Insulet Corporation (PODD) Q4 2019 Earnings Report, Transcript and Summary

Good afternoon, ladies and gentlemen. And welcome to the Insulet Corporation Fourth Quarter and Full Year 2019 Earnings Call. At this time, all participant lines are in a listen-only mode. Later, we will be a question-and-answer session. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to hand the conference over to your host, Deborah Gordon, Vice President, Investor Relations and Corporate Communications.

Thank you, Lauren. Good afternoon everyone and thank you for joining us today for Insulet’s fourth quarter and full year 2019 earnings call. Joining me are Shacey Petrovic, President and Chief Executive Officer; and Wayde McMillan, Executive Vice President and Chief Financial Officer. The replay of this call will be archived on our website and the press release discussing our fourth quarter and full year 2019 results and first quarter and full year 2020 guidance is also available in the IR section of our website. Before we begin, I 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. We ask that you please refer to the cautionary statements contained in our SEC filings for a detailed explanation of the inherent limitations of such forward-looking statements. We also will discuss the non-GAAP financial measure, adjusted EBITDA with respect to our guidance. We have transitioned to adjusted EBITDA as it aligns with what management uses as a supplemental measure in adjusting our operating performance and we believe that it is helpful to investors, analysts, and other interested parties as a measure of our comparative operating performance from period to period. Also, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year basis. With that, I'll turn the call over to Shacey.

Thanks, Deb, and good afternoon, everyone. 2019 was an exciting year. We celebrated the achievement of many milestones. Our strong financial and operational performance reflected the culmination of several years of strategic discipline to create a strong foundation from which Insulet can grow and evolve. And we did so of staying true to our mission to improve the lives of people with diabetes. Throughout 2019, we made great progress advancing our strategic imperatives. And in 2020, we remain focused on driving our initiatives forward. Specifically, one to deliver consumer focused innovation, two, ensure the best global customer experience. Three, expand our global footprint, and four, drive operational excellence. As we look ahead, we are confident that the execution of our strategy is driving sustainable long-term growth and value creation. The global Type 1 and Type 2 diabetes markets represent approximately 10 million insulin requiring individuals, in just the countries we are in today. This large, underserved and growing global market opportunity represents a tremendous opportunity that Insulet is uniquely positioned to capture. We are on track to achieve our 2021 financial targets, and excited about our additional catalysts for growth over the long term. During today's call, I will share our financial highlights, and provide an overview of our recent strategic progress. I will then turn the call over to Wayde who will discuss our financial results in greater detail, and share our 2020 outlook. Our fourth quarter results marked another strong quarter of financial performance and closed out an exceptional 2019 for Insulet. We generated more than $209 million in revenue exceeding the high end of our guidance by $8 million and representing a 27% increase year-over-year. This was driven by 30% revenue growth in our total Omnipod product line, with both our U.S. and international operations continuing to execute and drive strong operational performance. We also achieved another record quarter of global new iPod users. On a full year basis, we delivered consistent financial outperformance throughout 2019. We generated $738 million in revenue representing a 31% increase, driven by 36% revenue growth in our total Omnipod product line. We also improved annual operating profitability which Wayde will speak to shortly. Our Insulet team continues to knock it out of the park with focus, execution and an intense drive to deliver on our mission in order to provide the best value to all of our stakeholders. I'll now share additional color on the progress we made executing our strategy, starting with innovation. We continued to advance our efforts to deliver products that are easy to use, simple, and improve quality of life and outcomes for our consumers. In 2019, we completed the launch of Omnipod DASH in the United States, and in December, we introduced DASH to select European markets. As many of you know, our Omnipod DASH system utilizes a mobile app on a locked down phone, to provide consumers, intuitive simplicity and unparalleled ease of use. With the launch of DASH we are one step closer to consumers being able to control their pods with their own personal smartphones. This is the top request we get from the diabetes community and Omnipod Horizon will make it a reality. With DASH, we are disrupting the market with our unique pay-as-you go business model. Omnipod DASH is the only insulin pump on the U.S. market that can be accessed with no upfront cost and no four year lock in period. We are shifting the old market paradigm by eliminating restrictions, so more people can easily access our technology without having to wait for their lock-in period to end, and without having to pay large upfront costs. As a result, we are providing access to a much broader patient population. This business model allows us to better serve the Type 2 diabetes market, which Omnipod DASH is uniquely positioned to address. While doctors have historically been less willing to prescribe pump therapy for their Type 2 patients, they now tell us they are increasingly recommending Omnipod DASH for this population as an alternative to multiple daily injections. Our platform is easy to use and requires minimal training, so users of all ages and backgrounds are quickly up and running on the system. As a result, for the third consecutive quarter, we saw another notable increase in the percentage of our new Omnipod users through the pharmacy being individuals living with Type 2 diabetes. To put this into perspective, in Q4, almost 30% of our U.S. new Omnipod users were Type 2. We are confident that Type 2 users who try Omnipod DASH realize its many benefits. This trend is already evident in our results and we expect it to continue to gain momentum. Also encouraging is the momentum Omnipod DASH and growing market access have created as they continue to fuel the number of total new Omnipod users. In Q4, we saw an increase to over 80% of us new Omnipod users coming from multiple daily injections, which is slightly greater than our historical average. Omnipod with the benefit of the pay-as-you-go model business model in the pharmacy continues to lead the way as a category grower, helping more people get the benefits of pump therapy. And growth of Omnipod DASH continues to be in line with pharmacy access. The successful commercial launch of Omnipod DASH and resulting market access wins are paving the way for our innovation pipeline. We're making good progress on Omnipod powered by Horizon, the first ever tubeless, personal smartphone controlled, automated insulin delivery system. Omnipod Horizon has several key differentiators. One, it is designed for greater time in closed loop. Two, it will provide unparalleled personalized therapy and three, it can be controlled by a user's personal smartphone. In December, we completed pre pivotal testing and moved into our pivotal study, which will support our FDA submission. Demand for trial participation has been incredible, with people willing to fly across the country for the last remaining spots, which have now been filled. In fact within weeks, the majority of our sites completed enrolment, and in total, our pivotal includes approximately 240 individuals, ages 6 to 70 years old. All participants will complete a three month outpatient study. It is important to note that our participants include paediatrics and also individuals coming from both MDI and pump therapy, not just the better controlled adult population or well controlled patients already using pump therapy. This is another differentiator compared to other AID Systems. We are incredibly excited that study participants are wearing our system at home as part of this final stage of testing, and feedback has been terrific. Investigators and participants have shared many amazing stories of how Omnipod Horizon will be a game changer, and transform the diabetes landscape for automated insulin delivery. Mothers who can finally sleep through the night, while their child is well controlled. Children who are maintaining tight glucose control through dance recitals and pizza parties, and adults who are experiencing quality of life improvements as a result of their ability to more easily manage their diabetes. We will share clinical results of our Omnipod Horizon study at the American Diabetes Association conference in June, and one of our principal investigators was invited by ADA to present our pre pivotal data in a special session. We also expect the data for our pivotal testing to be completed later this summer, and we will share it either in publication or at a conference later this year. Another key aspect of Omnipods Horizon's innovative power is its design incorporating the algorithm on the pod. This should allow the user to remain in closed loop for a longer period of time as compared to other systems. The user does not need a device to keep the on body Pod and CGM sensor in direct communication. In order to accomplish this, we have worked in close collaboration with Dexcom, a long standing partner. We are really excited to have recently announced an agreement that builds on our integration efforts, formalizes our commercial launch plans, and includes access to integrate Dexcom’s next-generation G7 CGM into Omnipod Horizon. Our Horizon effort with Dexcom is an illustration of just one of several partnerships we have established to deliver an innovative AID platform that will bring freedom and simplicity to people living with insulin dependent diabetes. We also recently announced a collaboration with Abbott, another longstanding partner to bring together the power of our Omnipod Horizon platform and Abbott's next generation Libre sensor. This on body system will provide patients with choice of CGM sensor in an intuitive, automated insulin delivery system. Libre has had a remarkable adoption trajectory recently celebrating more than 2 million users across the globe. And it’s very exciting to think about the broad impact our technologies together can have on people living with diabetes. We believe a simple design, sensor of choice and personalization will provide outcomes without complexity. The differentiators of our Omnipod platform position us to further penetrate the global diabetes market, including those living with Type 2. Due to this incredibly large opportunity, we have prioritized these development efforts over our concentrated insulin development programs in order to shift resources toward maximizing our AID development efforts with our sensor partners. Our rationale for this change is a matter of priority based on market opportunity. We believe the benefits of our technology platform together with our expanded collaboration with Abbott and Dexcom provide a pathway to move more rapidly and effectively into a much larger, addressable Type 2 diabetes market. We are excited to partner with Dexcom and Abbott to deliver consumer focused innovation that will provide benefits to a larger population, and build off our current strategy that is already proving to be a winning approach to driving Omnipod adoption. Innovation is a top priority here at Insulet. We will continue to invest in growth opportunities to accelerate our pipeline and help us bring greater advancements to more people with diabetes around the world. Now turning to our global expansion. We made tremendous progress in 2019 strengthening our global footprint and securing our leadership position in geographies with large, addressable markets. By the end of 2019, we introduced Omnipod DASH in select European markets, and we expect to further roll it out across Europe and Canada this year. Additionally, last month we announced that we expect to enter five new markets this year specifically in Europe, and the Middle East where we see significant demand and long term value creation potential. Omnipod DASH is the preferred platform for our new markets and we are encouraged by the positive feedback we've received from our European early adopters. While we don't expect our European or our international expansion to add meaningful revenue in 2020, we are confident that we are taking the right steps to drive significant and sustainable revenue growth over the long term. Finally, turning to our manufacturing innovation and global operational excellence. First, I would like to acknowledge that as we all deal with the global challenges of the coronavirus and its impact on families, employees and the operations of many global organizations; it highlights the importance of our investment in manufacturing, and supply chain redundancy. In May of last year, we began production on our first highly automated state of the art manufacturing line in the United States. In doing so, we not only developed valuable internal manufacturing expertise, we also added redundancy, expanded capacity, and strengthened our supply chain. Possessing the ability and internal expertise to manufacture our own products at scale, and manage the complexity of our supply chain are critical to support our rapid growth and long term capacity needs. We are in the middle of ramping up our first U.S. manufacturing line, and starting line 2 with production of sellable product and the second line expected by mid-year. We also remain on track to install our third manufacturing line in the United States later this year with sellable product next year. With our focus on driving efficiency and effectiveness, we have created significant competitive advantages that we expect will drive long term cost reductions across our manufacturing and supply chain operations. It does take time to ramp the lines given the complexity and scope of this effort. And while this ramp is a headwind to margins in the near term, our manufacturing innovation is a key driver of our 2021 70% gross margin target, which we remain on track to deliver. As we look ahead, we remain focused on continuing to execute our initiatives and strategy to invest in our long term growth opportunities. I'll now turn the call over to Wayde.

Thank you Shacey. As Shacey noted, we had a terrific 2019 and consistently outperformed during the year, our fourth quarter financial and operational performance was no exception. We are confident that continued execution of our strategic imperatives with a focus on investing for growth will create additional value for our stakeholders and further our mission to improve the lives of people with diabetes. In the fourth quarter of 2019, we delivered revenue of $209.4 million representing growth of 27% which was $8 million above our quarterly guidance range. By product line U.S. Omnipod revenue grew 36% to $126.7 million almost $7 million above the high end of our guidance range and marked our fifth consecutive quarter of accelerating growth in the United States. This was mainly driven by increased volume from our growing customer base, and increased adoption of our new product innovation with Omnipod DASH primarily through the pharmacy channel. Also contributing was the mix benefit on the premium for Omnipod DASH. Volume growth of Omnipod DASH drove approximately 55% of our U.S. new Omnipod users in the fourth quarter. We grew our U.S. volume through the pharmacy channel to over 25% of our total. Also driving the growth of our U.S. to Omnipod users is our strategic focus on the Type 2 diabetes market. For the full year, we realized a PDM headwind of $3 million compared to our guidance of $4 million to $6 million resulting from the continued strength of selling PDM’s into our DME and direct channels. As a reminder, our new innovative business model eliminates the upfront cost for the DASH PDM and removes hurdles for adopting Pod therapy. International Omnipod revenue in the fourth quarter grew 20% to $65.8 million, achieving the high end of our guidance range, primarily driven by increased volume in Europe, as we continue to drive demand in our existing markets as well as less of a negative headwind from foreign exchange assumed in guidance. Excluding the 2% negative FX impact in the quarter, international Omnipod revenue grew 22% on a constant currency basis. Drug delivery revenue was $16.9 million, an increase of 1% exceeding the high end of our guidance range by $2 million, as a result of our partners updated forecast. Turning to gross margin, we delivered 64% in Q4, down 290 basis points year-over-year and 10 basis points sequentially. Q4 gross margin ended slightly below Q3 as U.S. manufacturing costs were higher in Q4 than planned. Partially offsetting these headwinds was favorable mix, from increased volume of Omnipod DASH in the U.S. primarily through the pharmacy channel. We expect the headwinds of U.S. manufacturing ramp to continue in 2020. As Shacey noted, despite these short term headwinds, we are confident that our investment in manufacturing innovation will contribute to meaningful gross margin expansion over the long term. For the full year 2019, gross margin of 65.1% was 60 basis points below prior year, in line with our expectations. Full year gross margin was impacted by the ramp of our first U.S. manufacturing line during the year, partially offset by the mix benefit in the U.S. from the premium for Omnipod DASH and the pharmacy as well as the benefit in the first half of the year from direct operations in Europe. Operating expenses in the fourth quarter were 55% of revenue compared to 57% in the prior year in line with our expectations. Operating income for the fourth quarter was $18.2 million representing 8.7% of revenue. On a full year basis, operating income was $50 million or 6.8% of revenue slightly exceeding the high end of our guidance range. Net income for the fourth quarter was $5 million and included a onetime non-cash charge of $2.3 million relating to the extinguishment of the remaining 35% of the 2021 convertible notes. This charge was slightly better than our original estimate of $3 million due to the timing of the extinguishment. We ended the year with $435 million in cash and investments compared to $637 million at the end of the third quarter and $430 million at the end of last year. This sequential decrease from Q3 was primarily due to the $210 million we use to repurchase the remaining 2021 notes. We ended 2019 with accelerated revenue growth, improved profitability, and a solid global commercial and operational foundation, positioning us for continued growth over the long term. I will now walk you through our 2020 expectations, beginning with full year guidance. For the full year, we expect reported revenue growth for total Omnipod in the range of 17% to 21% and reported revenue growth for total company in the range of 14% to 18% with both including an approximate 1% negative foreign currency impact. By product line, we expect U.S. Omnipod revenue of 18% to 22%. This reflects continued volume growth of Omnipod DASH primarily in the pharmacy channel and continued Omnipod adoption in Type 1 and Type 2 markets, as well as expanding market access. We will also continue to benefit from the DASH pod premium in the pharmacy as part of the pay-as-you-go strategy to provide PDM’s for no charge. As a reminder, we launched Omnipod DASH at the end of the first quarter of last year and began generating revenue for DASH at the start of the second quarter. Therefore our first half 2020 growth rate will benefit from annualizing the first full year of Omnipod DASH and move into the pharmacy. As a result, we expect our growth rates to be stronger in the first half than in the second half of 2020 as we anniversary the DASH launch. We expect full year 2020 international Omnipod revenue in the range of 16% to 20% reflecting continued strength in our existing markets. This growth rate includes an approximate 2% negative foreign currency impact. As previously mentioned, we plan to expand into new countries within Europe and the Middle East, and although we don't expect these new markets to contribute materially to 2020 revenue, we are laying a strong foundation for revenue expansion over the long term. Lastly for drug delivery, we expect a decline of 15% to 20% based on our partner’s current forecast. For the first quarter of 2020, we expect total Omnipod growth of 23% to 26% and total company revenue growth of 17% to 20% with both including an approximate 1% negative foreign currency impact. This growth is primarily driven by increased Omnipod volume globally. This includes U.S. Omnipod revenue growth of 27% to 29% versus prior year Q1, which did not include on Omnipod DASH. Our first quarter reflects growing Omnipod volume as we continue to expand market access and drive growth within both the Type 1 and Type 2 diabetes markets. We expect international Omnipod revenue growth of 17% to 20% including an approximate 3% negative foreign currency impact. This growth is primarily driven by increased volume growth, as we continue to drive penetration in our existing markets. And lastly, we expect a decline in drug delivery revenue of 28% to 34% based upon our partner’s current forecast. Now turning to the rest of the 2020 P&L on a full year basis. We expect full year gross margin to be relatively consistent with the prior year. As we previously communicated, we expect to continue to experience short term gross margin headwinds in 2020, as we ramp two additional, highly automated manufacturing lines and our move toward operational efficiency. As a reminder, it typically takes up to two years to reach full capacity on each line. We installed our first line in May of last year, and we're making progress everyday. We continue to expect to begin production of solar product on our second manufacturing line by mid-year, also contributing to the short term headwind. As we continue to ramp U.S. manufacturing and gain efficiencies, we expect second half of 2020 gross margin to improve over the first half. Despite these short term headwinds, we are confident that as we optimize and grow volumes, we will achieve our 2021 gross margin target of 70%. Overall in 2020, our financial strategy entails. Continued investment in our innovation pipeline including our Omnipod Horizon clinical trial and anticipated launch, expansion of our commercial initiatives globally, and investment in the ramp of our U.S. manufacturing lines for capacity expansion, redundancy and cost efficiencies. We therefore expect to deliver full year 2020 adjusted EBITDA in the mid-teens percentage range. Finally, we expect capital expenditures to be relatively consistent with 2019 as we continue to expand capacity in our U.S. operations, build our global infrastructure, and invest in innovation to support our growth and profitability objectives. In summary, 2019 was a terrific year, and 2020 will benefit from the momentum as we further execute our strategy. We will continue to invest for growth, both in innovation and commercial, expand it to new countries, watch Omnipod DASH across Europe and Canada, and we look forward to the U.S. launch of Omnipod Horizon. We continue to execute on our strategic objectives, and make a positive impact on the lives of our customers. We remain solidly on track to deliver our 2021 targets of $1 billion in revenue, gross margin of 70% and operating income in the mid-teens. With that I'll turn the call back to Shacey for concluding remarks.

Thanks Wayde. 2019 was a tremendous year for Insulet as we made significant progress on our strategic initiatives. We are now beginning to realize the positive impact from these efforts. It is clear that we have a sound strategy and thanks to the hard work and dedication of the entire Insulet team, we entered 2020 in a position of strength. And now I'll turn the call back to Lauren for Q&A. Thank you.

Thank you. [Operator Instructions] Our first question is from Matthew O'Brien with Piper Sandler. Your line is open.

Hi, afternoon. Thanks for taking my questions. Just I guess for starters here, the Q1 guide as far as the U.S. number goes is a bigger sequential drop than we've seen over the last couple of years, and I guess your revenue base is bigger, but could you just talk a little bit about your thought process on that Q1 guide? Is there anything of note that's going in there, maybe some more attrition through the pharmacy etcetera that has surprised you a little bit, or is – is that just a bit of conservatism?

Hi, Matt. It’s Wayde. So first of all thanks for the call and for the question. For our U.S. guidance, we feel that 18% to 22% is a strong guide for the year, and for Q1 that you referenced 27% to 29%, also a strong guide. There were a couple of key drivers that give us confidence here. I mentioned that the first half benefits from DASH in the pharmacy, does create a tougher time for us in the second half. So we have the Q1 guide here above the full year. We have a larger percentage, you know 30% of our new patient starts in Q4 or coming from Type 2 and we're positioned very well there. So a lot of reasons that we're confident in the 27% to 29%. We are aware of one now and a potential second new competitive AID out there in the marketplace in 2020, so we do think it will create some noise in the marketplace. We haven't seen that in Q1. And so that's why we're confident in this guide. So yes, I think to the second part of your question that this is just a standard guidance practice for us, we feel comfortable and that a 27% to 29% guide in the U.S. is a strong guide.

Okay. That's fair. And then flipping over to Horizon for a second, one of those AID companies mentioned yesterday on their call that they have a delay in one of their products because of the link to the phone, specifically, so I don't think I heard you say yes, we're on track for the Horizon and your timeframe, specifically. Can you talk a little bit about that, and then when exactly did you finish enrollment in the pivotal? Thank you.

Yes, Matt. Thanks for the question. We remain on track for launch at the end of this year. We've got all 240 trial participants on the system. So right now, we're about 35% of the way through the trial and learning a ton as you might imagine. So just to give a little bit more color there, we're seeing certain typical things you would see when you send users home with a new system like this for the first time. But obviously, that's why you do trials like this, and the team is doing a great job collecting and addressing these learnings and kind of supporting our sites across the country so making good progress there. And when do we exactly finish enrolment? It was within weeks of opening enrolment. So I don't know the exact date. But very early on. Demand was pretty incredible. And feedback from the trial participants has been frankly emotional and gratifying. So it's no doubt that consumer demand is really high and we're working very hard to collect, address learnings from the trial and get the system to market as quickly as possible. But nothing changed in our timeline.

Thank you. Our next question comes from Robbie Marcus with JPMorgan. Your line is now open.

Thanks. Wanting to just follow-up on the guidance, Wayde. Because you have such a strong first quarter guidance and it's a recurring revenue business. And I do realize there is some mix benefits that that'll go away as more and more patients are in the pharmacy with some price premium you're getting as the installed base upgrades. But it seems like such a sharp decline in the second half of the year for the recurring revenue business after such strong growth in 2019. How should we really be thinking about the drivers of maybe price mix and volume? What's assumed in your guidance there for the U.S. growth number? Thanks.

Yes. Hi Robbie. So yes, I can try to add a little more perspective to the guidance, particular to the U.S. here with your question. One way to think about it is that we have similar close to the same year-over-year growth dollars that we had in 2019, which was a very strong growth year for us with DASH in the pharmacy in earnest ramping in the second half. And so, we do see the benefit in 2020 of the second couple quarters of annualizing the strategic moves for launching DASH and for moving into the pharmacy. Horizon does not have a material impact to revenue in 2020 until it ramps in 2021. So we feel that dollar growth similar to the strong year we had in 2019 with momentum coming here into the first half of 2020 is the right level and we're going to start the year there and we're going to monitor as many dynamics in the marketplace that we're monitoring. We'll keep those tabs on them and see how we progress here throughout the year.

Okay. And I'm sorry if you touched on this in the prepared remarks. I'm jumping across a couple of different calls tonight. But can you touch on your supply chain in China and any impact from coronavirus? How manufacturing in China is? How much safety stock you have? And if you foresee any potential supply disruptions here? Thanks.

Yes Robbie. It's a great question. And I want to first just commend our team because they are managing through this incredibly capably and we do not anticipate any product supply issues due to the coronavirus at this time. As we mentioned earlier our automated facility in the U.S. is starting to provide manufacturing redundancy and risk medication and additional capacity as line one ramps and then we bring line two on. And we've got our best people frankly on this here and on the ground in Shenzhen. We have a comprehensive plan in place to make sure that we've got risk mitigation. So plenty of inventory on hand. And then acting continues to produce more and more every day. And then our facility in Shenzhen is also up and producing again. So I think we right now feel as if we are in a solid position and the team is managing this incredibly closely monitoring it every day and making sure that we're proactively putting mitigation plans in place.

Thank you. Our next question comes from David Lewis of Morgan Stanley. Your line is open.

Good afternoon. Thank you. Wayde, I guess just to be very clear about you U.S. guidance because I guess I'm surprised by a few of the questions here. Said very simply, your growth rate in the fourth quarter of 2019 is about 20 points faster than the growth rate in the first quarter. So really what you're saying is your guidance reflects stable momentum in the business. You just going to anniversary harder comps in the back half of the year?

That's correct

Okay. Very clear. Thank you. And just ex-U.S. Ex-U.S. business momentum was slowed a little bit into the back half of the year. Your guidance for 2020 is actually very consistent with what you said over the last couple of months. Can you just sort of walk us through back half 2019 dynamics and your confidence in the 2020 ex-U.S. guidance? And then I had a quick question for Shacey.

Hey, David. Exactly, as you said our long stated guidance here for international has been high-teens, low 20s. We feel that that's the range that we can continue to grow in outside the U.S. And so our OUS guidance is 18% to 22% FX is right in that guidance range and right where we expect the region to be. We also have a strong Q1 guide in international. We typically have better focus or better insight into the pipeline for the shorter quarters. And so we've taken up that range on an ex FX basis to 20%, 23%. That's above the high-teens low 20s to start the year. But overall, now that we've annualized going direct in Europe, we have a good handle on our business by region. We still sell through distributors for most regions and therefore we have to account for some uncertainty there, as well as potential for some attrition. But overall, I think guiding to this business in the high-teens, low 20s is where we should expect us to be. We think we're going to start the year a little stronger just by insight to the pipeline.

Okay. And then, Shacey, just one of the things that's happened last couple quarters has been this T2 momentum. It's just gone from basically 15% to 20% to 30% over the last six months. I guess the question is, that's pretty remarkable inflexmen [ph]. Where can that go this year or long term? Thanks so much.

Sure. David, it's a great question. I think it's still early days and there's a lot of wood to chop in Type 2, I think about pharmacy, I think about only being a year into our business and launching a new product in Europe. So, I just want to caution where I -- and I guess put that into context where I think it can go. But Type 2 is an incredibly exciting opportunity for us. We have good access there. It's an incredibly large opportunity. We believe it's twice at least the size of the Type 1 opportunity in the United States. And we're seeing great results both anecdotally from clinicians and users and just obviously we've got data around reduction of total daily dose of insulin and other specific outcomes in that patient population. So, we think that we're just scratching the surface and just getting started and that we've got a long runway frankly providing this technology to people who are underserved in this market and a patient population where clinicians don't have a lot of great tools. And DASH is a great tool in this patient segment. So I think it's going to hang with us for a while. We're really excited about the potential and we're going to continue to invest to unlock the opportunity.

Thank you. Our next question comes from Jeff Johnson with Baird. Your line is open.

Thank you good afternoon guys. Shacey, I want to ask you maybe just two follow-up questions. One, on the decision to maybe sideline the concentrated insulins here. You've kind of turned down some of the drug delivery efforts. It seems like now on the concentrated insulins. That would imply there's a lot of other stuff going on I'd assume over the next couple of years. And really beyond Horizon, what is coming next? What is taking up so much of that bandwidth? And I just want to make sure on the concentrated insulin side, there's not an issue with the data itself or the product itself, it's more of a bandwidth issue?

Right. Jeff, that's true. This is not an issue with the data itself or the product itself. It is about essentially having to make the tough choices as a leadership team that we have to make. I think the great thing about insulins is that we are in the position to have multiple growth opportunities and programs and potential steps that we can take in front of us and our job is to make those tough decisions and prioritize the ones that we think are going to drive the most value for the organization. And right now with the addition of both Abbott, Libre and DexCom's next generation sensor, we believe that those combined have the potential to be more attractive opportunities in terms of the market size. And how quickly we can use them to drive into those market opportunities. It doesn't really diminish our enthusiasm. We look at concentrated insulins as an attractive opportunity. It just means we have more attractive opportunities. And in terms of the pipeline we haven't been public with our entire pipeline. There's a lot going on here. But one thing we have said is that we believe that Omnipod powered by Horizon is a platform that can continue to evolve and grow and bring value to both people living with Type 1 and Type 2 diabetes. And so we've got really exciting plans on that front to continue to bring iterations of that platform into the marketplace. And so this is I think the right decision. It's all driven by a number of analysis that we do to kind of evaluate one program versus the other. I think the team did a rigorous evaluation and this prioritization level is the right prioritization.

Understood. And then maybe just a question on the horizon pivotal. So if it closed or it was fully enrolled a few weeks after it started, so let's say at least by the end of January it's a three-month study. I mean just to push you a little bit. Is there any chance we could see some of that pivotal data at ADA. It sounded like it wasn't sure from your comments, if we're going to see pivotal data. I know you said pre-pivotal, but also checking on the pivotal data. And then it wouldn't seem crazy to me if the study complete, at least primary completion by May-ish three months at the FDA or a month to kind of get the data together. I mean could we be seeing approval sometime late this summer or do we really think deeper into the second half of this year? Thank you.

Yes. Jeff, you sound like me with the team. But I'll say -- so when we say completely enrolled it then takes a while for people to actually get on the product, right. They're enrolled as trial participants and then they need to be seen and put on the product to be able to participate in the trial and that takes some time. So it doesn't happen overnight. We expect from this trial to have about 21,000 patient-wearing days collected over the course of the pivotal and we've got about 8,000 patient-wearing days under our belt. So we've still got some time to go. And so I think a lot to learn in that process. I'm hesitant to kind of provide a more aggressive timeline. I think later this year as what we've said and that feels right to me. Based on all the work that still needs to happen. But I think, we are excited about the program. just learning every day and I want to be cautious about how we guide about this. Because I think -- I do think it's going to take some time for us to collect that data, react to the data, determine any learnings that we want to incorporate before we move forward with the commercial final product. All that stuff still has to happen. So teams are committed. We've got great people on it. And it's going to be, I think a terrific product.

Thank you. Our next question comes from Ryan Blicker with Cowen. Your line is open.

Hi. Thank you for taking my questions. A couple on U.S. revenue. What was U.S. installed base growth versus 30% U.S. revenue growth you posted in 2019? And what does U.S. guidance assume for installed base growth in 2020? And then, on the Q3 call you talked about expecting some stocking associated with the move to the pharmacy channel in the future. Did any stocking occur in the U.S. in Q4? And then I have a follow up.

Hi, Ryan, it's Wayde. So, we're not providing quantifying installed base at this time. But what we said in Shacey's prepared remarks that it was another record new patient start quarter for us. So we added more customers to our installed base in Q4 than we had in any quarter before that. So that's about all we can say on that at this point. And then regarding Q3 stocking, we did not see stocking again in Q4. So what we're learning about our pharmacy channel is that it's very efficient. And we did see some net channel build on the pharmacy side, but it was offset by reductions on the DME side of the business, which is a different channel. So on a net basis for Q4 in the U.S., we did not see any channel build. However, we did see some build in the pharmacy offset by the DME and the more wholesalers and distributors that we add to our distribution channel here, we're learning. It's a very efficient channel. We do think that over time that we will start to see a channel build once we settle out on the DME side of the business and we continue to add channel partners on the pharmacy side. And then eventually when we start to add more inventory into the retail end of the channel we would expect some channel build there. Having said that, we're not reflecting it in our guidance at this point, because we do not -- we can't time when we think that's going to happen. So, we see a material amount of channel inventory build, we'll certainly call it up for you.

Got it. Okay. And then two Type 2 questions Have you seen any notable difference in utilization or attrition amongst your Type 2 users versus the overall installed base? And you've been following the U.S. Type 2 total addressable market as 2.5 million to 3 million patients, which is a bit above what other companies have talked about. Can you talk a bit about your confidence in that estimate and how you got to it? Thank you.

Sure. I'll start with the first question which was just change in utilization habits. And we haven't noted a change in utilization or attrition with the Type 2. But when I say there's still a lot of wood to chop that's kind of what I'm referring to. It's early days with the Type 2 user population. We've seen a notable tick up. But it's a little early to conclusively say attrition isn't different or utilization isn't different. So we're certainly monitoring those trends carefully. And to date we haven't seen a notable difference. And then the question regarding the estimates. So that comes -- we triangulate on that number from a bunch of external market research reports, the IDF Atlas and internal data. And one difference might be sometimes other organizations will haircut based on access. And remember Omnipod has pretty solid access in the Type 2 population. And so we don't necessarily have the same haircut that other companies might.

Thank you. Our next question comes from Jayson Bedford with Raymond James. Your line is now open.

Hi. Good afternoon. Just a couple semi follow-up questions. Appreciate the comments around Type 2 as a percent of your new users in the fourth quarter. What is the current Type 2 mix in the context to your installed base?

So, I didn't catch that Jayson. When did the Type 2…

The mix of the…

Oh, I see overall mix. We haven't get it an updated number there. The last number that we gave was that it was 15% to 20% of the total base.

Okay. Maybe for Wayde. On the U.S. guide you mentioned the new AID system hasn't impacted your business to-date. But you did mention the device in reference to your U.S. business. So, I guess the question is, does the guidance contemplate a more competitive impact in quarters two through four?

So maybe -- hey, Jayson. To start with, we do see and monitor things in our marketplace. And we recognize that there's one out there now and potential for a second. So that was really my comment that just how we get to our guidance is looking at the market factors out there. Having said that, given 80% of our new Omnipod customers come from MDI, we don't rely on two pump renewal cycles for the most part. And so, we do think it will create some noise in the U.S. market and we're going to monitor that piece of it closely. But having said that, we haven't factored into a major impact to our guidance range.

Thank you. Our next question comes from Danielle Antalffy with SVP Leerink. Your line is open.

Hi. Good afternoon, guys. Thanks so much for taking the question. Congrats on a really strong 2019. Sorry to harp on the guidance. But just wanted to peel back the onion a little bit more if we could. Because even on a comp adjusted basis, I mean, really every quarter in 2019 in the U.S. you accelerated revenue growth. And I appreciate that comps get tougher. But it feels like the momentum is actually going in the other direction i.e. you're just continuing to accelerate. So I just want to make sure I'm not missing something or is this sort of more just prudent conservatism on your part as it relates to the guidance?

Yes. So, hey Danielle, it's Wayde. So from a guidance standpoint, it sounds like this is a popular topic this quarter. Again, we do take a thoughtful approach. We include internal factors, external factors. We build our bottoms up assumptions. And there's nothing out of the ordinary here. What we're not going to do is factor in record new patients start growth every quarter, quarter-on-quarter for four quarters. We're going to take a thoughtful approach here. I did give the context to that our dollar growth is close to the dollar growth we had in 2019 and that brings us to for the U.S. an 18% to 22% growth rate. So we feel that is a strong guide for the year. We see some strength in the first quarters. So our Q1 guide is above that and we feel very comfortable where we're at, and we'll continue to assess it as the year goes along.

Okay. Totally fair. And then as we think about Horizon, I mean first of all assume nothing is really in the -- I don't want to put words in your mouth. But I assume nothing is really in the 2020 guide. Is that a product launch that you see as accelerating new patient adds or more just like sustaining the current growth momentum you have?

Yes. So we're not going to guide to Horizon yet. We're planning to have it in the second half of the year. We do not think it will have a material impact on the 2020 revenue. Having said that, we're very excited about this product and the value proposition it brings for the business and our ability to deliver technology to more patients in broader ways because of the advantages of the system. But we're not going to provide any guidance on what that will do to 2021 at this point. Once we launch Horizon then we'll give an update at that time.

Thank you. Our next question comes from Margaret Kaczor with William Blair. Your line is open.

Hi. Thanks for taking the questions. This is actually Brandon in for Margaret. I wanted to kind of focus again on the Type 2 patient population just because you've heard pretty impressive adoption within the market and it's relatively under penetrated rather than focusing on kind of where it can go. Kind of focused on how we got to where we are now. Just interested in -- have you guys been actively kind of marketing into the Type 2 patient population? Or has this been more of Type 2 is coming in to insulate finding out on their own? So it's been kind of more of a push or a pull? And then are your patients -- Type 2 patients are they also 80% plus MDI converts? And I had a follow-up. Thanks.

Great. Bran, good questions. So, I would describe it as a pull strategy really. And it got set up in terms of a strong foundation with Insulet securing Medicare reimbursement, because remember that 40% of people living with Type 2 are over the age of 60. And so Medicare reimbursement is really important in order to be able to drive adoption among this population. And then I think the business model of eliminating the upfront cost and reducing the risk for the patient payor and physician to just try Omnipod for this population of users has helped to encourage more people who otherwise would not have tried it to actually give it a go. And then we're seeing obviously that they like it and are sticking with it. It also reduces the cost burden and makes the cost more predictable for the patient. And so all of those things are really helpful particularly in this patient population. And then I think DASH in particular has some design features that also are very appealing for the Type 2 segment. And so we have educated our sales teams and provided them with tools and resources to help educate clinicians and potential new Omnipod users living with Type 2 diabetes on these benefits. And then obviously launch programs to help them be able to potentially try it before they buy it, so to speak. So all of those things have been helping us drive that increase adoption. Those aren't going away. And I think the growing experience in user base especially among clinicians who are seeing this as a tool that they can wheel, that's successful for these for these patients I think is really helpful and that's why we have confidence that the trend will continue.

Got it. That's helpful. Thanks. And then in the U.S. you have Horizon coming at the end of the year. But interestingly we saw some -- what I saw was pretty good data from Tidepool on their ongoing pivotal study last week. So, I appreciate you won't want to comment on when that might be approved. But I guess the question is one, is there any kind of contemplation of that being approved in your guidance? Is that baked into numbers now? And then two, if once that gets approved, so let's say, theoretically it was approved today, how long would it take for you to be on the market with a Tidepool enabled Omnipod system? Thanks.

Sure. So I can start with the guide, if you like. So for products that are not on the market yet, we're not including in our guidance. So that's an easy answer on the Tidepool front. It's really up to them when -- what their time line is and when they launch the product and when it is we'll assess if it has any impact to our guidance or not.

And we've just started to have discussions with Tidepool around what the commercial launch strategy might look like. I think there's a lot of unanswered questions and so I don't want to speak for Tidepool in terms of what their strategy is. I will say that for Horizon and I would highly, highly encourage if not require for Tidepool that a limited market release is something that we will do, because it's really important to ensure that we have fully tested the system. We fully tested our internal support capabilities. We know in particular for Horizon that demand is going to be strong. And so, we want to make sure that we get that right in terms of performance, support training, all of the surround sound of launching a product like that. So, we will go into a limited market release and we'll see a very typical I think execution of that, which means it won't be a kind of a full market release for probably months after the clearance.

Thank you. Our next question comes from Raj Denhoy with Jefferies. Your line is open.

Apologies. Anthony for Raj. Just a couple on Horizon. Just wondering, Libre 2.0. What actually is the timing for that on the Abbott side and certainly that's been delayed a bit. So I'm just wondering from the insulin viewpoint, what's the timeline for integrating horizon with Libre 2.0? And then the follow-up would be just on the Horizon clinicals. Maybe just to benchmark the views on time and range we think FDA is looking for? And how that target compares to what was put up in DASH clinical trials? Thanks again.

Sure. So, I'll start with Libre, which we just finalized these agreements. And then once that happens the programs become funded and that's when significant resources start working on them. So those teams will work together then to define the program and then timelines for regulatory submissions and launches. And so we'll communicate that out as we come to alignment and all that guidance is finalized with our partners. I don't -- and wouldn't comment on iCGM clearance for Abbott Libre. We're very confident in our partner. But it's their strategy and their timeline. So our Libre Horizon program is dependent upon in iCGM regulatory clearance. And then the second question was on Horizon time and range. I think we feel very excited about the data that we have published to date. And -- but we're not -- we're blinded to the pivotal clinical data. So we don't have visibility to timing range coming out of our pivotal. We won't have that until the investigators present the data and/or we publish it. So I don't have a lot of insight there. In our discussions with the FDA, they haven't really focused on a particular timing range target. It really has been about how these systems safely and effectively manage glucose delivery -- manage insulin delivery for the patient as opposed to setting out a particular time and range target. And I guess I would validate that by just pointing to the special controls which have now been published for CGM and for -- or for iCGM for iPump and iController, there really aren't time and range targets as part of those special controls.

Thank you. Our next question comes from Matt Taylor with UBS. Your line is open.

Hi. Thank you for taking the question. I guess, I was hoping you might expand on some of the broader assumptions that would impact your forecast here. So are you assuming for the market that we see similar conversions of patients. We have pretty strong conversions of MDI patients to pump therapy in that forecast? And can you share anything on ASPs or other things that you imputed into the guidance to get to this number?

Hey Matt. We're not providing details. We're not going to go into a finery level details on the forecast. What we did share was that, if we achieve the high end of the guidance range that we will be near the growth dollars, excuse me, near the growth dollars that we had in 2019. Obviously if we end up lower in the guidance range it will be lower than 2019. But having said that, I think a lot of the dynamics that we benefited from in 2019 are still in play. Talked about DASH in the pharmacy and the benefits that those bring. But we've also made investments in our commercial teams both in the U.S. and outside the U.S. We continue to gain experience and strengthen on the commercial side of things. So, I think we've got a lot of momentum. We've got a lot of reasons to believe why we can continue to drive a high-teens, low 20s type of a growth rate for this business and that's what we're guiding to for the year. We're not going to get down into further details on that at this time.

Okay. Maybe just on international, you're going into some new markets. Previously you've talked about these as pretty high-teens growth markets. But your growth rate doesn't assume that you're doing any better than that. Why aren't you getting a lot of revenue out of these new markets that you're going into or you being conservative with the baseline forecast?

Yes. So I would argue we're getting a lot out of the markets, actually, Matt. And high-teens, low 20s growth rate is a very strong growth rate. We had to make a significant investments in Europe in particular to build the infrastructure in order to support a business growing high-teens, low 20s and taking over responsibility and establishing ourselves in multiple different countries across Europe. So, we think that we're going at a strong pace at a high-teens, low 20s growth rate. You mentioned the new countries that we're going into and we've talked about five new countries this year. It really speaks to the strength of our business model and the annuity when we don't get a lot of revenue from moving into these five new countries in the beginning, because it takes a period of time to accrue enough customers to get to a material level of revenue. So for us, I think thinking about the annuity model, the durability of the revenue stream once we acquire enough customers. And so in Europe it's a little bit more dispersed, because some of these countries have less people in them than the total available market for us is smaller. When you aggregate it all for Europe it's a very large market. But it takes a period of time for us to get to these markets and bring these people on. So we're actually quite happy with the high-teens, low 20s growth rate. And obviously we're going to continue to make the investments to keep that pace of growth happening in Europe.

Thank you. Our next question comes from Steven Lichtman with Oppenheimer & Co. Your line is open.

Thanks. Hi guys. Maybe just a couple of financial questions. Wayde, just to level set on the EBITDA guidance and I apologize if I missed this. Where did you end up 2019 on EBITDA margin? And what non-cash expenses or how much we should be assuming in the 2020 EBITDA guide?

Sure. Thanks Steven. Just to clarify, it's adjusted EBITDA. So we finished in low-teens 13% in 2019. And so our guide for this year is a slight improvement over 2019.

Okay. Got it. And then just overall guys. How should we be thinking about some core operating expense growth in 2020. And will you be making investment in sales force growth in 2020?

Yes. We are making continued investments in sales force growth both in the U.S. and outside the U.S. -- outside the U.S. particularly for the new countries that will be moving into. We're not providing guidance at specific line item levels for operating expenses. But what we've talked about in our strategy several times throughout the year is that number one, you can expect us to continue to invest for growth. And what that means is, we'll be making the majority of our investments in R&D and our innovation pipeline and as well as we talked about commercial which is in selling and marketing and continuing to invest there. We are still investing in G&A because we have to continue to build the support functions in order to support the business when it's growing at the pace that we are. But I think you can assume more leverage off the G&A than off of R&D and selling and marketing.

Thank you. And we do have time for one last question. Our final question comes from Kyle Rose with Canaccord. Your line is open.

Great. Thank you very much for squeezing me inside. I wondered if we could just take a step back and ask a question just about the broader market, because I think the fact that 80% of your new patients starts are coming from MDI gives you guys a little bit of a different perspective. So I wondered if you could just maybe help us understand how big do you think -- from a penetration perspective do think that Type 1 market is just from a pump standpoint? And then how do you view that from a from a Type 2 perspective? As well as how do you think about your market share within that Type 1 market?

Sure. We don't -- so the best data that we have in terms of pump penetration is from the U.S. and the estimate there is that approximately 35% of people living with Type 1 diabetes are using pump therapy that has been growing. So that's up from 30% just a couple of years ago. And Type 2 is much smaller than that. We estimate at this point probably less than 5% of people living with insulin dependent Type 2 diabetes are relying on pump therapy. We don't really contemplate our percentage of the pump market. We think more about our percentage of the total opportunity because as you note 80% usually 70% to 80%, but more recently 80% of our users come from multiple daily injections. So I don't really have a off the top of my head estimate in terms of market share. Although I would say, we probably have the largest market share in Type 2 just given the way that the growth has occurred.

Great. And then just one follow up question on some of the dynamics for DASH. I know, initially when you talked about launching DASH, it was using that as a way -- as a lever to open up the pharmacy channel. I mean, obviously that's happened. But when you talk about the penetration or the percentage of patients coming to the pharmacy versus the percentage of patients on DASH, it implies that you're also getting a pretty healthy component of some DME patients there. So I just wondered one, if you could comment on some of the contracting and conversations you're having with payors regarding your DASH in the DME channel. And then just barely on Horizon how you plan on using that as a lever to maybe widen the availability in the pharmacy channel?

Sure. Those are great questions and things we're talking about all the time in terms of Horizon and leveraging the pharmacy channel. And so today, DASH is primarily available in the pharmacy channel. We do have one DME contract through the pharmacy channel, where they have agreed to the pay-as-you-go model. And that's really the distinction. So we actually are open to contracting in DME channels, but what we believe firmly in, and what we believe in 2019 helped grow adoption particularly among the Type 2 segment is what we call our pay-as-you-go model and eliminating this large upfront cost, and in exchange for a premium on the pod. And that should be an attractive value proposition for a payor whether frankly whether you're in the DME side or the pharmacy side, because it helps to offset the risk or absorb the risk for member attrition. And in this one case, large DME payor that is the model that they agreed to, and so we do have a DME contract. So we may or may not see that grow. And frankly, one of the surprises in 2019 was that while we started to see such great progress in pharmacy, and started to see that channel establish itself and grow, we also did not see the consequential decline in the DME channel the way that we might have expected at the beginning of the year. So it's great to see both channels thriving. You know what we believe in, and what we want to see grow across potentially both channels, but particularly well suited in the pharmacy is this pay-as-you-go model. And then the second question that you have regarding pharmacy, the intention regarding Horizon, rather the intention is to leverage all of the work that we've done particularly in the pharmacy with establishing these DASH agreements, establishing the wholesaler partnerships, establishing all of the relationships with our PDMs and our pharmacy payors is to leverage all of that so that we can rapidly establish access for Horizon in the pharmacy, which is our preferred channel to launch the technology in. But I would point out, and we did it pretty quickly with DASH, so we established pretty rapid access in nine months with DASH in 2019. We're hoping to do it faster with Horizon, but it was really rapid adoption in that channel, which I think just points to the strength of the value proposition.

Thank you. There are no further questions at this time. I would now like to turn the conference back to Shacey Petrovic.

Great. Thank you everyone for joining our call today. I want to close by thanking our global Insulet team who works tirelessly to improve the lives of people with diabetes. 2020 is going to be another exciting year for Insulet and we look forward to speaking with all of you throughout the year about our continued progress. Thanks, 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 all disconnect.