Q2 2023 Insulet Corp Inc Earnings Call

[music].

Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation's second quarter 2023 earnings call.

At this time all participants are in a listen only mode.

Later, we will conduct a question 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 Insulet second quarter 2023 earnings call with me today are Jim Hollingshead, President and Chief Executive Officer, and Wade Mcmillan Executive Vice President and Chief Financial Officer.

The replay of this call and the press release discussing our quarterly results and our guidance will be available on the Investor Relations section of our website also on our website is our second quarter supplemental earnings presentation. We encourage you to reference that document for a summary of key metrics and business updates.

Before we begin we 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 well also discuss non.

GAAP financial measures with respect to our performance, namely adjusted gross and operating margins adjusted EBITDA and constant currency revenue, which is revenue growth. Excluding the effect of foreign exchange. These measures aligned 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, Todd Good afternoon, and thank you for joining us in Q2, we enjoyed another quarter of sustained strong momentum and we remain on track for another successful and transformative year.

The entire global Insulet team is executing at a high level and we continue to deliver strong financial performance, while also achieving several key strategic and innovation milestones.

On today's call I'll touch on four main topics, our strong financial performance, our consumer focused innovation and clinical achievements.

We're continuing to drive penetration of our massive market opportunity with expanded access and awareness.

<unk> International launch.

Starting with our financial performance.

Our second quarter revenue exceeded our expectations with total omnipod growth of 33%, including U S growth of 41%.

We also achieved total company growth of 32%.

Cause of these terrific results, we've raised our outlook for the year.

Omnipod five continues to disrupt the diabetes technology market as the only FDA approved fully disposable pod based automated insulin delivery system or.

Our flagship offering continues to be the major driver of U S revenue growth and was responsible for another record quarter of U S and global new customer starts.

And Omnipod five represented almost 95% of our U S new customer starts.

Building on our success in the U S. We are very pleased to have completed the commercial launch of Omnipod five in the United Kingdom.

We are excited to bring our unmatched AI system to our first international market.

Our plans to launch Omnipod five in Germany are on track for this fall with a broader stage rollout across our European markets in 2024.

We also meaningfully advanced our clinical and innovation initiatives during the second quarter.

We had a formidable presence at Ada in June we presented compelling new real world data from the first year on Omnipod five in the U S for both type one and type two users.

In addition, our U S type two pivotal.

France randomized controlled trials are progressing well.

On the innovation side, we are thrilled to have submitted our 500 10-K to the FDA for the Omnipod five iOS app for the iPhone.

IOS phone control is one of the most requested features from our customers and we look forward to bringing this new offering to market in the near term.

We entered the second half of the year with clear momentum in our business and our focused strategy to advance our mission to simplify and improve the lives of people with diabetes.

Central to everything we do is our drive to deliver consumer focused innovation.

That is why we are incredibly excited about omnipod, five and the game changing technology and experience it delivers.

Its benefits are clear simple and easy to use technology and unmatched form factor in customer experience affordability and broad access through the pharmacy channel and notably strong real world clinical outcomes.

Omnipod five continues to have very broad appeal and is attracting substantial new customer starts across all age groups.

In Q2, the mix of Omnipod, new customers coming from multiple daily injections and legacy tube pumps was an estimated 70 525 percentage split compared to our historical 80 20 mix.

We continue to capture a significant tube pump switches, while also growing pump adoption from those coming from MDI, which is what our omnipod brand of products with specifically designed for.

Omnipod five adoption isn't the only evidence of considerable impact on the diabetes community. We are also seeing stable retention rates.

We also saw a sizable increase in the number of Hcp's, who wrote scripts for Omnipod five in Q2, which was over 15000 up from over 11000 in Q1.

That is in a market where there are seven to 8000 endocrinologists.

The power of Omnipod five is also illustrated by the ongoing feedback we received across the diabetes community from parties to their parents and loved ones to Hcp's and other caregivers.

We recently heard from a Potter who said quote since switching omnipod five I have never looked back end quote.

And then endo at a very large clinic recently informed us that he has changed how we communicate with as type one patients in a strongly recommends HIV therapy for all and in the clear majority of cases, they choose omnipod five.

Our success building awareness of and access to Omnipod is core to our strategy and ability to continue to lead in the type one and type two markets both of which remains vastly underpenetrated.

The market opportunity is massive.

<unk>, we see Omnipod five already contributing to overall pump adoption in the U S. Reinforcing our confidence that Omnipod will drive pump penetration to well over 70% in the type one market alone from the approximate 40% where it is today.

The U S. Pharmacy channel also remains a key driver of our success expanding access to Omnipod in the United States.

The pharmacy channel simplifies the overall experience for patients and provides more affordable convenient and efficient access.

The vast majority of our U S customers continue to pay less than $50 a month through the pharmacy channel.

Putting it on par with the customer cost for MDI.

And we continue to hear from our customers how convenient it is to get their pods through this channel.

We are capturing the market opportunity in improving the lives of our customers through not only our advanced technology and clinical outcomes, but also our products convenience and simplicity.

This quarter, we significantly advanced our clinical initiatives.

We had fantastic representation at 88, including standing room, only at our product theater and a record number of leads at our booth.

We presented Omnipod five real world evidence demonstrating improved outcomes for children adolescence, and adults with type one diabetes and for the first time Omnipod five real world data for adults with type two.

The combined real World data included 60000 individuals across all age groups.

Every day, we are building real world evidence that undoubtedly demonstrates that our advanced algorithm and overall system is working exactly as it was designed and improving customer lives.

Our real world data will be incredibly powerful overtime. Since every omnipod five user is cloud connected.

We can continue to personalize and improve the overall customer experience, while also streamlining physician workflows.

We will have unprecedented insight into actual population level usage patterns, which will allow us to constantly improve our offerings and to build on our already market leading product differentiation.

Every day, we are building usage data from our rapidly growing omnipod five customer base and we will be able to use this private secure de identified data to constantly improve the customer care experience from diagnosis all the way through the course of their lives.

We will be able to learn from usage patterns increasingly segment of our offerings and drive coaching engines.

Put it simply the better we make the customer experience and streamline workflows. The more we'll have product preference and the more data will have and it will effectively be a data flywheel that builds on itself.

This is where we will continue to lead nobody else in diabetes therapy can create evidence from data that includes all patients on therapy.

As we also mentioned at <unk>, we expect to begin enrollment in a matter of weeks for a trial using omnipod five with the freestyle Libre two C. G M, which will include up to 200 participants with type one diabetes across 18 institutions in the U K, France and Belgium.

It will be a 13 week randomized controlled trial, including those currently on MDI with the primary endpoint of change in <unk>.

Although not needed from a regulatory perspective, we expect the data from this trial to support our pricing and access initiatives.

We are excited that our integration with Abbott's Libre as far along and has advanced to the point, where we will soon place study participants on the integrated system.

We also announced our first feasibility study of our next generation AI algorithm, which will take place in New Zealand and for which recruitment began last month.

This 11 week study will include up to 72 participants aged 16 years and older with type one or type two diabetes and is designed to assess safety and effectiveness.

Our new algorithm work is informed by our incredibly strong usage data, which allows us to continue to advance our system and even more ways than we had originally envisioned.

We advanced other major clinical programs during Q2, including our type two pivotal study for which we expect to complete enrollment by the end of the year.

As a reminder, this is a three month study of up to 350 people, making it the largest type two study we have conducted.

The feedback we have received from Hcp's in study participants is encouraging.

<unk> are impressed with how well participants are doing on Omnipod five and the participants have strongly expressed their desire to stay on product after the trials completion.

Omnipod dash is proven to be a game changer for people with type two diabetes and we are confident omnipod five can have an even greater impact on this underserved population.

Lastly, our final participant in France is on track to soon complete our Omnipod five with <unk> G. Six randomized controlled trial.

Once complete we will analyze and prepare the data to negotiate access and premium pricing for Omnipod five in our international markets.

We expect providing this data will be one of many initiatives that will support our omnipod five international commercial launches, which are now underway.

While omnipod five is disrupting diabetes management today and is expected to do so for a long time to come we know a robust innovation pipeline as necessary to drive sustainable long term growth.

We will soon begin our Omnipod go U S limited commercial rollout, which will also include Hcp's and we don't typically call upon and that are quote new to omnipod.

This will allow us to test the market and expand our reach.

This new to market simplified product will grant us access earlier in the type two pathway and addresses critical barriers that can prevent the initiation of insulin therapy, namely fear of needles, as well as challenges with dosing accuracy and consistency.

Omnipod go will expand our addressable market by at least 3 million people in the U S alone who require a basal only insulin.

We look forward to the key learnings from our pilot program, which will help inform our full market release in 2024.

We are very well positioned in the type two market to grow adoption with Omnipod dash and soon Omnipod go not to mention unexpected future type two indication for Omnipod five.

We certainly have a number of competitive advantages in this space, including our differentiated form factor and affordable pay as you go business model and pharmacy channel access.

As a result, we continue to add a substantial number of type two patients to our customer base.

During Q2 people with type two diabetes represented an estimated 20% of our U S. New customer starts across our omnipod portfolio of products given.

Given the tremendous success of Omnipod five are type one customer base is growing at an incredible rate far outpacing type two however on an absolute basis, our type two new customer starts increased sequentially.

We achieved another major innovation milestone in June with our five 10-K submission for the Omnipod five iOS app.

The Fda's review is progressing and we look forward to continuing to work with the agency. So we can provide the iOS platform option to our expanding omnipod five customer base.

We are also advancing our integration efforts with both of our CGM partners, allowing us to provide future CGM of choice with Omnipod five.

Which we firmly believe is the best AI system on the market.

We expect these integrations will be one of many catalysts to fuel our long term growth and strengthen our value proposition and most importantly allow us to continue to execute our mission to simplify and improve the lives of people with diabetes.

We continue to expand our intellectual property portfolio, which is a key asset enabling our continued growth.

We also actively defend our valuable portfolio of proprietary technologies and innovations as appropriate.

As you May know earlier this year, we successfully took legal action against the distribution of ear flows product in Germany.

In that case, the court determined that deal flow infringes Insulates unique technologies and the court quickly issued an injunction prohibiting ear flows distributor from further infringing on our patents in Germany.

Subsequently after further investigation, we filed an additional suite last week in the U S against email flow and other affiliated parties to stop the continued misappropriation of our valuable and proprietary trade secrets as well as the infringement of our patents and other IP.

We not only will enforce our patents when necessary. We also will zealously protect our valuable trade secrets.

We are confident we have a clear lead both technically and in terms of scalability and we will not hesitate to vigorously defend our IP when we see followers misappropriating or infringing on it in an attempt to catch up.

Moving on to our international operations.

We are excited to have commercially launched omnipod five in the U K in June .

While it has only been a brief period of time. The market response has been fantastic. Following launch we saw an almost doubling of our typical customer order rates and we quickly started a considerable number of omnipod five users throughout last month alone, including both new customers as well as those already on brand.

We are thrilled to provide our advanced technology to those who have long been waiting for it.

We remain on track to launch Omnipod five in Germany. This fall closer to the beginning of the season with a broader staged international rollout in 2024.

By the end of 2024, our goal is to have Omnipod five available for the majority of our European customers.

In closing we have reached the midpoint of 2023 and have incredible momentum in our business.

We are delivering strong financial performance and achieving key strategic milestones, we've advanced our commercial innovation and clinical programs and Omnipod five and our entire business shows no signs of slowing down.

We are well positioned to continue to expand access to omnipod five globally and lead the industry in advanced innovation.

It's gratifying that others in the industry see our leadership and are attempting to follow our established best in class fully disposable patch form factor we.

We are investing for sustained leadership and widespread international expansion.

We are transforming diabetes management, and we are only beginning to drive our life changing innovations to market.

I will now turn the call over to Wade.

Yeah.

Thanks, Jim.

We delivered another strong quarter of financial performance and strategic progress and once again delivered record U S and global new customer starts.

We generated 32% revenue growth in Q2.

Finishing above the high end of our guidance range.

Our outperformance was driven by global Omnipod growth of 33%.

On a reported basis for total revenue foreign currency was a 20 basis point tailwind compared to Q2 of last year.

U S Omnipod revenue growth was 41% exceeding our guidance range.

Revenue growth continues to be driven by our annuity based model with consecutive record new customer starts and growing U S pharmacy volume.

This includes an increasing contribution from Omnipod five and a premium for the Omnipod five and Omnipod dash pods in the U S pharmacy, where we provide the personal diabetes manager at no charge.

We bought five ramp dynamics resulted in an estimated net headwind of approximately $4 million.

Similar to last quarter, we benefited from an estimated $16 million net volume benefit associated with new Omnipod five customers in large part due to existing customer conversions from Omnipod Dash and classic Omnipod, who received their starter kits and first.

Refill orders in the quarter as.

As well as some initial stocking in retail pharmacies.

This estimate is net of some omnipod five customers skipping an order in the period.

This benefit was more than offset.

By a reduction in estimated channel inventory days on hand of approximately $13 million.

And another $7 million reduction associated with an increase in actual and expected sales returns for Omnipod dash and nonrecourse classic as retail pharmacies convert their inventory to Omnipod five.

The benefit of the pharmacy channel continues to be a competitive advantage and we remain focused on driving increased volume through this channel, which.

Which in Q2 represented over 90% of our total U S volume.

International Omnipod revenue increased 15% in line with our expectations.

Growth was driven by continued strong adoption of Omnipod dash in our international markets as well as a combination of items associated with order and revenue recognition timing that contributed approximately 300 basis points of growth.

On a reported basis foreign currency was a 50 basis point tailwind over the prior year.

Our estimated global attrition and utilization remained consistent.

Drug delivery revenue increased 18% above the high end of our guidance range due to favorable production fees and timing.

Gross margin was 66, 8% up approximately 320 basis points.

Cost of revenue included income of 800000 due to lower estimated costs associated with the medical device corrections, we announced last year.

Excluding this benefit gross margin was 66, 6%.

Slightly above our expectations due to favorable manufacturing costs and higher than expected revenue, including favorable mix.

The 320 basis point year over year increase in gross margin was primarily driven by a premium from volume growth in the pharmacy channel.

Proved manufacturing efficiencies and a decrease in warranty expense.

These were partially offset by higher costs associated with Omnipod five production.

Higher expected production costs as the U S manufacturing continues to ramp.

And become a larger portion of our total production.

As well as inflation.

Operating expenses were up year over year to support higher than expected revenue and investments in our business to further drive our strong growth trajectory.

Adjusted operating margin and adjusted EBITDA were seven 6% and 15, 5% respectively.

Both exclude the favorable medical device correction adjustment of 800000, and both were above our expectations due to higher than anticipated revenue and gross margin.

Turning to cash and liquidity, we ended the quarter with $660 million in cash.

In June we extended our credit facility for years and increased our borrowing capacity under the facility to $300 million all of which is currently available.

This strong financial position gives us the flexibility to invest in our expanding pipeline and other key areas of our organization and build on our foundation for long term sustainable growth.

Now turning to our 2023 outlook for the full year, we are raising our expectation for total omnipod revenue growth to a range of 25% to 28% and total company revenue growth of 22% to 25%.

For U S. Omnipod, we are increasing our revenue growth outlook to 33% to 36% driven by continued strong omnipod five adoption coming from both record new customer starts and ongoing conversions from other omnipod products as well as recurring revenue.

Omnipod dash and the benefits of our pay as you go model in the pharmacy channel.

As a reminder, we have a tougher comparison in the second half of the year, resulting from the Omnipod five U S full market release, which started in August of last year.

This includes the related to script and retail channel stocking volume benefits, which were in large part due to the accelerated pace of customer conversions in the second half of 2022.

For International Omnipod, we are raising the low end of our range and now expect 7% to 10% constant currency growth.

On a reported basis, we estimate a favorable foreign currency impact of approximately 300 basis points.

We expect growth will be driven by ongoing omnipod dash adoption.

Partially offset by AIG competitive headwinds.

We were excited to kick off our Omnipod five international rollout as a reminder, given the nature of our annuity model. We expect the omnipod five launches to start inflicting and our growth rate in the second half of 2024.

For drug delivery, we are raising the low end of our range and now expect a decline of 50% to 45% representing a dollar decline similar to what we experienced in 2022.

Turning to 2023 gross margin.

We continue to expect adjusted gross margin to be in the range of 65% to 66%.

Consistent with 2022 at the high end.

Favorable impacts to gross margin include increasing volume in the U S pharmacy channel geographical sales mix and improved manufacturing.

These drivers are expected to be offset by higher costs associated with our U S manufacturing ramp.

Product line mix due to increasing omnipod five volume and inflation.

As we've previously stated we expect many of these factors to continue to impact our results into 2024. However, we expect gradual improvement over the course of the coming years.

We still expect gross margin in the second half of the year to be closer to the high end of the range.

Given our market leadership position and large underpenetrated market opportunities. We continue to expect operating expenses to rise with investments in our commercial innovation and clinical efforts and scaling our support functions.

We are reaffirming our guidance of adjusted operating margin of high single digits and expect it to be closer to the high end of the range.

We also expect improvement in the second half of the year over the first half due to timing of investments and improved second half gross profit.

We remain committed to margin expansion.

And anticipate leveraging our investments in 2024 and beyond.

We continue to expect capital expenditures to be at a lower level than 2022.

Turning to our third quarter 2023 revenue guidance.

Basis, we estimate a favorable foreign exchange impact of approximately 800 basis points.

Finally, we expect a Q3 drug delivery revenue decline of 30% to 25 per cent.

In conclusion, we are delivering solid financial performance.

She even critical milestones and further positioning insulet for long term sustainable growth.

We're on track to deliver another strong you're a revenue grow a new customer starts will also investing in key areas throat are global business in order to drive sustainable growth and long term value creation.

With that operator, please open the call for questions.

Thank you hope you have a question at this time, please <unk> on your Touchtone telephone.

Question has been answered or you wish to remove yourself from the queue. Please first style and again.

We got lemonade each participant question to one however feel free please feel free to go back into the queue and if time permits there'll be more than happy to take your follow up questions at that time.

Our first question comes from Larry Peterson from Wells Fargo. Please go ahead with your line is open.

Good afternoon, Thanks for taking the question and congrats on another nice quarter here. So it's a gym I heard you say you know you're seeing no signs of slowing down but his weight said, you're gonna start lapping some tough comps in the second half of this year.

The second half twenty-three applied worldwide Omnipod five omnipod I'm, sorry growth is about 21%. So how how do you keep the momentum going I pod you know do you see yourself as a 20% plus grower beyond 2023, and and how are you thinking about these G. L. P. One thank you.

Thanks for your thanks for your congrats to and thanks for your question Uhm, we're not seen any kind of <unk> the new customer starts around me, but five and the demand from your five five is continues to be terrific. We obviously had record starts in the quarter, we see a lot of momentum.

Across all age groups as we said and so we're very bullish on on the growth I know, you're asking me you're you're asking me a question. It's a guy beyond twenty-three because we won't ask waive that question, but I'm actually going to throw this away. So you can you can work through the numbers there for the second half.

Sure Thanks, Jim and Leary, you're exactly right. We are almost completing 12 months of Omnipod five so it's been incredibly exciting to see the ramp here over the first few quarters and we've got a couple of one time things to account for if you recall in the second half of 2022.

<unk> the first two quarters of Omnipod five.

Benefiting from a significant contribution from first customers and converting customers getting two scripts and a quarter and we called those out they're similar to the benefit we got this quarter 16 million. What's different is that we're now seeing some reduction in days on hand inventory as well as.

Some increased return reserves in a pharmacy, so what of dynamics playing out in the first year as we ramp up Omnipod five.

But as you call out we've got a really strong guide 30 per cent for Q3 and applied for Q4 in the U S. At the high end of the range and so we're we're really excited about continuing to grow on me five five here at these.

Our next question comes from robbing Marquez from J P. Morgan. Please go ahead. Your line is open.

Yeah, Thanks, and I'll add my congratulations as well on a really nice quarter uhm.

You know I I hate to waste the question on this but given the moves and the stocks today, particularly in diabetes stocks I thought it would be good Jim maybe if you wanted to just address your view on I guess, it would be more relevant to type two diabetes, particularly increased.

L. P. One use there was some good cardiovascular data today and obesity you know just your views on how G. L. P wines may or may not impact the progression to type two diabetes, and Basil and intensive insulin and.

You know just any impact and help help investors frame it to your overall business I. Appreciate it. Thanks, a lot sure. Thanks, Robby I I know, it's a it's a question of high interest. So as we said before we think it's terrific to see the pharmaceutical companies continue to innovate with therapies for people with type two diabetes, we got.

<unk> day to help people with diabetes for people living with type one and type two diabetes. So we think is terrific that innovation is happening across all of <unk> and the G. O P. One class of drugs has actually been out for awhile, but these this latest generation of G. L. P. One is clearly having a really big impact and has additional efficacy from the existing class and so.

And obviously, they're optimally start so we we think all that information is really good I mean, you said that we're confident it doesn't impact our team and I'll just have to give you a couple of reasons why the first one is the the global problem with type two diabetes is enormous there are more than a half a billion people living with diabetes around the world and that number continues.

To grow most of them have type two diabetes. So it's you know, it's a massive unmet medical need globally and in the U S and uhm massively under served as a population. So that's the first thing. The second thing is when you look at our offerings even in the U S alone there two and a half a million people living with type two diabetes, who also need intensive insulin there.

It'd be today, so intensive therapy being Basil plus bullet. So that's two and a half million people in a U S. T M, whose condition has progressed to where they're they're relevant target market for us to help them with Omnipod dash and soon with Omnipod five and so we're just scratching the surface of that market penetration in that market as in the lotion.

They'll digits make it or maybe the mid single digits.

The Omnipod platform is it right to win in that market, because it with simplicity and it's channel access and et cetera and.

There's something I'd 0.2 is that we know that G. O P. One class of drugs has long coexisted with insulin we saw that in our own tied to feasibility trial, which we published to a T. T. S. A P. P. B's ago, a lot of that population that used on my part five in that trial was already also using that was an all comers study in terms of population.

Many many of those patients reason G O P wants to still got great benefit from the Omnipod five in that in that trial. So so we're very confident that we have a huge market of people who need our help with her omnipod platform and when we get the labels on me five five and and we don't see the G O P ones changing our team.

Our next question comes from Margaret Kayser from William <unk>. Please go ahead. Your line is open.

Hey, Thanks for taking my questions at the questions I wanted to go a little bit deeper into guidance AD on the U S and I appreciate your comments to Larry <unk>, Yeah. The midpoint of the guide obviously, it's it's quite a sizable relative to the beat this quarter and you listed a variety of benefits, but can you give us.

That's rough sense on a percentage basis, how meaningful each of those impacts is to the guidance range and then whether you're saying kind of some more meaningful I guess sequential increases a new patient ads than it is now a typical that for traditional and four year.

Okay. Margaret I can start that went off and just give you a little bit more insight to how we think about the guidance you know the first part of your question related to the impact of the guide depending on high end or low end the headwind from the tough comp and last year's <unk>.

Ramp benefits in Q3 Q for between five and 10 per cent headwind to our guidance range, but the reason, we have confidence and still being at 30 per cent growth at the high end and continuing to grow up. These accelerated race is the result of our durable business model and the annuity fat.

Actor and so we've had record new customer starts for several quarters, which gives us momentum into the second half here and we're gonna continue to build momentum the high end of our range assumes will continue to see record level, new customer starts and given the momentum that we have today, we've got high confidence in doing that.

Uhm. So those are really the major factors as we called out in our prepared remarks, we see stable attrition and utilization sort of assuming that continues at the high end as well, we don't see any major impact to attrition or utilization a couple of other things to think about in the second half is we've had a good contribution to the <unk>.

Premium moving into the pharmacy channel by converting a lot of our existing customers from the D. M. V channel will still continue to get that benefit you know that benefit has grown each quarter as we've moved more and more volume into the pharmacy channel and again as we said in her prepared remarks 90 per cent of our volume is now in the pharmacy channels. So a significant increase.

<unk> from this time last year does that premium is benefiting us here and will continue to benefit us in the second half, but it'll be to a lesser extent, because we're starting to reduce the number of converting customers each quarter and as you recall, we have plan to be through most of our existing customers converting.

<unk> five and the pharmacy channel <unk>.

Through the end of this year, we think most of those conversions will be done by the end of 23, and we think that will Wayne and to a lesser extent via benefit here in the second half. So those are the major changes when you look at the growth rate, but again, we are a volume business and by far the largest contributor to our growth rate is our volume growth, which is based on our customer.

<unk> growing and we continue to see that growing with new customer starts throughout the second half of this year again.

So strong guide a strong momentum in the business lots of Tailwinds to help US continue here based on our annuity model.

Our next question comes from Chris Pasquale from Neff round Research. Please go ahead. Your line is open.

Thanks.

<unk>, what is that a little bit about the international business and the O five roll out there curious how much of your current international footprint UK and Jeremy representing.

I understand the comment about the installed base model and are taking some time to flow through but.

Just look at the U. S example, the Omnipod five launch that to a pretty immediate growth inflection. So.

Could we see something earlier than back half of next year outside the U S.

Thanks, Chris I'll I'll start with that one and then maybe wait will provide some color. So we're really excited about the <unk> five five lunch in UK, it's going really well uhm I just share one one story with you you know <unk>, there's so much pent up demand from the five five across our European markets and all of our markets and.

One of the clinics, we work really closely with was and so many customers waiting to get on therapy that actually put up decorations all over their office and put up a disco glitter ball as they brought people in to get set up on therapy was a huge celebration and you know as we said in her prepared remarks are automated doubled.

You know so it's off to a great start in the UK, we're really excited about Germany as to the percentages. We haven't we haven't broken those out I don't think you'd find it materially different from a lotta medtech markets, but we haven't materially we haven't broken out those specific numbers for the markets.

In terms of you know the growth in the U S versus the growth and European markets every market is a little bit different one of the reasons. Maybe the main reason, we had such and in fact than anticipated growth with only five five in U S. What was it you know it was all of the customer sources in the U S, where the island or above the high end of our expectations and that's because of the pharmacy channel. So.

And most of the European market customers, who are on a therapy are locked into a contract and in the U S. If you're locked into a contract with you to come you can cross over into a pharmacy benefit and so that's what that's in the U S. What's allowed us to have so many competitive conversions in our new customer starts and European markets, It's a little different everywhere, but it's it's <unk>.

Flexible for patients who were on a therapy. So they have to typically wait for their contract to come up. So therefore, most of our new customer starts our customers who are new to therapy, and we're getting you know some upgrades from our own from our own products and then we'll be bringing a new customer starts who are converting a they're converting and that whatever the annual.

[noise] cycle is whether it's a four year cycle in some markets as a five year cycle. So when they come available there are really relevant targets for us to come to move off of competitive pumps, but that just changes it changes the dynamic of the flow.

Our next question comes from Jack Johnson from third please call ahead. Your line is open.

Good afternoon, <unk> wait maybe I I think we're all trying to you know kind of feel you out obviously and you're less groceries for next year and I know you're not tied into next year.

But a couple of them moving pieces that you're talking about this quarter that reduction in channel inventory of 13 $97 million in return.

How much of that do you think is left to play out to go away as a headwind Navy as we get deeper in debt this year and heading into next year.

And then I know you can call me every quarter. These is this patient behavior of doubling up getting maybe four months out of inventory and a three month period. When you first start O five but that'd behavior has stayed pretty consistent now for for the better part of the year. So it doesn't seem like there's a whole lot of change going on there. So to me it almost feels like this.

That kind of neutralizing of those two factors should drop away on the Edwin side, and maybe a keep a little bit about <unk>.

My point on all of that is you seem to be guiding to about 25 per cent growth in the left side of the desk in the back half of this year, obviously very strong number again.

Low to mid 40 per cent is that crazy to think that can be a starting off point on how we think of next year as you get the top comp you maybe get a little bit less of that premium upgraded from D. I made a pharmacy, but you also get a little drop off of those headwinds that I was talking about thank you Sir.

Hey, Jeff I'm happy to talk about the guidance a little bit more here and certainly a lot of dynamics moving and you called out several of them. So why don't we just touch on them each of them again and make sure. It's clear so when as we think about the day's inventory on hand and.

I'm glad you brought that one up because it is something that we obviously don't have control over the distribution channel and we are seeing the pharmacy channel be more efficient and so maybe just to summarize what we've seen to date with Omnipod five and Q2 of last year. We saw 7 million dollar inventory build and so I was a bit of a head.

<unk> Forrest this quarter and then we saw really stable inventory days, we've estimated pretty stable inventory days up until last quarter. When we saw a reduction in days inventory on hand, and we thought that that was pretty settled out at that point, but then we again saw day's inventory on hand, a few days <unk>.

Auction again this quarter. So we're curious to see if this is where the pharmacy distribution channel settles out or if they're down a couple of days and we'll see that come back, but we don't factor that into our guidance going forward because we can't predicted so <unk> hand from here. We don't know however, we do see.

Trending a few days lower than we have seen over the past several quarters and so there is potential that we could see some of that come back.

You mentioned the two scripts again this was another dynamic that we were curious to see how it would play out as you said on the gross side of it or the the total benefit side of it we have seen a pretty consistent benefit but remember over half of that benefit has been the result of converting omnipod cussed.

Immerse from Dash and our classic omnipod onto Omnipod, five and that is starting to ramp down here in the second half and we're expecting to be through most of that in 2023. So interesting enough. The last two quarters that benefit has been more than offset by the day's inventory and hand reductions.

<unk> as well as some are increased to our returns reserved and so we haven't really seen it as a total net benefit because of those dynamics all basically wash. Each other wrote so to your point, if we don't see any more increases in return reserves and we don't expect that we will and we don't see any changes today is.

Inventory in hand, we would assume will continue to see a two script benefit moving forward, but to a much lesser extent as we move into 2024. So all those things together, Jeff we still think that the the.

Largest part of our growth by far is going to be the new customer start metric and it's a consistent patrician and utilization rates. It really is a volume business and that's what we would highlight for you and others here is really focus on those new customer starts the growing customer base and how we accelerate volume from here and that's what.

It gives us confidence to be even with these pretty strong tough comps and the second half to be guiding at 30 per cent at the high end of our ranch.

Our next question comes from is Jason Bedford from Raymond James. Please go ahead. Your line is open.

This is Glenn show on for chosen.

And I just had a quick question with regard to moving the Omnipod classic users to Omnipod five.

Where are we in that conversion and are you seeing higher attrition from the Omnipod classic.

<unk>.

Yeah, Hi, Glenn and.

No no yoga.

Okay sure happy to start this one Glenn so we are through most of the Omnipod classic strange to either dash or Omnipod five in the U S and so we have announced in the U S that we're planning to move our customers and discontinue the product in the U S. Having said.

That we're gonna wait and see where we're at by the end of the year to make a final determination. There obviously, we're gonna take care of all of our <unk>, our our our customers that have been with us for some time, but they've got great options to move to dash and on we've got five given the coverage levels that we have in the pharmacy channel now.

For both dash and Omnipod five it is a lot easier for our former Omnipod classic customers to move onto dash and so we're not seeing a higher attrition rate in fact, our early estimates show us that are converting customers are staying with the product and really either classic the dash or or.

Uhm Classic Omnipod five in both cases, we've seen that accelerated rate and the attrition has been really strong.

Our next question comes from <unk> from Bank of America. Please go ahead. Your line is open.

Thanks for taking the question quick clarification way when I put up all the numbers that you gave in adjustments I got to like 48 per cent U S growth I just wanted to clarify that number to make sure that was right and what that accounted for all the adjustments and then on the queue for guide it looks like <unk> look.

Look at the queue for applied guide your somewhere around 20 per cent U S growth is that the right way to think about the starting point for for 2024 and next year, you know I actually think about laughing some of the tougher comps. Thanks a lot.

Hey, Travis it wasn't quite tracking with you on which quarter for the 48 per cent, but you may be thinking about the net headwind of $4 million, which just adds a couple of percentage basis points on a normalized basis to this quarter. So it doesn't benefit us I think that's the direction, we're heading as we do get.

Ah benefit because of that net headwind this quarter and and I guess, if you're adding in the tough cop for the second half that also benefits us, but maybe what I would focus on out of your question was just the implied guide for Q4. So of course, we don't guide to queue for at this point, we just do two three in queue.

Four but in that imply a guide you should be near 30 per cent at the high end of the range and that's our expectation is that given a strong momentum in the business here, we have three per cent at the high end of the range for Q3 and close to 30 per cent and the range for the implied Q for as well.

Next Travis.

Our next question comes from Joanne lunch from the Secret. Please go ahead. Your line is open.

Good evening and thank you for taking the questions no that'll be curious about the timing of the I O S application integration with G seven and the integration with al too and what you think once this next steps come along you think the benefit might be the franchise. Thank you.

Thanks, Joanne what we're really excited about all three of those programs and as you know as we said in prepared remarks, and we said and 80, a the I O S. App is filed with with the F. D. A and so we're we're waiting clearance there and then we'll be prepping for lunch as soon as we can essentially practically can so I'm really excited about that <unk>.

<unk> requested feature it's interesting in on that one specifically, but there are a lot of customers out there <unk>, who have who have made the decision to not hold back and so when I talked to a physician about you know what I'm out in the field.

There's a lot of patients who are carrying carrying the controller on their phone. They just they want to not have to carry bulletin. So that's a bigger question feature have you said that there I'm sure. There's some people who are waiting for <unk> to come out Omnipod five so it's hard for us to estimate what that is but we do think that'll give us a boost and will certainly be a big customer satisfy her for us and certainly help us.

To continue with such great great retention rates in customer experience. So so we're really bullish on that with the two with G seven and with the freestyle with our two partners, having a dexcom a free style family of of sensors. Obviously, we're working hard working really well with both of them great collaboration with both of them. We Wanna get on we want to get the center of choice Judge.

As quickly as we can and the programs are proceeding really really well as you know we don't we don't forecast tiny ins or you know talk about that talking about time is for those things, but it's obviously have to be fairly far along with resell the right to to be embarking on this study we're doing in the U K.

Very bullish on that but the partnership with both of them goes really well and we're we're working hard to get those to market as quickly as we can and we think that both of them provide a boost for US you know obviously when you think about G. Seven it's off to a it's off to a very quick launch and as a good they're really good customer experience and when you think about freestyle freestyle libre.

The sensor is very very well position, particularly in other geographies and so we think they provide sustained growth for us and they provide a great customer experience for us to be able to provide that kind of choice as quickly as we can to our customers.

Our next question comes from Steve like men from Oppenheimer. Please go ahead. Your line is open.

Thank you anything everyone on the a T P. A prescriber increase I thought the sequential increase was was notable can you talk about what you're seeing this driving that prescriber expansion is it you said omnipod fighting type two even before form of labeling there and are you calling.

I need a G P S or is it sort of more organic thanks.

Thanks, <unk>, Yeah, we're really hurting to see that I I think that there are a number of things driving it in the first one is I mean five five is just so accessible.

As as a product and as an experienced and we're seeing increasing confidence with the writing a prescription from your five five across the whole range of a C. P. So you'll see you know endocrinologist from physicians, writing the script, you'll see nurse practitioners physician extenders physician assistants, writing the script. So it's very broad in its because of the ease of use.

<unk> of Omnipod five it's an easy thing to write for it and that's what we're seeing in the expansion of of our prescribing population then I'll I'll tell you. The interest is really robust all across the board and so just as an example, you know our team was just having Houston over the weekend at the a B C. S Conference and which is which is a conference for diabetes.

Educators and we just had phenomenal interest in the product platforms and an army five five all of our all of our workshops in showcases were you know sort of standing room only attendants beyond what was what was you know like better the bigger than the room space kind of Intendance and attendance and that just that just demonstrate.

The broad reach and the ease of use of the Omnipod <unk> product, which is of course, a huge advantage for us because the pod platform depart experiences so easy compared to our two competitors and that's why we're seeing the expansion of prescribers and the mortgage.

Jim I can pick up on the type two part of Steve's question as well you know as you saw on our reported results here type two making up 20 per cent of our new customer starts and that's a tick up from what we've seen the last three quarters, we've been running it at 15 to 20 per cent and so with a record new customer start quarter. We are.

Still seeing good new customer starts that is partially driven by dash, but as you said <unk> H C. PS are writing for type two we cannot market for type two yet as you know we do not have the label and so we we don't condone it by any means and our team is working incredibly hard as Jim touched on in his <unk>.

Repaired remarks to get our type two pivotal trial for Omnipod, five completed and and submit that to the F. D. A so that we can get on label and start to market type two four or Omnipod five for type two patients and so it is certainly core to our strategy and a lot of people with diabetes with type two.

Ooh that we'd like to bring Omnipod five two and we're certainly working as hard as we can do that.

Our next question comes from Josh <unk> T. D. Cowan. Please go ahead your line is open.

Good afternoon. Thanks for taking the questions wanted to just ask about segment of the new patient starts and just on a competitive pump conversions.

Any data on those conversions being in the <unk> middle of warranty conversions.

And how that's trending and then potentially.

<unk> are you thinking about a direct to consumer.

Campaign for for only part fries any any historic successes with T. T C. As in the past as a reference would be helpful. Too. Thanks a lot.

Sure Hi, Josh I can start that one on the new customer start questioning infested the gym for an update on our T. T C. A direct to consumer strategy Uhm. So we we continue to see strong competitive conversions, although the mix has changed in a reported numbers somewhat the total.

The number of competitive conversions continues to be strong and certainly elevated above the levels that we saw before omnipod.

And so we don't break out the specific numbers for you there about like.

We we don't actually track from them, whether they're in warranty or not and warranty. That's just not part of our dataset. We just know customers that tell us if they're converting from a competitive pump or not uhm. So we don't have that insight for you Josh even to give any color on in more into your or out of warranty you know, we make estimates but it'd be.

Too much of a stretch to to try to quantify that in a gym, maybe a little bit on our D. T C strategy yeah.

Yeah. Thanks for the question Josh that D. C. C is is a very effective tool for us and we're really confident that we have a strong return on investment in our D. C. C program, one thing that I'll I'll just flag is a D. C. C doesn't just mean T V for US right. We have a very robust mix of the way we reach out to the customers and consumers and that includes social that includes you know where to start over.

The top or street immediate.

It'll include you know more broadcast T V and it includes Influencers, we have a really active campaign with influencers and so on and we have a really good sense of which levers to pull and so on and you know I'm very confident in one of our teams able to produce and we're getting really good of dialing it up and down based upon the results and so you'll get.

<unk> doing D. T. C campaigns, you might periodically see us ramp up on T V. As as we feel like we need to but we have a very broad mix in a very very effective approach to it.

Our next question comes from Matthew O'brien from paper Sandler. Please go ahead. Your line is open.

Thanks for taking my question I know, we're getting a little late here just you know way to our gym, just easy talk about their key growth drivers for the business being on the volume side. If I think back I think it was three or four quarters ago 60, 40 with a split between M. D. I N conversions and then 70 30, I think last quarter now 70 525 so.

What I'm asking for and I know that the.

Denominator is getting a lot bigger but are you seeing any kind of slow down and you are the ability to convert competitive poppers right now I don't know if it's because of my tronic being in the market or something like that and then it seems like the enthusiasm for.

405 from the empty I patient population is is as strong if that's stronger than this time last year. When you first <unk> just maybe to talk about the trajectory of those two two.

Groups of patients. Thanks.

Thanks, Matt we're not seen any kind of pause and the enthusiasm for Omnipod five and we continued to garner a lot of competitive conversions from both of our to bump competitors and so you know the the patient demand is really strong physician demand as really strong and it's across all age groups really interestingly.

And so yeah, no no <unk>, great positioning and I've I've already forgotten the second half of your question can you repeat the question for me.

Yeah I think he was just Oh go ahead go ahead, ma'am sorry Susie.

Susie hasn't around five with with an M. B I is is it even stronger with an M. D I, yes yep.

Yeah, that's <unk> if anything the enthusiasm is even stronger you know we're seeing record new customer starts regime. You know the the percentage mix is changing more because of M. D. I a N C. S on the top right and so I I think we're just so well positioned and and you know we're not it's the momentum for the business is terrific and only five five.

It's just very very broadly adopted in except I would just give you. An example, I was just out in the field.

Uhm last week and I was in a pediatric clinic uhm sitting with a sitting with a physician has been writing for us and for one of our main competitors for a long time and she said to me listen I'll need five five is so good but at this point I'm I'm not writing really for your competitive pump unless somebody specifically ask for it and not just that but everybody I've converted from.

The competitor <unk> five just does better and I started a probe around why in the details of yours. So they just they just do better if they just have better outcomes. They have a better experience and so you know I think that's a really good sign for us in terms of how the learning curve of the market you know here a year and I think the market has learned a lot about omnipod five how easy it is to use what kind of great real world outcomes.

Just driving and we just see a ton of momentum across age groups and across all sources of customers, including M. D. I.

Our next question comes from Danielle and coffee from you'll be asked. Please go ahead. Your line is open.

Good afternoon, everyone. Thanks, so much for taking my question congrats on continuing to deliver I really strongly felt here wait. This question I think <unk> <unk> I appreciate that you're not gonna be guidance may 20th 24, but just qualitatively looking at the different potential tailwinds that credit.

<unk> Dot com perspective on the tennis up from the two small crowd renal patients Adam plenty twenty-three just wanted to make sure. We are thinking about these all set correctly, so thinking appreciating not getting <unk> <unk> G. Seven integration BOL Com <unk>.

Like maybe walk us through a qualitatively how to think about the headwind tailwind that will be coming international put a tailwind perspective in 2024 <unk>.

Yeah, It's a great way to look at Daniel and I think you're right. The tailwinds vastly outweigh the headwinds for next year.

As we think about the business, where we sit today after halfway through 2023, we've had really strong customer starts for several quarters. So that gives us great momentum into the second half I think the answer to your question will lie in the second half. If we continue to see strong new customer starts record new customer starts in the second half of this year.

<unk> that will give us great momentum into next year and then as you cheat up there we have a significant pipeline of new innovations teed up we haven't given the timing on those whether there'll be 23 or 24, even beyond yet, but as those new innovation start to layer in and and of course with our annuity model. They don't have an.

<unk>.

Sizable increase but they do start to help us accrue more customers over time and so we're gonna continue to build momentum on the other side of the coin obviously, a I D competition is really strong for us outside the U S on the international side and so what we provided an update in our in our prepared room.

<unk> today is that as a result of lower new customer starts then we've usually had internationally, we've got lower growth rates to contend with there for the next four quarters. So that you can see our guide for the second half for international and that'll continue into the first half of 24, but given omnipod five <unk>.

<unk> internationally and we're gonna add more countries next year, we expect the second half to start to inflict internationally and so now we moved into the mid to low single digits. We think the second half of next year should be approaching that high single digits low double digits type of ranch and so again, we're not providing specific guidance.

But that gives you a feel for what we think is really strong momentum for the U S and improving positioning is will be able to <unk> compete in the a I D side of the market internationally better at the end of this year and into next year and then there's that builds into the new the model will C N inflicting growth rate in the second half of two.

Thousand 24 internationally, so with all that in you know again, it's such a dynamic launch here. We know it's going to be strong. We just don't know how strong and so we can't provide numbers at this point will typically give some color at the end of the Q3 call on what we're seeing going into 2024 and will provide are.

Guidance like we do every year for 2024 at the end of the queue for a call.

Our next question comes from that Taylor from Jeffries. Please go ahead. Your line is open.

Good afternoon. This is Microsoft gone on for Matt. Thanks for taking the question.

Just had a question on Omnipod go can you just talk about what's left to do commercially ahead of the full Margaret relief in 2024, and maybe comment on how you're thinking about the financial contribution next year. Thank you.

Sure I'll I'll start on on the pilot plan and then I'll, let way to talk about financial contribution Uhm. So we're we're really bullish on on getting that market out in the hands of our pilot physicians and clinics.

And you know the the great thing about go is that it solves a lot of problems for people who are initiated an insulin therapy as we said before it and resolve the needle phobia it resolved dosing and so on but it's new to world and it's new for us and it's new for those clinics because some of those clinics are places, where we don't necessarily have a very strong I'll point footprint and so what we need to do is.

Get it out in the clinics will need to we need to go out and educate the clinics I'm, usually go which is incredibly simple experience and we <unk>, we need to kind of test the waters with a couple of things about the dosing S. K U as in some other things so we need to see it in the real world in the hands of the clinics in the hands of our rats and make sure that we just have you know we have the approach of the two.

The selling pitch correct can make sure we understand how to support the clinics that we're going into and so on and you know, we're giving ourselves time, because it's a new world offer and it's a it's a new and there. There's some things about it that are kind of new commercial model for us and so that's why we're saying we're gonna pilot. It here in the near term, we're going to learn what we learn give ourselves from time to adjust to that.

Commercialized in 2024 and wait if you wanted to talk about what remodeling for financial advice.

Yeah, So Matt.

Matt We would love to know where I mean, if I'd go is gonna go in 2024, we have many financial scenarios internally, but as Jim just said, we're gonna take our time, we Wanna do this right, it's a new world product and so it's really difficult to know how fast Omnipod go will ramp we've obviously got the limited micro release as Jim said this year, we're going.

To learn a lot there and that's gonna help us start to dial in our models for 2024, but I think at this point I would say really thinking about Omnipod go as a light contributor to our 2024 growth rates and let's just give it some time to see how fast.

It does ramp and when it starts to become a material contributor. That's when we certainly will start to layer it into our guidance and we'll talk about more of it from a financial contribution standpoint, but until then it just given a noodle rural concept, we're not gonna be communicating financial numbers for it at this time.

And we have time for one last question it will come from <unk> from Barclays. Please go ahead. Your line is open.

Hey, Thanks, so much for squeezing me and you're just just one maybe it slipped on that on the on your gun.

That's just that's just you know maybe as you build inventories it is that something that were.

<unk> <unk> of your sort of.

Day's inventory numbers, you understanding that it's pilot lunch, but <unk> and you wanted to be prepared for demand, where you had to pick up.

And I'll just leave it I'll just leave it at that last bill. Thanks, So much for squeeze me in.

You bet met Suede I can certainly take that one and it is something that our teams are working through today and in fact, we're gonna learn a lot through this limited mark or at least one of the key things are key learnings that we're working on is what is the optimal staging or building a inventory in the channel to support the the <unk>.

<unk> and but I think just qualitatively you're right just like with Omnipod five we're gonna have enough inventory in the channel to serve the customers.

And so like we saw in Q2 last year. When we did the limited mark really strongly but five we called out a day's inventory on hand billed for only put five I'm assuming the same plays out around if I'd go will let you guys know if there's a material amount of inventory that has to go into the channel to to watch with him if I'd go but nonetheless.

It's an exciting program. The teams internally are really excited to see how the limited market releases go we're gonna learn a lot. There's certainly a very large market an underserved market that needs better technology. We are the natural owner, we've got many benefits with with Omnipod in our auto.

The injection as well as our fluid mechanics, and I think the teams have done a really nice job of simplifying the omnipod for this group of customers and so we'll see how the limit of Mercury releases go will have probably a lot more to say after that as we start to get into more of a full mark release in 2024.

I'm showing no further questions at this time I would like to turn the conference back to Jim Hong said.

Thanks, everyone for joining us today, we are incredibly proud of the milestones we've achieved in the progress we've made and thanks for disruptive offerings and dedicated team were further along than our original expectations and setting our sights higher than ever before.

Until it has come a long way and we are energized by the enormous market opportunity, we're pursuing and the opportunity to drive rapid growth and substantial value for insulin shareholders, while fulfilling our mission to improve the lives of people with diabetes around the world.

We look forward to continuing to update you on our progress over the year and next quarter.

Thank you all for joining and have a great evening.

Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may I'll disconnect.

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