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Item 7. Management’s Discussion and Analysis

2025-02-21 compared with 2024-02-23 · 165 added, 192 removed, 154 unchanged (70% 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 continuous insulin delivery system for people with insulin-dependent diabetes.

We are primarily engaged in the development, manufacture, and sale of our proprietary Omnipod product platform, a 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.

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, 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.

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

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

The CGM is sold separately by third parties.

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

We have been phasing-out Classic Omnipod as we launch Omnipod 5.

Our financial objective is to sustain profitable growth.

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

In June 2024, we launched our full market releases of Omnipod 5 in the Netherlands and France, and most recently, in January 2025, we announced that Omnipod 5 is now available in Italy, Denmark, Finland, Norway, and Sweden.

Additionally, 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.

In August 2024, we received FDA clearance for an expanded indication of Omnipod 5 for people with type 2 diabetes.

Due to the positive results of our Omnipod 5 type 2 pivotal trial and the learnings from our Omnipod GO commercial pilot, we made a strategic decision to drive growth in the type 2 diabetes market with Omnipod 5 and, accordingly, decided not to move forward with the commercialization of Omnipod GO.

During 2024, we completed participant enrollment in our RADIANT study in France, the United Kingdom, and Belgium, which is our Omnipod 5 with Libre 2 randomized controlled trial.

Similar to the randomized control trial that we completed in the United States and France for Omnipod 5 with DexCom’s G6 CGM, the objective is to provide data to support our pricing and market access initiatives as we roll out Omnipod 5 with multiple sensors across our international markets.

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.

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 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.

We also 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.

Omnipod 5 integration with Dexcom’s G6 CGM is available in every country where Omnipod 5 is available.

In June 2024, we began our full market release of Omnipod 5 with Dexcom’s G7 CGM in the United States.

Similarly, in June 2024 we launched our full market release of Omnipod 5 with Libre 2 Plus for individuals aged two years and older with type 1 diabetes in both the United Kingdom and Netherlands, where we offer sensor of choice (integration with either Abbott’s Libre 2 Plus or Dexcom’s G6 CGM).

We also now offer sensor of choice in the United States, Italy, Denmark, Finland, Norway, and Sweden.

Additionally, in October 2024, our Omnipod 5 app for iPhone compatible with Dexcom’s G6 CGM became fully available in the United States.

Finally, we continue to take steps to strengthen our global manufacturing capabilities.

In 2024, we began producing product at our newly constructed manufacturing plant in Malaysia.

This plant provides us with increased capacity to satisfy our growing demand, supports our international expansion strategy, and is expected to drive higher gross margins over time.

Results of Operations

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Factors Affecting Operating Results

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.

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

We recently achieved a milestone of 500,000 estimated active global customers using Omnipod products, including 365,000 global customers using Omnipod 5.

The unique patented design of the Omnipod 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.

Following our strategic decision to not move forward with the commercialization of Omnipod GO discussed above, we recorded a charge of $13.5 million related to certain inventory components that we no longer expect to utilize, which is included in our consolidated statement of income for 2024.

In 2022, we issued two voluntary Medical Device Correction (“MDC”) notices, one for our Omnipod DASH PDM related to its battery and the other 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 and, in 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.

Comparison of the Years Ended December 31, 2024 and December 31, 2023

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See “Management’s Use of Non-GAAP Measures.”

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

Total revenue increased $374.5 million, or 22.1%, to $2,071.6 million in 2024, compared with $1,697.1 million in 2023.

Constant currency revenue growth of 21.9% was primarily driven by higher volume largely attributable to our growing customer base and, to a lesser extent, higher price.

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

increased $258.3 million, or 20.6%, in 2024 to $1,509.3 million, compared with $1,251.0 million in 2023.

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.

This increase primarily resulted from higher volume through the pharmacy channel driven by growing our customer base, partially offset by a decrease in estimated inventory days-on-hand at distributors and lower conversions to Omnipod 5.

Inventory days-on-hand declined to more normal levels following an acceleration of orders by U.S.

pharmacy wholesales in advance of the implementation of our new ERP system on January 1, 2024.

We experienced a benefit from conversions to Omnipod 5 in the prior year following the launch of the product in the latter half of 2022 since users generally fill both their Omnipod 5 starter kit and their first month of refills simultaneously.

Conversions to Omnipod 5 declined since the vast majority of U.S.

conversions to Omnipod 5 occurred in 2023.

To a lesser extent, the revenue increase was driven by a higher average selling price resulting from our annual wholesale acquisition cost increase implemented during the second quarter of 2024 and growth in the pharmacy channel.

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

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In 2025, 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.

revenue growth primarily driven by the benefits of our recurring revenue model and continued volume growth of Omnipod 5.

Our recent type 2 indication for Omnipod 5, the launch of Omnipod 5 integrations with both Dexcom’s G7 CGM and Libre 2 Plus, and the launch our Omnipod 5 app for iPhone, are expected to contribute to an increase in our customer base.

International

Revenue from the sale of Omnipod products in our international markets increased $113.3 million, or 27.6%, in 2024 to $523.4 million, compared with $410.1 million in 2023.

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.

Excluding the 0.7% favorable impact of currency exchange, the remaining 26.9% increase in revenue was primarily due to higher volumes from the launches of Omnipod 5 in the United Kingdom and Germany in the prior year, driven by our growing customer base and the favorable impact of conversions to

A higher average selling price for Omnipod 5 compared with Omnipod DASH and Classic Omnipod also contributed to the revenue increase, although to a lesser extent.

In 2025, we expect higher International Omnipod revenue due to continued volume growth driven by new customers and conversions to Omnipod 5 primarily due to the launch of Omnipod 5 in France and the Netherlands, growth from the earlier launches in Germany and the United Kingdom, and the continued roll out of Omnipod 5 in additional markets.

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 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

Drug Delivery revenue increased $2.9 million, or 8.1%, to $38.9 million in 2024, compared with $36.0 million in 2023.

This increase primarily resulted from an increase in orders from our partner, partially offset by a reimbursement from our partner to cover a portion of our increased production costs in the prior year, which did not repeat in the current year.

Costs and Expenses

Years Ended December 31,

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Gross margin was 69.8% in 2024, compared with 68.3% in 2023.

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 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.

The 1.5 point increase in gross margin was primarily driven by pricing benefits in both the U.S.

pharmacy channel and in our international markets, improved manufacturing efficiencies, and procurement savings.

These increases were partially offset by a $13.5 million charge related to certain components utilized in Omnipod GO, which we decided not to commercialize, an $11.5 million accrual reversal during the prior year associated with the voluntary MDC notices we issued in 2022, which did not recur in the current year, and higher costs due to inflation.

We expect gross margin to further increase to approximately 70.5% in 2025 primarily due to improved manufacturing efficiencies.

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 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.

Research and development expenses increased $14.6 million, or 7.1%, to $219.6 million for 2024, compared with $205.0 million for 2023.

Research and development expenses as a percent of revenue decreased to 10.6% in 2024, compared with 12.1% in 2023 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 2025 to increase compared with 2024 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 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.

Selling, general and administrative expenses increased $182.3 million, or 24.8%, to $917.2 million in 2024, compared with $734.9 million in 2023.

This increase was primarily attributable to year-over-year headcount additions to support our growth, international expansion and sustain Omnipod 5, and as a result of our new organizational structure.

To a lesser extent, the increase was due to higher legal fees to defend our intellectual property and support our business growth;

an increase in advertising expense;

higher costs associated with the continued commercial rollout of Omnipod 5 in international markets;

and increases in travel and expenses resulting from headcount additions.

We expect selling, general and administrative expenses to increase in 2025 compared with 2024 due to investments in our operating structure, primarily headcount additions, particularly in the areas of customer support, sales and information technology support, to facilitate continued growth globally.

We also plan to make additional investments to support the Omnipod platform and to continue support the phased launch of Omnipod 5 in our existing international markets and prepare for expansion into new countries.

Non-Operating Items

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.

Interest expense increased $6.5 million to $42.7 million in 2024, compared with $36.2 million in 2023 primarily due to fees paid to amend our Term Loan.

Interest income increased $10.9 million to $39.5 million in 2024, compared with $28.6 million in 2023 primarily driven by increased average cash balances and higher interest rates.

Other (Expense) Income, net

Other expense, net of $5.5 million for 2024 consists primarily of $3.8 million of loss related to fair value adjustments associated with a strategic debt investment.

Other income, net 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.

Income Tax Expense

Income tax expense was $8.3 million on pre-tax income of $214.6 million for 2023 and $5.2 million on pre-tax income of $9.8 million for 2022.

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

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.

Income tax benefit was $118.1 million on pre-tax income of $300.2 million for 2024, compared with income tax expense of $8.3 million on pre-tax income of $214.6 million for 2023.

Our effective tax rate was a benefit of 39.3% for 2024, compared with a provision of 3.9% for 2023.

The decrease in our effective tax rate was primarily due to a $182.5 million non-cash tax benefit from the release of the majority of our valuation allowance against deferred tax assets discussed in Note 22 to our consolidated financial statements and a $8.3 million tax benefit from a research and development tax credit recovery project for the years 2017 through 2022.

These tax benefits were partially offset by a $8.2 million decrease in tax benefits from employee stock-based compensation.

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.

Pillar Two has been 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 2024.

There was no impact on the consolidated financial statements for 2024.

While we do not expect the Pillar Two Model Rules and related legislation to have a material impact on our consolidated financial statements for 2025, we continue to evaluate their potential impact on future years.

Adjusted EBITDA

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Voluntary medical device corrections (1)

Unrealized gains on investments (2)

Legal costs (3)

CEO transition costs (4)

Unrealized loss (gain) on investments (2)

Adjusted EBITDA $ 457.3 $ 329.2

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Refer to Note 13 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.

Refer to Note 19 to our consolidated financial statements for additional information.

(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.

(2) Represents non-operating gain or loss related to fair value adjustments of strategic debt and other investments.

Non-GAAP Financial Measures

Management uses the following non-GAAP financial measures:

Management uses the non-GAAP financial measures described below.

Constant currency revenue growth represents the change in revenue between current and prior year periods using the exchange rate in effect during the applicable prior year period.

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

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.

Adjusted EBITDA represents net income 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, gains (losses) on investments, and loss on extinguishment of debt, which affect the period-to-period comparability of our performances, as applicable.

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

comparative performance from period to period.

Adjusted EBITDA is a commonly used measure in determining business value and we use it internally to report results.

Free cash flow, a non-GAAP measure, represents the cash that we have available to pursue opportunities that we believe enhance shareholder value and is calculated as net cash provided by operating activities less capital expenditures.

Management uses this non-GAAP measure, in addition to U.S.

GAAP financial measures, to evaluate our operating results.

These non-GAAP financial measures should be considered supplemental to, and not a substitute for, our reported financial results prepared in accordance with GAAP.

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Liquidity and Capital Resources

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

Capitalization

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To finance our operations and global expansion, we have periodically issued convertible senior notes, which are convertible into our common stock.

As of December 31, 2023, the following notes were outstanding:

As of December 31, 2024, the following Convertible Senior Notes were outstanding:

Issuance Date Coupon Principal Outstanding

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

In connection with the issuance of the 0.375% Convertible Senior Notes (“0.375% Notes”), we purchased capped call options (“Capped Calls”) on our common stock.

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

In connection with the issuance of the Convertible Senior Notes, we purchased capped call options (“Capped Calls”) on our common stock.

By entering into the Capped Calls, we expect to reduce the potential dilution to our common stock (or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of our cash payment obligation) if at the time of conversion our stock price exceeds the conversion price under the Convertible Senior Notes.

The Capped Calls have an initial strike price of $335.90 per share and cover 3.5 million shares of our common stock.

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At December 31, 2024, no amount was outstanding under the Revolving Credit Facility.

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

It also contains other customary covenants, none of which are considered restrictive to our operations.

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

Additional information regarding our debt is provided in 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.

The Revolving Credit Facility contains a covenant to maintain a specified leverage ratio when there are amounts of at least 35% of the aggregate Revolving Credit Facility outstanding.

It also contains other customary covenants, none of which we consider restrictive to our operations.

Additionally, we have a Term Loan B (“Term Loan”), which matures in 2031, which 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 Notes 15 to the consolidated financial statements.

Summary of Cash Flows

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Financing activities (28.1) (13.6)

Effect of exchange rate changes on cash 1.8 (4.3)

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

Effect of exchange rate changes on cash and cash equivalents

Net increase in cash, cash equivalents, and restricted cash

$ 249.2 $ 14.5

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.

The working capital outflow was driven by a $36.8 million increase in prepaid expenses and other assets, a $51.8 million increase in accounts receivable, and a $49.1 million increase in inventories, partially offset by a $137.6 million increase in accrued expenses and other liabilities.

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

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

pharmacy channel, which has longer payment terms, partially offset by a decrease in unbilled accounts receivable related to lower production volumes of our Drug Delivery product.

The increase in inventories was primarily driven by a planned inventory build to satisfy demand.

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

Net cash provided by operating activities of $430.3 million in 2024 was primarily attributable to net income, as adjusted for deferred income taxes, depreciation and amortization, stock-based compensation expense, and a $17.0 million working capital outflow.

The working capital outflow was driven by a $32.4 million increase in inventories, a $21.9 million increase in prepaid expenses and other assets, and a $10.4 million increase in accounts receivable, partially offset by a $45.5 million increase in accrued expenses and other liabilities.

The increase in inventories was primarily due to a planned inventory build to satisfy our growing demand and, to a lesser extent, to mitigate supply chain risk.

The increase in prepaid expenses and other assets was primarily driven by an increase in prepaid software fees, cloud computing upgrade and implementation costs, prepaid income taxes, and capitalized commissions.

The increase in accounts receivable was primarily due to an increase in sales driven by our growing customer base.

Finally, the increase in accrued expenses and other liabilities was primarily driven by an increase in compensation costs due to headcount additions and an increase in professional consulting fees primarily driven by higher legal costs and direct-to-consumer spending.

Investing Activities

We had $119.4 million of net cash used in investing activities in 2023, compared with $191.1 million in 2022.

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 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.

Net cash used in investing activities was $146.2 million in 2024, compared with $119.4 million in 2023.

Capital Spending —Capital expenditures were $124.9 million and $75.6 million in 2024 and 2023, respectively.

The $49.3 million increase primarily related to the purchase of machinery, equipment and tooling to increase our manufacturing capacity for our new Malaysia manufacturing facility and continuous improvements at our other owned manufacturing facility.

We expect capital expenditures for 2025 to increase compared with 2024 as we continue to expand and optimize our manufacturing and supply chain operations as well as support our global expansion.

We expect to fund our capital expenditures using existing cash.

Investments in Developed Software— Investments in developed software were $9.1 million and $8.5 million in 2024 and 2023, respectively, and primarily related to investments in projects to support our cloud-based capabilities.

Investments —In 2024 and 2023, we made strategic investments in private companies in the amount of $12.2 million and $7.2 million, respectively.

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.

We also paid a purchase price holdback of $3.0 million associated with our 2022 acquisition of substantially all the assets related to the manufacture and production of shape-memory alloy wire assemblies used in the production of our product from Dynalloy, Inc.

Financing Activities

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.

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.

Net cash used in financing activities was $28.1 million in 2024, compared with $13.6 million in 2023.

Debt Issuance and Repayments —In 2024, we refinanced our Term Loan, which resulted in net cash proceeds of $130.0 million, net of issuance costs, and the simultaneous repayment of $132.2 million of the Term Loan.

Refer to Note 15 for more information regarding this refinancing.

Additionally, we made $26.4 million and $27.0 million of aggregate principal payments on our equipment financings, Term Loan, and mortgage in 2024 and 2023, respectively.

Finance Lease Payments —During 2024, we made $22.7 million in finance lease repayments associated with our Malaysia manufacturing facility, including the amount associated with exercising our option to purchase the property.

Proceeds and Repayments from Secured Borrowing —During 2024, we received $45.5 million of cash advances from a third-party to whom we outsource our insurance claim submissions process in a certain country.

Additionally, we repaid $34.8 million of cash advances during 2024.

Proceeds from Exercise of Stock Options —Proceeds from option exercises were $8.2 million and $16.3 million in 2024 and 2023, respectively.

The $8.1 million decrease was primarily driven by option exercises by former executives in the prior year.

Proceeds from Shares Issued Under Employee Stock Purchase Plan (“ESPP”) —Proceeds from the issuance of shares under the ESPP were $11.9 million and $10.6 million in 2024 and 2023, respectively.

Payment of Taxes for Restricted Stock Net Settlements —Payments for taxes related to net restricted and performance stock unit settlements were $7.6 million and $13.2 million in 2024 and 2023, respectively.

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).

The $5.6 million decrease was primarily driven by a lower fair market value of the restricted and performance stock units (“PSUs”) that vested in 2024 compared to the prior year, partially offset by higher achievement of the PSUs that vested in 2024 (111% achievement), compared to in the prior year (84% achievement).

Free Cash Flow

Free cash flow was $305.4 million in 2024, compared with $70.1 million in 2023.

The $235.3 million increase in free cash flow primarily resulted from the $285.8 million increase in gross profit, partially offset by the $49.3 million increase in capital expenditures.

Free cash flow is a non-GAAP measure, which should be considered supplemental to and not a substitute for our reported financial results prepared in accordance with U.S.

See “Non-GAAP Financial Measures .” A reconciliation between net cash provided by operating activities (the most comparable U.S.

GAAP measure) and free cash flow is as follows:

Years Ended December 31,

(in millions) 2024 2023

Net cash provided by operating activities

$ 430.3 $ 145.7

Capital expenditures

(124.9) (75.6)

Free cash flow

$ 305.4 $ 70.1

Commitments and Contingencies

Contractual Obligations —A summary of our contractual obligations and commitments for debt, operating lease obligations and other obligations at December 31, 2023 is presented in the following table:

Contractual Obligations —The following table summarizes our contractual obligations as of December 31, 2024:

(in millions) Short Term Long Term Total

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

Legal Proceedings — In December 2024, a jury found that EOFlow Co., Ltd.

(“EOFlow”) and several other defendants misappropriated certain of our trade secrets and awarded us $452 million in damages.

EOFlow subsequently moved for a directed verdict and for a new trial, as well as for a reduction of the jury award, and we moved for a permanent worldwide injunction on the sale of EOFlow’s EOPatch 2 product and any other products that embody our trade secrets.

EOFlow and other defendants may seek to appeal the verdict.

Further, EOFlow may not be able to satisfy this damage award;

accordingly, it has not been recorded in our consolidated statement of income.

Refer to Note 18 to our consolidated financial statements for additional information regarding this matter.

Off-Balance Sheet Arrangements

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.

Information regarding our letters of credit is provided in Note 18 to the consolidated financial statements.

Critical Accounting Policies and Estimates

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Management’s estimates are based on the relevant information available at the end of each period.

Revenue Recognition

We recognize revenue when a customer obtains control of the promised products in an amount that reflects the net consideration to which we expect to be entitled.

We sell products both through distributors, who resell the products to consumers, and directly to consumers.

Transaction price is typically based on contracted rates less any estimates of claim denials and historical reimbursement experience, guidelines and payor mix, and less estimated variable consideration adjustments, including rebates.

Recognizing revenue requires us to exercise judgment and use estimates that can have a significant impact on the amount and timing of revenue we report.

Pharmacy Rebates

We exercise significant judgment when we determine variable consideration adjustments.

The amount of variable consideration that is included in the transaction price is included in revenue only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

We estimate reductions to our revenues for rebates paid to distributors in the United States and Canada and pharmacy benefit managers (“PBM”) in the United States.

Rebates are based on contractual arrangements, which may vary.

Our estimates are based on products sold, historical experience, trends, specific known market events and, as available, channel inventory data.

Rebates charged against gross sales amounted to $465.5 million, $247.1 million and $143.3 million in 2023, 2022 and 2021, respectively.

Provisions for rebates, sales discounts, and returns are accounted for as a reduction of sales when revenue is recognized and are included within accounts receivable trade or accrued expenses and other current liabilities on our consolidated balance sheets, based upon the recipient of the rebate.

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

Our Drug Delivery product line includes sales of a modified version of the 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.

Revenue for this product line is recognized as the product is produced.

Accounting for Drug Delivery revenue requires us to select a method to measure progress towards the satisfaction of the performance obligation.

This election of the most meaningful measure of progress by which to recognize Drug Delivery revenue requires the application of judgment.

We elected the input method and selected a blend of cost and time to produce as the measure of progress.

Accordingly, revenue is recognized over time using a blend of costs incurred to date relative to total estimated costs at completion and time incurred to date relative to total production time to measure progress toward the satisfaction of our performance obligations.

We believe that both incurred cost and elapsed time reflect the value generated, which best depicts the transfer of control to the customer.

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

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

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.

As discussed in Note 2 to our consolidated financial statements, we are subject to rebates on pricing programs with managed care organizations, such as pharmacy benefit managers, governmental and third-party commercial payors, primarily in the United States.

Reductions to our revenues for rebates on products sold through our distributors under pharmacy benefits are the most significant component of variable consideration.

In addition, pharmacy rebates are most at risk for significant adjustment because of the time delay between the recording of the provision when revenue is recognized and its ultimate settlement, an interval that generally ranges from 30 to 90 days, but can last up to one year.

Our estimates for pharmacy rebates are based on historical experience, revenue growth, distribution channel lag, contract amendments and trends.

Pharmacy rebates charged against gross sales amounted to $452.7 million, $367.3 million, and $175.2 million in 2024, 2023, and 2022, respectively.

When actual pharmacy rebate settlements differ from our estimates, we adjust our estimates, which affects reported revenue in the period that such variances become known.

We estimate our income taxes based on the various jurisdictions where we conduct business.

Significant judgment is required in determining our income tax provision.

The calculation of our tax liabilities involves uncertainties in the application of complex tax laws and regulations and the potential for future adjustments by tax authorities.

While we believe we have appropriate support for the positions taken on our tax returns, we regularly assess the potential outcomes of examinations in determining the adequacy of our provision for income taxes and adjust the income tax provision, income taxes payable, and deferred taxes in the period in which the facts that give rise to a revision become known.

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.

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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

We provide a four-year warranty on our PDMs and Controllers sold in the United States and Europe and a five-year warranty on PDMs sold in Canada.

In addition, we may replace Pods that do not function in accordance with product specifications.

We estimate our warranty obligation at the time the product is shipped based on historical experience and the estimated cost to service the claims, which include the current product cost, reclaim costs, shipping and handling costs and direct and incremental distribution and customer service support costs.

Since we continue to introduce new products and versions, the anticipated performance of the product over the warranty period is also considered in estimating warranty reserves.

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

Inventory Reserves

We reduce the carrying value of inventories for items that are potentially excess, obsolete, or slow-moving based on changes in customer demand, technology developments, or other economic factors in order to state inventories at net realizable value.

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

During 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.

During 2024, we determined that it is more likely than not that we will realize substantially all of our net deferred tax assets after weighing positive and negative evidence to assess recoverability, including cumulative income (loss) position, revenue growth, current profitability, and expectations regarding future forecasted income.

Accordingly, in 2024, we recorded a tax benefit of $182.5 million from the release of our valuation allowance.

As of December 31, 2024, we have a valuation allowance of $23.9 million on certain U.S.

state tax credits and state net operating loss carryforwards because it is more likely than not that those deferred tax assets will not be realized.

Significant judgment is also required to evaluate uncertain tax positions and is based on a number of factors, including changes in facts or circumstances, changes in tax laws, correspondence with tax authorities during the course of audits and effective settlement of audit issues.

Changes in the recognition or measurement of uncertain tax positions could result in a material increase or decrease in our income tax expense in the period in which we make the change, which could have a material impact on our effective rate and results of operations.

Accounting Standards Issued and Not Yet Adopted as of December 31, 2024

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.

In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures , which requires incremental annual income tax disclosures.

The new guidance standardizes categories for the effective tax rate reconciliation and requires disaggregation of income taxes and additional income tax-related disclosures.

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

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.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expenses Disaggregation Disclosures (Subtopic 220-40).

The new guidance requires disaggregated disclosure of expenses included in

certain expense captions presented in the statements of incomes as well as additional disclosures about selling expenses.

We are required to comply with these new disclosure requirements beginning with our annual filing for 2027.

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.

In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20) , which clarifies the requirements for determining whether certain settlements of convertible debt instruments should be accounted for as an induced conversion.

We are required to comply with the updates beginning with our interim and annual filings for 2026.

The adoption of ASU 2024-04 is not expected to impact our consolidated financial statements.

Forward-Looking Statements

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What changed 10-K

Item 7. Management’s Discussion and Analysis