雅虎香港財經 Insulet Corporation (NASDAQ:PODD) Q1 2024 Earnings Call Transcript
Insulet Corporation (NASDAQ:PODD) Q1 2024 Earnings Call Transcript May 9, 2024
Insulet Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation First Quarter 2024 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. [Operator Instructions] 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.
Deborah Gordon: Thank you. Good afternoon, and thank you for joining us for Insulet's first quarter 2024 earnings call. With me today are Jim Hollingshead, President and Chief Executive Officer; and Ana Maria Chadwick, Chief Financial Officer and Treasurer. Both the replay of this call and the press release discussing our first quarter results and 2024 guidance will be available on the Investor Relations section of our website. Also on our website is our supplemental earnings presentation. We encourage you to reference that document for a summary of key metrics and business updates. Before we begin, we remind you that certain statements made by Insulet during the course of this call may be forward-looking and could materially differ from current expectations.
Please refer to the cautionary statements in our SEC filings for a detailed explanation of the inherent limitations of such statements. We'll also discuss non-GAAP financial measures with respect to our performance, namely adjusted growth and 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 from period to period, and we believe they are helpful to others as well. 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 rate, which will be on a year-over-year constant currency basis.
With that, I'll turn the call over to Jim.
Jim Hollingshead: Thanks, Deb. Good afternoon, and thank you for joining us. Coming out of a 2023 that saw Insulet emerge as the clear industry leader, we entered 2024 with significant momentum. We are off to a great start in Q1, fueled by continuing strong demand for Omnipod 5. Our global Insulet team continues to execute at a high-level, bolstering our confidence and another year of robust revenue growth and margin expansion. Our first quarter revenue results exceeded our expectations for every product line. Given those results and the cascade of innovations that we plan to deliver this year, we have increased our guidance for both top line and operating margin growth. On today's call, I want to do three things. Provide a high-level review of our Q1 results and the continuing strength of our competitive position in the market, give an update on our broad innovation agenda for 2024, including our efforts to expand the Omnipod 5 platform and our progress in the type 2 market, and discuss our ongoing efforts to capture the value of scale across our business.
Starting with financial performance. Our first quarter revenue and margins exceeded our expectations. We achieved total Omnipod revenue growth of 21%, including U.S. growth of 23%, and international growth of 15%. In the U.S., we continue to build on our clear leadership in the market, and our Omnipod 5 automated insulin delivery system was number one in new customer starts by a wide margin. Demand for Omnipod 5 remains very high, and U.S. new customer starts were robust and in line with our expectations. Omnipod 5 is designed to expand the market through its ease-of-use and easy access, and we continue to succeed in driving market growth. During the quarter, roughly 85% of our new starts came from people previously using multiple daily injections, our target market, and our competitive conversions remained very strong.
The Omnipod platform also remains the top choice for people with either type 1 or type 2 diabetes. Type 2 patients represented roughly 25% of our new starts in the quarter. Omnipod 5 continues to be the game-changing offer we thought it would be when we first brought it to market. This is true in the U.S. and also internationally, where it is dramatically accelerating our growth. Last year's successful launches in the U.K. and Germany continued to exceed our expectations as our teams generate strong new customer starts. In fact, in Q1, more than half of our total international new customer starts were Omnipod 5. Given Omnipod 5's early contribution in our European markets, we are raising our international revenue outlook by 500 basis points to a range of 12% to 15%.
As a result, we now expect total Omnipod growth of 19% at the high-end and 18% for total company, representing a milestone of $2 billion in total company revenue. Ana will provide more details on our increased guidance in a few moments. Our global results in Q1 make one thing very clear. Omnipod 5 is without a doubt highly differentiated and the best offer on the market. Its ease-of-use, pay-as-you-go economics, affordability and widespread access make it the obvious choice for insulin delivery for people with type 1 diabetes and soon for people with type 2 diabetes once we achieve label expansion. Omnipod 5 leads the market everywhere it goes and we are not stopping there. During Q1, we made significant strides across our innovation portfolio.
Because Omnipod 5 is the market leader, it's easy to forget that the current version remains our initial minimum viable product. In 2024, we will expand on the Omnipod 5 platform by bringing new sensor integrations, launching the system in new geographies and extending our phone control offering. In the U.S. during Q1, we entered limited market release of our integration with Dexcom's G7 and are on track for full market release this summer, which will allow us to expand choice for customers and capture the opportunity created by the growth and adoption of Dexcom's latest sensor. In Europe, we successfully entered limited market release of our integration with Abbott's Freestyle Libre 2 Plus sensor in both the U.K. and the Netherlands, ahead of our mid-year launch plans.
This release represents two firsts. Omnipod 5 is the first AID system to offer integration with the Libre 2 sensor in Europe, which is Abbott's most widely adopted CGM. And Omnipod 5 in the Netherlands represents our first sensor of choice pod offering. These pods are compatible with both Abbott's Libre 2 Plus and Dexcom's G6 sensor. Early results from the U.K. and the Netherlands are extremely promising, and we look forward to providing future updates with regard to the timing of full market release. Staying in Europe, we are pleased to announce that we now plan to launch Omnipod 5 with G6 in France, also this summer. France has historically been one of our largest markets and one in which we know demand for our solutions is high. When we first launched Omnipod DASH in this market, it quickly became the insulin pump brand of choice, and we are confident in our ability to drive strong adoption with our advanced AID system.
With the launch in France, we will achieve our stated goal of making Omnipod 5 accessible to the majority of our European customers and reach this milestone ahead of our internal end-of-year expectations. We anticipate our recent Omnipod 5 international launches will fuel accelerated new customer starts in the second half of this year and revenue growth next year and beyond. We also plan to enter our U.S. limited market release for our iOS app this summer. Extending Omnipod 5 onto the iPhone platform is one of our most frequently requested features, and we are excited to bring this offer to market. Turning to the opportunity in type 2 diabetes, where we remain the U.S. market leader in this large and underserved patient population. The commercial pilot with Omnipod GO, our FDA cleared offering for the over 3 million people in the U.S. who need daily basal-only insulin, continues to offer significant learnings.
Because of our pilot efforts, we have developed a better understanding of this market, and we have expanded the definition of targeted patient segments. We now also have even greater confidence that we will be able to bring our innovative technology to a broader range of HCP and physician practices. We are refining our plans for extended commercial reach based on those learnings. We also know that there is significant current demand for solutions that support intensive insulin use for people with type 2 diabetes. In this market, Omnipod DASH continues to perform extremely well, driven by its ease of use and accessibility. In that context, we are very excited about the progress we are making towards achieving FDA clearance for Omnipod 5 for type 2.
During Q1, we reached a key milestone in our secure T2D pivotal trial, with the last patient completing the protocol. We are well on track to meet our goal of submitting to the FDA for label expansion by the end of the year. Once cleared, we expect to meaningfully accelerate Omnipod 5 adoption among the approximate 2.5 million people with insulin-intensive type 2 diabetes. And we will have the broadest offering of insulin delivery technology solutions on the market for this important patient population. Lastly, we continue to analyze the market impact of GLP-1 use. Analysis of actual claims data demonstrates that GLP-1 use accelerates the adoption of insulin among people living with type 2 diabetes. The data are definitive and striking and strengthen our conviction in the size of the unmet need and the size of the business opportunity for our growing type 2 portfolio.
We are finalizing our analysis and look forward to providing a more detailed update soon. 2024 is shaping up, as we planned, to be a year filled with a cascade of innovations that will allow us to build on our position of market leadership. And we will take advantage of those innovations because of our expanding scale. Our business continues to enjoy several advantages that we've achieved through commercial scope and operational scale. First, our products have very broad reimbursement with more than 95% of covered lives in the U.S. for both Omnipod 5 and Omnipod DASH. And through our nationwide distribution reach, Omnipod is available at retail pharmacies that are within five miles of over 85% of the U.S. population. Our strategy to increase awareness of Omnipod with endocrinologists and primary care physicians has resulted in an expanded base of health care providers writing scripts for our products, fueling our leadership position.
In the U.S. in Q1, the number of U.S. Omnipod 5 prescribing HCPs grew to over 20,000, up from over 18,500 the prior quarter. These prescribers were endocrinologists, PCPs, and other HCPs, and the split was approximately a third each. And the prescribers span both the type 1 and type 2 markets, and both increased substantially year-over-year. In order to fuel our growth, we are further expanding our commercial reach. Internationally, we continue to prudently invest in our commercial expansion and in our market access capabilities. In the U.S., we are in the process of incrementally expanding our salesforce, including the creation of new territories and expansion into targeted pediatric centers. Our broad sales, marketing, and channel capabilities allow us to reach a large and growing population of patients and represent a growing set of advantages over aspiring competitors.
Lastly, we also enjoy significant financial benefits from our scaled manufacturing. Insulet has been on a 20-year journey of capability building and continuous improvement, which has allowed us to build world-class capabilities that drive ongoing quality and productivity. Manufacturing scale and scope have been big drivers of our gross margin expansion over that time, and we expect our new Malaysia facility will fuel continued efficiency gains. We are in the final stages of validating our manufacturing lines in Malaysia and expect to begin producing saleable product in Q3. The facility represents a sizable investment of approximately $200 million over the course of four years through 2026, provides approximately 400,000 square feet of manufacturing space, and is expected to house more than 1,000 full-time employees at full capacity.
Our regional sourcing strategy includes using local suppliers for components, contributing to resiliency and improved costs. This facility will also strengthen our global operational capabilities, drive increased capacity to meet our robust demand, and support future international market expansion. We expect our Malaysia site to be accretive to gross margin in its first full year of production, ramping over time. It represents one of the many opportunities we have to lower total landed product costs and expand margins over the near and long-term. Our advantages in scope and scale put Insulet in a strong position to continue to invest in the growth of our business and to expand our margins. This is yet another way in which our business is unique among our direct competitors.
With that, I'll introduce Ana, who is joining us for her first call as our CFO. As you will have seen in our announcement, Ana is a highly accomplished and proven leader. We are thrilled to have her join the Insulet team, and I'm personally looking forward to benefiting from her partnership as we execute our strategy to drive rapid growth and strengthen our financial profile. Over to you, Ana.
Ana Maria Chadwick: Thank you, Jim, and good afternoon, everyone. Before I dive into the first quarter financial results, I want to say how excited I am to be part of this outstanding company. Insulet is transforming diabetes management and improving the lives of hundreds of thousands of people while driving strong financial performance. I am confident that we're just getting started, especially with the exciting development in our pipeline. I look forward to partnering with Jim, our skilled leadership, and the rest of Insulet's talented global team to advance our mission for our customers, while also delivering robust revenue growth, margin expansion, and shareholder value. And above all else, I look forward to helping make a positive impact on people around the world with diabetes.
Now on to our first quarter results. First quarter exceeded our expectations, and we generated strong global new customer starts. As a result of our growing customer base, we delivered 23% revenue growth, driven by global Omnipod growth of 21%, and our estimated global retention and utilization trends remain stable. Foreign currency was a 50 basis point tailwind for our total revenue on a reported basis compared to first quarter last year. U.S. Omnipod revenue growth was 23%, driven by robust growth on both type 1 and type 2 diabetes customer bases, as well as expanding volume through the pharmacy channel. Adoption of Omnipod 5 integrated with G6 continues to be the driving force, and we are excited to have launched our U.S. limited market release with G7, which we expect will accelerate new customer starts in the second half of this year, following our planned full market release this summer.
Our U.S. business and related revenue growth are very strong, fueled by Omnipod 5's success and robust demand. With many catalysts ahead of us this year, we're laying the foundation for sustained revenue growth for 2024 and beyond. International Omnipod revenue increased 15%, which was well above our expectations. While Omnipod DASH remains the largest percentage of our overall international volume, last year's Omnipod 5 launches in both the U.K. and Germany continue to drive notable increases in new customer starts and were the primary drivers of our accelerated growth. On a reported basis, foreign currency was 210 basis point tailwind over the prior year, which was approximately 110 points favorable versus our guide. Drug delivery revenue was almost $9 million, which was above our guidance range due to timing.
Gross margin was 69.5%, up 230 basis points on a reported basis and up 460 basis points compared to prior year adjusted gross margin. The increase in gross margin, which exceeded our internal expectations was primarily due to volume growth in the U.S. pharmacy channel with a premium on the pods, as well as our international Omnipod revenue performance and improved manufacturing efficiencies. While operating expenses increased in the quarter as we invest in our business, including multiple product launches globally, the timing of some expected spend shifted into the remainder of the year. We will continue to invest to drive above market growth, while remaining committed to expanding operating margin through improvements in gross margin, as well as efficiencies throughout our global business.
Operating margin was 12.9% and adjusted EBITDA was 20.2% of revenue, both exceeding our expectations primarily due to higher-than-expected revenue and gross margin, as well as timing of spend. Turning to cash and liquidity. We ended the quarter with approximately $750 million in cash and the full $300 million available under our credit facility. As anticipated, our increased efforts to drive profitable growth are translating into expanding margin and a stronger overall financial profile. Now turning to our 2024 outlook. For the full year, we're raising expectations for total Omnipod revenue growth to a range of 15% to 19%, and total company revenue growth to a range of 14% to 18%. For U.S. Omnipod, we are raising the low-end of our guidance and now expect a range of 17% to 21% revenue growth.
We expect growth to be driven by strong Omnipod 5 adoption, which provides the benefits of reoccurring revenue stream due to our annuity model. We continue to anticipate both revenue dollars and new customer starts in the second half of 2024 to be higher than levels in the first half of 2024, consistent with normal historical seasonality trends. Additionally, our planned U.S. full market release of Omnipod 5 with G7 this summer is expected to contribute to the acceleration of new customer starts in the back half of the year. We are well-positioned to accelerate new customer starts this year, which we expect will drive further revenue growth next year and beyond. We have massive market opportunities, not only from further type 1 MDI penetration, but also as we continue to penetrate the type 2 market.
We are building a type 2 product portfolio and are excited to have this be one of our accelerated growth drivers over the near and long- term. For international Omnipod, we are raising our revenue growth expectations by 500 basis points to a range of 12% to 15%. On a reported basis, we now assume an unfavorable foreign currency impact of 100 basis points. We expect growth to be driven by last year's Omnipod 5 launches in the U.K. and Germany, partially offset by headwinds in the countries where we do not yet have Omnipod 5. The substantial raise in our international revenue outlook reflects the outperformance of new customer starts and revenue since we launched Omnipod 5 in the U.K. and Germany, and to a lesser extent, the additional launches in 2024.
We originally expected revenue growth in the first half of the year to be in the high single digits. With our revised outlook, we now expect first half growth of 13% to 15% and similar second half year-over-year growth profile, also up from prior expectations. We expect our recent Omnipod 5 launches in 1Q to contribute to new customer starts in the second half of the year and given the nature of our annuity model, to more meaningfully contribute to our revenue growth in 2025. We have strong momentum internationally, and we are confident that Omnipod 5 will drive growth and share gain in every market in which we launch. For both the U.S. and international Omnipod, we expect quarterly revenue fluctuations resulting from the many product launches we have in 2024.
This includes ramping inventory in channels for new launches and reducing levels for prior Omnipod generations. We do not expect this to materially impact our full year outlook. Lastly, for drug delivery, we are reaffirming our expectations of a 50% to 60% decline. Turning to 2024 gross margin. We are reaffirming a range of 68% to 69%, closer to the midpoint of the range. While we have a number of opportunities that could result in further gross margin expansion this year, we want to be prudent with our expectations, given risks that come with significant product launches and standing up a new manufacturing facility. We are in a fantastic position to continue driving further gross margin expansion over the near and long-term, and we remain committed to doing so.
We also have an increased commitment to drive operating margin expansion. While we continue to expect operating expenses to increase as we invest in R&D, clinical, and our commercial launches, we now expect to drive some operating leverage as we capitalize on our efficiencies and economies of scale. As a result, we are raising our operating margin expectations to approximately 13.5%, up 50 basis points from our original expectations. Although, we don't guide to our effective tax rate, I will provide color since our income continues to grow. Our first quarter effective tax rate almost doubled to approximately 6% due to changes in income distribution among our jurisdictions. Given the positive trend in our earnings, we may reach a point this year where we conclude that the valuation allowance we have against our net deferred tax assets is no longer needed.
We estimate this would result in a $200 million non-cash reduction of income tax expense in the period the release is recorded, which we would adjust out for non-GAAP purposes. Subsequently, our effective tax rate may increase to an estimated annualized operational run rate of approximately 20% for the near term. Turning to our second quarter 2024 guidance. We expect total Omnipod growth of 18% to 21% and total company growth of 15% to 18%. For U.S. Omnipod, we expect growth of 21% to 24%. Growth drivers include the ongoing adoption of Omnipod 5, bringing with it the advantages of U.S. pharmacy channel, continued strong new customer starts and the benefits of our annuity model. With our new customer starts momentum, we expect sequential growth in second quarter, partially offset by wholesalers taking down G6 pod inventory as we begin to ramp G7 pods.
And we expect to see some meaningful second half sequential dollar growth for the many catalysts we discussed. For international Omnipod, we expect growth of 12% to 15%, driven by the ongoing adoption of Omnipod 5 in our initial markets, partially offset by headwinds in countries where we do not have Omnipod 5. On a reported basis, we expect an unfavorable foreign currency impact of 200 basis points. Finally, we expect Q2 drug delivery revenue to be approximately $4 million to $5 million. In conclusion, our strong first quarter results reflect continued successful execution of our strategy, as well as robust new customer starts in both our U.S. and international markets. In my first few weeks at Insulet, I have been incredibly impressed with what the company continues to accomplish.
And I am even more energized by the incredible opportunities that lie ahead, which are greater than I had envisioned before joining. We are well-positioned and remain committed to delivering sustained revenue growth and margin expansion for the balance of this year and well beyond. With that, operator, please open the call for questions.
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