. The Company recorded $249.9 million and $58.2 million of net revenues from the distributor for the years ended December 31, 2022 and 2021, respectively. The Company had $64.7 million and $25.8 million of net accounts receivable due from the distributor as of December 31, 2022 and 2021, respectively. In addition, the Company had an aggregate of $5.4 million and $1.7 million of distribution fees due to the distributor and deferred revenue, which was included in accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2022 and 2021, respectively.

Note 6. Cash and Cash Equivalents

The following table provides a summary of cash and cash equivalents as of December 31, 2022 and 2021:

			As of December 31,
(in millions)			2022						2021
Cash			$	136.1					$	159.3
Money market mutual funds			487.3						630.7
Time deposits			50.8						—
Restricted cash			0.5						1.6
Total cash and cash equivalents			674.7						791.6
Restricted cash included in other assets			15.0						14.8
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows			$	689.7					$	806.4

All cash and cash equivalents are level 1 in the fair value hierarchy. The restricted cash included in other assets on the consolidated balance sheet is held as a compensating balance against long-term borrowings.

Certain of the Company’s subsidiaries participate in a multi-currency, notional cash pooling arrangement with a third-party bank provider to manage global liquidity requirements. Under this arrangement, which began in 2022, cash deposited by participating subsidiaries may be used to offset amounts owed to the bank by other participating subsidiaries to the extent the overall balance in the cash pool is at least zero, providing legal rights of offset. As of December 31, 2022, the Company had a net cash position of approximately $0.7 million, consisting of a gross cash position of approximately $48.7 million less cash borrowings of approximately $48.0 million by participating subsidiaries, which is reflected as cash and cash equivalents in the consolidated balance sheet.

Note 7. Accounts Receivable

At the end of each period, accounts receivable were comprised of the following:

			As of December 31,
(in millions)			2022						2021
Accounts receivable trade, net			$	128.6					$	101.2
Unbilled receivable			12.3						34.0
Accounts receivable, net			$	140.9					$	135.2

The percentages of total net accounts receivable trade for customers that represent 10% or more of total net accounts receivable trade were as follows:

			As of December 31,
			2022						2021
Distributor A			34%						21%
Distributor B			11%						*
Distributor D			23%						15%

• Represents less than 10% of total net accounts receivable trade.

The following table presents the activity in the allowance for credit losses, which is comprised primarily of our direct consumer receivable portfolio. The allowance for credit losses of other portfolios is insignificant.

			Year Ended December 31,
(in millions)			2022						2021						2020
Credit losses at beginning of year			$	2.7					$	2.9					$	4.9
Provision for expected credit losses			4.2						3.1						3.3
Write-offs charged against allowance			(4.9)						(3.8)						(5.8)
Recoveries of amounts previously reserved			0.5						0.5						0.5
Credit losses at end of year			$	2.5					$	2.7					$	2.9

Note 8. Inventories

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

			As of December 31,
(in millions)			2022						2021
Raw materials			$	79.1					$	70.0
Work in process			84.2						112.6
Finished goods			183.5						120.6
Total inventories			$	346.8					$	303.2

Amounts charged to the consolidated statements of operations for excess and obsolete inventory, including related to the phase-out of Classic Omnipod for the years ended December 31, 2022, 2021, and 2020 were $8.4 million, $2.8 million, and $2.2 million, respectively.

Note 9. Cloud Computing Costs

Capitalized costs to implement cloud computing arrangements at cost and accumulated amortization were as follows:

			As of December 31,
(in millions)			2022						2021
Short-term portion			$	18.0					$	18.4
Long-term portion			87.1						49.2
Total capitalized implementation costs			105.1						67.6
Less: accumulated amortization			(17.1)						(4.4)
Capitalized implementation costs, net			$	88.0					$	63.2

Amortization expense is recognized on a straight-line basis over the expected term of the hosting arrangements, which range from 3 to 5 years. Amortization expense was $12.7 million, $2.9 million, and $1.4 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Note 10. Property, Plant and Equipment, Net

Property, plant and equipment at cost and accumulated depreciation were as follows:

			As of December 31,
(in millions)			2022						2021
Land			$	2.5					$	2.5
Building and building improvements			163.9						159.5
Machinery and equipment			527.0						437.2
Furniture and fixtures			17.2						15.9
Leasehold improvements			11.7						5.9
Construction in process			112.3						94.7
Total property, plant and equipment			834.6						715.7
Less: accumulated depreciation			(234.7)						(179.2)
Property, plant and equipment, net			$	599.9					$	536.5

Depreciation expense related to property and equipment was $56.0 million, $50.6 million, and $38.0 million for the years ended December 31, 2022, 2021, and 2020, respectively. Construction in process primarily consists of manufacturing equipment for our new manufacturing facility being constructed in Malaysia, most of which is expected to be placed into service in 2024. Construction in progress also consists of tooling and other machinery and equipment for our existing manufacturing lines, most of which is expected to be placed into service during 2023.

Note 11. Business Combination

On January 3, 2022, the Company acquired substantially all of the assets related to the manufacture and production of shape-memory alloy wire assemblies that are used in the production of Pods from Dynalloy, Inc., a maker of dynamic alloys. The aggregate purchase price was $29.0 million, of which $26.0 million was paid in cash upon closing, and the remaining $3.0 million was paid in January 2023. Transaction costs were expensed as incurred and were not material.

The following table summarizes the fair value allocation of the assets acquired at the date of acquisition:

(in millions)
Inventories			$	0.5
Property, plant and equipment			0.9
Other assets			0.2
Goodwill (tax deductible)			12.0
Developed technology (15 year useful life)			15.4
Total assets acquired			$	29.0

The primary factor that contributed to an acquisition price in excess of the fair value of assets acquired and the establishment of goodwill was the expected cost savings resulting from the integration of a supplier.

Note 12. Goodwill and Other Intangible Assets, Net

Goodwill

The change in the carrying amount of goodwill for the period is as follows:

(in millions)
Goodwill at December 31, 2021			$	39.8
Acquisition (Note 11)			12.0
Foreign currency translation			(0.1)
Goodwill at December 31, 2022			$	51.7

Intangible Assets, Net

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

			As of December 31,
2022																		2021
(in millions)			Gross Carrying Amount						Accumulated Amortization						Net Book Value						Gross Carrying Amount						Accumulated Amortization						Net Book Value
Customer relationships			$	43.2					$	(27.5)					$	15.7					$	43.4					$	(23.4)					$	20.0
Internal-use software			34.8						(12.0)						22.8						25.5						(10.2)						15.3
Developed technology(1)			27.4						(1.0)						26.4						—						—						—
Patents(1)			11.0						(0.4)						10.6						1.6						(0.3)						1.3
Total intangible assets			$	116.4					$	(40.9)					$	75.5					$	70.5					$	(33.9)					$	36.6

(1) Includes intangible assets acquired in December 2022. See Note 17 for additional information.

Intangible asset amortization expense was $7.2 million, $6.8 million, and $17.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. As discussed in Note 17, amortization expense for the year ended December 31, 2020 includes $14.6 million of cumulative amortization associated with customer relationships that were acquired in 2018.

Amortization expense associated with the intangible assets included on the Company’s consolidated balance sheet as of December 31, 2022 is expected to be as follows:

Years Ending December 31,			(in millions)
2023			$	8.0
2024			$	10.3
2025			$	9.7
2026			$	9.1
2027			$	8.2

Note 13. Accrued Expenses and Other Current Liabilities

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

			As of December 31,
(in millions)			2022						2021
Employee compensation and related costs			$	95.9					$	70.3
Accrued rebates			69.6						28.7
Warranty liability - current portion			57.3						2.4
Professional and consulting services			27.5						22.8
Other			50.7						40.1
Accrued expenses and other current liabilities			$	301.0					$	164.3

Reconciliations of the changes in the Company’s product warranty liability were as follows:

			Years Ended December 31,
(in millions)			2022						2021
Product warranty liability at beginning of year			$	6.8					$	6.7
Warranty expense			87.0						10.7
Changes in estimates			(14.0)						—
Warranty fulfillment			(17.7)						(10.6)
Product warranty liability at end of year			$	62.1					$	6.8

In 2022, the Company issued voluntary Medical Device Corrections (“MDCs”) for its Omnipod DASH PDM related to its battery and for its Omnipod 5 Controller related to its charging port and cable. The Company initially accrued an estimated liability of $68.9 million related to these MDCs, which was subsequently revised by $11.0 million, resulting in a net charge of $57.9 million for the year ended December 31, 2022. The $11.0 million change in estimate primarily resulted from significantly fewer customers requesting a replacement Omnipod DASH PDM prior to the Company’s updated PDM being available.

Note 14. Leases

As of December 31, 2022, the Company leased certain office spaces, laboratory space, warehouse space, and automobiles, all of which were classified as operating leases. Certain of the Company’s operating leases include escalating rental payments, some include the option to extend for up to 10 years, and some include options to terminate the leases at certain times within the lease term.

As of December 31, 2022, operating lease assets and operating lease liabilities were included in the following consolidated balance sheet accounts in the amounts shown:

			Years Ended December 31,
(in millions)			2022						2021
Operating lease asset:
Other assets			$	26.0					$	9.9
Operating lease liabilities:
Accrued expenses and other current liabilities			$	3.6					$	5.0
Other liabilities			27.4						7.6
Total operating lease liabilities			$	31.0					$	12.6

The Company’s total operating lease cost was $8.8 million, $6.0 million, and $5.4 million for the years ended December 31, 2022, 2021, and 2020, respectively. Cash paid for amounts included in the measurement of lease liabilities was $4.6 million, $5.7 million, and $4.6 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Maturities of lease liabilities as of December 31, 2022 are as follows:

Years Ending December 31,			(in millions)
2023			$	6.1
2024			5.5
2025			4.3
2026			1.9
2027			2.0
Thereafter			28.6
Total future minimum lease payments			48.4
Less: imputed interest			(17.4)
Present value of future minimum lease payments			$	31.0

As of December 31, 2022, the weighted average remaining lease term for operating leases was 12.2 years and the weighted-average discount rate used to determine the operating lease liability was 6.3%.

In October 2022, the Company made an upfront payment of $4.0 million upon entering into an agreement to acquire real estate in Malaysia, including land and building to be constructed thereon (“the Malaysia Purchase Agreement”). In December 2022, the Company made an additional $11.3 million payment upon entering into a change order for additional specifications of the building. The building is expected to be completed no later than January 1, 2024, at which time the Company can either purchase or lease the real estate. The Company will also have the option to purchase the property at any point after the commencement date of the lease and is contractually obligated to purchase the property nine months after the commencement date of the lease. Because the Company is reasonably certain to purchase the real estate, the lease term is equal to the economic life of the underlying asset. The Company is involved in the design of the building but does not control the real estate prior to the lease commencement date. Accordingly, the payments made are included in other assets on the consolidated balance sheet at December 31, 2022. Total undiscounted future lease payments, including the price to purchase the asset, are approximately $24.6 million as of December 31, 2022.

Note 15. Debt

The components of debt consisted of the following:

			As of December 31,
(in millions)			2022						2021
Revolving Credit Facility expires May 2024			$	—					$	—
Equipment financing due May 2024			9.5						16.0
Equipment financing due November 2025			22.5						29.6
5.15% Mortgage due November 2025			65.5						67.7
0.375% Convertible Senior Notes due September 2026			800.0						800.0
Term loan due May 2028			492.5						497.5
Equipment financing due July 2028			34.4						38.2
Unamortized debt discount			(7.6)						(159.9)
Debt issuance costs			(15.0)						(15.2)
Total debt, net			1,401.8						1,273.9
Less: current portion			27.5						25.1
Total long term-debt, net			$	1,374.3					$	1,248.8

Equipment Financings

In October 2020, the Company entered into a Master Equipment Lease Agreement for a loan of $60.0 million secured by two manufacturing lines located at the Company’s Acton, Massachusetts manufacturing facility. The loan for the first manufacturing line is payable over 42 months and has an effective interest rate of 5.8%. The loan for the second manufacturing line is payable over 60 months and has an effective interest rate of 4.8%.

In July 2021, the Company entered into a $43.1 million equipment financing transaction secured by one of the manufacturing lines located at the Company's Acton, Massachusetts manufacturing facility. The equipment financing is payable over 84 months and has an effective interest rate of 4.3%.

5.15% Mortgage

In October 2020, the Company entered into a Mortgage Loan Agreement (the “Mortgage”), which provides for a $70.0 million loan with an effective interest rate of 5.7%. Proceeds under the Mortgage are secured by the Company’s Acton, Massachusetts headquarters. The Mortgage is repayable in monthly installments of $0.5 million, with the outstanding principal balance of the loan due in November 2025. The Mortgage contains non-financial customary covenants, none of which are considered restrictive to the Company’s operations.

0.375% Convertible Senior Notes

The Company has $800.0 million aggregate principal amount of 0.375% Convertible Senior Notes due September 2026 (the “0.375% Notes”) outstanding. The notes are convertible into the Company’s common stock at an initial conversion rate of 4.4105 shares of common stock per $1,000 principal amount of the notes, which is equivalent to a conversion price of $226.73 per share, subject to adjustment under certain circumstances. The notes will be convertible June 1, 2026 through August 28, 2026 and prior to then under certain circumstances.

The Company recorded a debt discount of $213.0 million related to the 0.375% Notes resulting from the allocation of a portion of the proceeds to the fair value of the conversion feature reflecting a nonconvertible debt borrowing rate of 5.29% per annum. The Company also incurred debt issuance costs and other expenses of $19.8 million, of which $5.3 million was recorded as a reduction to the value of the conversion feature allocated to equity. The remaining $14.5 million of debt issuance costs was recorded as a reduction of debt on the consolidated balance sheet. The net proceeds of $780.2 million were used to fund the redemption of the Company’s 1.25% Convertible Senior Notes due September 2021 and to purchase the capped call options (“Capped Calls”) discussed below.

Additional interest of 0.5% per annum is payable if the Company fails to timely file required documents or reports with the Securities and Exchange Commission (“SEC”). If the Company merges or consolidates with a foreign entity, the Company may be required to pay additional taxes. The Company determined that the higher interest payments and tax payments required in certain circumstances were embedded derivatives that should be bifurcated and accounted for at fair value. The Company assessed the value of the embedded derivatives at each balance sheet date and determined it had nominal value.

In conjunction with the issuance of the 0.375% Notes, the Company purchased Capped Calls on the Company’s common stock with certain counterparties to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the 0.375% Notes. The Capped Calls have an initial strike price of $335.90 per share, which represents a premium of 100% over the last reported sale price of the Company’s common stock of $167.95 per share on the date of the transaction. The Capped Calls cover 3.5 million shares of common stock.

Senior Secured Credit Agreement

In May 2021, the Company entered into a senior secured credit agreement (the “Credit Agreement”), which includes a $500 million seven year senior secured term loan B (the “Term Loan”) for net proceeds of $489.5 million, which was used to fund the cash portion of the repurchase of the 1.375% Notes discussed below. On November 30, 2022, the Company amended the Term Loan to bear interest at a rate of SOFR plus 3.25%, with a 0.50% SOFR floor. The Term Loan contains leverage and fixed charge coverage ratio covenants, both of which are measured upon the incurrence of future debt.

Under the same agreement, the Company obtained a three-year senior secured revolving credit facility (the “Revolving Credit Facility”). In 2022, the Company increased the borrowing capacity under the Revolving Credit Facility to $100.0 million and amended the agreement such that outstanding borrowings bear interest at a rate of SOFR plus an applicable margin of 2.75% to 3.25% based on the Company’s net leverage ratio. The Revolving Credit Facility contains a covenant to maintain a specified leverage ratio under certain conditions when there are amounts outstanding. No amount was outstanding under the Revolving Credit Facility at December 31, 2022.

Borrowings under the Credit Agreement are guaranteed by certain wholly owned domestic subsidiaries of the Company, and are secured by substantially all assets of the Company and of each subsidiary guarantor, subject to certain exceptions. Additionally, borrowings under the Credit Agreement are senior to all of the Company’s unsecured indebtedness, including the convertible notes.

1.375% Convertible Senior Notes

In 2021, the Company repurchased $370.4 million in principal ($305.7 million net of discount and issuance costs) of its 1.375% Convertible Senior Notes due November 2024 (“1.375% Notes”) for $460.8 million in cash and the issuance of 2.2 million shares with a fair value of $622.7 million. The remaining $32.1 million in principal of the 1.375% Notes were converted into approximately 0.4 million shares with a fair value of $99.8 million. The debt repurchase and conversions resulted in a $42.4 million loss on extinguishment, including cash paid to the note holders as an inducement to convert and transaction costs.

Maturity of Debt

The maturity of debt as of December 31, 2022 is as follows:

Years Ending December 31,			(in millions)
2023			$	26.9
2024			$	23.3
2025			$	79.3
2026			$	811.1
2027			$	11.4

Fair Value

The carrying amount and the estimated fair value of the Company’s debt were as follows:

			As of December 31,
			2022												2021
(in millions)			Carrying Value						Estimated Fair Value						Carrying Value						Estimated Fair Value
Term loan due May 2028**(1)**			$	482.2					$	485.1					$	485.2					$	498.1
0.375% Convertible Senior Notes**(2)**			788.8						1,038.7						638.8						938.8
Equipment financings**(3)**			66.4						66.4						83.7						83.7
5.15% Mortgage**(3)**			64.5						64.5						66.2						66.2
Total			$	1,401.9					$	1,654.7					$	1,273.9					$	1,586.8

(1) Term debt is classified as Level 1 in the fair value hierarchy. Fair value was determined using quoted market prices.

(2) The Notes are classified as Level 2 in the fair value hierarchy. Fair value was determined using the Company’s quoted stock price and the contractual conversion rate.

(3) The equipment financings and Mortgage are classified as Level 3 in the fair value hierarchy. The fair values were determined using the cost bases of the financial liabilities, which approximate their carrying values.

Note 16. Derivative Instruments

The Company manages interest rate exposure through the use of interest rate swap transactions with financial institutions acting as principal counterparties. Under the Company’s interest rate swap agreements that expire on April 30, 2025, the Company receives variable rate interest payments and pays fixed interest rates of 0.95% and 0.96% on a total notional value of $480.0 million of its Term Loan. The Company has designated the interest rate swaps as cash flow hedges.

The fair value of interest rate swaps, which are classified as Level 2 in the fair value hierarchy, represent the estimated amounts the Company would receive or pay to terminate the contracts and is determined using industry standard valuation models and market-based observable inputs, including credit risk and interest rate yield curves. The fair value of the interest rate swaps was $36.9 million and $4.5 million at December 31, 2022 and December 31, 2021, respectively, and was included in other assets on the consolidated balance sheets. As of December 31, 2022, the Company estimates that $19.8 million of net gains related to the interest rate swaps included in accumulated other comprehensive income will be reclassified into the statement of operations over the next 12 months.

Note 17. Commitments and Contingencies

Legal Proceedings

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, including Pods, PDMs, and other components of the system, and kits in the United States infringed Roche’s now-expired U.S. Patent 7,931,613. Roche was seeking monetary damages and attorneys’ fees and costs. In July 2022, the Company entered into a Settlement and License Agreement (the “Settlement Agreement”) with Roche to settle the pending litigation. Pursuant to the Settlement Agreement, in exchange for a release of claims, mutual covenant not to sue for five years, and license to the patent in suit from Roche, the Company made a one-time payment of $20.0 million to Roche. On July 12, 2022, following the filing by the parties of a Stipulation of Dismissal, the Court ordered the case dismissed with prejudice. The $20.0 million charge is included in selling, general and administrative expenses for the year ended December 31, 2022.

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. 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.

Contract Dispute

Throughout 2022, the Company was engaged in negotiations over a contractual dispute involving in-licensed intellectual property. In December, 2022, the Company entered into an agreement with Automated Glucose Control LLC (the “Asset Purchase Agreement”). Pursuant to the Asset Purchase Agreement, the Company made a one-time payment of $25.0 million for the acquisition of developed technology and patents and the release of future obligations, including any future royalty obligations. This amount, together with transaction costs, was allocated between the assets acquired and the settlement of the contractual dispute. A value of $12.0 million was allocated to acquired developed technology and a value of $9.5 million was allocated to acquired patents. The acquired developed technology and patents are being amortized over their useful lives of 13 years. The remaining $3.6 million was allocated to the settlement and is included in selling, general and administrative expenses for the year ended December 31, 2022.

Letters of Credit

In 2022, the Company entered into a $20.0 million uncommitted letter of credit facility. Concurrently with the execution of the Malaysia Purchase Agreement discussed in Note 14, a $17.2 million letter of credit was issued under this facility to backstop a bank guarantee for the same amount. The bank guarantee, to which the Company is not a party to, serves as security for the building while under construction until the Company purchases the property. The Company pays interest on outstanding borrowings and commitment fees on the maximum amount available to be drawn under the letter of credit at a rate of between 1.65% and 2.25%, depending on the Company’s credit rating. The letter of credit includes customary covenants, none of which are considered restrictive to the Company’s operations.

Fees to Former European Distributor

Following the expiration of an agreement with a former European distributor on June 30, 2018, the Company was required to pay a quarterly per-unit fee for Omnipod sales to certain customers of the former European distributor for a one-year period through June 30, 2019. The Company recognized a liability and an associated intangible asset for this fee as qualifying sales

occurred. The methodology applicable for determining the total fee under the distribution agreement was subject to an arbitration proceeding in Switzerland. In December 2020, Insulet entered into a settlement agreement with the former distributor pursuant to which the Company paid the distributor an additional one-time payment of $36.2 million, for a total fee of $41.2 million, representing the cost to acquire the customer relationships. This amount was recorded as an intangible asset on the consolidated balance sheet. Since the customer relationships were acquired on July 1, 2018, the Company recorded cumulative amortization in the amount of $14.6 million during the fourth quarter of 2020, as if the total fee for the intangible asset had been amortized since the acquisition date.

Note 18. Stock-Based Compensation Expense

Equity Award Plan

In May 2017, the Company adopted the 2017 Stock Option and Incentive Plan (the “2017 Plan”), which replaced its previous stock option and incentive plan (the “2007 Plan”). The 2017 Plan provides for a maximum of 5.2 million shares to be issued, in addition to the number of shares related to awards outstanding under the 2007 Plan that are terminated by expiration, forfeiture, or cancellation. The shares can be issued as stock options, restricted stock units, stock appreciation rights, deferred stock awards, restricted stock, unrestricted stock, cash-based awards, performance share awards, or dividend equivalent rights. As of December 31, 2022, 2.7 million shares remain available for future issuance under the 2017 Plan.

Stock-Based Compensation Expense

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

			Year Ended December 31,
(in millions)			2022						2021						2020
Cost of revenue			$	0.4					$	0.5					$	1.2
Research and development			8.9						7.6						10.9
Selling, general and administrative			31.6						26.3						23.8
Total			$	40.9					$	34.4					$	35.9

Stock Options

Options are granted to purchase common shares at prices that are equal to the fair market value of the shares on the date the options are granted. Options generally vest in equal annual installments over a period of four years and expire 10 years after the date of grant. The grant-date fair value of options, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

The following summarizes the activity under the Company’s stock option plans:

			Number of Options						Weighted Average Exercise Price						Weighted Average Remaining Contractual Term (in years)						Aggregate Intrinsic Value (in millions)
Outstanding at December 31, 2021			765,457						$	81.98
Granted			79,994						$	264.69
Exercised			(147,200)						$	47.72											$	31.7
Forfeited and canceled			(2,663)						$	214.07
Outstanding at December 31, 2022			695,588						$	109.73					5.3						$	128.4
Vested, December 31, 2022			517,850						$	67.11					4.3						$	117.7
Vested or expected to vest, December 31, 2022			645,564						$	98.15					5.1						$	126.7

The aggregate intrinsic value of options exercised for the years ended December 31, 2021 and 2020 was $86.5 million and $115.9 million, respectively.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The calculation of the fair value of stock options is affected by the stock price on the grant date, the expected volatility of the Company’s stock over the expected term of the award, the expected life of the award, the risk-free interest rate, and the dividend yield. The assumptions used in the Black-Scholes pricing model for options granted during each year, along with the weighted-average grant-date fair values, were as follows:

			Years Ended December 31,
			2022						2021						2020
Risk-free interest rate			1.8%						0.5% - 0.6%						0.3% - 1.4%
Expected life of options (in years)			4.2						4.2 - 4.4						4.5
Dividend yield			—%						—%						—%
Expected stock price volatility			42.8%						41.4% - 41.6%						39.5% - 41.7%
Fair value per option			$	93.26					$	95.92					$	69.90

As of December 31, 2022, there was $10.1 million of unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 1.8 years.

Restricted Stock Units

Restricted Stock Units (“RSUs”) generally vest in equal annual installments over a three-year period, however during the fourth quarter of 2020, the Company issued a company-wide grant, a significant portion of which immediately vested. The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period. The Company determines the fair value of RSUs based on the closing price of its common stock on the date of grant.

RSU activity is as follows:

			Number of Shares						Weighted Average Fair Value
Outstanding at December 31, 2021			201,712						$	207.97
Granted			166,599						248.02
Vested			(116,906)						173.78
Forfeited			(18,679)						257.23
Outstanding at December 31, 2022			232,726						$	249.60

The weighted-average grant-date fair value per share of RSUs granted was $278.68 and $211.77 for the years ended December 31, 2021 and 2020, respectively. The total fair value of RSUs vested was $20.3 million, $17.0 million, and $20.7 million for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, there was $38.6 million of unrecognized compensation cost related to time-based RSUs, which is expected to be recognized over a weighted-average period of 1.9 years.

Performance Stock Units

Performance stock units (“PSUs”) generally vest over a three-year period from the grant date and include both a service and performance component. Stock-based payments that contain performance conditions are recognized when such conditions are probable of being achieved. Certain of these PSUs could ultimately vest at up to 200% of the target award depending on the achievement of the performance criteria. The Company determines the fair value of PSUs based on the closing price of its common stock on the date of grant.

PSU activity is as follows:

			Number of Shares						Weighted Average Fair Value
Outstanding at December 31, 2021			182,443						$	171.02
Granted			83,710						250.25
Vested			(84,526)						93.91
Forfeited			(1,326)						268.58
Outstanding at December 31, 2022 (1)			180,301						$	249.10

(1) Based on 84% achievement of the performance metrics, approximately 40,000 shares of Insulet were earned for awards that were granted in 2020 for the performance period ended December 31, 2022. These shares vested in February 2023.

The weighted-average grant-date fair value per share of PSUs granted was $273.79 and $202.23 for the years ended December 31, 2021 and 2020, respectively. The total fair value of PSUs vested was $7.8 million, $10.3 million, and $9.1 million for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, there was $25.9 million of unrecognized compensation cost related to PSUs, which is expected to be recognized over a weighted-average period of 1.2 years.

Employee Stock Purchase Plan

The Employee Stock Purchase Plan (“ESPP”) authorizes the issuance of up to 880,000 shares of common stock to participating employees. Employees that participate in the Company’s ESPP may annually purchase up to a maximum of 800 shares per offering period or $25,000 worth of common stock by authorizing payroll deductions of up to 10% of their base salary. The purchase price for each share purchased is 85% of the lower of the fair market value of the common stock on the first or last day of the offering period. The Company issued 52,724, 36,103, and 38,313 shares of common stock for the years ended December 31, 2022, 2021, and 2020, respectively, to employees participating in the ESPP. As of December 31, 2022, 419,935 shares remain available for future issuance under the ESPP.

The Company uses the Black-Scholes pricing model to determine the fair value of shares purchased under the ESPP. The calculation of the fair value of shares purchased is affected by the stock price on the purchase date, the expected volatility of the Company’s stock over the expected term, the risk-free interest rate, and the dividend yield. The estimated fair value of shares purchased under the ESPP were based on the following assumptions:

			Years Ended December 31,
			2022						2021						2020
Risk-free interest rate			1.6% - 4.7%						0.04% - 0.1%						0.1% - 0.2%
Expected term (in years)			0.5						0.5						0.5
Dividend yield			—%						—%						—%
Expected stock price volatility			44.3% - 50.1%						19.4% - 31.7%						29.7% - 38.5%

The weighted average grant date fair value of the six-month option inherent in the ESPP was $74.50, $60.65, and $55.10, for the years ended December 31, 2022, 2021, and 2020, respectively.

As of December 31, 2022, there was $1.7 million of unrecognized compensation cost related to the ESPP. This cost is expected to be recognized over a weighted average period of 0.4 years.

Note 19. Accumulated Other Comprehensive Income (Loss)

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

(in millions)			Foreign Currency Translation Adjustment						Unrealized Gains on Available-for-sale Securities						Unrealized Gains on Cash Flow Hedges						Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2019			$	(1.6)					$	0.4					$	—					$	(1.2)
Other comprehensive income (loss)			6.8						(0.1)						—						6.7
Balance, December 31, 2020			5.2						0.3						—						5.5
Other comprehensive (loss) income before reclassifications			(11.9)						(0.3)						3.0						(9.2)
Amounts reclassified to net income			—						—						1.5						1.5
Balance, December 31, 2021			(6.7)						—						4.5						(2.2)
Other comprehensive (loss) income before reclassifications			(10.3)						—						36.5						26.2
Amounts reclassified to net income			—						—						(4.0)						(4.0)
Balance, December 31, 2022			$	(17.0)					$	—					$	37.0					$	20.0

Note 20. Defined Contribution Plan

The Company maintains a tax-qualified 401(k) retirement plan in the United States. The Company generally makes a matching contribution equal to 50% of each employee’s elective contribution to the plan up to 6% of the employee’s eligible pay. In addition, the Company offers defined contribution plans for eligible employees in its foreign subsidiaries. The total amount contributed by the Company to these defined contribution plans was $9.8 million, $8.5 million, and $6.7 million for the years ended December 31, 2022, 2021, and 2020, respectively.

Note 21. Interest Expense, Net

Interest expense, net of portion capitalized was as follows:

			Years Ended December 31,
(in millions)			2022						2021						2020
Cash interest, net of interest rate swaps			$	32.0					$	27.1					$	9.5
Accretion of debt discount			1.5						36.7						42.3
Amortization of debt issuance costs			4.3						3.5						2.9
Capitalized interest			(1.3)						(5.6)						(6.6)
Interest expense, net of portion capitalized			36.5						61.7						48.1
Interest income			(9.8)						(0.5)						(3.0)
Interest expense, net			$	26.7					$	61.2					$	45.1

Note 22. Income Taxes

The U.S. and foreign components of income before income taxes were as follows:

			Years Ended December 31,
(in millions)			2022						2021						2020
U.S.			$	11.8					$	25.3					$	(1.6)
Foreign			(2.0)						(4.8)						11.3
Income before income taxes			$	9.8					$	20.5					$	9.7

Income tax expense consists of the following:

			Years Ended December 31,
(in millions)			2022						2021						2020
Current:
U.S. State			$	1.3					$	0.5					$	0.2
Foreign			4.8						2.0						4.0
Total current expense			6.1						2.5						4.2
Deferred:
U.S. Federal			—						—						—
Foreign			(0.9)						1.2						(1.3)
Total deferred expense			(0.9)						1.2						(1.3)
Income tax expense			$	5.2					$	3.7					$	2.9

Reconciliations of the federal statutory income rate to the Company’s effective income tax rate are as follows:

			Years Ended December 31,
			2022						2021						2020
U.S. statutory rate			21.0		%				21.0		%				21.0		%
Foreign rate differential			13.2						4.8						7.0
State taxes, net of federal benefit			10.1						1.8						1.3
Tax credits			(74.1)						(16.8)						(40.5)
Stock-based compensation			(94.8)						(117.0)						(311.1)
Extinguishment of debt			—						(57.5)						—
Capital loss carryforward expirations			—						52.1						—
Non-deductible officers’ compensation			52.4						45.7						30.0
Permanent items			6.3						1.9						2.1
Foreign income taxed in the U.S.			14.5						—						(21.0)
Change in valuation allowance			133.9						77.2						336.2
Tax rate changes			(30.9)						—						—
Intercompany transfer of intellectual property			—						4.6						—
Other			1.8						0.4						4.6
Effective income tax rate			53.4		%				18.2		%				29.6		%

For all periods presented, no provision for income taxes has been provided on undistributed earnings of the Company’s foreign subsidiaries, except for Canada, because such earnings are indefinitely reinvested in the foreign operations. The Company has recorded a deferred tax liability for withholding tax that could be incurred upon repatriation of earnings from its Canadian subsidiary, the amount of which is not significant. A deferred tax liability related to the repatriation of approximately $27.3 million indefinitely reinvested earnings would not be material to the Company’s consolidated financial statements, primarily due to treaty-based withholding tax rates in the jurisdictions in which the Company operates.

The Company files federal, state, and foreign tax returns, which are subject to examination by the relevant tax authorities. The Company’s U.S. federal and state tax returns are currently open to examination for tax years 2019 through 2021. In addition, the Company’s U.S. net operating loss carryforwards from 2002 and forward may be subject to examination if the losses are utilized in future years.

As of December 31, 2022, 2021, and 2020 the Company had no uncertain tax positions.

The components of the net deferred tax asset at the end of each year are as follows:

			As of December 31,
(in millions)			2022						2021
Deferred tax assets:
Net operating loss carryforwards			$	143.4					$	170.2
Tax credits			33.6						28.8
Capitalized research and development expenditures			30.4						—
Warranty			14.6						1.6
Amortization of debt discount			11.0						—
Inventory capitalization			4.1						6.5
Intangible assets			12.7						11.6
Interest limitation carryforwards			1.7						7.3
Incentive compensation			15.8						10.4
Other			15.0						9.9
Total deferred tax assets			282.3						246.3
Deferred tax liabilities:
Prepaid assets			(5.3)						(4.8)
Property, plant and equipment			(31.5)						(22.2)
Amortization of debt discount			—						(22.9)
Capitalized contract acquisition costs			(10.4)						(9.2)
Unrealized gains on cash flow hedges			(8.8)						(1.1)
Other			(1.9)						(2.9)
Total deferred tax liabilities			(57.9)						(63.1)
Net deferred tax asset before valuation allowance			224.4						183.2
Valuation allowance			(222.8)						(182.4)
Net deferred tax asset			$	1.6					$	0.8

The Company maintained a valuation allowance of $222.8 million and $182.4 million at December 31, 2022 and 2021, respectively, against U.S. federal, state, and foreign deferred tax assets, as management has determined that it is more-likely-than-not that these net deferred tax assets will not be realized. These valuation allowances are based on cumulative tax losses in the U.S. and U.K. and the uncertainty of generating future taxable income in these jurisdictions to utilize loss and credit carryforwards. The $40.4 million increase in the Company’s valuation allowance during the year ended December 31, 2022 was primarily due to temporary differences in the United States.

The Company’s net operating loss carryforwards consist of the following:

			Years Ended December 31,
(in millions)			2022						2021
U.S. Federal			$	573.8					$	708.8
State			$	278.1					$	327.3
Foreign			$	30.1					$	16.4

As of December 31, 2022, $190.6 million of the U.S. federal net operating losses and the full amount of the foreign net operating losses have an indefinite carryforward period. The remaining U.S. federal carryforwards, if not utilized, expire from 2028 through 2037, and the state net operating loss carryforwards expire from 2023 through 2042. The utilization of such net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon the Company’s ability to generate taxable income in the United States. Research and development and other tax credits were $37.0 million and $31.4 million at December 31, 2022 and 2021, respectively. If not utilized, federal research and development credits will expire through 2042. These loss and credit carryforwards, which may be utilized in a future period, may be subject to limitations based on changes in the ownership of the Company ordinary shares.

Note 23. Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period. Diluted net income per share is computed using the weighted average number of common shares outstanding and, when dilutive, common share equivalents. The weighted-average number of common shares used in the computation of basic and diluted net income per share were as follows:

			Years Ended December 31,
(in thousands)			2022						2021						2020
Weighted average number of common shares outstanding, basic			69,375						67,698						64,735
Stock options			454						686						1,025
Restricted stock units			81						195						186
Weighted average number of common shares outstanding, diluted			69,910						68,579						65,946

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

			Years Ended December 31,
(in thousands)			2022						2021						2020
0.375% Convertible Senior Notes			3,528						3,528						3,528
1.375% Convertible Senior Notes			—						2,024						4,319
Restricted stock units			227						166						282
Stock options			137						53						58
Total			3,892						5,771						8,187

Note 24. Supplemental Cash Flow Information

			Years Ended December 31,
(in millions)			2022						2021						2020
Cash paid for interest, net of amount capitalized			$	34.2					$	21.5					$	2.6
Cash paid for taxes			$	5.5					$	7.0					$	3.0
Purchases of property, plant and equipment included in accounts payable and accrued expenses			$	3.9					$	6.1					$	6.7
Purchases of intangible assets included in accounts payable and accrued expenses			$	0.4					$	3.2					$	—
Lease liabilities arising from obtaining right-of-use assets			$	25.5					$	0.7					$	2.5

Note 25. Subsequent Events

In February 2023, the Company paid $25 million in cash to acquire insulin pump patents that may be used for automated insulin delivery from Bigfoot Biomedical, Inc. Additionally, the Company made a $2 million strategic investment in another company.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

The following table sets forth activities in the Company’s valuation allowance accounts:

Description			Balance at Beginning of Year						Additions Charged to Costs and Expenses						Other**(1)**						Deductions						Balance at End of Year
(in millions)
Year Ended December 31, 2022
Reserve for rebates			$	34.1					$	247.1					$	—					$	(203.9)					$	77.3
Deferred tax valuation allowance			$	182.4					$	72.5					$	37.8					$	(69.9)					$	222.8
Year Ended December 31, 2021
Reserve for rebates			$	16.9					$	143.3					$	—					$	(126.1)					$	34.1
Deferred tax valuation allowance			$	143.4					$	77.4					$	—					$	(38.4)					$	182.4
Year Ended December 31, 2020
Reserve for rebates			$	12.1					$	82.5					$	—					$	(77.7)					$	16.9
Deferred tax valuation allowance			$	104.4					$	61.7					$	—					$	(22.7)					$	143.4

(1) Represents the increase in deferred tax valuation allowance resulting from the adoption of ASU 2020-06, Debt — Debt with Conversations and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity. Refer to Note 2 to the consolidated financial statements included in Item 8 for additional information.