Insulet Corporation ($PODD)

Good afternoon. My name is Steve Lichtman. I'm the medtech analyst here at William Blair covering our next presenter, Insulet Corporation. Before we kick off the presentation, I'm required to inform you that for a complete list of research disclosures or potential conflicts of interest, please visit our website at williamblair.com. With that, we're happy to have with us today, Eric Benjamin, Executive Vice President and COO; and Clare Trachtman, VP and Head of Investor Relations. After the presentation here, we'll have a breakout up in the [ Jennie A ] room. And with that, I'll turn the mic over to Eric. Thanks.

Thanks, Steve. Good afternoon, everyone. It's a pleasure to be here. My name is Eric Benjamin, Chief Operating Officer at Insulet Corporation, and I have had the pleasure of being part of Insulet for almost 11 years. During this presentation, I'm going to make some forward-looking statements. These are my disclosures, and I'm also going to discuss non-GAAP financial measures. At Insulet, our vision is a world where diabetes demands less every day, everywhere. Insulin-requiring diabetes is an intensely burdensome disease requiring as many as hundreds of decisions each day from patients about their own self-care, thinking about how to deliver insulin and manage glucose levels when they eat, when they exercise, when they deal with stress, jet lag, even sometimes just moving around the house. And that burden translates into less than acceptable clinical outcomes for a large population of people who take insulin. So it's both burden and outcomes. And at Insulet, our mission is to improve the lives of people with diabetes, and we do that through our Omnipod technology. Omnipod is a single-piece, fully disposable, wearable, waterproof, automated insulin delivery system that helps automate the insulin that people who need it get from the system. That includes people like Chloe, shown here in the middle of the page. Chloe has been a Podder since 2021, and she is wearing Omnipod on the side of her arm. Chloe is a competitive gymnast who lives in Ontario, Canada, 12 years old. And she finds that Omnipod lets her focus on her sport and being a kid without fear of the dangerous hypoglycemia or low glucose that had previously plagued her when she was on multiple daily injections. Omnipod and our current flagship product, Omnipod 5, has been a huge success in the market, making Insulet a global leader in diabetes management. Omnipod 5 was the first automated insulin delivery system that was FDA-cleared for both type 1 and insulin-requiring type 2 diabetes here in the U.S. and is the most requested and prescribed automated insulin delivery system. It's the #1 in new customer starts in the U.S. and #1 in new customer starts in the EU. Together, these strengths have driven Insulet to approximately $2.7 billion in global revenue in 2025, and we have the privilege of serving more than 600,000 customers in the 25 markets in which we operate. Last month, we reported first quarter 2026 results of approximately 30% constant currency top line growth year-over-year. In addition, we drove approximately 100 basis points of adjusted operating margin expansion and almost 40% year-over-year growth in adjusted earnings per share. The strength of these results were underpinned by an almost 25% year-over-year increase in our global customer base. In our business, our global customers buy pods on a recurring basis and become reoccurring revenue. That strength of our global customer base growth in our Q1 results drove us to increase our 2026 full year revenue guidance to 21% to 23%, previously 20% to 22%, and maintain guidance down the P&L. Further reinforcing our confidence in 2026 and in long-term growth are some recent and upcoming strategic highlights. Today, I'm pleased to announce the launch of our second-generation Omnipod 5 algorithm. Additionally, today, we announced that Omnipod 5 is now compatible with the FreeStyle Libre 3 Plus sensor. The second-generation algorithm is designed to give folks tighter glycemic control and help keep people in automated mode in moments when they need it most, when the system has been working its hardest and folks want to stay in automated mode. Compatibility with FreeStyle Libre 3 Plus makes it even easier for the approximately 450,000 people taking multiple daily injections and already wearing FreeStyle Libre 3 Plus to get started on Omnipod 5. In addition to today's updates, earlier this year, we brought Omnipod 5 to the Middle East. That marks a long-term growth opportunity, particularly in Saudi Arabia, which has high unmet need in diabetes and is a large opportunity over time for our global business. We also have several upcoming strategic highlights of note. This weekend at the American Diabetes Association conference, we'll be presenting the results from STRIVE, the pivotal study supporting Omnipod 6, our next-generation flagship automated insulin delivery system. Later this year, we'll also be launching the FreeStyle Libre Plus compatibility for Omnipod 5 in Germany and Canada, 2 large important markets in which FreeStyle Libre 3 Plus will be the first Libre compatibility in that market since those markets do not have FreeStyle Libre 2 Plus. That opens up a new target addressable market for us in those 2 large important global markets. And finally, in the second half of this year, we'll also be entering Spain for the first time. Spain is one of the most important European markets and is a place that we have not yet had presence. So we're excited to bring Omnipod to the people who live with diabetes in Spain in the second half of this year. In addition to our momentum and our recent success, part of what gives us confidence is the large runway for durable growth in the global diabetes markets. Today, we operate in an approximately $30 billion total addressable market comprised of 3 segments: the U.S. type 1 market; the outside the U.S. type 1 market in the countries in which we serve; and the U.S. type 2 basal bolus or insulin-intensive market. The U.S. type 1 market is about a $9 billion market that's still only 40% to 45% penetrated, about 40% penetrated. The global type 1 market in the countries in which we serve is about a $10 billion market, and it's only about 25% penetrated today. And the U.S. type 2 basal bolus market is an approximately $12 billion target addressable market that's only approximately 5% penetrated today. Shown on this chart are also the penetration levels of continuous glucose monitoring, or CGM, the partner products that we connect with in order to automate insulin delivery. Those give us inspiration and a perspective on what should be possible for a wearable system like Omnipod 5 as we continue to drive penetration and technology adoption in these large underpenetrated end markets. Beyond the 3 segments in which we operate today, we are also developing new markets, approximately 8 million people in that $30 billion TAM that I just described. And there are another 9 million people with diabetes that we have the opportunity to bring Omnipod to over time. First, there are about 4 million people who live with insulin-intensive type 2 diabetes in the global markets in which we operate today. Additionally, there are about 3 million people here in the U.S. who live with insulin-requiring type 2 diabetes and take basal injections of insulin. And finally, there are about 2 million people in large attractive Asian markets that live with type 1 diabetes that could be an opportunity for us over time. So in addition to the 3 underpenetrated markets in which we operate today, over time, we have the opportunity to develop and approximately doubling of the total number of people with diabetes around the world whose lives we can improve with Omnipod technology to about 17 million people globally. In addition to our results in the large underpenetrated markets in which we operate, we have a history of delivering sustained profitable growth built on market leadership. Over the last 5 years, we've delivered 25% compound annual revenue growth. In that same time, we've expanded adjusted operating margins by approximately 600 basis points. We've grown adjusted earnings per share at approximately 55% compound annual rate. And we've expanded free cash flows by more than $0.5 billion per year. After reaching free cash flow positive in 2023 for the first time, last year in 2025, we drove almost $400 million of free cash flow. The strength of our execution, the end markets and our confidence in the pipeline of innovation and commercial expansion opportunities ahead of us gives us confidence in the future. Last November, we announced our formula for our long-range plan, guiding to 20% compound annual revenue growth between 2026 and 2028, fueled by continued product leadership and innovation, the large underpenetrated markets in which we serve and strong commercial execution in our markets. Additionally, we shared that we're expecting approximately 100 basis points of annual adjusted operating margin expansion. This is driven by modest gross margin improvement, continued elevated investment in innovation and leverage from selling and marketing, particularly -- excuse me, from selling and marketing and G&A, particularly G&A. Together, this also drives more than 25% compound annual adjusted earnings per share growth over the planned period and strong continued free cash flow generation. Innovation is a big part of what drives growth, and I'm excited to talk a little bit about the pipeline that we've shared. I just mentioned today, we announced the enhanced algorithm updates for Omnipod 5 that deliver stronger clinical outcomes and an improved customer experience. In 2027, we'll launch Omnipod 6, our next flagship Omnipod automated insulin delivery system product. That's underpinned by our third-generation algorithm, the automation that automates delivery on behalf of customers, and results for the pivotal study supporting Omnipod 6 will be presented this weekend at the American Diabetes Association conference. In addition to stronger, more advanced automation designed for better outcomes with less effort, Omnipod 6 also improves the wear experience of the product with new hardware technology designed to let folks wear pods flexibly on their body where they choose. And finally, Omnipod 6 includes a pod that can be updated over the air so that as we launch new technologies, we can accelerate that innovation into the hands of customers. Whereas today with Omnipod 5, we have to put new technology into pods starting in the factory. By updating pods that are already in customers' hands, we can accelerate innovation by as much as 6 to 9 months, the time that today, it takes us to build inventory, get it into the channel, have customers go get a script and get new pods. And as we continue to innovate on the Omnipod 6 platform, we're excited to accelerate that innovation into the hands of customers. And finally, in 2028, we have a disruptive offering designed to redefine a more accessible automated insulin delivery experience, that $12 billion TAM that I talked about, the type 2 basal bolus opportunity here in the U.S. There are millions of people who live with insulin-requiring type 2 diabetes who are cared for primarily in primary care. As simple as we've made today's technologies with Omnipod 5 and coming with Omnipod 6, they're still too complicated to take broadly into primary care. The fully closed loop system that we are developing is designed to be as simple to prescribe and for self-start at home as CGM. It's a product that is designed specifically to address the barriers to prescribing and adoption that have -- that are between today's low penetration and our goals of driving elevated penetration in that type 2 market opportunity. I'm excited to share we've begun the pivotal study for that product, and we'll be presenting our final feasibility data for that fully closed loop product for type 2 at the American Diabetes Association conference this weekend. I've just shared our innovation pipeline. In addition to that pipeline, we're also investing in future platforms that will come beyond 2028, targeting the largest unmet needs in the market. Across that pipeline and those technologies that will come beyond 2028, we'll be investing more than $1 billion in research and development over the next 3 years and in the clinical evidence supporting those programs. In addition to innovation, we are investing to strengthen our competitive moats, strengthen our commercial execution and how we develop markets, developing the clinical evidence to continue to expand guidelines for both type 1 and type 2 to recommend AID. American Diabetes Association guidelines now recommend AID as early as diagnosis for type 1 and recommend it for those who take insulin and live with type 2. We're working to expand those guidelines globally and continue to strengthen them to make AID standard of care. And we're constantly working to broaden access and affordability around the world and growing the prescriber base so that more people who live with diabetes who are cared for by more prescribers can access this transformative technology. And finally, because of the levels of growth that we drive, we have to invest ahead to be ready with manufacturing capacity and resilience to serve additional demand that we drive, and we are doing so. Taken together, these investments sustain our top-tier growth while continuing to drive margin expansion. In sum, we have a really exciting growth runway in the large underpenetrated global diabetes markets that I described across type 1 and type 2 insulin-requiring diabetes. We have deep, defensible, durable moats across our unique, single-piece, fully disposable, automated cannula-inserted, waterproof, controllable by mobile phone technology, the science that supports the clinical outcomes that technology like Omnipod provides, our manufacturing infrastructure and resilience, broad affordable access and our brand that customers connect with. We have a robust innovation pipeline with innovation launching now, next year with Omnipod 6 and in 2028 with a fully closed loop product for those who live with type 2. We have a disciplined strategy for allocating capital, driving growth that lets us continue to sustain top-tier growth while growing margins. And we have a strong financial position that lets us both invest for growth and continue to drive strong free cash flows. Thank you.

Great. Thanks so much, Eric. So maybe we'll first double-click on the freshest news, the algorithm full rollout today. Algorithm has been the perceived area where Omnipod has trailed competitors. So in what ways do you think today's announcement of the algorithm rollout [ fortify ] you on that issue and turn the algorithm into at least neutral?

Steve, thanks for the question. We are super excited about today's news. Today's algorithm updates have been in limited market release for the last couple of months, and the customer feedback has been strong. And the data on those updates, we're going to present this weekend at the American Diabetes Association conference. As you described, we know and recognize that the algorithm has been a place that has been perceived as a weakness for Omnipod 5. The clinical evidence says that the clinical outcomes associated with Omnipod 5 are really strong, and we have confidence in that. But the market perception is different. And we, for the last 8 months or so, have been bringing 2 things to the market, the strength of the clinical outcomes from Omnipod 5 and education to physicians about how to get the best outcomes from Omnipod 5, which includes using the lowest target glucose setting. With today's news, our field is going to be back in front of health care providers sharing how to use the lowest target glucose to get even tighter glycemic control and helping providers see that now there's an option for folks who do want even tighter control, and we'll be continuing to deliver that message through the course of the year. We're also making the action of the algorithm more transparent with the launch of Omnipod Discover. We recognize that at times, part of the challenge with understanding what Omnipod is doing is we haven't shown exactly what the automation is doing. And so now with the launch of Omnipod Discover, exactly the insulin that is delivered by the algorithm will be visible to clinicians, helping increase their confidence in how the algorithm is working on behalf of customers. And all of this will be happening this year ahead of the launch of Omnipod 6, our third-generation algorithm with advanced automation designed for even better outcomes and even less use. So we're taking action both from messaging, how our field shows up in offices and making significant technology improvements to make sure that the automated insulin delivery experience is a core strength for Omnipod.

Just following up on that. So in what ways are you exactly able to market this? You talked about obviously educating the physicians. So will this be in seminars? Will there be any DTC enhanced effort? Because this isn't a new pod. So it's a little bit different on that front.

Yes. We can pull all of our levers, and we will. So starting with this weekend, we're going to be presenting data on the performance and the strength of the performance at the ADA conference. And that's an opportunity for clinicians to hear from other clinicians, which is among the most influential ways to help them understand just how impactful this lower set point and the other algorithm improvements that we've made is for patients in their care. So physician-to-physician education is lever 1. Lever 2, as I described, is our sales team showing up in offices and educating clinicians on how to use that lower target glucose and the other changes that we made to improve the automation experience and how impactful that can be for their patients, office by office. And finally, it is the kind of thing that we are going to market directly to our customers. We listen loudly to what our customers ask for, and the addition of a lower target glucose and the change we've made to the algorithm to keep folks in automated mode more are the two most requested things that we've gotten over the last while since the launch of Omnipod 5. And we're really excited to make our customers aware that those options are there, which we'll do direct by going directly to customers.

I wanted to hit next on an issue that's, of course, been on the minds of investors recently, and that's the quality issues and the 2 recalls, including 1 from last week. So maybe high level, what happened? And why now? What's happening? You guys have been manufacturing Omnipod for obviously many, many years. And then more importantly, can you talk about the changes you made in March and how you can give investors confidence that at a minimum, you'll catch anything new down the line, there won't be another recall?

Yes. So Steve, first, nothing has changed. It's really unfortunate that we've had 2 medical device corrections since the start of 2026. And the first we announced in March was related to tears in the cannula inside the pod, and the correction that we announced a couple of weeks ago was for tears in the cannula between the skin and the bottom of the pod. And in both cases, we saw a signal in our post-market surveillance. And we investigated, did a comprehensive investigation, identified the affected product, took action to introduce corrective and preventative actions and then communicated with customers, healthcare providers and regulators around the world. In both cases, the root cause was related to handling of the pod during the act in manufacturing. So the way the pods are being handled allowed for the possibility that the cannula would be damaged. In the case in March, it was in one part of the manufacturing had the potential to damage one part of the cannula, and then the issue 2 weeks ago was a different part of the manufacturing with the possibility of damaging a different part of the cannula. After the March issue, we took a broad look at what we needed to implement from a quality assurance and corrective action perspective. And we made changes then, in March, designed to prevent types of -- any type of this issue from getting to customers. And importantly, none of the product affected by our medical device correction 2 weeks ago was manufactured since changes were made in March. So the changes that we made in March would have prevented the issue that we took action on 2 weeks ago. So again, moments like this just redouble our commitment to quality. We know that we earn our customers' trust every time they put on a pod. And we've taken a comprehensive look at the manufacturing to implement corrective action, implement enhanced quality controls for prevention. And we've taken a broad look at our complaint signals over the last couple of years to show there's nothing else that we need to take action on at this time, and we didn't see anything else that we need to take action on this time. So we have confidence in the quality of the product that we're making and commitment to serving customers well.

Okay. So on that point, you've -- the look back was pretty comprehensive. So even if -- most importantly, new product isn't going to be affected because of manufacturing changes, we're not going to likely get another headline because you did a comprehensive look already, and that was what last week brought about?

Correct. We have done a comprehensive look. We've made corrective actions. We have confidence in the product that we are making and releasing to customers, and we have communicated transparently and expediently with customers and healthcare providers. And after our March recall, we saw our business strengthen through the part of the quarter where we were navigating that and had announced it. And the facts with the correction that we announced 2 weeks ago so far is playing out similarly. The understanding from healthcare providers and understanding from patients who appreciate the transparency and expediency with which we are communicating with them and helping them get replacement product.

So I think the other thing that certainly we hear from investors is coming off of 1Q commentary and maybe there's another investor conference over the past couple of months, there's been some concern about your ability to hit that 20% CAGR on the top line through '28 and potential for dips below the 20%. So what gives you confidence in that growth outlook? And maybe we can fold in the competitive dynamics and how -- why, obviously, in your view, you don't think it's going to have effect?

Yes, it's a great question. I hit some of this in my opening remarks in the presentation. We have high confidence in our ability to deliver the 20% compound annual growth that we shared during our long-range plan. And that's underpinned by large underpenetrated end markets, our leading position and continued -- an innovation pipeline and commercial investments that support continued growth. Maybe a couple of building blocks of what gives us that confidence. I shared that on our Q1 call, we had announced approximately 25% year-over-year growth in our customer base. So as of Q1 2026, we had grown our customer base approximately 25% relative to a year earlier, and that customer base becomes recurring revenue. That 25% growth was on the basis of the level of new starts that we drove in 2025. And we've shared we expect higher new starts in 2026 than in 2025. And indeed, in Q1, we drove year-over-year growth in new customer starts in Q1 2026. On top of that, we have important growth accelerators coming in the second half of the year. I just described, we are today, launching our second-generation algorithm for Omnipod 5. We are launching the FreeStyle Libre 3 Plus integration, and we're expanding our sales force. In the second half of this year, we'll have expanded our sales force to call on several thousand additional prescribers who care for about 150,000 more people with diabetes. So that's 150,000 more potential customers we'll be calling on in the second half of this year. So we've got innovation and commercial expansion here in the U.S. helping us drive incremental new customer starts in '26 relative to '25. That becomes customer base growth that drives revenue in 2027 because of our durable model. So we've got growth catalysts for the U.S. this year. Additionally, in our global business, we have continued growth catalysts as well. We're about 65% of the way through the transition from DASH to Omnipod 5. And as that transition continues, that gives us some continued price uplift tailwind here in 2026. Additionally, at the beginning of the year, we launched Omnipod 5 in the Middle East. We're launching -- we're entering Spain here in the second half of the year. And we're launching the Omnipod 5 FreeStyle -- excuse me, FreeStyle Libre 3 Plus integration in Canada and in Germany, which are also significant opportunities. So we've got global catalysts in 2026 as well, which help us drive more new customer starts and increase our customer base, setting us up for 2027. So when we look at the building blocks and the levers at our disposal to drive new customer start growth, that's what gives us confidence in the long-range plan.

And on that sales force expansion, because I think probably they become fully sort of operational later this year and driving into '27. You gave some absolute numbers, but in terms of percentages or growth, what percentage expansion is that of the either customer base or sales force itself that you can provide in the U.S.?

We've said it's more than 10% growth in the sales force.

Okay. I was going to hit on type 2, but I don't think we're going to have enough time to hit on that in the minute or so. So maybe just high level, a lot of -- you talked about fully closed loop. A lot of companies, that's sort of the holy grail, everyone is kind of going for it. In the context of -- for Omnipod, what does fully closed loop mean in terms of lack of patient interaction?

What we see and what we're shooting for really is a different product. As I described in my prepared remarks, we are developing a product that is designed to unlock a market that today's technology is too complicated for. And specifically, we are developing a product that requires less prescriber education, less prescriber management once somebody is on therapy and is designed for customers to self-start at home, none of which are true of today's products. That -- those are the most important market unlocks, and those are supported by a product that doesn't require customers to interact during the 3 days that they're using it. People with diabetes will put on a pod, connect to CGM and live for 3 days in our vision for a fully closed-loop product.

Great. Thanks, Eric. Thanks, Clare.