Insulet Corporation

Good afternoon, ladies and gentlemen, and welcome to the Insular Corporation first quarter of 2020 earnings call. At this time, more participants are on the list than only most. Later, we will conduct a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, please press start and zero on your touchtone telephone. 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 of Investor Relations.

Thank you and good afternoon, everyone. And thank you for joining us for Insulate's first quarter 2020 earnings call. Joining me are Shacey Petrovic, President and Chief Executive Officer, and Wade McMillan, Executive Vice President and Chief Financial Officer. The replay of this call will be archived on our website and the press release discussing our first quarter 2020 results and second quarter and full year 2020 guidance is also available in the IR section of our website. Before we begin, I would like to inform you that certain statements made by INFLIT during the course of this call may be forward-looking and could materially differ from current expectations. We ask that you please refer to the cautionary statements contained in our SEC filings for a detailed explanation of the inherent limitations of such forward-looking statements. We will also discuss non-GAAP financial measures with respect to our performance namely adjusted EBITDA and constant currency revenue, which is revenue growth excluding the effect of foreign exchange. We have transitioned to these measures as they align with what management uses as supplemental measures in assessing our operating performance, and we believe that they are helpful to investors, analysts, and other interested parties as a measure of our comparative operating performance from period to period. Also, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year basis, and all revenue growth rates will be on a constant currency basis. And with that, I'll turn the call over to Shacey. Thanks, Deb.

Good afternoon, everyone, and thank you for joining us today. The last few months have posed extraordinary challenges for countries and communities around the world as we've grappled with the impact of COVID-19. Our hearts go out to those whose health has been affected and our gratitude goes out to the many medical professionals and first responders on the front lines. We also hope that all of you joining us on today's call are staying safe and healthy. As a company committed to improving the lives of people with diabetes, the safety and well-being of our insulin employees and the communities and potters we serve have been our top priorities as we navigate these difficult circumstances. In March, we transitioned to remote work arrangements for the vast majority of employees in line with guidance issued by the WHO, CDC, local governments, and health authorities. For those employees performing critical on-site functions, we significantly enhanced safety procedures to include social distancing, PPE protocols, frequent deep cleaning of our facilities, and temperature monitoring. I am pleased to report that this transition has been essentially seamless, and on behalf of our leadership team, I'd like to express our sincere gratitude to the employees who are continuing to work onsite to ensure we can provide uninterrupted supply of Omnipod to our customers. I'm incredibly proud of our global team's resilience and compassion in the face of this challenge. While balancing many other demands, like working from home, caring for children, and keeping their families and friends healthy, our dedicated employees have never lost focus on our mission. Our Insulet team is what makes us such a great company, and I want to thank each and every one of our employees across the globe. I'd also like to thank our many supply chain partners for supporting our ability to build excess capacity and redundancy, to ensure we can serve our customers without interruption and without delay. Notwithstanding the difficult external environment that began to affect our international business in February and U.S. market in March, we achieved first quarter revenue of almost $200 million, representing a 25% increase, driven by 34% revenue growth in our total diabetes product line. This performance is a testament to both our execution and the strength of our recurring revenue business model. We were well-positioned coming into the crisis, having ended 2019 in a position of strength with healthy inventory levels, a strong balance sheet, robust global manufacturing operations, and plans to capitalize on our growth prospects. We started 2020 with global Omnipod revenue near all-time highs, and in the first quarter, we made continued progress on our strategic imperatives. In the face of new obstacles, we responded quickly and effectively, maintaining our focus on execution, and we delivered financial results exceeding our expectations. While the impacts of COVID are difficult to predict, after careful consideration and scenario planning, we have decided to maintain our annual guidance, although we expect to come in at the low end of the range we previously provided. Our unique business model is a key differentiator since we generate the vast majority of our revenue from our large existing customer base. Therefore, while the current environment is unusually challenging, we believe our 2019 and Q1 2020 momentum will provide insulation. This gives us confidence that even in the face of this pandemic, revenue at the mid-teens rate in 2020. Wade will provide more detail, but assuming market dynamics normalize early next year, we also believe we can maintain our $1 billion revenue goal for 2021. Importantly, our relative strength in the near term allows us to continue to invest in our strategic imperatives that will drive growth over the longer term. These investments will ensure that over the coming years, Insulet makes significant strides to improve the lives of people with diabetes. We will bring the simplest, most consumer-friendly technology to market. Our business model innovation will ensure cost-effective access to the broadest population of users across the globe. And our investment in operational excellence will ensure supply chain resiliency, world-class manufacturing capabilities, and industry-leading gross margins. There is much work to be done to realize our vision, and in 2020, we will continue to make significant progress. This year, we are focused on driving four key initiatives forward. One, deliver consumer-focused innovation. Two, ensure the best global customer experience. Three, expand our global footprint. And four, drive operational excellence across the organization. Our team has done a remarkable job quickly adjusting in the face of COVID-19. And despite the challenges of working remotely, we do not expect an impact of more than a couple of quarters on our execution timelines. Engineers are finding creative ways to innovate in their newly virtual teams. Sales calls are happening via WebEx. And our manufacturing and supply teams are ensuring we meet our growing customer demand without missing a beat. I'll now walk through our Q1 progress on each of these key initiatives, starting with delivering consumer-focused innovation. During the first quarter, we continued to grow the number of Omnipod Dash users, driven by both the intuitive simplicity of its platform and our unique pay-as-you-go business model through the pharmacy channel. By eliminating complexity and restrictions, we are making Omnipod more accessible to a broader range of customers. Omnipod is differentiated, particularly in a down economy, because it has no upfront cost. This is also helpful to Insulet, creating a high degree of insulation through our recurring revenue durable annuity model. In this first quarter, we continued to increase coverage for Omnipod Dash, which helped grow the number of customers accessing Omnipod Dash through the pharmacy. As of the end of Q1, we had secured Omnipod coverage in the United States for over 50% of Medicare and approximately 70% of Medicaid beneficiaries. And we've seen a notable tick up in commercial coverage for DASH, with DASH now covered for over 60% of commercially insured lives. In the first quarter, approximately one-third of our U.S. new Omnipod starts were Type 2 Omnipods. primarily Omnipod Dash through the pharmacy channel. As a result of this strong growth and expanding market access, our U.S. new Omnipod Starts represented another record Q1. With last year's launch of Omnipod Dash, we created our online training program for Dash customers transitioning from Omnipod. This enables users to get started via online training without the need to leave home or meet with a clinician for support. Thanks to Dash's simplicity, this web-based training has been a success, and today it is being used extensively to support thousands of users. And in fact, many users transitioning from Omnipod to Dash just rely on the intuitive user interface, which provides step-by-step instructions to get started. These tools were created to support effective scaling of our business and have proven to be exceptionally helpful in our current environment. In addition, in response to the pandemic, our team worked quickly to expand and enhance our program to include virtual training for new users that still want support from a clinician. The virtual training and support capabilities we have built across our global business have allowed us to successfully service existing customers and to onboard new customers, even those that are brand new to pump therapy. In fact, over the last several weeks in our direct markets, which represent about half of our business, we have onboarded approximately 2,000 new users via virtual training with Insulet clinical trainers. And about 80% of these were MDI users new to pump and pod therapy. We have also seen our distributors and intermediaries implement great virtual training programs. Last week, I personally observed one of these trainings via WebEx, and it was a remarkable experience. Our clinical training manager walked a new potter, seven-year-old Colton, and his parents through the setup and pod activation of Omnipod Dash. They were transitioning from multiple daily injections. The training was thorough, effective, and the family was clearly at ease receiving it in the comfort of their own home. And it was absolutely wonderful to see the delight on Colton's and his mom's faces when they learned about Dash's food library and and temp basal capabilities, and when they experienced putting on their very first pod. It was a clear reminder of just how simple and accessible Omnipod is. We have made great strides in delivering a best-in-class customer experience. We are constantly making it easier for users to try Omnipod and access it from a convenient pharmacy. We had much of this work underway in order to support our rapid growth and our goal to deliver the best global customer experience. Telemedicine, virtual training tools, and the convenience of pharmacy access will continue to deliver appealing, scalable customer experiences. While we remain encouraged by the momentum of Omnipod Dash, we have seen a slowdown of new Omnipod starts globally. This intensified in March as many people delayed non-emergency doctor visits due to COVID-19. and we expect to face the strongest new start headwinds in the second quarter. It is obviously difficult to predict the timing and extent to which COVID will impact our business. We don't know how long our customers will be challenged meeting with their physicians or precisely how much our telehealth capabilities will offset this impact. Our guidance assumes the pandemic's recessionary headwinds will persist throughout 2020 followed by a gradual recovery starting in the third corner as economies begin to reopen and physician and patient interactions begin to normalize. We are presently assuming market dynamics return to normal starting in 2021. In addition to ensuring the safety of our employees and continuity of supply to our potters, our team has found ways to give back to our communities. We have participated in PPE donation programs to local healthcare facilities and gifted computer equipment to support remote schooling needs in our communities. And I am particularly proud that in response to the significant economic impact of COVID-19, we have broadened our financial assistance program to ensure those who rely on Omnipod can remain on product if they lose insurance coverage. This is a robust program designed to help address the unique healthcare affordability challenges for US Omnipod users who lose coverage due to COVID-19 and are not covered by Medicare or Medicaid. For these users, we will provide up to six months of pods at zero cost through the end of 2020. Throughout the first quarter, we continued our work to develop our next generation product, Omnipod Powered by Horizon. We remain highly confident that Omnipod Horizon, the first tubeless, personal, smartphone-controlled, automated insulin delivery system, will be a game changer for people living with diabetes. As you know, we paused the Horizon trial at the beginning of March in order to address a software anomaly. I am pleased to report that we have successfully completed the software update and has been sent to the FDA for review. Given anticipated agency review times and newly required logistics at our trial sites, we are now tracking to bring Omnipod Horizon to the U.S. market in the first half of 2021. We are fortunate to benefit from the enthusiastic support of our trial sites and participants and expect that all sites and virtually all patients will continue in the trial. That said, COVID-19 presents some challenges to how we support and monitor the trial, and this likely will add a few months to our timeline. The team has reacted quickly, proposing updated protocols to the FDA to ensure virtual follow-up and support in our interactions with the agency continue to be collaborative and helpful. We look forward to resuming the trial, and we know our study participants are eagerly awaiting the benefits of simple automated insulin delivery provided by Omnipod Horizon. In addition to our progress with Omnipod Horizon, the team has continued to advance our collaborations with Dexcom, Abbott, and Tidepool. Over the coming years, these partnerships will bring exciting new products to market that will deliver reduced burden and improved outcomes for people living with insulin-dependent diabetes. We also continue to advance our existing platforms to bring even more value to our customers. This year, we will build out Omnipod Dash with various new languages to further expand globally. And we will deliver Dash with remote upgrade capabilities, including secure cloud-to-cloud integration through Gluco, enabling additional ease of use and telemedicine capabilities. And development work is underway on mobile phone platform extensions for Omnipod Horizon, such as iOS. Now, turning to our global expansion. As a result of the progress we made capitalizing on our direct operations in Europe, we have strengthened our presence in many of our large, underserved existing markets. We entered into a limited commercial release of Omnipod Dash in three European markets at the end of 2019. and had planned to further roll out Dash in Europe and Canada and to enter five new international markets. We are eager to expand into new geographies, and Dash has been well-received in the markets in which we've launched it. COVID-19, however, presents some uncertainty in terms of market readiness, training and preparedness of our teams and partners, as well as regulatory and market clearances. We believe these dynamics delay our DASH and market expansion efforts into early 2021 as we work to ensure the markets are prepared for successful DASH launches and market expansions. These impacts are temporary, and we continue to view global expansion as an exciting multi-year growth driver for Insulet. Lastly, I will address our manufacturing innovation and ongoing efforts to drive global operational excellence. Several years ago, we began taking steps to strengthen our global supply chain. We focused on building redundancy with our U.S. manufacturing capabilities to supplement our capacity in China as well as create redundancy throughout our entire global supply chain. The importance of this effort was highlighted as we worked to maintain production continuity in the face of COVID-19, first in China and then in the United States. I am very proud of the incredible work our team has done to ensure we are producing above planned product levels while ensuring the safety and well-being of our global employees. We are laser-focused on making sure our customers receive continued, uninterrupted access to Omnipod. This pandemic is the challenge of our lifetimes, but we will emerge stronger and better for it. Already at Insulet, it is driving us to improve systems, enhance telemedicine capabilities, and further strengthen our manufacturing operations and supply chain. Insulet is rising to this incredible challenge, and there is no other team I would rather work with and rely on to see us through to the other side. We remain focused on executing our strategy to continue creating value for shareholders, and we remain focused on our mission to improve the lives of people living with diabetes, even in the most difficult of times. I'll now turn the call over to Wade.