Item 8. Financial Statements and Supplementary Data

Our financial statements as of December 31, 2023 and 2022 and for each of the three years in the period ended December 31, 2023, 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)			43
Consolidated Balance Sheets as of December 31, 2023 and 2022			45
Consolidated Statements of Operations for the Years ended December 31, 2023, 2022 and 2021			46
Consolidated Statements of Comprehensive Income for the Years ended December 31, 2023, 2022 and 2021			47
Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2023, 2022 and 2021			48
Consolidated Statements of Cash Flows for the Years ended December 31, 2023, 2022 and 2021			49
Notes to Consolidated Financial Statements			50

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Insulet Corporation

Opinion on the financial statements

We have audited the accompanying consolidated balance sheets of Insulet Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2023 and 2022, 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, 2023, and the related notes and financial statement schedule included under Item 15(a) (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated February 22, 2024 expressed an adverse opinion.

Basis for opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits 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. We believe that our audits provide a reasonable basis for our opinions.

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 a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Variable consideration – Rebates to pharmacy benefit managers

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 in the United States when determining the transaction price at the time of sale. We identified the rebate estimate for pharmacy benefit managers as a critical audit matter.

The principal consideration for our determination that the rebate estimate related to pharmacy benefit managers is a critical audit matter was the high degree of auditor judgment in applying procedures to evaluate the significant estimation made by management. Management's estimate is based on historical experience adjusted for revenue growth, trends, specific known market events, and as available channel inventory data.

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

• Evaluated the significant assumptions and the completeness and accuracy of the underlying data used in management’s calculation through inspection of source documents and agreement to other audited schedules.

• Performed retrospective analysis comparing actual rebates incurred to the previously estimated amounts.

• We tested the design and operating effectiveness of controls related to management’s estimate.

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Income taxes – Realizability of the U.S. deferred tax assets

As described further in Note 23 to the financial statements, management records valuation allowances against deferred tax assets when a judgment is made, that it is more likely than not, that a tax benefit will not be realized. The realization of deferred tax assets is dependent upon the generation of future U.S. taxable income during the periods in which those temporary differences will become deductible. We identified the realizability of the Company’s U.S. deferred tax assets as a critical audit matter.

The principal consideration for our determination that the realizability of U.S. deferred tax assets is a critical audit matter is the significant judgment regarding the weighting of available positive and negative evidence to determine that the existing valuation allowance on U.S. deferred tax assets remains appropriate. Our audit procedures related to the realizability of the U.S. deferred tax assets included the following, among others. With the involvement of tax professionals, including consultation with national office resources, we assessed the appropriateness of management’s evaluation of available positive and negative evidence supporting the valuation allowance position.

/s/ GRANT THORNTON LLP

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

Boston, Massachusetts

February 22, 2024

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INSULET CORPORATION

CONSOLIDATED BALANCE SHEETS

			As of December 31,
(in millions, except share and per share data)			2023						2022
ASSETS
Current Assets
Cash and cash equivalents			$	704.2					$	674.7
Accounts receivable trade, net			240.2						140.9
Accounts receivable trade, net — related party			119.5						64.7
Inventories			402.6						346.8
Prepaid expenses and other current assets			116.4						86.9
Total current assets			1,582.9						1,314.0
Property, plant and equipment, net			664.9						599.9
Other intangible assets, net			98.7						75.5
Goodwill			51.7						51.7
Other assets			190.0						210.0
Total assets			$	2,588.2					$	2,251.1
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable			$	19.2					$	30.8
Accrued expenses and other current liabilities			373.7						301.0
Accrued expenses and other current liabilities — related party			8.9						5.4
Current portion of long-term debt			49.4						27.5
Total current liabilities			451.2						364.7
Long-term debt, net			1,366.4						1,374.3
Other liabilities			37.9						35.7
Total liabilities			1,855.5						1,774.7
Commitments and contingencies (Note 19)
Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 authorized; none issued and outstanding			—						—
Common stock, $.001 par value, 100,000,000 authorized; 69,907,289 and 69,511,286 issued and outstanding			0.1						0.1
Additional paid-in capital			1,102.6						1,040.6
Accumulated deficit			(378.0)						(584.3)
Accumulated other comprehensive income			8.0						20.0
Total stockholders’ equity			732.7						476.4
Total liabilities and stockholders’ equity			$	2,588.2					$	2,251.1

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

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INSULET CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

			Years Ended December 31,
(in millions, except share and per share data)			2023						2022						2021
Revenue			$	1,223.4					$	1,055.4					$	1,040.6
Revenue from related party			473.7						249.9						58.2
Total revenue			1,697.1						1,305.3						1,098.8
Cost of revenue			537.2						499.7						346.7
Gross profit			1,159.9						805.6						752.1
Research and development expenses			205.0						180.2						160.1
Selling, general and administrative expenses			734.9						587.8						466.0
Operating income			220.0						37.6						126.0
Interest expense			(36.2)						(36.0)						(61.7)
Interest income			28.6						9.3						0.5
Loss on extinguishment of debt			—						—						(42.4)
Other income (expense), net			2.2						(1.1)						(1.9)
Income before income taxes			214.6						9.8						20.5
Income tax expense			(8.3)						(5.2)						(3.7)
Net income			$	206.3					$	4.6					$	16.8
Net income per share:
Basic			$	2.96					$	0.07					$	0.25
Diluted			$	2.94					$	0.07					$	0.24
Weighted-average number of common shares outstanding (in thousands):
Basic			69,751						69,375						67,698
Diluted			73,633						69,910						68,579

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

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INSULET CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

			Years Ended December 31,
(in millions)			2023						2022						2021
Net income			$	206.3					$	4.6					$	16.8
Other comprehensive (loss) income, net of tax
Foreign currency translation adjustment			2.5						(10.3)						(11.9)
Unrealized (loss) gain on cash flow hedges			(14.2)						32.5						4.5
Unrealized loss on securities			(0.3)						—						(0.3)
Total other comprehensive (loss) income, net of tax			(12.0)						22.2						(7.7)
Comprehensive income			$	194.3					$	26.8					$	9.1

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

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INSULET CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

			Common Stock												Additional Paid-in Capital						Accumulated Deficit						Accumulated Other Comprehensive Income (Loss)						Total Stockholders’ Equity
(dollars in millions)			Shares (in thousands)						Amount
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
Exercise of options to purchase common stock			249						—						16.3						—						—						16.3
Issuance of shares for employee stock purchase plan			55						—						10.6						—						—						10.6
Stock-based compensation expense			—						—						48.3						—						—						48.3
Restricted stock units vested, net of shares withheld for taxes			92						—						(13.2)						—						—						(13.2)
Net income			—						—						—						206.3						—						206.3
Other comprehensive loss			—						—						—						—						(12.0)						(12.0)
Balance, December 31, 2023			69,907						$	0.1					$	1,102.6					$	(378.0)					$	8.0					$	732.7

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

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INSULET CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

			Years Ended December 31,
(in millions)			2023						2022						2021
Cash flows from operating activities
Net income			$	206.3					$	4.6					$	16.8
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			72.8						63.2						57.4
Stock-based compensation expense			48.3						40.9						34.4
Non-cash interest expense			6.7						5.8						40.2
Loss on extinguishment of convertible debt			—						—						42.4
Provision for credit losses			2.3						4.2						3.1
Other			(0.1)						2.8						1.2
Changes in operating assets and liabilities:
Accounts receivable			(99.4)						(12.9)						(45.5)
Accounts receivable — related party			(54.8)						(38.9)						(25.8)
Inventories			(53.6)						(49.1)						(154.4)
Prepaid expenses and other assets			(42.1)						(36.8)						(46.7)
Accounts payable			(11.0)						(2.4)						(15.6)
Accrued expenses and other liabilities			73.8						133.9						22.7
Accrued expenses and other liabilities — related party			(3.5)						3.7						1.7
Net cash provided by (used in) operating activities			145.7						119.0						(68.1)
Cash flows from investing activities
Capital expenditures			(75.6)						(122.9)						(111.9)
Investments in developed software			(8.5)						(12.9)						(10.8)
Acquisition of other intangible assets			(25.1)						(21.5)						—
Acquisition of a business			(3.0)						(26.0)						—
Cash paid for investments			(7.2)						(7.8)						—
Receipts from the maturity or sale of marketable securities			—						—						40.0
Net cash used in investing activities			(119.4)						(191.1)						(82.7)
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)						(5.0)						(2.5)
Proceeds from equipment financings, net			—						—						43.1
Repayment of equipment financings			(19.8)						(17.4)						(17.8)
Repayment of mortgage			(2.2)						(2.1)						(2.0)
Payment of debt issuance costs			(0.3)						—						(4.0)
Prepayments of financing lease obligation			—						(15.3)						—
Proceeds from exercise of stock options			16.3						6.9						15.4
Proceeds from issuance of common stock under employee stock purchase plan			10.6						9.4						8.1
Payment of withholding taxes in connection with vesting of restricted stock units			(13.2)						(16.8)						(28.2)
Net cash (used in) provided by financing activities			(13.6)						(40.3)						40.7
Effect of exchange rate changes on cash			1.8						(4.3)						(5.5)
Net increase (decrease) in cash, cash equivalents, and restricted cash			14.5						(116.7)						(115.6)
Cash, cash equivalents, and restricted cash, beginning of year			689.7						806.4						922.0
Cash, cash equivalents, and restricted cash, end of year (Note 6)			$	704.2					$	689.7					$	806.4
Supplemental cash flow information (Note 25)

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

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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 continuous insulin delivery system for people with insulin-dependent diabetes. Currently, the Omnipod platform’s revenue generating products include: 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”). Each product 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, Omnipod DASH features a secure Bluetooth enabled Pod that is controlled by a smartphone-like Personal Diabetes Manager (“PDM”) with a color touch screen user interface. 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 its Omnipod products, which are sold in the U.S., Europe, Canada, the Middle East, and Australia either directly to end-users or indirectly through intermediaries. Intermediaries include independent distributors who resell Omnipod products 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 gains (losses) from foreign currency transactions are included in other income (expense), net in the consolidated statement of operations and were $(0.4) million, $(1.3) million and $(2.0) million for the years ended December 31, 2023, 2022 and 2021, 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. 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.

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, cash deposited by participating subsidiaries may be in positive or negative cash positions to the extent the overall balance in the cash pool is at least zero. The net cash balance of the notional cash pooling arrangement is included within cash and cash equivalents in the consolidated balance sheets and was insignificant at both December 31, 2023 and 2022.

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 income (expense), net in the Company’s consolidated statements of operations.

The Company also has investments in debt securities of privately held companies, which are either classified as available-for-sale securities or for which the Company has elected the fair value option. The available-for-sale securities are recorded 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. The other investment is a debt security that contains embedded derivatives. Unrealized gains and losses for this investment are recorded as a component of other income (loss), net in the consolidated statement of operations. All investments in debt securities are recorded within other assets on the consolidated balance sheet.

The Company may also invest in marketable securities, including term deposits, 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 within other assets 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 income (expense), net in the consolidated statement of operations.

Accounts Receivable and Allowance for Credit Losses

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

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.

Judgement is involved in estimating inputs, such as discount rates, used in Level 3 fair value measurements. Changes to these inputs can have a significant effect on fair value measurements and amounts that could be realized.

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.

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

Cloud computing arrangements includes services used to support certain internal corporate functions as well as technology platforms that support commercial initiatives. 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 lease liabilities equal to the present value of the future lease payments and lease assets representing the right to use the underlying asset throughout the lease term. Certain leases may contain variable lease payments, including periodic payments that can be avoided by the Company. Variable payments that do not depend on an index or rate are excluded from the right-of-use asset and lease liability and are recognized as expenses in the period in which the obligation for those payments is incurred. Certain of the Company’s leases contain options to extend and/or terminate the lease, and/or to purchase the underlying asset. The lease term used to calculate the right-of-use asset and related lease liability includes options to extend or terminate the lease when it is reasonably certain that the Company will exercise the option. The Company’s leases do not provide an implicit rate; accordingly, 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. Right-of-use assets are calculated as the initial measurement of the lease liability plus lease payments made prior to lease commencement and initial direct costs incurred, less lease incentives received.

Lease expense is recognized on a straight-line basis over the lease term. For finance leases, the right-of-use asset is amortized to amortization expense and interest expense is recorded in connection with the lease liability.

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. Legal costs associated with loss contingencies are expensed as incurred.

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 Omnipod products to new end-users, either directly to end-users or through intermediaries, primarily consist of the PDM/Controller, the initial and subsequent quantity of Pods ordered, and product training. In the Company’s judgment, these performance obligations are capable of being 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 products 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 Omnipod products are 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 Omnipod products 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. Revenue from product training is recognized in the period it is provided. The Company records deferred revenue related to product training as there is generally a lag between when the customer is billed and when the end-user receives product training.

The Company’s Drug Delivery product line includes sales of a modified version of the Pod 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 $12.4 million, $12.8 million, and $10.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Advertising Costs

The Company expenses advertising costs as they are incurred. Advertising expenses were $63.1 million, $41.2 million, and $44.1 million for the years ended December 31, 2023, 2022, and 2021, 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 by considering all available positive and negative evidence, including 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. The Company has not reclassified income tax effects within accumulated other comprehensive income (loss) to retained earnings due to its full valuation allowance.

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, which exceed Federal Deposit Insurance Corporation limits. See Notes 4 and 7 for customer concentration.

*Supply Risk—*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 this guidance. The cumulative effect of adopting ASU 2020-06 resulted in a $207.7 million decrease to the opening balance of additional paid-in-capital upon adoption resulting from the derecognition of the embedded conversion feature and debt issuance costs bifurcated to equity, a $60.6 million decrease to the opening balance of accumulated deficit representing the cumulative interest expense recognized related to the amortization of the bifurcated conversion option and debt issuance costs, and a $147.1 million increase in long-term debt resulting from the derecognition of the discount associated with the embedded conversion feature, offset by the remaining debt issuance costs reclassified out of equity. In addition, 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 platform 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)			2023						2022						2021
U.S.			$	1,287.0					$	942.3					$	738.9
International			410.1						363.0						359.9
Total revenue			$	1,697.1					$	1,305.3					$	1,098.8

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

			As of December 31,
(in millions)			2023						2022
U.S.			$	461.3					$	453.2
China			82.0						87.6
Malaysia			113.7						51.6
Other			7.9						7.5
Total long-lived assets, net			$	664.9					$	599.9

Note 4. Revenue and Contract Acquisition Costs

The following table summarizes the Company’s disaggregated revenue:

			Years Ended December 31,
(in millions)			2023						2022						2021
U.S.			$	1,251.0					$	884.8					$	651.5
International			410.1						363.0						359.9
Total Omnipod Products			1,661.1						1,247.8						1,011.4
Drug Delivery			36.0						57.5						87.4
Total revenue			$	1,697.1					$	1,305.3					$	1,098.8

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

			Years Ended December 31,
			2023						2022						2021
Distributor A			28%						19%						*
Distributor B			24%						16%						*
Distributor C			19%						17%						12%

• 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)			2023						2022
Accrued expenses and other current liabilities			$	15.4					$	16.1
Other liabilities			1.9						1.6
Total deferred revenue			$	17.3					$	17.7

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

			As of December 31,
(in millions)			2023						2022						2021
Deferred revenue recognized			$	16.0					$	2.1					$	4.4

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

			As of December 31,
(in millions)			2023						2022
Prepaid expenses and other current assets			$	16.6					$	15.2
Other assets			32.0						31.3
Total capitalized contract acquisition costs, net			$	48.6					$	46.5

The Company recognized $16.3 million, $14.6 million, and $12.3 million of amortization of capitalized contract acquisition costs for the years ended December 31, 2023, 2022, and 2021, 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 $473.7 million, $249.9 million and $58.2 million of net revenues from the distributor for the years ended December 31, 2023, 2022, and 2021, respectively.

At each period end, related party transactions recorded on the consolidated balance sheets were as follows:

			As of December 31,
(in millions)			2023						2022
Accounts receivable, net			$	119.5					$	64.7
Distribution fees payable(1)			$	6.1					$	3.4
Deferred revenue(1)			$	2.8					$	2.0

(1) Balances are included in accrued expenses and other current liabilities.

Note 6. Cash and Cash Equivalents

The following table provides a summary of cash and cash equivalents as of December 31, 2023 and 2022:

			As of December 31,
(in millions)			2023						2022
Cash			$	103.7					$	136.1
Money market mutual funds			547.0						487.3
Term deposits			53.5						50.8
Restricted cash			—						0.5
Total cash and cash equivalents			704.2						674.7
Restricted cash included in other assets			—						15.0
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows			$	704.2					$	689.7

Restricted cash included in other assets on the consolidated balance sheet as of December 31, 2022 was held as a compensating balance against long-term borrowings.

Note 7. Accounts Receivable

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

			As of December 31,
(in millions)			2023						2022
Accounts receivable trade, net			$	234.5					$	128.6
Unbilled receivable			5.7						12.3
Accounts receivable, net			$	240.2					$	140.9

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,
			2023						2022
Distributor A			35%						34%
Distributor B			25%						23%
Distributor C			18%						11%

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

			Year Ended December 31,
(in millions)			2023						2022						2021
Credit losses at beginning of year			$	2.5					$	2.7					$	2.9
Provision for expected credit losses			2.3						4.2						3.1
Write-offs charged against allowance			(2.6)						(4.9)						(3.8)
Recoveries of amounts previously reserved			0.3						0.5						0.5
Credit losses at end of year			$	2.5					$	2.5					$	2.7

Note 8. Inventories

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

			As of December 31,
(in millions)			2023						2022
Raw materials			$	118.2					$	79.1
Work in process			60.6						84.2
Finished goods			223.8						183.5
Total inventories			$	402.6					$	346.8

Amounts charged to the consolidated statements of operations for excess and obsolete inventory for the years ended December 31, 2023, 2022, and 2021 were $3.7 million, $8.4 million, and $2.8 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)			2023						2022
Short-term portion			$	26.4					$	18.0
Long-term portion			116.9						87.1
Total capitalized implementation costs			143.3						105.1
Less: accumulated amortization			(36.6)						(17.1)
Capitalized implementation costs, net			$	106.7					$	88.0

Amortization expense is recognized on a straight-line basis over the expected term of the hosting arrangements, which range from three to ten years. Amortization expense was $20.3 million, $12.7 million, and $2.9 million for the years ended December 31, 2023, 2022, and 2021, 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)			2023						2022
Land(1)			$	9.0					$	2.5
Building and building improvements(2)			205.3						163.9
Machinery and equipment			572.2						527.0
Furniture and fixtures			18.1						17.2
Leasehold improvements			16.0						11.7
Construction in process			137.5						112.3
Property, plant and equipment, gross			958.1						834.6
Less: accumulated depreciation(2)			(293.2)						(234.7)
Property, plant and equipment, net			$	664.9					$	599.9

(1) Includes $6.5 million of land at December 31, 2023 related to the finance lease discussed in Note 15.

(2) Includes $31.7 million of building and building improvements and $0.4 million of accumulated depreciation at December 31, 2023 related to the finance lease discussed in Note 15.

Capitalized interest expense was $1.6 million, $1.3 million, and $5.6 million for the years ended December 31, 2023, 2022, and 2021, respectively. Depreciation expense related to property and equipment was $62.6 million, $56.0 million, and $50.6 million for the years ended December 31, 2023, 2022, and 2021, respectively. Construction in process primarily consists of manufacturing equipment for our new manufacturing facility being constructed in Malaysia and equipment and tooling for our existing manufacturing lines, most of which is expected to be placed into service during 2024.

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:

			Year Ended December 31,
(in millions)			2023						2022
Goodwill at beginning of the year			$	51.7					$	39.8
Acquisition (Note 11)			—						12.0
Foreign currency translation			—						(0.1)
Goodwill at end of the year			$	51.7					$	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,
2023																		2022
(in millions)			Gross Carrying Amount						Accumulated Amortization						Net Book Value						Gross Carrying Amount						Accumulated Amortization						Net Book Value
Customer relationships			$	43.2					$	(30.9)					$	12.3					$	43.2					$	(27.5)					$	15.7
Internal-use software			43.1						(13.9)						29.2						34.8						(12.0)						22.8
Developed technology(1)			27.4						(3.0)						24.4						27.4						(1.0)						26.4
Patents(1)			36.2						(3.4)						32.8						11.0						(0.4)						10.6
Total intangible assets			$	149.9					$	(51.2)					$	98.7					$	116.4					$	(40.9)					$	75.5

(1) Includes intangible assets acquired in December 2022. See Note 19 for additional information.

Amortization expense for intangible assets was $10.2 million, $7.2 million, and $6.8 million for the years ended December 31, 2023, 2022, and 2021, respectively.

In February 2023, the Company paid Bigfoot Biomedical, Inc. $25.1 million, including transaction costs, to acquire patent assets related to pump-based automated insulin delivery technologies. The acquired patent assets have a useful life of 11 years.

Amortization expense associated with the intangible assets included on the Company’s consolidated balance sheet as of December 31, 2023 is expected to be as follows:

Years Ending December 31,			(in millions)
2024			$	9.8
2025			$	13.4
2026			$	13.2
2027			$	12.0
2028			$	11.0

Note 13. Investments

Equity Securities

As of December 31, 2023 and 2022, the total carrying value of the Company’s investments in equity securities without readily determinable fair values was $9.7 million and $8.7 million, respectively. During 2023, the unrealized gain recorded due to changes in the fair value of equity investments was insignificant. There were no adjustments as of December 31, 2022.

Debt Securities

In 2023, the Company made a strategic investment in debt securities of a privately held entity in the amount of $5.0 million. The debt securities mature in December 2024, unless converted earlier. The amortized cost basis and fair value of the investment are $5.0 million and $4.7 million, respectively, as of December 31, 2023. The unrealized loss recorded due to changes in the fair value of the investment during 2023 was insignificant.

Other

In 2023, the Company made a strategic investment in a privately held entity in the amount of $2.0 million. The investment is a debt security with embedded derivatives and is accounted for by applying the fair value option, as this approach best reflects the underlying economics of the transaction. The fair value of the investment was calculated using a combination of the market approach and income approach methodologies. During 2023, a $1.8 million unrealized gain on the investment was recorded in other income (loss), net in the consolidated statement of operations. The fair value of the investment as of December 31, 2023 was $3.8 million and is reported within other assets on the consolidated balance sheet. The amount of interest earned on the investment in 2023 was insignificant.

Note 14. Accrued Expenses and Other Current Liabilities

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

			As of December 31,
(in millions)			2023						2022
Accrued rebates			$	144.0					$	69.6
Employee compensation and related costs			122.0						95.9
Professional and consulting services			34.1						27.5
Warranty liability - current portion			4.8						57.3
Other			68.8						50.7
Accrued expenses and other current liabilities			$	373.7					$	301.0

Product Warranty Costs

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

			Years Ended December 31,
(in millions)			2023						2022
Product warranty liability at beginning of year			$	62.1					$	6.8
Warranty expense			18.6						87.0
Change in estimate			(11.5)						(14.0)
Warranty fulfillment			(58.9)						(17.7)
Product warranty liability at end of year			$	10.3					$	62.1

During the fourth quarter of 2022, the Company issued two voluntary medical device correction notices (“MDCs”), one for its Omnipod DASH PDM relating to its battery and the other for its Omnipod 5 Controller relating to its charging port and cable. During the year ended December 31, 2022, the Company initially recorded an estimated liability of $68.9 million related to these MDCs, which was subsequent 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. During the year ended December 31, 2023, the Company revised the estimated liability for these MDCs by an additional $11.5 million. This change in estimate primarily resulted from lower distribution costs. The Company had a liability of $0.7 million and $54.6 million related to the MDCs included in its product warranty liability at December 31, 2023, and 2022, respectively.

Note 15. Leases

As of December 31, 2023, the Company leased certain automobiles and facilities for offices, laboratories, manufacturing, and warehousing, 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. The Company also leases land and a manufacturing building in Malaysia, which are classified as finance leases. The Company has the option to purchase the property at any point after the completion of construction and is contractually obligated to purchase the property nine months after completion, which occurred in December 2023. Because the Company is reasonably certain to purchase the property, the lease term of each finance lease equals the economic life of the underlying asset. As of December 31, 2023, the Company had not exercised the purchase option.

As of December 31, 2023, lease assets and lease liabilities were included in the following consolidated balance sheet accounts in the amounts shown:

			Years Ended December 31,
(in millions)			2023						2022
Operating leases
Operating lease asset:
Other assets			$	27.9					$	26.0
Operating lease liabilities:
Accrued expenses and other current liabilities			$	3.5					$	3.6
Other liabilities			29.5						27.4
Total operating lease liabilities			$	33.0					$	31.0
Finance leases
Finance lease assets:
Property, plant and equipment, net			$	37.8					$	—
Finance lease liabilities:
Current portion of long-term debt and finance leases			$	22.9					$	—

The Company’s operating and financing lease cost was as follows:

			Year Ended December 31,
(in millions)			2023						2022						2021
Operating lease cost			$	8.8					$	8.8					$	6.0
Finance lease cost:
Amortization of leased assets			0.4						—						—
Interest on lease liabilities			0.6						—						—
Total finance lease cost			1.0						—						—
Total operating and financing lease cost			$	9.8					$	8.8					$	6.0

Maturities of lease liabilities as of December 31, 2023 are as follows:

(in millions)
Years Ending December 31,			Operating Leases						Finance Lease**(1)**
2024			$	5.7					$	23.2
2025			4.7						—
2026			2.8						—
2027			2.8						—
2028			3.0						—
Thereafter			33.8						—
Total future minimum lease payments			52.8						23.2
Less: imputed interest			(19.8)						(0.3)
Present value of future minimum lease payments			$	33.0					$	22.9

(1) Excludes optional variable lease payments.

As of December 31, 2023, the weighted average remaining lease term and weighted-average discount rate for leases were as follows:

			Operating Leases						Finance Leases
Weighted average remaining lease term			12.4 years						9 months
Weighted-average discount rate used to determine the lease liability			7.1		%				6.0		%

Note 16. Debt

The components of debt consisted of the following:

			As of December 31,
(in millions)			2023						2022
Equipment financing due May 2024			$	2.7					$	9.5
Equipment financing due November 2025			15.2						22.5
5.15% Mortgage due November 2025			63.3						65.5
0.375% Convertible Senior Notes due September 2026			800.0						800.0
Equipment financing			12.7						—
Term loan due May 2028			487.5						492.5
Revolving Credit Facility expires June 2028			—						—
Equipment financing due July 2028			29.0						34.4
Finance lease obligation(1)			22.9						—
Unamortized debt discount			(6.4)						(7.6)
Debt issuance costs			(11.1)						(15.0)
Total debt, net			1,415.8						1,401.8
Less: current portion			49.4						27.5
Total long term-debt, net			$	1,366.4					$	1,374.3

(1) Refer to Note 15 for information regarding finance lease obligation.

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%.

In May 2023, the Company entered into an arrangement under which the Company may obtain up to $24.0 million of financing for manufacturing equipment. The Company is involved in the construction of the manufacturing equipment; accordingly, it is included in property, plant and equipment on the consolidated balance sheet at December 31, 2023. The Company’s obligation reflects payments made to date by the third-party bank to the equipment manufacturer, net of discount and less repayment of principal. The financing obligation will mature 36 months following completion of construction and has an effective interest rate of 9.4%.

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 cash, shares of the Company’s common stock, or the combination of cash and shares of common stock, at the Company's election, 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 at the holder's election, from June 1, 2026 through August 28, 2026 and prior to then under certain circumstances as set forth in the agreement. Additionally, on or after September 6, 2023, the Company may redeem for cash all or a portion of the Notes, if its stock price has been equal to or greater than $294.75 for at least 20 of the prior 30 consecutive trading days including the date which the Company provides notice of redemption.

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 and are recorded within stockholders’ equity on the consolidated balance sheets.

As of December 31, 2023 and 2022, the net carrying amount of the Notes was $791.8 million and $788.8 million, respectively, net of unamortized issuance costs of $8.2 million and $11.2 million, respectively. As of December 31, 2023, the effective interest rate was 0.76%.

The components of interest expense related to the Notes were as follows:

			Years Ended December 31,
(in millions)			2023						2022						2021
Contractual interest expense			$	3.0					$	3.0					$	3.0
Amortization of debt issuance costs			3.0						3.0						1.9
Total interest recognized on the Convertible Notes			$	6.0					$	6.0					$	4.9

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 senior secured revolving credit facility (the “Revolving Credit Facility”). In 2023, the Company increased the borrowing capacity under the Revolving Credit Facility to $300.0 million and amended the agreement such that outstanding borrowings bear interest at a rate of SOFR plus an applicable margin of 2.625% to 3.25%

based on the Company’s net leverage ratio and credit rating and extended the maturity date to the earlier of June 2028 or 91 days prior to the maturity date of the Company's term loan if still outstanding. 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, 2023.

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.

In January 2024, the Company amended its Credit Agreement. Refer to Note 26 for additional information.

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.

Carrying Value

The carrying value amounts of the Company’s debt were as follows:

			As of December 31,
(in millions)			2023						2022
Term loan due May 2028			$	479.2					$	482.1
0.375% Convertible Senior Notes			791.8						788.8
Equipment financings			59.3						66.4
5.15% Mortgage			62.6						64.5
Finance lease obligation			22.9						—
Total debt, net			$	1,415.8					$	1,401.8

Maturity of Debt

The maturity of debt as of December 31, 2023 is as follows:

Years Ending December 31,			(in millions)
2024			$	49.4
2025			$	86.4
2026			$	818.9
2027			$	17.2
2028			$	472.5

Note 17. Financial Instruments and Fair Value

Financial Instruments Disclosed at Fair Value

The following tables provide a summary of the significant financial instruments that are disclosed at fair value on a recurring basis as of December 31, 2023 and 2022:

			Fair Value Measurements at December 31, 2023
(in millions)			Level 1						Level 2						Level 3						Total
Term loan due May 2028**(1)**			$	490.2					$	—					$	—					$	490.2
0.375% Convertible Senior Notes**(2)**			—						765.6						—						765.6
Equipment financings**(3)**			—						—						59.3						59.3
5.15% Mortgage**(3)**			—						—						62.6						62.6
Total			$	490.2					$	765.6					$	121.9					$	1,377.7

			Fair Value Measurements at December 31, 2022
(in millions)			Level 1						Level 2						Level 3						Total
Term loan due May 2028**(1)**			$	485.1					$	—					$	—					$	485.1
0.375% Convertible Senior Notes**(2)**			—						1,038.7						—						1,038.7
Equipment financings**(3)**			—						—						66.4						66.4
5.15% Mortgage**(3)**			—						—						64.5						64.5
Total			$	485.1					$	1,038.7					$	130.9					$	1,654.7

(1) Fair value of the Term Loan was determined using quoted market prices.

(2) Fair value of the notes was determined using the Company’s quoted stock price and the contractual conversion rate.

(3) The fair values of the equipment financings and mortgage approximate their carrying values and were determined using their cost basis.

Assets Measured at Fair Value on a Recurring Basis

The following tables provide a summary of assets that are measured at fair value on a recurring basis as of December 31, 2023 and 2022:

			Fair Value Measurements at December 31, 2023
(in millions)			Level 1						Level 2						Level 3						Total
Cash**(1)**			$	103.7					$	—					$	—					$	103.7
Money market mutual funds**(1)**			547.0						—						—						547.0
Term deposits**(2)**			—						53.5						—						53.5
Interest rate swaps(3)			—						22.8						—						22.8
Debt securities(4)			—						—						4.7						4.7
Other investments(4)			—						—						3.8						3.8
Total assets			$	650.7					$	76.3					$	8.5					$	735.5

			Fair Value Measurements at December 31, 2022
(in millions)			Level 1						Level 2						Level 3						Total
Cash**(1)**			$	136.1					$	—					$	—					$	136.1
Money market mutual funds**(1)**			487.3						—						—						487.3
Term deposits**(2)**			—						50.8						—						50.8
Restricted cash**(1)**			0.5						—						—						0.5
Interest rate swaps(3)			—						36.9						—						36.9
Total assets			$	623.9					$	87.7					$	—					$	711.6

(1) Cash and cash equivalents are carried at face amounts, which approximate their fair values.

(2) Fair value is determined using Level 2 inputs.

(3) Fair value represents 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 swaps is included in other assets on the consolidated balance sheets.

(4) Fair value is determined using industry standard valuation models and market-based unobservable inputs, including credit spread and risk free rate. The range used for the risk free rate is 3.8% - 5.6%.

The following is a reconciliation of changes in fair value of investments, which were acquired during the year ended December 31, 2023:

(in millions)			Debt Securities						Other Investments						Total
Balance at December 31, 2022			$	—					$	—					$	—
Purchases			5.0						2.0						7.0
Unrealized gain included in other income (expense), net			—						1.8						1.8
Unrealized loss on securities included in other comprehensive income			(0.3)						—						(0.3)
Balance at December 31, 2023			$	4.7					$	3.8					$	8.5

Assets Measured at Fair Value on a Non-Recurring Basis

Due to an observable price change in an orderly transaction during 2023, the Company adjusted the carrying value of certain investments in equity securities held as of December 31, 2023, which resulted in an unrealized gain of $0.8 million. The investments are classified as Level 2 in the fair value hierarchy.

Note 18. 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.

As of December 31, 2023, the Company estimates that $18.3 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. When recognized, gains and losses on cash flow hedges reclassified from accumulated other comprehensive income are recognized within interest expense, net.

Note 19. 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 million uncommitted letter of credit facility, and concurrently with the execution of the Malaysia Purchase Agreement discussed in Note 15, a $16.5 million letter of credit was issued under the facility to backstop a bank guarantee for the same amount. The bank guarantee, to which the Company is not a party, serves as security for the building until the Company purchases the property. In 2023, additional letters of credit totaling $3.5 million were issued under this facility. 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. In aggregate, the Company had letters of credit totaling $20.9 million and $18.6 million as of December 31, 2023 and 2022, respectively.

Note 20. 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, 2023, 2.5 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)			2023						2022						2021
Cost of revenue			$	0.4					$	0.4					$	0.5
Research and development			11.5						8.9						7.6
Selling, general and administrative			36.4						31.6						26.3
Total			$	48.3					$	40.9					$	34.4

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, 2022			695,588						$	109.73
Granted			72,209						$	276.36
Exercised			(250,192)						$	67.30											$	52.7
Forfeited and canceled			(81,511)						$	250.47
Outstanding at December 31, 2023			436,094						$	135.37					3.8						$	43.2
Vested, December 31, 2023			335,862						$	95.35					2.4						$	43.1
Vested or expected to vest, December 31, 2023			420,190						$	130.18					3.6						$	43.2

The aggregate intrinsic value of options exercised for the years ended December 31, 2022 and 2021 was $31.7 million and $86.5 million, respectively.

The Company uses the Black-Scholes pricing model to determine the fair value of options granted. The assumptions used in the Black-Scholes pricing model are as follows:

• Risk-free Interest Rate—The risk-free interest rate is the implied yield available on U.S. treasury zero-coupon issues with a remaining term equal to the option’s expected term on the grant date.

*•*Expected Term—The expected term of options granted represents the period of time for which the options are expected to be outstanding. The Company estimates the expected term using both historical and hypothetical exercise data for outstanding options.

• Dividend Yield—The Company has never declared or paid any cash dividends on any of its capital stock and does not expect to do so in the foreseeable future. Accordingly, the Company uses an expected dividend yield of zero to calculate the grant-date fair value of a stock option.

*•*Expected Volatility—The expected volatility is a measure of the amount by which the Company’s stock price is expected to fluctuate during the expected term of options granted. The Company determines the expected volatility based primarily upon the historical volatility of the Company’s common stock over a period commensurate with the option’s expected term.

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,
			2023						2022						2021
Risk-free interest rate			4.3%						1.8%						0.5% - 0.6%
Expected life of options (in years)			4.2						4.2						4.2 - 4.4
Dividend yield			—%						—%						—%
Expected stock price volatility			45.7%						42.8%						41.4% - 41.6%
Fair value per option			$	115.32					$	93.26					$	95.92

As of December 31, 2023, there was $7.8 million of unrecognized compensation cost related to non-vested stock options. This cost is expected to be recognized over a weighted average period of 2.7 years.

Restricted Stock Units

Restricted Stock Units (“RSUs”) generally vest in equal annual installments over a three-year period. 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.

Activity for RSUs is as follows:

			Number of Shares						Weighted Average Fair Value
Outstanding at December 31, 2022			232,726						$	249.60
Granted			149,234						$	259.86
Vested			(98,373)						$	245.14
Forfeited			(34,393)						$	266.65
Outstanding at December 31, 2023			249,194						$	255.31

The weighted-average grant-date fair value per share of RSUs granted was $248.02 and $278.68 for the years ended December 31, 2022 and 2021, respectively. The total fair value of RSUs vested was $24.1 million, $20.3 million, and $17.0 million for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, there was $41.6 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.

Activity for PSUs is as follows:

			Number of Shares						Weighted Average Fair Value
Outstanding at December 31, 2022			180,301						$	249.10
Granted(1)			60,587						$	276.36
Vested			(40,023)						$	217.34
Forfeited			(78,399)						$	272.53
Outstanding at December 31, 2023(2)			122,466						$	261.65

(1) Includes a 7,636 share adjustment to awards granted in 2020 for the three-year performance cycle award period ended 2022, based on the actual performance achievement of 84%.

(2) Based on 111% achievement of the performance metrics, approximately 18,000 shares of Insulet were earned for awards that were granted in 2021 for the performance period ended December 31, 2023. These shares vested in February 2024.

The weighted-average grant-date fair value per share of PSUs granted was $250.25 and $273.79 for the years ended December 31, 2022 and 2021, respectively. The total fair value of PSUs vested was $8.7 million, $7.8 million, and $10.3 million for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, there was $32.9 million of unrecognized compensation cost related to PSUs, which is expected to be recognized over a weighted-average period of 1.8 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 55,439, 52,724, and 36,103 shares of common stock for the years ended December 31, 2023, 2022, and 2021, respectively, to employees participating in the ESPP. As of December 31, 2023, 364,496 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,
			2023						2022						2021
Risk-free interest rate			5.3% - 5.4%						1.6% - 4.7%						0.04% - 0.1%
Expected term (in years)			0.5						0.5						0.5
Dividend yield			—%						—%						—%
Expected stock price volatility			29.1% - 47.0%						44.3% - 50.1%						19.4% - 31.7%

The weighted average grant date fair value of the six-month option inherent in the ESPP was $60.67, $74.50, and $60.65, for the years ended December 31, 2023, 2022, and 2021, respectively.

As of December 31, 2023, there was $1.8 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.

Table of Contents

Note 21. 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 (Losses) on Securities						Unrealized Gains on Cash Flow Hedges						Accumulated Other Comprehensive Income (Loss)
Balance, December 31, 2020			$	5.2					$	0.3					$	—					$	5.5
Other comprehensive (loss) income			(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
Other comprehensive income (loss) before reclassifications			2.5						(0.3)						6.1						8.3
Amounts reclassified to net income			—						—						(20.3)						(20.3)
Balance, December 31, 2023			$	(14.5)					$	(0.3)					$	22.8					$	8.0

Note 22. 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 $12.1 million, $9.8 million, and $8.5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

Note 23. Income Taxes

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

			Years Ended December 31,
(in millions)			2023						2022						2021
U.S.			$	199.5					$	11.8					$	25.3
Foreign			15.1						(2.0)						(4.8)
Income before income taxes			$	214.6					$	9.8					$	20.5

Income tax expense consists of the following:

			Years Ended December 31,
(in millions)			2023						2022						2021
Current:
U.S. State			$	3.7					$	1.3					$	0.5
Foreign			4.1						4.8						2.0
Total current tax expense			7.8						6.1						2.5
Deferred:
U.S. Federal			0.1						—						—
Foreign			0.4						(0.9)						1.2
Total deferred tax expense (benefit)			0.5						(0.9)						1.2
Total income tax expense			$	8.3					$	5.2					$	3.7

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

			Years Ended December 31,
			2023						2022						2021
U.S. statutory rate			21.0		%				21.0		%				21.0		%
Foreign rate differential			0.6						13.2						4.8
State taxes, net of federal benefit			2.4						(5.0)						(9.5)
Federal and state R&D credits			(5.9)						(49.4)						(26.2)
Stock-based compensation			(3.2)						(94.8)						(117.0)
Extinguishment of debt			—						—						(57.5)
Capital loss carryforward expirations			—						—						52.1
Non-deductible officers’ compensation			1.3						52.4						45.7
Permanent items			0.7						6.3						1.9
Foreign income taxed in the U.S.			0.7						14.5						—
Change in valuation allowance			(10.8)						124.4						97.9
Tax rate changes			0.5						(30.9)						—
Change to prior year R&D credit			(2.8)						—						—
Intercompany transfer of intellectual property			—						—						4.6
Other			(0.6)						1.7						0.4
Effective tax rate			3.9		%				53.4		%				18.2		%

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 $32.7 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.

During 2023 the Company commenced a multi-year research and development (“R&D”) credit study that resulted in an increase to U.S. federal and state R&D credit carryforwards related to the 2022 tax year. This has been reported as a favorable adjustment to prior year taxes in the effective tax rate and a corresponding increase to the valuation allowance.

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 2020 through 2022. In addition, the Company’s U.S. net operating loss carryforwards from 2003 and forward may be subject to examination if the losses are utilized in future years.

The following table summarizes the activity related to the Company’s unrecognized tax benefits:

(in millions)
Unrecognized tax benefits at December 31, 2022			$	—
Additions related to current period tax positions			2.6
Additions related to prior period tax positions			2.4
Unrecognized tax benefits at December 31, 2023			$	5.0

As of December 31, 2023, the balance of unrecognized tax benefits, if recognized, would not impact the effective tax rate due to a full valuation allowance against the Company's U.S. deferred tax assets. As of December 31, 2022 and 2021, the Company had no unrecognized tax benefits that would impact the effective tax rates. The Company does not anticipate that the amount of existing unrecognized tax benefits will materially increase or decrease within the next 12 months. No interest and penalties were recognized related to uncertain tax positions for the years ended December 31, 2023, 2022 and 2021 and no interest and penalties were accrued for as of December 31, 2023 and 2022.

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The components of the net deferred tax asset at the end of each year consist of the following:

			As of December 31,
(in millions)			2023						2022
Deferred tax assets:
Net operating loss carryforwards			$	91.4					$	143.5
Tax credits			54.1						33.6
Capitalized research and development expenditures			53.3						30.4
Warranty			2.2						14.6
Accrued expenses			22.9						10.2
Amortization of debt discount			7.8						11.0
Inventory capitalization			6.5						4.1
Intangible assets			8.0						12.9
Interest limitation carryforwards			—						1.7
Incentive compensation			13.5						9.4
Stock-based compensation			8.0						6.4
Other			5.4						4.5
Total deferred tax assets			273.1						282.3
Deferred tax liabilities:
Prepaid assets			(7.7)						(5.3)
Property, plant and equipment			(38.1)						(31.5)
Capitalized contract acquisition costs			(10.4)						(10.4)
Unrealized gains on cash flow hedges			(5.1)						(8.8)
Other			(7.7)						(1.9)
Total deferred tax liabilities			(69.0)						(57.9)
Net deferred tax asset before valuation allowance			204.1						224.4
Valuation allowance			(202.9)						(222.8)
Net deferred tax asset			$	1.2					$	1.6

The Company maintained a valuation allowance of $202.9 million and $222.8 million at December 31, 2023 and 2022, respectively, against U.S. federal, state, and certain 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 the weighting of positive and negative evidence, including a history of cumulative tax losses in prior years. The $19.9 million decrease in the Company’s valuation allowance during the year ended December 31, 2023 was primarily due to the utilization of net operating losses and changes in temporary differences in the United States.

As of December 31, 2023, the Company’s net operating loss carryforwards were as follows:

(in millions)			Expiration Period						Net Operating Loss Carryforwards
U.S. federal			Indefinite						$	192.0
U.S. federal			2032 - 2037						$	150.2
State			2024 - 2042						$	238.3
Foreign			Indefinite						$	23.2

As of December 31, 2023, the Company’s tax credit carryforwards were as follows:

(in millions)			Expiration Period						Tax Credit Carryforwards
U.S. federal			2024 - 2043						$	40.1
State			2024 - 2043						$	23.6

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.

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Note 24. 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 computation of basic and diluted net income per share was as follows:

			Years Ended December 31,
(in millions, except share and per share data)			2023						2022						2021
Net income			$	206.3					$	4.6					$	16.8
Add back interest expense, net of tax attributable to assumed conversion of convertible senior notes			10.4						—						—
Net income, diluted			$	216.7					$	4.6					$	16.8
Weighted average number of common shares outstanding, basic (in thousands)			69,751						69,375						67,698
Convertible Notes			3,528						—						—
Stock options			286						454						686
Restricted stock units			68						81						195
Weighted average number of common shares outstanding, diluted (in thousands)			73,633						69,910						68,579
Net income per share
Basic			$	2.96					$	0.07					$	0.25
Diluted			$	2.94					$	0.07					$	0.24

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)			2023						2022						2021
Restricted stock units			322						227						166
Stock options			163						137						53
0.375% Convertible Senior Notes			—						3,528						3,528
1.375% Convertible Senior Notes			—						—						2,024
Total			485						3,892						5,771

Note 25. Supplemental Cash Flow Information

			Years Ended December 31,
(in millions)			2023						2022						2021
Cash paid for interest, net of amount capitalized			$	49.9					$	34.2					$	21.5
Cash paid for taxes			$	8.1					$	5.5					$	7.0
Purchases of property and equipment included in accounts payable and accrued expenses			$	7.1					$	3.9					$	6.1
Purchases of property, plant and equipment included in long-term debt			$	12.9					$	—					$	—
Purchases of developed software included in accounts payable and accrued expenses			$	0.2					$	0.4					$	3.2
Operating lease liabilities arising from obtaining right-of-use assets			$	5.4					$	25.5					$	0.7
Finance lease liability arising from obtaining right-of-use assets			$	22.3					$	—					$	—
Lease payment made for amounts included in the measurement of operating lease liabilities			$	5.7					$	4.6					$	5.7

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Note 26. Subsequent Event

In January 2024, the Company amended its Term Loan to bear interest at a rate of SOFR plus 3.00%, with a 0% SOFR floor. At the same time, the Company amended its Revolving Credit Facility such that outstanding borrowings bear interest at a rate of SOFR plus an applicable margin of 2.375% to 3.00% based on the Company’s net leverage ratio and credit rating.

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, 2023
Reserve for rebates			$	77.3					$	465.5					$	—					$	(385.1)					$	157.7
Deferred tax valuation allowance			$	222.8					$	73.5					$	3.7					$	(97.1)					$	202.9
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

(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.