Good afternoon, ladies and gentlemen and welcome to the Insulet Corporation Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct the question-and-answer session, and instructions will follow at that time. 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 of Investor Relations..

Thank you, Dilem. Good afternoon, and thank you for joining us for Insulet's third quarter 2022 earnings call.

With me today are; Jim Hollingshead, President and Chief Executive Officer; and Wayde McMillan, Executive Vice President and Chief Financial Officer; Bret Christensen, our Executive Vice President and Chief Commercial Officer, is also with us today for the Q&A portion of our call.

Both the replay of this call and the press release discussing our 2022 third quarter results and 2022 guidance will be available on the Investor Relations 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. 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 operating margin, adjusted EBITDA and constant currency revenue, which is revenue growth, excluding the effect of foreign exchange.

These measures align with what management uses as supplemental measures in assessing our operating performance, and we believe they are helpful to investors, analysts and other interested parties as measures of our operating performance from period to period.

Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rate, which will be on a year-over-year constant currency basis. With that, I’ll turn the call over to Jim..

complete integration with our CGM partners, grow our global addressable markets and create digital and data-driven products to simplify diabetes management for both customers and caregivers. One especially important feature Omnipod 5 offers is real-time usage data feeds. This simplifies diabetes management for patients and their physicians.

Looking ahead, we will be in a strong position to use that data to further enhance the patient experience, improve workflows for physicians and build on our competitive advantages. Moving to our international operations. We were pleased to receive CE Mark for Omnipod 5 in September.

This represents a major step in our path to deliver Omnipod 5 to people globally. We remain focused on building the necessary cloud-based infrastructure needed to deliver the Omnipod 5 experience while ensuring compliance with local data protection regulations.

At the same time, we're developing country-specific launch plans and continuing our work to drive premium reimbursement. We expect to enter our first international market in mid-2023. Given our planned stage approach, we will roll out Omnipod 5 more broadly throughout 2024.

Lastly, our global manufacturing capabilities support our long-term growth trajectory and serve as another competitive moat. Global supply chain and macro-related headwinds remain, but we are addressing the needs of our expanding global customer base and supporting the adoption ramp of Omnipod 5.

Our team has secured components and built product ahead of our forecasted capacity needs. While this results in increased cost that impact margins, they are necessary to deliver uninterrupted products for our customers. Although our U.S.

manufacturing will continue to be a headwind to gross margin given the higher production costs, over the long term, we are confident all of our sites combined will continue to deliver the highest quality product and gross margin expansion. Our U.S.

manufacturing has allowed us to build redundancy, capabilities and gain key learnings that are driving efficiency, quality and productivity improvements across all our facilities. In closing, we once again achieved notable financial, commercial and operational milestones and are focused on finishing year strong.

With our customers at the center of everything we do, our entire Insulet team is executing our global mission and strengthening our foundation for sustainable long-term growth. I will now turn the call over to Wayde..

Thanks, Jim. Q3 marked another record-breaking quarter. Our global team continues to execute at a high level. And Omnipod 5 is proving to be a life-changing new option for people with diabetes. We're focused on finishing the year strong and entering 2023 with momentum.

We generated 29% revenue growth in the third quarter finishing above the high end of our guidance range, driven by total Omnipod growth of 30%. On a reported basis, for total revenue, foreign currency was a 480 basis point headwind compared to Q3 of last year. U.S. Omnipod revenue growth was 42%, exceeding our guidance range.

Revenue growth continues to be driven by the compounding benefit from record new customer starts and increasing volume through the U.S. pharmacy channel. This includes a growing contribution from Omnipod 5 and a premium for the pod given we provide the PDM at no charge in the pharmacy channel.

Growth in the quarter included an estimated $16 million benefit associated with the initial quarter of Omnipod 5 volume ramp.

This was primarily driven by conversions from Omnipod DASH and Classic Omnipod, where we benefited from some customers getting both their starter kits and first refills in the quarter as well as some initial stocking in retail pharmacies. Omnipod 5 and Omnipod DASH new customer starts combined were over 95% of our total U.S.

new customer starts, comprised of Omnipod 5 at over 80% and an Omnipod DASH at almost 15%. In addition, pharmacy channel volume increased to almost 75% of our total U.S. volume. International Omnipod revenue increased 9%, within our guidance range, driven by Omnipod DASH adoption, partially offset by ongoing AID competition.

On a reported basis, foreign currency was a 1,440 basis point headwind over the prior year, which was approximately 140 basis points unfavorable versus our prior guide. During Q3, our estimated global attrition remained consistent and utilization was higher, driven by the Omnipod 5 ramp benefit mentioned.

Drug Delivery revenue declined 4% and at the high end of our guidance range. Gross margin was 55.3%, representing an approximate 1,300 basis point decrease including a favorable foreign currency impact of approximately 70 basis points.

Cost of revenue included a $37 million charge or approximately 1,100 basis points related to the voluntary medical device correction. The aggregate $37 million charge in Q3 primarily reflects the estimated replacement units, shipping and reclaim costs of the PDMs for global Omnipod DASH users.

This charge is within the estimated $35 million to $45 million we included in our October 8-K filing. We no longer expect any material additional operating expenses to be recorded in Q4 of this year or in 2023, as we previously had estimated.

Excluding the Q3 medical device correction charge, adjusted gross margin was 66.1%, representing a 240 basis point decrease. The primary drivers were the expected higher mix of costs as we ramp our U.S. manufacturing operations, higher manufacturing costs associated with Drug Delivery and higher mix of costs given Omnipod 5 ramping.

These costs were partially offset by growing volume in the U.S. pharmacy channel, including the associated premium.

Operating expenses were slightly higher than our expectations to support higher demand for Omnipod 5 and were higher than Q3 of last year due to continued investments in sales and marketing, such as our Omnipod 5 launch efforts, development work to advance our innovation pipeline and costs to scale our business to support our growth.

Adjusted operating margin and adjusted EBITDA in Q3, which exclude the voluntary medical device correction, were 11.6% and 18.4%, respectively. Both metrics were impacted year-over-year by gross margin pressures and an increase in operating expenses. Turning to cash and liquidity.

We ended the quarter with over $720 million in cash and the full $70 million available under our credit facility. Our financial position remains strong and offers us the flexibility to strategically invest in our business, further strengthen our innovation pipeline and deliver growth for years to come. Now turning to 2022 guidance.

We are raising our total company full year revenue growth to a range of 18% to 19%, including total Omnipod growth of 23% to 24%. For U.S. Omnipod, we are increasing our revenue range to 30% to 31%.

We expect revenue growth to be driven primarily by strong Omnipod 5 new customer starts and conversions to Omnipod 5 from both Omnipod DASH and Classic Omnipod as well as increasing Omnipod DASH volume and the benefits of our pay-as-you-go business model.

For international Omnipod, we are raising the low end of our full year guidance and now expect a range of 11% to 12%. On a reported basis, we estimate an unfavorable foreign exchange impact of approximately 1,200 basis points. Growth is mainly driven by ongoing Omnipod DASH adoption partially offset by AID competitive headwinds.

Lastly, for Drug Delivery, we are raising the low end of our full year guidance range and now expect a decline of 37% to 35%. As a reminder, 2021 levels were elevated as a result of the pandemic. Turning to 2022 gross margin. Excluding the impact of the voluntary medical device correction, we continue to expect a gross margin range of 65% to 66%.

On a year-over-year basis, we expect our gross margin will be impacted by higher costs associated with our U.S. manufacturing ramp, product line mix due to ramping Omnipod 5 and lower drug delivery revenue. These headwinds will be partially offset by the benefit of increasing volume in the U.S. pharmacy channel.

As we previously stated, we expect many of these factors to impact our results for the next couple of years. And as a result, we expect 2023 gross margin to be similar to this year.

Excluding certain legal and CEO transition costs, we continue to expect operating expenses to rise year-over-year due to the investments in our sales and marketing efforts, including the launch of Omnipod 5 as well as expanding our innovation pipeline and clinical efforts and scaling our support functions.

We continue to expect adjusted operating margin to be in the high single digits. And for 2023, given the expectation for gross margin and the continued investments to launch Omnipod 5 in the U.S.

and international markets as well as ongoing innovation, clinical, commercial and support functions to scale the business and costs associated with our implementing a new enterprise reporting system, we expect operating margins to be similar to 2022.

Our commitment to margin expansion continues, and we expect to begin to leverage this bolus of investments in 2024 and beyond. Lastly, we now expect capital expenditures to be relatively level with prior year versus our previous expectation of a slight increase. Turning to our fourth quarter 2022 revenue guidance.

We expect total company growth of 11% to 14%, including total Omnipod growth of 23% to 26%. On a reported basis, we estimate an unfavorable foreign exchange impact of approximately 500 basis points. For U.S. Omnipod, we expect growth of 27% to 30%. For international Omnipod, we expect growth of 15% to 18%.

On a reported basis, we estimate an unfavorable foreign exchange impact of approximately 1,600 basis points. Finally, we expect Q4 Drug Delivery revenue to be nominal as the majority of our orders for the year have already been fulfilled.

In conclusion, we are delivering solid financial performance achieving critical milestones and further positioning Insulet for long-term sustainable growth. These are exciting times, given the full market release of Omnipod 5, the recent milestones we've achieved and the progress we've made advancing our innovation pipeline.

We're focused on continuing to execute at a high level and delivering on our mission. With that, Dalam, please open the call for questions..

[Operator Instructions] And I show our first question comes from the line of Jeff Johnson from Baird..

All right. Great, Jim. Yes, congratulations on the quarter. I guess a lot of big numbers and a lot of good numbers that we could focus on. But let me ask a question that maybe it doesn't focus on those things, and that's the charging issue you brought up maybe on Omnipod 5 that you might be seeing some early signs on.

Obviously, I would think technologically, you can fix that, you can figure that out and maybe it doesn't even grow up to be any kind of real issue. But is there any risk at all, especially that your stock is going to be up tomorrow, expectations are high, given how good 05 seems to be going here.

Any expectations we should have or concerns we should have that maybe 05 -- new Rxs have to pause for a little bit because of this charging issue, you have to come back and say, "Hey, maybe 3 months from now, we'll have a fix or 2 months from now and then we can start up this 05 momentum again.

Just help us understand kind of the level of risk in this charging issue..

Sure. Thanks, Jeff. It's really early days. So let me start first and foremost with for us, patient safety is absolutely the top priority, right? And in terms of the complaints we're seeing on the charging of the Omnipod 5, it's a small number of complaints.

At this point, we're looking at like a couple of dozen complaints, but we're looking at it really closely. And we don't yet have enough data to be able to understand exactly what's going on and what the risk levels are. And so we're looking at it. We're going to fully investigate it.

And if we have to take any kind of action we're going to be -- as I said in the prepared comments, we're going to be really fast. We're going to be completely transparent with our customers, completely transparent with investors and obviously with the FDA, right? So I think it's too early to say, and we're looking at it really closely..

And I show our next question comes from the line of Travis Steed from Bank of America Securities..

Congrats on a really great quarter. I guess just to focus on -- a lot of things to ask, but to focus on the dynamic if you're talking about more to pump patients coming your way, I think you even said the word thousands. We'll have a little more color there.

Do you think this is like a onetime bolus where you think people are just waiting for Omnipod 5? Or do you think this is a more sustainable trend where the 60-40 can hold? And then how that carries over to 2023. I think the Street's modeling 20% growth. I would think the U.S.

could do a little better than that and OUS may be below that?.

Travis, I'll start on that, and then I'll ask the team to maybe add some color. I'll just say that Omnipod 5 is such an appealing offer. And I think the general market has been waiting for Omnipod 5. It's revolutionary.

You guys all know the value prop, but wearable disposable tubeless patch pump, we competed on that form factor for a long time very successfully. Now we've added automated insulin delivery. So patients no longer have to make the choice between a patch pump and an AID pump.

And that -- and you couple that with all of the access to the channel, the reimbursement access and the economics. I don't think that value prop is going to be any less appealing in Q4 or in 2023 than it is today. But I'll ask the team if they want to add color..

Travis, it's Bret. So as you know, for years, we've talked about this 80-20 split where 80% of all of our new starts come from MDI. That has been our focus. It will continue to be a focus.

But as Jim said, we don't have to -- or patients don't have to make that choice now between the superior form factor of Omnipod and an AID system, so they can get it all. And so it's not surprising to us the split changed from 80/20. We'll see where it settles in.

We don't know yet if that -- if there's a bolus of to pump users that wanted to try Omnipod or if it's going to settle in there, it's likely to settle in somewhere different than 80-20, but we're excited to finally be offering a choice to those that chose an AID system, but really preferred the form factor of Omnipod.

So we'll see where it settles in, in the coming quarters. But again, it's really an exciting development that we're getting these two pump conversions..

That's great. If I could just pick up on the question around 2023 revenue growth. And it is really, as Jim, Bret said, AID is the difference maker and that shows up in the different growth rates between the regions. For U.S., we've got a lot of momentum.

Obviously, as Jim and Bret just said, and we had in the prepared remarks, we're seeing increased demand with MDI as well as conversions from our existing customers, legacy product and then the competitive switches here. So a lot of momentum in the U.S. I think the way to think about 2023 -- we'll just give some color here.

We're not going to provide guidance. We'll do that in our Q4 call in February. But some color to think about at this point is U.S. carrying a lot of momentum. We should see larger dollar growth in 2023. Need to normalize that for a couple of the volume benefits we've seen here in Q2 and Q3.

And that should settle us out to start right now in that low 20% growth range for the U.S. And then as you said, OUS without AID, we're thinking about really consistent. We think we'll continue to grow really well with DASH in the markets that we're in. We are bringing Omnipod 5 midyear or to start to bring it to our international markets.

That rollout will continue through 2024. But where that puts us for international is high single digits, low double digits range. I think it would be a good place to start for now. And of course, both those regions we'll be monitoring here throughout Q4 and getting more confidence in some of these really dynamic metrics, as Bret just highlighted.

So we get a lot of things changing pretty dynamically with Omnipod 5. So we'll monitor those see where they shake out and put our guidance in place for 2023. And then Drug Delivery, just to hit that as well. At this point, we would expect drug delivery to do about the same decline next year as it did this year.

So that will put us in kind of that mid-$20 million range, about a $25 million to $30 million reduction year-over-year. That's what we're experiencing this year, and we would think about the same next year. So that sets us up for some color on 2023. But as I said, we'll provide the official guide when we get to February next year..

And I show our next question comes from the line of Robbie Marcus from JPMorgan..

Yes. And congrats on a great quarter. And Wayde, thanks for the very nonspecific guide for next year. I think that will help get models in a good place. As we think about some of your competitors, they talked about lots of macro headwinds and upfront cost to the patient, and you clearly have a very different business model.

But I was hoping you could just give us the latest on what you think the actual out-of-pocket is on average for patients for Omnipod in the U.S. versus MDI and basal? I don't know if it's a different price point yet and what you've disclosed there or willing to disclose. And the average monthly cost for a basal patient.

And is it materially different outside the U.S.

just as we think about some of the macro headwinds and headwinds some of your competitors are facing?.

Robbie, I can take that one. This is Bret. So as far as the macro trends in the field, we're not feeling it. We're in the midst of an Omnipod 5 launch, demand is incredibly high. The team is excited and patients are wanting to started out 2.5.

I can't say that we're feeling any of the effects of a lingering COVID or any sort of macro inflationary recession-type concerns. But as you mentioned, our business model is different. And we've spent years planning a scalable, affordable business model that would allow for patients to upgrade from existing Omnipod products and start.

And so we've got very low co-pays that remained below $50 on average, with the vast majority of all co-pays in the pharmacy channel being less than $5. We've said that with DASH and really the Omnipod 5 co-pays almost mirror DASH exactly where we price Omnipod 5 at parity.

You've got added to the contracts with payers and pricing is very similar as far as out-of-pocket goes for our users. As far as basal-only pod, I don't know if that's the question you're asking about out-of-pocket and co-pays. We're not there yet.

We'll be building reimbursement and having discussions with payers now that we've mentioned this basal-only pod. But we do have some basal usage with our existing products, primarily DASH is type 2 axis. It's very good for DASH, and they'll take DASH, they'll customize it and use it as a basal-only pump.

And that reimbursement is the exact same for type 1s and type 2s for basal and for insulin intensive. So more to come on the commercialization plans of our basal-only pod, but we'll be building reimbursement next year with that product..

And I show our next question comes from the line of Margaret Kaczor from William Blair..

I wanted to follow up, I guess, in more detail even on that basal specific pump.

What are the features that we're going to look for there? Is this a mechanical pump? Is this a smart pump? Is it going to have the closed-loop features? Is this going to be maybe in the pivotal Type 2 trial or not? Or is it going to be a separate trial together?.

Margaret, it's Bret. So we're excited to start to share more about the basal-only pod. Jim mentioned at the beginning of the call some of what we're excited about. And that is although we've got access today and some basal-only users will use a product like DASH, it was not built for basal-only usage.

And there's a lot of complexity in pumps, and we want to take that complexity away for anybody that wants to start on a basal-only pod. So as Jim mentioned, it won't have a controller. That's very key because a lot of the complexity with pumps is around settings. There are no settings with a basal-only pod.

So it's going to be designed and for the basal-only user, whether that's in endocrinology, primary care, it's focused on simplicity. And so we'll start to share more about what its form factor looks like. As Jim mentioned, we'll be submitting this product to the FDA in the coming days.

And we're just excited to start educating you on what it's all about, and we'll do that in the future.

But do want to highlight how excited we are to capture patients at the moment they need insulin, the moment they need an injection so they can avoid ejections altogether throughout their life on Omnipod-like products as they progress in their type 2 diabetes..

Yes. In fact, I'll just tag on to Bret's comments. That's a key thing for us in terms of growing the TAM. We obviously -- we have the leading offer right now for patients with type 2 diabetes with Omnipod DASH, as Bret just referred to. But with the basal-only pod, we'll be getting much earlier and much further upstream into the journey of patients.

And because it will be the same core Omnipod platform as a product, patients will get used to using our Omnipod product. And then as their insulin needs change, it creates the pathway for them on to our other offerings. So it's a great experience for patients. We're going to dramatically simplify the use of basal insulin for those type 2 patients.

And then those customers as they progress in their therapy will have a natural pathway and/or other offerings..

And I show our next question comes from the line of Larry Biegelsen from Wells Fargo..

I'll echo my congratulations on a really strong quarter here. Wayde, I wanted to focus on the U.S., the $60 million, I think, in onetime items in Q3, do you expect more in. And I'm trying to reconcile, if I back that out, we, I get to about 33% growth in Q3, ex onetime items, why are you guiding to 27% to 30%, for Q4 a little bit slower.

And how do we put that into the context of the 2023 color you gave, if I heard you correctly, low 20% range for U.S.

Omnipod growth next year, given the Q4 guidance that you've given?.

Yes. You bet, Larry. So just starting with this volume that we got -- additional volume we got around Omnipod 5. As we mentioned in the prepared remarks, is some of it is timing because we only had Omnipod 5 in full market release for 2 months out of the quarter.

And when people -- when some people start on Omnipod 5, as it turns out a good percentage of them ended up getting their starter kits as well as their first refill order in the quarter. So that gave us some additional volume.

And then we also had some retail pharmacy stocking that is going to happen over time as more and more retail channels start to stock the product. So those are the 2 drivers of additional volume in the quarter. Your question on whether we think that will continue in Q4. We're going to monitor it very closely.

We've got a lot of scenarios here of how this could play out. What we're anticipating in the guide, and that could push us either to the high end or the low end is how many of these people either wait a month to get their next script. Some people may order in the middle of the month or some people may immediately just get their next script.

And so we're going to have to watch some of these dynamics and see if this volume can continue into Q4. And so just a lot to monitor, a lot of changing dynamics with Omnipod 5. We're very happy to get the volume here. At the end of the day, we are a volume business in the pharmacy channel.

We're doing a lot to drive volume, both increasing access as well as all the things we're doing around innovation and awareness as well as the clinical work we're doing. You saw us announce this quarter down to H2, doing a lot of things to drive volumes here.

And so we're really excited at the front end to be in the first -- just the first 2 months, and we're going to monitor this. We do think we'll get the benefit in Q4 as well. But should be somewhat offset by those people in Q3 that either take a little bit longer or take a whole month to place their next order.

And then, Larry, you talked a little bit more about the Q4 guide. If you normalize for these volume benefits, then you're right, we are in about low 30s growth rate here on a normalized basis for Q2. And then as you look forward to Q4, we certainly have a much tougher comp. We had a significantly very strong quarter in Q4 last year.

So we have to keep that in mind. And then, of course, we're at the front end of Omnipod 5. And so we don't want to get out in front of that. We're going to continue to monitor it, but we're really excited to see what can happen in Q4. And then as I mentioned, the key for 2023 is law of large numbers.

We're planning for growing the dollar growth of the business in 2023, and that settles us out in that low 20s. And I think that's a good place to start. Again, we're not guiding.

We're just trying to give some color, and we'll give our official guidance in February next year, which will give us another whole quarter here in Q4 and the start of Q1 to really understand some of these changing dynamics..

And I show our next question comes from the line of Caitlyn Cronin from Canaccord Genuity..

This is actually Kyle on here. The one question I wanted to talk about was specifically moving into more of a type 2 focus. I mean, obviously, you have a business now.

We've seen some of your other diabetes technology partners when they've gone more meaningfully into the basal market, they made some commercial changes or a commercial shift in focus, adding salespeople, things of that sort.

Just Bret, I wondered how we should think about the state of the sales force now with respect to the type 2 market and maybe the investments you'll need to make over the course of the next 12 to 24 months when you bring the basal-only and then eventually an AID for type 2?.

Kyle, thanks for the question. So we've got a really strong type 2 offering today, as you know, with access that mirrors type 1 in the pharmacy channel. So start there. Got a really good product with DASH. It's got an indication for all insulin requiring patients, great coverage.

We're going to add to that offering with getting an indication for Omnipod 5 as we've started that trial, that clinical. And we're going to add the basal-only pod in 2024. And we think what that does for us is it does allow us to capture patients at the moment they need insulin.

It's too early to say what the commercial model will look like for that product. But we know we can capture some of it today with just the existing sales force and team that we have as many of those patients do reside in endocrinology and we do call on a small number of primary care physicians with the existing sales teams. So more to come there.

I think it does just depend on how quickly we can build reimbursement, how quickly that launch goes and then how we start to think about primary care and capturing patients where they reside. But we'll talk more about that probably later in 2023. There's a lot to consider there. It's really exciting.

It more than doubles our TAM, with more than 3 million patients in the U.S. that are basal-only. So we're excited about it, and there's a lot to consider as far as how we commercialize it in 2024..

And I show our next question comes from the line of Jayson Bedford from Raymond James..

Just 2 questions that require quick answers. On the '23 guidance, just kidding, Wayde. I know it's not guidance, but just what's the expected FX impact on revenue? And then second, on the basal-only pod, you mentioned submitting in the next few days, but I think your commercialization not until '24.

So one, I just want to know, is it a 510(k)? And second, why the big gap between selling and commercialization?.

Eric, you bet. Happy to talk about the '23 color that we're providing to help everyone here before we get the guidance, Jayson, that's on a constant currency basis. And so obviously, not going to be factoring in where we think FX is going to go at this point.

So just think about the color there on a constant currency basis and then I don't know if you want to talk to Basel, to.

So on Basel, yes, it is a 510(k). we were submitting it imminently. Just a couple o. We don't want to get out in front of time lines on approvals. So we don't want -- don't want do that publicly. We'll let you guys know as we get approval and what we're going to do. And then as Bret was saying, there's work to be done on the commercialization plan.

And I think the reason for that is it's a new-to-world offer. It's not a new pod. It's an Omnipod platform built on our core offering. But the patient set is new, the channel might be new. The call points might include new call points. There's just a lot to consider in the commercial offering that we need to work through.

And so we don't want to jump the gun on talking about these things until we have more certainty..

And I show our next question comes from the line of Steve Lichtman from Oppenheimer..

Just a couple of quick follow-ups.

One, can you give any more color on timing of iOS? And two, relative to basal-only, I apologize if you mentioned this, but do you anticipate that being a lower COGS device given maybe a different price point as you go into that channel?.

So we'll start with IOS, the iOS, that work is proceeding, as we said last quarter, we're really confident in what we're building there. Our teams have tested it. We've had it out of testing on sample customers. And we'll give you more update as we get closer.

That's another one I don't want to jump the gun on and it's our practice to not talk about those dates until they're right in our hands. And so but we're very confident that our iOS offering is going to be very strong, And we want to get it to market as quickly as we can.

On the basal pod, I'll just say that -- maybe you can -- maybe the guys can remind me of the question.

Sure. On the pricing and pricing, which we're not..

We're not ready to talk about pricing. I will say about the basal pod is that because it's based on our core Omnipod platform, it has all the same IP wrapped into it all the same IP protection. What's different about it is that it's basal-only. And so it doesn't take a controller. It has a basal rate built into it.

It makes it really simple for -- just to give you some color to what we're picturing here. It's because it's the Omnipod with the auto insertion, it's really easy to put on anybody has a needle phobia. Look, I'm needle phobic, right? And I warn the Omnipod, I can't fill go in. And that's what we're going for here.

Is anybody that is on basal-only therapy and has to do daily or with the injections who has needle phobia doesn't really want to do that. And the beauty of this basal-only pod is it's going to make that insertion really easy and then allow the customer to get their basal rate on a continuous basis over 72 hours.

It's very disruptive -- and it's -- we think it's going to be an extremely simple experience and really change and potentially lift should have a huge benefit to their care and a huge potential benefit to payers. But there's a lot to be worked through. So we're not going to talk about pricing. We're not going to talk about COGS and those things.

We'll give you guys more detail as we get closer..

And I show our next question comes from the line of Chris Pasquale from Nephron Research..

Couple of more questions about the basal pod. It sounds like a very exciting opportunity.

First, what percentage of basal patients have reimbursement coverage for Omnipod today? Are you going to be able to piggyback on that or you have to start from scratch with the new product? And then second, there's obviously a lot of focus on CGM adoption in this population.

Is there any potential benefit to having the Pod and the CGM sensor talk to each other in this population, these patients need to titrate insulin rates as their disease progresses or anything like that? Because it sounds like what you're talking about here is more the B featured offering..

Yes. Chris, great question. The reimbursement today for basal-only patients, the answer to that is there really is no difference between insulin-intensive type 2 patients and basal patients as far as reimbursement goes. However, Omnipod was not built with basal only in mind.

And so while there are some patients using it for basal only, just wasn't really built that way. And again, there's complexity with PDMs, there's complexities with settings.

And so if you're going to use a product like DASH today, although it's reimbursed, you effectively have to kind of program DASH to say, look, we're going to get rid of all the mealtime features, a lot of the features and just use it as a basal-only product. So not ideal for basal-only wasn't built that way.

It does seem complex some to like a primary care physician, that simply wants to write a prescription, which is what they would do with basal-only pod. And so while the reimbursement is there, we plan on changing it because it will be a different code. And so it will be a different reimbursed rate at a different price.

We just haven't -- we're just not ready to talk about that. We've got work to do before we get confident in talking about what that will be, what we'll contract for. As far as the CGM goes, that's a lift for us because, as you know, CGMs provide the user with tremendous information that requires them to act. It shows physicians' time and range.

And that's going to be really valuable for driving demand for a product like basal-only pod, but our initial thinking is we really don't want those 2 products to speak to each other because it does add complexity as you mentioned. And so the thought on basal-only pod to keep it as simple as possible as featured as possible.

We want a position to write a prescription and that really is it. And so that means no communication with no reports, no settings. That's what we're thinking about today. And we think that's the best way to go broad and capture that marketplace..

And I show our next question comes from the line of Matthew O'Brien from Piper Sandler. I show our next question comes from the line of Marie Thibault from BTIG..

In your comments, you mentioned that current Omnipod users are converting to Omnipod 5 at a much higher than previous launches. I'm just curious what portion of that installed base has converted at this point? And what portion you think could eventually convert over time? And congrats on the great quarter..

Marie, it's Wayde. I can start that one, and then I'm sure Bret or Jim might want to jump in. So given that we're just in the first couple of months of our full market release, we are just getting started here.

So we have seen -- just like in all the channels, we mentioned the competitive switches as well as MDI conversions of existing Omnipodders has also been incredibly strong even just in the first few months and tracking them through their journey coming to Omnipod 5.

So the way we're thinking about this right now is if we continue to see accelerated rates of conversion -- converting customers, it will probably last throughout 2023. And the majority of them should be through in 2023.

But again, in the first couple of months here, we're going to be watching this as we are with many of these different dynamics to these really strong converting trends continue after the first couple of months or do they ebb and flow over the next few years.

But if we continue with these trends, we should have most customers converted by the end of 2023..

And our next question comes from the line of Matthew O'Brien from Piper Sandler..

Okay. Great. So I would love to kind of follow up a little bit on, I think what Marie was talking about as well, but more on the competitive pump side of things because that was really new information and the shift so quickly is kind of startling.

So is it a function of the more legacy provider in the space that you're really being successful? Is it both of the big players there? And then can you talk about how that momentum has built or built throughout the quarter? And your thoughts on continuing to drive into a competitive pump share over the next several quarters and years. ..

Thanks, Matt. Look, I think as we said earlier in the call, customers no longer need to choose. So a number of customers have forever been drawn to the great simplicity and elegance and ease of use of the pod form factor. And with Omnipod 5, we're offering a fantastic AID algorithm.

And so to get AID therapy and the preferred form factor, to get into the channel they want, to get it with the economics they want. And so it's actually not surprising to us to see a number of people switch from tubed pump offerings.

The offering is just so easy to use and it delivers great clinical outcomes, incredible ease of use and great economics. And so we've had -- we were pleased to see the rate of switching in the quarter. In terms of forward look, I think we're going to have to wait and see how it plays out.

But as I said earlier, I don't think that this -- the Omnipod 5 offering will become any less appealing either to customers coming from MDI or to customers who might be using the tooth pump who went there because they wanted an AID offer. So we're very confident in the robustness of the offer..

And I show our next question comes from the line of Matt Taylor from Jefferies..

I guess there's been a lot of questions on the U.S., which is looking great. I wanted to ask an international one. You mentioned a few catalysts there, obviously, the CE Mark, but some evidence development that's going on there as well to expand coverage.

I was just hoping you could kind of frame how you expect those kind of things to help your international growth next year and going forward?.

So on international, there's a number of things going on. We're very pleased to get the CE Mark. So that's no longer a hurdle we have to get over. We have CE Mark, and that's good to go for Omnipod 5.

As we've said before, what we're working on now in terms of Omnipod 5 launch is making sure that we have the right cloud infrastructure that delivers the right. If you think about the Omnipod 5 offering, it's a very holistic offering for customers.

So we want to make sure that we're delivering the full Omnipod 5 experience in the markets where we launch. And we also obviously have to be comporting both with European and with any local market data privacy and security regulations. And so that's work that's being built. We don't need the RCT that we talk about to do that.

So we'll be -- if I could just go back for a second to Omnipod 5 ex U.S., as we've said, we'll be launching in Europe in the middle of '23 and then we'll stage those launches to make sure that we have the right launch plan for each market as we cascade the second half of '23 into '24 and launch those markets.

The randomized controlled trial is designed to make sure that we have the right kind of clinical evidence to position Omnipod 5 appropriately in ex U.S. markets. And so we're confident that we're going to be able to demonstrate benefit of our AID algorithm and the pod form factor against non-AID pumps and CGM alone.

And that's where we're building evidence, which is a huge effort for us or a huge -- it's a huge emphasis for us to continue to build evidence for Omnipod 5..

And I show our last question in the queue comes from the line of Matt Miksic from Barclays..

And congrats on a really strong quarter. Just maybe a couple of comments -- questions around color on sort of tubeless and [indiscernible]. If you could maybe elaborate on your expectations for what percentage of people with diabetes in the U.S.

historically had been selecting tubeless pump -- your pump essentially in the past? And if you think that's changing and why? And then maybe just some color as to if the mix of your patient is changing in terms of age or folks coming in as staying or returning after leaving that kind of color would be super helpful. And congrats again..

Matt, thanks for the question. So as we sort of highlighted, we are the leader in driving penetration from MDI, and that has always been our focus. So the bulk of our new starts. And for us, a new start is the first time you start on an Omnipod product. We don't count renewals. We don't count other shipments.

If you start on Omnipod, new start once in your lifetime. And our focus has always been MDI, and that's where the 80-20 number has come from, where 80% of those new starts have come from MDI. This quarter, we did see that shift where only 60% came from MDI because we had a bolus of people coming from 2 pumps that we hope continues.

And the other -- we've also been the leader in pediatrics. I think you're kind of asking about where our customers come from. Pediatrics has always been our strength. If you think about the form factor of Omnipod 5, very attractive to parents and to children.

We lost a little bit with the lack of an AID system where parents were actually forced again to make that decision between the form factor that's perfect for pediatrics and an AID system. Now they don't have to make that. So we did see a lift, a significant lift in pediatrics as a percentage of our new starts this past quarter.

We're excited about that. Those are patients that are newly diagnosed that we want to start on Omnipod and want them to use our products for life. So excited about that trend, excited to be beginning to get competitive to pump users. And I think you asked sort of about people coming back.

And as Jim highlighted at the beginning of the call, we did see thousands of people this past quarter have come back to Omnipod. So they left us for a reason. Likely that was an AID reason and the lack of. And so with Omnipod 5, they're coming back to that product.

We've seen attrition be very stable, and we're excited about what Omnipod 5 does to strengthen retention with our existing users..

Thank you. I'm showing no further questions in the queue. This concludes our Q&A session. At this time, I would like to turn the conference back over to Jim Hollingshead, President and Chief Executive Officer, for closing remarks..

Thanks, Dalam, and thanks, everyone, for joining us today. These are incredibly exciting times at Insulet as Omnipod 5 is out in the market transforming diabetes management for thousands of people, and that number keeps growing.

And we could not be more excited to further expand our addressable market with our new innovation in Type 2 for the type 2 community with our basal-only pod. We've got an incredible team, and with significant momentum and to continue to execute on our mission. Thank you, and have a great evening..

Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect..