Insulet Corporation

Good afternoon, ladies and gentlemen, and welcome to the Insolent Corporation fourth quarter and full year 2022 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. If anyone should require assistance during the conference, please press star, then 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, Investor Relations.

Thank you. Good afternoon, and thank you for joining us for Insulate's fourth quarter and full year 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 for the Q&A portion of our call. Both the replay of this call and the press release discussing our 2022 fourth quarter and full year results and 2023 guidance will be available on the investor relations section of our website. Before we begin, we would like to inform you that certain statements made by Insulate 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 gross margin, 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 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 Jim.

Thanks, Deb. Good afternoon, and thank you for joining us. In Q4, the Global Insula team delivered another record quarter of growth, which was a strong end cap to a remarkable 2022. We exceeded our expectations once again, achieving revenue growth of 45% in the U.S., and over 35% for total Omnipod. And our US and global new customer starts were at record levels. And 2022 marked our seventh consecutive year of 20 plus percent revenue growth. This past year, we not only drove consistently strong financial performance, we also achieved a number of critical milestones. We now have roughly 360,000 active global customers on the Omnipod platform, including more than 100,000 customers on Omnipod 5. In fact, during Q4, Omnipod 5 represented over 90% of our U.S. new customer starts. This transformative technology is the leading offer in the market and is proving to be the obvious choice for consumers. The 2022 full market release of our Omnipod 5 automated insulin delivery system was a huge achievement. This is the product our company was founded to make. And we continue to build on that momentum throughout the year, adding CE mark approval and quickly extending our label in the U.S. to include pediatric customers down to age two for Omnipod 5, as well as completing the 510K submission for our Type 2 basal-only pod. During 2022, we also further strengthened our intellectual property mode, representing a culmination of work throughout the year that should protect our innovation capabilities and opportunities for years to come. And we made notable advancements in our clinical efforts, including the recent publication of our first look at real-world evidence for Omnipod 5. I'll speak in more detail about the highlights of these accomplishments in a few minutes. I could not be more proud of everything the Insulet team has achieved in advancing our mission to improve the lives of people with diabetes. And on top of everything we've achieved during 2022, I am confident our best is yet to come. Omnipod 5 is truly unmatched as an AID system. With Omnipod 5, we have delivered a number of market firsts. It's the only tubeless, waterproof, pod-based AID system and the first to offer full compatible smartphone control with constant cloud-based connectivity. This means doctors don't have to wait for data to be uploaded when or if a patient visits a physician. With Omnipod 5, customers no longer need to plug in their devices to access their data. Our smart bolus calculator helps patients manage their blood glucose levels and trends, and there are no other AID systems that include the adaptive algorithm that Omnipod 5 has. It works right out of the box and learns each customer's specific usage, and then predicts their trends and automatically personalizes their care. These all are competitive advantages that significantly improve and simplify diabetes management. Omnipod 5 continues to drive customer adoption from all market segments. MDI users are growing at the high end of our forecast, as are those switching from competitive tube pumps, and the number of current Omnipod customer conversions are exceeding our expectations. In Q4, the percentage of customers coming from MDI and traditional tube pumps was an estimated 65-35 split compared to our historical 80-20 mix due to significantly more competitive switches. This again speaks to the value Omnipod 5 brings to MDI and traditional tube-to-pump users. We also continue to win back thousands of customers who had once been potters and return to us in Q4 to adopt Omnipod 5. Adopters are coming from all age groups. Due to higher-than-expected demand for Omnipod 5, we increased investments in our support capabilities, primarily within our call centers. These investments have helped drive our customer and product support experiences back to historical levels of excellence. This has included taking quick action to address certain complaints regarding the Omnipod Dash and Omnipod 5 handheld devices. We previously announced a medical device correction for Omnipod 5 due to an issue with the controller charging port and cable. The FDA subsequently classified this as a Class 2 correction, and we are in the process of providing replacements to our customers upon request. With respect to the previously announced Omnipod-MDC, we expect to complete the replacement of personal diabetes managers within the coming months. I am proud of our global team's focus to ensure these corrective actions were executed with a sense of urgency and care. Consumer-focused innovation is central to everything we do. Omnipod 5 was designed with the user 100% in mind, and the results and feedback we received speak to our shared success. One recent story from a mother of an eight-year-old with diabetes was particularly touching. She said, quote, Omnipod 5 has given me my life back. I sleep through the night. I feel like me again. Diabetes has moved from the foreground to the background in our daily lives, end quote. This speaks to the power of Omnipod 5 and supports why we designed the product and the customer experience the way we did. A critical element to our continued strong Omnipod growth is an unwavering commitment to expand access and awareness, and we're doing this through multiple initiatives. First is through our growing presence in the U.S. pharmacy channel. With low copays and broad coverage, access to Omnipod 5 and Omnipod Dash is affordable and simpler, which helps drive adoption and makes Omnipod more attractive and accessible, especially during challenging economic times. Second, we priced Omnipod 5 at parity with Omnipod Dash, resulting in our ability to meaningfully expand commercial coverage for Omnipod 5. By year end, coverage approached 90% of U.S. lives. Additionally, because the vast majority of our U.S. customers pay less than $50 a month through the pharmacy channel, the cost is similar to multiple daily injections, even though our technology offers improved outcomes, glycemic control, and quality of life. Our annuity business model and pharmacy access also benefit physicians and payers. We have eliminated large upfront costs and lengthy lock-in periods. This offers real value to payers compared to traditional tube pumps sold through the durable medical equipment channel. This is especially true when you consider that on average, individuals in the U.S. change insurance plans every couple of years. I also want to share that we recently notified U.S. Classic Omnipod customers about our plans to phase out that technology by the end of this year since the vast majority of our customer base no longer is on our legacy product. We value every classic Omnipod customer and will help them through their transition to either Omnipod 5 or Omnipod Dash. 2022 also was another exciting year for Insulet in terms of advancing our clinical efforts, and that momentum is carrying into 2023. We recently finalized our Type 2 Pivotal Study Protocol with the FDA and received IDE approval. We plan to begin enrollment in the three-month study in the coming weeks. This will be the largest clinical study we've conducted to date, enrolling up to 350 people with Type 2 diabetes from 20 sites across the U.S. There will be a targeted focus to recruit diverse and underserved populations to demonstrate safety and efficacy of Omnipod 5. Omnipod 5 also opens up new avenues for clinical evidence. Yesterday at ATTD, we shared the first release of real-world evidence for Omnipod 5 with data from more than 31,000 people using the system for at least three months. This kind of data is unmatched by competitors and gives us valuable insights into how people use the product and the outcomes they're achieving. we're able to see which device settings contribute to maximum time and range and minimal hypoglycemia. The data demonstrated glycemic results in line with those observed in our pivotal trials and also reinforced the benefits of our customizable target glucose settings. These are some of the reasons why Omnipod 5 will be a market leader for years to come. Our enthusiasm is shared by a healthcare practitioner who recently said, Quote, the Omnipod 5 real-world data set is striking in that it includes all users, since everyone is connected to the cloud-based system. With this large sample and limited selection bias, we see strong time in target range and minimal time below range, exceeding glycemic targets on average. This is extremely promising for long-term benefit in the real world, end quote. Our real-world data for Omnipod 5 will be incredibly powerful over time, since every user is cloud-connected. For patients, this means we can continue to personalize and improve the overall experience. For physicians, this means we will be able to streamline their workflows. Over time, our intention is to tie that usage data to claims data to further drive Omnipod 5 adoption, as well as build a host of other enhancements, such as population-based health management for payers. Nobody else in diabetes therapy can create evidence from data that includes all patients on therapy. This means that we will have unprecedented insights into actual population level usage patterns, which will allow us to constantly improve our offerings and build on our already market leading product differentiation. While we are thrilled with the market response to Omnipod 5, winning in the global diabetes market requires a commitment to innovation. Today, we have a strong innovation pipeline that includes our Type 2 Bazel-only pod, future AID offerings, and digital and data capabilities. Today, our unique form factor and access model are helping us win in the Type 2 population in addition to Type 1. We deliver a market-leading experience, and as a result, in Q4, individuals with Type 2 represented an estimated 15% to 20% of our new U.S. customer starts. We expect to build on our leading competitive position in this market as well as expand our total addressable market with the planned 2024 commercialization of our new basal-only pod. This will be a unique product for the type 2 market and will provide us with early entry into the treatment experience and help patients become comfortable with the Omnipod on-body experience. We believe this innovation will offer users a clear pathway to adopt Omnipod 5 as their insulin needs progress. We estimate the total addressable market for our Bazel-only pod is approximately 3 million people in the U.S. alone, doubling our U.S. TAM. We are also making great headway in our development work to integrate Omnipod 5 with Dexcom's G7 and Abbott's Libre systems, and our iOS integration efforts continue to progress very well. We offer the best AID system on the market today, and our future generations of technology, including CGM of choice, will continue to strengthen our leading value proposition. To continue to deliver our unique and leading technology, the key priority for us is our intellectual property. We have significantly expanded our patent portfolio over the last few years, and in this past year, we more than doubled it, both organically and through record patent filings and an acquisition. We acquired the PUMP and AID patent portfolio of Bigfoot Biomedical, including approximately 400 patents, and a large number of global patent applications. Over many years, Bigfoot has developed a strong patent library covering areas such as closed-loop technology, smartphone control, secure communications, and improved user experience innovations. Our acquisition of these patent assets adds significant strength to our overall intellectual property portfolio. Additionally, in the fourth quarter, we entered into a mutual agreement with Medtronic not to assert our patents against each other for certain diabetes technologies. With certain exclusions, this agreement applies to both companies' existing products as well as new products commercialized over the next seven years and does not permit cloning each other's products. The agreement replaces an earlier one and provides more certainty around covered products and the agreement's duration. Through these efforts, we have created a broad and deep IP moat that positions us incredibly well to build upon our current leading innovative platform and continue to grow our expanding innovation pipeline. Moving on to our international operations, we had a solid year of double-digit revenue growth, even with the ongoing impact of AID competition. We expect to begin to offset those headwinds in 2023 with the launch of Omnipod 5 in the UK mid-year and in Germany toward the end of this year. marking the beginning of our staged international rollout. We plan to launch Omnipod 5 more broadly internationally during 2024. Lastly, our global manufacturing capabilities continue to support our long-term growth trajectory and serve as another competitive moat. While macro conditions remain challenging, we continue to support our growing global customer base and the strong demand for Omnipod 5. Our operations team has worked tirelessly to secure components and build product ahead of our forecasted demand. We remain committed to providing uninterrupted supply and the highest quality product to all our global customers. In closing, the fourth quarter marked a terrific end to a remarkable year of strong financial performance and operational achievements. We have so many exciting opportunities in the years ahead, and the entire Insulate team remains committed to executing our mission and strengthening our long-term growth trajectory. I will now turn the call over to Wade.