What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-02-24 compared with 2021-02-24 · 263 added, 224 removed, 778 unchanged (38% of the section changed)

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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

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

Consolidated Balance Sheets as of December 31, 2021 and 2020

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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, 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 have audited the accompanying consolidated balance sheets of Insulet Corporation (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, 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, 2021, 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, 2021, based on criteria established in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

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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

As described in Note 4 to the consolidated financial statements, the Company’s revenue from drug delivery was $69.5 million for the year ended December 31, 2020.

Drug delivery revenue is recognized over time based on the Company’s determination of the pattern over which control transfers to the customer.

This transfer of control begins during the manufacturing process and continues through the final quality control inspection process until there is complete satisfaction of the performance obligation.

We identified drug delivery revenue recognition and the associated unbilled receivable as a critical audit matter.

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

Accounting for drug delivery revenue requires the Company 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 significant management judgment.

The Company elected the input method and selected a blend of cost and time to produce for measure of progress.

Given the nature of the revenue being recognized, additional audit effort including modification of the nature and extent of our procedures beyond that of the Company’s other revenue streams was required.

(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 separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Convertible Debt Repurchase and Conversion

As described further in Note 15 to the consolidated financial statements, the Company repurchased and converted its 1.375% Convertible Senior Notes (“the notes”) due November 2024 for cash and the issuance of common stock.

This resulted in a total loss on extinguishment of $ 42.4 million.

We identified this transaction as a critical audit matter.

The principal considerations for our determination that this matter is a critical audit matter are the application of the accounting guidance for cash paid to note holders and the estimation of fair value of the debt component of the notes.

The guidance for accounting for the inducement as a debt extinguishment is complex.

The Company estimated the fair value of the debt component to determine the loss on extinguishment using a yield model that includes several assumptions, including the discount rate.

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

• We tested the design and operating effectiveness of controls relating to Management’s estimate of the measure of progress.

• 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 (and the related unbilled receivable), we inspected customer orders, binding customer forecasts, inventory records, and third party shipping documentation.

• We tested the design and operating effectiveness of controls related to management’s accounting and valuation for the repurchase transaction including management’s evaluation of the qualifications of specialists and review of the work performed by the specialists.

• We consulted with our national office resources regarding management’s accounting conclusion that the repurchase of the notes be accounted for as an extinguishment of debt.

• With the assistance of valuation professionals with specialized skills and knowledge, we tested management’s fair value of the debt component of the notes.

This included an assessment of the appropriateness of the methodology, inputs and key assumptions used.

/s/ GRANT THORNTON LLP

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Short-term investments — 40.4

Accounts receivable trade, net 83.8 69.3

Accounts receivable, net (Related Party Transactions Note 5)

Inventories 303.2 154.3

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Total current assets 1,329.8 1,248.7

Long-term investments — 58.4

Property, plant and equipment, net 536.5 478.7

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Accounts payable $ 37.7 $ 54.1

Accrued expenses and other current liabilities 138.1 103.2

Accrued expenses and other current liabilities (Related Party Transactions Note 5)

Current portion of long-term debt 25.1 15.6

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Accumulated deficit ( 649.5 ) ( 666.3 )

Accumulated other comprehensive income (loss) 5.5 ( 1.2 )

Accumulated other comprehensive (loss) income ( 2.2 ) 5.5

Total stockholders’ equity 556.3 603.6

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(in millions, except share and per share data) 2021 2020 2019

Revenue $ 904.4 $ 738.2 $ 563.8

Revenue (Related Party Transactions Note 5)

$ 1,098.8 $ 904.4 $ 738.2

Cost of revenue 346.7 322.1 257.9

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Loss on extinguishment of debt ( 42.4 ) — ( 8.7 )

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

Other (expense) income, net ( 1.9 ) 3.3 0.9

Income before income taxes 20.5 9.7 14.5

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Net income $ 16.8 $ 6.8 $ 11.6

Other comprehensive income, net of tax

Other comprehensive (loss) income, net of tax

Foreign currency translation adjustment ( 11.9 ) 6.8 0.6

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 )

Unrealized gain on cash flow hedges 4.5 — —

Unrealized (loss) gain on available-for-sale securities ( 0.3 ) ( 0.1 ) 1.1

Total other comprehensive (loss) income, net of tax ( 7.7 ) 6.7 1.7

Total comprehensive income $ 9.1 $ 13.5 $ 13.3

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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 )

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

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

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

Net income — — — 11.6 — 11.6

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

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 2) — — — ( 1.1 ) — ( 1.1 )

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

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

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

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 — — — 6.8 — 6.8

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

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 364 — 15.4 — — 15.4

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Restricted stock units vested, net of shares withheld for taxes 176 — ( 28.2 ) — — ( 28.2 )

Extinguishment of conversion feature on 1.375 % Notes, net of issuance costs

— — ( 808.5 ) — — ( 808.5 )

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

Net income — — — 16.8 — 16.8

Other comprehensive income — — — — 6.7 6.7

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

Balance, December 31, 2021

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Net income $ 16.8 $ 6.8 $ 11.6

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

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

Depreciation and amortization 57.4 55.4 27.9

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Accrued expenses and other liabilities 24.4 27.8 17.7

Net cash provided by operating activities 84.0 98.4 35.9

Net cash (used in) provided by operating activities ( 68.1 ) 84.0 98.4

Cash flows from investing activities

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Acquisition of intangible assets ( 10.8 ) ( 37.5 ) ( 7.2 )

Proceeds from the maturity or sale of investments 40.0 218.4 247.9

Purchases of investments — ( 37.9 ) ( 150.6 )

Receipts from the maturity or sale of investments 218.4 247.9 169.3

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

Net cash (used in) provided by investing activities ( 82.7 ) 14.0 ( 73.6 )

Cash flows from financing activities

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 ) —

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

Repayment of convertible debt ( 460.9 ) — ( 663.6 )

Proceeds from exercise of stock options and issuance of common stock under employee stock purchase plan 31.7 50.9 15.8

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

Repayment of term loan ( 2.5 ) — —

Proceeds from equipment financings, net of issuance costs 43.1 60.0 —

Repayment of equipment financings ( 17.8 ) ( 1.4 ) —

Proceeds from mortgage, net of issuance costs — 68.3 —

Repayment of mortgage ( 2.0 ) ( 0.3 ) —

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

Purchase of capped call options — — ( 85.4 )

Proceeds from issuance of common stock, net — 477.5 —

Proceeds from exercise of stock options 15.4 25.7 46.6

Proceeds from issuance of common stock under employee stock purchase plan 8.1 6.0 4.3

Payment of withholding taxes in connection with vesting of restricted stock units ( 28.2 ) ( 29.8 ) ( 8.6 )

Other ( 2.2 ) — —

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

Net cash provided by financing activities 40.7 605.5 73.5

Effect of exchange rate changes on cash ( 5.5 ) 4.8 1.5

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

Net (decrease) increase in cash, cash equivalents, and restricted cash ( 115.6 ) 708.3 99.8

Cash, cash equivalents, and restricted cash, beginning of year 922.0 213.7 113.9

Cash, cash equivalents, and restricted cash, end of year (Note 6)

$ 806.4 $ 922.0 $ 213.7

Supplemental cash flow information

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Purchases of property, plant and equipment included in accounts payable and accrued expenses $ 6.1 $ 6.7 $ 13.3

Purchases of intangible assets included in accounts payable and accrued expenses $ 3.2 $ — $ 0.5

Lease liabilities arising from obtaining right-of-use assets $ 0.7 $ 2.5 $ 9.8

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

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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 (“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.

The Omnipod System consists of two product lines:

the Omnipod Insulin Management System (“Omnipod”) and its next generation Omnipod DASH TM Insulin Management System (“Omnipod DASH” or “DASH”).

The Omnipod System includes:

the Omnipod Insulin Management System (“Omnipod”) and its next generation Omnipod DASH TM Insulin Management System (“Omnipod DASH”).

Omnipod DASH features a secure Bluetooth enabled Pod and PDM with a color touch screen user interface supported by smartphone connectivity.

The Company generates most of its revenue from sales of the Omnipod System, which is sold in the U.S., Europe, Canada and the Middle East.

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.

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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, a 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 Neulasta to help reduce the risk of infection after intense chemotherapy.

Summary of Significant Accounting Policies

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

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.

Unbilled revenues have been combined with accounts receivable, net on the consolidated balance sheet.

The impact of this change was an increase to accounts receivable, net and a decrease to prepaid expenses and other current assets at December 31, 2020.

Unbilled revenue is presented in Note 8.

In addition, the Company reclassified the change in unbilled receivables from the change in prepaid expenses and other current assets to the change in accounts receivable in the prior year statements of cash flows in the amount of $ 1.9 million and $ 0.1 million for the years ended December 31, 2020 and 2019 , respectively.

There was no change to previously reported total current assets or net cash (used in) provided by operating activities.

Foreign Currency Translation

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dollars using exchange rates as of the balance sheet date, and income and expenses 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 loss within stockholders’ equity on the consolidated balance sheet.

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

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 income and were $( 2.0 ) million, $ 3.2 million and $( 0.6 ) million for the years ended December 31, 2021, 2020 and 2019, 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 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.

Cash equivalents may include money market mutual funds, commercial paper and U.S.

government and agency

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

Restricted cash required to be set aside in connection with equipment financings or that serves as collateral for outstanding letters of credit and bank guarantees is included in other assets and cash and cash equivalents on the consolidated balance sheet.

Investments in Marketable Securities

Short-term and long-term investment securities consist of certificates of deposit, commercial paper, U.S.

Investments may consist of certificates of deposit, commercial paper, U.S.

government and agency bonds and corporate bonds.

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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.

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Factors influencing these adjustments include inventories on hand compared to estimated future usage and sales.

Work in process is calculated based upon a buildup of cost based on the stage of production.

Manufacturing variances attributable to abnormally low production are expensed in the period incurred.

Contract Acquisition Costs

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These costs are capitalized as contract assets in other assets, net of the short-term portion included in prepaid and other current assets.

Costs to obtain a contract are amortized as sales and marketing expense on a straight-line basis over the expected period of benefit, which considers future product upgrades for which a commission would be paid.

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 for which a commission would be paid.

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.

When estimating fair value, the Company may use one or all the following approaches:

• Market approach, which is based on market prices and other information from market transactions involving identical or comparable assets or liabilities.

• Cost approach, which is based on the cost to acquire or construct comparable assets less an allowance for functional and/or economic obsolescence.

• Income approach, which is based on the present value of the future stream of net cash flows.

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

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

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

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 5 and 12 for financial assets and liabilities held at carrying amount on the consolidated balance sheet and Note 6 for investments measured at fair value on a recurring basis.

See Notes 6 and 15 for financial assets and liabilities held at carrying amount on the consolidated balance sheet and Notes 7 and 16 for investments and derivative instruments measured at fair value on a recurring basis.

Property, Plant and Equipment

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Alternatively, the Company may elect to initially perform a quantitative analysis instead of starting with a qualitative analysis.

In performing the quantitative test, the Company utilizes a two-step approach.

The first step compares the carrying value of the reporting unit to its fair value.

If the reporting unit’s carrying value exceeds its fair value, the Company would perform the second step and record an impairment loss to the extent that the carrying value of the reporting unit’s goodwill exceeds its implied fair value.

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 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:

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

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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 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 .

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

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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 revenue in the consolidated statements of income.

Costs to service the claims reflect the current product cost.

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 income.

Revenue Recognition

Effective January 1, 2018, the Company adopted ASU 2014-09, Revenue from Contracts with Customers, and its related amendments (collectively referred to as ASC 606) using the modified retrospective method for all contracts not completed as of the date of adoption.

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.

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

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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, published credit, 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.

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.

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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 end-users and certain of our distributors and wholesalers.

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.

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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 as the product is produced pursuant to the customer’s firm purchase commitments as the Company has an enforceable right to payment for performance completed to date and the inventory has no alternative use to the Company.

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.

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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

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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.

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.

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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 of Credit Risk

Financial instruments that subject the Company to credit risk primarily consist of cash and cash equivalents, short-term and long-term investments in marketable securities and accounts receivable.

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 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, 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 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.

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

See Notes 4 and 8 for customer concentration.

Recently Adopted Accounting Standard

Effective January 1, 2021, the Company adopted Accounting Standards Update (“ASU”) 2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes.

ASU 2019-12 eliminates certain exceptions in the former guidance regarding the approach for intraperiod tax allocations, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences.

The adoption of this guidance did not have a significant impact on the Company's consolidated financial statements.

Segment and Geographic Data

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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.

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Total revenue $ 1,098.8 $ 904.4 $ 738.2

Revenue for customers comprising 10% or more of total revenue was as follows:

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

Years Ended December 31,

2021 2020 2019

Cardinal Health Inc.

and affiliates 10 % 11 % 12 %

Distributor A 10 % 11 % *

Distributor B 12 % 10 % 11 %

* 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:

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The Company recognized $ 12.3 million, $ 10.6 million, and $ 8.8 million of amortization of capitalized contract acquisition costs for the years ended December 31, 2021, 2020, and 2019, respectively.

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

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.

During the year ended December 31, 2021, the Company recorded $ 58.2 million of net revenues from the distributor.

At December 31, 2021, the Company had $ 25.8 million of net accounts receivable due from the distributor and an aggregate $ 1.7 million of distribution fees due to the distributor and deferred revenue, included in accrued expenses and other current liabilities on its consolidated balance sheet.

Cash and Cash Equivalents

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:

The following table provides a summary of cash and cash equivalents as of December 31, 2021 and 2020:

As of December 31,

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Money market mutual funds 630.7 739.8

Commercial paper — 10.0

Restricted cash 1.6 2.8

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Restricted cash included in other assets 14.8 14.8

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

Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 806.4 $ 922.0

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:

All cash and cash equivalents are level 1 in the fair value hierarchy.

The table below 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.

The Company had no investments at December 31, 2021.

Realized gains or losses were insignificant for the years ended December 31, 2021, 2020 and 2019.

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

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

December 31, 2019

government and agency bonds $ 94.7 $ 0.3 $ — $ 95.0 $ 85.0 $ 10.0

Corporate bonds 51.0 0.1 — 51.1 — 51.1

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

government and agency bonds $ 52.9 $ 0.1 $ ( 0.1 ) $ 52.9 $ 42.9 $ 10.0

Corporate bonds 2.8 — — 2.8 — 2.8

Certificates of deposit 2.7 — — 2.7 — 2.7

Total long-term investments $ 58.4 $ 0.1 $ ( 0.1 ) $ 58.4 $ 42.9 $ 15.5

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

Accounts Receivable

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

As of December 31,

(in millions) 2021 2020

Accounts receivable trade, net $ 127.0 $ 83.8

Unbilled receivable 34.0 11.5

Accounts receivable, net $ 161.0 $ 95.3

At December 31, 2021, two distributors accounted for 35 % of the Company’s consolidated net accounts receivable trade.

At December 31, 2020, one distributor accounted for 15 % consolidated the Company’s net accounts receivable trade .

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

The allowance for credit losses of other portfolios is insignificant.

Year Ended December 31,

(in millions) 2021 2020

Credit losses at beginning of year, after adoption of ASU 2016-1 $ 2.9 $ 4.9

Provision for expected credit losses 3.1 3.3

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

Recoveries of amounts previously reserved 0.5 0.5

Credit losses at end of year $ 2.7 $ 2.9

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

(in millions) As of December 31,

As of December 31,

(in millions) 2021 2020

Raw materials $ 70.0 $ 30.7

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Total inventories $ 303.2 $ 154.3

Cloud Computing Costs

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

As of December 31,

(in millions) 2021 2020

Short-term portion $ 18.4 $ 5.4

Long-term portion 49.2 20.3

Total capitalized implementation costs 67.6 25.7

accumulated amortization ( 4.4 ) ( 1.5 )

Capitalized implementation costs, net $ 63.2 $ 24.2

Amortization expense was $ 2.9 million and $ 1.4 million for the years ended December 31, 2021 and 2020, respectively.

Amortization expense for the year ended December 31, 2019 was insignificant.

Property, Plant and Equipment, Net

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

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

manufacturing facility in Acton, Massachusetts and contract manufacturer in Kunshan (Shanghai), China, most of which is expected to be placed into service during 2022.

Goodwill and Other Intangible Assets, Net

The changes in the carrying amount of goodwill for 2020 and 2019 were as follows:

Years Ended December 31,

(in millions) 2020 2019

Beginning balance $ 39.8 $ 39.6

Foreign currency adjustment — 0.2

Ending balance $ 39.8 $ 39.8

The carrying amount of goodwill was $ 39.8 million at both December 31, 2021 and December 31, 2020.

Intangible Assets, Net

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Employee compensation and related costs $ 70.3 $ 53.1

Professional and consulting services 19.1 19.3

Accrued rebates 30.2 13.1

Supplier purchases 7.1 2.4

Value added taxes payable 5.0 1.8

Professional and consulting services 17.0 19.1

Other 48.5 52.8

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As of December 31, 2021, 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, 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.

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.

As of December 31, 2021, operating lease assets and operating lease liabilities were included in the following consolidated balance sheet accounts in the amounts shown:

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Total operating lease liabilities $ 12.6 $ 16.9

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.

The Company’s total operating lease cost was $ 6.0 million, $ 5.4 million, and $ 4.3 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Cash paid for amounts included in the measurement of lease liabilities was $ 5.7 million and $ 4.6 million for the years ended December 31, 2021 and 2020, 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, 2021 are as follows:

Years Ending December 31, (in millions)

Thereafter 0.1

Total future minimum lease payments 13.6

2 unchanged sentences

As of December 31, 2021, the weighted average remaining lease term for operating leases was 3.1 years and the weighted-average discount rate used to determine the operating lease liability was 6.0 %.

During the year ended December 31, 2021, the Company entered into an operating lease for additional warehouse space.

The lease commences in 2022 and has a term of 7 years.

Total future minimum lease payments under this lease is $ 12.7 million.

The components of debt consisted of the following:

2 unchanged sentences

1.375 % Convertible Senior Notes due November 2024

$ 402.5 $ 402.5

0.375 % Convertible Senior Notes due September 2026

Term loan due May 2028 497.5 —

Equipment financing due May 2024 16.0 22.2

Equipment financing due November 2025 29.6 36.4

Equipment financing due July 2028 38.2 —

5.15 % Mortgage due November 2025

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Debt issuance costs ( 15.2 ) ( 19.0 )

Total debt 1,059.3 887.9

Total debt, net 1,273.9 1,059.3

current portion 25.1 15.6

Total long term-debt $ 1,043.7 $ 887.9

Total long term-debt, net $ 1,248.8 $ 1,043.7

1.375 % 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”).

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 $ 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.

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 each balance sheet date and determined it had nominal value.

In 2021, the Company repurchased $ 370.4 million in principal ($ 305.7 million net of discount and issuance costs) of its 1.375 % Convertible Senior Notes due November 2024 (“ 1.375 % Notes”) for $ 460.8 million in cash and the issuance of 2.2 million shares with a fair value of $ 622.7 million.

The remaining $ 32.1 million in principal of the 1.375 % Notes were converted into approximately 0.4 million shares with a fair value of $ 99.8 million.

The debt repurchase and conversions resulted in a $ 42.4 million loss on extinguishment, including cash paid to the note holders as an inducement to convert and transaction costs.

0.375 % Convertible Senior Notes

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

In conjunction with the issuance of the 0.375 % Notes, the Company 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.

1 unchanged sentence

The Capped Calls cover 3.5 million shares of common stock.

1.25 % Convertible Senior Notes

In 2019, the Company repurchased its $ 345.0 million principal amount ($ 312.0 million net of discount and issuance costs) 1.25 % Notes for total consideration of $ 963.0 million comprised of $ 663.6 million in cash and $ 299.4 million representing the fair value of the 1.87 million shares issued.

The Company allocated $ 642.3 million of the settlement to the fair value of the equity component and $ 320.7 million to the debt component, which resulted in an $ 8.7 million loss on extinguishment.

2 % Convertible Senior Notes

In 2017, the Company repurchased $ 63.4 million in principal of its 2 % Convertible Senior Notes due June 2019 (the “ 2 % Notes”).

The Company called the remaining 2 % Notes in 2018 and settled the outstanding principal and conversion feature for $ 6.7 million in cash.

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.

Senior Secured Credit Agreement

In May 2021, the Company entered into a senior secured credit agreement (the “Credit Agreement”), which includes a $ 500 million seven year senior secured term loan B (the “Term Loan”) for net proceeds of $ 489.5 million, which was used to fund the cash portion of the repurchase of the 1.375 % Notes discussed above.

The Term Loan bears interest at a rate of LIBOR plus 3.25 %, with a 0.50 % LIBOR floor, and contains leverage and fixed charge coverage ratio covenants, both of which are measured upon the occurrence of future debt.

Under the same agreement, the Company obtained a $ 60 million three year senior secured revolving credit facility (the “Revolving Credit Facility”).

Outstanding borrowings bear interest at a rate of LIBOR plus an applicable margin of 2.75 % to 3.25 % based on the Company’s net leverage ratio.

The Revolving Credit Facility contains a covenant to maintain a specified leverage ratio under certain conditions when there are amounts outstanding.

No amount was outstanding under the Revolving Credit Facility at December 31, 2021.

Borrowings under the Credit Agreement are guaranteed by certain wholly owned domestic subsidiaries of the Company, and are secured by substantially all assets of the Company and of each subsidiary guarantor, subject to certain exceptions.

Additionally, borrowings under the Credit Agreement are senior to all of the Company’s unsecured indebtedness, including the convertible notes.

Equipment Financings

2 unchanged sentences

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 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

2 unchanged sentences

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.

The Mortgage contains non-financial customary covenants, none of which are considered restrictive to the Company’s operations.

1.25 % Convertible Senior Notes

The Company allocated $ 642.3 million of the settlement to the fair value of the equity component and $ 320.7 million to the debt component, which resulted in an $ 8.7 million loss on extinguishment.

Maturity of Debt

1 unchanged sentence

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:

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

As of December 31,

1 unchanged sentence

Value Estimated

Fair Value (1)

Fair Value Carrying

Value Estimated

Fair Value (1)

1.375 % Convertible Senior Notes (1)

2 unchanged sentences

638.8 938.8 609.2 902.0

Term loan due May 2028 (2)

485.2 498.1 — —

Equipment financings (3)

83.7 83.7 58.3 58.3

5.15 % Mortgage (3)

66.2 66.2 67.9 67.9

Total $ 1,273.9 $ 1,586.8 $ 1,059.3 $ 2,132.4

(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.

(1) Convertible debt is classified as Level 2 in the fair value hierarchy.

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

(2) Term debt is classified as Level 1 in the fair value hierarchy.

Fair value was determined using quoted market prices.

(3) The equipment financings and Mortgage are classified as Level 3 in the fair value hierarchy.

The fair values were determined using the cost bases of the financial liabilities, which approximate their carrying values .

Derivative Instruments

The Company manages interest rate exposure through the use of interest rate swap transactions with financial institutions acting as principal counterparties.

In May 2021, the Company entered into two interest rate swap agreements that expire on April 30, 2025.

Under the interest rate swap agreements, the Company receives variable rate interest payments and pays fixed interest rates of 0.95 % and 0.96 % on a total notional value of $ 480.0 million of its Term Loan.

The Company has designated the interest rate swaps as cash flow hedges.

The fair value of interest rate swaps, which are classified as Level 2 in the fair value hierarchy, represent the estimated amounts the Company would receive or pay to terminate the contracts and is determined using industry standard valuation models and market-based observable inputs, including credit risk and interest rate yield curves.

The fair value of the interest rate swap was $ 4.5 million at December 31, 2021 and was included in other assets on the consolidated balance sheet.

Commitments and Contingencies

6 unchanged sentences

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.

On August 6, 2018, the Court issued an order approving the settlement.

On June 25, 2021, the Court issued an order on the plaintiffs’ motion for fees and expenses, a final judgment approving the settlement, and an order of dismissal with prejudice.

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.

6 unchanged sentences

On July 11, 2018, the parties executed a binding stipulation of settlement, under which all claims were released, and a payment of attorneys’ fees and reimbursement of expenses will be paid to plaintiffs’ counsel, subject to the Court’s approval.

On July 13, 2018, the plaintiffs filed a motion for preliminary approval of the settlement, which is pending.

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

On July 13, 2018, the plaintiffs filed a motion for preliminary approval of the settlement.

On June 28, 2021, the Court issued an order preliminarily approving

the proposed settlement.

On September 9, 2021, the Court held a hearing to decide whether the proposed settlement should be finally approved, and issued an order and final judgment the same day approving the settlement and the payment of attorneys’ fees and reimbursement of expenses to plaintiffs’ counsel, and dismissing the case with prejudice.

Such fees and expenses paid to plaintiffs' counsel were 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.

(“Roche”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware alleging that the Company’s manufacture and sale of its Omnipod Insulin Management System, including Pods, PDMs, and other components of the system, and kits in the United States infringed Roche’s now-expired U.S.

Patent 7,931,613.

3 unchanged sentences

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

By Order of the Court, on October 29, 2021, representatives of Roche and the Company participated in a mediation conference, the results of which were unsuccessful.

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.

1 unchanged sentence

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 was seeking an injunction to last until expiry of the patent and monetary damages.

A trial was held in May 2021 and the judge ultimately sided with Roche Ltd.

on non-infringement and invalidity of the patent, which was slated to expire in August 2021.

Accordingly, no injunction was issued and no monetary damages were awarded.

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.

6 unchanged sentences

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

5 unchanged sentences

Stock-Based Compensation

Compensation cost related to stock-based awards recognized for the years ended December 31, 2020, 2019 and 2018 was recorded as follows:

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

Year Ended December 31,

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Options Weighted Average

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

Exercise Price Weighted Average Remaining Contractual Term

(in years) Aggregate

(in millions)

83 unchanged sentences

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

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 )

Accumulated Other Comprehensive (Loss) Income

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

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

Balance, December 31, 2018

6 unchanged sentences

5.2 0.3 — 5.5

Other comprehensive (loss) income before reclassifications ( 11.9 ) ( 0.3 ) 3.0 ( 9.2 )

Amounts reclassified to net income — — 1.5 1.5

Balance, December 31, 2021

$ ( 6.7 ) $ — $ 4.5 $ ( 2.2 )

Defined Contribution Plan

7 unchanged sentences

(in millions) 2021 2020 2019

Contractual interest $ 9.5 $ 9.5 $ 9.8

Cash interest, net of interest rate swaps $ 27.1 $ 9.5 $ 9.5

Accretion of debt discount 36.7 42.3 32.8

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Stock-based compensation ( 117.0 ) ( 311.1 ) ( 158.7 )

Loss on extinguishment of debt — 14.8 —

Extinguishment of debt ( 57.5 ) — 14.8

Capital loss carryforward expirations 52.1 — —

Non-deductible officers’ compensation 45.7 30.0 1.9

3 unchanged sentences

Change in valuation allowance 77.2 336.2 130.6

Intercompany transfer of intellectual property 4.6 — —

Other 0.4 4.6 ( 1.9 )

Effective income tax rate 18.2 % 29.6 % 19.8 %

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

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.

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

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

3 unchanged sentences

federal and state tax returns are currently open to examination for tax years 2018 through 2020.

The Company is currently under exam in Ontario, Canada.

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.

As of December 31, 2021, 2020 and 2019 the Company had no uncertain tax positions.

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

5 unchanged sentences

Capital loss carryforwards — 12.2

Inventory capitalization 6.5 2.1

Intangible assets 11.6 3.6

Interest limitation carryforwards 7.3 1.6

Stock-based compensation 5.9 5.8

3 unchanged sentences

Prepaid assets ( 4.8 ) ( 3.5 )

Depreciation and amortization ( 6.9 ) ( 2.2 )

Property, plant and equipment ( 22.2 ) ( 10.5 )

Amortization of debt discount ( 22.9 ) ( 60.6 )

6 unchanged sentences

The Company maintained a valuation allowance of $ 182.4 million and $ 143.4 million at December 31, 2021 and 2020, 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.

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

During 2021, the Company recorded a full valuation allowance against its U.K.

deferred tax assets as a result of additional costs incurred in connection with a transfer of intellectual property.

These valuation allowances are based on cumulative tax losses in the U.S.

and the uncertainty of generating future taxable income in these jurisdictions to utilize our loss and credit carryforwards.

The $ 39.0 million increase in the Company’s valuation allowance during the year ended December 31, 2021 was primarily due to temporary differences in the U.S.

and the recording of a $ 11.0 million valuation allowance in the U.K.

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

4 unchanged sentences

Foreign $ 16.4 $ 5.4

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

As of December 31, 2021, $ 188.8 million of the U.S.

federal net operating losses and the full amount of the foreign net operating losses have an indefinite carryforward period.

The remaining U.S.

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

federal carryforwards, if not utilized, expire through 2037, and the state net operating loss carryforwards expire through 2041.

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.

5 unchanged sentences

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:

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

Years Ended December 31,

8 unchanged sentences

1.375 % Convertible Senior Notes

2,024 4,319 4,319

1 unchanged sentence

3,528 3,528 3,528

Unvested restricted stock units 282 431 290

Outstanding stock options 58 13 237

Restricted stock units 166 282 431

Stock options 53 58 13

Total 5,771 8,187 8,291

Subsequent Events

In January 2022, the Company paid $ 29 million to acquire a supplier to bring key intellectual property and expertise in-house, strengthen production capabilities and mitigate supply chain risks.

In addition, the Company made a $ 5 million strategic investment in another company.

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

10 unchanged sentences

Year Ended December 31, 2020

Allowance for doubtful accounts $ 3.6 $ 4.5 $ — $ ( 4.3 ) $ 3.8

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

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