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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 June 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: (978600-7000
________________________________________________________________________________________________________
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 filerAccelerated filer
Non-accelerated filerSmaller 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 July 29, 2022, the registrant had 69,403,602 shares of common stock outstanding.




TABLE OF CONTENTS
 
Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2022 and December 31, 2021
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2022 and 2021
Condensed Consolidated Statements of Comprehensive (Loss) Income (Unaudited) for the three and six months ended June 30, 2022 and 2021
Condensed Consolidated Statements of Stockholders' Equity (Unaudited) for the three and six months ended June 30, 2022 and 2021
Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 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)June 30, 2022December 31, 2021
ASSETS
Current Assets
Cash and cash equivalents$708.6 $791.6 
Accounts receivable trade, less allowance for credit losses of $3.1 and $2.7
154.1 135.2 
Accounts receivable trade, net — related party52.5 25.8 
Inventories320.4 303.2 
Prepaid expenses and other current assets73.5 74.0 
Total current assets1,309.1 1,329.8 
Property, plant and equipment, net535.8 536.5 
Other intangible assets, net55.1 36.6 
Goodwill51.8 39.8 
Other assets161.9 106.1 
Total assets$2,113.7 $2,048.8 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities
Accounts payable$57.2 $37.7 
Accrued expenses and other current liabilities192.5 164.3 
Accrued expenses and other current liabilities — related party3.3 1.7 
Current portion of long-term debt26.3 25.1 
Total current liabilities279.3 228.8 
Long-term debt, net1,385.2 1,248.8 
Other liabilities26.8 14.9 
Total liabilities1,691.3 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; 69,386,057 and 69,178,691 issued and outstanding
0.1 0.1 
Additional paid-in capital1,011.2 1,207.9 
Accumulated deficit(596.1)(649.5)
Accumulated other comprehensive income (loss)7.2 (2.2)
Total stockholders’ equity422.4 556.3 
Total liabilities and stockholders’ equity$2,113.7 $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 June 30,Six Months Ended June 30,
(in millions, except share and per share data)2022202120222021
Revenue$243.9 $259.9 $490.9 $510.0 
Revenue from related party55.5 3.3 103.9 5.5 
Total revenue299.4 263.2 594.8 515.5 
Cost of revenue109.1 80.5 194.8 165.3 
Gross profit190.3 182.7 400.0 350.2 
Research and development expenses42.6 40.1 85.7 80.8 
Selling, general and administrative expenses174.4 116.3 303.1 226.8 
Operating (loss) income(26.7)26.3 11.2 42.6 
Interest expense, net(8.3)(16.4)(17.2)(29.8)
Loss on extinguishment of debt (40.1) (40.1)
Other (expense) income, net(1.1)1.8 (0.8)(0.8)
Loss before income taxes(36.1)(28.4)(6.8)(28.1)
Income tax benefit (expense)1.1 3.4 (0.4)3.1 
Net loss$(35.0)$(25.0)$(7.2)$(25.0)
Net loss per share:
Basic$(0.50)$(0.37)$(0.10)$(0.38)
Diluted$(0.50)$(0.37)$(0.10)$(0.38)
Weighted-average number of common shares outstanding
(in thousands):
Basic69,356 66,696 69,305 66,406 
Diluted69,356 66,696 69,305 66,406 
The accompanying notes are an integral part of these condensed consolidated financial statements.
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INSULET CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
(UNAUDITED)
 Three Months Ended June 30,Six Months Ended June 30,
(in millions)2022202120222021
Net loss$(35.0)$(25.0)$(7.2)$(25.0)
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustment(9.6)(1.8)(13.3)(3.9)
Unrealized gain (loss) on cash flow hedges4.6 (0.6)22.7 (0.6)
Unrealized loss on available-for-sale securities (0.1) (0.3)
Total other comprehensive (loss) income, net of tax(5.0)(2.5)9.4 (4.8)
Comprehensive (loss) income$(40.0)$(27.5)$2.2 $(29.8)
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 June 30, 2022
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated Other Comprehensive IncomeTotal
Shareholders’
Equity
(dollars in millions)Shares
(in thousands)
Amount
Balance at March 31, 202269,320 $0.1 $995.5 $(561.1)$12.2 $446.7 
Exercise of options to purchase common stock24 — 0.8 — — 0.8 
Issuance of shares for employee stock purchase plan27.0 — 4.9 — — 4.9 
Stock-based compensation expense— — 11.2 — — 11.2 
Restricted stock units vested, net of shares withheld for taxes15.0 — (1.2)— — (1.2)
Net loss— — — (35.0)— (35.0)
Other comprehensive loss— — — — (5.0)(5.0)
Balance at June 30, 202269,386 $0.1 $1,011.2 $(596.1)$7.2 $422.4 

Three Months Ended June 30, 2021
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated Other Comprehensive IncomeTotal
Shareholders’
Equity
(dollars in millions)Shares
(in thousands)
Amount
Balance at March 31, 202166,213 $0.1 $1,248.3 $(666.3)$3.2 $585.3 
Exercise of options to purchase common stock121 — 4.7 — — 4.7 
Issuance of shares for employee stock purchase plan17 — 3.8 — — 3.8 
Stock-based compensation expense— — 9.0 — — 9.0 
Restricted stock units vested, net of shares withheld for taxes17 — (1.2)— — (1.2)
Extinguishment of conversion feature on 1.375% Notes, net of issuance costs
— — (737.7)— — (737.7)
Issuance of shares for debt extinguishment2,242 — 622.7 — — 622.7 
Net loss— — — (25.0)— (25.0)
Other comprehensive loss— — — — (2.5)(2.5)
Balance at June 30, 202168,610 $0.1 $1,149.6 $(691.3)$0.7 $459.1 

The accompanying notes are an integral part of these condensed consolidated financial statements.
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Six Months Ended June 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)
Issuance of common stock— — — — — — 
Exercise of options to purchase common stock52.0 — 1.9 — — 1.9 
Issuance of shares for employee stock purchase plan27 — 4.9 — — 4.9 
Stock-based compensation expense— — 20.7 — — 20.7 
Restricted stock units vested, net of shares withheld for taxes128 — (16.5)— — (16.5)
Net loss— — — (7.2)— (7.2)
Other comprehensive income— — — — 9.4 9.4 
Balance at June 30, 202269,386 $0.1 $1,011.2 $(596.1)$7.2 $422.4 

Six Months Ended June 30, 2021
 Common StockAdditional
Paid-in
Capital
Accumulated
Deficit
Accumulated Other Comprehensive IncomeTotal
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 stock164 — 6.2 — — 6.2 
Issuance of shares for employee stock purchase plan17 — 3.8 — — 3.8 
Stock-based compensation expense— — 17.6 — — 17.6 
Restricted stock units vested, net of shares withheld for taxes170 — (27.3)— — (27.3)
Extinguishment of conversion feature on 1.375% Notes, net of issuance costs
— — (737.7)— — (737.7)
Issuance of shares for debt extinguishment2,242 — 622.7 — — 622.7 
Net loss— — — (25.0)— (25.0)
Other comprehensive loss— — — — (4.8)(4.8)
Balance at June 30, 202168,610 $0.1 $1,149.6 $(691.3)$0.7 $459.1 

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)
Six Months Ended June 30,
(in millions)20222021
Cash flows from operating activities
Net loss$(7.2)$(25.0)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization31.1 28.0 
Stock-based compensation expense20.7 17.6 
Non-cash interest expense2.8 23.5 
Loss on extinguishment of debt 40.1 
Provision for credit losses1.9 2.1 
Other1.0 1.1 
Changes in operating assets and liabilities:
Accounts receivable(24.7)(24.6)
Accounts receivable — related party(26.7)(1.3)
Inventories(24.0)(45.0)
Prepaid expenses and other assets(23.3)(23.6)
Accounts payable20.1 (4.4)
Accrued expenses and other liabilities38.2 (5.3)
Accrued expenses and other liabilities — related party1.7  
Net cash provided by (used in) operating activities11.6 (16.8)
Cash flows from investing activities
Capital expenditures(27.4)(52.8)
Acquisition of intangible assets(7.6)(3.8)
Acquisition(26.0) 
Cash paid for investments(7.8) 
Receipts from the maturity or sale of marketable securities 22.5 
Net cash used in investing activities(68.8)(34.1)
Cash flows from financing activities
Proceeds from issuance of convertible debt, net of issuance costs 489.5 
Repayment of convertible debt (460.8)
Repayment of equipment financings(8.6)(6.4)
Repayment of mortgage(1.1)(1.0)
Repayment of term loan(2.5) 
Payment of debt issuance costs (4.0)
Proceeds from exercise of stock options1.9 6.2 
Proceeds from issuance of common stock under employee stock purchase plan4.9 3.8 
Payment of withholding taxes in connection with vesting of restricted stock units(16.5)(27.3)
Net cash used in financing activities(21.9) 
Effect of exchange rate changes on cash(3.5)(1.7)
Net decrease in cash, cash equivalents and restricted cash(82.6)(52.6)
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)
$723.8 $869.4 
Supplemental noncash information:
Purchases of property and equipment included in accounts payable and accrued expenses$4.9 $5.6 
Purchases of intangible assets included in accounts payable and accrued expenses$2.4 $3.5 
Lease liabilities arising from obtaining right-of-use assets$12.0 $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 six months ended June 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 $6.4 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 20.0%, 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 June 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 are included in selling, general and administrative expenses and were $3.1 million and $2.6 million for the three months ended June 30, 2022 and 2021, respectively, and were $6.2 million and $4.7 million for the six months ended June 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 Entitys Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entitys 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 June 30,Six Months Ended June 30,
(in millions)2022202120222021
U.S. Omnipod$196.4 $150.5 $370.5 $293.8 
International Omnipod89.4 91.6 184.8 181.5 
Total Omnipod285.8 242.1 555.3 475.3 
Drug Delivery13.6 21.1 39.5 40.2 
Total revenue$299.4 $263.2 $594.8 $515.5 
The percentages of total revenue for customers that represent 10% or more of total revenue was as follows:
Three Months Ended June 30,Six Months Ended June 30,

2022202120222021
Distributor A19%*18%*
Distributor B16%12%14%11%
Distributor C*14%*14%
Distributor D16%*13%*
* 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)
June 30, 2022December 31, 2021
Accrued expenses and other current liabilities$6.3 $3.5 
Other liabilities1.6 1.5 
Total deferred revenue$7.9 $5.0 
Revenue recognized from amounts included in deferred revenue at the beginning of each respective period was as follows:
Three Months Ended June 30,Six Months Ended June 30,
(in millions)2022202120222021
Deferred revenue recognized$0.3 0.2 $1.6 3.9 
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)June 30, 2022December 31, 2021
Prepaid expenses and other current assets$14.0 $13.3 
Other assets27.8 26.1 
Total capitalized contract acquisition costs, net$41.8 $39.4 
The Company recognized $3.6 million and $3.0 million of amortization of capitalized contract acquisition costs during the three months ended June 30, 2022 and 2021, respectively. The Company recognized $7.0 million and $6.0 million of amortization of capitalized contract acquisition costs during the six months ended June 30, 2022 and 2021, respectively.
Note 3. Cash and Cash Equivalents
The following table provides a summary of cash and cash equivalents:
(in millions)June 30, 2022December 31, 2021
Cash$106.2 $159.3 
Money market mutual funds551.2 630.7 
Time deposits50.0  
Restricted cash1.2 1.6 
Total cash and cash equivalents708.6 791.6 
Restricted cash included in other assets15.2 14.8 
Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows$723.8 $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.
Note 4. Accounts Receivable
At the end of each period, accounts receivable were comprised of the following:
(in millions)June 30, 2022December 31, 2021
Accounts receivable trade, net$119.5 $101.2 
Unbilled receivable34.6 34.0 
Accounts receivable, net$154.1 $135.2 
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The percentages of total net accounts receivable trade for customers that represent 10% or more of total net accounts receivable trade was as follows:

June 30, 2022December 31, 2021
Distributor A31%21%
Distributor B11%*
Distributor D19%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)June 30, 2022December 31, 2021
Raw materials$87.3 $70.0 
Work in process64.3 112.6 
Finished goods168.8 120.6 
    Total inventories$320.4 $303.2 
Note 6. Cloud Computing Costs
Capitalized costs to implement cloud computing arrangements at cost and accumulated amortization were as follows: 
(in millions)June 30, 2022December 31, 2021
Short-term portion$16.1 $18.4 
Long-term portion68.2 49.2 
Total capitalized implementation costs84.3 67.6 
Less: accumulated amortization(9.4)(4.4)
Capitalized implementation costs, net$74.9 $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 $3.7 million and $0.8 million for the three months ended June 30, 2022 and 2021, respectively, and was $5.0 million and $1.3 million for the six months ended June 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.
The following table summarizes the preliminary 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.
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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 
Goodwill at June 30, 2022$51.8 
The gross carrying amount, accumulated amortization and net book value of intangible assets at the end of each period were as follows:
June 30, 2022December 31, 2021
(in millions)
Gross
Carrying Amount
Accumulated AmortizationNet
Book Value
Gross
Carrying Amount
Accumulated AmortizationNet
Book Value
Customer relationships$43.3 $(25.5)$17.8 $43.4 $(23.4)$20.0 
Internal-use software32.3 (11.1)21.2 25.5 (10.2)15.3 
Developed technology15.4 (0.5)14.9    
Intellectual property1.5 (0.3)1.2 1.6 (0.3)1.3 
Total intangible assets$92.5 $(37.4)$55.1 $70.5 $(33.9)$36.6 
Amortization expense for intangible assets was $1.7 million and $1.8 million for the three months ended June 30, 2022 and 2021, respectively. Amortization expense for intangible assets was $3.5 million and $3.5 million for the six months ended June 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)June 30, 2022December 31, 2021
Employee compensation and related costs$56.8 $70.3 
Accrued rebates38.6 28.7 
Professional and consulting services23.5 22.8 
Accrued legal settlement (Note 12)
20.0  
Supplier purchases6.1 4.7 
Other47.5 37.8 
Accrued expenses and other current liabilities$192.5 $164.3 
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 June 30,Six Months Ended June 30,
(in millions)2022202120222021
Product warranty liability at beginning of period$6.9 $6.7 $6.8 $6.7 
Warranty expense8.1 2.3 11.1 4.9 
Warranty claims settled(3.4)(2.5)(6.3)(5.1)
Product warranty liability at the end of period$11.6 $6.5 $11.6 $6.5 
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Note 10. Debt
The components of debt consisted of the following:
(in millions)
June 30, 2022December 31, 2021
0.375% Convertible Senior Notes due September 2026
800.0 800.0 
Term loan due May 2028495.0 497.5 
Revolving Credit Facility expires May 2024  
Equipment financing due May 202412.8 16.0 
Equipment financing due November 202526.1 29.6 
Equipment financing due July 202836.3 38.2 
5.15% Mortgage due November 2025
66.6 67.7 
Unamortized debt discount(8.3)(159.9)
Debt issuance costs(17.0)(15.2)
Total debt, net1,411.5 1,273.9 
Less: current portion26.3 25.1 
Total long-term debt, net$1,385.2 $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 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.
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Fair Value of Debt
The carrying amount and the estimated fair value of the Company’s debt were as follows:
June 30, 2022December 31, 2021
(in millions)
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value (1)
0.375% Convertible Senior Notes (1)
787.4 769.0 638.8 938.8 
Term loan (2)
483.7 467.8 485.2 498.1 
Equipment Financings (3)
75.1 75.1 83.7 83.7 
5.15% Mortgage (3)
65.3 65.3 66.2 66.2 
  Total$1,411.5 $1,377.2 $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 is exposed to certain risks relating to its business operations. Risks that relate to interest rate exposure are managed by using interest rate swaps with financial institutions acting as principal counterparties. Changes in a derivative financial instrument’s fair value are recognized in earnings unless specific hedge criteria are met, in which case changes in fair value are recognized as adjustments to other comprehensive income.
Under the Company’s interest rate swap agreements, the Company receives variable rate interest payments and pays fixed interest rates on a total notional value of $480 million of its term loan through April 2025. As a result of the interest rate swaps 97% of the term loan exposed to interest rate risk from changes in LIBOR is fixed at a rate of 4.20%. 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 $27.1 million and $4.5 million at June 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 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 both the three and six months ended June 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 $