PODD US Equity☆

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and the accompanying notes included in this annual report. The following discussion may contain forward-looking statements that reflect our plans, estimates, and beliefs, which are subject to risks, uncertainties, and assumptions. Our actual results could differ materially from those discussed in these forward-looking statements. Factors that could cause or contribute to these differences include those discussed under the headings “Risk Factors” and “Forward-Looking Statements.”

Overview

Our mission is to improve the lives of people with diabetes. We are primarily engaged in the development, manufacture, and sale of our proprietary Omnipod System, a continuous insulin delivery system for people with insulin-dependent diabetes. The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device that the user fills with insulin and wears directly on the body for up to three days at a time, which delivers personalized doses of insulin, and the PDM or Controller, a wireless handheld device that programs the Pod with the user’s personalized insulin-delivery instructions and wirelessly monitors the Pod’s operation.

The Omnipod System, includes: Classic Omnipod, its next generation Omnipod DASH, and the most recent generation Omnipod 5, all of which eliminate the need for multiple daily injections using syringes or insulin pens or the use of pump and tubing. Omnipod DASH features a secure Bluetooth enabled Pod and PDM with a color touch screen user interface supported by smartphone connectivity. Omnipod 5, which builds on our Omnipod DASH mobile platform, is a tubeless automated insulin delivery system, that integrates with a continuous glucose monitor (“CGM”) to manage blood sugar and is fully controlled by a compatible personal smartphone or Omnipod 5 Controller. The CGM is sold separately by a third party. In addition, substantially all of our 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.

Our long-term financial objective is to sustain profitable growth. To achieve this goal, our efforts have been focused on the launch of Omnipod 5, which in 2022 received FDA clearance for individuals aged two years and older with type 1 diabetes. Our limited market release of Omnipod 5 in the United States began in the first quarter, and in the third quarter we launched our U.S. full market release. We are also working to bring Omnipod 5 to our international markets. We recently received CE Mark approval under the European MDR, and we are currently focused on further building our international teams and advancing our regulatory, reimbursement, and market development efforts. We plan to launch Omnipod 5 in the U.K. and Germany in 2023 and to continue our international roll out more broadly in 2024.

In 2022, we completed our Omnipod 5 type 2 diabetes feasibility study and plan to begin a pivotal trial in 2023 with the goal of expanding Omnipod 5’s indication to type 2 users. Additionally, to accelerate our efforts to secure reimbursement for Omnipod 5, we have fully enrolled individuals in a randomized control trial in the U.S. and enrollment will begin soon in France. We also continue to expand market access and awareness of Omnipod through our direct to consumer advertising programs and through growing our presence in the U.S. pharmacy channel, where access to Omnipod 5 and Omnipod DASH is simpler and affordable, as no up-front investment is required. As we continue our growth in the pharmacy channel, we plan to phase-out our Classic Omnipod in the U.S. in 2023, since the vast majority of our customer base is no longer using this product.

Additionally, we continue to increase our presence within our existing markets and expand internationally in a targeted and strategic manner. We opened an office in Dubai to serve as our primary local presence and regional infrastructure in the Middle East, launched Omnipod in Saudi Arabia, and expanded into the United Arab Emirates.

We have also been taking steps to continue strengthening our global manufacturing capabilities. We are optimizing our operations in China by consolidating our production in that region into one location. Further, in 2022 we broke ground on a new manufacturing plant in Malaysia to support our international expansion strategy, further ensure product supply, and drive higher gross margins over time. We expect to begin production at this new manufacturing facility in 2024.

Finally, we continue to focus on our product development efforts, including AID offerings, such as choice of continuous glucose monitor and smartphone integration, and enhancing the customer experience through digital product and data capabilities. We have also developed a basal-only Pod for individuals with type 2 diabetes and submitted our 510(k) application to the FDA in November. We expect commercialization of the basal-only Pod in 2024.

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Results of Operations

The discussion of our results of operations for 2020 has been omitted from this Form 10-K but can be found in Item 7. Management’s Discussion and Analysis and Results of Operations in our Form 10-K for the fiscal year ended December 31, 2021 filed with the Securities and Exchange Commission on February 24, 2022.

Factors Affecting Operating Results

Our Pods are intended to be used continuously for up to three days and then be replaced with a new disposable Pod. We recently achieved a milestone of 360,000 estimated global customers using Omnipod, including over 100,000 U.S. customers using the Omnipod 5. As we grow our customer base, we expect to generate an increasing portion of our revenues through recurring sales of our disposable Pods, which provides recurring revenue. Our recurring revenue business model, alongside the Omnipod System’s unique patented design enables us to provide pump therapy at a low or no up-front investment in regions where reimbursement allows for it. Our pay-as-you-go pricing model also reduces the risk to third-party payors.

During 2022, we issued two voluntary MDCs, one in October for our Omnipod DASH PDM related to its battery and the other in November for our Omnipod 5 Controller related to the charging port and cable. In addition to the estimated liability we recorded in 2022, we have a performance obligation to replace Omnipod DASH PDMs and Omnipod 5 Controllers sold subsequent to the MDC issuances, which is expected to negatively impact gross margins and net income in 2023, most notably in the first half of the year.

We have also experienced and expect to continue to experience challenges stemming from the global supply chain disruption that began during the coronavirus pandemic (“COVID-19”); however, to date we have been able to successfully mitigate this disruption and ensure uninterrupted supply to our customers by increasing our inventory levels and taking other measures. While our mitigation efforts and inflation have and are expected to continue to negatively impact gross margins and net income in 2023, we intend to continue to work to improve productivity to help offset these costs.

Comparison of the Years Ended December 31, 2022 and December 31, 2021

Revenue

Years Ended December 31,

(In millions) 2022 2021 % Change Currency Impact Constant Currency(1)

(1) Constant currency revenue growth is a non-GAAP financial measure which should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. See “Management’s Use of Non-GAAP Measures.”

Total revenue for 2022 increased $206.5 million, or 18.8%, to $1,305.3 million, compared with $1,098.8 million in 2021. Constant currency revenue growth of 22.2% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix.

U.S. Omnipod

U.S. Omnipod revenue for 2022 increased $233.3 million, or 35.8%, to $884.8 million, compared with $651.5 million in 2021. This increase was primarily due to higher Omnipod 5 and Omnipod DASH volumes driven by growing our customer base and, to a lesser extent, growth through the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge. Existing customer conversions to Omnipod 5 also contributed to the revenue increase as some users fill both their starter kit and their first month of refills simultaneously.

U.S. Omnipod revenue for 2022 includes $249.9 million of related party revenue, compared with $58.2 million in 2021. The $191.7 million increase primarily resulted from a shift in certain revenues from one distributor to another as we worked to extend our reach through the pharmacy channel. Additional information regarding our related party transactions is provided in Note 5 to our consolidated financial statements.

In 2023, we expect strong Omnipod revenue growth driven by continued volume growth of Omnipod 5 in the pharmacy channel, continued adoption of Omnipod DASH, and the benefits of our recurring revenue model.

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International Omnipod

International Omnipod revenue for 2022 increased $3.1 million, or 0.9%, to $363.0 million, compared with $359.9 million in 2021. Excluding the 11.2% unfavorable impact of currency exchange, the remaining 12.1% increase was primarily due to higher volumes as we continue to expand awareness and access to Omnipod DASH, partially offset by increased competition from AID systems. In 2023, we expect higher International Omnipod revenue due to continued volume growth driven by the ongoing adoption of Omnipod DASH, partially offset by competition from AID systems and an unfavorable impact of currency exchange.

Drug Delivery

Drug Delivery revenue for 2022 decreased $29.9 million, or 34.2%, to $57.5 million, compared with $87.4 million in 2021. This decrease was primarily driven by a decline in production volume due to lower demand from our partner. In 2023, we expect Drug Delivery revenue to decline due to a lower demand forecast from our partner.

Operating Expenses

Years Ended December 31,

(In millions) Amount Percent of Revenue Amount Percent of Revenue

Selling, general and administrative expenses $ 587.8 45.0 % $ 466.0 42.4 %

Cost of Revenue

Cost of revenue for 2022 increased $153.0 million, or 44.1%, to $499.7 million, compared with $346.7 million in 2021. Gross margin was 61.7% in 2022, compared with 68.4% in 2021. The 6.7 point decrease in gross margin was primarily driven by a $57.9 million net charge, or 4.5 points, associated with the voluntary MDCs we issued in 2022. The decrease was also driven by higher expected production costs in the U.S. as manufacturing continues to ramp and become a larger portion of our total production and higher costs associated with Omnipod 5 production. These decreases were partially offset by higher average selling price due to growth in the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge.

We expect gross margin for 2023 to be in the range of 65% to 66%. We anticipate gross margin to increase due to significant costs associated with the MDCs in 2022, most of which we do not expect to recur in 2023 and higher volume in the pharmacy channel and favorable geographical sales mix. We believe these increases will be partially offset by continued higher production costs as we further scale U.S. manufacturing, unfavorable product line mix due to higher costs associated with Omnipod 5 production, and higher costs as we contend with inflation.

Research and Development

Research and development expenses for 2022 increased $20.1 million, or 12.6%, to $180.2 million, compared with $160.1 million in 2021. This increase was primarily due to year-over-year headcount additions to support our continued investment in development of Omnipod products, partially offset by lower outside services used for clinical activities. We expect research and development spending in 2023 to increase compared with 2022 as we continue to invest in advancing our innovation and clinical pipeline and contend with inflation.

Selling, General and Administrative

Selling, general and administrative expenses for 2022 increased $121.8 million, or 26.1%, to $587.8 million, compared with $466.0 million in 2021. This increase was primarily attributable to year-over-year headcount additions, mainly to support information technology and commercial operations and $25.2 million of legal charges related to the settlement of a patent infringement lawsuit, associated legal fees, and the settlement of a contract dispute. To a lesser extent, these increases were due to an increase in investments to expand market acceptance and access to Omnipod, higher travel and entertainment expenses due to increased activity as COVID-19 restrictions have lifted, an increase in software license fees driven by investments in new systems to support our growing business and headcount additions, and higher amortization of cloud computing implementation costs. Additionally, selling, general and administrative expenses include $3.4 million of costs associated with the retirement and advisory services of our former chief executive officer. These increases were partially offset by a decrease in direct-to-consumer advertising resulting from the timing of spend.

We expect selling, general and administrative expenses to increase in 2023 compared with 2022 due to investments in our operating structure to facilitate operational efficiencies and continued growth, including customer support and a new enterprise

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resource planning system. Additionally, we plan to make investments to support the Omnipod System, including market acceptance and access, and the phased launch of Omnipod 5 in our international markets.

Non-Operating Items

Interest Expense, Net

Interest expense, net for 2022 decreased $34.5 million, or 56.4%, to $26.7 million, compared with $61.2 million in 2021. This decrease was primarily driven by the adoption of Accounting Standards Update 2020-06, Accounting for Convertible Debt Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”), which eliminated most of the non-cash interest expense associated with our convertible notes. Refer to Recently Adopted Accounting Standard in Note2 to our consolidated financial statements for additional information.

Loss on Extinguishment of Debt

During 2021, we incurred a $42.4 million loss on extinguishment of debt related to the repurchase and conversion of all of our outstanding 1.375% Notes. Refer to Note 15 to our consolidated financial statements for additional information.

Other Expense, Net

Other expense, net for 2022 decreased $0.8 million to $1.1 million, compared with $1.9 million in 2021. The decrease was primarily driven by an increase in unrealized foreign currency gains, which was partially offset by realized foreign currency losses.

Income Tax Expense

Income tax expense was $5.2 million on pre-tax income of $9.8 million for 2022 and $3.7 million on pre-tax income of $20.5 million for 2021. Our effective tax rate was 53.4% and 18.2% for 2022 and 2021, respectively. The increase in our effective tax rate was primarily driven by a decrease in pre-tax income in the U.S. where we have net operating loss carryforwards to reduce taxable profits and a full valuation allowance against deferred tax assets. Refer to Note 22 to our consolidated financial statements for additional information on our income tax expense.

Adjusted EBITDA

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

Years Ended December 31,

Interest expense, net 26.7 61.2

Income tax expense 5.2 3.7

Depreciation and amortization 63.2 57.4

Stock-based compensation expense 38.6 34.4

Voluntary MDCs(1) 57.9 —

Legal costs(2) 25.2 —

CEO transition costs(3) 3.4 —

Loss on extinguishment of debt(4) — 42.4

(1) Represents net charge recorded for the estimated costs associated with the voluntary MDCs. Refer to Note 13 to our consolidated financial statements for additional information.

(2) Includes a $20.0 million charge to settle patent infringement litigation with Roche, associated legal fees, and a $3.6 million charge to settle a contract dispute. Refer to Note 17 to our consolidated financial statements for additional information.

(3) Represents costs associated with the retirement and advisory services of our former chief executive officer, including $2.3 million of accelerated stock-based compensation expense.

(4) Relates to the repurchase and conversion of all of our outstanding 1.375% Notes. Refer to Note 15 to our consolidated financial statements for additional information.

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Non-GAAP Financial Measures

Management uses the following non-GAAP financial measures:

Constant currency revenue growth represents the change in revenue between current and prior year periods using the exchange rate in effect during the applicable prior year period. We present constant currency revenue growth because we believe it provides meaningful information regarding our results on a consistent and comparable basis. Management uses this non-GAAP financial measure, in addition to financial measures in accordance with GAAP, to evaluate our operating results. It is also one of the performance metrics that determines management incentive compensation.

Adjusted EBITDA represents net income (loss) plus net interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation expense and other significant transactions or events, such as legal settlements, medical device corrections, and loss on extinguishment of debt, that affect the period-to-period comparability of our operating performances, as applicable. We present Adjusted EBITDA because management uses it as a supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, and other interested parties as a measure of our comparative operating performance from period to period. Adjusted EBITDA is a commonly used measure in determining business value and we use it internally to report results.

These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP. In addition, the above definitions may differ from similarly titled measures used by others. Non-GAAP financial measures exclude the effect of items that increase or decrease our reported results of operations; accordingly, we strongly encourage investors to review our consolidated financial statements in their entirety.

Liquidity and Capital Resources

Capitalization

The following table contains several key measures to gauge our financial condition and liquidity at the end of each year:

As of December 31,

Cash and cash equivalents $ 674.7 $ 791.6

Current portion of long-term debt $ 27.5 $ 25.1

Total stockholders’ equity $ 476.4 $ 556.3

Debt-to-total capital ratio 75 % 70 %

Net debt-to-total capital ratio 39 % 26 %

The increase in debt and the decrease in stockholders’ equity was primarily due to the adoption of ASU 2020-06. Refer to Recently Adopted Accounting Standard in Note2 to our consolidated financial statements for additional information.

Convertible Debt

To finance our operations and global expansion, we have periodically issued convertible senior notes, which are convertible into our common stock. As of December 31, 2022, the following notes were outstanding:

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

In connection with the issuance of the 0.375% Convertible Senior Notes (“0.375% Notes”), we purchased capped call options (“Capped Calls”) on our common stock. By entering into the Capped Calls, we expect to reduce the potential dilution to our common stock (or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of our cash payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the 0.375% Notes. The Capped Calls have an initial strike price of $335.90 per share and cover 3.5 million shares of our common stock.

Credit Agreement

We have a $100 million three-year senior secured revolving credit facility (“Revolving Credit Facility”), which expires in 2024. At December 31, 2022, no amount was outstanding under the Revolving Credit Facility. The Revolving Credit Facility contains a covenant to maintain a specified leverage ratio under certain conditions when there are amounts outstanding under the facility.

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It also contains other customary covenants, none of which are considered restrictive to our operations. Additionally, we have a seven year term loan, which matures in 2028, that contains covenants restricting or limiting our ability to incur additional indebtedness, make asset dispositions, create or permit liens, sell, transfer or exchange assets, guarantee certain indebtedness, and make acquisitions and other investments. Additional information regarding our debt is provided in Note 15 to the consolidated financial statements.

We believe that our current liquidity will be sufficient to meet our projected operating, investing, and debt service requirements for at least the next twelve months.

Summary of Cash Flows

Years Ended December 31,

Cash provided by (used in):

Operating activities $ 119.0 $ (68.1)

Financing activities (40.3) 40.7

Effect of exchange rate changes on cash (4.3) (5.5)

Net decrease in cash, cash equivalents, and restricted cash $ (116.7) $ (115.6)

Operating Activities

Net cash provided by operating activities of $119.0 million in 2022 was primarily attributable to net income, as adjusted for depreciation and amortization and stock-based compensation expense, partially offset by a $2.5 million working capital cash outflow. The working capital outflow was driven by a $36.8 million increase in prepaid expenses and other assets, a $51.8 million increase in accounts receivable, and a $49.1 million increase in inventories, partially offset by a $137.6 million increase in accrued expenses and other liabilities. The increase in prepaid expenses and other assets was primarily driven by an increase in cloud computing implementation costs. The increase in accounts receivable was primarily due to an increase in sales in the U.S. pharmacy channel, which has longer payment terms, partially offset by a decrease in unbilled accounts receivable related to lower production volumes of our Drug Delivery product. The increase in inventories was primarily driven by a planned inventory build to satisfy demand. Finally, the increase in accrued expenses and other liabilities was primarily driven by the voluntary MDCs issued for our Omnipod DASH PDMs and Omnipod 5 Controllers, an increase in rebates due to growth in the pharmacy channel and an increase in compensation costs due to higher incentive compensation achievement and head count additions.

Net cash used in operating activities of $68.1 million in 2021 was primarily attributable to net income, as adjusted for depreciation and amortization, loss on extinguishment of debt, non-cash interest, and stock-based compensation expense, partially offset by a $263.6 million working capital cash outflow. The working capital outflow was driven by a $154.4 million increase in inventories, a $71.3 million increase in accounts receivable and a $46.7 million increase in prepaid expenses and other assets, partially offset by a $24.4 million increase in accrued expenses and other liabilities. The increase in inventories was primarily driven by a planned inventory build to satisfy demand and the addition of our third highly automated manufacturing line. The increase in accounts receivable was primarily due to an increase in sales in the U,S. pharmacy channel, which has longer payment terms. The increase in prepaid expenses and other assets was primarily driven by an increase in cloud computing implementation costs. Finally, the increase in accrued expenses and other liabilities was primarily driven by an increase in rebates due to growth in the pharmacy channel and higher compensation costs due to an increase in both incentive compensation achievement and head count.

Investing Activities

We had $191.1 million of net cash used in investing activities in 2022, compared with $82.7 million in 2021.

Capital Spending—Capital expenditures were $122.9 million and $111.9 million in 2022 and 2021, respectively, and primarily related to the purchase of equipment to increase our manufacturing capacity. We expect capital expenditures for 2023 to decrease compared with 2022 given our significant investments to build capacity in 2022, including acceleration of some of our spending on machinery and equipment for our new Malaysia manufacturing facility that is under construction. We expect to fund our capital expenditures using existing cash.

Investments in Developed Software—Investments in developed software were $12.9 million and $10.8 million in 2022 and 2021, respectively, and primarily related to investments in projects to support our cloud-based capabilities.

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Acquisitions and Investments—In 2022, we paid $26.0 million to acquire substantially all the assets related to the manufacture and production of shape-memory alloy wire assemblies that are used in the production of Omnipods from Dynalloy, Inc. and $21.5 million to acquire developed technology and patents from AGC. In addition we paid $7.8 million for strategic investments in two private companies.

Sales of Marketable Securities—The $40.0 million decrease in cash receipts from maturities of marketable securities in 2021 was driven by the prior year shift of a portion of our investment portfolio to investments that are classified as cash equivalents.

Financing Activities

We had $40.3 million of net cash used in financing activities in 2022, compared with $40.7 million of net cash provided by financing activities in 2021.

Debt Issuance and Repayment—During 2022, we made $24.5 million in aggregate principal payments on our equipment financings, mortgage, and term loan, compared with $22.3 million in 2021. The $2.2 million increase is due to entering the term loan and an additional equipment financing in the second and third quarters of 2021, respectively. During 2021, we received net proceeds of $489.5 million from the issuance of the term loan and used $460.9 million of cash to partially fund the repurchase of a portion of our 1.375% Notes. We also received net proceeds of $43.1 million from the equipment financing transaction entered into in 2021.

Prepayments of Finance Lease Obligation—During 2022, we made $15.3 million in upfront payments upon entering into an agreement to acquire real estate in Malaysia. Refer to Note 14 to the consolidated financial statements for additional information regarding this lease.

Option Exercises and Employee Stock Purchase Plan Proceeds—Total proceeds from option exercises and issuance of employee stock purchase plan shares were $16.3 million and $23.5 million in 2022 and 2021, respectively. The $7.2 million decrease was primarily driven by option exercises in the prior year by our former chief executive officer who retired in 2018.

Payment of Taxes for Restricted Stock Net Settlements—Payments for taxes related to net restricted and performance stock unit settlements were $16.8 million and $28.2 million in 2022 and 2021, respectively. The $11.4 million decrease was primarily driven by vesting of performance stock units in the prior year by our former chief executive officer who retired in 2018.

Commitments and Contingencies

Contractual Obligations—A summary of our contractual obligations and commitments for debt, operating lease obligations and other obligations at December 31, 2022 is presented in the following table:

(in millions) Short Term Long Term Total

(1)Interest on debt and lease obligations are projected for future periods using the interest rates in effect as of December 31, 2022. Certain of these projected interest payments may differ in the future based on changes in market interest rates. Additional information regarding our leases is provided in Note 14 to the consolidated financial statements.

(2)Excludes the impact of the interest rate swaps discussed in Note 16 to our consolidated financial statements.

(3)Purchase obligations include commitments for the purchase of Omnipod System components, commitments related to establishing additional manufacturing capabilities, and other commitments for purchases of goods or services in the normal course of business. These commitments are derived from purchase orders, supplier contracts and open orders based on projected demand information.

Off-Balance Sheet Arrangements

As of December 31, 2022, we had various letters of credit totaling $18.6 million. During 2022, the Company entered into a $20 million uncommitted letter of credit facility. In conjunction with the execution of an agreement to acquire real estate in Malaysia, including land and building, a letter of credit of $17.2 million was issued under this facility to backstop a bank guarantee for the same amount. The bank guarantee serves as security for the building while under construction. Additional information regarding our letters of credit is provided in Note 17 to the consolidated financial statements.

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Critical Accounting Policies and Estimates

The preparation of our consolidated financial statements in conformity with U.S. GAAP requires management to use judgment in making estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. The following accounting policies are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management’s estimates are based on the relevant information available at the end of each period.

Revenue Recognition

We recognize revenue when a customer obtains control of the promised products in an amount that reflects the net consideration to which we expect to be entitled. We sell products both through distributors, who resell the products to consumers, and directly to consumers. Transaction price is typically based on contracted rates less any estimates of claim denials and historical reimbursement experience, guidelines and payor mix, and less estimated variable consideration adjustments, including rebates. Recognizing revenue requires us to exercise judgment and use estimates that can have a significant impact on the amount and timing of revenue we report. We exercise significant judgment when we determine variable consideration adjustments. The amount of variable consideration that is included in the transaction price is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. We estimate reductions to our revenues for rebates paid to distributors in the United States and Canada and pharmacy benefit managers (“PBM”) in the United States. Rebates are based on contractual arrangements, which may vary. Our estimates are based on products sold, historical experience, trends, specific known market events and, as available, channel inventory data. Rebates charged against gross sales amounted to $247.1 million, $143.3 million and $82.5 million in 2022, 2021 and 2020, respectively. Provisions for rebates, sales discounts, and returns are accounted for as a reduction of sales when revenue is recognized and are included within accounts receivable trade or accrued expenses and other current liabilities on our consolidated balance sheets, based upon the recipient of the rebate. If the actual amounts of consideration that we receive differ from our estimates, we adjust our estimates, which affects reported revenue in the period that such variances become known.

Our Drug Delivery product line includes sales of a modified version of the Omnipod to pharmaceutical and biotechnology companies who use our technology as a delivery method for their drugs. Revenue from the Drug Delivery product was $57.5 million for 2022. Revenue for this product line is recognized as the product is produced. Accounting for Drug Delivery revenue requires us to select a method to measure progress towards the satisfaction of the performance obligation. This election of the most meaningful measure of progress by which to recognize Drug Delivery revenue requires the application of judgment. We elected the input method and selected a blend of cost and time to produce as the measure of progress. Accordingly, revenue is recognized 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 our performance obligations. We believe 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. Changes from quarter to quarter in quantity and stage of production of in-process inventory could have a significant quarterly impact on revenue.

Product Warranty

We provide a four-year warranty on our PDMs and Controllers sold in the United States and Europe and a five-year warranty on PDMs sold in Canada. In addition, we may replace Pods that do not function in accordance with product specifications. We estimate our warranty obligation at the time the product is shipped based on historical experience and the estimated cost to service the claims, which include the current product cost, reclaim costs, shipping and handling costs and direct and incremental distribution and customer service support costs. Since we continue to introduce new products and versions, the anticipated performance of the product over the warranty period is also considered in estimating warranty reserves. Changes to the actual replacement rates, which are evaluated quarterly, could have a material impact on our estimated warranty reserve.

In 2022, we issued voluntary MDCs for the Omnipod DASH PDM and the Omnipod 5 Controller and accrued an associated warranty reserve of $68.9 million, which was subsequently reduced by $11.0 million primarily due to significantly fewer customers requesting a replacement Omnipod DASH PDM prior to our updated PDM being available. The remaining $54.6 million warranty reserve at December 31, 2022 includes an estimate regarding the number of:

•customers expected to request a replacement Omnipod 5 Controller;

•PDMs/Controllers that will be distributed by third parties and the cost of distribution assistance outside the U.S.;

•additional customer support personnel, their cost and the length of time they will be needed; and

•old PDMs expected to be returned for disposal and the cost of reclaim

Changes in these assumptions could have a material impact on our estimated warranty reserve related to the MDCs.

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Intangible Assets

Certain of our intangible assets have been acquired through business combinations or asset purchases that include multiple components, both of which have required us to perform valuations. Our valuations involve assumptions, including, revenue and/or revenue growth rates associated with acquired assets, customer attrition rates, discount rate rates, royalty rates, tax rates, expected product development plans, product lifecycles, and obsolescence.

In 2022, we entered into an Asset Purchase Agreement pursuant to which we made a one-time payment of $25.0 million for the acquisition of technology and patents and the release of future obligations to AGC, including any future royalty obligations. This amount, together with transaction costs, was allocated between the assets acquired and the settlement component based on estimated relative fair value. The valuation of these intangible assets included assumptions based on future revenues, royalty rates, and obsolescence curves related to our Omnipod 5 product. In addition, since certain of the intangible assets were classified as defensive assets, the valuation included an assumption related to the probability that a claim made by Insulet would be successful. As a result of the relative fair value allocation, values of $12.0 million and $9.5 million were assigned to acquired technology and patents, respectively, and the settlement component was estimated to have a value of $3.6 million. Changes in these assumptions could impact the values assigned to the intangible assets acquired and, accordingly have a material impact on the amount attributed to the settlement component in our results of operations.

Inventory Reserves

We reduce the carrying value of inventories for 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. During 2022, we charged $8.4 million to the consolidated statement of operations for excess and obsolete inventory, including $4.8 million related to the phase-out of Classic Omnipod. The determination of this charge involved assumptions regarding the number of PDMs expected to be utilized to satisfy warranty claims during the phase-out period and the length of time we will continue to offer Classic Omnipod outside the United States.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words. These statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations, and financial condition.

Forward-looking statements involve risks, uncertainties, and assumptions. Actual results may differ materially from those expressed in these forward-looking statements. You should not put undue reliance on any forward-looking statements.

The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in forward-looking statements. In addition, there may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business. We expressly disclaim any obligation to update these forward-looking statements other than as required by law.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Interest Rate Risk

Our exposure to changes in interest rates is associated with borrowings under our Revolving Credit Facility and our Term Loan, both of which are variable-rate debt. At December 31, 2022, no amounts were outstanding under our Revolving Credit Facility. In May 2021, we entered into two interest rate swap agreements to effectively convert $480.0 million of our term loan borrowings from a variable rate to a fixed rate. These interest rate swaps are intended to mitigate the exposure to fluctuations in interest rates and qualify for hedge accounting treatment as cash flow hedges. A 100 basis point increase or decrease in interest rates as of December 31, 2022 would decrease or increase our annual earnings, respectively, by approximately $0.1 million.

Market Price Sensitive Instruments

As of December 31, 2022, we had outstanding debt related to our convertible senior notes recorded on our consolidated balance sheet of $788.8 million, net of unamortized discount and issuance costs totaling $11.2 million. Changes in the fair value of our outstanding debt, which could be impacted by changes in interest rates, are not recorded in these consolidated financial statements as the debt is accounted for at cost less unamortized discount and issuance costs. The fair value of the convertible senior notes, which was $1,038.7 million as of December 31, 2022, is also impacted by changes in our stock price.

In order to reduce potential equity dilution, in connection with the issuance of the $800.0 million aggregate principal amount of 0.375% Notes, we entered into Capped Calls. We expect the Capped Calls to reduce the potential dilution to our common stock

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(or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of our cash payment obligation) in the event that at the time of conversion our stock price exceeds the conversion price under the 0.375% Notes. The Capped Calls have an initial strike price of $335.90 per share and cover 3.5 million shares of common stock.

Foreign Currency Exchange Risk

Foreign currency risk arises from our investments in subsidiaries owned and operated in non-U.S. countries. Such risk is also a result of transactions with customers in countries outside the United States. Approximately 28% of our revenue was denominated in foreign currencies for the year ended December 31, 2022. As our business in regions outside of the United States continues to increase, we will be increasingly exposed to foreign currency exchange risk related to our foreign operations. The cost of revenue related to revenue generated outside of the United States is primarily denominated in U.S. dollars; however, operating costs related to these revenues are largely denominated in the same respective currencies, thereby partially limiting our transaction risk exposure. Fluctuations in the rate of exchange between the United States dollar and foreign currencies, primarily the Euro, British Pound and Canadian Dollar, could adversely affect our financial results, including our revenues, revenue growth rates, gross margins, income and losses as well as assets and liabilities.

We have intercompany receivables and payables from our foreign subsidiaries that are denominated in foreign currencies, principally the Euro, the British pound and the Canadian dollar. Fluctuations from the beginning to the end of a reporting period result in the revaluation of our foreign currency-denominated intercompany receivables and payables, generating currency translation gains or losses. Net realized and unrealized gains (losses) from foreign currency transactions are included in other (expense) income, net in the consolidated statement of operations and amounted to a loss of $1.3 million for the year ended December 31, 2022.

Item 8. Financial Statements and Supplementary Data

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

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248) 42

Consolidated Balance Sheets as of December 31, 2022 and 2021 44

Notes to Consolidated Financial Statements 49

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Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Insulet Corporation

Opinions on the financial statements and internal control over financial reporting

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

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

Change in accounting principle

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

Basis for opinions

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

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

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

Definition and limitations of internal control over financial reporting

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

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

Critical audit matters

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

Contract Dispute

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

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

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

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

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

Variable consideration – Rebates to Intermediaries

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

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

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

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

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

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

/s/ GRANT THORNTON LLP

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

Boston, Massachusetts

February 23, 2023

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INSULET CORPORATION

CONSOLIDATED BALANCE SHEETS

As of December 31,

(in millions, except share and per share data) 2022 2021

ASSETS

Current Assets

Cash and cash equivalents $ 674.7 $ 791.6

Accounts receivable trade, net 140.9 135.2

Accounts receivable trade, net — related party 64.7 25.8

Prepaid expenses and other current assets 86.9 74.0

Property, plant and equipment, net 599.9 536.5

Other intangible assets, net 75.5 36.6

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current Liabilities

Accrued expenses and other current liabilities 301.0 164.3

Accrued expenses and other current liabilities — related party 5.4 1.7

Current portion of long-term debt 27.5 25.1

Commitments and contingencies (Note 17)

Stockholders’ Equity

Accumulated other comprehensive income (loss) 20.0 (2.2)

Total liabilities and stockholders’ equity $ 2,251.1 $ 2,048.8

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) 2022 2021 2020

Revenue from related party 249.9 58.2 —

Selling, general and administrative expenses 587.8 466.0 384.0

Loss on extinguishment of debt — (42.4) —

Other (expense) income, net (1.1) (1.9) 3.3

Income before income taxes 9.8 20.5 9.7

Income tax expense (5.2) (3.7) (2.9)

Net income per share:

Weighted-average number of common shares outstanding (in thousands):

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,

Other comprehensive income (loss), net of tax

Foreign currency translation adjustment (10.3) (11.9) 6.8

Unrealized gain on cash flow hedges 32.5 4.5 —

Unrealized loss on available-for-sale securities — (0.3) (0.1)

Total other comprehensive income (loss), net of tax 22.2 (7.7) 6.7

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

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INSULET CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(dollars in millions) Shares (in thousands) Amount

Exercise of options to purchase common stock 674 — 25.7 — — 25.7

Issuance of shares for employee stock purchase plan 38 — 6.0 — — 6.0

Stock-based compensation expense — — 35.9 — — 35.9

Net income — — — 6.8 — 6.8

Other comprehensive income — — — — 6.7 6.7

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

Issuance of shares for debt extinguishment 2,586 — 722.4 — — 722.4

Other comprehensive loss — — — — (7.7) (7.7)

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

Net income — — — 4.6 — 4.6

Other comprehensive income — — — — 22.2 22.2

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,

Cash flows from operating activities

Stock-based compensation expense 40.9 34.4 35.9

Loss on extinguishment of convertible debt — 42.4 —

Provision for credit losses 4.2 3.1 3.3

Changes in operating assets and liabilities:

Accounts receivable — related party (38.9) (25.8) —

Prepaid expenses and other assets (36.8) (46.7) (34.1)

Accrued expenses and other liabilities 133.9 22.7 27.8

Accrued expenses and other liabilities — related party 3.7 1.7 —

Net cash provided by (used in) operating activities 119.0 (68.1) 84.0

Cash flows from investing activities

Investments in developed software (12.9) (10.8) (37.5)

Acquisition of a business (26.0) — —

Acquisition of intangible assets (21.5) — —

Cash paid for investments (7.8) — —

Receipts from the maturity or sale of marketable securities — 40.0 218.4

Cash paid for marketable securities — — (37.9)

Net cash (used in) provided by investing activities (191.1) (82.7) 14.0

Cash flows from financing activities

Repayment of convertible debt — (460.9) —

Proceeds from issuance of term loan, net of issuance costs — 489.5 —

Repayment of term loan (5.0) (2.5) —

Proceeds from equipment financings, net — 43.1 60.0

Repayment of equipment financings (17.4) (17.8) (1.4)

Proceeds from mortgage, net of issuance costs — — 68.3

Repayment of mortgage (2.1) (2.0) (0.3)

Payment of debt issuance costs — (4.0) (0.5)

Prepayments of financing lease obligation (15.3) — —

Proceeds from issuance of common stock, net — — 477.5

Proceeds from exercise of stock options 6.9 15.4 25.7

Net cash (used in) provided by financing activities (40.3) 40.7 605.5

Effect of exchange rate changes on cash (4.3) (5.5) 4.8

Cash, cash equivalents, and restricted cash, beginning of year 806.4 922.0 213.7

Supplemental cash flow information (Note 24)

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

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

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

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

Note 2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements reflect the consolidated operations of Insulet Corporation and its subsidiaries. The consolidated financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates.

Principles of Consolidation

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

Foreign Currency Translation

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

Cash and Cash Equivalents

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

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Investments

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

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

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

Accounts Receivable and Allowance for Credit Losses

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326) (“ASU 2016-13”) using the modified retrospective method, whereby the guidance is applied prospectively as of the date of adoption and prior periods are not restated. The cumulative effect of adopting ASU 2016-13 resulted in a $1.1 million increase to the opening balance of accumulated deficit upon adoption related to an increase in the allowance for credit losses on accounts receivable.

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

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Direct Customer Receivables—The Company measures expected credit losses on direct customer receivables using an aging methodology. The risk of loss for direct customer receivables is higher than other portfolios. The Company relies on third-party payors to accept and timely process claims and on direct consumers to have the ability to pay. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Distributor Receivables—The Company measures expected credit losses on distributor receivables using an individual reserve methodology. The risk of loss in this portfolio is low based on the Company’s historical experience. The estimate of expected credit losses considers payment history as well as credit ratings of the distributors, in addition to current conditions and supportable forecasts.

National Healthcare System Receivables—The Company measures expected credit losses on national healthcare system receivables using an individual reserve methodology. The risk of loss in this portfolio is low based on the Company’s historical experience. The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Inventories

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

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Contract Acquisition Costs

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

Derivative Instruments

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

Fair Value Measurements

Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date.

To measure fair value of assets and liabilities, the Company uses the following fair value hierarchy based on three levels of inputs:

Level 1 — observable inputs, such as quoted prices in active markets for identical assets or liabilities;

Level 2 — significant other observable inputs that are observable either directly or indirectly; and

Level 3 — significant unobservable inputs for which there are little or no market data, which require the Company to develop its own assumptions.

Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 6 and 15 for financial assets and liabilities held at carrying amount on the consolidated balance sheet and Notes 16for derivative instruments measured at fair value on a recurring basis.

Property, Plant and Equipment

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

Building and building improvements 20 to 39 years

Leasehold improvements Lesser of lease term or useful life of asset

Machinery and equipment 2 to 15 years

Furniture and fixtures 3 to 5 years

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

Business Combinations

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

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Goodwill and Other Intangible Assets

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

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

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

Customer relationships 14 years

Internal-use software 3 to 5 years

Developed technology 13 to 15 years

Patents 8 to 15 years

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

Cloud Computing Arrangements

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

Leases

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

Contingencies

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

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Product Warranty

The Company provides afour-year warranty on its PDMs and Controllers sold in the United States and Europe and a five-year warranty on PDMs sold in Canada and may replace Pods that do not function in accordance with product specifications. The Company estimates its warranty obligation at the time the product is shipped based on historical experience and the estimated cost to service the claims. Costs to service the claims reflect the current product cost, reclaim costs, shipping and handling costs and direct and incremental distribution and customer service support costs. Since the Company continues to introduce new products and versions, the anticipated performance of the product over the warranty period is also considered in estimating warranty reserves. Warranty expense is recorded in cost of revenue in the consolidated statements of operations.

Revenue Recognition

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

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

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

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

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

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

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

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

Research and Software Development Costs

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

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

Shipping and Handling Costs

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

Advertising Costs

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

Stock-Based Compensation Expense

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

Income Taxes

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

Concentration Risk

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

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

Recently Adopted Accounting Standards

Convertible Debt

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

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

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

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

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

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

Reference Rate Reform

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

Note3. Segment and Geographic Data

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

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

Years Ended December 31,

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

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

As of December 31,

Note 4. Revenue and Contract Acquisition Costs

The following table summarizes the Company’s disaggregated revenues:

Years Ended December 31,

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

Years Ended December 31,

Distributor A 19% * *

Distributor C * 10% 11%

Distributor D 16% * *

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

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

As of December 31,

Accrued expenses and other current liabilities $ 16.1 $ 3.5

Other liabilities 1.6 1.5

Total deferred revenue $ 17.7 $ 5.0

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

As of December 31,

Deferred revenue recognized $ 2.1 $ 4.4 $ 1.8

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

As of December 31,

Prepaid expenses and other current assets $ 15.2 $ 13.3

Total capitalized contract acquisition costs, net $ 46.5 $ 39.4

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

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Note 5. Related Party Transactions

In February 2021, the Company entered into a distribution agreement, the terms of which are consistent with those prevailing at arm’s length. The spouse of one of the members of the Company’s Board of Directors is an executive officer of the distributor. The Company recorded $249.9 million and $58.2 million of net revenues from the distributor for the years ended December 31, 2022 and 2021, respectively. The Company had $64.7 million and $25.8 million of net accounts receivable due from the distributor as of December 31, 2022 and 2021, respectively. In addition, the Company had an aggregate of $5.4 million and $1.7 million of distribution fees due to the distributor and deferred revenue, which was included in accrued expenses and other current liabilities on the consolidated balance sheet as of December 31, 2022 and 2021, respectively.

Note 6. Cash and Cash Equivalents

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

As of December 31,

Time deposits 50.8 —

Restricted cash 0.5 1.6

Total cash and cash equivalents 674.7 791.6

Restricted cash included in other assets 15.0 14.8

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

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

Note 7. Accounts Receivable

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

As of December 31,

Accounts receivable trade, net $ 128.6 $ 101.2

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

As of December 31,

Distributor A 34% 21%

Distributor B 11% *

Distributor D 23% 15%

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

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

Year Ended December 31,

Credit losses at beginning of year $ 2.7 $ 2.9 $ 4.9

Provision for expected credit losses 4.2 3.1 3.3

Write-offs charged against allowance (4.9) (3.8) (5.8)

Recoveries of amounts previously reserved 0.5 0.5 0.5

Credit losses at end of year $ 2.5 $ 2.7 $ 2.9

Note 8. Inventories

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

As of December 31,

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

Note 9. Cloud Computing Costs

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

As of December 31,

Short-term portion $ 18.0 $ 18.4

Total capitalized implementation costs 105.1 67.6

Less: accumulated amortization (17.1) (4.4)

Capitalized implementation costs, net $ 88.0 $ 63.2

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

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Note 10. Property, Plant and Equipment, Net

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

As of December 31,

Building and building improvements 163.9 159.5

Furniture and fixtures 17.2 15.9

Leasehold improvements 11.7 5.9

Total property, plant and equipment 834.6 715.7

Less: accumulated depreciation (234.7) (179.2)

Property, plant and equipment, net $ 599.9 $ 536.5

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

Note 11. Business Combination

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

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

(in millions)

Inventories $ 0.5

Property, plant and equipment 0.9

Other assets 0.2

Goodwill (tax deductible) 12.0

Developed technology (15 year useful life) 15.4

Total assets acquired $ 29.0

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

Note 12. Goodwill and Other Intangible Assets, Net

Goodwill

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

(in millions)

Acquisition (Note 11) 12.0

Foreign currency translation (0.1)

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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,

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

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

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

Years Ending December 31, (in millions)

Note 13. Accrued Expenses and Other Current Liabilities

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

As of December 31,

Employee compensation and related costs $ 95.9 $ 70.3

Warranty liability - current portion 57.3 2.4

Professional and consulting services 27.5 22.8

Accrued expenses and other current liabilities $ 301.0 $ 164.3

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

Years Ended December 31,

Product warranty liability at beginning of year $ 6.8 $ 6.7

Changes in estimates (14.0) —

Warranty fulfillment (17.7) (10.6)

Product warranty liability at end of year $ 62.1 $ 6.8

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

Note 14. Leases

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

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

Years Ended December 31,

Operating lease asset:

Operating lease liabilities:

Accrued expenses and other current liabilities $ 3.6 $ 5.0

Other liabilities 27.4 7.6

Total operating lease liabilities $ 31.0 $ 12.6

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

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

Years Ending December 31, (in millions)

Total future minimum lease payments 48.4

Less: imputed interest (17.4)

Present value of future minimum lease payments $ 31.0

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

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

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Note 15. Debt

The components of debt consisted of the following:

As of December 31,

Revolving Credit Facility expires May 2024 $ — $ —

Unamortized debt discount (7.6) (159.9)

Debt issuance costs (15.0) (15.2)

Less: current portion 27.5 25.1

Equipment Financings

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

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

5.15% Mortgage

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

0.375% Convertible Senior Notes

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