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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________________________________________________
Form 10-Q
 _____________________________________________________
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 001-33462
___________________________________________________________
INSULET CORPORATION
(Exact name of Registrant as specified in its charter)
__________________________________________________________________________________________________
Delaware 04-3523891
(State or Other Jurisdiction of
Incorporation or Organization)		 (I.R.S. Employer
Identification No.)
100 Nagog ParkActonMassachusetts 01720
(Address of Principal Executive Offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (978) 600-7000
________________________________________________________________________________________________________
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒     No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer☒Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.001 Par Value Per SharePODDThe NASDAQ Stock Market, LLC

As of October 27, 2022, the registrant had 69,448,703 shares of common stock outstanding.



TABLE OF CONTENTS
 
Condensed Consolidated Balance Sheets (Unaudited) as of September 30, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2022 and 2021
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the three and nine months ended September 30, 2022 and 2021
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three and nine months ended September 30, 2022 and 2021
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2022 and 2021

Table of Contents
PART I - FINANCIAL INFORMATION
Item 1.
Condensed Consolidated Financial Statements (Unaudited)
INSULET CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in millions, except share and per share data)September 30, 2022December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents$722.0 $791.6 
Accounts receivable trade, less allowance for credit losses of $2.9 and $2.7
153.1 135.2 
Accounts receivable trade, net — related party48.3 25.8 
Inventories327.6 303.2 
Prepaid expenses and other current assets78.1 74.0 
Total current assets1,329.1 1,329.8 
Property, plant and equipment, net553.1 536.5 
Other intangible assets, net53.7 36.6 
Goodwill51.6 39.8 
Other assets178.7 106.1 
Total assets$2,166.2 $2,048.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable$62.1 $37.7 
Accrued expenses and other current liabilities241.7 164.3 
Accrued expenses and other current liabilities — related party3.5 1.7 
Current portion of long-term debt26.9 25.1 
Total current liabilities334.2 228.8 
Long-term debt, net1,379.8 1,248.8 
Other liabilities24.2 14.9 
Total liabilities1,738.2 1,492.5 
Commitments and contingencies (Note 12)
Stockholders’ Equity
Preferred stock, $.001 par value, 5,000,000 authorized; none issued and outstanding
— — 
Common stock, $.001 par value, 100,000,000 authorized; 69,431,159 and 69,178,691 issued and outstanding
0.1 0.1 
Additional paid-in capital1,022.4 1,207.9 
Accumulated deficit(601.3)(649.5)
Accumulated other comprehensive income (loss)6.8 (2.2)
Total stockholders’ equity428.0 556.3 
Total liabilities and stockholders’ equity$2,166.2 $2,048.8 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Table of Contents
INSULET CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
 
 Three Months Ended September 30,Nine Months Ended September 30,
(in millions, except share and per share data)2022202120222021
Revenue$281.9 $261.8 $772.8 $771.8 
Revenue from related party58.9 13.8 162.8 19.3 
Total revenue340.8 275.6 935.6 791.1 
Cost of revenue152.5 86.9 347.3 252.2 
Gross profit188.3 188.7 588.3 538.9 
Research and development expenses45.0 37.5 130.7 118.3 
Selling, general and administrative expenses140.4 117.5 443.5 344.3 
Operating income2.9 33.7 14.1 76.3 
Interest expense, net(6.8)(16.3)(24.0)(46.1)
Loss on extinguishment of debt— (1.5)— (41.6)
Other expense, net(1.8)(0.7)(2.6)(1.5)
(Loss) income before income taxes(5.7)15.2 (12.5)(12.9)
Income tax benefit (expense)0.5 (2.6)0.1 0.5 
Net (loss) income$(5.2)$12.6 $(12.4)$(12.4)
Net (loss) income per share:
Basic$(0.08)$0.18 $(0.18)$(0.18)
Diluted$(0.08)$0.18 $(0.18)$(0.18)
Weighted-average number of common shares outstanding
(in thousands):
Basic69,418 68,869 69,343 67,236 
Diluted69,418 69,619 69,343 67,236 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INSULET CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
 Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2022202120222021
Net (loss) income$(5.2)$12.6 $(12.4)$(12.4)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment(11.6)(4.4)(24.9)(8.3)
Unrealized gain (loss) on cash flow hedges11.2 0.3 33.9 (0.3)
Unrealized loss on available-for-sale securities— — — (0.3)
Total other comprehensive (loss) income, net of tax(0.4)(4.1)9.0 (8.9)
Comprehensive (loss) income$(5.6)$8.5 $(3.4)$(21.3)
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INSULET CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(UNAUDITED)

Three Months Ended September 30, 2022
 Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive IncomeTotal
Shareholders’
Equity
(dollars in millions)Shares
(in thousands)		Amount
Balance at June 30, 202269,386 $0.1 $1,011.2 $(596.1)$7.2 $422.4 
Exercise of options to purchase common stock43 — 2.4 — — 2.4 
Stock-based compensation expense— — 9.0 — — 9.0 
Restricted stock units vested, net of shares withheld for taxes2 — (0.2)— — (0.2)
Net loss— — — (5.2)— (5.2)
Other comprehensive loss— — — — (0.4)(0.4)
Balance at September 30, 202269,431 $0.1 $1,022.4 $(601.3)$6.8 $428.0 

Three Months Ended September 30, 2021
 Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
(dollars in millions)Shares
(in thousands)		Amount
Balance at June 30, 202168,610 $0.1 $1,149.6 $(691.3)$0.7 $459.1 
Exercise of options to purchase common stock95 — 4.3 — — 4.3 
Stock-based compensation expense— — 8.2 — — 8.2 
Restricted stock units vested, net of shares withheld for taxes2 — (0.2)— — (0.2)
Extinguishment of conversion feature on 1.375% Notes, net of issuance costs
— — (41.7)— — (41.7)
Issuance of shares for debt extinguishment215 — 59.7 — — 59.7 
Net income— — — 12.6 — 12.6 
Other comprehensive loss— — — — (4.1)(4.1)
Balance at September 30, 202168,922 $0.1 $1,179.9 $(678.7)$(3.4)$497.9 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Nine Months Ended September 30, 2022
 Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive (Loss) IncomeTotal
Shareholders’
Equity
(dollars in millions)Shares
(in thousands)		Amount
Balance at December 31, 202169,179 $0.1 $1,207.9 $(649.5)$(2.2)$556.3 
Adoption of ASU 2020-06 (Note 1)— — (207.7)60.6 — (147.1)
Exercise of options to purchase common stock95 — 4.3 — — 4.3 
Issuance of shares for employee stock purchase plan27 — 4.9 — — 4.9 
Stock-based compensation expense— — 29.7 — — 29.7 
Restricted stock units vested, net of shares withheld for taxes130 — (16.7)— — (16.7)
Net loss— — — (12.4)— (12.4)
Other comprehensive income— — — — 9.0 9.0 
Balance at September 30, 202269,431 $0.1 $1,022.4 $(601.3)$6.8 $428.0 

Nine Months Ended September 30, 2021
 Common StockAdditional
Paid-in
Capital		Accumulated
Deficit		Accumulated Other Comprehensive Income (Loss)Total
Shareholders’
Equity
(dollars in millions)Shares
(in thousands)		Amount
Balance at December 31, 202066,017 $0.1 $1,264.3 $(666.3)$5.5 $603.6 
Exercise of options to purchase common stock259 — 10.5 — — 10.5 
Issuance of shares for employee stock purchase plan17 — 3.9 — — 3.9 
Stock-based compensation expense— — 25.8 — — 25.8 
Restricted stock units vested, net of shares withheld for taxes172 — (27.6)— — (27.6)
Extinguishment of conversion feature on 1.375% Notes, net of issuance costs
— — (779.4)— — (779.4)
Issuance of shares for debt extinguishment2,457 — 682.4 — — 682.4 
Net loss— — — (12.4)— (12.4)
Other comprehensive loss— — — — (8.9)(8.9)
Balance at September 30, 202168,922 $0.1 $1,179.9 $(678.7)$(3.4)$497.9 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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INSULET CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine Months Ended September 30,
(in millions)20222021
Cash flows from operating activities
Net loss$(12.4)$(12.4)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization47.0 42.5 
Stock-based compensation expense29.7 25.8 
Non-cash interest expense4.3 31.9 
Loss on extinguishment of debt— 41.6 
Provision for credit losses3.1 2.8 
Other1.1 0.2 
Changes in operating assets and liabilities:
Accounts receivable(28.3)(25.9)
Accounts receivable — related party(22.5)(14.1)
Inventories(34.5)(108.1)
Prepaid expenses and other assets(32.1)(28.2)
Accounts payable23.3 6.0 
Accrued expenses and other liabilities87.8 (5.6)
Accrued expenses and other liabilities — related party1.8 0.9 
Net cash provided by (used in) operating activities68.3 (42.6)
Cash flows from investing activities
Capital expenditures(58.5)(80.1)
Acquisition of intangible assets(10.4)(5.7)
Acquisition(26.0)— 
Cash paid for investments(7.8)— 
Receipts from the maturity or sale of marketable securities— 39.5 
Net cash used in investing activities(102.7)(46.3)
Cash flows from financing activities
Proceeds from issuance of convertible debt, net of issuance costs— 489.5 
Repayment of convertible debt— (460.8)
Proceeds from equipment financing, net— 43.1 
Repayment of equipment financings(13.0)(9.6)
Repayment of mortgage(1.6)(1.5)
Repayment of term loan(3.7)(1.3)
Payment of debt issuance costs— (4.0)
Proceeds from exercise of stock options4.3 10.5 
Proceeds from issuance of common stock under employee stock purchase plan4.9 3.9 
Payment of withholding taxes in connection with vesting of restricted stock units(16.7)(27.6)
Net cash (used in) provided by financing activities(25.8)42.2 
Effect of exchange rate changes on cash(9.1)(3.9)
Net decrease in cash, cash equivalents and restricted cash(69.3)(50.6)
Cash, cash equivalents and restricted cash at beginning of period (Note 3)
806.4 922.0 
Cash, cash equivalents and restricted cash at end of period (Note 3)
$737.1 $871.4 
Supplemental noncash information:
Purchases of property and equipment included in accounts payable and accrued expenses$6.0 $3.2 
Purchases of intangible assets included in accounts payable and accrued expenses$0.8 $7.3 
Lease liabilities arising from obtaining right-of-use assets$12.1 $0.5 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INSULET CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1. Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying financial statements reflect the consolidated operations of Insulet Corporation and its subsidiaries (“Insulet” or the “Company”). The unaudited consolidated financial statements have been prepared in United States dollars, in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of the consolidated financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results may differ from those estimates. In management’s opinion, the unaudited consolidated financial statements contain all normal recurring adjustments necessary for a fair statement of the interim results reported. Operating results for the nine months ended September 30, 2022 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2022, or for any other subsequent interim period.
The year-end balance sheet data was derived from audited consolidated financial statements. These unaudited consolidated financial statements do not include all of the annual disclosures required by GAAP; accordingly, they should be read in conjunction with the Company’s audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.
Reclassification of Prior Period Amounts
Certain reclassifications have been made to prior period amounts to conform to the current period financial statement presentation. The Company reclassified the change in unbilled receivables from the change in prepaid expenses and other current assets to the change in accounts receivable in the prior year statement of cash flows in the amount of $4.5 million. There was no change to previously reported net cash used in operating activities.
Investments
The Company has investments in privately-held companies in which the Company’s interest is less than 20%, the Company does not exercise significant influence over the investee, and the investment does not have a readily determinable fair value. These investments are carried at cost less impairment, if any. If an observable price change is identified, the investment is measured at its fair value as of the date that the observable transaction occurred with the adjustments reflected in other (expense) income in the Company’s consolidated statements of operations.
In January and May 2022, the Company made strategic investments in two companies in the amount of $5.0 million and $2.8 million, respectively. As of September 30, 2022 and December 31, 2021, the total carrying value of the Company’s investments was $8.7 million and $0.9 million, respectively.
Shipping and Handling Costs
Shipping and handling costs included in selling, general and administrative expenses were $3.5 million and $2.8 million for the three months ended September 30, 2022 and 2021, respectively, and were $9.7 million and $7.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Fair Value Measurements
Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market in an orderly transaction between market participants on the measurement date. To measure fair value of assets and liabilities, the Company uses the following fair value hierarchy based on three levels of inputs:
Level 1—observable inputs, such as quoted prices in active markets for identical assets or liabilities;
Level 2—significant other observable inputs that are observable either directly or indirectly; and
Level 3—significant unobservable inputs for which there are little or no market data, which require the Company to develop its own assumptions.
Certain of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and other liabilities are carried at cost, which approximates their fair value because of their short-term maturity. See Notes 3 and 10 for financial assets and liabilities held at carrying amount on the consolidated balance sheet and Note 11 for derivative instruments measured at fair value on a recurring basis.
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Recently Adopted Accounting Standard
Effective January 1, 2022, the Company adopted Accounting Standards Update (“ASU”) 2020-06, Debt - Debt With Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity using the modified retrospective method for convertible debt instruments outstanding as of the date of adoption. Under ASU 2020-06, a convertible debt instrument is generally reported as a single liability at its amortized cost with no separate accounting for embedded conversion features. Consequently, the effective interest rate of convertible debt instruments is closer to the coupon interest rate under the new guidance. The following table shows the adjustments made to the consolidated balance sheet as of January 1, 2022 as a result of adopting the new guidance.
(in millions)As Reported
Prior to ASU 2020-06		AdjustmentsAs Adjusted
Under ASU 2020-06
December 31, 2021January 1, 2022January 1, 2022
Long-term debt, net (1)
$1,248.8 $147.1 $1,395.9 
Additional paid-in-capital (2)
$1,207.9 $(207.7)$1,000.2 
Accumulated deficit (3)
$(649.5)$60.6 $(588.9)
(1) The increase in debt resulted from the derecognition of the discount associated with the embedded conversion feature, offset by the remaining debt issuance costs reclassified out of equity.
(2) The decrease in additional paid-in-capital resulted from the derecognition of the embedded conversion feature and debt issuance costs bifurcated to equity.
(3) The decrease to accumulated deficit represents the cumulative interest expense recognized related to the amortization of the bifurcated conversion option and debt issuance costs.
In addition to the adjustments in the table above, the Company wrote-off the related deferred tax liabilities with a corresponding adjustment to the valuation allowance, resulting in no net impact to the cumulative adjustment recorded to accumulated deficit. Adoption of this standard had no impact on the Company’s diluted earnings per share as the Company historically calculated earnings per share using the if-converted method.
Note 2. Revenue and Contract Acquisition Costs
The following table summarizes the Company’s disaggregated revenue:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2022202120222021
U.S. Omnipod$238.1 $167.2 $608.6 $461.0 
International Omnipod88.0 93.1 272.8 274.6 
Total Omnipod326.1 260.3 881.4 735.6 
Drug Delivery14.7 15.3 54.2 55.5 
Total revenue$340.8 $275.6 $935.6 $791.1 
The percentages of total revenue for customers that represent 10% or more of total revenue were as follows:
Three Months Ended September 30,Nine Months Ended September 30,

2022202120222021
Distributor A17%*18%*
Distributor B18%14%16%12%
Distributor C***13%
Distributor D17%*15%*
Distributor E10%***
* Represents less than 10% of revenue for the period.
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Deferred revenue related to unsatisfied performance obligations was included in the following consolidated balance sheet accounts in the amounts shown:
(in millions)
September 30, 2022December 31, 2021
Accrued expenses and other current liabilities$9.0 $3.5 
Other liabilities1.5 1.5 
Total deferred revenue$10.5 $5.0 
Revenue recognized from amounts included in deferred revenue at the beginning of each respective period was as follows:
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2022202120222021
Deferred revenue recognized$0.3 0.1 $1.8 4.0 
Contract acquisition costs, representing capitalized commission costs related to new customers, net of amortization, were included in the following consolidated balance sheet captions in the amounts shown:
(in millions)September 30, 2022December 31, 2021
Prepaid expenses and other current assets$14.2 $13.3 
Other assets28.2 26.1 
Total capitalized contract acquisition costs, net$42.4 $39.4 
The Company recognized $3.7 million and $3.2 million of amortization of capitalized contract acquisition costs during the three months ended September 30, 2022 and 2021, respectively. The Company recognized $10.7 million and $9.1 million of amortization of capitalized contract acquisition costs during the nine months ended September 30, 2022 and 2021, respectively.
Note 3. Cash and Cash Equivalents
The following table provides a summary of cash and cash equivalents:
(in millions)September 30, 2022December 31, 2021
Cash$117.7 $159.3 
Money market mutual funds553.4 630.7 
Time deposits50.4 — 
Restricted cash0.5 1.6 
Total cash and cash equivalents722.0 791.6 
Restricted cash included in other assets15.1 14.8 
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows$737.1 $806.4 
The restricted cash included in other assets on the consolidated balance sheet is primarily held as a compensating balance against long-term borrowings.
All cash and cash equivalents are Level 1 in the fair value hierarchy.
Certain of the Company’s subsidiaries participate in a multi-currency, notional cash pooling arrangement with a third-party bank provider to manage global liquidity requirements. Under this arrangement, which began in August 2022, cash deposited by participating subsidiaries may be used to offset amounts owed to the bank by other participating subsidiaries to the extent the overall balance in the cash pool is at least zero, providing legal rights of offset. As of September 30, 2022, the Company had a net cash position of approximately $0.2 million, consisting of a gross cash position of approximately $43.2 million less cash borrowings of approximately $43.0 million by participating subsidiaries, which is reflected as cash and cash equivalents in the consolidated balance sheet.
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Note 4. Accounts Receivable, Net
At the end of each period, net accounts receivable were comprised of the following:
(in millions)September 30, 2022December 31, 2021
Accounts receivable trade, net$125.9 $101.2 
Unbilled receivable27.2 34.0 
Accounts receivable, net$153.1 $135.2 
The percentages of total net accounts receivable trade for customers that represent 10% or more of total net accounts receivable trade were as follows:

September 30, 2022December 31, 2021
Distributor A28%21%
Distributor B10%*
Distributor D24%15%
* Represents less than 10% of net accounts receivable trade as of period end.
Note 5. Inventories
At the end of each period, inventories were comprised of the following:
(in millions)September 30, 2022December 31, 2021
Raw materials$86.1 $70.0 
Work in process66.5 112.6 
Finished goods175.0 120.6 
    Total inventories$327.6 $303.2 
Note 6. Cloud Computing Costs
Capitalized costs to implement cloud computing arrangements at cost and accumulated amortization were as follows: 
(in millions)September 30, 2022December 31, 2021
Short-term portion$17.3 $18.4 
Long-term portion78.7 49.2 
Total capitalized implementation costs96.0 67.6 
Less: accumulated amortization(13.2)(4.4)
Capitalized implementation costs, net$82.8 $63.2 
Amortization expense is recognized on a straight-line basis over the expected term of the hosting arrangements, which range from three to five years. Amortization expense was $3.8 million and $0.8 million for the three months ended September 30, 2022 and 2021, respectively, and was $8.8 million and $2.1 million for the nine months ended September 30, 2022 and 2021, respectively.
Note 7. Acquisition
On January 3, 2022, the Company acquired substantially all of the assets related to the manufacture and production of Shape-Memory Alloy (“SMA”) wire assemblies that are used in the production of Omnipods from Dynalloy, Inc., a maker of dynamic alloys. The aggregate purchase price was $29.0 million, of which $26.0 million was paid in cash upon closing. The Company retained the remaining $3.0 million as a holdback to satisfy any post-closing working capital adjustment and to secure the seller’s indemnification obligations under the purchase agreement. The Company will release any remaining holdback funds to the seller twelve months from the closing date. Transaction costs were expensed as incurred and were not material.
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The following table summarizes the fair value allocation of the assets acquired at the date of acquisition:
(in millions)
Inventories$0.5 
Property, plant and equipment0.9 
Other assets0.2 
Goodwill (tax deductible)12.0 
Developed technology (15 year useful life)
15.4 
Total assets acquired$29.0 
The primary factor that contributed to an acquisition price in excess of the fair value of assets acquired and the establishment of goodwill was the expected cost savings resulting from the integration of a supplier.
Note 8. Goodwill and Other Intangible Assets, Net
The change in the carrying amount of goodwill for the period is as follows:
(in millions)
Goodwill at December 31, 2021$39.8 
Acquisition (Note 7)12.0 
Foreign currency translation(0.2)
Goodwill at September 30, 2022$51.6 
The gross carrying amount, accumulated amortization and net book value of intangible assets at the end of each period were as follows:
September 30, 2022December 31, 2021
(in millions)
Gross
Carrying Amount		Accumulated AmortizationNet
Book Value		Gross
Carrying Amount		Accumulated AmortizationNet
Book Value
Customer relationships$43.2 $(26.4)$16.8 $43.4 $(23.4)$20.0 
Internal-use software32.8 (11.6)21.2 25.5 (10.2)15.3 
Developed technology15.4 (0.8)14.6 — — — 
Intellectual property1.4 (0.3)1.1 1.6 (0.3)1.3 
Total intangible assets$92.8 $(39.1)$53.7 $70.5 $(33.9)$36.6 
Amortization expense for intangible assets was $1.9 million and $1.6 million for the three months ended September 30, 2022 and 2021, respectively. Amortization expense for intangible assets was $5.4 million and $5.1 million for the nine months ended September 30, 2022 and 2021, respectively.
Note 9. Accrued Expenses and Other Current Liabilities
The components of accrued expenses and other current liabilities were as follows:
(in millions)September 30, 2022December 31, 2021
Employee compensation and related costs$68.5 $70.3 
Accrued rebates58.6 28.7 
Warranty liability - current portion39.5 2.4 
Professional and consulting services25.0 22.8 
Other50.1 40.1 
Accrued expenses and other current liabilities$241.7 $164.3 
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Product Warranty Costs
The Company provides a four-year warranty on Personal Diabetes Managers (“PDMs”) and Controllers sold in the United States and PDMs sold in Europe, a five-year warranty on PDMs sold in Canada, and may replace Pods that do not function in accordance with product specifications. The Company estimates its warranty obligation at the time the product is shipped based on historical experience and the estimated cost to service the claims. Since the Company continues to introduce new products and versions, the anticipated performance of the product over the warranty period is also considered in estimating warranty reserves. Warranty expense is recorded in cost of revenue in the consolidated statements of operations. Cost to service the claims reflects the current product cost. Reconciliations of the changes in the Company’s product warranty liability were as follows: 
Three Months Ended September 30,Nine Months Ended September 30,
(in millions)2022202120222021
Product warranty liability at beginning of period$11.6 $6.5 $6.8 $6.7 
Warranty expense - other3.4 3.0 14.5 7.9 
Warranty expense - voluntary medical device correction36.8 — 36.8 — 
Change in estimate(3.1)— (3.1)— 
Warranty claims settled(3.9)(2.8)(10.2)(7.9)
Product warranty liability at the end of period$44.8 $6.7 $44.8 $6.7 
In October 2022, the Company issued a voluntary medical device correction notice for its Omnipod DASH PDM relating to its battery. The Company accrued an estimated liability of $36.8 million related to this issue during the three and nine months ended September 30, 2022, the majority of which represents product, reclaim and shipping and handling costs and the remainder of which represents incremental distribution and customer service support costs.
Note 10. Debt
The components of debt consisted of the following:
(in millions)
September 30, 2022December 31, 2021
0.375% Convertible Senior Notes due September 2026
$800.0 $800.0 
Term loan due May 2028493.8 497.5 
Revolving Credit Facility expires May 2024— — 
Equipment financing due May 202411.2 16.0 
Equipment financing due November 202524.3 29.6 
Equipment financing due July 202835.3 38.2 
5.15% Mortgage due November 2025
66.1 67.7 
Unamortized debt discount(8.0)(159.9)
Debt issuance costs(16.0)(15.2)
Total debt, net1,406.7 1,273.9 
Less: current portion26.9 25.1 
Total long-term debt, net$1,379.8 $1,248.8 
0.375% Convertible Senior Notes
The Company’s 0.375% Convertible Senior Notes due September 2026 (the “Notes”) have an effective interest rate of 0.76%. The Notes are convertible into the Company’s common stock at an initial conversion rate of 4.4105 shares of common stock per $1,000 principal amount of the notes, which is equivalent to a conversion price of $226.73 per share, subject to adjustment under certain circumstances. The notes will be convertible June 1, 2026 through August 28, 2026 by its holders for any reason, and prior to then under certain circumstances, and be settled with cash, shares, or a combination of both.
Additional interest of 0.5% per annum is payable if the Company fails to timely file required documents or reports with the Securities and Exchange Commission (“SEC”). If the Company merges or consolidates with a foreign entity, the Company may be required to pay additional taxes. The Company determined that the higher interest payments and tax payments required in certain circumstances were embedded derivatives that should be bifurcated and accounted for at fair value. The Company assessed the value of the embedded derivatives at each balance sheet date and determined it had nominal value.
In conjunction with the issuance of the Notes, the Company paid $85.4 million to enter into capped call options (“Capped Calls”) on the Company’s common stock with certain counterparties, which was recorded as a reduction to additional paid-in capital on the
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consolidated balance sheet. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its common stock (or, in the event the conversion is settled in cash, to provide a source of cash to settle a portion of its cash payment obligation) in the event that at the time of conversion its stock price exceeds the conversion price under the Notes. The Capped Calls have an initial strike price of $335.90 per share, which represents a premium of 100% over the last reported sale price of the Company’s common stock of $167.95 per share on the date of the transaction. The Capped Calls cover 3.5 million shares of common stock.
Senior Secured Credit Agreement
In May 2022, the Company increased the borrowing capacity under the Revolving Credit Facility by $10.0 million bringing the total borrowing capacity to $70.0 million.
1.375% Convertible Senior Notes
During the three months ended June 30, 2021, the Company repurchased $370.4 million in principal ($305.7 million net of discount and issuance costs) of its 1.375% Convertible Senior Notes due November 2024 (“1.375% Notes”) for $460.8 million in cash and the issuance of 2.2 million shares with a fair value of $622.7 million. The debt repurchase resulted in a $40.1 million loss on extinguishment, including cash paid to the note holders as an inducement to convert and transaction costs.
During the three months ended September 30, 2021, $20.0 million in principal of the 1.375% Notes were converted into approximately 215,000 shares with a fair value of $59.7 million. The conversion resulted in a $1.5 million loss on extinguishment of debt.
Fair Value of Debt
The carrying amount and the estimated fair value of the Company’s debt were as follows:
September 30, 2022December 31, 2021
(in millions)
Carrying
Value		Estimated
Fair Value		Carrying
Value
Estimated
Fair Value (1)
0.375% Convertible Senior Notes (1)
$788.1 $809.4 $638.8 $938.8 
Term loan (2)
482.9 481.4 485.2 498.1 
Equipment Financings (3)
70.8 70.8 83.7 83.7 
5.15% Mortgage (3)
64.9 64.9 66.2 66.2 
  Total$1,406.7 $1,426.5 $1,273.9 $1,586.8 
(1) The Notes are classified as Level 2 in the fair value hierarchy. Fair value was determined using the Company’s quoted stock price and the contractual conversion rate.
(2) Term debt is classified as Level 1 in the fair value hierarchy. Fair value was determined using quoted market prices.
(3) The equipment financings and mortgage are classified as Level 3 in the fair value hierarchy. The fair values were determined using the cost bases of the financial liabilities, which approximate their carrying values.
Note 11. Derivative Instruments
The Company manages interest rate exposure through the use of interest rate swap transactions with financial institutions acting as principal counterparties. Under the Company’s interest rate swap agreements that expire on April 30, 2025, the Company receives variable rate interest payments and pays fixed interest rates of 0.95% and 0.96% on a total notional value of $480.0 million of its Term Loan. The Company has designated the interest rate swaps as cash flow hedges.
The fair value of interest rate swaps, which are classified as Level 2 in the fair value hierarchy, represent the estimated amounts the Company would receive or pay to terminate the contracts and is determined using industry standard valuation models and market-based observable inputs, including credit risk and interest rate yield curves. The fair value of the interest rate swaps was $38.4 million and $4.5 million at September 30, 2022 and December 31, 2021, respectively, and was included in other assets on the consolidated balance sheets.
Note 12. Commitments and Contingencies
Legal Proceedings
In June 2020, Roche Diabetes Care, Inc. (“Roche”) filed a patent infringement lawsuit against the Company in the United States District Court for the District of Delaware alleging that the Company’s manufacture and sale of its Omnipod Insulin Management System, including OmniPods, Personal Diabetes Managers, and other components of the system, and kits in the United States infringed Roche’s expired U.S. Patent 7,931,613. Roche was seeking monetary damages and attorneys’ fees and costs. In July 2022, the Company entered into a Settlement and License Agreement (the “Settlement Agreement”) with Roche to settle the pending
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litigation. Pursuant to the Settlement Agreement, in exchange for a release of claims, mutual covenant not to sue for five years, and license to the patent in suit from Roche, the Company made a one-time payment of $20 million to Roche. On July 12, 2022, following the filing by the parties of a Stipulation of Dismissal, the Court ordered the case dismissed with prejudice. The $20 million charge is included in selling, general and administrative expenses for the nine months ended September 30, 2022.
The Company is, from time to time, involved in the normal course of business in various legal proceedings, including intellectual property, contract, employment and product liability suits. The Company does not expect the outcome of these proceedings, either individually or in the aggregate, to have a material adverse effect on its results of operations.
Contract Dispute
The Company is engaged in negotiations over a contractual dispute involving in-licensed intellectual property. Offers to settle the dispute have been made by both the Company and the other party ranging from $5.7 million to $36 million. In connection with discussions to resolve this matter, during the nine months ended September 30, 2022, the Company accrued an estimated liability of $5.7 million. The ultimate resolution of this matter is uncertain and could have a material effect on the Company’s results of operations.
Note 13. Stock-Based Compensation Expense
Compensation expense related to stock-based awards was recorded as follows: