Good day ladies and gentlemen and welcome to the second quarter of Tandem Diabetes Care 2014 earnings call. (Operator Instructions) Now I will turn the conference over to your host Susan Morrison, Chief Administrative Officer. Please begin.

Thanks. Good afternoon everyone and thank you for joining Tandem’s second quarter earnings conference call. Today’s discussion may include forward looking statements. These statements reflect management's expectations about future events, product development timeline, regulatory review process and financial performance and operating plans and speak only as of today’s date. There are risks and uncertainties that could cause actual results to differ materially from those anticipated or projected in our forward looking statement. A list of factors that could cause actual results to be materially different from those expressed or implied by any of these forward looking statements is highlighted in our press release issued earlier today under the Risk Factors portion and elsewhere on our most annual report on Form 10-K, quarterly report on Form 10-Q and other SEC filings. We assume no obligation to publicly update any forward-looking statements whether as a result of new information, future events or other factors. Kim Blickenstaff, Chairman, President and Chief Executive Officer will leading today’s call. And at this time, I will turn it over to Kim.

Thanks Susan. Good afternoon everyone and thanks for joining today’s call. With me is John Cajigas, our Chief Financial Officer. We made significant progress throughout the company in the second quarter particularly in strategic areas that are important to the long-term success of our business. Revenue, gross margin, and our R&D pipeline are three of the key areas that ultimately impacts our timing to reach profitability as well as any potential capital needs and I am very happy that we were able to demonstrate positive momentum in each. Starting with revenue, our total sales for the second quarter of 2014 grew 86% to 10.3 million compared to 5.5 million for the same period of 2013. As a point of reference, our Q2 sales were on par with our sales in Q4 2013 which is significant because Q4 is typical the strongest quarter of the year due to the seasonality of our industry. If you look at our 2014 revenue for the first half of the year, compared to the relative distribution of sales in 2013, we appear to be on track to our revenue guidance of $48 million to $54 million for the full year. Our year over year increase in sales was primarily driven by our sales force expansion from 36 to 60 territories in the first quarter of this year. Our expansion strategy of completing it all within the first quarter was based on our learning from last year’s expansion from 11 to 36 territories. It allows time for new hire activities to be completed and for the reps to begin to become productive in advance of the Q4 peak selling season. Timing and expansion requires a significant advance planning for many reasons but especially because we need to be mindful of the disruption that can cause in…

Thanks, Kim. Good afternoon everyone. Today I will provide some key metrics and color on our financial results focusing primarily on sales and gross margins for the quarter and then I will discuss the outlook for the remainder of 2014 and beyond. Overall I'm pleased with the financial results of the quarter and what we've done operationally both are important for achieving our 2014 guidance our long-term goals. As Kim touched on the bulk of our sales force transition is now complete and our manufacturing organization continues to generate greater efficiencies as we scale and start to prepare to manufacture potential new products. Also other parts of the organization have done a very good job of improving their functions as we grow and adapt to being a public company. Turning to our sales and product shipments. I am very happy with the growth we've experienced both on a year-over-year basis and on a sequential basis as well. Sales for Q2 grew 86% to 10.3 million from 5.5 million in Q2 2013. Home sales accounted for 85% of our total sales in Q2 compared to 91% in Q2 of 2013. t:slim sales grew 74% year-over-year while our supplies and accessories more than tripled year-over-year. T:slim shipments for Q2 were 2235, and grew 64% on a year-over-year basis compared to 1363 pumps for Q2 of 2013. T:slim shipments for Q2 alone exceeded our total t:slim shipments for the entire first half of 2013. We see this as important to our prospects for achieving our growth expectation. Similar to Q1, we believe the primary driver for Q2’s year-over-year increase was our sales force expansion during 2013 and early 2014. Increasing our sales presence has improved the visibility of Tandem as a company and our product to our target audiences, patients, diabetes educators and…

Thanks, John. To follow up on John's comments on our mix of third-party payers, our sales to distributors in the second quarter was approximately 70%. When we use distributors the impact continues to be slightly lower ASPs and typically the loss of the infusion set sales as they often have direct prior relationships with the manufacturers. Our goal is to ship to a greater percent of the business from distributor to payers directly. However the timing of the contracting process varies from payer to payer. For the most part, our combination of direct payer contracts and the use of distributors has allowed anyone interested in purchasing t:slim and have [ph] to do so while taking advantage of the health insurance benefits. As an update to our last call, we previously announced our signing of national contract with Kaiser that allowed us to service all Kaiser patients in Northern California on a direct basis. Today I am very pleased to share that additional regions within the Kaiser network, including Southern California, Colorado and Pacific Northwest were agreed to implement the national contract and they will go live in late Q3 and early Q4. Based on the membership information Kaiser provides publicly, our agreements will now cover approximately 90% of Kaiser’s 9.5 million lives. The customers’ purchasing experience as well as our training and ongoing customer support excellence is very important to us at Tandem. This is why I was extremely proud to see the results of a recent independent survey by the dQ&A which showcased t:slim ranked as number one among insulin pumps available today both for overall satisfaction and customer support satisfaction. This patient panel survey consisted of more than 1200 people who gave feedback on 17 pump and pump support attributes. And t:slim was ranked number 1 in 14…

(Operator Instructions) First question is from Tom Gunderson of Piper Jaffray.

Kim, on -- you mentioned that 70% coming from distributors, that’s up just slightly probably, not meaningfully from Q1 but can you give us -- and you talked a little bit about Kaiser, have there been any wins or any changes in any of private payers since the last call that you can mention?

Hi Tom, really it’s just a steady progress, I don't think there's any real meaningful contracts besides the Kaiser one, there are some other ones that are in negotiations, including large ones. But at this point I’d rather not discuss until they become more meaningful and substantive.

And then my next and last question is can you talk a little bit about competition. Did you see any changes from the other pump companies in Q2 as you start to grow larger and any impact from any new entrants out there?

Well, I would say that the landscape is pretty much consistent with what we saw last quarter. Obviously the Medtronic 530g is a new offering and so they have pretty tight control over their established base. So they tend to get to their own customers first. So I think that’s first and foremost just probably the biggest competitive element out there. And I think the Snap product – yeah the Asante Snap product I think is being launched regionally, that was down in the Southeast and so there were some activities localized there but really those are the only two things that have – sort of call it, the competitive landscape, that’s pretty much consistent with last quarter.

Next question is from Rick Wise, Stifel.

Let’s start with gross margin. You said -- both you and John said that you expect to see some choppiness but help us think through some of the puts and takes as we look at the rest of the year. And a couple questions around this – is this 34% basically sustainable and sort of however likely to improve sequentially in each – in the third and fourth quarter, maybe starting there?

Hi Rick, this is John. Basically if you look at 2013, you'll see – if you look at our quarterly margins you will see choppiness and a lot of this just as we scaled up and as I previously mentioned a big part of sort of our margin story is sort of volume. I think us hitting 34% is very good. I think it's not – to me, it’s personally not a surprise that we would do that considering the volume that we picked up on. I do expect our margin to increase as we move towards our long-term target which is in the low to mid 60s. And that’s going to be primarily volume driven as well as new product entrance into our manufacturing process. If you are looking more short-term to now and end of the year, I think we can still see some meaningful progress primarily because of the volume story. But if we are working on a lot of things to improve sort of the efficiency side of the business besides the volume that I think will have meaningful impact. But we are at a small-scale that one this step or one issue in the manufacture could have a little bit of a hiccup. So that's why we still expect to see some choppiness because we saw it last year.

Can you give us a little more clarity on the – sometimes in the past you’ve talked to us about the conversion rate, MDI conversion rates versus out of the switches, can you update us there?

There has really been a substantial change on the margin of the MDI versus switches which has -- remains about 50:50. So that going forward we expect sort of to see that remain consistent with that 50:50 split we’re seeing right now.

And maybe last from me, I appreciate the sales associates is moving around and those original 36 reps there in different territories, maybe can you give us any color on how many reps are at or close to peak and you must be approaching 12 month experience in 25 or 30 reps at this point, and again maybe how many of those have been moved around, any more color on that whole productivity metric would be great.

We’re probably not giving that level of granularity but I don't think we’re at 12 months peak experience for anybody with the reset of what we have done – did in the first quarter. Every territory got reset, so if you look at a territory like New York, it has certain geography, last year that was probably cut by two thirds. And so really that person is starting [completely over in that], that’s pretty much a team throughout that original group that we have. So I don't we have anybody that we would say is at that 12 month peak. I think we reset everybody to zero and we’re probably in the 3 to 5 month sort of aging time period for the majority of sales force. Obviously we need to see people, having sequential gains going forward in order to hit our numbers for the balance of the year which we expect to and obviously there is a seasonality at that end of the year that’s going to be a big pattern.

Our next question is from Kristen Stewart of Deutsche Bank.

I just wanted to ask – the Dexcom 1 million that you guys had I guess paid to them in July, was that accounted for in this current quarter from an R&D expense basis or will that be something that gets recognized in the third quarter?

That will be a third quarter territory.

And then just I guess in talking with – or keep on that theme I guess with t:slim G4 I guess as you’re now calling it, what should we expect to see in terms of dialogue with the FDA? I guess will you be having the meeting with them at some point just to go over the filings and what kind of gives you the confidence I guess behind the 12 to 18 months review process?

Well 12 to 18 months sort of in the experience of everybody in that PMA pathway and on the 510(k) side, we’ve consistently taken six months on that track. So I think we’re just sort of forecasting what everybody else has been experiencing. And obviously there will be dialogue, there is obviously rounds of questions as you move through the process, and I don’t know that we’re going to be commenting publicly on that as we move along. But it will give us better clarity as the timing which we will update people as we know more.

And the FDA did accept our filing as of today.

And then just on flex again, that you said was in a couple weeks, is that correct, you’d be filing for that?

Yeah, it’s a few weeks, not just couple of weeks. We’re basically in the process now of gathering the filing and putting it together and it’s got to go through a review both internal and legally and then we will be submitting that as soon as we are done.

Our next question is from Bob Hopkins of Bank of America Merrill Lynch

So a couple things. First just on the guidance, you mentioned that last year roughly 35% of the year came in the fourth quarter. Is that what we should expect for this year as well in your view, roughly 35% of the year coming in the fourth quarter?

I am not giving specific guidance on the fourth quarter but if you look at what we did in 2013, we went to an expansion and even through that expansion you can see what impact was – it was heavily back end loaded to the fourth quarter. And it was roughly 35% and that is sort of on a GAAP basis. And I just want to remind you that in Q1 of last year we recognized 1.9 million of product shipments, that we actually shipped the prior year because of the deferred revenue accounting, so if we just look at activity it’s probably closer to 37% on a sort of non-GAAP basis –

About 35% is sort of the industry average as well, right, John in terms of seasonality spread, so we wouldn’t expect something much different.

Just curious – I mean the street consensus is think about 35% already anyway, so just curious as to the message you’re trying to send there on the guidance and then two other quick things, first and in terms of the cash position, and the cash burn, just curious as to when you might consider raising equity again and I ask because at the time of the IPO you made it pretty clear to everybody that this IPO was not necessarily going to get you to profitability that you might need to do another raise before you get there. So I am just curious as to when you look at the business today, the cash burn today, cash level today do you think 2015 is a year where you may need to do another equity raise?

Our cash expectation is minimally 18 months. I think really for us it depends on how the productivity ramp of existing sales force plays out as well as when and if we get approval for t sensor and t:slim G4 and t:flex and then what that does to it. I think we have a comfortable runway to be able to see that into next year before deciding whether or not we need to use the cash. So really it’s sort of looking at middle 2015 before we can get to a point where we might to sort of do something on that. And then the other piece of that is -- we still have access to $30 million on our Capital Royalty which we can draw up until March 31 of next year and that will extend the runway for us to make that decision.

And then lastly from me just trying to gauge your confidence in the back half of this year and the reason I ask is that since the IPO the quarters that you guys have been delivering -- been a little bit less than the street's been forecasting, and the rep productivity that you need in the back half is substantially greater than you've experienced during the first half. I think we’re all aware of some the things that have gone on but maybe if you can mention some of the things that just give you confidence in the back half guidance given the things that have gone on so far this year that would be helpful and appreciated?

Well, I think we’ve drawn our experience from our expansion, from 11 territories, 36 and then what we saw there in terms of rep timing of productivity improvements and how that all played out during the course of the year. The first quarter of the year is always the most challenging one and so it was sort of within our expectations for how much sort of disruption we had that was self-inflicted by trying to do this expansion in that quarter, as well as the relative distribution of sales volumes throughout the year. So the only thing I can say is we will see these productivity gains in the second half of the year contributed both by I think seasoning of the reps and by the seasonality spread. And so those two factors I think are real, we have seen in both in the prior year and that's the best forecast we have right now.

And do you think that it can really help in the back half, and are there contract wins that you may be expecting over the course of the rest of this year?

So I think those were headwinds last year and we basically were locked on Kaiser, so I think that really opens up a third of basically the patient population herein the state of California, so we’re going to have several happy reps here that are in California that will see less of a headwind for them getting volume gains.

And on the managed care front, we are in the middle of negotiations with several payers out there including couple large ones and I am hopeful that we will have those done and that will impact during this year at some point.

Next question is from Scott Schafer of William Blair.

Just two quick ones from, in terms of the guidance, question on the op margin, a couple things that obviously helped at this year to increase the gross margin was – and a nice increase the contract wins will help gross margins going forward and even some of the operating expenses came in a little lower than we had expected, I guess what’s your expectations for the second half where you reiterate the guidance of 130 to 140?

Well you mentioned the previous question, I think gross margin will play a story in that if we continue to see the improvements we expect. The other aspect of that is sort of our management of our operating expenses and I think we did a very good job this quarter managing to sort of almost flat level. I do expect them to increase as we move along, we’ve got a couple large tradeshows we participate in, in the third quarter plus a lot of our expenses are employee oriented and if we do very well then commissions and bonuses also sort of ramp up as we move along. And then also I mentioned the two charges that will be impacting the Q3 numbers as well. So I think that sort of to play out that, I think sales can be a big part of the operating margins as well as the gross margin impact just having the volume out there.

And then one other one on the actual pump and the way that's reimbursed and the warranty on that, is that covered for the entire 4 to 5 year that the patient is on that and if it does break do you guys see any incremental revenue from any kind of replacement hardware?

So we do have a four year warranty on the pump and it is replaced or fixed at that point. So as far as incremental revenue related to warranty currently we don't have that.

Okay and then one quick one other, in terms of expansion of manufacturing facilities, I know, you said t:flex would be somewhere in 15 and obviously some of the new products rolling out, do you plan on increasing or expanding the facilities and what do you think that could do for margins?

I think overall we are expecting to expand the facilities from a corporate standpoint, we just recently here in the second quarter at the end added about 20,000 square feet to our footprint, but the manufacturing is generally contained in one area and new products are generally going to be used in existing facility that we have today. There will be some incremental investments for some ancillary equipment and some things that are unique to the new products that are on our current product today but for the most part we're not rebuilding manufacturing facilities for new products in a whole.

Thank you. No further questions at this time. I will turn the call over to management for any closing remarks.

Thank you very much. Thanks again everybody for joining us this afternoon and thanks for the questions that we just answered. The company will have representatives heading to Orlando next week with the American Association of Diabetes Educators Annual Meeting which is August 6-9. This is an important meeting for Tendem as we believe certified diabetes educators play a vital role in supporting people with diabetes. We continue to look for ways to partner with diabetes community to build awareness and home therapy in a peaceful and sleek modern design and easy-to-use interface. So in conclusion I was pleased to see positive momentum this quarter through the company and especially in the first half of the year, I look forward to keeping you updated on our progress in our future conference calls. Thanks for joining us.

Ladies and gentlemen, thank you for your participation in today's conference .This concludes the program. You may now disconnect. Have a wonderful day.