Earnings Call Transcript
Insulet Corp (PODD)
Earnings Call Transcript - PODD Q2 2024
Operator, Operator
Good afternoon, ladies and gentlemen, and welcome to the Insulet Corporation Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference call is being recorded. And I would now like to turn the conference over to your host, Deborah Gordon, Vice President, Investor Relations.
Deborah Gordon, Vice President, Investor Relations
Good afternoon, and thank you for joining us for Insulet's second quarter 2024 earnings call. With me today are Jim Hollingshead, President and Chief Executive Officer; and Ana Maria Chadwick, Chief Financial Officer and Treasurer. Both a replay of this call and the press release discussing our second quarter results and 2024 guidance will be available on the Investor Relations section of our website. Also on our website is our supplemental earnings presentation. We encourage you to reference that document for a summary of key metrics and business updates. Before we begin, we remind you that certain statements made by Insulet during the course of this call may be forward-looking and could materially differ from current expectations. Please refer to the cautionary statements in our SEC filings for a detailed explanation of the inherent limitations of such statements. We'll also discuss non-GAAP financial measures with respect to our performance, namely adjusted EBITDA and constant currency revenue, which is revenue growth, excluding the effect of foreign exchange. These measures align with what management uses as supplemental measures in assessing our operating performance from period-to-period, and we believe they are helpful for others as well. Additionally, unless otherwise stated, all financial commentary regarding dollar and percentage changes will be on a year-over-year reported basis with the exception of revenue growth rates, which will be on a year-over-year constant currency basis. With that, I'll turn the call over to Jim.
Jim Hollingshead, President and CEO
Thanks, Deb. Good afternoon and thank you for joining us. 2024 is shaping up to be another year of rapid growth, fueled by strong demand for Omnipod 5 and our accelerating pace of product innovation. Our financial results in Q2 demonstrate our strong execution and significant momentum across all of our markets, both in the U.S. and internationally, and we remain the clear industry leader in automated insulin delivery. The Insulet team is executing at a high level and with increasing velocity, delivering strong financial performance and advancing our strategic initiatives. These first half results reinforce our confidence in an even stronger second half and another year of robust revenue growth and margin expansion as we continue to deliver on our mission to simplify and improve the lives of people with diabetes. Second quarter revenue exceeded our expectations across the board. In light of first half results and continued strong momentum, we increased full year guidance for revenue, gross margin, and operating margin. On today's call, I'll update you on three things: our Q2 results and the continuing strength of our competitive position in the market; execution against our 2024 objectives to expand the Omnipod 5 platform globally; and lastly, our ongoing success capturing the value of scale across our business. Starting with financial performance. In Q2, we achieved total Omnipod revenue growth of 26%, including U.S. growth of 27% and international growth of 24%. Omnipod 5 continues to disrupt the diabetes technology landscape. In the U.S., we maintained a strong momentum in new customer starts, achieving sequential growth in Q2, in line with our expectations. Our strategy is to drive market expansion through our focus on bringing people out of multiple daily injections onto Omnipod therapy. As a result of that focus, we continue to rapidly increase our customer base while remaining at the forefront of driving overall market expansion. Our growth in the quarter was driven by increasing new customer starts from MDI users in both Type 1 and Type 2 diabetes. At a market level, we are seeing an emerging dynamic in which customers who have adopted pump technology are switching manufacturers at a lower rate. As a result of that dynamic and our continuing market leadership in MDI, our new customer starts from competitive switches have become a smaller part of our business. However, we continue to be the net winner in competitive switching, winning more customers than we lose. During the quarter, roughly 85% of our U.S. new customer starts came from people previously using MDI, consistent with the prior quarter, and we continue to take share from our competitors. Across both the Type 1 and Type 2 populations, we benefit from our competitive advantage in the pharmacy channel. The scale and scope we have built in this channel has significantly increased access and simplicity, which in turn helped to drive strong new customer starts and maintain very high customer retention. We're also working hard to continue to increase awareness among prescribers and this work is paying off. A growing number of healthcare practitioners are writing prescriptions for Omnipod within both the endocrinologists and primary care physician channels. Insulet is the clear leader in Type 1 and our Omnipod platform also remains the clear choice for people with Type 2. We are excited about the huge opportunity for us in Type 2, subject to FDA clearance for Omnipod 5 label expansion, which we hope to receive this year. I will provide more detail in a few moments. Omnipod 5 wins everywhere it goes. In Q2, we were pleased to again deliver international revenue and new customer starts growth ahead of our expectations. As a result of this success, we are significantly raising our international revenue outlook, this time by 600 basis points. We're rapidly approaching $0.5 billion in annual international revenue for 2024, and we're still in the early innings. The accelerated revenue we are achieving returns us to growth rates above 20% at the high end of our international outlook. We've been able to achieve these results with only two full country launches and two more just getting started, which signals to us significant runway for continued international growth as we expand access to Omnipod 5 in all of the markets we serve. Earlier this year, we promised that in 2024, we would deliver a cascade of innovation. And in Q2, we continued to do just that, launching multiple platform expansions. Following our successful U.S. limited market release, we entered full release of Omnipod 5 with Dexcom's G7 in the last two weeks of the quarter. Full integration with both G6 and G7 allows us to offer even more choices for our customers and capture the growth and adoption of Dexcom's latest sensor. As a reminder, Omnipod 5 with G7 is now exclusively available through several specialty pharmacies. This has allowed us to deliver an outstanding customer experience and ensure that new customers receive their Omnipod 5 G7 starter packs and Pod seamlessly. Demand for our G7 offering is strong. Early results are promising and in line with our expectations. We have been pleased with the performance of this channel. It is operating at scale, and we can flex to meet ongoing increases in demand. And it allows us to focus our inventory on new customers in the near-term, which we continue to expect will provide us with a tailwind in new customer starts during the second half of the year. Last week, we provided our existing Omnipod 5 customers with a free over-the-air software update, enabling their controllers and compatible smartphones to pair with G7. Existing customers will be able to move to G7 once they see compatible Pods appear in their preferred retail pharmacy. Given the success of our specialty pharmacy launch, we recently made the decision to allow the inventory shift in retail outlets to progress at a more natural pace. This will allow us to minimize any potential confusion for our customers and our channel partners while also minimizing the risk of potential product returns and potential impact on our gross margins. We continue to expect the ease of retail pharmacy will provide an additional new customer starts tailwind as G7 Pods naturally become more widely available, now planned later in Q3. During Q2, we achieved another major milestone with the initial U.S. launch of the Omnipod 5 iOS app with G6, and our limited market release is progressing very well. We are hearing from early users just how Pod-liberating the system is. One Podder shared that "Omnipod 5, with the iPhone is the biggest innovation since the introduction of AID – it's a delightful experience having everything on one device." We also had a Podder tell us "Omnipod 5, that's managing diabetes in the background." It is gratifying to hear this feedback and it gives us even more confidence in our ability to continue scaling our limited release and then transition to full release in the fall. Adding to this cascade of innovation in the U.S., we are pleased to announce that we expect to launch Omnipod 5 integrated with Abbott's Freestyle Libre 2 Plus sensor by the end of this year. We are excited to expand our Omnipod 5 offering to reach customers in the U.S. who have chosen the Libre family of sensors, and we are confident this portfolio expansion will generate increased demand for Omnipod 5, just as we are seeing in the early days of our launches with Libre 2 Plus internationally. Turning to international. In Q2, we extended the Omnipod 5 platform into new markets and we were the first to offer integration with Abbott's Libre 2 Plus sensor internationally, introducing this integrated offering in the UK and Netherlands. This also marked our first sensor of choice Pod offering, which is compatible with both Libre 2 Plus and G6. We are hearing from ACPs and patients that both integrations are providing an outstanding experience, including how easy it is to start Omnipod 5 using either leading sensor. Further expanding global reach, we recently launched Omnipod 5 in France, which is one of our largest markets. We are in the early days and feedback from patients and HCPs has been fantastic. HCPs have noted the very positive clinical outcomes with particular emphasis on Omnipod 5's simplicity. Demand for Omnipod has always been high in France. And with Omnipod 5, we expect to continue to build on this strength and successfully drive robust adoption as we have seen in our other international launch markets. Omnipod 5 is now available to the majority of our European customers. And of course, we are not stopping there. We are in the final planning stages for additional launches in Italy, the Nordics, Canada, Australia, Switzerland, and Belgium, with others soon to follow. For all of the countries in our near-term pipeline, you will see us begin local market work to prepare for our planned commercial launches throughout 2025. We will keep you updated on our progress, capitalizing on the enormous international opportunity we are pursuing. Turning to Type 2 diabetes, which represents another significant opportunity for growth in our business. We are already the market leader in our space. In the second quarter, people with Type 2 represented roughly 25% of our U.S. new customer starts, continuing a strong ongoing trend. The Type 2 insulin delivery market is large and significantly underpenetrated. The combined patient population using either intensive insulin therapy or basal insulin is roughly three times the size of the Type 1 population. This year, we have had two important pathways for innovation in the Type 2 space, both commercial and clinical. As you know, we have been commercially piloting Omnipod GO, a product aimed at the needs of basal-only insulin users. The purpose of that pilot has been to accomplish two main goals: one, determine the optimal way to expand our sales force; and two, develop a better understanding of the patient profile that presents in nonspecialist practices so we can better serve patient needs. This pilot has led to our identifying multiple patient profiles and designing our go-to-market strategy. In parallel, we have been pursuing clinical work to expand our offerings for people with Type 2 diabetes, most meaningfully with our pivotal trial with Omnipod 5 called SECURE-T2D. We recently presented the trial data at ADA, and I want to take a moment to summarize some of the key top-line results. SECURE-T2D is the largest study ever completed for the use of automated insulin delivery in Type 2 diabetes, with approximately 300 people completing the protocol. The study participants were highly diverse and representative of the general population in the U.S. This is important both from the point of view of HealthEquity and because the study results will be clinically relevant to patients as they present in the real world. The clinical outcomes were striking. Omnipod 5 delivered an average A1c reduction of 0.8 with increasing benefit across the study population as baseline A1cs were higher. Those with the baseline A1c greater than 9 on average achieved an A1c reduction of 2.1. More than half of the participants were concurrently on GLP-1 therapy. And notably, results were the same across all cohorts, whether or not on a GLP-1. Importantly, roughly 20% of study participants were currently on basal-only insulin injections, and they also benefited in line with intensive insulin users. In this population, a key barrier to insulin adoption is the risk of hypoglycemia. And in SECURE-T2D, there was no increase in hypoglycemia. Finally, among several other demonstrated benefits, study participants reported a clinically valid and meaningful reduction in diabetes distress. These remarkable results clearly demonstrate Omnipod 5's benefit for people with Type 2 diabetes. On the basis of these results, in June, we filed for expansion of our indications for use for Omnipod 5 with the FDA. Now that we have such strong results from our clinical trial work and the rich learnings from our Omnipod GO commercial pilot, these two innovation streams will come together. In anticipation of FDA clearance of our label expansion, during the coming quarters, we will make targeted investments in our sales force to extend our currently successful sales model and expand our feet on the street to further penetrate the Omnipod 5 prescribing base. We strongly believe Omnipod 5 will provide benefits to a wide range of insulin-using Type 2 patients, both those on MDI and those on basal-only insulin therapy. Therefore, Omnipod 5 will replace Omnipod GO as our offering for people with Type 2 diabetes. We are grateful for the patients and the healthcare practitioners that participated in our pilot and we look forward to supporting them in their transition to other Omnipod therapies. Leading with Omnipod 5 in this space will enable us to serve more customers by leveraging and streamlining existing operations, supply chain, and manufacturing, and it eliminates the need for ongoing investments in product lifecycle management for a separate product platform. More importantly, we are confident we have a clear right to win in the Type 2 space. We expect to be the first to market in Type 2 with an AID offering, and not just any AID offering, but with Omnipod 5, which is the product platform that quickly leapfrogged into market leadership once we launched it in Type 1. Omnipod 5 will bring all the benefits to Type 2 patients that it already delivers, ease of access to the pharmacy channel, low to no upfront cost, market-leading ease of use and the unique discretion and convenience of a wearable, disposable patch pump with the day-to-day simplicity of full phone control with both Android and iOS. All of that, while delivering the striking clinical benefits we have just established with our pivotal trial. We are excited to bring the best automated insulin delivery offer to the Type 2 market by the end of this year, pending clearance by the FDA. Ana will have more detail on the financial impact of our refined strategy in a few moments, but the biggest financial impact will be the opening of a new addressable market for us which we fully expect will fuel our growth. Before I hand over to Ana, I'd like to briefly discuss our expanded global manufacturing capabilities. We've been successfully investing in process innovation in our Insulet facility, which is meaningfully contributing to gross margin expansion. We have made significant investment in the new state-of-the-art manufacturing plant in Malaysia, which will enable us to scale faster and expand margins and cash flow. We are thrilled to have begun producing sellable Omnipod 5 product in Q2 in Malaysia ahead of schedule. Our new facility is over twice the size of our U.S. facility, and we expect it to be accretive to gross margin in its first full year of production, ramping as volumes increase. Our advantages and scale position us to grow our global business profitably and seamlessly meet the growing demand for Omnipod 5, which represents an important and distinct advantage over competitors. Shortly after this call, several members of our executive team will travel to Malaysia to attend our facility's official grand opening. We look forward to celebrating this occasion with our local team as well as the many other Insulet employees globally who helped to make this happen. With that, I'll turn the call over to Ana to walk you through our results and guidance.
Ana Maria Chadwick, CFO
Thank you, Jim, and good afternoon, everyone. We have significant momentum throughout our global business and delivered another strong quarter of financial results and strategic execution. Most importantly, our global team continues to advance our mission to simplify and improve the lives of people with diabetes. Second quarter results exceeded our expectations. We achieved 23% revenue growth, driven by total Omnipod growth of 26%. Our estimated global retention remained stable. The foreign currency impact on total company revenue on a reported basis was approximately 80 basis points favorable versus our reported guidance. U.S. Omnipod revenue growth was 27%, finishing above the high end of our guidance range. Omnipod 5 integrated with G6 is the primary driver of our strong growth, while our integration with G7 is gaining momentum. We are excited to have launched our U.S. full market release with G7 in June, and we will continue to engage our channel partners over the coming months. I will speak more to this dynamic in a few moments. Our year-over-year U.S. revenue growth was primarily driven by our success in expanding our customer base and increasing volume throughout the pharmacy channel, including premium Omnipod. This was partially offset by an estimated $10 million reduction of inventory in the channel as we manage the Omnipod 5 G6 to G7 transition, which was in line with our expectations. U.S. utilization trends were slightly lower than the prior year as a result of Omnipod 5's significant ramp in the first full year of launch in 2023. As it relates to our U.S. revenue expectations, we estimate approximately half of our beat versus the high end of guidance was due to our strong commercial execution. The other half was due to pricing benefits from channel mix as well as fewer G6 pod returns than anticipated. Our underlying growth is strong. We have significant momentum and we are thrilled to have expanded our product offering and provide greater choice for our customers. With our lead position in the market and the many catalysts for us this year, we are in a great position to continue delivering robust revenue and customer base growth in 2024 and well beyond. Turning to international. We achieved international Omnipod revenue growth of 24%. These results were once again well above our expectations. While Omnipod DASH is doing very well internationally and remains a sizable percentage of our overall international volume, Omnipod 5's demand is very high and fueling our growth. Last year's launch in the UK and Germany are driving both revenue and new customer start growth. Although early, the increased demand we're seeing in France as a result of our recent Omnipod 5 launch is very encouraging. Together with our rollout of Omnipod 5 Libre 2+ in two markets around the start of Q2, we are well positioned for continued growth. International utilization trends were slightly higher than in the prior year due to higher initial Omnipod 5 orders, similar to what we saw last year in the U.S., but to a smaller degree. On a reported basis, foreign currency was a 90 basis point headwind over the prior year and approximately 110 basis points favorable versus our guidance. Drug delivery revenue was $8 million, which was above our guidance range, partially due to an increase in orders from our partner and timing of production. Gross margin was 67.7%, up 90 basis points, primarily driven by pricing benefits in both the U.S. pharmacy channel and our international markets, as well as ongoing manufacturing efficiencies. Partially offsetting this growth was a one-time charge of $13.5 million, or 280 basis points relating to components that are not expected to be utilized. This charge resulted from our strategic decision to go to market with Omnipod 5 instead of Omnipod GO to drive accelerated growth in Type 2 pending FDA clearance. Even with this charge, our execution throughout our global business is resulting in significant margin expansion, which strengthens our confidence in our margin trajectory over the long term as we continue to execute and scale efficiently. While operating expenses increased in the quarter as we invest in our business, including to support the cascade of innovations we've had this year and those to come, our level of spend was lower than we expected due to a timing shift into the second half of the year. In order to drive the above-market growth we have been delivering, we will continue to invest in our business. At the same time, we are achieving margin expansion resulting from our revenue performance, gross margin improvements, and the operational leverage we are realizing throughout our business. Operating margin was 11.2% and adjusted EBITDA was 18.6% of revenue, both exceeding our expectations, primarily due to our revenue outperformance and the shift in timing of spend. Expansion of these metrics was partially offset by the one-time charge of $13.5 million or 280 basis points related to Omnipod GO. Last quarter, we provided color that due to our positive earnings trend, we may find at some point in the year that the valuation allowance we had against our deferred tax assets may no longer be required. In Q2, we reached this conclusion, and therefore, we released the majority of our valuation allowance, resulting in a non-cash tax benefit of approximately $150 million in the period, which we adjusted out for non-GAAP purposes. We expect another $30 million to be recognized during the remainder of the year. We now expect our 2024 effective tax rate, excluding the full $180 million, to be in the range of 20% to 25%. Turning to cash and liquidity. We ended the quarter with approximately $820 million in cash and the full $300 million available under our credit facility. Last week, we successfully extended the maturity of our Term Loan B to August 2031 and repriced the loan at a lower interest rate, which will reduce cumulative interest expense over the term of the loan by approximately $17 million. Our commitment to drive profitable growth and positive free cash flow is paying off, resulting in our ability to expand margins and strengthen our overall financial profile. Now turning to our 2024 outlook. For the full year, we are once again raising our expectations for total Omnipod revenue growth to a range of 18% to 21%, representing a milestone of $2 billion in annual revenue at the high end of our range. As a result, we also are raising total company revenue growth to a range of 16% to 19%. For US Omnipod, we're raising the low end of our revenue guidance and now expect a range of 18% to 21% growth. We expect growth to be driven primarily by continued strong demand for Omnipod 5, including the benefits of the recurring revenue stream from our annuity model and growing customer base. As a reminder, we have a tougher comparison in the second half of 2024 versus the prior year period resulting from the estimated orders that were accelerated in the fourth quarter of 2023 from 2024. We continue to anticipate both revenue dollars and new customer starts in the second half of 2024 to be higher than levels in the first half. While we continue to expect sequential growth in new customer starts in both Q3 and Q4, our guidance now contemplates a less steep ramp of new customer starts in the second half of 2024, driven by both the overall market reduction in competitive switching that Jim referred to, and the slightly longer-facing period of our G7 Pods through our retail channel partners. While the latter has a temporary impact on new customer starts during the second half, it is simply timing. We are confident this strategy will maximize the customer and HCP experience, which is our top priority, while having the added benefit of limiting returns of the G6 Pod in the channel. Our revenue guidance continues to assume a gradual restocking in the second half of this year as we expand our distribution of G7 Pods throughout all channel partners. For international Omnipod, we are raising our revenue growth expectations by 600 basis points to a range of 18% to 21%. On a reported basis, we now assume there will be no foreign currency impact. We anticipate revenue growth to be driven by the strong momentum from last year's Omnipod 5 launches in the UK and Germany, partially offset by headwinds in countries where we do not yet have Omnipod 5. Our 2024 outlook for international business is strengthened every day by the success we are achieving with Omnipod 5. Greater-than-expected new customer starts today, as well as revenue outperformance, has resulted in raising our international Omnipod outlook by 1,100 basis points since the start of 2024. Omnipod 5 is gaining traction and taking share. Feedback has been tremendous, and we are clearly a leader with our advanced technology. While we expect our most recent Omnipod 5 launches to contribute new customer starts in the second half of this year, given the nature of our annuity model, we expect them to contribute even more meaningfully to revenue in 2025. Our incredible momentum internationally strengthens our confidence that Omnipod 5 will drive further growth and share gain in every market in which we launch. For both U.S. and International Omnipod, our guidance factors in quarterly revenue fluctuations resulting from the many product launches we have in 2024. This includes ramping inventory in the channel for new launches and reducing levels of prior Omnipod generations. Lastly, for drug delivery, our outlook has improved and we now expect a decline in the range of 40% to 50%, reflecting our partner's revised forecast. Turning to 2024 gross margin. Given our strong margin performance in the first half of 2024 and the retirement of some risks we had modeled related to our product launches and new manufacturing facility, we have greater confidence in our full year 2024 outlook. As a result, we now expect to land closer to the high end of our 68% to 69% range, even with the 70 basis points annualized impact from the second quarter Omnipod GO charge. We are in a tremendous position to drive further gross margin expansion over the near and long term, and we remain committed to executing our strategy to deliver this growth. We remain committed to driving operating margin expansion as we capitalize on our efficiencies and economies of scale. Even as we continue to heavily invest in commercial, clinical, and R&D to fuel our strong revenue growth trajectory. As a result, we are once again raising operating margin guidance another 50 basis points to approximately 14%. Turning to our third quarter guidance. We expect total Omnipod growth of 21% to 24% and total company growth of 18% to 21%. For U.S. Omnipod, we expect growth of 21% to 24%, primarily driven by strong demand for Omnipod 5, stronger customer starts, and the benefit of our immunity model. For international Omnipod, we expect growth of 21% to 24%, driven by ongoing adoption of Omnipod 5, partially offset by headwinds in countries where we do not yet have Omnipod 5. On a reported basis, we now assume an unfavorable foreign currency impact of 100 basis points. Finally, we expect Q3 drug delivery revenue to be approximately $3 million to $4 million. In conclusion, our global Insulet team continues to execute and drive strong results. We generated robust new customer starts globally and our cascade of innovation strengthens our position to deliver sustained revenue growth and margin expansion this year and beyond.
Operator, Operator
Thank you. And your first question comes from Robbie Marcus with JPMorgan. Your line is open.
Robbie Marcus, Analyst
Great. Thanks for taking the question. Congrats on a really nice quarter. I want to ask some clarifying questions here. I'll just get them all in. First, gross margin would have been something closer to 70.5%; operating margin and EBITDA would have been materially higher without the one-time charge to write down the inventory. I guess, what was the reason to leave it in and not back it out? I think most companies would have backed it out. And then second, I think there's just a little confusion on the commentary around the new patient ramp in the second half. Maybe you could just add a little clarifying commentary to that? Is it less new patients? Is it related to type 2 specifically? Is it competitive switches? Just make it crystal clear the view and can you grow new patients year-over-year. Thanks a lot.
Jim Hollingshead, President and CEO
Thanks, Robbie. It's great to have you on the call. I appreciate your question and your congratulations. I'll begin by discussing new customer starts, and then I'll pass it back to Ana to address the margin and the one-time charge. We're trying to describe the market trends as clearly as possible. First, we observed good sequential increases in new customer starts, which aligns with our goals. In looking at MDI for both type 1 and type 2, we see that competitive switching for patients already using our products has decreased. There was some uncertainty regarding whether this decline was due to seasonal factors over recent quarters, but it's evident that the overall number of competitive switchers has diminished. A contributing factor is that our share of the installed base has significantly increased over the last several quarters. We have many Omnipod users, primarily those using Omnipod 5, who are not targets for switching. This represents a smaller segment of the market overall. It's important to note that our strategy focuses on MDI, with about 80 to 90 percent of our new customers coming from this category and only one new customer start resulting from competitive switching. Omnipod 5's appeal positions us as a leader in growing the market, and we are clearly at the forefront in MDI. That said, we still outpace our competitors in customer switching, winning more customers than we lose. However, we want to clarify the overall market trend we are observing. Our goal remains to expand the market, as Omnipod 5 allows us to reach more patients, in line with our overarching strategy. Ana, would you like to continue with the margin question?
Ana Maria Chadwick, CFO
Sure. So absolutely, thank you, Jim, for that. Background here is we do not adjust for operational items. But what we tried to do during the script and in our earnings press release is give you all the puts and takes of the 280 basis points that flows through from gross margin to up margin for the quarter and for the full year, the 70 basis points. So you can see we're adjusting for that one-timer, we're executing incredibly well.
Operator, Operator
And your next question comes from the line of Jeff Johnson with Baird. Your line is open.
Jeff Johnson, Analyst
Thank you. Jim, maybe I can ask one clarifying question on your new starts and I do have one question that implied fourth quarter guidance. But on the new starts, I think I heard you saying that your new starts were up sequentially. I just want to confirm that and make sure that the US, global or what number is that? And is that everything combined, kind of the MDI plus competitive convert, you put it on a lot of new starts overall to the company. We're up either US or globally and then like I said, I have one question on the fourth quarter.
Jim Hollingshead, President and CEO
Yeah. So yeah, so Jeff, thank you for the question. New starts were up both in the U.S. sequentially and internationally sequentially. Just to be clear.
Jeff Johnson, Analyst
Okay, that's helpful. Regarding the implied guidance for the fourth quarter, looking at the U.S. Omnipod, based on my analysis, the growth appears to range from low single-digits to low double-digits for the fourth quarter. This broader range is due to using a point estimate from the third quarter. Last year, we experienced a pull forward into the fourth quarter, which created a year-over-year headwind. Considering all these factors, it seems that the projected growth for the fourth quarter U.S. Omnipod may be in the low to mid-teens. Is this a reasonable way to assess the adjusted U.S. Omnipod growth? Should we view this as a starting point for 2025, or are there factors, such as type 2, that might push growth beyond that range? Thank you.
Ana Maria Chadwick, CFO
Jeff, I'll start with that. Thanks for the question. You are absolutely correct. There are absolutely a lot of puts and takes, especially in the fourth quarter. The important thing to recall here is that our overall guidance for the year continues to be strong, and I know you're referring here specific to the U.S. with that high end of our guidance at that 21%. So, we raised the volume at 18% up to the 21%. I do want to mention something as we think of 2025, which we are not providing guidance during this call. We'll wait until we wrap up the fourth quarter. We have a lot of things transpiring here, as Jim mentioned in the second half of the year. G7, we have iOS. We have Libre 2 Plus. We have the international that it's really ramping incredibly nicely and more countries ahead, and we have the type 2 label extension. Once we have more clarity into the later part of the year, we'll come back and provide that additional guidance.
Operator, Operator
And your next question comes from the line of Larry Biegelsen with Wells Fargo. Your line is open.
Larry Biegelsen, Analyst
Good afternoon. Thanks for the question. Jim, could you clarify whether you mentioned that overall U.S. new starts are expected to increase in the third and fourth quarters?
Jim Hollingshead, President and CEO
Yes. I expect to see sequential growth in new customer starts in the U.S. for both Q3 and Q4, which aligns with our statements from the last two quarters. We anticipate that the second half of the year will be stronger, with sequential improvements from Q2 to Q3 to Q4. The ramp characteristics remain unchanged. The primary factor driving this growth is G7, along with other supportive factors. One question I anticipate is how this affects our overall expectations. There are two changes this quarter: first, a smaller segment of the market is engaged in competitive switching, but we continue to succeed in that area. Second, our G7 launch is progressing well through the specialty pharmacy channel, with good demand and effective service. We've chosen to allow inventory to flow more naturally into that channel to maintain the customer experience, which has slightly adjusted our outlook for new customer starts in the second half. As Ana mentioned, we expect a steep ramp, but it may be somewhat less steep than previously anticipated. Determining exact numbers for total new customer starts for the year is challenging, but we expect a strong ramp in the second half, even if it’s not as steep as we had hoped.
Larry Biegelsen, Analyst
Thank you, Jim. I wanted to discuss margins. If we exclude the one-time charge from the second quarter, I believe your gross margin for the first half was around 70%. Even after factoring in the one-time charge, it appears to be about 68.5%. Could you explain why the gross margin is lower in the second half compared to the underlying first half? Additionally, how should we anticipate the impact of Malaysia on your gross margin beyond 2024? Thank you.
Ana Maria Chadwick, CFO
Yes. Let me jump into that. So in the first quarter, we had gross margin of 69.5%, and now we have 67.7%. So that gets us shy of the 69%. And in the second half, we expect to be, as you can imagine, we're guiding to the full 69%. So that guidance, I just want to be clear, contemplates that 70 basis points of pressure, we did not back that out from our guidance. We kept the Omnipod GO charge that we took this quarter in our guidance. So hopefully, helps answer the question. Malaysia has a more limited impact. So as it starts to produce product. And we expect to get more of that benefit as we move into 2025 and the first full year of running operations.
Operator, Operator
And your next question comes from the line of Margaret Kaczor with William Blair. Your line is open.
Margaret Kaczor, Analyst
Hi. Good afternoon, folks. Thanks for taking my questions. I guess one on International and one in the U.S., and apologies for having both in here. But internationally, obviously, you're seeing a tremendous amount of traction. So can you give us some sense around how much of the beaten guidance range this quarter is related to new patient adds in these two countries? Are you seeing kind of this change in MDI starts just in general, where you can start to say, hey, this is a market trend. This isn't just, hey, we're taking competitive switches or more new patient adds, which I'm sure is part of it. But just trying to get a sense of what's going on on the ground? And is it happening similar as we saw in the U.S. a few years ago. And then just on the U.S. side and this is a clarification question that may be helpful may not. But the change in competitive converts, historically, 20% of new patient adds or competitive converts. Now you're saying it's 15%. So the delta seems pretty minor 5% but correct me if I'm wrong on that. Thank you.
Jim Hollingshead, President and CEO
Thank you, Margaret. I’ll address both points. We are very pleased with the international performance of Omnipod 5. It has shown success wherever we introduce it. The launch in the U.K. is going exceptionally well, and Germany is also performing strong after great results in previous quarters, exceeding our expectations. We have just initiated operations in France, which is a significant market for us. Although it's early, we are aware of the high demand and are beginning the rollout with patients starting to use the product. Additionally, we have launched in the Netherlands as well. In the Netherlands, we started with our preferred sensor offerings, which include G6 and Libre 2, and this has also been successful. Most of the growth in these countries is driven by new-to-market customers who were using multiple daily injections (MDI). Many of these customers already utilize continuous glucose monitoring (CGM), which aids our process, but they are new to pumping technology. Overall, we are very satisfied with this performance and feel optimistic about continuing the international rollout of Omnipod 5. In terms of the U.S. market dynamics, we recognize there are many questions regarding the current landscape. The mix shift we are observing is consistent with last quarter at 85-15. However, the total volume of competitive switching is now smaller and not a primary focus for our business. We are concentrating on overall market growth rather than competitive switches. Although our 85-15 split may seem minor, we want to clarify the situation. In the U.S., we have seen an increase in MDI for both type 1 and type 2 customers, and we are clearly leading in this area. While we do succeed in competitive switching, it constitutes a smaller segment of our market and is not a strategic priority for us.
Operator, Operator
And your next question comes from the line of Travis Steed with Bank of America. Your line is open.
Travis Steed, Analyst
Hey, I wanted to clarify a couple of things from the earlier questions. So Jim, did you say new starts can grow year-over-year in the second half of the year? And also I wanted to clarify, you were commenting on demand is good, but you made a decision to disrupt the customer experience and let inventory grow naturally? So I really wanted to understand kind of what you make...
Jim Hollingshead, President and CEO
I hope I didn't say it that way. I meant the exact opposite, which is that we don't want to disrupt customer experience. Regarding the specialty pharmacy launch, we've utilized this approach a couple of times before, particularly as we entered the pharmacy space. We've upgraded our strategy with this launch. This is the first time we have integrated new compatibility with the Pod into the same channel under the same reimbursement code. We're focusing on introducing this to new customers instead of converting existing ones, which doesn’t expand our customer base. By using specialty pharmacy, we aim to grow our new customer base, which is crucial for the business and attracts new customers to the market. As we planned this, we acknowledged that it was the first time we would operate under this dynamic, which has turned out to be promising. We are effectively servicing strong demand for G7 through specialty pharmacies. It's worth noting that many of these pharmacies operate through a hub service we established, making them largely invisible to third-party data sources. Therefore, those tracking our new customer starts may not see most G7 starts in their reports. Demand is solid, and we can adapt to it. Consequently, we decided against pushing inventory into the retail channel, as that could disrupt both our partners and customers. Instead, we're progressing through specialty pharmacy, which is going smoothly, while allowing inventory in retail to transition at a natural pace. Our priority is to provide the best possible customer experience, and we are pleased with how specialty pharmacy is performing. Regarding your first question about year-over-year growth, we anticipate crossing into that growth during the second half, though it's difficult to pinpoint exactly when. However, we do expect year-over-year growth in the latter half of the year.
Operator, Operator
And your next question comes from the line of Michael Polark with Wolfe Research. Your line is open.
Michael Polark, Analyst
Thank you. I have a follow-up regarding the Type 2 update. With the decision to prioritize 05 over GO, do you anticipate that the SECURE-T2D label or data will enable you to market to both the MDI and basal-only populations? Additionally, what are your expectations for pricing—will it be patient-agnostic for this product? Lastly, I heard about the investments in the second half to prepare for the Type 2 launch next year. Could you provide some insight into how much you plan to expand headcount during this process? Thank you.
Jim Hollingshead, President and CEO
Thank you for your question. Firstly, I want to clarify that I don't want to speculate too much on the FDA label, but we expect it to enable us to market to both intensive insulin users and those on basal insulin. This is supported by the SECURE-T2D study, where 20% of participants were basal-only users, and they achieved excellent results. Our objective with Omnipod 5 is to assist those on insulin who require improved control, leveraging the smart adjustment algorithm that can modify both basal and real-time bolus insulin. If we secure that labeling, we'll be able to support basal-only patients with Omnipod 5. Initially, the plan was to transition users from Omnipod GO to Omnipod 5 as their insulin requirements change. However, we might not need to wait for that transition; dependent on the FDA's approval—which we anticipate—we can potentially launch Omnipod 5 directly to meet a broader range of patient needs than originally intended. We're enthusiastic about this opportunity. I also seem to have momentarily forgotten the second part of your question.
Ana Maria Chadwick, CFO
No, I just wanted to add maybe a comment there. When you think of the implications of that decision, it's not just a short-term impact that we just talked about. There is a much longer-term impact. Jim commented on the customer, commercial, all those things that there's also an operational impact in the company with less product life cycles, simpler in terms of our manufacturing capacity and operational and all those things that come along with that. It's going to have its fruits much longer into 2025.
Jim Hollingshead, President and CEO
Yes, we are very excited to move forward with the Omnipod 5 platform as our main offering. Regarding pricing, Omnipod 5 is already well covered and reimbursed for individuals with Type 2 diabetes. Currently, there are no distinctions, and we do not foresee significant commercial changes. We will monitor the situation, but we don’t expect any disruption. On the sales front, we have been successfully increasing our sales force for some time now. We brought on additional team members earlier this year and will continue to expand the sales force. We will provide more information about the scale and model as we approach the actual launch.
Operator, Operator
And your next question comes from the line of Matt Taylor with Jefferies. Your line is open.
Matt Taylor, Analyst
Hi, thank you for the question. I would like to get more information and clarify a few key points we discussed on the call. One of those points is the channel mix benefits mentioned for this quarter. Could you explain the source of those benefits? Also, what is the outlook for that in the U.S. and for the company as a whole, considering the various shipping channels and how the mix might change?
Ana Maria Chadwick, CFO
Sure. I'll start with that one. So when you think of the U.S., and we are very heavily penetrated now in the pharmacy channel, what we have is we ship product and then we have, of course, the wholesalers, the distributors and the PBMs, and at the end, it's the end customers. So how it moves into, which specific distributors with what relationships, and which PBMs with what coverage. That all is hard to call. And now what we're talking about is not huge dollars in terms of the impact, but we should have some fluctuation in our pricing as we go through that process. So we will continue to refine our models and just continue to get better and better around that. But it's really a simple dynamic of being now so heavy into the pharmacy channel.
Operator, Operator
And your next question comes from Chris Pasquale with Nephron. Your line is open.
Chris Pasquale, Analyst
Thanks. I had one on International and one on the GO decision. On OUS, by our math, your International installed base share is well below where you are in the U.S. I'm curious though, when we look at that overall international market, what percentage of those patients are in geographies where you have a presence today? In other words, how much of that pie are you really able to compete for?
Jim Hollingshead, President and CEO
Thanks, Chris. Currently, we operate in 24 international markets, with the larger ones being the UK, Germany, France, and the Nordics. We have fully launched Omnipod 5 in Germany and are seeing strong growth there. In France, we have just started the Omnipod 5 launch. As mentioned in the prepared remarks, we have plans for future launches in the Nordics. By population, we believe all the medtech markets present similar opportunities. We are optimistic about our position with Omnipod 5; it is performing well wherever we introduce it. As we continue the rollout, we are confident in our growth prospects, which is reflected in our recent increase in guidance by 600 basis points.
Operator, Operator
And your next question comes from the line of Mike Kratky with Leerink Partners. Your line is open.
Mike Kratky, Analyst
Hi, everyone. Thanks for taking my questions. Maybe just a couple on the Type 2 launch. First of all, is your plan to implement a full commercial launch in Type 2 once you get approval? Or could that be a more sequenced launch? And then maybe just a quick one on the basal-only population, but based on the updates today, can you provide some color on the level of demand that you saw for pumps in the basal-only population? And does that change your outlook at all as you think about Omnipod 5?
Jim Hollingshead, President and CEO
Thanks, Mike. Regarding our full commercial launch, we have aligned our launch plan with our expectations for FDA approval. We anticipate receiving FDA approval by the end of the year. Once we achieve that and finalize other preparations, such as sales force training, we'll be ready to promote. Additionally, we plan to expand our sales efforts into nonspecialty channels by increasing our presence in those markets. We will provide more details as we approach that point. Specifically for the Omnipod GO product, we researched patient presentations in various channels and identified several patient profiles. We initially had a draft profile, which we enhanced, discovering that many Type 2 diabetes patients who need insulin are present in the non-specialty channel, along with a significant number of Type 1 patients. This gives us confidence that Omnipod 5 can meet the needs of many patients. Our focus on Omnipod 5 strengthens our optimism about effectively entering this market. We learned valuable information about patient demographics in these practices and are excited to position Omnipod 5 as our primary product for reaching these patients.
Operator, Operator
And your next question comes from the line of Jayson Bedford with Raymond James. Your line is open.
Jayson Bedford, Analyst
Hi, good afternoon. I have a couple of questions. First, are you seeing any benefits from the type 2 data presented at ADA in late June? Second, you seem more confident about the timing of type 2 approval for Omnipod 5. Just to clarify, you are confident that reimbursement is in place and there won’t be any delay in adoption due to reimbursement issues? Thanks.
Jim Hollingshead, President and CEO
Thank you, Jason, and I appreciate the non-15 question list. Regarding type 2, yes, we are very confident. Currently, Omnipod 5 is reimbursed through the pharmacy benefit, without a specification for the type of diabetes. A prescription is written for Omnipod 5, and it is well covered based on that, which is why physicians are prescribing it off-label. We observed an increase in MDI starts for type 2 patients this quarter. We do not specify whether this involves Omnipod DASH, which has full user indication, or Omnipod 5. However, we did notice a boost in MDI for type 2. We are not promoting Omnipod 5 for type 2 diabetes yet, as we do not have the expanded indication that would permit us to do so. As I previously mentioned, our representatives are somewhat constrained in this regard. We remain optimistic about this situation. We believe that coverage for Omnipod 5 in type 2 should be finalized without any delays.
Operator, Operator
And your next question comes from the line of Matthew O'Brien with Piper Sandler. Your line is open.
Matthew O'Brien, Analyst
Thanks for taking the question. I'm so sorry, I do have a clarifying one. What's this inventory tailwind you should be getting in the second half of the year? I'd love to know about that. And then my main question is really on the MDI side. If I look at the results for you guys for a couple of your competitors, it looks like the MDI penetration rates are starting to accelerate, first of all, is that true? Secondly, what's driving it? Is it new technologies? And just how durable is it between Type 1 and Type 2 just given how important it's going to be for you guys going forward as you grow your business? Thanks.
Ana Maria Chadwick, CFO
Thanks, Matt. So I'll start with your comment on inventory tailwinds. So as we talked about last quarter, we were anticipating a destocking of about $10 million, which we saw happen during the second quarter. And what we anticipate is during the second half of the year that should come back. And the reason it is all around the G6, G7 transition and how we're managing the channel through that process.
Jim Hollingshead, President and CEO
Thanks, Matt. On the MDI question. I won't try to probably touch on any of our competitors' results. I'll just say that I think it's reasonable to think that MDI penetration in type 1 is accelerating, and we're clearly leading that. So Omnipod 5 is very highly preferred with MDI patients. We continue to grow that space and we continue to win with MDI conversions. I think it's durable for both type 1 and type 2. And the reason I believe that is because the burden of living with diabetes remains very high and because our CGM partners have been out paving road very effectively in front of us for some time. And so, we've said before that we think penetration for AID in the type 1 space can go very high, well above 70% on the back of the pave road from CGM, and we're confident that we're going to be the leader that drives that kind of penetration. And we believe that now you see a lot of adoption in the type 2 space with CGMs on an ongoing basis. And so our two partners, Abbott and Dexcom, are out there paving the road for us in type 2, and we see a big opportunity to take Omnipod 5 likely as the first-to-market AID system in that space, and we see a big opportunity to drive the penetration of Omnipod 5 and type 2 as well.
Operator, Operator
And your next question comes from the line of Steve Lichtman with Oppenheimer. Your line is open.
Steven Lichtman, Analyst
Thank you. Good evening, everyone. Regarding the international strength you are experiencing compared to your expectations for the year, are you noticing improved reimbursement and pricing along with quicker new patient growth? Or is it primarily just increased volume? Also, could you remind us when you expect to have G7 connectivity available internationally?
Jim Hollingshead, President and CEO
Thank you, Steve. As we launch Omnipod 5, we have worked diligently to ensure that our reimbursement aligns with the added value Omnipod 5 brings to the healthcare system and to patients. So far, we have successfully negotiated a premium for Omnipod 5 in the markets where we have launched it. This has resulted in both increased volume and some price benefits. The volume has been quite strong, with robust starts for Omnipod 5 in the areas where we have introduced it.
Ana Maria Chadwick, CFO
The G7 International.
Jim Hollingshead, President and CEO
G7, we haven't announced timing. So we're obviously working on it. We have a very effective working G7 integration, which is creating a big tailwind for us in the U.S. We'll get it into European markets as soon as we can, but we have not yet announced timing.
Operator, Operator
And your next question comes from the line of Joanne Wuensch with Citibank. Your line is open.
Joanne Wuensch, Analyst
Good evening. Thanks for taking the question and very nice quarter. Yesterday, there was an announcement that I think took a lot of people by surprise, the agreement between Medtronic and Abbott. I would love your opinion on how this changes or doesn't change the AID and really diabetes delivery landscape. Thanks.
Jim Hollingshead, President and CEO
Thanks, Joanne. Yes, we're very happy with our two CGM partners. We have a great relationship with Abbott. We have a great relationship with Dexcom. We're working really well with both of them. We're very excited to announce that we'll be bringing the Libre 2+ integration to the U.S. market by the end of the year. And for us, we have a clear roadmap for Omnipod 5 platform expansion that includes sensor expansions, and it's full speed ahead. We remain very confident in our competitive position. Omnipod 5 is extremely differentiated from two pumps and will continue to be. And so we're very bullish full speed ahead with both of our partners.
Operator, Operator
And we have time for one last question. That will be from Bill Plovanic with Canaccord Genuity. Your line is open.
Bill Plovanic, Analyst
Hey, great. Thanks for taking my question and congrats on a good quarter. In terms of the gross margin, from shifting over to Malaysia, how much gross margin longer-term benefits should we see from that? And then how much do you pick up by eliminating GO, which potentially was probably a lower gross profit product, I would assume. Just kind of curious what that does for the longer-term GMs. Thanks for taking my questions.
Ana Maria Chadwick, CFO
Great. Let me get started on that. So as we commented, we have really strong gross margin once you back out the impact of the one-time impact of GO. We have stated before and continue to state that Malaysia is strategic for us. In the first 12 years, we will be accretive. So at the moment, we're ramping, so that will take time. So you can expect that that will be accretive right at around that one-year mark and will continue to be. And the other point being the product life cycle. So by taking manufacturing time away from shifting lines and all of those things, we'll anticipate that. We're not providing long-term guidance here. So we'll come back and provide more color after we wrap up here in 2024. I do want to take the opportunity to come back to some of the early questions on new customer starts and clarify just to make sure everybody is on the same page. So new on customer starts, we expect sequential growth, second quarter to third quarter, third quarter to fourth quarter that to be true, US, international, of course, globally. And we already talked about all the reasons why that would happen. Our guidance contemplates year-over-year growth in US NCS. So I just wanted to make sure that was clarified for everyone.
Operator, Operator
And ladies and gentlemen, this concludes our question-and-answer section. I would now like to turn the conference back to Mr. Jim Hollingshead for closing remarks.
Jim Hollingshead, President and CEO
Thank you, operator. In closing, we're very pleased with our Q2 and excited about our coming second half. Our cascade of innovation continues with our G7 tailwind, iOS and Libre 2 coming to the U.S., and we're eagerly anticipating TAM expansion with FDA clearance for Omnipod 5 and type 2. Our international business continues to outperform on the strength of Omnipod 5. All of that led us to raise our guide across the board. And none of that would be possible without our amazing global Insulet team who get up every morning to change the lives of people living with diabetes. Thank you, global team. And thanks for joining us, everybody, today. We look forward to updating you next quarter.
Operator, Operator
And ladies and gentlemen, this concludes today's conference, and we thank you for your participation. Have a wonderful day, and you may all disconnect.