Insulet Corporation

Good afternoon, ladies and gentlemen, and welcome to the Insolent Corporation second quarter 2022 earnings conference call. At this time, all participants are on a listen-only mode. Later, we will conduct a question and answer session, and instructions will follow at that time. 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, Dylan. Good afternoon and thank you for joining us for Insula's second quarter 2022 earnings call. With me today are Jim Hollingshead, 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 2022 second quarter results and 2022 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 INFLIT 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 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, and we believe they're 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 Jim.

Thanks, Deb. Good afternoon, and thank you for joining us. I'm excited to be here with you today on my first earnings call as CEO of Insulet. This past quarter, we exceeded our revenue expectations, resulting from sustained momentum across our business. We are halfway through the year, and the entire Insula team is executing at a high level. We increased our four-year outlook for U.S. Omnipod, delivered record U.S. and global new customer starts, had our second highest new customer starts quarter internationally, and meaningfully advanced each of our strategic imperatives. Accomplishing this was no easy task, given the challenging global macro environment that we and other companies are facing. We are incredibly excited to have recently entered full market release for Omnipod 5, and now our differentiated transformative technology is available broadly through retail pharmacies. The results to date have been amazing. Omnipod 5 is proving to be the game changer we thought it would be. Customer and healthcare provider feedback has been overwhelmingly positive, and our teams are doing a remarkable job executing the launch. Our CE mark submission review is progressing very well, and we are in the final stretch toward approval. This represents a key milestone in our plan to bring Omnipod 5 to people with diabetes around the world. This approval is one step in our strategy to participate in the international AID market, which is being driven largely by CGM reimbursement. We have also advanced our clinical efforts. Our FDA submission for an expanded indication for Omnipod 5 in the U.S. down to age 2 is progressing very well, and we are confident in the near-term clearance. The value that Omnipod 5 can deliver to young children and their families is abundantly clear, and we're thrilled to soon bring Omnipod 5 to this highly vulnerable population. We shared compelling data at ADA demonstrating how powerful Omnipod 5 can be for the Type 2 insulin requirement population, a market segment that is further adopting Omnipod due to our unique value proposition. And in the Type 1 population, we are currently enrolling for a 200-patient, three-month randomized controlled trial in France and the U.S. to demonstrate superior efficacy for Omnipod 5 compared to non-AID pumps and CGM alone. Lastly, we broke ground at our future Malaysian manufacturing facility, which will strengthen our global manufacturing capabilities and redundancy as well as support our international expansion strategy. Before moving into a broader view of the quarter and our progress, I want to take a step back and reflect on my first two months as CEO. I was aware of the strength and commitment of the entire Insulet team from my three years on the board of directors. Now that I'm CEO, I'm even more impressed. Our global teams are exceptional. The shared commitment to our mission of improving the lives of people with diabetes is inspiring and it's pervasive throughout our organization. Diabetes is a growing global epidemic, and Insulet's ability to serve unmet needs and provide improved outcomes has never been more important. It is clear that we have the team, the product portfolio, the innovation roadmap, and most importantly, the passion to improve millions of lots, and I'm excited and privileged to lead Insulet on that journey. Expanding access and awareness are keys to driving our business forward. Despite improvements over the last few years, only a small percentage of people with type 1 diabetes globally benefit from insulin delivery technology. Access and awareness are important levers that will significantly drive increased penetration over the coming years. We are making terrific progress building awareness and securing coverage globally, including broad coverage for OmniFOD5 in the U.S. We've built a unique leadership position in the U.S. pharmacy channel, which improves functional access for both the Type 1 and Type 2 populations. The vast majority of our U.S. customers continue to pay less than $50 each month through the pharmacy for Omnipod Dash and now Omnipod 5, with many paying nothing. We've eliminated lengthy lock-in periods and upfront costs that are common in the DME channel, and our pay-as-you-go model provides easier and more affordable access for our customers and removes risk for payers. And we are delivering this easier access combined with lower costs while also delivering an improved customer experience and better outcomes. That's a winning combination and one that resonates with people using multiple daily injections, a population from which we continue to capture approximately 80% of our new customers. Our pharmacy channel and pay-as-you-go business models also connect with people with type 2 diabetes. We are acutely focused on making access simple and more affordable. providing an unmatched form factor, and generating clinical evidence that supports what Omnipod can do for the Type 2 population. Because the Omnipod offering is so compelling, during the second quarter, Type 2 users represented almost 30% of our U.S. new customer starts. As expected, this is a percentage reduction from prior quarters because Omnipod 5 is indicated for use with people with Type 1 diabetes, as is the case with all AID systems. Therefore, we expect the mixed percentage of new customers to change as more people with Type 1 adopt Omnipod 5. We saw this begin in Q2, and we're excited to see it continue now that we are in full market release. Nevertheless, we continue to see a strong number of new customers with Type 2 adopting Omnipod Dash, and we remain confident in our ability to further penetrate this underserved population. A major component of our awareness efforts is our direct-to-consumer advertising campaign. We ramped our DTC program ahead of the full market release of Omnipod 5 and have since accelerated our spend. This has resulted in more people wanting to learn about Omnipod 5 and the impact it can have on their lives and those they care about. We expect our DTC efforts for Omnipod 5 will be even more effective than what we have experienced for Omnipod Dash. We are also using DTC to drive awareness for Omnipod in select international markets. Customers love Omnipod 5. That's because of the number of firsts it brings to the market. It's the first pod-based AID system, the first fully compatible phone-controlled AID system, the first system no one has to plug in to access data, and the first with a smart bolus calculator to directly incorporate trends. We've heard humbling and inspiring stories from countless customers, and we're just getting started. I want to share a couple of stories we've heard from individuals adopting Omnipod 5 and how impactful it's been for their lives. An individual who had been using an insulin pump for over a decade and recently switched to Omnipod 5 told us that after 10 years of worrying about visible tubes, getting caught on doorknobs, and dealing with the nuisances of being tethered to his pump, he now spends more time focusing on life. His outcomes have improved, including his overnight blood sugar, and he no longer has to live his life with diabetes top of mind. We also heard from a physician who has lived with type 1 diabetes for 43 years. He noted that during that time he's seen treatment options evolve and change, but Omnipod 5 is the largest leap in improvement he has ever seen. This very experienced physician called our system, quote, remarkable. These two stories are just a small representation of the amazing testimonials we continue to receive from Omnipod 5 users. There's a common thread that connects all the stories we hear from users. Omnipod 5 is redefining how people manage their disease, and it's making their lives simpler. The impact Omnipod 5 is having is clear and it's powerful. In Q2, the first full quarter of limited market release, Omnipod 5 already represented over 25% of our U.S. new customer starts. We expect that percentage to accelerate with the U.S. full market release as we now sell through a broader distribution channel, including all of our wholesalers that supply products to approximately 88,000 retail pharmacies. We are also having outstanding success securing coverage for Omnipod 5. Today, we have over 55% covered lives for Omnipod 5, which is well ahead of where we were when launching Omnipod Dash, and represents a significant increase from Q1. Our team has done an amazing job, and we expect to make meaningful progress the rest of this year and into the next. Omnipod 5 is now fully available through retail, specialty, and mail order pharmacies to anyone with a prescription and coverage in line with our expected timing. Our limited market release provided key learnings about how healthcare professionals and customers interact with our product, onboard, and virtually trained, all of which are dramatically easier than ever before. Already, the small improvements we have implemented are resonating with users, especially those coming from a tubed pump who transition to a more simplified experience. In fact, One of the key learnings is that physicians and patients can rely on the automation of the system to do the work for them during the first few days. Omnipod 5 works with the first pod out of the box, and then it learns and adapts to personalized care for each individual user, typically within the first or second pod change. This ability to automatically personalize therapy clearly differentiates Omnipod 5 from all other systems on the market. Quite simply, Omnipod 5 eliminates significant burden and shared work between patients and their physicians. Although our target market continues to be MDI, not surprisingly, many of our Omnipod 5 new customers come from competitive pumps, and people are loving the experience. The clinical benefits of Omnipod 5 were clearly demonstrated by the preschool pivotal extension data we shared at ADA that built on the strong results we saw during the study's initial phase. which were recently published in the peer-reviewed journal Diabetes Care. During the first three-month phase of the study, as well as through the end of the extension phase, patients achieved an average A1C of 6.9% compared to 7.4% at baseline. The data clearly demonstrated these individuals maintained their improved levels through the extension phase. Time and range and percent time in hypoglycemia also showed sustained improvements during the extension phase, demonstrating the durability and power of Omnipod 5 for this critical population. We look forward to receiving our preschool indication for Omnipod 5 this year. The engagement around Omnipod 5 at ADA was really something to see. We met with hundreds of attendees at our booth and held a product theater that was standing room only. It was here where we shared patient case studies and the real-world experience of HCPs who have had remarkable success with Omnipod 5. The overwhelming feedback was that Omnipod 5 clearly stood out as the most robust AID offering, and many of the MDI and tube to pump users in attendance have since adopted our technology. Overall, ADA marked another opportunity to highlight our products and clinical accomplishments that demonstrate how Omnipod can change the lives of people with diabetes around the globe and how important and meaningful our mission is. We are also advancing our innovation pipeline. We're developing the next generations of Omnipod 5, furthering our iOS development, and working closely with our CGM partners, Dexcom and Abbott. Our innovation priorities are focused on growing our addressable market, building our next generation AID technology, and creating digital and data-driven products to make diabetes management easier for our customers and their physicians. Moving on to our international operations. Our Omnipod 5 CE Mark submission is moving swiftly through review and we expect approval over the next couple of months. This is an important milestone for our international business as we work to bring Omnipod 5 to people around the world. CE Mark clears the way for us to focus on completing a cloud-based infrastructure that is compatible with local data protection regulations, developing country-specific launch plans, channel and customer experience approaches, and seeking reimbursement. Omnipod 5 is a transformative platform and we look forward to entering our first international markets in mid 2023. We will take a staged approach to entering markets so we can ensure successful launches in each country in which we operate. In addition to bringing Omnipod 5 to global markets, we continue working to enter new markets and recently launched Omnipod Dash in the United Arab Emirates and Saudi Arabia. Omnipod is now available in 24 countries and we're building local teams and advancing our regulatory and reimbursement goals. These efforts will serve us well as we bring Omnipod 5 to our international markets and strengthen our competitive position. Lastly, the global supply chain and inflation each present significant challenges to Insulet as they do for most manufacturers across a range of industries. However, we continue to navigate these headwinds and increase our resiliency. ensuring ample product supply, including supporting the Omnipod 5 launch and the needs of our growing global customer base. We are mitigating supply risks by securing components well ahead of our capacity needs. While this comes at an increased cost that will have a near-term impact on margins, we are taking the appropriate steps in these turbulent times to ensure uninterrupted supply for our current and future customers. The footprint of our global manufacturing operations is one of our many competitive advantages. and we advanced our efforts to further strengthen our capabilities. We recently broke ground at a new manufacturing location in Malaysia. The future facility, located in Johor Bahru, represents an investment of approximately $200 million over the next five years, will provide approximately 400,000 square feet of manufacturing space, and house more than 500 full-time employees at capacity. Our regional sourcing strategy includes the use of local suppliers for components and we have already outlined our plans to utilize environmentally responsible and resource efficient materials in our building design. We expect to begin production at this new facility by the end of 2024. This facility supports our operational strategy to increase our global manufacturing redundancy, build our global talent base, and support future international market expansion efforts. In closing, the second quarter marked a number of financial, commercial, and operational milestones. our entire Insula team continues to execute with an unwavering commitment to our mission and to our customers. We are proud of all the work and accomplishments we achieved this quarter and know we are setting the stage for sustainable long-term growth. I'll now turn the call over to Wade.