What changed in this filing

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Item 7. Management’s Discussion and Analysis

2024-02-23 compared with 2023-02-24 · 161 added, 147 removed, 185 unchanged (62% of the section changed)

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Our mission is to improve the lives of people with diabetes.

We are primarily engaged in the development, manufacture, and sale of our proprietary Omnipod System, a continuous insulin delivery system for people with insulin-dependent diabetes.

The Omnipod System features a small, lightweight, self-adhesive disposable tubeless Omnipod device that the user fills with insulin and wears directly on the body for up to three days at a time, which delivers personalized doses of insulin, and the PDM or Controller, a wireless handheld device that programs the Pod with the user’s personalized insulin-delivery instructions and wirelessly monitors the Pod’s operation.

The Omnipod System, includes:

Classic Omnipod, its next generation Omnipod DASH, and the most recent generation Omnipod 5, all of which eliminate the need for multiple daily injections using syringes or insulin pens or the use of pump and tubing.

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

We are primarily engaged in the development, manufacture, and sale of our proprietary continuous insulin delivery system for people with insulin-dependent diabetes.

The Omnipod platform, includes:

Classic Omnipod, its next generation Omnipod DASH, the most recent generation Omnipod 5, and our latest innovation, Omnipod GO, which received U.S.

Food and Drug Administration (“FDA”) clearance in 2023, all of which eliminate the need for multiple daily injections using syringes or insulin pens or the use of pump and tubing.

Omnipod DASH features a secure Bluetooth enabled Pod that is controlled by a smartphone-like PDM with a color touch screen user interface.

Omnipod 5, which builds on our Omnipod DASH mobile platform, is a tubeless automated insulin delivery system that integrates with a continuous glucose monitor (“CGM”) to manage blood sugar and is fully controlled by a compatible personal smartphone or Omnipod 5 Controller.

The CGM is sold separately by a third party.

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

Omnipod GO, for which we are currently conducting a pilot program in the United States, is our basal-only Pod for individuals with type 2 diabetes age 18 and older who require insulin.

Our long-term financial objective is to sustain profitable growth.

To achieve this goal, our efforts have been focused on the launch of Omnipod 5, which in 2022 received FDA clearance for individuals aged two years and older with type 1 diabetes.

Our limited market release of Omnipod 5 in the United States began in the first quarter, and in the third quarter we launched our U.S.

full market release.

We are also working to bring Omnipod 5 to our international markets.

We recently received CE Mark approval under the European MDR, and we are currently focused on further building our international teams and advancing our regulatory, reimbursement, and market development efforts.

We plan to launch Omnipod 5 in the U.K.

and Germany in 2023 and to continue our international roll out more broadly in 2024.

In 2022, we completed our Omnipod 5 type 2 diabetes feasibility study and plan to begin a pivotal trial in 2023 with the goal of expanding Omnipod 5’s indication to type 2 users.

Additionally, to accelerate our efforts to secure reimbursement for Omnipod 5, we have fully enrolled individuals in a randomized control trial in the U.S.

and enrollment will begin soon in France.

We also continue to expand market access and awareness of Omnipod through our direct to consumer advertising programs and through growing our presence in the U.S.

To achieve this goal, we launched Omnipod 5 in the United States in August 2022 and in the United Kingdom and Germany in June and August 2023, respectively.

Subsequent to the launch of Omnipod 5, we began to phase-out our Classic Omnipod in the U.S.

in 2023, since the vast majority of our U.S.

customer base is no longer using this product.

We are working on further building our international teams and advancing our regulatory, reimbursement, and market development efforts so we can bring Omnipod 5 to additional international markets.

We plan to launch Omnipod 5 in more European markets in 2024 starting with the Netherlands.

Additionally, in December 2023, we completed enrollment for our pivotal trial for Omnipod 5 with the goal of expanding Omnipod 5’s indication to type 2 users.

We expect to complete the trial and submit to the FDA for an expanded indication by the end of 2024.

We have completed a randomized control trial in the U.S.

and France for Omnipod 5 with DexCom’s G6 continuous glucose monitor (“CGM”) to support our pricing and market access initiatives.

We also continue to expand market access and awareness of Omnipod products through our direct to consumer advertising programs and through growing our presence in the U.S.

pharmacy channel, where access to Omnipod 5 and Omnipod DASH is simpler and affordable, as no up-front investment is required.

As we continue our growth in the pharmacy channel, we plan to phase-out our Classic Omnipod in the U.S.

in 2023, since the vast majority of our customer base is no longer using this product.

Additionally, we continue to increase our presence within our existing markets and expand internationally in a targeted and strategic manner.

We opened an office in Dubai to serve as our primary local presence and regional infrastructure in the Middle East, launched Omnipod in Saudi Arabia, and expanded into the United Arab Emirates.

We have also been taking steps to continue strengthening our global manufacturing capabilities.

We are optimizing our operations in China by consolidating our production in that region into one location.

Further, in 2022 we broke ground on a new manufacturing plant in Malaysia to support our international expansion strategy, further ensure product supply, and drive higher gross margins over time.

We also continue to take steps to strengthen our global manufacturing capabilities.

We recently completed construction of a new manufacturing plant in Malaysia to support our international expansion strategy, further ensure product supply, and drive higher gross margins over time.

We expect to begin production at this new manufacturing facility in 2024.

Finally, we continue to focus on our product development efforts, including AID offerings, such as choice of continuous glucose monitor and smartphone integration, and enhancing the customer experience through digital product and data capabilities.

We have also developed a basal-only Pod for individuals with type 2 diabetes and submitted our 510(k) application to the FDA in November.

We expect commercialization of the basal-only Pod in 2024.

Finally, we continue to focus on our product development efforts, including AID offerings such as choice of smartphone integration and CGM, and enhancing the customer experience through digital product and data capabilities.

In February 2024, we began our limited market release of Omnipod 5 with Dexcom’s G7 CGM in the United States and received CE mark approval for the added compatibility of Libre 2 Plus with Omnipod 5 for individuals aged two years and older with type 1 diabetes.

We expect to launch a limited market release of Omnipod 5 with Libre 2 Plus in the U.K.

and the Netherlands in 2024.

Additionally, we received FDA clearance for the Omnipod 5 App for iPhone in the fourth quarter of 2023 and plan to launch a limited market release in the U.S.

Results of Operations

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Factors Affecting Operating Results

Our Pods are intended to be used continuously for up to three days and then be replaced with a new disposable Pod.

We recently achieved a milestone of 360,000 estimated global customers using Omnipod, including over 100,000 U.S.

customers using the Omnipod 5.

As we grow our customer base, we expect to generate an increasing portion of our revenues through recurring sales of our disposable Pods, which provides recurring revenue.

Our recurring revenue business model, alongside the Omnipod System’s unique patented design enables us to provide pump therapy at a low or no up-front investment in regions where reimbursement allows for it.

Our pay-as-you-go pricing model also reduces the risk to third-party payors.

During 2022, we issued two voluntary MDCs, one in October for our Omnipod DASH PDM related to its battery and the other in November for our Omnipod 5 Controller related to the charging port and cable.

In addition to the estimated liability we recorded in 2022, we have a performance obligation to replace Omnipod DASH PDMs and Omnipod 5 Controllers sold subsequent to the MDC issuances, which is expected to negatively impact gross margins and net income in 2023, most notably in the first half of the year.

We have also experienced and expect to continue to experience challenges stemming from the global supply chain disruption that began during the coronavirus pandemic (“COVID-19”);

however, to date we have been able to successfully mitigate this disruption and ensure uninterrupted supply to our customers by increasing our inventory levels and taking other measures.

Our Pod is intended to be used continuously for up to three days, after which it is replaced with a new disposable Pod.

We recently achieved a milestone of approximately 425,000 estimated active global customers using Omnipod products, including approximately 250,000 global customers using Omnipod 5.

Our product’s unique patented design allows us to provide Pod therapy at a relatively low or no up-front investment in regions where reimbursement allows for it and our pay-as-you-go

pricing model reduces the risk to third-party payors.

As we grow our customer base, we expect to generate an increasing portion of our revenues through recurring sales of our disposable Pods, which provide recurring revenue.

In 2022, we issued two voluntary Medical Device Corrections (“MDCs”), one in October for our Omnipod DASH PDM related to its battery and the other in November for our Omnipod 5 Controller related to its charging port and cable.

During 2022, we initially recorded a net charge of $57.9 million related to these MDCs.

During the year ended December 31, 2023, we recorded $11.5 million of income associated with a change in our estimated liability for the MDCs, primarily due to lower distribution costs.

We continue to experience challenges stemming from the global supply chain disruption;

however, while there is no guarantee of future performance, to date we have been able to successfully mitigate this disruption and ensure uninterrupted supply to our customers by increasing our inventory levels and taking other measures.

While our mitigation efforts and inflation have and are expected to continue to negatively impact gross margins and net income in 2024, we intend to continue to work to improve productivity to help offset these costs.

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Years Ended December 31,

(In millions) 2022 2021 % Change Currency

Impact Constant Currency (1)

Omnipod $ 884.8 $ 651.5 35.8 % — % 35.8 %

International Omnipod 363.0 359.9 0.9 % (11.2) % 12.1 %

Total Omnipod 1,247.8 1,011.4 23.4 % (3.6) % 27.0 %

(in millions)

2023 2022 % Change Currency Impact

Constant Currency (1)

$ 1,251.0 $ 884.8 41.4 % — % 41.4 %

International 410.1 363.0 13.0 % 1.6 % 11.4 %

Total Omnipod Products 1,661.1 1,247.8 33.1 % 0.4 % 32.7 %

Drug Delivery 36.0 57.5 (37.4) % — % (37.4) %

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Total revenue for 2023 increased $391.8 million, or 30.0%, to $1,697.1 million, compared with $1,305.3 million in 2022.

Constant currency revenue growth of 22.2% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix.

Omnipod revenue for 2022 increased $233.3 million, or 35.8%, to $884.8 million, compared with $651.5 million in 2021.

This increase was primarily due to higher Omnipod 5 and Omnipod DASH volumes driven by growing our customer base and, to a lesser extent, growth through the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge.

Existing customer conversions to Omnipod 5 also contributed to the revenue increase as some users fill both their starter kit and their first month of refills simultaneously.

Omnipod revenue for 2022 includes $249.9 million of related party revenue, compared with $58.2 million in 2021.

The $191.7 million increase primarily resulted from a shift in certain revenues from one distributor to another as we worked to extend our reach through the pharmacy channel.

Constant currency revenue growth of 29.6% was primarily driven by higher volume and, to a lesser extent, favorable sales channel mix, partially offset by decreased drug delivery revenue.

Revenue from the sale of Omnipod products in the U.S.

increased $366.2 million, or 41.4%, in 2023 to $1,251.0 million, compared with $884.8 million in 2022.

This increase primarily resulted from higher volumes driven by growing our customer base and, to a lesser extent, growth through the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge, and an increase in estimated inventory days-on-hand at distributors.

Revenue from the sale of Omnipod products in the U.S.

includes $473.7 million of related party revenue in 2023, compared with $249.9 million in 2022.

The $223.8 million increase primarily resulted from growth through the pharmacy channel.

Additional information regarding our related party transactions is provided in Note 5 to our consolidated financial statements.

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

International Omnipod

International Omnipod revenue for 2022 increased $3.1 million, or 0.9%, to $363.0 million, compared with $359.9 million in 2021.

Excluding the 11.2% unfavorable impact of currency exchange, the remaining 12.1% increase was primarily due to higher volumes as we continue to expand awareness and access to Omnipod DASH, partially offset by increased competition from AID systems.

In 2023, we expect higher International Omnipod revenue due to continued volume growth driven by the ongoing adoption of Omnipod DASH, partially offset by competition from AID systems and an unfavorable impact of currency exchange.

In 2024, we expect strong U.S.

revenue growth driven by continued volume growth of Omnipod 5, continued sales of Omnipod DASH, and the benefits of our recurring revenue model and pharmacy channel access.

We expect these increases to be partially offset by lower conversions from Classic Omnipod and Omnipod DASH to Omnipod 5 in the first half of the year compared to 2023 since the vast majority of conversions to Omnipod 5 occurred in 2023.

International

Revenue from the sale of Omnipod products in our international markets increased $47.1 million, or 13.0%, in 2023 to $410.1 million, compared with $363.0 million in 2022.

Excluding the 1.6% favorable impact of currency exchange, the remaining 11.4% increase in revenue was primarily due to higher volumes as we continue to expand awareness and access to Omnipod DASH and, to a lesser extent, the timing of revenue recognition related to deferrals associated with our Omnipod DASH MDC and a technology upgrade program, and product mix from the launch of Omnipod 5 in the United Kingdom.

These increases were partially offset by a decrease in estimated days-on-hand at distributors and higher attrition in the countries where we have not yet launched Omnipod 5 as we continue to be impacted by competition from AID systems.

In 2024, we expect higher International revenue due to continued volume growth driven by new customers and conversions to Omnipod 5 in the U.K.

and Germany and to a lesser extent, the ongoing adoption of Omnipod DASH .

We expect these increases to be partially offset by competition from AID systems.

Drug Delivery

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

Drug Delivery revenue for 2023 decreased $21.5 million, or 37.4%, to $36.0 million, compared with $57.5 million in 2022.

This decrease was primarily driven by a decline in production volume due to lower demand from our partner.

In 2023, we expect Drug Delivery revenue to decline due to a lower demand forecast from our partner.

This decrease primarily resulted from a lower forecast from our partner, partially offset by a higher selling price.

In 2024, we expect Drug Delivery revenue to decline $18 million to $22 million due to a lower forecast from our partner .

Operating Expenses

Years Ended December 31,

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

(in millions)

Amount Percent of Revenue Amount Percent of Revenue

Cost of revenue $ 537.2 31.7 % $ 499.7 38.3 %

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Gross margin was 68.3% in 2023, compared with 61.7% in 2022.

The 6.7 point decrease in gross margin was primarily driven by a $57.9 million net charge, or 4.5 points, associated with the voluntary MDCs we issued in 2022.

The decrease was also driven by higher expected production costs in the U.S.

as manufacturing continues to ramp and become a larger portion of our total production and higher costs associated with Omnipod 5 production.

These decreases were partially offset by higher average selling price due to growth in the pharmacy channel, where Pods have a higher average selling price due in part to the fact that we offer the PDM/Controller for no charge.

The 6.6 point increase in gross margin was primarily driven by the $57.9 million net charge associated with the voluntary MDC notices issued in 2022, which did not repeat in the current period, and an $11.5 million revision to the voluntary MDC liability in 2023, due to lower than expected distribution costs.

The increase was also driven by higher average selling prices primarily due to growth in the pharmacy channel and improved manufacturing efficiencies.

These increases were partially offset by higher production costs associated with Omnipod 5 and U.S.

manufacturing as it continues to become a larger portion of total production, and to a lesser extent, continued inflation.

We expect gross margin for 2024 to be in the range of 68% to 69%.

We anticipate gross margin to increase due to significant costs associated with the MDCs in 2022, most of which we do not expect to recur in 2023 and higher volume in the pharmacy channel and favorable geographical sales mix.

We believe these increases will be partially offset by continued higher production costs as we further scale U.S.

manufacturing, unfavorable product line mix due to higher costs associated with Omnipod 5 production, and higher costs as we contend with inflation.

We anticipate gross margin to be relatively level due to higher average selling prices primarily due to growth in the pharmacy channel and improved manufacturing efficiencies, partially offset by $11.5 million of income associated with a reduction to our MDC liability in 2023, which will not recur, and higher costs associated with our new product launches.

Research and Development

Research and development expenses for 2023 increased $24.8 million, or 13.8%, to $205.0 million, compared with $180.2 million in 2022.

This increase was primarily due to year-over-year headcount additions to support our continued investment in development of Omnipod products, partially offset by lower outside services used for clinical activities.

We expect research and development spending in 2023 to increase compared with 2022 as we continue to invest in advancing our innovation and clinical pipeline and contend with inflation.

This increase was primarily due to year-over-year headcount additions to support our continued investment in the development of Omnipod products and third-party costs to support clinical trials.

Research and development expenses as a percent of revenue declined to 12.1% in 2023, compared with 13.8% in 2022 primarily due to an increase in sustaining costs following the launch of Omnipod 5 in the United States, which are included in selling, general and administrative expenses.

We expect research and development spending in 2024 to increase compared with 2023 as we continue to invest in advancing our innovation and clinical pipeline.

Selling, General and Administrative

Selling, general and administrative expenses for 2023 increased $147.1 million, or 25.0%, to $734.9 million, compared with $587.8 million in 2022.

This increase was primarily attributable to year-over-year headcount additions, mainly to support information technology and commercial operations and $25.2 million of legal charges related to the settlement of a patent infringement lawsuit, associated legal fees, and the settlement of a contract dispute.

To a lesser extent, these increases were due to an increase in investments to expand market acceptance and access to Omnipod, higher travel and entertainment expenses due to increased activity as COVID-19 restrictions have lifted, an increase in software license fees driven by investments in new systems to support our growing business and headcount additions, and higher amortization of cloud computing implementation costs.

Additionally, selling, general and administrative expenses include $3.4 million of costs associated with the retirement and advisory services of our former chief executive officer.

These increases were partially offset by a decrease in direct-to-consumer advertising resulting from the timing of spend.

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

resource planning system.

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

This increase was primarily attributable to year-over-year headcount additions, mainly to support international growth and costs associated with our new leadership structure that is designed to accelerate innovation and commercialization.

In addition, we had higher direct-to-consumer advertising spend and third-party customer service costs to support Omnipod 5 adoption, and an increase in software license fees driven by investments in new systems due to our growing business and increased headcount.

To a lesser extent, the increase was due to higher amortization of cloud computing implementation costs and higher third-party training costs.

These increases were partially offset by $27.3 million of legal costs incurred in the prior year related to the settlement of a patent infringement lawsuit, associated legal fees, and an estimated liability to settle a contract dispute.

We expect selling, general and administrative expenses to increase in 2024 compared with 2023 due to investments in our operating structure, primarily headcount additions, to facilitate continued growth, including customer support.

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

Non-Operating Items

Interest Expense, Net

Interest expense, net for 2022 decreased $34.5 million, or 56.4%, to $26.7 million, compared with $61.2 million in 2021.

This decrease was primarily driven by the adoption of Accounting Standards Update 2020-06, Accounting for Convertible Debt Instruments and Contracts in an Entity's Own Equity (“ASU 2020-06”), which eliminated most of the non-cash interest expense associated with our convertible notes.

Refer to Recently Adopted Accounting Standard in Note 2 to our consolidated financial statements for additional information.

Loss on Extinguishment of Debt

During 2021, we incurred a $42.4 million loss on extinguishment of debt related to the repurchase and conversion of all of our outstanding 1.375% Notes.

Refer to Note 15 to our consolidated financial statements for additional information.

Other Expense, Net

Other expense, net for 2022 decreased $0.8 million to $1.1 million, compared with $1.9 million in 2021.

The decrease was primarily driven by an increase in unrealized foreign currency gains, which was partially offset by realized foreign currency losses.

Interest Expense and Income

Interest expense of $36.2 million in 2023 was level with interest expense of $36.0 million in 2022.

Interest income for 2023 increased $19.3 million to $28.6 million, compared with $9.3 million in 2022.

This increase was primarily driven by higher interest rates.

Other Income (Expense), Net

Other income of $2.2 million for 2023 consists primarily of $2.6 million of gains related to fair value adjustments associated with our strategic debt and equity investments.

Other expense of $1.1 million for 2022 consists primarily of net unrealized and realized foreign currency losses.

Income Tax Expense

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Our effective tax rate was 3.9% and 53.4% for 2023 and 2022, respectively.

The increase in our effective tax rate was primarily driven by a decrease in pre-tax income in the U.S.

The decrease in our effective tax rate was primarily driven by an increase in pre-tax income in the U.S.

where we have net operating loss carryforwards to reduce taxable profits and a full valuation allowance against deferred tax assets.

Accordingly, we have not reported any tax benefit relating to the remaining net operating loss carryforwards and income tax credit carryforwards that are available for utilization in future periods.

We maintain a $202.9 million valuation allowance on net deferred tax assets at December 31, 2023.

Given our current earnings and anticipated future earnings, we believe that there is a reasonable possibility that within the next 12 months, sufficient positive evidence may become available to allow us to reach a conclusion that a significant portion of our valuation allowance will no longer be needed.

A release of the valuation allowance would result in the recognition of certain deferred tax assets and a decrease to income tax expense in the period the release is recorded.

However, the timing and amount of the valuation allowance release, if any, are unknown as this is subject to change on the basis of the level of profitability that we are able to actually achieve in future periods and other evidence that will be considered at the time of the assessment.

Refer to Note 23 to our consolidated financial statements for additional information on our income tax expense.

In 2021, the Organization for Economic Co-operation and Development (“OECD”) and G20 international forum released the Model Global Anti-Base Erosion (GloBE) rules (“Model Rules”) under Pillar Two.

These Model Rules set forth the common approach for a Global Minimum Tax at 15% for multinational enterprises with revenue greater than €750 million and is expected to be applicable to Insulet.

In December 2022, Pillar Two was adopted by the Council of the European Union for implementation by European Union member states by December 31, 2023, with effect for tax years beginning in calendar year 2024.

Similar directives under Pillar Two are already adopted or expected to be adopted by taxing authorities in other countries where Insulet has business operations, with widespread implementation of the Global Minimum Tax in calendar years 2024 and 2025.

We are continuing to evaluate the Model Rules for Pillar Two and related legislation, and their potential impact on future periods.

Adjusted EBITDA

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Stock-based compensation expense 48.3 38.6

Voluntary MDCs (1)

Voluntary medical device corrections (1)

Unrealized gains on investments (2)

Legal costs (3)

CEO transition costs (4)

Loss on extinguishment of debt (4)

Adjusted EBITDA $ 329.2 $ 224.8

(1) Represents net charge recorded for the estimated costs associated with the voluntary MDCs.

(1) Represents net (income) expense resulting from estimated costs associated with the voluntary MDC notices issued in the fourth quarter of 2022 and adjustments to those costs, which is included in cost of revenue.

Refer to Note 14 to our consolidated financial statements for additional information.

(2) Represents non-operating gains related to fair value adjustments of strategic debt and equity investments.

(3) Includes a $20.0 million charge to settle patent infringement litigation with Roche, associated legal fees, and a $3.6 million charge to settle a contract dispute.

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

(4) Relates to the repurchase and conversion of all of our outstanding 1.375% Notes.

Refer to Note 15 to our consolidated financial statements for additional information.

Non-GAAP Financial Measures

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It is also one of the performance metrics that determines management incentive compensation.

Adjusted EBITDA represents net income (loss) plus net interest expense, income tax expense (benefit), depreciation and amortization, stock-based compensation expense and other significant transactions or events, such as legal settlements, medical device corrections, and loss on extinguishment of debt, that affect the period-to-period comparability of our operating performances, as applicable.

Adjusted EBITDA represents net income plus net interest expense, income tax expense, depreciation and amortization, stock-based compensation expense and other significant transactions or events, such as legal settlements, medical device corrections, gains (losses) on investments, and loss on extinguishment of debt, which affect the period-to-period comparability of our operating performances, as applicable.

We present Adjusted EBITDA because management uses it as a supplemental measure in assessing our operating performance, and we believe that it is helpful to investors, and other interested parties as a measure of our comparative operating performance from period to period.

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Net debt-to-total capital ratio 33 % 39 %

The increase in debt and the decrease in stockholders’ equity was primarily due to the adoption of ASU 2020-06.

Refer to Recently Adopted Accounting Standard in Note 2 to our consolidated financial statements for additional information.

Convertible Debt

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Credit Agreement

We have a $100 million three-year senior secured revolving credit facility (“Revolving Credit Facility”), which expires in 2024.

We have a $300 million senior secured revolving credit facility (the “Revolving Credit Facility”), which expires in 2028.

At December 31, 2023, no amount was outstanding under the Revolving Credit Facility.

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Additionally, we have a seven year term loan, which matures in 2028, that contains covenants restricting or limiting our ability to incur additional indebtedness, make asset dispositions, create or permit liens, sell, transfer or exchange assets, guarantee certain indebtedness, and make acquisitions and other investments.

Additional information regarding our debt is provided in Note 15 to the consolidated financial statements.

Additional information regarding our debt is provided in Notes 16 and 26 to the consolidated financial statements.

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

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Effect of exchange rate changes on cash 1.8 (4.3)

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

Net increase (decrease) in cash, cash equivalents, and restricted cash $ 14.5 $ (116.7)

Operating Activities

Net cash provided by operating activities of $145.7 million in 2023 was primarily attributable to net income, as adjusted for depreciation and amortization and stock-based compensation expense, which was more than offset by a $190.6 million working capital cash outflow.

The working capital outflow was driven by a $154.2 million increase in accounts receivable, a $53.6 million increase in inventories and a $42.1 million increase in prepaid expenses and other assets, partially offset by a $70.3 million increase in accrued expenses and other liabilities.

The increase in accounts receivable was primarily due to an increase in sales in the U.S.

pharmacy channel, which has longer payment terms.

The increase in inventories was primarily driven by a planned inventory build to mitigate supply chain risk and satisfy demand.

The increase in prepaid expenses and other assets was driven by an increase in prepaid cloud computing implementation and upgrade costs, subscription renewal costs, and other receivables.

Finally, the increase in accrued expenses and other liabilities was primarily driven by an increase in accrued rebates mainly due to revenue growth in the pharmacy channel and an increase in compensation costs due to higher incentive compensation achievement and headcount additions, partially offset by warranty fulfillment associated with the voluntary MDCs issued in 2022.

Net cash provided by operating activities of $119.0 million in 2022 was primarily attributable to net income, as adjusted for depreciation and amortization and stock-based compensation expense, partially offset by a $2.5 million working capital cash outflow.

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Finally, the increase in accrued expenses and other liabilities was primarily driven by the voluntary MDCs issued for our Omnipod DASH PDMs and Omnipod 5 Controllers, an increase in rebates due to growth in the pharmacy channel and an increase in compensation costs due to higher incentive compensation achievement and head count additions.

Net cash used in operating activities of $68.1 million in 2021 was primarily attributable to net income, as adjusted for depreciation and amortization, loss on extinguishment of debt, non-cash interest, and stock-based compensation expense, partially offset by a $263.6 million working capital cash outflow.

The working capital outflow was driven by a $154.4 million increase in inventories, a $71.3 million increase in accounts receivable and a $46.7 million increase in prepaid expenses and other assets, partially offset by a $24.4 million increase in accrued expenses and other liabilities.

The increase in inventories was primarily driven by a planned inventory build to satisfy demand and the addition of our third highly automated manufacturing line.

The increase in accounts receivable was primarily due to an increase in sales in the U,S.

pharmacy channel, which has longer payment terms.

The increase in prepaid expenses and other assets was primarily driven by an increase in cloud computing implementation costs.

Finally, the increase in accrued expenses and other liabilities was primarily driven by an increase in rebates due to growth in the pharmacy channel and higher compensation costs due to an increase in both incentive compensation achievement and head count.

Investing Activities

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Capital Spending —Capital expenditures were $75.6 million and $122.9 million in 2023 and 2022, respectively, and primarily related to the purchase of equipment to increase our manufacturing capacity.

We expect capital expenditures for 2023 to decrease compared with 2022 given our significant investments to build capacity in 2022, including acceleration of some of our spending on machinery and equipment for our new Malaysia manufacturing facility that is under construction.

We expect capital expenditures for 2024 to increase compared with 2023 given the timing of spending on machinery, equipment and tooling for our new Malaysia manufacturing facility and to support continuous improvement efforts in our other manufacturing locations.

To a lesser extent, we expect capital expenditures to increase due to investments in our information technology infrastructure.

We expect to fund our capital expenditures using existing cash.

Investments in Developed Software— Investments in developed software were $8.5 million and $12.9 million in 2023 and 2022, respectively, and primarily related to investments in projects to support our cloud-based capabilities.

Acquisitions and Investments —In 2022, we paid $26.0 million to acquire substantially all the assets related to the manufacture and production of shape-memory alloy wire assemblies that are used in the production of Omnipods from Dynalloy, Inc.

and $21.5 million to acquire developed technology and patents from AGC.

In addition we paid $7.8 million for strategic investments in two private companies.

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

Acquisitions —In 2023, we paid Bigfoot Biomedical, Inc.

$25.1 million, including transaction costs, to acquire patent assets related to pump-based AID technologies.

In 2022, we paid $26.0 million to acquire substantially all the assets related to the manufacture and production of shape-memory alloy wire assemblies that are used in the production of Pods from Dynalloy, Inc.

and $21.5 million to acquire developed technology and patents from Automated Glucose Control LLC.

The remaining $3.0 million purchase price for the Dynalloy acquisition was paid during 2023.

Investments —In 2023 and 2022, we made strategic investments in private companies in the amount of $7.2 million and $7.8 million, respectively.

Financing Activities

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

Debt Issuance and Repayment —During 2022, we made $24.5 million in aggregate principal payments on our equipment financings, mortgage, and term loan, compared with $22.3 million in 2021.

The $2.2 million increase is due to entering the term loan and an additional equipment financing in the second and third quarters of 2021, respectively.

During 2021, we received net proceeds of $489.5 million from the issuance of the term loan and used $460.9 million of cash to partially fund the repurchase of a portion of our 1.375% Notes.

We also received net proceeds of $43.1 million from the equipment financing transaction entered into in 2021.

We had $13.6 million of net cash used in financing activities in 2023, compared with $40.3 million in 2022.

Debt Repayments —During 2023, we made principal payments totaling $27.0 million on our equipment financings, term loan, and mortgage, compared with $24.5 million of aggregate payments in 2022.

Prepayments of Finance Lease Obligation— During 2022, we made $15.3 million in upfront payments upon entering into an agreement to acquire real estate in Malaysia.

Refer to Note 15 to the consolidated financial statements for additional information regarding this lease.

Option Exercises and Employee Stock Purchase Plan Proceeds —Total proceeds from option exercises and issuance of employee stock purchase plan shares were $16.3 million and $23.5 million in 2022 and 2021, respectively.

The $7.2 million decrease was primarily driven by option exercises in the prior year by our former chief executive officer who retired in 2018.

Proceeds from Option Exercises and Shares Issued Under Employee Stock Purchase Plan (“ESPP”) —Total proceeds from option exercises and issuance of shares under the ESPP were $26.9 million and $16.3 million in 2023 and 2022, respectively.

The $10.6 million increase was primarily driven by option exercises by former executives.

Payment of Taxes for Restricted Stock Net Settlements —Payments for taxes related to net restricted and performance stock unit settlements were $13.2 million and $16.8 million in 2023 and 2022, respectively.

The $11.4 million decrease was primarily driven by vesting of performance stock units in the prior year by our former chief executive officer who retired in 2018.

The $3.6 million decrease was primarily driven by lower achievement of the performance stock units that vested during 2023 (84% achievement in 2023 compared with 101% achievement in 2022).

Commitments and Contingencies

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(2) Excludes the impact of the interest rate swaps discussed in Note 18 to our consolidated financial statements.

(3) Purchase obligations include commitments for the purchase of Omnipod System components, commitments related to establishing additional manufacturing capabilities, and other commitments for purchases of goods or services in the normal course of business.

(3) Purchase obligations include commitments for the purchase of components for our products, commitments related to establishing additional manufacturing capabilities, and other commitments for purchases of goods or services in the normal course of business.

These commitments are derived from purchase orders, supplier contracts and open orders based on projected demand information.

Off-Balance Sheet Arrangements

As of December 31, 2022, we had various letters of credit totaling $18.6 million.

During 2022, the Company entered into a $20 million uncommitted letter of credit facility.

In conjunction with the execution of an agreement to acquire real estate in Malaysia, including land and building, a letter of credit of $17.2 million was issued under this facility to backstop a bank guarantee for the same amount.

The bank guarantee serves as security for the building while under construction.

In 2022, the Company entered into a $20 million uncommitted letter of credit facility, and concurrently with the execution of an agreement to acquire real estate in Malaysia, a letter of credit of $16.5 million was issued under the facility to backstop a bank guarantee for the same amount.

The bank guarantee serves as security for the building until the Company purchases the property.

In 2023, additional letters of credit totaling $3.5 million were issued under this facility.

In aggregate, we had letters of credit totaling $20.9 million and $18.6 million as of December 31, 2023 and 2022, respectively.

Additional information regarding our letters of credit is provided in Note 19 to the consolidated financial statements.

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If the actual amounts of consideration that we receive differ from our estimates, we adjust our estimates, which affects reported revenue in the period that such variances become known.

Our Drug Delivery product line includes sales of a modified version of the Omnipod to pharmaceutical and biotechnology companies who use our technology as a delivery method for their drugs.

Our Drug Delivery product line includes sales of a modified version of the Pod to pharmaceutical and biotechnology companies who use our technology as a delivery method for their drugs.

Revenue from the Drug Delivery product was $36.0 million for 2023.

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Changes from quarter to quarter in quantity and stage of production of in-process inventory could have a significant quarterly impact on revenue.

We use the asset and liability method of accounting for income taxes.

Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statement carrying amount and tax bases of assets and liabilities and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

Deferred tax assets are recognized for deductible temporary differences, and operating loss and tax credit carryforwards.

Deferred tax liabilities are recognized for taxable temporary differences.

A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

Significant judgement is required in determining whether it is probable that sufficient future taxable income will be available against which a deferred tax asset can be utilized.

In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including cumulative income in recent fiscal years, our forecast of future taxable income exclusive of certain reversing temporary differences and significant risks and uncertainties related to our business.

In determining future taxable income, we are responsible for assumptions utilized including the amount of state, federal and international pre-tax operating income, the reversal of certain temporary differences and the implementation of feasible and prudent tax planning strategies.

These assumptions require significant judgment about the forecasts of future taxable income in applicable tax jurisdictions, which are based on our commercial experience to date and are consistent with the plans and estimates that we are using to manage our underlying business.

As of December 31, 2023, we recorded a full valuation allowance of $202.9 million on our net deferred tax assets because realizability is not more likely than not.

If we determine that the deferred tax assets are realizable in a future period, it would result in material changes to income tax expense in that period.

Product Warranty

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Changes to the actual replacement rates, which are evaluated quarterly, could have a material impact on our estimated warranty reserve.

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

The remaining $54.6 million warranty reserve at December 31, 2022 includes an estimate regarding the number of:

• customers expected to request a replacement Omnipod 5 Controller;

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

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

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

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

Intangible Assets

Certain of our intangible assets have been acquired through business combinations or asset purchases that include multiple components, both of which have required us to perform valuations.

Our valuations involve assumptions, including, revenue and/or revenue growth rates associated with acquired assets, customer attrition rates, discount rate rates, royalty rates, tax rates, expected product development plans, product lifecycles, and obsolescence.

In 2022, we entered into an Asset Purchase Agreement pursuant to which we made a one-time payment of $25.0 million for the acquisition of technology and patents and the release of future obligations to AGC, including any future royalty obligations.

This amount, together with transaction costs, was allocated between the assets acquired and the settlement component based on estimated relative fair value.

The valuation of these intangible assets included assumptions based on future revenues, royalty rates, and obsolescence curves related to our Omnipod 5 product.

In addition, since certain of the intangible assets were classified as defensive assets, the valuation included an assumption related to the probability that a claim made by Insulet would be successful.

As a result of the relative fair value allocation, values of $12.0 million and $9.5 million were assigned to acquired technology and patents, respectively, and the settlement component was estimated to have a value of $3.6 million.

Changes in these assumptions could impact the values assigned to the intangible assets acquired and, accordingly have a material impact on the amount attributed to the settlement component in our results of operations.

Inventory Reserves

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

During 2022, we charged $8.4 million to the consolidated statement of operations for excess and obsolete inventory, including $4.8 million related to the phase-out of Classic Omnipod.

During 2023, we charged $3.7 million to the consolidated statement of operations for excess and obsolete inventory.

The determination of this charge involved assumptions regarding the number of PDMs expected to be utilized to satisfy warranty claims during the phase-out period and the length of time we will continue to offer Classic Omnipod outside the United States.

Accounting Standards Issued and Not Yet Adopted as of December 31, 2023

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures .

ASU 2023-07 requires disclosure of incremental segment information on an annual and interim basis, including enhanced disclosures about significant segment expenses.

We are required to comply with these new disclosure requirements beginning with our annual filing for 2024.

The guidance is applied retrospectively.

We do not plan to early adopt ASU 2023-07.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.

ASU 2023-09 includes improvements to income tax disclosures primarily related to information about rate reconciliation and income taxes paid.

The new guidance requires disclosure of specific categories and greater disaggregation of information in the rate reconciliation and adds a requirement to disaggregate income taxes paid by jurisdiction.

The new guidance also requires disclosure of pretax income disaggregated between domestic and foreign, income tax expense (or benefit) disaggregated by federal, state, and foreign, and removes certain existing disclosure requirements.

We are required to comply with these new disclosure requirements beginning with our annual filing for 2025.

The guidance may be applied on a prospective basis or retrospective basis.

We do not plan to early adopt the requirements of ASU 2023-09.

Forward-Looking Statements

This Annual Report on Form 10-K contains forward-looking statements.

Forward-looking statements relate to future events or our future financial performance.

We generally identify forward looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words.

These statements are only predictions.

We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations, and financial condition.

Forward-looking statements involve risks, uncertainties, and assumptions.

Actual results may differ materially from those expressed in these forward-looking statements.

You should not put undue reliance on any forward-looking statements.

The risk factors discussed in “Risk Factors” could cause our results to differ materially from those expressed in forward-looking statements.

In addition, there may be other risks and uncertainties that we are unable to predict at this time or that we currently do not expect to have a material adverse effect on our business.

This Form 10-K contains forward-looking statements relating to future events or future financial performance that are based on management’s current expectations, estimates, and projections.

Words such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “targets,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar words or expressions are intended to identify these forward-looking statements.

Forward-looking statements are only predictions and involve risks, uncertainties, and assumptions.

Certain factors, including but not limited to those identified under “Item 1A.

Risk Factors” of this Form 10-K, may cause actual results to differ materially from current expectations, estimates, projections, and forecasts, and from past results.

You should not place undue reliance on any forward-looking statements.

We expressly disclaim any obligation to update these forward-looking statements other than as required by law.

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 7. Management’s Discussion and Analysis