Insulet Corporation

Good day and thank you for standing by. Welcome to the Insolent Corporation third quarter 2021 earnings conference call. At this time, all participants are on the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your first speaker today, to Deborah Gordon, Vice President, Investor Relations. Please go ahead.

Thank you, Dilem. Good afternoon, and thank you for joining us in this third quarter 2021 earnings call. With me today are Stacey Petrovic, President and Chief Executive Officer, and Wade McMillan, Executive Vice President and Chief Financial Officer. Brett Christensen, our Executive Vice President and Chief Commercial Officer, is also with us today for the Q&A portion of our call. Both the replay of this call and the press release discussing our 2021 third quarter results and guidance will be available on the investor relations section of our website. Before we begin, I would like to inform 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 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. These measures align with what management uses as supplemental measures in assessing our operating performance, and we believe they are helpful to investors, analysts, and other interested parties as measures of our operating performance from period to period. 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 rates, which will be on a year-over-year constant currency basis. With that, I'll turn the call over to Stacey.

Thanks, Deb. Good afternoon, everyone, and thank you for joining us. Our third quarter results reflect outstanding execution by our Insulet team and momentum across our global business. We delivered 17% revenue growth, driven by total Omnipod growth of 22%. While we are experiencing headwinds related to the ongoing impact of the global pandemic, revenue growth was near the high end of our expectations. We achieved these strong results thanks to our annuity model, which is a competitive differentiator that provides insulation from market disruption. We continue to achieve strong new customer additions, and we celebrated another record-setting quarter in the United States. We are seeing more impact from COVID internationally and expect this to continue over the short term. We are also seeing increasing preference for automated insulin delivery systems among people with type 1 diabetes, setting us up for an exciting launch of our first AID system, Omnipod 5. Until then, we expect these factors to affect our top-line results in Q4 and for a portion of 2022. Nevertheless, we continue to expect double-digit revenue growth in Q4 of this year, including high teens to low 20% for total Omnipod, with positive momentum entering 2022. Wade will elaborate on this in his remarks. Our team has done a remarkable job navigating this dynamic time in the market, and 2021 will mark not only another year of strong revenue growth, but also tremendous advancement of our strategic priorities. Diabetes is becoming more prevalent, and pump penetration in both the type 1 and type 2 markets is low. In fact, we believe the U.S. type 1 market can double over the coming years from its current penetration rate of approximately one-third. Additionally, the type 2 market, with a U.S. penetration rate in the low single digits, offers significant room for growth. We already see people with diabetes adopting technology at accelerated rates, driven by pod therapy and automated insulin delivery. Internationally, both the type 1 and type 2 insulin-intensive markets are even less penetrated, with sizable runways for expansion. We continue to disrupt the old market paradigm with a leading technology and differentiated business model that deliver an improved customer experience and improved outcomes. Our success in the Type 1 and Type 2 markets demonstrates the power of Omnipod and the value it delivers compared to MDI and legacy pump therapies. While not having a commercialized AID system presents some competitive headwinds in the near term, Our performance without Omnipod 5 highlights the incredible growth opportunities that we will begin to unlock in 2022 and beyond. We expect AID adoption and our highly differentiated platform to provide years of exciting growth as we advance our mission to improve the lives of people with diabetes. Our journey will take a major step forward with the expected upcoming FDA clearance of Omnipod 5. which remains on track to occur later this quarter. As we recently shared, we submitted our responses to the FDA's request for additional information in September. We are pleased to have that part of the process complete and can't wait to bring Omnipod 5 to market, as we are confident it will be a transformative product for people living with diabetes. We are in the final stages of the review, and our team is working closely with the FDA, who has been a great partner in the process. Advancing toward Omnipod 5 clearance is not the only strategic progress we made this quarter. We continue to drive growing Omnipod Dash coverage and volume through the U.S. pharmacy channel and further penetrate the Type 2 market, where we are uniquely positioned with our product innovation and differentiated business model. Omnipod Dash has proven to be a terrific solution for people living with Type 2 insulin-requiring diabetes, where today we have established a leadership position. Additionally, we continue to amass compelling clinical evidence that supports Omnipod's many benefits. This includes impressive new Omnipod 5 data we shared in September at EASD. Taken together, we are on track to deliver another year of strong financial and operational performance and outstanding strategic progress. I will now speak to each of our strategic imperatives, including expanding access and awareness, delivering consumer-focused innovation, growing our global addressable market, and driving operational excellence. Access and awareness both remain critically low throughout the global diabetes market, despite millions of newly diagnosed people each year. Awareness of advanced technologies like Omnipod needs to increase, especially awareness of its many benefits, such as its simplicity, discretion, improved quality of life, and better outcomes. In addition, access to technology is still far too complicated. We have broken down barriers through our innovative pay-as-you-go business model in the U.S. pharmacy and raised awareness through our direct-to-consumer campaigns. We are pleased with the impact both efforts have had on improving access for many who require care. Even with our successes to date, however, many opportunities remain to improve access and awareness in order to empower more people with diabetes to live healthier, easier lives. In the United States, our pay-as-you-go business model in the Pharmacy Channel provides benefits for everyone. It's more efficient for insulin and provides an improved experience and lower out-of-pocket costs for consumers, with the vast majority paying less than $50 per month through the pharmacy. Additionally, it's easier for physicians to prescribe and offers numerous benefits to payers. In the third quarter, we expanded Omnipod Dash U.S. Covered Lives to over 80%, which in turn drove increased volume through the pharmacy channel. Payers are increasingly recognizing the economic benefits of offering Omnipod Dash in the pharmacy. In the U.S., our new customer starts once again reflected the value Omnipod offers compared to MDI. as well as our growing strength in the Type 2 market. MDI conversions represented over 80% of our U.S. new customer starts, and the percentage that were Type 2 remains in the 35% to 40% range, even with the strong new customer growth within the Type 1 population. Our MDI conversion rate continues to trend upward as we successfully drive adoption among people living with Type 2 diabetes, the majority of whom come from MDI. In addition to expanding affordability, we are also driving access to Omnipod in a number of other ways in order to provide more options for people living with diabetes. We recently received FDA clearance for use of Lilly's LoomJub with Omnipod. We are the only insulin pump manufacturer in the United States to obtain this indication, which we pursued to provide more alternatives and flexibility for customers. A key component of our awareness strategy remains our DTC advertising. Our efforts in the U.S. and select international markets continue to generate a highly positive response. The feedback has been enthusiastic, and the increased awareness, interest, and leads are contributing to our new customer growth. Our efforts are attracting MDI users and competitive pumpers as both face unmet needs that Omnipod helps address. Additionally, our DTC efforts are driving increased interest from individuals with type 2 diabetes as more primary care physicians learn about the benefits of Omnipod for this underserved population. So DTC will remain a core component of our awareness efforts, and we are encouraged by the early results. We are a consumer-centric company, and our innovation efforts are focused on delivering the best experience to our consumers. To that end, we are confident Omnipod 5 will mark an enormous step forward and drive accelerated adoption. Today, we offer a tubeless, on-body experience that is unique compared to anything else in the market and an access model in the U.S. that has eliminated needless barriers and burdensome costs. The experience that Omnipod Dash provides is unparalleled, and Omnipod 5 will mark another breakthrough in diabetes care that builds upon our existing competitive advantages. Omnipod 5 will deliver groundbreaking technology first, including full compatible smartphone control with an algorithm residing on the pod and SIM cards in each handheld controller. Omnipod 5 is a transformative innovation and will remain highly accessible and affordable through the pharmacy channel. It will be priced at parity with Omnipod Dash, despite the increased value and advanced technology the system offers. In turn, we believe this will drive faster coverage of Omnipod 5, and we are already off to a great start. While we eagerly await Omnipod 5 clearance, our efforts to prepare for a successful launch have been moving at full speed, including securing coverage. Payers are generally reluctant to negotiate coverage terms prior to product clearance. However, given the excitement around Omnipod 5, we already have secured substantial coverage. We expect this head start on access to position us for a highly successful launch of Omnipod 5. We cannot wait to receive clearance as we know the incredible impact our advanced technology will have on people living with diabetes. The power of Omnipod is clearly demonstrated by the compelling clinical data we have shared over the course of 2021. One recent highlight was our new pivotal study extension results for Omnipod 5 presented at EASD. This study marked a total of one year of Omnipod 5 use in ages 6 through 70 years old. We were thrilled to find that the outstanding safety and improved glycemic outcomes first observed in the three-month Omnipod 5 pivotal study were maintained over 12 months of home use. The data demonstrated the trifecta of insulin management, a sustained reduction in A1C, improved time and range, and minimal hypoglycemia. This long-term data demonstrates the durable benefits that Omnipod 5 offers. We are also close to submitting to the FDA our preschool expanded indication down to age 2 and expect to do so shortly following Omnipod 5 clearance. We continue to plan for an expanded indication in 2022. Additionally, we advance our Type 2 clinical efforts and remain in the six-month extension phase of our Omnipod 5 Type 2 feasibility study. The early data is very promising, and we expect to share the results at a future conference. Following clearance for Omnipod 5, we will begin discussions with the FDA on pivotal trial requirements for an expanded indication in this patient population. We are excited to be pioneers in bringing the benefits of automated insulin delivery to people living with type 2 insulin-dependent diabetes. In addition to Omnipod 5, we also presented results from our largest cohort study of people living with type 1 diabetes who use Omnipod DASH. Across approximately 4,800 people, the results demonstrated low time in hypoglycemia and a significant decrease in A1C after 90 days of use for children, adolescents, and adults. For adults, the decrease in A1C was achieved while also demonstrating a 20% reduction in total daily dose of insulin used. As we build a portfolio of clinical evidence for our near-term innovations, we are also investing in the technologies required to position Omnipod for long-term growth. Our teams are diligently working on an iOS version of the Omnipod 5 mobile app, globalizing our AID system to bring it to international markets, and integrating Omnipod 5 with both Abbott's Freestyle Libre and Dexcom's G7. We're excited to continue collaborating with these two great partners and in time offer CGM Choice to our customers. We are also leveraging our significant digital capabilities to expand the ecosystem around Omnipod. Our Omnipod View app was built for caregivers. Today, it allows caregivers of Omnipod Dash users to see real-time insulin data remotely. Omnipod 5 enhances the power of Omnipod View. because of the incorporation of SIM cards in every controller. SIM cards mean every user will have the unique experience of constant connectivity and being able to share real-time insulin and CGM data with caregivers and loved ones. SIM cards also mean no Omnipod 5 customer will need to manually upload data when visiting with his or her care team, thanks to cloud-to-cloud data transfer. Looking to the future, our algorithm and data science teams have already processed the data from our pivotal studies and type 2 feasibility study and are hard at work on our next generation AIV system. We believe we've built a blockbuster with Omnipod 5, and we are excited to continue to innovate on the extraordinary technology platforms it provides us. Now, turning to global expansion, where we are growing our global addressable market across attractive international regions. Our international expansion unlocks the power of Omnipod for people across the world and will further increase our global addressable market. Beyond the 11 to 12 million people, we estimate our living with insulin-dependent diabetes throughout the global markets we currently serve. During the last 12 months, we expanded our global presence in seven new countries within Europe, the Middle East, and Asia-Pacific. While it takes time for new markets to meaningfully contribute to our results, given the nature of our business model, we see strong long-term growth potential through our growing presence in multiple regions. The work to bring Omnipod 5 to our international markets is ongoing, and we are making great progress. Omnipod Dash has been a major global growth driver, and we believe adding our game-changing AID system to our product offerings will further strengthen our competitive position across our international markets. Moving forward, we see a number of attractive opportunities to expand our global presence, to further penetrate our existing markets, and to introduce advanced technology to underserved regions. We continue to assess many markets throughout the globe where we know people with diabetes can greatly benefit from Omnipod, and where we are confident we can drive strong adoption and growth. Our near-term focus is on growing our global presence throughout the Middle East and Europe, and over the medium term, we plan to expand further within the Asia-Pac region. Lastly, we continue to invest in our global manufacturing operations, which will further strengthen our production capabilities, efficiency, and scale. Today, we are producing tens of millions of pods a year and doing so at the highest quality. Our manufacturing expertise is a competitive advantage, and the investments we have made over the last several years to expand our operational excellence and establish redundant manufacturing capabilities while securing strong partnerships with key suppliers are critical. This positions us to support growing global demand for Omnipod Dash, the upcoming launch of Omnipod 5, our international expansion, and our innovation pipelines. It has also helped to mitigate global supply chain issues throughout the pandemic and represents an important long-term driver of sustainable revenue growth and gross margin expansion. In closing, we remain on track to deliver another year of double-digit revenue growth and have made significant progress across each of our strategic imperatives. The clearance and limited market release of Omnipod 5 are just around the corner, and we could not be more excited about for just how transformative this innovation will be for people living with diabetes. Our passionate and hardworking global team is our greatest strength, and we are focused on finishing the year strong and carrying the underlying momentum in our business into 2022 and well beyond. I'll now turn the call over to Wade.