Earnings Call Transcript
INSULET CORP (PODD)
Earnings Call Transcript - PODD Q1 2021
Operator, Operator
Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation First Quarter 2021 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Deborah Gordon, Vice President, Investor Relations.
Deborah Gordon, Vice President, Investor Relations
Thank you, and good afternoon, and thank you for joining us for Insulet's First Quarter 2021 Earnings Call. With me today are Shacey Petrovic, President and Chief Executive Officer; and Wayde McMillan, Executive Vice President and Chief Financial Officer. Both the replay of this call and the press release discussing our first quarter 2021 results and 2021 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 EBITDA in 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 rates, which will be on a year-over-year constant currency basis. With that, I'll turn the call over to Shacey.
Shacey Petrovic, President and CEO
Thanks, Deb. Good afternoon, everyone, and thank you for joining us. We are off to a strong start to the year, with first quarter revenue growth of 24%. Both our U.S. and international diabetes product lines achieved solid results with total Omnipod growth of 19%. We are on track to deliver another year of double-digit revenue growth. We have sustained momentum across our business, and we are preparing for the highly anticipated launch of Omnipod 5. We continue to execute at a high level, which speaks to the strength of our team and our deep commitment to Insulet's mission to improve the lives of people with diabetes. During the first quarter, we advanced each of our strategic imperatives, including expanding access and awareness, delivering consumer-focused innovation, growing our global addressable market and driving operational excellence. Let's begin with access and awareness and how Omnipod remains well positioned to further eliminate access barriers and displace legacy therapies. The progress we've made to date is largely due to the differentiated customer experience Omnipod provides, our tubeless form factor, simple user interface, unique business model and expanding presence in the U.S. pharmacy channel. There are millions of people around the globe living with diabetes, and yet this population is critically underserved. There are far too many people that either don't have access to Omnipod, are unaware of our product, or in some cases, both. This must change as Omnipod can simplify lives and deliver improved outcomes. The value Omnipod provides is clearly demonstrated by our ability to drive new customer growth from multiple daily injection users in the type one and type two segments. Approximately 80% of our new customers switch from MDI to Omnipod. Additionally, in the first quarter, between 35% and 40% of our new U.S. customers were type 2. Much of this growth has been driven by Omnipod DASH, which offers tremendous benefits compared to existing therapies. As a result, we continue to transition a growing percentage of our U.S. pod volume through our pay-as-you-go model in the pharmacy channel. This provides increased access for customers, low co-pays and no upfront costs or multiyear lock-in periods. It simplifies access, making Omnipod easier to prescribe for physicians, provides a number of benefits to payers and drives our recurring revenue. Today, our technology and form factors stand at the forefront of innovation, while our U.S. pharmacy channel and pay-as-you-go business model are eliminating long-standing access barriers. This combination uniquely positions Insulet to further penetrate both the type one and type two insulin intensive markets. By the end of Q1, we had secured coverage for over 75% of U.S. covered lives for Omnipod DASH, and the majority of our new customers across the globe start on Omnipod DASH. At the same time, we are focused on expanding Omnipod awareness, given the diabetes market is large yet critically underserved. Last year, we launched our direct-to-consumer advertising campaign in the United States. The reaction to date has been positive, and we have already started to see incremental new customer starts. We have also begun to pilot DTC in the United Kingdom. It is early days for both our domestic and international campaigns. But we know there is tremendous opportunity to help more people across the globe learn about the life-changing benefits of Omnipod. Driving access and awareness are core components of our growth strategy and complement our commitment to delivering market-leading innovation. We believe the combination of enhanced access and superior innovation improves outcomes and makes living with diabetes or caring for loved ones less burdensome. All of this has resulted in consistently strong Omnipod adoption and customer retention and a global customer base that surpassed 0.25 million people in Q1. We accomplished this despite not having an AID product in the market, and this will soon change with our Omnipod five automated insulin delivery system, which we believe is the future of insulin delivery. Omnipod five unlocks a new level of freedom and simplicity through easier insulin management and significantly improved glucose control. The number of firsts Omnipod five brings to market is compelling. It is the first tubeless, entirely wearable AID system with a personalized, adaptive on-target algorithm embedded in every pod. This means there is no need to disconnect or interrupt therapy other than the few minutes it takes to change a pod every three days. This is critical as interruptions in continuous insulin delivery lead to suboptimal outcomes. Managing diabetes will be easier and more discrete as Omnipod five customers will have complete smartphone control for all system functions. At launch, we will offer full control from personal Android smartphones and every customer will also receive a controller that includes a SIM card. This marks another important distinction between Omnipod five and other options available in the market. No other AID system offers real-time connectivity, even when not near Wi-Fi, and real-time remote monitoring through SIM and personal phone control. Omnipod five users will always be able to view their data on their smartphones and loved ones will always be able to know how their users are doing in real time on the Omnipod five VIEW app. Omnipod five is the only system with customizable glucose targets for different times of day and also a hypo protect feature that can be used in times of greater hypoglycemia risk. Additionally, our AID system is the only one to provide a smart bolus calculator that recommends more or less insulin based on a user's CGM trend, not just the CGM value alone. All of this while maintaining the same form factor our customers love. We are confident that Omnipod five will mark a major improvement in quality of life and diabetes management. In the U.S., Omnipod five will be available only through the pharmacy channel. We'll utilize our unique pay-as-you-go model and will be priced at parity with Omnipod DASH. As a result, the low monthly out-of-pocket costs for Omnipod five should be comparable to both Omnipod DASH and MDI. Like Omnipod DASH, we expect the majority of Omnipod five customers in the U.S. to have a monthly pharmacy co-pay of under $50. In addition, through our 30 Days of Freedom trial, anyone can try Omnipod five free for 30 days. Our goal is to quickly secure broad affordable coverage and expanded access. We believe the broad coverage we have established for Omnipod DASH will continue to serve as a major competitive advantage and a strong foundation for our efforts to drive access to Omnipod 5. Although Omnipod five has breakthrough device designation and the FDA has been incredibly supportive and collaborative throughout its review process, the clearance timeline is taking longer than we had anticipated. The feedback we have received to date has been in line with our expectations, and we remain optimistic that we will receive Omnipod five clearance by the end of June or shortly thereafter. But given the current environment and the associated lengthened review time, clearance could shift into the second half of the year. As a result, we now expect to begin our limited commercial release in the second half of 2021. We do not expect this will have a material impact on revenue guidance, and our internal teams are certainly not standing still. We are building Omnipod five inventory. We are developing commercial launch materials and testing our systems and processes, and we are securing coverage for Omnipod 5. Our teams are geared up for what we fully expect will be the best technology and customer experience on the market and a wildly successful launch. The value Omnipod five offers to people with diabetes was clearly demonstrated via the impressive pivotal data we shared in March at ENDO 2021. Our pivotal study included children and adults ages six to 70. Compared to standard therapy, Omnipod five achieved significantly higher time in range and improved A1c while maintaining or lowering hyperglycemia. After three months on Omnipod 5, 53% of children and 66% of adults achieved an A1c of less than 7%. Time in range for children increased 16 points to 68%, while time in range for adults and adolescents increased nine points to 74%. Additionally, time in hypoglycemia was reduced for adults and remained very low in children. Omnipod five will offer meaningful value for individuals living with diabetes as well as for their families, physicians and payers. It's a clear testament to our innovation team that we were able to achieve this very competitive time in range while also delivering the strongest published hypoglycemia performance. We have additional Omnipod five abstracts accepted for presentation at upcoming diabetes conferences in June. These address a number of important areas, including performance in preschool aged children, the transition from multiple daily injections directly onto Omnipod five and quality of life outcomes. Also on the clinical front, we had impactful domestic and international data recently published in several leading peer-reviewed diabetes journals. Collectively, the results shared in these publications demonstrate that Omnipod can drive improved outcomes across a broad range of people living with either type one or type two diabetes. These improved outcomes span multiple age groups and disease states as well as people coming from different forms of therapy. We continue to invest clinically and have a compelling roadmap, including our work to expand our Omnipod five indication to preschoolers down to H2 and to secure a type two indication. The first phase of our preschool study is complete, and we are progressing well through our planned 12-month extension phase, which allows us to collect longer durable outcomes and allows our trial participants to continue on Omnipod 5, which they all elected to do. Additionally, our type two feasibility study is now fully enrolled and the results are illuminating. During ENDO 2021, Dr. Bruce Bode presented early data from our type two study that showed encouraging results for Omnipod 5, with time in range that more than doubled in the first eight weeks. The type two diabetes market offers tremendous opportunity for Insulet, and we will continue to innovate to further penetrate this largely underserved population. The depth and breadth of the clinical data published and presented in just this last quarter demonstrates our commitment to building strong clinical evidence that supports how Omnipod will continue to improve outcomes for people living with insulin-dependent diabetes. We continue to advance our pipeline, and we look forward to sharing additional clinical data in the future. Omnipod five is our top innovation priority. However, we are diligently working to advance a robust pipeline that extends well beyond. We know that our success over the long term requires leadership in critical areas such as software development, data science and other core competencies. This includes the integration of Omnipod five and our future products with next generations of products by Dexcom and Abbott. Beyond Omnipod 5, we have begun product development on innovations that we believe will offer significant value to people living with both type one and type two diabetes. Moving to global expansion. We are expanding access and awareness of Omnipod in a number of attractive markets. Last year, we entered five new countries within Europe and the Middle East. This quarter, we expanded into Turkey, and we continued to gear up for an expected launch in Australia later this year. Our international expansion efforts will drive access to a huge global addressable market. Across our current footprint, we estimate there are 11 million to 12 million people living with insulin-dependent diabetes. We see attractive future expansion opportunities that will further grow our total addressable market and bring our technology to people living with diabetes around the world. The international launch of Omnipod DASH has been highly successful and work is underway to bring Omnipod five to our international markets. Lastly, we continue to invest significantly in our global manufacturing operations. We are well positioned to meet growing consumer demand for Omnipod DASH as well as the commercial launch of Omnipod 5, our broader innovation pipeline and our future international expansion plans. Operational excellence is one of our key strategic imperatives that is enabling growth today and will do so well into the future. As part of this strategy, Insulet is committed to responsible and sustainable growth. We have developed a comprehensive sustainability strategy that builds upon our existing capabilities, provides value to our stakeholders and considers the most important ESG issues that affect our business, society and planet. We recently published our 2020 sustainability report, which outlines our commitment to addressing important ESG issues and highlights our key priorities. All of us at Insulet are dedicated to business resiliency and responsible business practices that help our customers, our employees and our communities thrive. In closing, we are off to a strong start in 2021. We expect to deliver another year of double-digit revenue growth, launch Omnipod five, and advance our innovation pipeline to continue to bring life-changing innovations to people with diabetes in order to simplify and improve their lives. I'll now turn the call over to Wayde.
Wayde McMillan, Executive Vice President and CFO
Thank you, Shacey. We continue to execute at a high level and look forward to the limited market release of Omnipod 5. Our strategic imperatives are supported by continued investments across our business to drive long-term revenue growth and margin expansion. We delivered a 24% revenue growth in the first quarter, achieving the high end of our guidance range, driven by strong total Omnipod growth of 19%. As we previously discussed, the pandemic's impact on global new customer starts in 2020 will have a compounding impact in 2021, primarily in the first half. While the pandemic is persisting globally with ongoing challenges mainly throughout Europe and Canada, we are navigating them well and driving continued growth. In the U.S., our new customer starts were a record for any Q1 in our history, and second only to the very strong Q4 we achieved last year. We accomplished this while also driving strong international performance. In Q1, we delivered U.S. Omnipod revenue growth of 23%, benefiting from our growing customer base, Omnipod DASH adoption and ongoing mix benefit as we shift volume into the pharmacy channel. Omnipod DASH continues to ramp and drove over 70% of our U.S. new customer starts. In addition, we grew pharmacy channel volume to approximately 45% of our total U.S. volume. This is up significantly compared to last year, representing a meaningful increase and contributing to our top line growth. Expanding our presence in the U.S. pharmacy channel remains a key strategic imperative as we plan to drive increased access for Omnipod DASH and Omnipod five once launched. International Omnipod revenue grew 13%, ahead of our expectations. Performance was driven primarily from our expanding customer base and ability to navigate through COVID-19-related challenges. The full launch of Omnipod DASH throughout our international markets last year is helping to drive growth this year as the majority of our international new customers start on Omnipod DASH. Omnipod DASH continues to generate physician interest and drive hospital access. To a smaller degree, international Omnipod revenue in Q1 also benefited from the timing of PDM orders, which can vary from quarter-to-quarter given our distributor channels. We are also pleased that our global attrition and utilization once again were stable this past quarter. Drug delivery revenue more than doubled in line with our expectations. Growth was unusually high due to increased product demand this year versus the low production levels last year, which resulted from a slower than typical manufacturing startup. Both of these drivers were due to the COVID-19 pandemic. Gross margin was 66.4% in the first quarter, representing a 230 basis point increase or 120 basis point increase on a constant currency basis. Our gross margin expansion was driven primarily by improved manufacturing operations and supply chain efficiencies, the ongoing benefit as we transition more volume into the pharmacy channel in the U.S. and a decrease in COVID-related mitigation costs. Partially offsetting these increases were the expected higher mix of costs as we continued to ramp U.S. manufacturing. Operating expenses in the first quarter were $151 million, primarily due to our investments to support our innovation pipeline development efforts and the upcoming launch of Omnipod five as well as our broader direct-to-consumer advertising. Operating margin was 6.5%, up from 3.8%, and adjusted EBITDA margin was 14%, up from 12.3%, all were in line with our expectations. Overall, we're off to a great start in 2021 as both our diabetes product lines generated record performance, and we continued to invest across our organization to support our growth strategies and drive future expansion. This includes increasing advertising to drive brand awareness, and strengthening our commercial and R&D resources to support Omnipod five and our innovation pipeline as well as geographic expansion. Turning to cash and liquidity. We remain in a strong position with our earliest debt maturing in 2024 and low cash interest expense. We ended the first quarter with $850 million in cash and short-term investments. We recently completed a $500 million Term Loan B financing as well as a separate $60 million revolving line of credit. Our goal over the long term is to strengthen our access to traditional capital market financing, diversify our capital structure and over time, drive our gross leverage ratio down to five times bank EBITDA. This marked our first step and an important one in that direction. We plan to use the Term Loan B financing to pay down a portion of our outstanding convertible notes due 2024. This will lower our cost of capital while also maintaining flexibility to pursue future strategic investments. Now turning to our outlook for the remainder of this year. We are raising the low end of our full year revenue guidance to 16% to 20%, up from prior 15% to 20%. This includes raising the low end of total Omnipod revenue guidance to 18% to 21%. In the U.S., we are raising the low end of full year Omnipod revenue growth to 22% to 25%. This will be driven primarily by Omnipod DASH volume growth, the benefits of our efforts to drive expanded access and awareness, our differentiated pay-as-you-go model, and the mix benefit we realized in the pharmacy channel. Also driving growth is our expectation for further Omnipod customer adoption in both the type one and type two markets. We also expect growth will benefit to a lesser degree from the limited market release of Omnipod 5. For international Omnipod, we are raising the low end of full year 2021 guidance to 11% to 15%. In the near term, we continue to expect our international business to be impacted by the pandemic and related challenges, combined with the compounding impact on new customer starts from 2020. With that said, we are encouraged by the adoption rates of Omnipod DASH and our plan for driving expanded market penetration internationally. Lastly, we are reaffirming our revenue expectations for drug delivery in the range of an 11% decrease to a 4% increase. Turning to gross margin. We continue to expect full year gross margin in the range of 67% to 70%. Our gross margin expansion drivers remain the same: increased scale and efficiencies provided by our global manufacturing operations and positive mix from the continued volume shift into the U.S. pharmacy channel. We also benefit from a planned reduction in COVID-related mitigation and safety-related costs. We continue to expect operating expenses will largely rise in line with revenue growth this year as we invest in consumer-focused innovation and best position ourselves for increased market penetration. This includes investments in our sales and marketing teams ahead of the launch of Omnipod five and to support our international market initiatives. As a result of our strong revenue growth, combined with gross margin expansion and the investments we are making across our business, we are reaffirming operating margin for full year 2021 in the low double-digit range, up significantly from 5.7% in 2020. We expect operating margin will improve sequentially throughout the year. Lastly, we continue to expect capital expenditures to increase in 2021 as we further invest in our global manufacturing operations and strategic imperatives to support our strong growth expectations. Turning to our second quarter 2021 guidance. We expect total company revenue growth of 10% to 14%. This includes total Omnipod revenue growth of 14% to 17%. We expect Q2 U.S. Omnipod revenue growth of 17% to 20%, driven primarily by our growing customer base fueled by Omnipod DASH volume growth and the mix benefit we realized in the pharmacy channel. As a reminder, Q2 growth is impacted by the tough prior year comparison where we experienced a net impact of estimated distributor channel and end customer inventory levels at the start of the pandemic. We expect international Omnipod revenue growth of 10% to 13%. This reflects the ongoing growth in our customer base from increased Omnipod DASH adoption, partially offset by the headwind of lower new customer starts in 2020, stemming from the pandemic as well as the continued pandemic impacts throughout many of our international markets. Also, the benefit in Q1 from the timing of Omnipod DASH PDM orders is not expected to occur again in Q2. We also expect drug delivery revenue to decline 16% to 24% due to the normalization of order volumes in the current year as compared to elevated levels in the prior year due to the pandemic. In conclusion, we are off to a strong start in 2021. We remain on track for robust revenue growth and operating margin expansion continue to advance our strategic imperatives and are in a solid financial position to continue to invest for growth. We are building a foundation for long-term sustainable revenue growth, margin expansion and increased value creation for our stakeholders. With that, we'll turn the call over to the operator for Q&A.
Operator, Operator
Our first question comes from Jeff Johnson from Baird.
Jeff Johnson, Analyst
Sorry, I was on mute. Shacey, I'd like to begin with a question regarding the timing for Omnipod 5. It seems there might be a couple of weeks of potential delay based on what we heard from one of your competitors concerning a mobile bolus app. I'm curious if some of these delays are related to the FDA being overwhelmed with COVID-related matters or perhaps overwhelmed in other ways. Are they hesitant about phone and mobile bolusing apps and phone control? I'm interested in what insights you have from the FDA regarding this delay, and how confident are you that it might be a brief timeframe, however you may define that?
Shacey Petrovic, President and CEO
Yes. Thanks, Jeff. Well, I think it's true. It's kind of an industry-wide thing. Like others, we are experiencing the longer-than-expected review process. I don't believe this is due to anything but just the workload, frankly, at the agency. And we're really sensitive to that. They have done an incredible job navigating through all of the challenges related to the pandemic. Our local team, our review team has been incredibly responsive and collaborative. And so we feel very good about where we are, we're in the final stages of this review process. And I don't believe that there's any sort of any other drivers outside of the workload tied to the pandemic. In fact, we gave ourselves quite a bit of buffer in the timeline. And so my remarks are really prompted by the fact that we're getting through that buffer. And so the review process is taking a bit longer than we expected. But we're in the final stages and feel good about where we are.
Operator, Operator
I show our next question comes from the line of Robbie Marcus from JPMorgan.
Robbie Marcus, Analyst
Great. Two for me. One, Wayde, I'd love to get a sense of after you gave guidance at the end of February on the fourth quarter earnings call, how the rest of third quarter trended? I know diabetes can sometimes have different trends than what we see across the rest of med tech in terms of procedure volumes? And then how it played out versus your expectations throughout the rest of the quarter?
Wayde McMillan, Executive Vice President and CFO
Robbie, that’s a great question because there are several dynamics at play, and diabetes has its own distinct characteristics. In the U.S., we noticed a shift in customer access and market conditions starting at the end of 2020. While we are still facing some pandemic-related challenges, things began to stabilize by the end of Q4 '20, and we recorded a 23% growth rate in this quarter. We previously mentioned that we expected to see more seasonality changes in Q1, particularly with the transition to pharmacy, but that didn’t happen as we anticipated. About 45% of our volume is now from pharmacies, yet we didn't see the expected impact. This is predominantly because customers still follow purchasing patterns influenced by the traditional diabetes market, often buying more in Q4, with various stakeholders like distributors and physicians tending to prescribe pumps at the end of the year rather than at the start. Therefore, it may take longer than anticipated for us to observe those seasonal trends. Looking ahead for the rest of the year in the U.S., we are very optimistic and believe we have a strong outlook for the second half as we start to gain momentum. It’s important to remember that we operate under an annuity model at Insulet. We began the year with record new customer starts in Q1 and a record Q4 in 2020, which together indicate that we are building momentum, reflected in our growth forecasts for the second half. In contrast, the situation internationally has been more challenging, with the pandemic continuing to persist. We faced longer and more difficult conditions through the end of 2020, which will have ongoing effects on our annuity model into the first half of 2021. Despite these challenges, we recorded a growth rate of 13% internationally. Our operations are concentrated in larger regions like the U.K. and France, which have experienced more lockdowns, complicating our teams' ability to engage with new customers. However, we are seeing encouraging interest in our new DASH product, providing opportunities for our teams to connect with physicians and customers. We anticipate that some challenges will continue into the second half, which is reflected in our growth expectations. Our highest growth rates could reach around 17%, while we aim for the high-teens to low-20s range. If the pandemic begins to subside internationally, we expect to return to those higher growth rates.
Operator, Operator
I show our next question comes from the line of Larry Biegelsen from Wells Fargo.
Larry Biegelsen, Analyst
Shacey, one on type two patients. This is the second quarter in a row, it was 35% to 40%. Do you see it stabilizing there? Or do you see it growing further? And secondly, how often are type two patients changing their pods? They tend to use more insulin? So are they doing it more frequently than every three days on average?
Shacey Petrovic, President and CEO
Yes, Larry, those are excellent questions. I'll address the first one. We haven't observed a noticeable change in utilization between type two and type one at the population level. This appears to be related to a reduction in the total daily dose of insulin. In fact, we shared some remarkable data in our press release from this last quarter, specifically regarding type two. The data was published in diabetes research and clinical practice, involving nearly 3,600 patients, and showed a statistically significant reduction in A1c, along with an impressive 32% decrease in total daily insulin dose. This was true for patients switching from multiple daily injections or previous pump therapy. This highlights the benefits of Omnipod and site rotation, among other factors, likely affecting the patient experience, which is why we haven't seen a broad increase in utilization within the population. It remained steady this quarter. Regarding your second question about type two, it was at 35% to 40%. It has actually increased each quarter, reflecting broader growth. It is likely growing faster than our total new customer base, which is also expanding rapidly.
Operator, Operator
I show our next question comes from the line of Marissa Bych from Morgan Stanley.
Marissa Bych, Analyst
This is Marissa Bych from Morgan Stanley. I just wanted to go back, Wayde, and I appreciate your commentary on the second quarter guidance and the ex U.S. COVID-19 impact is very understandable. In the U.S., it seems like the sequential growth that we're expecting for the second quarter versus the first quarter is a little bit lower than history, just based on pharmacy seasonality. Is that really the entirety of the story in the U.S.? Or is there anything else that we're missing in terms of COVID resurgences or really anything else?
Wayde McMillan, Executive Vice President and CFO
Yes, Marissa, you've captured most of it. I want to emphasize one point from my earlier remarks regarding the challenging comparison we face, largely due to the inventory build from last year in Q2 at the beginning of the pandemic, which affects our growth rate by about 5%. If we account for this tough comparison from last year, we would be in the mid-20s, even surpassing the growth rate from Q1. Additionally, as you noted, there are some dynamics between Q1 and Q2. The pharmacy channel is still new to us, and we are closely monitoring its development. Another perspective on Q2 is that at the upper end of our guidance, we anticipate a similar sequential dollar growth rate, $12 million, as we saw last year. We're also paying close attention to the pandemic situation in the U.S., as we are not completely out of the woods yet, although our teams are effectively managing the challenges. Our virtual training capabilities are proving beneficial in this context, and we remain optimistic about the vaccine rollout and overall improvements in the U.S. If we normalize the growth rate, this would position us in the mid-20s, with an implied growth rate in the U.S. for the second half that is mid to high-20s. Just as a reminder, in an annuity model, it takes several quarters to see a rise in new customer starts. Last year, Q2 was a low quarter for new customer starts, yet we still achieved 30% growth due to the momentum leading into that quarter. We are excited to build this momentum again, setting records for new customer starts. If we maintain this trajectory, we can anticipate growth rates aligning with our high 20% guidance for the second half.
Operator, Operator
I show our next question comes from the line of Margaret Kaczor from William Blair.
Unidentified Analyst, Analyst
This is actually Brandon speaking for Margaret. I wanted to follow up on the type two Omnipod five data. It's encouraging to hear that the data is looking positive. Could you provide more details on the next steps? Do the algorithms need adjustments for type two patients, or can we proceed with the current setup and collect more data if necessary? I'm trying to understand the next steps for type two and Omnipod 5.
Shacey Petrovic, President and CEO
Sure, Brandon. Thank you for the question. And yes, as I mentioned, this has been an area of focus for us. We're really excited about the early data that Dr. Bruce Bode presented at ENDO. And we believe that the data was very positive so far with our feasibility study. So we will take this data and if it remains positive as we close out the feasibility data, we will be able to move into a pivotal. But we'll sort of reserve the right to potentially make changes to the algorithm depending on the final results that we get out of our feasibility study. But so far, so good. The data is really encouraging to date.
Operator, Operator
I show our next question comes from the line of Jayson Bedford from Raymond James.
Jayson Bedford, Analyst
I apologize if this has been asked. I've kind of been jumping between calls here. And I don't mean to be critical with the question because obviously, the growth is impressive here. But you've developed a history of exceeding estimates. This quarter, I'd say it was at the high end but didn't necessarily exceed. Was there anything specific that you saw in the month of March that maybe you didn't expect?
Wayde McMillan, Executive Vice President and CFO
Jayson, it's Wayde. I can take that one. Well, first of all, international was above the high end of the range and the U.S. was right at the high end of the range. So there wasn't anything too much to really complain about, as you said. The one thing that was a little surprising to us is we were expecting some more favorable seasonality in Q1 in the pharmacy channel. Now that we've got 45% of our volume rolling through there. It was a small thing, but that was one thing that we are expecting to see. And we do think that will continue to develop, it just may take a few years to change behavior, not just for customers but all through the value chain. But other than that, as you know, Jayson, we've got a lot of new things going on in both regions, but in particular in the U.S., the pay-as-you-go model is still relatively new. Our move into type two is new. The DTC campaigns are new. Even DASH uptake is still accelerating for us. So as we think about guidance, we've got a lot of puts and takes, and we're very happy still dealing with the pandemic to print the 23% growth rate. On a dollar basis, I think the strongest of all the companies out there and we're continuing to expand our leadership position. And so I think as we're approaching $1 billion, our growth rates don't look as impressive as some others, but we're happy to be growing stronger on a dollar basis.
Operator, Operator
I show our next question comes from the line of Danielle Antalffy from SVB Leerink.
Danielle Antalffy, Analyst
This question, Shacey, is around the type two opportunity. And you guys have been so successful there. So I don't want to sound too greedy, but it feels like there's still such an untapped opportunity today, even with all the work you've done and all the success you've had at the primary care physician level. We've been doing a lot of work here and talking to primary care physicians. And it feels like they manage so many of these patients, there's still a lot of opportunities. So just curious if you could talk a little bit more about whether there's any special efforts towards the primary care physician, are you expanding your touch with the primary care physicians or just how you're going after that market from the physician level, I guess, versus patients.
Shacey Petrovic, President and CEO
Sure, Danielle, that's a great question and something we consider often. You're correct that our success in the type two population does not solely depend on Omnipod 5. For insulin-dependent type two users, we offer a compelling value with Omnipod DASH, evident in the adoption trends. We stand out in this area due to the simplicity of DASH, our strong market position, and our business model, which is reflected in the growth of that segment. Additionally, the clinical data released this quarter, which examined 3,600 patients and demonstrated a 32% reduction in total daily insulin dosage along with significant improvements in A1c, is extremely impactful. Moreover, we address a recognized compliance challenge for both clinicians and patients due to the form factor and simplicity of the pods. Overall, we believe that Omnipod can reshape clinicians' approaches to therapy for insulin-dependent type two patients, owing to our ease of use, user interface, and straightforward access and prescribing process. There are no upfront costs or lock-ins, and for physicians, the e-scribing process is very straightforward. Clinicians and patients can try Omnipod at no cost, which is designed to encourage changes in both physician and patient behavior, and we are seeing considerable success in the Endo offices. Furthermore, we are piloting new strategies in our messaging, education, and targeting physicians because we recognize the vast potential and our strong position in it. We are examining our direct-to-consumer calls to action and how we reach out to patients and clinicians. We are also exploring targeted outreach to primary care physicians and enhancing our training and support models. Ultimately, awareness among both insulin-dependent type two patients and their clinicians is vital to fully leveraging this opportunity. The good news is we are currently seeing significant success with Omnipod DASH in Endo offices, and there are even more exciting prospects ahead, both with Omnipod 5 and expanding into new physician segments.
Operator, Operator
I show our next question comes from the line of Joanne Wuensch from Citibank.
Joanne Wuensch, Analyst
I'm trying to get some timing on a couple of things regarding the pediatric label for Omnipod 5, the type two label for Omnipod 5, and the integration with Abbott's Libre. Can you provide an idea of when we might expect those approvals, perhaps by quarter or comparing the first half to the second half?
Shacey Petrovic, President and CEO
Well, the one thing that we have given a timeline publicly on is the pediatric label. And so all of our internal efforts on that front are on track. We have collected the data, finished the study, everything looks good, and we're getting ready to submit shortly to the FDA on that front. And so that would put us on track in a normal world, put us on track for a label expansion by the end of this year. Obviously, we do recognize, though, that we do have challenges today in terms of the workload and what the FDA is contending with. So I just caution everybody. We're on track on our end and working certainly hard to make that happen. We haven't given timelines yet on the type two label indication or on Libre label indication. Just to indicate that, that work is underway. But to give you some sense of things, just remember that we are right now in a feasibility study for type 2, so the next step would be to move into a pivotal study. So there still is some clinical work to do before we're ready to submit to the FDA for the label expansion. And then Libre, what we've said is that work is underway. That will also include a submission to the FDA, but not any clinical work. So that just kind of gives you a sense of what's ahead of us. And we'll get more granular with our timelines once we have Omnipod five into full commercial release, which is 100,000% where most of the team is focused today.
Operator, Operator
I show our next question comes from the line of Kyle Rose from Canaccord.
Kyle Rose, Analyst
Just two on my side, and I'll ask them up front. Just from a big picture perspective, it kind of feels like the company, and for that matter, the broader diabetes industry is kind of shifting more towards a software focus rather than just purely on the hardware side. I mean you've obviously got big investments there, and you've done a lot of work already when we think about DASH and the apps in the Omnipod five side. But just what other investments do you need to make from a software perspective for future projects? I'm just trying to understand how much of the investment has already been made versus some of the investments that need to be made in the future? And then with respect to the launch of O5, just any commentary around expectations for covered lives when you do move into the controlled launch? And how we should think about maybe the first 12, 18 months from a reimbursement perspective?
Shacey Petrovic, President and CEO
Great. Kyle, both are good questions. First on software, this has been a significant focus for us. When we refer to software, it encompasses much more than just that; it includes digital aspects as well. Our considerations extend to software developers, cybersecurity, consumer device interfacing, our sensor partners, and other diabetes technologies. We also focus on mobile technology, cloud computing, and data science. There's a lot involved in this area. Last year, we doubled our product development headcount, primarily in software functions. We have been building rapidly, which is critical as we approach the final stages of clearance for Omnipod 5. I believe our investments have built significant capabilities that create a competitive advantage in remote insulin delivery through either a PDM or mobile phones, which are complex tasks. The integrations with our partners are also important. This is an ongoing area of investment for us, with numerous exciting innovation programs on the horizon. We will share more about these programs once Omnipod 5 is fully released to the market. Our investment areas include advancing algorithms for ease of use, automation, and improved outcomes, interfacing with additional sensors and phone platforms, and enhancing digital value such as data, insights, and decision support for patients, payers, and clinicians. We are actively working on all these fronts, and I see no reason for this momentum to slow down. Regarding Omnipod 5 and covered lives, our teams are performing excellently. We are optimistic about discussions with payers, especially as we educate the pharmacy channel about automated insulin delivery and Omnipod 5's value. Those discussions are going smoothly, and we already have some coverage established. As clinical data is published, we anticipate increased coverage, especially following clearance. We're pleased with our current position and the team's efforts, and I am confident in a robust launch with a positive coverage outlook that will continue to expand quickly. Our strategies, including leveraging data and maintaining competitive pricing, are all aimed at ensuring rapid access.
Operator, Operator
I show our next question comes from the line of Ravi Misra from Berenberg Capital.
Ravi Misra, Analyst
So I guess I just want to step back to the broader diabetes landscape, if I may, for a second. Becton announced that it's spinning off its business this morning in the diabetes world. And just looking at their revenue numbers and their kind of focus, can you maybe think about or maybe help us think about how you think about kind of where we are progressing as an industry? I mean, to me, I would think perhaps it's a signal that pumps are the way given that this is a business with flattish revenue focused on needles. But just curious to see how you guys are thinking about it up there.
Shacey Petrovic, President and CEO
Sure, that's a great question. We believe strongly that this market is poised to double, and we intend to position ourselves strategically in this rapidly expanding area. The changes we've seen in continuous glucose monitoring (CGM) adoption over the past five years have truly transformed the blood glucose monitoring landscape. The integration of real-time CGM data has significantly enhanced the technology and its adoption, particularly with pump therapy. While this integration is still evolving in type 1 diabetes, it is just beginning in type 2 diabetes. This advancement could be seen as validation of the increasing use of pumps and technology in both areas. We're especially confident in our standing with patch pumps, as there’s considerable activity in that space, with many companies trying to enter, including BD. This underscores the complexity of what we do and our strong positioning. The challenges of developing something like Omnipod require substantial investment, which is bolstered by our intellectual property and manufacturing capabilities. Additionally, successful commercial operations and brand recognition are crucial, and this is an area where competitors like BD may lack strength. Overall, we are well positioned in a fast-growing market, particularly as we anticipate significant growth in type 1 diabetes and a promising journey ahead for type 2.
Operator, Operator
I show our next question comes from the line of Anthony Petrone from Jefferies.
Anthony Petrone, Analyst
Quick two-part question on Omnipod 5. I guess, is there a way to maybe sort of look at the existing Omnipod user base and how it's segmented between BGM and CGM? And how do you see those individual patient populations over time gravitating to O5? Does one trend faster than the other? Or does everyone sort of converge on an integrated basis? And then if you have any early opinion on retention specifically, how do you see retention on O5 versus a stand-alone Omnipod user trending once the cycle begins?
Shacey Petrovic, President and CEO
Great. Thanks, Anthony. So maybe I'll take the retention one first, just to say that our retention has been very stable. So I think that's a great thing, just especially when you think about how dynamic the market is with new innovations coming. It's great to see that our retention has been stable. And I would expect that to likely be the same with Omnipod 5, primarily because we have done so much work on the access front. And because we're focused on establishing broad affordable access for Omnipod 5, we know that, that is one of the major reasons for people trading off the product as tied to access and cost. And so we have prioritized that with DASH, frankly, and then now with Omnipod 5. And I believe that's one of the drivers behind the stability in our retention for patients. As it relates to our user base and who's going to convert more quickly, BGM or CGM users, we certainly see CGM users as a very logical target for this. And we've said in the past, that's about half of our population. So that's great. But honestly, I think this product is going to be a winner with our patient-based period. There's a lot of exciting benefits around phone control, et cetera. And when I think about what's been happening with our user base, CGM adoption has grown very rapidly. So every day, that number ticks up a little bit and then that target population becomes even bigger for Omnipod 5. And that's certainly the trend across the United States. And so we've got a really big, exciting target for Omnipod five and a really exciting product to bring to those people.
Operator, Operator
I show our next question comes from the line of Matt O'Brien from Piper Sandler.
Unidentified Analyst, Analyst
This is Korinne on for Matt. So just on the 30-day trial that you're doing, how quickly do you think that will shift over to Omnipod 5? Will that be immediately once you launch it? Are you still going to be using DASH for a little bit? And then just on that topic as well, how many patients are you seeing actually stay on Omnipod after doing this trial? Is there a way to quantify that yet?
Shacey Petrovic, President and CEO
Yes. Korinne, great question. So we won't stop doing 30 Days of Freedom for DASH. This is part of our great position that we have with our business model to be able to essentially sample the product where others can't. And so it's a tactic to help drive more people who are sitting on multiple daily injections, injecting themselves four to five times a day, really be able to get over the hurdle of trying a new technology. It's been wildly successful for us. The vast majority of people who use the 30 Days of Freedom trial stay on the product. So it's been a successful tactic for us and one we will continue. And we will likely offer that once we move into full market release. So once we have broader access established for Omnipod five is when we will start to offer that with Omnipod 5. But we'll offer it with both. Remember that Omnipod five is indicated for type 1. We still anticipate great utilization and growth among certain type one segments as well as obviously the type two user. And so we'll offer them both free trials.
Operator, Operator
I show our next question comes from the line of Matt Taylor from UBS.
Matt Taylor, Analyst
I just had one on phasing. We know that the pandemic's depression of new starts is still having an impact here in Q2, but now you've had a couple of quarters of record new starts. Could you just help us think about how that will start to roll in? And does that help you start to inflect more here in the second half? And any other nuances to help understand the gating over the quarters?
Wayde McMillan, Executive Vice President and CFO
Yes, Matt. And it is a unique dynamic with our annuity model. And so it definitely makes sense to spend a little more time on that. And you're referencing the U.S., first of all, I would say, just at the high level, we do think that we're through the majority of the pandemic impact in the U.S. We turned the corner at the end of 2020. And we're now, as you said, in more of an acceleration mode. We had record new customer starts in Q4. Again, here a record for Q1 in the U.S. And so what that positions us for is the strong 23% growth in Q1 with a very tough comp in Q2, still in the high-teens, 20% range. But what that does specific to your question, Matt, is it positions us for that 24% to 28% growth rate in the second half and starts to get us into the high-20% growth rates. And we haven't been in the 30% growth rate since before the pandemic. A couple of quarters before the pandemic, we were 30%. As the annuity continues to build here, we're confident that we'll get into the mid- to high-20s. And then just to touch on international because it is a different dynamic. I mentioned earlier, pandemic persisting longer. And so we will take a little longer to build the momentum back up again internationally. But we've got confidence that we'll do that and we expect international to be high-teens, low-20s nearing the end of this year and after we get on the other side of the pandemic next year.
Operator, Operator
Thank you. I'm showing no further questions at this time in the queue. I would like to turn the call back over to Shacey Petrovic for closing remarks. Please go ahead.
Shacey Petrovic, President and CEO
Thank you. And thank you, everyone, for joining us today. There is just so much to be excited about at Insulet, and there's much more we can and will accomplish for our customers. We have passionate employees, transformative innovations and a differentiated business model to continue to displace legacy therapies and to simplify and improve the lives of people with diabetes. Thank you all, and have a great evening.
Operator, Operator
Thank you for attending today's conference call. This concludes the program. You may all disconnect. Good day.