Insulet Corporation (NASDAQ:PODD) Q1 2024 Earnings Call Transcript

Insulet Corporation (NASDAQ:PODD) Q1 2024 Earnings Call Transcript May 9, 2024

Insulet Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Deborah Gordon, Vice President, Investor Relations.

Deborah Gordon: Thank you. Good afternoon, and thank you for joining us for Insulet’s first quarter 2024 earnings call. With me today are Jim Hollingshead, President and Chief Executive Officer; and Ana Maria Chadwick, Chief Financial Officer and Treasurer. Both the replay of this call and the press release discussing our first quarter results and 2024 guidance will be available on the Investor Relations section of our website. Also on our website is our supplemental earnings presentation. We encourage you to reference that document for a summary of key metrics and business updates. Before we begin, we remind you that certain statements made by Insulet during the course of this call may be forward-looking and could materially differ from current expectations.

Please refer to the cautionary statements in our SEC filings for a detailed explanation of the inherent limitations of such statements. We’ll also discuss non-GAAP financial measures with respect to our performance, namely adjusted growth and operating margin, adjusted EBITDA and constant currency revenue, which is revenue growth, excluding the effect of foreign exchange. These measures align with what management uses as supplemental measures in assessing our operating performance from period to period, and we believe they are helpful to others as well. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rate, which will be on a year-over-year constant currency basis.

With that, I’ll turn the call over to Jim.

Jim Hollingshead: Thanks, Deb. Good afternoon, and thank you for joining us. Coming out of a 2023 that saw Insulet emerge as the clear industry leader, we entered 2024 with significant momentum. We are off to a great start in Q1, fueled by continuing strong demand for Omnipod 5. Our global Insulet team continues to execute at a high-level, bolstering our confidence and another year of robust revenue growth and margin expansion. Our first quarter revenue results exceeded our expectations for every product line. Given those results and the cascade of innovations that we plan to deliver this year, we have increased our guidance for both top line and operating margin growth. On today’s call, I want to do three things. Provide a high-level review of our Q1 results and the continuing strength of our competitive position in the market, give an update on our broad innovation agenda for 2024, including our efforts to expand the Omnipod 5 platform and our progress in the type 2 market, and discuss our ongoing efforts to capture the value of scale across our business.

Starting with financial performance. Our first quarter revenue and margins exceeded our expectations. We achieved total Omnipod revenue growth of 21%, including U.S. growth of 23%, and international growth of 15%. In the U.S., we continue to build on our clear leadership in the market, and our Omnipod 5 automated insulin delivery system was number one in new customer starts by a wide margin. Demand for Omnipod 5 remains very high, and U.S. new customer starts were robust and in line with our expectations. Omnipod 5 is designed to expand the market through its ease-of-use and easy access, and we continue to succeed in driving market growth. During the quarter, roughly 85% of our new starts came from people previously using multiple daily injections, our target market, and our competitive conversions remained very strong.

The Omnipod platform also remains the top choice for people with either type 1 or type 2 diabetes. Type 2 patients represented roughly 25% of our new starts in the quarter. Omnipod 5 continues to be the game-changing offer we thought it would be when we first brought it to market. This is true in the U.S. and also internationally, where it is dramatically accelerating our growth. Last year’s successful launches in the U.K. and Germany continued to exceed our expectations as our teams generate strong new customer starts. In fact, in Q1, more than half of our total international new customer starts were Omnipod 5. Given Omnipod 5’s early contribution in our European markets, we are raising our international revenue outlook by 500 basis points to a range of 12% to 15%.

As a result, we now expect total Omnipod growth of 19% at the high-end and 18% for total company, representing a milestone of $2 billion in total company revenue. Ana will provide more details on our increased guidance in a few moments. Our global results in Q1 make one thing very clear. Omnipod 5 is without a doubt highly differentiated and the best offer on the market. Its ease-of-use, pay-as-you-go economics, affordability and widespread access make it the obvious choice for insulin delivery for people with type 1 diabetes and soon for people with type 2 diabetes once we achieve label expansion. Omnipod 5 leads the market everywhere it goes and we are not stopping there. During Q1, we made significant strides across our innovation portfolio.

Because Omnipod 5 is the market leader, it’s easy to forget that the current version remains our initial minimum viable product. In 2024, we will expand on the Omnipod 5 platform by bringing new sensor integrations, launching the system in new geographies and extending our phone control offering. In the U.S. during Q1, we entered limited market release of our integration with Dexcom’s G7 and are on track for full market release this summer, which will allow us to expand choice for customers and capture the opportunity created by the growth and adoption of Dexcom’s latest sensor. In Europe, we successfully entered limited market release of our integration with Abbott’s Freestyle Libre 2 Plus sensor in both the U.K. and the Netherlands, ahead of our mid-year launch plans.

This release represents two firsts. Omnipod 5 is the first AID system to offer integration with the Libre 2 sensor in Europe, which is Abbott’s most widely adopted CGM. And Omnipod 5 in the Netherlands represents our first sensor of choice pod offering. These pods are compatible with both Abbott’s Libre 2 Plus and Dexcom’s G6 sensor. Early results from the U.K. and the Netherlands are extremely promising, and we look forward to providing future updates with regard to the timing of full market release. Staying in Europe, we are pleased to announce that we now plan to launch Omnipod 5 with G6 in France, also this summer. France has historically been one of our largest markets and one in which we know demand for our solutions is high. When we first launched Omnipod DASH in this market, it quickly became the insulin pump brand of choice, and we are confident in our ability to drive strong adoption with our advanced AID system.

With the launch in France, we will achieve our stated goal of making Omnipod 5 accessible to the majority of our European customers and reach this milestone ahead of our internal end-of-year expectations. We anticipate our recent Omnipod 5 international launches will fuel accelerated new customer starts in the second half of this year and revenue growth next year and beyond. We also plan to enter our U.S. limited market release for our iOS app this summer. Extending Omnipod 5 onto the iPhone platform is one of our most frequently requested features, and we are excited to bring this offer to market. Turning to the opportunity in type 2 diabetes, where we remain the U.S. market leader in this large and underserved patient population. The commercial pilot with Omnipod GO, our FDA cleared offering for the over 3 million people in the U.S. who need daily basal-only insulin, continues to offer significant learnings.

Because of our pilot efforts, we have developed a better understanding of this market, and we have expanded the definition of targeted patient segments. We now also have even greater confidence that we will be able to bring our innovative technology to a broader range of HCP and physician practices. We are refining our plans for extended commercial reach based on those learnings. We also know that there is significant current demand for solutions that support intensive insulin use for people with type 2 diabetes. In this market, Omnipod DASH continues to perform extremely well, driven by its ease of use and accessibility. In that context, we are very excited about the progress we are making towards achieving FDA clearance for Omnipod 5 for type 2.

During Q1, we reached a key milestone in our secure T2D pivotal trial, with the last patient completing the protocol. We are well on track to meet our goal of submitting to the FDA for label expansion by the end of the year. Once cleared, we expect to meaningfully accelerate Omnipod 5 adoption among the approximate 2.5 million people with insulin-intensive type 2 diabetes. And we will have the broadest offering of insulin delivery technology solutions on the market for this important patient population. Lastly, we continue to analyze the market impact of GLP-1 use. Analysis of actual claims data demonstrates that GLP-1 use accelerates the adoption of insulin among people living with type 2 diabetes. The data are definitive and striking and strengthen our conviction in the size of the unmet need and the size of the business opportunity for our growing type 2 portfolio.

We are finalizing our analysis and look forward to providing a more detailed update soon. 2024 is shaping up, as we planned, to be a year filled with a cascade of innovations that will allow us to build on our position of market leadership. And we will take advantage of those innovations because of our expanding scale. Our business continues to enjoy several advantages that we’ve achieved through commercial scope and operational scale. First, our products have very broad reimbursement with more than 95% of covered lives in the U.S. for both Omnipod 5 and Omnipod DASH. And through our nationwide distribution reach, Omnipod is available at retail pharmacies that are within five miles of over 85% of the U.S. population. Our strategy to increase awareness of Omnipod with endocrinologists and primary care physicians has resulted in an expanded base of health care providers writing scripts for our products, fueling our leadership position.

In the U.S. in Q1, the number of U.S. Omnipod 5 prescribing HCPs grew to over 20,000, up from over 18,500 the prior quarter. These prescribers were endocrinologists, PCPs, and other HCPs, and the split was approximately a third each. And the prescribers span both the type 1 and type 2 markets, and both increased substantially year-over-year. In order to fuel our growth, we are further expanding our commercial reach. Internationally, we continue to prudently invest in our commercial expansion and in our market access capabilities. In the U.S., we are in the process of incrementally expanding our salesforce, including the creation of new territories and expansion into targeted pediatric centers. Our broad sales, marketing, and channel capabilities allow us to reach a large and growing population of patients and represent a growing set of advantages over aspiring competitors.

Lastly, we also enjoy significant financial benefits from our scaled manufacturing. Insulet has been on a 20-year journey of capability building and continuous improvement, which has allowed us to build world-class capabilities that drive ongoing quality and productivity. Manufacturing scale and scope have been big drivers of our gross margin expansion over that time, and we expect our new Malaysia facility will fuel continued efficiency gains. We are in the final stages of validating our manufacturing lines in Malaysia and expect to begin producing saleable product in Q3. The facility represents a sizable investment of approximately $200 million over the course of four years through 2026, provides approximately 400,000 square feet of manufacturing space, and is expected to house more than 1,000 full-time employees at full capacity.

Our regional sourcing strategy includes using local suppliers for components, contributing to resiliency and improved costs. This facility will also strengthen our global operational capabilities, drive increased capacity to meet our robust demand, and support future international market expansion. We expect our Malaysia site to be accretive to gross margin in its first full year of production, ramping over time. It represents one of the many opportunities we have to lower total landed product costs and expand margins over the near and long-term. Our advantages in scope and scale put Insulet in a strong position to continue to invest in the growth of our business and to expand our margins. This is yet another way in which our business is unique among our direct competitors.

With that, I’ll introduce Ana, who is joining us for her first call as our CFO. As you will have seen in our announcement, Ana is a highly accomplished and proven leader. We are thrilled to have her join the Insulet team, and I’m personally looking forward to benefiting from her partnership as we execute our strategy to drive rapid growth and strengthen our financial profile. Over to you, Ana.

Ana Maria Chadwick: Thank you, Jim, and good afternoon, everyone. Before I dive into the first quarter financial results, I want to say how excited I am to be part of this outstanding company. Insulet is transforming diabetes management and improving the lives of hundreds of thousands of people while driving strong financial performance. I am confident that we’re just getting started, especially with the exciting development in our pipeline. I look forward to partnering with Jim, our skilled leadership, and the rest of Insulet’s talented global team to advance our mission for our customers, while also delivering robust revenue growth, margin expansion, and shareholder value. And above all else, I look forward to helping make a positive impact on people around the world with diabetes.

Now on to our first quarter results. First quarter exceeded our expectations, and we generated strong global new customer starts. As a result of our growing customer base, we delivered 23% revenue growth, driven by global Omnipod growth of 21%, and our estimated global retention and utilization trends remain stable. Foreign currency was a 50 basis point tailwind for our total revenue on a reported basis compared to first quarter last year. U.S. Omnipod revenue growth was 23%, driven by robust growth on both type 1 and type 2 diabetes customer bases, as well as expanding volume through the pharmacy channel. Adoption of Omnipod 5 integrated with G6 continues to be the driving force, and we are excited to have launched our U.S. limited market release with G7, which we expect will accelerate new customer starts in the second half of this year, following our planned full market release this summer.

Our U.S. business and related revenue growth are very strong, fueled by Omnipod 5’s success and robust demand. With many catalysts ahead of us this year, we’re laying the foundation for sustained revenue growth for 2024 and beyond. International Omnipod revenue increased 15%, which was well above our expectations. While Omnipod DASH remains the largest percentage of our overall international volume, last year’s Omnipod 5 launches in both the U.K. and Germany continue to drive notable increases in new customer starts and were the primary drivers of our accelerated growth. On a reported basis, foreign currency was 210 basis point tailwind over the prior year, which was approximately 110 points favorable versus our guide. Drug delivery revenue was almost $9 million, which was above our guidance range due to timing.

Gross margin was 69.5%, up 230 basis points on a reported basis and up 460 basis points compared to prior year adjusted gross margin. The increase in gross margin, which exceeded our internal expectations was primarily due to volume growth in the U.S. pharmacy channel with a premium on the pods, as well as our international Omnipod revenue performance and improved manufacturing efficiencies. While operating expenses increased in the quarter as we invest in our business, including multiple product launches globally, the timing of some expected spend shifted into the remainder of the year. We will continue to invest to drive above market growth, while remaining committed to expanding operating margin through improvements in gross margin, as well as efficiencies throughout our global business.

Operating margin was 12.9% and adjusted EBITDA was 20.2% of revenue, both exceeding our expectations primarily due to higher-than-expected revenue and gross margin, as well as timing of spend. Turning to cash and liquidity. We ended the quarter with approximately $750 million in cash and the full $300 million available under our credit facility. As anticipated, our increased efforts to drive profitable growth are translating into expanding margin and a stronger overall financial profile. Now turning to our 2024 outlook. For the full year, we’re raising expectations for total Omnipod revenue growth to a range of 15% to 19%, and total company revenue growth to a range of 14% to 18%. For U.S. Omnipod, we are raising the low-end of our guidance and now expect a range of 17% to 21% revenue growth.

We expect growth to be driven by strong Omnipod 5 adoption, which provides the benefits of reoccurring revenue stream due to our annuity model. We continue to anticipate both revenue dollars and new customer starts in the second half of 2024 to be higher than levels in the first half of 2024, consistent with normal historical seasonality trends. Additionally, our planned U.S. full market release of Omnipod 5 with G7 this summer is expected to contribute to the acceleration of new customer starts in the back half of the year. We are well-positioned to accelerate new customer starts this year, which we expect will drive further revenue growth next year and beyond. We have massive market opportunities, not only from further type 1 MDI penetration, but also as we continue to penetrate the type 2 market.

We are building a type 2 product portfolio and are excited to have this be one of our accelerated growth drivers over the near and long- term. For international Omnipod, we are raising our revenue growth expectations by 500 basis points to a range of 12% to 15%. On a reported basis, we now assume an unfavorable foreign currency impact of 100 basis points. We expect growth to be driven by last year’s Omnipod 5 launches in the U.K. and Germany, partially offset by headwinds in the countries where we do not yet have Omnipod 5. The substantial raise in our international revenue outlook reflects the outperformance of new customer starts and revenue since we launched Omnipod 5 in the U.K. and Germany, and to a lesser extent, the additional launches in 2024.

We originally expected revenue growth in the first half of the year to be in the high single digits. With our revised outlook, we now expect first half growth of 13% to 15% and similar second half year-over-year growth profile, also up from prior expectations. We expect our recent Omnipod 5 launches in 1Q to contribute to new customer starts in the second half of the year and given the nature of our annuity model, to more meaningfully contribute to our revenue growth in 2025. We have strong momentum internationally, and we are confident that Omnipod 5 will drive growth and share gain in every market in which we launch. For both the U.S. and international Omnipod, we expect quarterly revenue fluctuations resulting from the many product launches we have in 2024.

This includes ramping inventory in channels for new launches and reducing levels for prior Omnipod generations. We do not expect this to materially impact our full year outlook. Lastly, for drug delivery, we are reaffirming our expectations of a 50% to 60% decline. Turning to 2024 gross margin. We are reaffirming a range of 68% to 69%, closer to the midpoint of the range. While we have a number of opportunities that could result in further gross margin expansion this year, we want to be prudent with our expectations, given risks that come with significant product launches and standing up a new manufacturing facility. We are in a fantastic position to continue driving further gross margin expansion over the near and long-term, and we remain committed to doing so.

We also have an increased commitment to drive operating margin expansion. While we continue to expect operating expenses to increase as we invest in R&D, clinical, and our commercial launches, we now expect to drive some operating leverage as we capitalize on our efficiencies and economies of scale. As a result, we are raising our operating margin expectations to approximately 13.5%, up 50 basis points from our original expectations. Although, we don’t guide to our effective tax rate, I will provide color since our income continues to grow. Our first quarter effective tax rate almost doubled to approximately 6% due to changes in income distribution among our jurisdictions. Given the positive trend in our earnings, we may reach a point this year where we conclude that the valuation allowance we have against our net deferred tax assets is no longer needed.

We estimate this would result in a $200 million non-cash reduction of income tax expense in the period the release is recorded, which we would adjust out for non-GAAP purposes. Subsequently, our effective tax rate may increase to an estimated annualized operational run rate of approximately 20% for the near term. Turning to our second quarter 2024 guidance. We expect total Omnipod growth of 18% to 21% and total company growth of 15% to 18%. For U.S. Omnipod, we expect growth of 21% to 24%. Growth drivers include the ongoing adoption of Omnipod 5, bringing with it the advantages of U.S. pharmacy channel, continued strong new customer starts and the benefits of our annuity model. With our new customer starts momentum, we expect sequential growth in second quarter, partially offset by wholesalers taking down G6 pod inventory as we begin to ramp G7 pods.

And we expect to see some meaningful second half sequential dollar growth for the many catalysts we discussed. For international Omnipod, we expect growth of 12% to 15%, driven by the ongoing adoption of Omnipod 5 in our initial markets, partially offset by headwinds in countries where we do not have Omnipod 5. On a reported basis, we expect an unfavorable foreign currency impact of 200 basis points. Finally, we expect Q2 drug delivery revenue to be approximately $4 million to $5 million. In conclusion, our strong first quarter results reflect continued successful execution of our strategy, as well as robust new customer starts in both our U.S. and international markets. In my first few weeks at Insulet, I have been incredibly impressed with what the company continues to accomplish.

And I am even more energized by the incredible opportunities that lie ahead, which are greater than I had envisioned before joining. We are well-positioned and remain committed to delivering sustained revenue growth and margin expansion for the balance of this year and well beyond. With that, operator, please open the call for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] Our first question is from Margaret Kaczor Andrew with William Blair. Margaret, your line is open.

Margaret Kaczor: Hey, good afternoon, guys. Thanks for taking the question. Maybe just to start with kind of a big picture question. 2024 certainly seems like a year probably as active as you guys have been with new launches. With an eye maybe towards 2025 acceleration in revenues as the new patient starts accelerating the back half of this year. So one, I guess, is that how you guys are thinking about it? And then two, is it too forward to think that as new patients starts accelerating the back half, those can add a step change and new start growth, or is it going to be more of a steady acceleration as you launch all of these different initiatives in the back half of this year? Thanks.

Jim Hollingshead: Thanks, Margaret, great question. We think that the timing of the product launches is really critical to ramping over the course of the year in ’24. And so that’s why we’re really excited to be in LMR and be able to say that we anticipate full release of G7 in the U.S. over the summer, and to already be in LMR going really well with our sensor of choice offering including the Libre 2 Plus in Europe. And we do think that both new customer starts continue to accelerate over the course of the year and revenue continues to accelerate, and we’ll see the revenue results more strongly in the second half.

Operator: Thank you. Your next question comes from the line of Robbie Marcus with JP Morgan. Robbie, your line is open.

Robbie Marcus: Great. Thanks for taking the question and congrats on a really nice quarter.

Jim Hollingshead: Thanks, Robbie.

Robbie Marcus: I wanted to ask — yeah. I wanted to ask on what you’re seeing competitively in the market, both in type 1 and type 2. Type 2 starts were particularly strong. It sounded like new patient growth wasn’t a record, but was still very robust. And I think it was expected to be below record given no G7 integration yet or Apple. But would love to hear, how you feel you’re doing competitively in terms of new patient share and any competitive switching. And also, if I could just tack on, I heard there was destocking in second quarter. Was there any stocking, or destocking in first quarter? And how do we think about the dollar impact in second quarter in the U.S.? Thanks.

Jim Hollingshead: I think there’s a bunch of things. Let me start with the stocking question and then come back to the competitive question. So, stocking, and we’re only ever going to call that out if there’s something unusual. And the stock in the channel is back to normal. We don’t see anything unusual happening. And we’re not going to talk about that unless we ever see something change that we think changes trend or whatever. So that dynamic is totally ordinary in the quarter. So on the competitive position, we feel really strong about our competitive position. We’re very, very confident in our competitive position. New customers starts in the first quarter in the U.S., came in right in line with our expectations. And obviously, Europe did really, really well, which led us to raise our guide.

And I think competitively — it would give me an opportunity to just say a little bit about how we see the dynamic, which I’ll try to be concise with. In the U.S. in type 1, the bulk of the market is still on MDI, as you all know. So we estimate that, as we’ve said before, 40% of type 1 patients in the U.S. are using some sort of pump technology and 60% are not. Our offering Omnipod 5 has been designed to convert people off of MDI onto our technology because it’s so simple to use, simple to put on, simple to use, simple to stay on, easy to access, great economics, and great clinical outcomes. And so that’s why we always say MDI is our target market. And from a competitive positioning point of view, we win that battle very, very handily. We clearly lead the market in MDI, and it’s really Omnipod 5 that’s growing the market in type 1 for technology because we have such a clear leadership position there.

In the remaining 40% that’s penetrated, you do see — there’s a portion of that market which does have some competitive switching. And what we see over and over again and again in this quarter is that we are the net winners in the competitive switching game. That’s a smaller part of the market to begin with, and then it’s only a fraction of that market that’s up for conversion at any given time because of the four-year lock-in on the two pumps. But we are clearly the net winners in any kind of competitive switching dynamic. So, in some, we lead in type 1 clearly, we lead in type 2 clearly, we lead very clearly in MDI, and we win the competitive switching game in the installed base. And so we feel very confident Omnipod 5 wins everywhere it goes, and we see that over and over again.

Operator: Great. Thank you so much. Your next question comes from the line of Jeff Johnson with Baird. Jeff, your line is open.

Jeff Johnson: Thank you. Good evening, all. Jim, maybe we can stay on that type 2 point. So, forgive me, you’ve already talked about this, and I think put a good focus on it. But we’ve seen the ATTD data that suggests GLP-1s might bring heavy insulin users back down to that like 60-65 unit a day range where you can put them on a pump. We know you guys have shown some strong real-world data on T2 time and range. So, if some of your competitors, so it sounds like the KOLs are starting to push more and more for getting these type 2 intensives on AIDs as well. And you guys especially have been investing in the primary care channel where I think a lot of that T2 care is delivered. So, how close are we getting to the precipice of kind of this inflection in type 2 uptake?

And I know it’s been going up in your numbers the last few quarters. We can see that. But it seems like we’re still maybe not there, but getting real close to an inflection, not just for the market, but maybe your competitive positioning in there with O5 as well. Thanks.

Jim Hollingshead: Thanks, Jeff. Great question. We are really excited about the opportunity for AID in the type 2 market. And as we know, we’re already the clear leader in that market with Omnipod DASH. So, in the pump market with Omnipod DASH, very clear leader. And you all know we don’t promote Omnipod 5 because we don’t have the label. So, we don’t promote Omnipod 5 in the type 2 market. But it gets written off label fairly frequently as you can kind of reverse engineer out of our numbers. That’s why we’re so excited to be getting so close to filing with the FDA for our label extension. Because right now we’re out in the market with one arm tied behind our back. And we have very firm conviction that as we get that label extension, we’ll be able to drive dramatic growth in the use of Omnipod 5, specifically not just AID, obviously, but Omnipod 5, specifically in that market.

So, we’re getting very close. As we said about the pivotal trial, we’ve not just completed enrollment, but we have last patient through the trial. So, we’re in the process of gathering, cleaning — the normal steps of a pivotal, we’re gathering, cleaning the data. We’re preparing our FDA filing. We’re well on track to file. We’ve given guidance that we had filed by the end of the year. We are very well on track to do that. And based upon what we’ve seen from our competitors, we’re clearly out in front of everybody else in that market. But also remember, Omnipod 5, the offering itself is going to be — it has a very clear right to win in the type 2 space because of its ease-of-use, its discretion, its availability in pharmacy channel, its great outcomes, which we’ll demonstrate further with data in type 2.

So we are very, very bullish on the type 2 market. It continues to be a very clear unmet need, and we feel like we have what will be the best offering in the market and will probably be there first.

Operator: Thank you. Our next question comes from the line of Michael Polark with Wolfe Research. Michael, your line is open.

Michael Polark: Good afternoon. Thank you for taking the question. Maybe a quick follow-up on type 2 there. Is it the expectation that we’ll see data from the SECURE trial at ADA?

Jim Hollingshead: Yes, Michael. Thanks for the question. It’s our intent to show data from the step trial at ADA and with a specific focus on showing the subset analysis of people who are on GLP-1s in that data. Yes.

Operator: And your next question comes from the line of Travis Steed with Bank of America. Travis, your line is open.

Travis Steed: Hey, thanks for taking the question. I wanted to follow up on the Q2 guidance. It looks like the guidance you gave is sequentially down, but you said in the prepared marks you expect sequential growth in the second quarter offset by the wholesalers taking down the G6 inventory. I’m curious if you could help quantify what that guide assumes for the impact of that G6 inventory piece, just so we can kind of get an underlying Q2 guidance.

Ana Maria Chadwick: Hey, Travis. This is Ana. Thanks for the question. I think the main point here is to take a step back, and as you look at the U.S., we not only reaffirmed our full year guidance, we actually are taking up the low-end. And as I mentioned in my prepared remarks, as we have all these cascades of new product launches, both in the U.S. and international, we’re making assumptions. And as we do that, the key here is to remember that we believe the second half will be greater growth than the first, but we continue to expect the growth. And I think to call the exact timing is we’re giving our best estimate, but the key important thing is that we’re raising overall guidance for revenue, including international and the low-end in the U.S.

Operator: Thank you. And your next question comes from the line of Larry Biegelsen with Wells Fargo. Larry, your line is open.

Larry Biegelsen: Hi. Good afternoon. Thanks for taking the question. Jim, I wanted to circle back on new patient starts in the U.S. I heard robust U.S. type 1 and type 2 new starts in Ana’s prepared remarks. Were new patient starts up year-over-year in Q1 in the U.S.? And do you still expect new starts to grow year-over-year in 2024? And talk about why you see G7 as the driver of new starts growth in the second half of the year. Thank you.

Jim Hollingshead: Thanks, Larry. Year-over-year in Q1, overall new starts were not up, but MDI was up for us. So that gives you a sense of our strength in bringing customers out of MDI into the market. We expect sequential growth over the course of the year in new customer starts in the U.S. As I said before, I expect a record for us in the U.S. and globally in NCS for 2024. And what was the last part of your question, Larry?

Larry Biegelsen: Just conceptually understand why G7 integration is a driver of that new start growth.

Jim Hollingshead: Thank you very much. So G7 will be a tailwind for us once we get to full market release because of the nature of prescriptions, new customer prescriptions for CGM in the U.S. market. So I know you all look at this, but if you go look at new customer scripts for CGM, G7 has overtaken G6. And so you guys have always heard me use this metaphor of fishing in a stocked pond. We’ve done obviously very, very well fishing in the G6 pond and have led to new starts with G6. And in the quarter, I think you can see from our new customer starts, it has not been a headwind for us to have the G7 out on the market and be so well adopted because what we found — and with new customer starts right in line with our expectation, what we found is that if people want to be on Omnipod 5, they’ll stay on a G6 or if they want to start AID on an Omnipod 5, they’ll go get a G6.

So that hasn’t been a headwind. But G7 will be a tailwind because there are more and more patients out there on a G7. And as we’ve said all along on the Omnipod 5 ride since we’ve launched, our CGM partners pave road for us. And so Dexcom is now paving road with G7. We need to get a car on that road, right? So that’s why the timing of G7 launch is really important to us and we want to get on market with it with full release as quickly as we can. And that’s why we believe G7 will be a tailwind in the second half and will drive more new customer starts in the second half because we’ll add G7 to the portfolio.

Operator: Thank you. Your next question comes from the line of Patrick Wood with Morgan Stanley. Patrick, your line is open.

Patrick Wood: Brilliant. Thanks for taking the question. You guys have mentioned a few times that learnings and type 2 and that side of things. And so, I guess, my basic question is, and I know you’ve been investing there and you’ve just upped the guide on the margin side of things, but these are very different patients and PCPs are very different and require a different amount of training. As we’ve ran through the back off of this year and into next year, do you think there’s like an investment cycle again needed from you guys in driving that type 2 market, particularly on the service and sort of support side?

Jim Hollingshead: Thanks, Patrick. It’s a great question. That’s part of the purpose of the commercial pilot, is to get out in the real-world and see how those practices operate because, historically, our call point has been endocrinology practices. And so, we’re out calling on primary care and specifically on primary care who — when you look at their scripting behavior overall with things like CGM and insulin, look more like endo practices than like true general practices, right? And so, we’ve been out in the world calling on those practices to see how they manage patients, how they manage diabetes therapy. And we’ve learned a lot. And what we want to do out of that learning, coupled with the portfolio that we’ll bring to market, is to figure out this kind of the term of art, the right selling motion.

So that’ll include what’s the right sales rep design, so the role description for that sales rep, what’s the right support. Right now, we have quoted reps paired up with clinical service manager reps who do both. Does that mix of rep look the same? Is it different? What’s the reach? What’s the so-called share of voice and design the commercial model? I think the reason we’re so bullish on what we’ve learned out of the pilot is, first of all, as we’ve said in the past, Omnipod as a platform is so simple to use that often the phenomenon is when we walk into those practices and say, hey, we’re here to talk about an insulin pump, their first reaction is, we don’t do insulin pumps because they’re too complicated. And then we show them Omnipod GO and they say, wait a minute, that’s an insulin pump and it’s so simple to use that it leads to a more holistic conversation about insulin delivery.

And often then they start to ask about basal bolus solutions, which then leads us to talk about DASH. And so one of the key learnings is we think in those practices there’s an opportunity not just for Omnipod GO, but ultimately for Omnipod 5 and intensive insulin therapy. And the other thing I think we’re finding is that there’s a range of patients out there. So I think the kind of stereotypical view is that type 1 patients are treated in endocrinology and a lot of type 2 patients are treated in general practice. But we’re actually finding there’s both in both. And so a lot of the intensive insulin using type 2 patients are already in endocrinology, but we also see them in primary care. And we see actually a surprising number of type 1 patients being treated in primary care as well.

So we think the opportunity there is different and more promising than when we initially launched the pilot. And we will be making a determination about the commercial model and then to in direct answer your question, there probably will be some more investment in sales and support to capture it.

Operator: Thank you. Your next question comes from the line of Matt Taylor with Jefferies. Matt, your line is open.

Matt Taylor: Hi, thank you for taking the question. I guess, I was wondering if you could comment on pump market growth just with all the enhancements going on with integrations and technologies across the space. Can you comment on whether you think the market growth is accelerating, or you think it will accelerate in the coming quarters or next year?

Jim Hollingshead: Thanks, Matt. We think that — you can see the normal cyclicality in the market, but the market is growing, first. And there’s two drivers of market growth. The first one is the widespread adoption of CGM. And the second big driver of market growth is Omnipod 5, because it makes — it so simple to come on to AID. And so as we continue to lead in MDI with a very clear leadership in the MDI position, those MDI patients are market growth for AID and we are leading the way there. So, the technology itself is driving market growth and our CGM partners are doing it and we’re leading the way in AID.

Operator: Thank you. Your next question comes from the line of Matthew O’Brien with Piper Sandler. Matthew, your line is open.

Unidentified Analyst: Hey, this is Phill on from Matt. Thanks for taking our questions. And just to circle back to Travis’s question from before, because I’m not sure that was explicitly clear as it relates to Q2. For total Omnipod, can you confirm that Q2 growth would be sequentially up if you back out this wholesaler dynamic? And then just for some who are listening who might not be familiar, can you talk about the fact that G6 pods are different than G7 pods? Thank you.

Jim Hollingshead: Let me start on the pods and then I’ll ask Ana to comment, go back to the Q2 financials. So the G6, G7 pods, when we get to full release for the G7 integration, those will be backwards compatible pods. So, the current pods can only connect with G6. But when we launch G7, the G7 pods will be G7 and G6 pods and be backwards compatible. So, what that will mean for a customer or user is that if they want to stay on the G6, they’ll be able to stay on the G6 because the pods will work with it, but it will also accept G7. And so, it’ll be kind of a sensor of choice within the Dexcom family of CGM. Ana, do you want to take the…

Ana Maria Chadwick: Sure. Listen, I’ll take another stab at here, the 2Q guidance. And I just — once again, I want to put it in overall perspective for the year. We’re taking up our guidance in the U.S., even in the low-end. And we expect overall that sequential growth to be there, as I stated. And I think the key point to mention here is we made our best assumption here as we have this transition of product out in the market. And we called our best estimate, and we will update us as we progress through the year. But we feel very confident over the entire calendar year with the guide we’ve given.

Operator: Great. Thank you so much. Your next question comes from the line of Jayson Bedford with Raymond James. Jason, your line is open.

Jayson Bedford: Thanks, and good afternoon, and welcome, Ana. I guess, I have a question on international. I think you mentioned that first and second half growth would be in the, I think you said, 13% to 15% range. Just given the annuity model, given the new products, geographies, why wouldn’t second half growth be higher than first half? Thanks.

Ana Maria Chadwick: Thank you for the question. Listen, as I mentioned here, we took the entire guidance up 500 basis points. And that’s given what Jim referred to, I mean, the adoption we’re seeing on Omnipod 5 is phenomenal and great. We’re going to be in more markets as well. And the markets — all of these European markets have a slightly different dynamic. Some of them are in four-year cycles, so on and so forth. So, we feel good with the guidance that we’re given. And in anything that’s new, our goal and the philosophy of this team and my philosophy is we want to give you numbers that we can hit. We definitely don’t want to miss. So that’s kind of the philosophy in which the spirit, and we felt the 500 basis points guide up was significant. We will learn a lot more as we go through the next few months and as we learn more of these launches, and we will update accordingly.

Operator: Great. Thank you so much. Your next question comes from the line of Steve Lichtman with Oppenheimer & Co. Steve, your line is open.

Steve Lichtman: Thank you. Evening, everyone. So, yeah, just building on that last question, you’ve given the annuity model, really nice to see this near-term outperformance and assuming it’s led by steeper ramp in new starts. Are there any new start metrics you can provide from outside of the U.S.? And are you getting a higher price point for O5 outside of the U.S.? So this is a mixed opportunity as well?

Jim Hollingshead: Sure. We don’t– as you know, Steve, we don’t give guidance on actual numbers and so on. But we did try to allude, I think, in the prepared remarks to the fact that Omnipod 5 is out of the gate so strong in the U.K. and Germany that already in Europe, more than half of our new customers start from Omnipod 5. So that’ll give you some color on the strength of the adoption. We’ll launch in France over the summer. And then, the France — we’re in Netherlands and LMR and we’ll get to LMR in the Netherlands and then we’ll launch in France over the summer. And there’s a ramp, as you all know, to the dynamic. And so that’s how you should expect to see it. We — if we ramp in those countries the way we are, we’ll see a revenue impact.

And depending on how quickly we can get France actually launched, which will happen — in this kind of a range, that will have more or less effect within the year. But we expect to have great adoption in France because Omnipod DASH has been so successful and it’s so demanded by patients. So just to give you the color on kind of the starts dynamic for us. In terms of ASP, yeah, we’ve been very successful in negotiating for a premium on Omnipod 5 relative to Omnipod DASH in our European markets. That’s different from what we did in the U.S., as you know, where we launched Omnipod 5 at effectively a price parity. But in Europe, we want to take advantage of the fact that Omnipod 5 is new technology. And that’s been an important component of each individual country launch, is to go in and negotiate for reimbursement that’s more commensurate with the value, the additional value that Omnipod 5 creates.

And so, there is a mixed impact on revenue as we get Omnipod 5 into each of those markets. It’s a little — the actual premium itself is a little different by market. But so far, we’ve been very successful in securing a premium for Omnipod 5.

Operator: Thank you. Your next question comes from the line of Joanne Wuensch with Citi. Joanne, your line is open.

Joanne Wuensch: Thank you very much for taking the questions. I have two. And the first one is I want to make sure I have an idea of what to expect when Libre 2 is integrated with Omnipod 5 and how you think about launching that and uptake. And then the second one is in addition to the type 2 clinical data, ADA, what else should we be looking for? Thank you.

Jim Hollingshead: Thanks, Joanne. Libre 2, we’re very excited. As you can imagine, we’re very excited to get our Libre 2 integration into market in LMR. So far, we’re having great results with the patient experience in both the U.K. and the Netherlands. And as you know, the Libre 2 form factor, that sensor for our partner Abbott is their most adopted sensor. And so, it opens up an entirely new kind of side to the market for us, kind of serviceable, addressable market, if you want to think in those terms, of all of those Libre 2 users who may therefore also want to go on to an AID system, an Omnipod 5. And Omnipod 5 is so simple to use and the form factor is so great that we think it will have very high appeal to that Libre 2 user population.

So, we’re very, very excited to get it out to market. Great to see the early results. Turning to GLP-1 and ADA data, there will be other things we’ll show at ADA. We’re going to show some subset analysis out of our pivotal trial. I’m sure we’ll show an update on our real-world evidence, which has consistently shown that we deliver fantastic time and range along with very low hypoglycemia in increasingly large populations of real-world data sets. And we’ll have some other studies that we haven’t yet discussed. No later than ADA, you should see us report an update on our analysis of GLP-1, which I alluded to briefly in our prepared comments, because it’s in real claims data you can see that people who adopt GLP-1s are more likely to adopt insulin in the same year.

And so, we’ll be documenting that with a robust presentation of the claims data, which is very exciting.

Operator: Great. Thank you. Your next question comes from the line of Danielle Antalffy with UBS. Danielle, your line is open.

Danielle Antalffy: Hey, good afternoon, everyone. Thanks so much for taking the question. Congrats on a great start to the year. Just a quick question on the new patient starts from competitive switches. Jim, I know you guys talked last quarter about the fact that one of your competitors was holding on to their installed base a little bit more. Just curious, has that gotten worse? You have another competitive launch happening, wondering if they’re also holding a little bit tighter to their installed base. And how you see this evolving? Is this something that we should be thinking in 85-15 MDI competitive switch split? And I appreciate that MDI is the key to the growth story, but just curious.

Jim Hollingshead: Yeah. It’s a great question, Danielle. The first thing I’ll say just quickly is on the 85-15, that was actually a pretty subtle shift in mix. That is a mixed percentage, and it was fairly subtle. We have an estimation on that. We don’t have perfect insight into those mixed data that we give on MDI versus competitive T1, T2. There’s kind of an estimation range in those. And so, I wouldn’t over-index on the modeling in what we reported. It was a pretty subtle shift. Having said that, what we see — and I can’t really speak to the challenges our competitors face in retaining the customers in their installed bases. What we see consistently, both with our own proprietary market research, which we’ve put in place in the last few quarters, and also with third-party data, is that we are the clear net winners in the competitive switch game.

So, if you’re a manufacturer, you can typically get a sense of how many customers you’re converting from a competitor, but you don’t often have great insight into what your loss rate is. And so, we’ve put in place some market analysis that allows us to better estimate that. And it’s a very consistent dynamic for us since we launched Omnipod 5 that we are the net winners in that game. So, we gain way more customers than we lose, both head-to-head with our competitors and then, obviously, overall in the market. And so that just speaks to how strong our competitive position is with Omnipod 5. It’s clearly the best offer on the market, and that’s what the market says with those results.

Operator: Great. Thank you. Your next question comes from the line of Bill Plovanic with Canaccord Genuity. Bill, your line is open.

William Plovanic: Great. Thanks. Good evening, and thanks for taking my questions. Just really wanted to go back to type 2 and Omnipod GO, and I don’t know if I missed this, did you give any detail on timing for full market release? And if not, are you kind of waiting for the O5 to be available before you roll out so you have a full product set? And then, with the ATDD data with time and range on the AIDs, I was wondering if some of this data has been driving kind of a shift in the market there as well. Thanks.

Jim Hollingshead: Thanks, Bill. We haven’t given timing on Omnipod GO, and obviously we haven’t yet filed Omnipod 5. And so, the commercial pilot’s intended to make sure that we have enough learning in place to put the right commercial model in place. And we’ll figure out exactly how we’ll bring the portfolio. So, we have not updated on timing for Omnipod GO, but I think you can easily envision that with a portfolio of products, the commercial model looks different than with a single product. So, I’ll put it that way, I think. With the ATDD data, to me, the real-world evidence that we were able to show makes it really clear that the Omnipod 5 algorithm is a world-class algorithm. It produces fantastic results, clinical results.

It produces it across age groups, across demographics. And as we said before, one of the things that’s unique about our real-world evidence is that it’s from all comers. And so it’s not only from highly engaged patients who upload their data, it’s from all patients who are on Omnipod 5. And so, when it has robust results, you can sort of see it as extra robust, because it’s a clear view into every corner of the user population. And on top of that, what it shows is we produce great time and range, as I said, but we continue to have very low hypoglycemia in our algorithm, which is a big competitive advantage for us. So that data is helping us now out in the field as we talk to physicians and continue to introduce Omnipod 5 to new users to demonstrate just how clinically effective Omnipod 5 is on top of and in addition to its great ease-of-use.

Operator: Great. Thank you so much. Your next question comes from the line of Marie Thibault with BTIG. Marie, your line is open.

Marie Thibault: Hi, good evening. Thanks for taking the questions. I’ll move away from the top line here and focus on margins. You had excellent operating margin again this quarter. Wanted to ask a little bit about the near-term cadence. Saw that you raised the guidance, but also heard that you’re expecting some incremental expansion of the salesforce. So, just any guidance on a quarterly cadence on that metric. Thanks.

Ana Maria Chadwick: Yes, this is Ana. Thanks for the question. We’re in a really strong position as we look at our operating margin. I’ll break it down. From a gross margin perspective, we did that 69.5. That’s very strong. We look to have strength on that as we progress through the year. Now, from an operating perspective, what we need to balance out here is the investments, because we want to really position ourselves into the future. As Jim and I have talked, it’s kind of a good problem to have. And we have a cadence around analyzing our investments and making sure there’s that rigor of those returns. As we sit here, yes, we see upward mobility here in our margins. At the same time, we want to be prudent in our capital allocation to continue to fuel the growth.

As you mentioned here, the salesforce and the different investments in our product and product features and other things. So, it’s a real balance, and we will continue to drive margins up as our priority and continue to prioritize our investments.

Operator: Great. Thank you so much. Your next question comes from the line of Chris Pasquale with Nephron. Chris, your line is open.

Chris Pasquale: Thanks. Jim, I wanted to understand your GLP-1 comment better. The thesis around GLP-1 use in type 2 is that it would help those patients take a couple of steps back on the disease progression escalator, if you will. So, maybe the insulin use can be delayed, or if they’re already on insulin, they can use less. And now you’re talking about the transition to insulin use actually being accelerated. So, do you think being on a GLP-1 is really making them more likely to need insulin, or is what you’re picking up there just that these patients were not engaging with their disease previously and now they are, and GLP-1s are the catalyst to get them more active?

Jim Hollingshead: Yeah, great question, Chris. Yeah. Obviously, we’d be speculating. And we’ll be publishing an update that will give you all more details, so I don’t want to steal the thunder of what we’ll put out. So, you can also look at the slides, and we can have a better conversation about it. But I’ll just say we’d have to speculate what’s actually happening. The analysis is based on claims data, and so it’s very robust. It’s very large-end claims data. And what it shows is that for those patients who adopt GLP-1, they are much more likely to also adopt insulin in the same year. And given what we see — so I’m now going to speculate, just for a second, okay? Given what we see with GLP-1s, we know GLP-1s lower A1c. So, I think the dynamic is more likely the second — your second suggestion, which is patients go in, they get put on a GLP-1 because their A1cs are really high, and then either they drop off of the GLP-1, which we’ll also have some information on that in our deck, or they stay on GLP-1, but they haven’t resolved their A1c issue, and therefore they also go on insulin.

And so that’s what we see in the claims data, but we can’t assert out of the claims data what’s actually happening in the clinic. And I’m sure it’s different for every patient, but at the population level, that’s the very clear and striking dynamic.

Operator: Great. Thank you so much. Your next question comes from the line of Mike Kratky with Leerink Partners. Mike, your line is open.

Unidentified Analyst: Hey, guys. This is Brett on from Mike. Thanks for taking the question. I just wanted to go back to the guide, I guess, on the high and the low-end. In particular, what are some of the assumptions in terms of just the G7 launch? Like, does it take a certain time in the summer that that’s going to launch to hit the high end of the guide, or the midpoint of the guide, or is there anything that we should be thinking about in terms of timing there? And then, with that, just overall attrition, and then the timing of the France launch as well, if there’s any swing factors there in the OUS guide.

Ana Maria Chadwick: All right. There’s a few questions here. Maybe we’ll tack them here between Jim and I. Let me take the guide first. Listen, it goes back to the fundamental. First and foremost, we’re increasing our revenue guide. Second point in terms of timing, we are absolutely assuming that as we put the new G7 pods into our channels, there’s going to be a reduction of the G6 as it gets sold through the channel. So, there is a destocking of that G6, and we have an assumption there, I’ll call it roughly in the $10 million or so. Now, the timing of all of this is really hard to go. That’s why, as I get the question asked, I keep bringing everybody back up to the full year, the second half of the year. But I just wanted to clarify because it’s been asked a few times, and that’s really our underlying assumption. And I want to go back to your second question around international. Can you repeat that?

Jim Hollingshead: France launch.

Ana Maria Chadwick: The France launch.

Unidentified Analyst: The timing of France. Yeah.

Ana Maria Chadwick: So, yeah — I’ll start. I mean, as we’ve said, the timing of the France launch will be here over the summer, and the teams are ready. They worked out all the pricing, and they’re working all the salesforce and everything. So, we expect — as we mentioned, that every country is slightly different. In France, there tends to be more of this four-year cycle of contract renewals, as people might have been previously in pumps and so on. So, we are assuming in our financials more of that optic into the later half of the year, very like later into the year as it ramps and it takes time, but really being a tailwind for us in 2025.

Operator: Great. Thank you so much. Your next question comes from the line of Josh Jennings with TD Cowen. Josh, your line is open.

Josh Jennings: Hi. Good evening. Thanks so much. I wanted to just ask on the pharmacy channel, Insulet enjoyed exclusivity to getting patient access through their pharmacy benefit. Our team doesn’t think there’s really much risk to the current model reimbursement levels that Insulet is achieving or securing, but are there any theoretical risks as some of the tube pump competitors start to open up that channel for patients and just thinking about either reimbursement levels, or just the model overall in terms of pump reimbursement and through the pharmacy channel? Thanks for taking the question.

Jim Hollingshead: Thanks, Josh. Really good question, and it’s something we could have a very complicated conversation about, right? But the very simple answer from our point of view is that what’s unique about pharmacy access for Omnipod 5 is that the product fits the channel really, really well. And tube pumps are durable equipment, and they don’t fit the channel very well. So, as anybody trying to enter the market and get into the pharmacy channel with some sort of durable equipment plus some consumable thing, it’ll be very difficult. For them to do it, they’ll have to do it with lots of workarounds. There’s going to be reimbursement challenges. There’s going to be scripting challenges and all kinds of things that we could have a much longer conversation about.

And never say never. We’re very mindful of competition. We have a lot of respect for our competitors. But it’s taken us several years to build out the scale and scope we have in pharmacy channel. And as we referred to in our prepared remarks, Omnipod 5 is available in retail pharmacy within five miles of 85% of the U.S. population. That is going to be very, very difficult for any of our durable pump competitors to replicate. And the overall model of Omnipod 5 with its very easy access, ease-of-use, ease of setup, get in a box at the pharmacy where you get your insulin, that model just fits very, very well. And I think the durable pump model does not fit the channel well.

Operator: Great. Well, thank you all so much for your questions. This does conclude our Q&A section. And I would like to turn the conference back to Jim Hollingshead.

End of Q&A:

Jim Hollingshead: Thanks, operator. In closing, we’re off to a great start in 2024. We’re transforming diabetes care globally with Omnipod 5, which now also includes our limited commercial launches with G7 in the U.S. and with G6 and Libre 2 Plus internationally. We’ve got a very strong market leadership position, the right product portfolio to address the needs of both the type 1 and the type 2 global markets, and a clear and focused strategy to drive continued growth, leveraging our significant competitive advantages. Looking ahead, the balance of the year is going to include a number of important milestones for us as we’ve been through on the call. We expect all of those milestones to help us drive new customer starts and margin expansion in the second half of this year and lay the foundation for significant long-term growth.

All of that while continuing to deliver on our mission to simplify the lives of people with diabetes all over the world. I just want to thank the entire global Insulet team for your dedication and passion for our customers and for our mission. You’re doing a great job, global Insulet team. Thank you very much. Thanks everybody for joining us today, and we look forward to updating you next quarter.

Operator: Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day. You may now disconnect.