What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2021-02-24 compared with 2020-02-26 · 374 added, 283 removed, 628 unchanged (51% of the section changed)

4 unchanged sentences

Consolidated Balance Sheets as of December 31, 2020 and 2019

Consolidated Statements of Operations for the Years ended December 31, 2019, 2018 and 2017

Consolidated Statements of Comprehensive I ncome (Loss) for the Years Ended December 31, 2019, 2018 and 2017

Consolidated Statements of Income for the Years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive I ncome for the Years Ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the Years ended December 31, 2020, 2019 and 2018

5 unchanged sentences

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, 2019 and 2018 , and the related consolidated statements of operations, comprehensive income (loss), changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2019 , and the related notes and schedule (collectively referred to as the “financial statements”).

We have audited the accompanying consolidated balance sheets of Insulet Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and financial statement schedules 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, 2020, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

21 unchanged sentences

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.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates 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 matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition - Drug Delivery

11 unchanged sentences

• For the measure of progress, we inspected evidence related to the cost and length of the production cycle.

For revenue recognized on in-process or finished goods inventory not yet shipped to the customer (and the related unbilled receivable), we inspected customer orders, binding customer forecasts, inventory records, and confirmed inventory quantities directly with third parties when applicable.

Convertible Debt Offering and Note Repurchase

As described in Note 12 to the consolidated financial statements, the Company completed a private placement offering of $800 million in 0.375% Convertible Senior Notes (the “New Notes”), with the proceeds partially used to repurchase the previously outstanding 1.25% Convertible Senior Notes (the “Existing Notes”).

We identified these transactions as a critical audit matter.

The principal considerations for our determination that this matter is a critical audit matter are as follows.

Accounting for the convertible debt offering and the repurchase of the Existing Notes was a significant unusual transaction that required extensive audit effort.

This included the involvement of technical accounting specialists to evaluate Management’s conclusions surrounding the bifurcation of the notes between debt and equity and the extinguishment conclusion for the repurchase of the Existing Notes.

Additionally, valuation specialists were included to determine the fair value of the equity component of the New Notes and the fair value of the Existing Notes utilized in the determination of the loss on extinguishment.

This included the evaluation of the market yield input, which was derived using a Binomial Option Pricing Model.

Our audit procedures included, but were not limited to, the following:

We tested the control design and operating effectiveness related to the accounting for the transaction including Management’s evaluation of the qualifications of specialists and review of the work performed by the specialists.

We traced all key terms, and amounts to source documents, including the related offering memorandums and purchase agreements.

We supplemented the engagement team with technical accounting specialists to confirm Management’s accounting conclusions including the determination that the New Notes be bifurcated between debt and equity as well as the determination that the repurchase of a portion of the Existing Notes be accounted for as an extinguishment of debt.

With the assistance of valuation professionals with specialized skills and knowledge, we tested Management’s valuation of both the New Notes and the Existing Notes which included a recalculation of the related amounts and an assessment of the appropriateness of the methodology, inputs, and assumptions used.

• For revenue recognized on in-process or finished goods inventory (and the related unbilled receivable), we inspected customer orders, binding customer forecasts, inventory records, and third party shipping documentation.

/s/ GRANT THORNTON LLP

9 unchanged sentences

Short-term investments 40.4 162.4

Accounts receivable trade, less allowance for doubtful accounts of $3.8 and $3.6

Unbilled receivable

Accounts receivable trade, net 83.8 69.3

Inventories 154.3 101.0

Prepaid expenses and other current assets 63.0 44.6

3 unchanged sentences

Other intangible assets, net 28.7 13.2

Goodwill 39.8 39.8

Other assets 77.0 41.1

Total assets $ 1,872.9 $ 1,142.9

LIABILITIES AND STOCKHOLDERS’ EQUITY

2 unchanged sentences

Accrued expenses and other current liabilities 138.1 103.2

Current portion of long-term debt 15.6 —

Total current liabilities 207.8 157.7

Convertible debt, net

Long-term debt, net 1,043.7 887.9

Other liabilities 17.8 21.4

9 unchanged sentences

Issued and outstanding:

62,685,492 and 59,188,758 shares at December 31, 2019 and 2018, respectively.

66,017 and 62,685 shares at December 31, 2020 and 2019

Additional paid-in capital 1,264.3 749.0

Accumulated deficit ( 666.3 ) ( 672.0 )

Accumulated other comprehensive loss

Accumulated other comprehensive income (loss) 5.5 ( 1.2 )

Total stockholders’ equity 603.6 75.9

2 unchanged sentences

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENTS OF INCOME

Years Ended December 31,

(in millions, except share and per share data) 2020 2019 2018

Revenue $ 904.4 $ 738.2 $ 563.8

Cost of revenue 322.1 257.9 193.6

Operating expenses:

Gross profit 582.3 480.3 370.2

Research and development 146.8 132.3 94.8

Sales and marketing

General and administrative

Total operating expenses

Operating income (loss)

Interest expense, net of portion capitalized

Selling, general and administrative 384.0 298.0 248.0

Operating income 51.5 50.0 27.4

Interest expense, net ( 45.1 ) ( 27.7 ) ( 21.3 )

Loss on extinguishment of debt — ( 8.7 ) —

Interest and other income, net

Income (loss) before income taxes

Other income (expense), net 3.3 0.9 ( 0.9 )

Income before income taxes 9.7 14.5 5.2

Income tax expense ( 2.9 ) ( 2.9 ) ( 1.9 )

Net income (loss)

Net income (loss) per share:

Weighted-average number of common shares outstanding:

Net income $ 6.8 $ 11.6 $ 3.3

Net income per share:

Basic $ 0.11 $ 0.19 $ 0.06

Diluted $ 0.10 $ 0.19 $ 0.05

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

Basic 64,735 60,594 58,860

Diluted 65,946 62,304 61,008

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

INSULET CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31,

(in millions) 2020 2019 2018

Net income (loss)

Other comprehensive income (loss), net of tax

Foreign currency translation adjustment, net of tax

Unrealized gain (loss) on available-for-sale securities, net of tax

Net income $ 6.8 $ 11.6 $ 3.3

Other comprehensive income, net of tax

Foreign currency translation adjustment 6.8 0.6 ( 2.2 )

Unrealized (loss) gain on available-for-sale securities, net of tax ( 0.1 ) 1.1 ( 0.2 )

Total other comprehensive income (loss), net of tax 6.7 1.7 ( 2.4 )

Total comprehensive income (loss)

Total comprehensive income $ 13.5 $ 13.3 $ 0.9

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

1 unchanged sentence

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Accumulated Other Comprehensive Loss

Common Stock Additional

Capital Accumulated

Deficit Accumulated Other Comprehensive Loss (Income) Total

Stockholders’

(in millions, except share data)

Balance, December 31, 2016

Exercise of options to purchase common stock

Issuance of shares for employee stock purchase plan

Stock-based compensation expense

Restricted stock units vested, net of shares withheld for taxes

Allocation to equity for conversion feature on 1.375% Notes, net of issuance costs

Extinguishment of conversion feature on 2% Notes, net of issuance costs

Other comprehensive income

(dollars in millions) Shares

(in thousands) Amount

Balance, December 31, 2017

58,319 $ 0.1 $ 866.2 $ ( 707.3 ) $ ( 0.5 ) $ 158.5

Exercise of options to purchase common stock 410 — 12.8 — — 12.8

Issuance of shares for employee stock purchase plan 46 — 3.0 — — 3.0

Stock-based compensation expense

Stock-based compensation — — 37.5 — — 37.5

Restricted stock units vested, net of shares withheld for taxes 414 — ( 17.8 ) — — ( 17.8 )

Extinguishment of conversion feature on 2 % Notes, net of issuance costs

— — ( 3.2 ) — — ( 3.2 )

Adoption of ASC 606 (Note 2) — — — 20.4 — 20.4

Net income — — — 3.3 — 3.3

Other comprehensive loss — — — — ( 2.4 ) ( 2.4 )

Balance, December 31, 2018

59,189 0.1 898.5 ( 683.6 ) ( 2.9 ) 212.1

Exercise of options to purchase common stock 1,340 — 46.6 — — 46.6

Issuance of shares for employee stock purchase plan 51 — 4.3 — — 4.3

Stock-based compensation expense

Stock-based compensation — — 28.7 — — 28.7

Restricted stock units vested, net of shares withheld for taxes 230 — ( 8.6 ) — — ( 8.6 )

Conversion feature of 0.375 % Notes, net of issuance costs

— — 207.8 — — 207.8

Extinguishment of conversion feature on 1.25 % Notes, net of issuance costs

— — ( 642.3 ) — — ( 642.3 )

Issuance of shares for debt repayment 1,875 — 299.4 — — 299.4

Purchase of capped call options — — ( 85.4 ) — — ( 85.4 )

Net income — — — 11.6 — 11.6

Other comprehensive income — — — — 1.7 1.7

Balance, December 31, 2019

62,685 0.1 749.0 ( 672.0 ) ( 1.2 ) 75.9

Adoption of ASU 2016-13 (Note 1) — — — ( 1.1 ) — ( 1.1 )

Issuance of common stock 2,370 — 477.5 — — 477.5

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

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

Stock-based compensation — — 35.9 — — 35.9

Restricted stock units vested, net of shares withheld for taxes 250 — ( 29.8 ) — — ( 29.8 )

Net income — — — 6.8 — 6.8

Other comprehensive income — — — — 6.7 6.7

Balance, December 31, 2020

66,017 $ 0.1 $ 1,264.3 $ ( 666.3 ) $ 5.5 $ 603.6

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

4 unchanged sentences

Cash flows from operating activities

Net income (loss)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Net income $ 6.8 $ 11.6 $ 3.3

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization 55.4 27.9 15.6

Non-cash interest expense

Stock-based compensation expense

Non-cash interest 45.2 35.6 29.3

Stock-based compensation 35.9 28.7 37.5

Loss on extinguishment of convertible debt — 8.7 —

Provision for bad debts

Provision for credit losses 3.3 4.5 3.4

Other 0.8 1.1 ( 0.4 )

Changes in operating assets and liabilities:

Accounts and unbilled receivable

Deferred revenue

Accounts receivable ( 15.6 ) ( 10.8 ) ( 14.6 )

Inventories ( 50.5 ) ( 30.2 ) ( 38.8 )

Prepaid expenses and other assets ( 32.2 ) ( 22.0 ) ( 19.9 )

Accounts payable, accrued expenses and other current liabilities

Other long-term liabilities

Accounts payable 7.1 25.6 ( 5.4 )

Accrued expenses and other liabilities 27.8 17.7 25.9

Net cash provided by operating activities 84.0 98.4 35.9

4 unchanged sentences

Receipts from the maturity or sale of investments 218.4 247.9 169.3

Net cash used in investing activities

Net cash provided by (used in) investing activities 14.0 ( 73.6 ) ( 184.5 )

Cash flows from financing activities

Principal payments of capital lease obligations

Proceeds from issuance of convertible debt, net of issuance costs

Proceeds from issuance of common stock, net of issuance costs 477.5 — —

Proceeds from mortgage, net of issuance cost 68.3 — —

Proceeds from equipment financing 60.0 — —

Proceeds from issuance of convertible debt, net of issuance cost — 780.2 —

Purchase of capped call options — ( 85.4 ) —

2 unchanged sentences

Payment of withholding taxes in connection with vesting of restricted stock units ( 29.8 ) ( 8.6 ) ( 17.8 )

Other ( 2.2 ) — —

Net cash provided by (used in) financing activities 605.5 73.5 ( 8.7 )

Effect of exchange rate changes on cash 4.8 1.5 ( 1.4 )

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

Net increase (decrease) in cash, cash equivalents, and restricted cash 708.3 99.8 ( 158.7 )

Cash, cash equivalents, and restricted cash, beginning of year 213.7 113.9 272.6

Cash, cash equivalents, and restricted cash, end of year (Note 5) $ 922.0 $ 213.7 $ 113.9

Supplemental cash flow information

7 unchanged sentences

Insulet Corporation (the “Company”) is primarily engaged in the development, manufacture and sale of its proprietary Omnipod System, an innovative, continuous insulin delivery system for people with insulin-dependent diabetes.

The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device that is worn on the body for up to three days at a time (the “Pod”), and its wireless companion, the handheld Personal Diabetes Manager (“PDM”).

The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device (“Pod”) that is worn on the body for up to three days at a time, and its wireless companion, the handheld Personal Diabetes Manager (“PDM”).

The Omnipod System, which features two discreet, easy-to-use devices, communicates wirelessly, provides for virtually pain-free automated cannula insertion and eliminates the need for multiple daily injections using syringes or insulin pens or the use of traditional pump and tubing.

6 unchanged sentences

In addition to selling the Omnipod System for insulin delivery, the Company also partners with global pharmaceutical and biotechnology companies to tailor the Omnipod System technology platform for the delivery of subcutaneous drugs across other therapeutic areas.

The majority of the Company’s drug delivery revenue consists of sales of Pods to Amgen for use in the Neulasta Onpro kit, an innovative delivery system for Amgen’s white blood cell booster to help reduce the risk of infection after intense chemotherapy.

The majority 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 white blood cell booster to help reduce the risk of infection after intense chemotherapy.

Summary of Significant Accounting Policies

9 unchanged sentences

Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation.

Software license costs have been reallocated from general and administrative expenses to research and development and sales and marketing expenses based on license usage.

These reclassifications have no effect on previously reported net income.

A portion of facility costs and certain information technology costs have been allocated from selling, general and administrative to research and development expenses based on square foot and system usage, respectively and certain quality assurance costs were reclassified from research and development expenses to selling, general and administrative expenses.

The net impact of these adjustments wa s a $ 2.6 million and $ 4.3 million increase to research and development expenses and decrease to selling, general and administrative expenses f or the years ended December 31, 2019 and December 31, 2018 , respectively .

There was no change to previously reported operating or net income.

Foreign Currency Translation

2 unchanged sentences

The net effect of these translation adjustments is reported in accumulated other comprehensive loss within stockholders’ equity on the consolidated balance sheet.

Net realized and unrealized gains (losses) from foreign currency transactions are included in interest and other income, net in the consolidated statement of operations and were $ 0.6 million and $ 1.0 million for the years ended December 31, 2019 and 2018 , respectively.

The amount for 2017 was insignificant.

Net realized and unrealized gains (losses) from foreign currency transactions are included in other income (expense), net in the consolidated statement of income and were $ 3.2 million, $ 0.6 million and $ 1.0 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Cash and Cash Equivalents

2 unchanged sentences

government and agency bonds that are carried at cost, which approximates their fair value.

Restricted cash that serves as collateral for outstanding letters of credit are included in cash and cash equivalents on the consolidated balance sheet.

Restricted cash required to be set aside in connection with

equipment financings or that serves as collateral for outstanding letters of credit and bank guarantees is included in other assets and cash and cash equivalents on the consolidated balance sheet.

Investments in Marketable Securities

1 unchanged sentence

government and agency bonds and corporate bonds.

Theses available-for-sale marketable securities are carried at fair value and unrealized gains and losses

are included as a component of other comprehensive loss in stockholders’ equity on the consolidated balance sheet.

Theses available-for-sale marketable securities are carried at fair value and unrealized gains and losses are included 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 income, net in the consolidated statement of operations.

Accounts Receivable and Allowance for Doubtful Accounts

Trade accounts receivable consist of amounts due from third-party payors, customers and intermediaries and are presented net of an allowance for doubtful accounts.

The allowance for doubtful accounts 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.

If an available-for-sale security is other than temporarily impaired, the loss is included in other income (expense), net in the consolidated statement of income.

Accounts Receivable and Allowance for Credit Losses

Trade accounts receivable consist of amounts due from third-party payors, customers and intermediaries and are presented at amortized cost.

The allowance for credit losses reflects an estimate of losses inherent in the Company’s accounts receivable portfolio determined based on historical experience, specific allowances for known troubled accounts and other available evidence.

Accounts receivable are written off when management determines they are uncollectible.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist.

The Company has identified the following portfolio segments and measures the allowance for credit losses using the following methods:

Direct Customer Receivables —The Company measures expected credit losses on direct customer receivables using an aging methodology.

The risk of loss for direct customer receivables is higher than other portfolios.

The Company relies on third-party payors to accept and timely process claims and on direct consumers to have the ability to pay.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and supportable forecasts.

Distributor Receivables —The Company measures expected credit losses on distributor receivables using an individual reserve methodology.

The risk of loss in this portfolio is low based on the Company’s historical experience.

The estimate of expected credit losses considers payment history 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 are stated at the lower of cost or net realizable value, with cost determined under the first-in, first-out method.

24 unchanged sentences

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

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.

13 unchanged sentences

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 that 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.

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.

3 unchanged sentences

Intangible assets acquired in a business combination are recorded at fair value, while intangible assets acquired in other transactions are recorded at cost and are stated at cost less accumulated amortization.

Intangible assets with finite useful lives are amortized using the straight-line method over the following estimated useful lives of the assets:

Customer relationships

Internal-use software

Intellectual property

Amortization expense is included in operating expenses in the consolidated statement of operations.

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

Intellectual property 15 years

Amortization expense is included in selling, general and administrative expenses in the consolidated statement of income.

The Company reviews intangible assets for impairment by comparing the fair value of the assets, estimated using an income approach, with their carrying value.

1 unchanged sentence

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 to the same income statement line as the associated cloud operating expenses.

As of December 31, 2020 and 2019, the Company had net capitalized implementation costs of $ 24.2 million and $ 3.5 million, respectively.

Amortization expense recorded during the period ended December 31, 2020 was $ 1.4 million and was insignificant for the period ended December 31, 2019.

The Company determines if an arrangement includes a lease at inception.

6 unchanged sentences

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 and is included in general and administrative expenses in the consolidated statements of operations.

Lease expense is recognized on a straight-line basis over the lease term.

Contingencies

5 unchanged sentences

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.

Warranty expense is recorded in cost of goods sold in the consolidated statements of operations.

Warranty expense is recorded in cost of revenue in the consolidated statements of income.

Costs to service the claims reflect the current product cost.

3 unchanged sentences

The cumulate effect of applying the new revenue standard resulted in a $ 20.4 million decrease to the opening balance of accumulated deficit upon adoption, primarily related to how revenue is recognized for the Company’s drug delivery product line and the capitalization of contract acquisition costs such as commissions.

Financial information for 2017 has not been restated and continues to be reported under the guidance in effect prior to the adoption of ASC 606.

Revenue is recognized when a customer obtains control of the promised products.

10 unchanged sentences

The price charged for the PDM 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.

The Company provides a right of return for sales of its Omnipod to 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.

16 unchanged sentences

Contract costs include third party costs as well as an allocation of manufacturing overhead.

Collaborative Arrangements

The Company enters into collaborative arrangements for ongoing initiatives to develop products.

Although the Company does not consider any individual alliance to be material, the following more notable alliance is described below.

Concentrated Insulin Delivery :

In May 2013, the Company entered into an agreement with Eli Lilly and Company (“Eli Lilly”) to develop a new version of the Omnipod System specifically designed to deliver Eli Lilly’s Humulin ® R U-500 insulin, a concentrated form of insulin used by people with highly insulin resistant Type 2 diabetes.

In January 2016, the Company entered into a development agreement with Eli Lilly to develop a new version of the Omnipod System, specifically designed to deliver Eli Lilly’s Humalog ® 200 insulin, a concentrated form of insulin that provides the same dose of insulin in half the volume of Eli Lilly’s Humalog ® U-100 insulin.

Under the terms of these arrangements, the parties share the responsibility of the permissible costs that are incurred.

Any amounts incurred in excess of the permissible shared costs that are the responsibility of one party becomes due and payable by the other party.

Consideration received and payments made by the Company under the terms of the arrangements are recorded within research and development expenses.

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 general and administrative expenses and were $ 9.7 million , $ 6.6 million and $ 5.0 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

These shipping and handling costs are included in selling, general and administrative expenses and were $ 10.1 million, $ 9.7 million and $ 6.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Advertising Costs

The Company expenses advertising costs as they are incurred.

Advertising expenses were $ 30.0 million, $ 11.2 million and $ 10.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock-Based Compensation

The Company measures stock-based compensation expense at 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.

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 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.

7 unchanged sentences

The Company maintains most of its cash, and short-term and long-term investments with a limited number of financial institutions that have a high investment grade credit rating.

In addition to manufacturing the Omnipod System, the Company also purchases Omnipod Systems from Flex Ltd.

As of both December 31, 2019 and 2018 , liabilities to this vendor represented 10 % of the combined balance of accounts payable and accrued expenses and other current liabilities.

In addition to manufacturing the Omnipod System, the Company also purchases Omnipod Systems from two contract manufacturers.

As of December 31, 2020, neither of these vendors represented 10% or more of the combined balance of accounts payable and accrued expenses and other current liabilities.

As of December 31, 2019, one of these vendors represented 10% of the combined balance of accounts payable and accrued expenses and other current liabilities.

See Note 4 for customer concentration.

Recently Adopted Accounting Standards

Effective January 1, 2019, the Company adopted Accounting Standards Update (“ASU”) No.

2016-02, Leases (Topic 842) (“ASU 2016-02”).

ASU 2016-02 and its related amendments (collectively referred to as ASC 842).

ASC 842 requires lessees to recognize

operating lease liabilities and operating lease assets, representing the right to use the underlying asset for the lease term, on the balance sheet for leases classified as operating leases.

The Company adopted ASC 842 on January 1, 2019 using the modified retrospective method, whereby the new guidance is applied prospectively as of the date of adoption and prior periods are not restated.

The Company elected the practical expedients that permit the Company to not reassess (1) whether any expired or existing contracts are or contain leases, (2) the lease classification for any expired or existing leases, and (3) any initial direct costs for existing leases as of the effective date.

Upon the adoption, the Company recorded operating lease liabilities of $ 10.8 million and operating lease assets of $ 8.8 million on its consolidated balance sheet.

The difference between the value of the lease obligations and the operating lease assets was primarily attributable to a $ 1.1 million cease-use liability established in 2018 associated with the Company’s former headquarters, which was reclassified to an operating lease liability upon adoption of ASC 842.

See Note 11 for additional information regarding leases.

Effective January 1, 2019, the Company early adopted ASU 2018-15, Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”).

ASU 2018-15 requires certain costs to implement a cloud computing arrangement that is a service contract to be capitalized consistent with the rules applicable to internal-use software capitalization projects.

The Company adopted this new guidance prospectively.

The Company defers eligible costs related to the implementation of cloud computing arrangements within other current and non-current assets and amortizes such costs over the expected term of the hosting arrangement to the same income statement line as the associated cloud operating expenses.

Adoption of this standard resulted in the Company capitalizing $ 3.6 million of cloud computing implementation costs for the year ended December 31, 2019 .

Effective January 1, 2020, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Credit Losses (Topic 326) (“ASU 2016-13”).

ASU 2016-13 requires financial assets measured at amortized cost, such as the Company’s trade receivables and contract assets, to be presented net of expected credit losses, which may be estimated based on relevant information such as historical experience, current conditions and future expectation for each pool of similar financial assets.

The new guidance also requires enhanced disclosures related to trade receivables and associated credit losses.

The Company adopted 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.

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.

(in millions) December 31, 2020

Credit losses at the beginning of the year $ 3.8

Effect of adoption 1.1

Credit losses at the beginning of the year, after adoption 4.9

Provision for expected credit losses 3.3

Write-offs charged against allowance ( 5.8 )

Recoveries of amounts previously written-off 0.5

Credit losses at the end of the year $ 2.9

Effective January 1, 2020, the Company adopted ASU 2017-04, Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).

ASU 2017-04 requires an entity to measure the impairment of goodwill assigned to a reporting unit as the amount by which the carrying value of the assets and liabilities of the reporting unit, including goodwill, exceeds the reporting units’ fair value.

The adoption of this guidance had no impact on the consolidated financial statements.

Segment and Geographic Data

1 unchanged sentence

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.

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 devices based on the Omnipod platform.

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

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

Years Ended December 31,

1 unchanged sentence

United States (1)

$ 596.4 $ 485.1 $ 391.8

International 308.0 253.1 172.0

Total $ 904.4 $ 738.2 $ 563.8

(1) Includes U.S.

Omnipod and Drug Delivery revenues.

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

2 unchanged sentences

United States $ 409.7 $ 363.0

China 66.2 35.9

Other 2.8 0.5

Total $ 478.7 $ 399.4

Revenue and Contract Acquisition Costs

2 unchanged sentences

(in millions) 2020 2019 2018

Omnipod $ 526.9 $ 420.4 $ 323.5

International Omnipod 308.0 253.1 172.0

4 unchanged sentences

Years Ended December 31,

2020 2019 2018

Cardinal Health Inc.

1 unchanged sentence

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

At December 31, 2020, the Company had one customer that accounted for 15 % of consolidated net accounts receivable.

No customer accounted for more than 10% of consolidated net accounts receivable at December 31, 2019 .

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

4 unchanged sentences

Total deferred revenue $ 6.4 $ 4.2

Revenue recognized for the year ended December 31, 2019 included in deferred revenue at the beginning of 2019 was $ 1.2 million .

Revenue recognized during the 2018 included in deferred revenue at the beginning of 2018 was $ 2.4 million .

No revenue was recognized for the years ended December 31, 2019 and 2018 from performance obligations satisfied or partially satisfied in previous periods.

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

As of December 31,

(in millions) 2020 2019 2018

Deferred revenue recognized $ 1.8 1.2 2.4

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:

2 unchanged sentences

Prepaid expenses and other current assets $ 11.0 $ 9.5

Other assets 21.9 19.9

Total capitalized contract acquisition costs, net $ 32.9 $ 29.4

The Company recognized $ 8.8 million and $ 6.9 million of amortization of capitalized contract acquisition costs for the years ended December 31, 2019 and 2018 , respectively.

The Company recognized $ 10.6 million, $ 8.8 million, and $ 6.9 million of amortization of capitalized contract acquisition costs for the years ended December 31, 2020, 2019, and 2018, respectively.

The Company had unbilled receivables of $ 11.6 million and $ 13.5 million at December 31, 2020 and 2019, respectively.

Cash and Cash Equivalents

The following tables provide a summary of cash and cash equivalents as of December 31, 2019 and 2018 and the level in the fair value hierarchy in which those measurements fall:

The following table provides a summary of cash and cash equivalents as of December 31, 2020 and 2019 and the level in the fair value hierarchy in which those measurements fall:

As of December 31,

(in millions) 2020 2019

Fair Value Measurements

December 31, 2019

Cash $ 164.6 $ 85.3

Money market mutual funds 739.8 115.5

2 unchanged sentences

Total cash and cash equivalents 907.2 213.7

December 31, 2018

Money market mutual funds

Restricted cash

Total cash and cash equivalents

(1) Fair value was determined using market prices obtained from third-party pricing sources.

The Company’s short-term and long-term investments in debt securities had maturity dates that range from two months to two years at December 31, 2019 .

Restricted cash included in other assets 14.8 —

Total cash, cash equivalents, and restricted cash shown in the consolidated statement of cash flows $ 922.0 $ 213.7

The restricted cash included in other assets on the consolidated balance sheet is held as a compensating balance against long-term borrowings.

All cash and cash equivalents are level 1, except for commercial paper, which is level 2.

The fair value of commercial paper was determined using market prices obtained from third-party pricing sources.

The Company’s short-term and long-term investments in debt securities had maturity dates that range from two months to one year at December 31, 2020.

Realized gains or losses in each of the three years ended December 31, 2020, 2019 and 2018 were insignificant.

The following tables provides amortized costs, gross unrealized gains and losses, fair values and the level in the fair value hierarchy for the Company’s investments at December 31, 2020 and 2019:

(in millions)

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

(in millions) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Level 1 Level 2 (1)

December 31, 2020

2 unchanged sentences

Certificates of deposit 2.2 — — 2.2 — 2.2

Commercial paper

Total short-term investments $ 40.1 $ 0.3 $ — $ 40.4 $ 35.3 $ 5.1

government and agency bonds

Corporate bonds

Certificates of deposit

Total long-term investments

December 31, 2019

2 unchanged sentences

Certificates of deposit 6.3 — — 6.3 — 6.3

Commercial paper 10.0 — — 10.0 — 10.0

Total short-term investments $ 162.0 $ 0.4 $ — $ 162.4 $ 85.0 $ 77.4

5 unchanged sentences

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

(in millions)

As of December 31,

(in millions) As of December 31,

Raw materials $ 30.7 $ 23.3

6 unchanged sentences

(in millions) 2020 2019

Land $ 2.5 $ 2.5

Building and building improvements 147.3 116.9

6 unchanged sentences

Property, plant and equipment, net $ 478.7 $ 399.4

(1) Reclassification of prior period amounts were made from furniture and fixtures to building and building improvements to conform with current period financial statement presentation.

Depreciation expense related to property and equipment was $ 38.0 million, $ 25.2 million and $ 13.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Construction in process primarily consists of manufacturing equipment located at the Company’s U.S.

manufacturing facility in Acton, Massachusetts, which is expected to be placed into service during 2020.

manufacturing facility in Acton, Massachusetts and new contract manufacturer in China, most of which is expected to be placed into service during 2021.

Goodwill and Other Intangible Assets, Net

8 unchanged sentences

As of December 31,

(in millions)

Gross Carrying Amount

Accumulated Amortization

Net Book Value

Gross Carrying Amount

Accumulated Amortization

Net Book Value

(in millions) Gross Carrying Amount Accumulated Amortization Net Book Value Gross Carrying Amount Accumulated Amortization Net Book Value

Customer relationships (1)

$ 43.3 $ ( 18.3 ) $ 25.0 $ 9.9 $ ( 2.8 ) $ 7.1

Internal-use software 11.4 ( 8.6 ) 2.8 12.0 ( 6.8 ) 5.2

2 unchanged sentences

(1) Includes customer relationships acquired from the Company’s former European distributor.

See Note 13 .

Intangible asset amortization expense was $ 17.4 million, $ 2.7 million and $ 1.8 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Amortization expense associated with the intangible assets included on the Company’s balance sheet as of December 31, 2019 is expected to be as follows:

Years Ending December 31,

(in millions)

Amortization expense associated with the intangible assets included on the Company’s consolidated balance sheet as of December 31, 2020 is expected to be as follows:

Years Ending December 31, (in millions)

Accrued Expenses and Other Current Liabilities

7 unchanged sentences

Value added taxes payable 5.0 1.8

Other 40.7 26.4

Accrued expenses and other current liabilities $ 138.1 $ 103.2

7 unchanged sentences

As of December 31, 2020, 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 5 years , and some include options to terminate the leases at certain times within the lease term.

Certain of the Company’s operating leases include escalating rental payments, some include the option to extend, and some include options to terminate the leases at certain times within the lease term.

As of December 31, 2020, the Company included options to extend certain leases for 5 years in the measurement of the lease liability.

As of December 31, 2020, operating lease assets and operating lease liabilities were included in the following consolidated balance sheet accounts in the amounts shown:

Years Ended December 31,

(in millions) 2020 2019

Operating lease asset:

Other assets $ 14.9 $ 16.1

Operating lease liabilities:

1 unchanged sentence

Other liabilities 12.0 14.4

The Company’s total operating lease cost was $ 4.3 million for the year ended December 31, 2019 .

Total rental expense was $ 3.3 million and $ 2.8 million for the years ended December 31, 2018 and 2017, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 3.6 million for the year ended December 31, 2019 .

Operating lease liabilities arising from obtaining operating lease assets was $ 9.8 million for the year ended December 31, 2019 .

Total operating lease liabilities $ 16.9 $ 18.0

The Company’s total operating lease cost was $ 5.4 million and $ 4.3 million for the years ended December 31, 2020 and 2019, respectively.

Total rental expense was $ 3.3 million for the year ended December 31, 2018.

Cash paid for amounts included in the measurement of lease liabilities was $ 4.6 million and $ 3.6 million for the years ended December 31, 2020 and 2019, respectively.

Operating lease liabilities arising from obtaining operating lease assets was $ 2.5 million and $ 9.8 million for the years ended December 31, 2020 and 2019, respectively.

Maturities of lease liabilities as of December 31, 2020 are as follows:

Years Ending December 31,

(in millions)

Years Ending December 31, (in millions)

Thereafter 0.1

Total future minimum lease payments 18.7

2 unchanged sentences

As of December 31, 2020, the weighted average remaining lease term for operating leases was 3.8 years and the weighted-average discount rate used to determine the operating lease liability was 5.6 %.

Convertible Debt, Net

The components of outstanding convertible debt consisted of the following:

The components of debt consisted of the following:

As of December 31,

(in millions) 2020 2019

1.25% Convertible Senior Notes, due September 2021

1.375 % Convertible Senior Notes, due November 2024

$ 402.5 $ 402.5

0.375 % Convertible Senior Notes, due September 2026

Equipment financing, due May 2024 22.2 —

Equipment financing, due November 2025 36.4 —

5.15 % Mortgage, due November 2025

Unamortized debt discount ( 252.5 ) ( 294.8 )

Debt issuance costs ( 19.0 ) ( 19.8 )

Total convertible debt, net

Total debt 1,059.3 887.9

current portion 15.6 —

Total long term-debt $ 1,043.7 $ 887.9

1.375 % Convertible Senior Notes

In September 2019, the Company issued $ 800.0 million aggregate principal amount of 0.375 % Convertible Senior Notes due September 2026 (the “ 0.375 % Notes”).

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 thereto under certain circumstances.

In November 2017, the Company issued and sold $ 402.5 million in aggregate principal amount of 1.375 % Convertible Senior Notes, due November 15, 2024 (the “ 1.375 % Notes”).

The notes are convertible into the Company’s common stock at an initial conversion rate of 10.7315 shares of common stock per $ 1,000 principal amount of the notes, which is equivalent to a conversion price of $ 93.18 per share, subject to adjustment under certain circumstances.

The notes will be convertible August 15, 2024 through November 13, 2024 and prior to then only under certain circumstances.

The Company recorded a debt discount of $ 120.7 million related to the 1.375 % Notes resulting from the allocation of a portion of the proceeds to the fair value of the conversion feature reflecting a nonconvertible debt borrowing rate of 6.8 % per annum.

The Company also incurred debt issuance costs and other expenses of $ 19.8 million , of which $ 5.3 million was reclassified as a reduction to the value of the conversion feature allocated to equity.

The Company also incurred debt issuance costs and other expenses of $ 10.9 million, of which $ 3.3 million was recorded as a reduction to the value of the conversion feature allocated to equity.

The remaining $ 7.6 million of debt issuance costs was recorded as a reduction of debt on the consolidated balance sheet.

The net proceeds of $ 780.2 million were used to fund the redemption of the Company’s 1.25 % Convertible Senior Notes due September 2021 (the “ 1.25 % Notes”) and to purchase capped call options (“Capped Calls”), both of which are discussed below.

Additional interest of 0.5 % per annum is payable if the Company fails to timely file required documents or reports with the Securities and Exchange Commission (“SEC”).

Additional interest of 0.5 % per annum is payable if the Company fails to timely file required documents or reports with the SEC.

If the Company merges or consolidates with a foreign entity, the Company may be required to pay additional taxes.

The Company determined that the higher interest payments and tax payments required in certain circumstances were embedded derivatives that should be bifurcated and accounted for at fair value.

The Company assessed the value of the embedded derivatives at December 31, 2019 and determined it had nominal value.

In conjunction with the issuance of the 0.375 % Notes, the Company paid $ 85.4 million to enter into Capped Calls on the Company’s common stock with certain counterparties, which was recorded as a reduction to additional paid-in capital on the consolidated balance sheet.

By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the 0.375 % Notes.

The Capped Calls have an initial strike price of $ 335.90 per share, which represents a premium of 100 % over the last reported sale price of the Company’s common stock of $ 167.95 per share on the date of the transaction.

The Capped Calls cover 3.5 million shares of common stock.

The Company assessed the value of the embedded derivatives at each balance sheet date and determined it had nominal value.

0.375 % Convertible Senior Notes

In November 2017, the Company issued and sold $ 402.5 million in aggregate principal amount of 1.375 % Convertible Senior Notes, due November 15, 2024 (the “ 1.375 % Notes”).

In September 2019, the Company issued $ 800.0 million aggregate principal amount of 0.375 % Convertible Senior Notes due September 2026 (the “ 0.375 % Notes”).

The notes will be convertible August 15, 2024 through November 13, 2024 and prior thereto only under certain circumstances.

The notes will be convertible June 1, 2026 through August 28, 2026 and prior to then under certain circumstances.

The Company recorded a debt discount of $ 213.0 million related to the 0.375 % Notes resulting from the allocation of a portion of the proceeds to the fair value of the conversion feature reflecting a nonconvertible debt borrowing rate of 5.29 % per annum.

The Company also incurred debt issuance costs and other expenses of $ 10.9 million , of which $ 3.3 million was reclassified as a reduction to the value of the conversion feature allocated to equity.

The remaining $ 7.6 million of debt issuance costs was presented as a reduction of debt on the consolidated balance sheet.

Additional interest of 0.5 % per annum is payable if the Company fails to timely file required documents or reports with the SEC.

The Company also incurred debt issuance costs and other expenses of $ 19.8 million, of which $ 5.3 million was recorded as a reduction to the value of the conversion feature allocated to equity.

The remaining $ 14.5 million of debt issuance costs was recorded as a reduction of debt on the consolidated balance sheet.

Additional interest of 0.5 % per annum is payable if the Company fails to timely file required documents or reports with the Securities and Exchange Commission (“SEC”).

If the Company merges or consolidates with a foreign entity, the Company may be required to pay additional taxes.

1 unchanged sentence

The Company assessed the value of the embedded derivatives at each balance sheet date and determined it had nominal value.

consolidated balance sheet.

The Capped Calls cover 3.5 million shares of common stock.

1.25 % Convertible Senior Notes

5 unchanged sentences

The Company allocated $ 3.2 million of the settlement to the fair value of the equity component and $ 3.5 million to the debt component, which was consistent with the carrying value of the notes as of the settlement date, resulting in no gain or loss on extinguishment.

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 %.

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 customary covenants, none of which are considered restrictive to the Company’s operations.

Maturity of Debt

The maturity of debt as of December 31, 2020 is as follows:

Years Ending December 31, (in millions)

The carrying amount and the estimated fair value of the Company’s convertible debt, which is based on the Level 2 quoted market prices as of December 31, 2020 and 2019 are as follows:

As of December 31,

(in millions)

(in millions) Carrying

Value Estimated

Fair Value (1)

Value Estimated

Fair Value (1)

1.375 % Convertible Senior Notes

1.375% Convertible Senior Notes

$ 323.9 $ 1,104.2 $ 306.9 $ 512.8

0.375 % Convertible Senior Notes

(1) Fair value was determined using market prices obtained from third-party pricing sources.

609.2 902.0 581.0 840.0

Total $ 933.1 $ 2,006.2 $ 887.9 $ 1,352.8

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

The Mortgage and equipment financings carrying values of $ 69.7 million and $ 58.6 million, respectively, approximate their fair values.

Commitments and Contingencies

1 unchanged sentence

Between May 5, 2015 and June 16, 2015, three class action lawsuits were filed by shareholders in the U.S.

District Court, for the District of Massachusetts, against the Company and certain individual current and former executives of the Company.

District Court, for the District of Massachusetts, against the Company and certain then current and former executives of the Company.

Two suits subsequently were voluntarily dismissed.

Arkansas Teacher Retirement System v.

Insulet, et al., 1:15-cv-12345, (“ATRS”) alleged that the Company (and certain executives) committed violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making allegedly false and misleading statements about the Company’s business, operations, and prospects.

On February 8, 2018, the parties executed a binding stipulation of settlement, under which all claims were released, and a payment was made to the plaintiffs and the class they purport to represent.

Insulet, et al., 1:15-cv-12345, (“ATRS”) alleged that the Company (and certain then current and former executives) committed violations of Sections 10(b) and 20(a) and Rule 10b-5 of the Securities Exchange Act of 1934 by making allegedly false and misleading statements about the Company’s business, operations, and prospects.

On February 8, 2018, the parties executed a binding stipulation of settlement, under which all claims were released, and a payment was made into an escrow account for the plaintiffs and the class they purport to represent.

On August 6, 2018, the Court issued an order approving the settlement , but took the plaintiffs’ motion for fees and expenses under advisement, which motion remains pending.

The Company had previously accrued fees and expenses in connection with this matter for the amount of the final settlement liability that was not covered by insurance, which amount was not material to the Company’s consolidated financial statements.

The Company had previously accrued fees and expenses in connection with this matter for the amount of the final settlement liability that was not covered by insurance, the amount of which was not material to the Company’s consolidated financial statements.

In addition, on April 26, 2017, a derivative action (Walker v.

1 unchanged sentence

DeSisto, et al., 1:17-cv-11977) (“Carnazza”) was filed, both on behalf of the Company, each by a shareholder in the U.S.

District Court for the District of Massachusetts against the Company (as a nominal defendant) and certain individual current and former officers and directors of the Company.

District Court for the District of Massachusetts against the Company (as a nominal defendant) and certain individual then current and former officers and directors of the Company.

The allegations in the actions are substantially similar to those alleged in the securities class action.

3 unchanged sentences

The Company expects that such fees and expenses payable to plaintiff’s counsel will be covered by the Company’s insurance.

In June 2020, Roche Diabetes Care, Inc.

(“Roche”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware alleging that the Company’s manufacture and sale of its Omnipod Insulin Management System, Omnipod Starter Kit and Omnipod 10 Pod Pack in the United States infringed Roche’s now-expired U.S.

Patent 7,931,613.

Roche is seeking monetary damages and attorneys’ fees and costs.

Since the patent expired in 2019, Roche is not seeking injunctive relief and the lawsuit will have no impact on ongoing sales of the Company’s products.

The Company believes that it has meritorious defenses to Roche’s claims and intends to vigorously defend against them.

The court has set a trial date of July 25, 2022 .

At this time, based on available information regarding this litigation, the Company is unable to reasonably assess the ultimate outcome of this case or determine an estimate, or range of estimates, of potential losses, which could be material.

In July 2020, the Company filed a patent infringement claim against Roche Diabetes Care Limited (“Roche Ltd.”) in the United Kingdom alleging that Roche Ltd.’s manufacture and sale of the Accu-Chek® Solo insulin pump and its consumable components infringes European Patent No.

1 335 764 in the United Kingdom.

The Company is seeking an injunction to last until expiry of the patent and monetary damages.

has responded to the complaint and argues that the patent is invalid and not infringed.

The Company is, from time to time, involved in the normal course of business in various legal proceedings, including intellectual property, contract, employment and product liability suits.

The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its results of operations.

Other than as described above, the Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its results of operations.

Fees to Former European Distributor

1 unchanged sentence

The Company recognized a liability and an associated intangible asset for this fee as qualifying sales occurred.

The methodology applicable for determining the total fee under the distribution agreement is subject to an active arbitration proceeding in Switzerland.

The final amount of the fee could vary significantly depending on the number of customers who count for purposes of calculating the fee under the terms of the agreement.

The Company estimates that the final aggregate fee is in the range of $ 5 million to $ 55 million .

As of December 31, 2019 and 2018 , the Company had accrued $ 2.7 million and $ 2.9 million , respectively, for fees related to Omnipod devices sold to qualifying customers.

The associated gross intangible asset for the fee was $ 7.8 million and $ 4.2 million as of December 31, 2019 and 2018 , respectively.

The methodology applicable for determining the total fee under the distribution agreement was subject to an arbitration proceeding in Switzerland.

In December 2020, Insulet entered into a settlement agreement with the former distributor pursuant to which the Company paid the distributor an additional one-time payment of $ 36.2 million, for a total fee of $ 41.2 million, representing the cost to acquire the customer relationships.

This amount was recorded as an intangible asset on the consolidated balance sheet.

Since the customer relationships were acquired on July 1, 2018, the Company recorded cumulative amortization in the amount of $ 14.6 million during the fourth quarter of 2020, as if the total fee for the intangible

asset had been amortized since the acquisition date.

Stock-Based Compensation

10 unchanged sentences

Research and development 10.9 9.1 8.2

Sales and marketing

General and administrative

Selling, general and administrative 23.8 18.6 28.5

Total $ 35.9 $ 28.7 $ 37.5

Stock Options

3 unchanged sentences

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

Weighted Average

Exercise Price

Weighted Average Remaining Contractual Term (in years)

Options Weighted Average

Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate

(in millions)

Outstanding at December 31, 2019

1,729,512 $ 45.39

Granted 68,832 $ 202.18

Exercised ( 674,542 ) $ 38.39 $ 115.9

Forfeited and canceled ( 45,314 ) $ 89.64

Outstanding at December 31, 2020

1,078,488 $ 57.99 5.4 $ 213.2

Vested, December 31, 2020

868,407 $ 43.33 4.8 $ 184.4

Vested or expected to vest, December 31, 2020

1,056,479 $ 56.36 5.4 $ 210.5

The aggregate intrinsic value of options exercised for the years ended December 31, 2019 and 2018 was $ 119.2 million and $ 23.5 million, respectively.

3 unchanged sentences

Years Ended December 31,

2020 2019 2018

Risk-free interest rate 0.3 % - 1.4 %

1.8 % - 2.6 %

2.2 % - 2.9 %

Expected life of options (in years) 4.5 4.4 - 4.8

3 unchanged sentences

38.7 % - 40.7 %

38.5% - 39.1%

Fair value per option $ 69.90 $ 34.98 $ 30.34

2 unchanged sentences

Restricted Stock Units

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

Restricted Stock Units (“RSUs”) generally vest in equal annual installments over a three-year period, however during the fourth quarter of 2020, the Company issued a company-wide grant, a significant portion of which immediately vested.

The grant-date fair value of RSUs, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the requisite service period, which is generally the vesting period.

1 unchanged sentence

RSU activity is as follows:

Shares Weighted

Outstanding at December 31, 2019

352,287 $ 83.44

Granted 137,647 211.77

Vested ( 206,257 ) 100.29

Forfeited ( 23,990 ) 120.64

Outstanding at December 31, 2020

259,687 $ 134.90

The weighted-average grant-date fair value per share of RSUs granted was $ 96.62 and $ 76.03 for the years ended December 31, 2019 and 2018, respectively.

6 unchanged sentences

PSU activity is as follows:

Shares Weighted

Outstanding at December 31, 2019

299,156 $ 73.35

Granted 141,942 202.23

Vested ( 187,660 ) 48.66

Forfeited ( 23,349 ) 105.58

Outstanding at December 31, 2020 (1)

230,089 $ 110.63

(1) Based on 154 % achievement of the performance metrics, approximately 83,000 shares of Insulet were earned for awards that were granted in 2018 for the performance period ended December 31, 2020.

5 unchanged sentences

The Employee Stock Purchase Plan (“ESPP”) authorizes the issuance of up to 880,000 shares of common stock to participating employees.

Employees that participant in the Company’s ESPP may annually purchase up to a maximum of 800 shares per offering period or $ 25,000 worth of common stock by authorizing payroll deductions of up to 10 % of their base salary.

Employees that participate in the Company’s ESPP may annually purchase up to a maximum of 800 shares per offering period or $ 25,000 worth of common stock by authorizing payroll deductions of up to 10 % of their base salary.

The purchase price for each share purchased is 85 % of the lower of the fair market value of the common stock on the first or last day of the offering period.

5 unchanged sentences

Years Ended December 31,

2020 2019 2018

Risk-free interest rate 0.1 % - 0.2 %

1.6 % - 2.3 %

2.1 % - 2.5 %

Expected term (in years) 0.5 0.5 0.5

3 unchanged sentences

23.4 % - 27.0 %

22.9% - 26.7%

The weighted average grant date fair value of the six-month option inherent in the ESPP was $ 55.10 , $ 46.30 , and $ 26.01 , for the years ended December 31, 2020, 2019 and 2018, respectively.

1 unchanged sentence

This cost is expected to be recognized over a weighted average period of 0.4 years.

Accumulated Other Comprehensive Loss

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

(in millions)

Foreign Currency Translation Adjustment

Unrealized Losses on Available-for-sale Securities

Accumulated Other Comprehensive Loss

Balance, December 31, 2016

Other comprehensive income (loss)

Accumulated Other Comprehensive Income (Loss)

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

(in millions) Foreign Currency Translation Adjustment Unrealized (Losses) Gains on Available-for-sale Securities Accumulated Other Comprehensive Income (Loss)

Balance, December 31, 2017

$ — $ ( 0.5 ) $ ( 0.5 )

Other comprehensive loss ( 2.2 ) ( 0.2 ) ( 2.4 )

Balance, December 31, 2018

( 2.2 ) ( 0.7 ) ( 2.9 )

Other comprehensive income 0.6 1.1 1.7

Balance, December 31, 2019

( 1.6 ) 0.4 ( 1.2 )

Other comprehensive income (loss) 6.8 ( 0.1 ) 6.7

Balance, December 31, 2020

$ 5.2 $ 0.3 $ 5.5

Defined Contribution Plan

The Company maintains a tax-qualified 401(k) retirement plan in the United States.

The Company generally makes a matching contribution equal to 50 % of each employee’s elective contribution to the plan up to six percent of the employee’s eligible pay.

The Company generally makes a matching contribution equal to 50 % of each employee’s elective contribution to the plan up to 6 % of the employee’s eligible pay.

In addition, the Company offers defined contribution plans for eligible employees in its foreign subsidiaries.

The total amount contributed by the Company to these defined contribution plans was $ 5.4 million, $ 5.3 million and $ 3.6 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Interest Expense

Interest expense, net of portion capitalized was follows:

Interest Expense, Net

Interest expense, net of portion capitalized was as follows:

Years Ended December 31,

(in millions) 2020 2019 2018

Contractual coupon interest

Contractual interest $ 9.5 $ 9.5 $ 9.8

Accretion of debt discount 42.3 32.8 26.7

2 unchanged sentences

Interest expense, net of portion capitalized 48.1 34.6 28.9

and foreign components of income (loss) before income taxes were as follows:

Interest income ( 3.0 ) ( 6.9 ) ( 7.6 )

Interest expense, net $ 45.1 $ 27.7 $ 21.3

and foreign components of income before income taxes were as follows:

Years Ended December 31,

(in millions) 2020 2019 2018

Income (loss) before income taxes

$ ( 1.6 ) $ 2.5 $ ( 3.0 )

Foreign 11.3 12.0 8.2

Income before income taxes $ 9.7 $ 14.5 $ 5.2

Income tax expense consists of the following:

1 unchanged sentence

(in millions) 2020 2019 2018

State $ 0.2 $ 0.2 $ 0.2

Foreign 4.0 3.4 2.1

Total current expense 4.2 3.6 2.3

Federal — ( 0.1 ) —

Foreign ( 1.3 ) ( 0.6 ) ( 0.4 )

Total deferred expense ( 1.3 ) ( 0.7 ) ( 0.4 )

2 unchanged sentences

Years Ended December 31,

2020 2019 2018

statutory rate 21.0 % 21.0 % 21.0 %

1 unchanged sentence

State taxes, net of federal benefit 1.3 1.3 2.9

Tax credits ( 40.5 ) ( 15.4 ) ( 13.7 )

Stock-based compensation ( 311.1 ) ( 158.7 ) ( 159.1 )

3 unchanged sentences

Foreign income taxed in the U.S.

( 21.0 ) 19.0 26.1

Change in valuation allowance 336.2 130.6 67.0

Other 4.6 ( 1.9 ) ( 2.9 )

Effective income tax rate 29.6 % 19.8 % 37.0 %

As of December 31, 2020, 2019 and 2018 the Company had no uncertain tax positions.

In general, it is the Company’s practice and intention to reinvest the earnings of its non-U.S.

subsidiaries in those operations.

As of December 31, 2019 , the Company has chosen to indefinitely reinvest its earnings of its non-U.S.

subsidiaries, except Canada.

To the extent the Company repatriates its foreign earnings, certain withholding taxes and state taxes may apply.

The Company has recorded a deferred tax liability for tax that could be incurred upon repatriation of the Canada earnings, the amount of which is not significant.

A deferred tax liability related to the repatriation of the indefinitely reinvested earnings would not be material to the Company’s consolidated financial statements.

No provision for income taxes has been provided on undistributed earnings of the Company's foreign subsidiaries, except for Canada, because such earnings are indefinitely reinvested in the foreign operations.

The Company has recorded a deferred tax liability for withholding tax that could be incurred upon repatriation of earnings from its Canadian subsidiary, the amount of which is not significant.

A deferred tax liability related to the repatriation of approximately $ 24.3 million indefinitely reinvested earnings would not be material to the Company’s consolidated financial statements, primarily due to treaty-based withholding tax rates in the jurisdictions in which the Company operates.

The Company files federal, state and foreign tax returns, which are subject to examination by the relevant tax authorities.

The tax filings relating to the Company’s federal and state tax returns are currently open to examination for tax years 2016 through 2018 and 2015 through 2018, respectively.

The tax filings relating to the Company’s U.S.

federal and state tax returns are currently open to examination for tax years 2017 through 2019.

The Company is currently under exam in Ontario, Canada.

In addition, the Company generated tax losses from inception in 2000.

These years may be subject to examination if the losses are carried forward and utilized in future years.

There are no uncertain tax positions or adjustments associated with the exam at this time.

In addition, the Company's U.S.

net operating loss carryforwards from 2001 and forward may be subject to examination if the losses are utilized in future years.

Interest and penalties are classified as a component of income tax expense and were not material for any period presented.

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

3 unchanged sentences

Net operating loss carryforwards $ 173.8 $ 144.6

Provision for bad debts

Depreciation and amortization

Tax credits 21.3 15.2

Capital loss carryforwards 12.2 12.7

Stock-based compensation 5.8 8.9

Other 15.4 13.8

Total deferred tax assets 228.5 195.2

4 unchanged sentences

Capitalized contract acquisition costs ( 7.5 ) ( 7.1 )

Other ( 4.6 ) ( 5.0 )

Total deferred tax liabilities ( 83.1 ) ( 89.8 )

2 unchanged sentences

Net deferred tax asset $ 2.0 $ 1.0

The valuation allowances for deferred tax assets of $ 104.4 million and $ 126.3 million at December 31, 2019 and 2018 , respectively, relate primarily to U.S.

tax loss carryforwards that management believes are not more likely than not to be utilized.

The $ 21.9 million decrease in the Company’s valuation allowance during the year ended December 31, 2019 was primarily due to the issuance of convertible debt discussed in Note 12 .

The Company maintained a valuation allowance of $ 143.4 million and $ 104.4 million at December 31, 2020 and 2019, respectively, against U.S.

federal and state deferred tax assets, as management has determined that it is more-likely-than-not that these net deferred tax assets will not be realized.

The valuation allowance is based on cumulative tax losses in the U.S.

and the uncertainty of generating future taxable income in the U.S.

to utilize our loss and credit carryforwards.

The $ 39.0 million increase in the Company’s valuation allowance during the year ended December 31, 2020 was primarily due to current-year net operating losses in the U.S.

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

1 unchanged sentence

(in millions) 2020 2019

Gross federal net operating loss carryforwards

State operating loss carryforwards

Federal $ 732.4 $ 607.4

State $ 341.3 $ 298.8

Foreign $ 5.4 $ —

federal tax purposes, $ 192.1 million of the net operating losses have an indefinite carryforward period.

The remaining federal carryforwards, if not utilized, will begin to expire in 2020 and will continue to expire through 2037, and the state carryforwards will continue to expire through 2038.

The utilization of such net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon the Company’s ability to generate taxable income.

development and other tax credits were $ 16.1 million and $ 13.0 million at December 31, 2019 and 2018 , respectively.

The remaining U.S.

federal carryforwards, if not utilized, will begin to expire in 2021 and will continue to expire through 2037, and the state net operating loss carryforwards expire through 2040.

The utilization of such net operating loss carryforwards and the realization of tax benefits in future years depends predominantly upon the Company’s ability to generate taxable income in the U.S.

Research and development and other tax credits were $ 22.8 million and $ 16.1 million at December 31, 2020 and 2019, respectively.

If not utilized, federal research and development credits will begin to expire in 2022.

Net Income (Loss) Per Share

Basic net income (loss) per share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period.

Diluted net income (loss) per share is computed using the weighted average number of common shares outstanding and, when dilutive, common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method), and potential common shares from the Company’s convertible notes (using the if-converted method).

The table below sets forth the components used in the computation of basic and diluted net income (loss) per share:

These loss and credit carryforwards, which may be utilized in a future period, may be subject to limitations based on changes in the ownership of the Company ordinary shares.

Net Income Per Share

Basic net income per share is computed by dividing net income by the weighted average number of common shares outstanding for the period.

Diluted net income per share is computed using the weighted average number of common shares outstanding and, when dilutive, common share equivalents from outstanding stock options and restricted stock units (using the treasury-stock method), and potential common shares from the Company’s convertible notes (using the if-converted method).

The weighted-average number of common shares used in the computation of basic and diluted net income per share were as follow:

Years Ended December 31,

(in millions, except share and per share data)

Net income (loss)

(in thousands) 2020 2019 2018

Weighted average number of common shares outstanding, basic 64,735 60,594 58,860

Effect of dilutive common share equivalents

Stock options 1,025 1,487 1,678

1 unchanged sentence

Weighted average number of common shares outstanding, diluted 65,946 62,304 61,008

Net income (loss) per share:

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

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

Years Ended December 31,

2.00% Convertible Senior Notes

(in thousands) 2020 2019 2018

1.25 % Convertible Senior Notes

1.375 % Convertible Senior Notes

4,319 4,319 4,319

0.375 % Convertible Senior Notes

3,528 3,528 —

Unvested restricted stock units 282 431 290

Outstanding stock options 58 13 237

Total common share equivalents excluded from computation of diluted net income (loss) per share

Quarterly Data (Unaudited)

2019 Quarters Ended

(in millions, except per share data)

September 30 (1)

December 31 (2)

Net income per share:

(1) Net income includes a $ 6.4 million loss on extinguishment of debt incurred in connection with the repurchase of the Company’s 1.25 % Convertible Senior Notes.

(2) Net income includes a $ 2.3 million loss on extinguishment of debt incurred in connection with the repurchase of the Company’s 1.25 % Convertible Senior Notes.

2018 Quarters Ended

(in millions, except per share data)

September 30 (3)

Net income (loss)

Net income (loss) per share:

(3) Net income includes a charge of $ 12.6 million for severance costs associated with the retirement of the Company’s former CEO, of which $ 8.2 million represented stock-based compensation expense for the accelerated vesting of share-based equity awards.

Total 8,187 8,291 10,757

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

The following table sets forth activities in the Company’s accounts receivable reserve, reserve for rebates and deferred tax valuation allowance accounts:

Additions Charged

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

Description Balance at

Year Additions Charged

Expenses Other (1)

Deductions Balance at

(in millions)

Year Ended December 31, 2020

Allowance for doubtful accounts

Allowance for credit losses $ 3.8 $ 3.3 $ 1.1 $ ( 5.3 ) $ 2.9

Reserve for rebates $ 12.1 $ 82.5 $ — $ ( 77.7 ) $ 16.9

8 unchanged sentences

Deferred tax valuation allowance $ 127.9 $ 13.9 $ — $ ( 15.5 ) $ 126.3

(1) Increase in allowance for credit losses from the adoption of ASU 2016-13, Credit Losses (Topic 326).

Refer to Note 2 to the consolidated financial statements included in Item 8 for additional information.

Changes in and Disagreements With Accountants On Accounting And Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data