Good day, ladies and gentlemen, and welcome to the Tandem Diabetes Care Third Quarter 2015 Earnings Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, today’s call is being recorded. I would now like to turn the conference over to, Susan Morrison, Chief Administrative Officer. Ma’am you may begin.

Thanks. Good afternoon, everyone, and thank you for joining Tandem's third quarter 2015 earnings conference call. Today's discussion may include forward-looking statements. These statements reflect management's expectations about future events, product development timelines, 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 statements. A list of factors that could cause actual events 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 and under the Risk Factors portion and elsewhere in our most recent annual report on Form 10-K, quarterly report on Form 10-Q and in our 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, Tandem's President and CEO, will be leading today's call. At this time, I'll turn it over to Kim.

Thanks, Susan, and good afternoon, everyone. Joining me on today's call is our Chief Financial Officer, John Cajigas. The third quarter was an exciting one for Tandem as we continue to achieve new milestones and advance our business. We received approval for our first PMA product the t:slim G4 in September and we are now able to offer today diabetes community a choice of three differentiated Tandem pump options. It was an exciting achievement, but as anticipating the timing caused customers, as well as distributors to pause in their buying decision process as they evaluated with the FDA approval and launch of the t:slim G4 means to them. That being said, we are still able to demonstrate meaningful progress this quarter, including strong adoption and adding to our family of pump offerings, 35% gross margins, an increase from 31% in the second quarter, sequential reductions in our quarterly cash burn and a 55 point improvement in our rolling 12-month operating margin. Looking forward, our focus is a strong finish for 2015, but also equaling on 2016 and beyond by offering three unique products the t:slim, t:flex and t:slim G4 are leveraging our infrastructure while providing multiple solutions to the more than 3.3 million people in the United States who use daily rapid-acting insulin. Starting with t:slim, we continue to see a strong demand for this number one ranked product, which represents about 70% of our pump shipments in Q3. About half of our t:slim customers have consistently reported that they are new to pump therapy from multiple daily injections, which is encouraging as a sign that we are continuing to grow the insulin pump market. As our flagship product, we continue to invest more insulin to enhance the t:slim. We plan to file a 510(k) to reduce its indication from…

Thanks, Kim. Good afternoon everyone. Overall, we are very happy with our Q3 results and the addition of the t:slim G4 to our product family. Our sales and gross margin performance continue to contribute to our positive momentum over the last 12 months despite the impact of the t:slim G4 approval and launch timing. And during that same period, we have continued to manage the growth of our operating expenses and a rate much lower than our sales. Looking at some of the metrics highlighting the progress of our sales and product shipments, first I’ll discuss the rolling 12 month progress followed by particulars for Q3. As we have discussed previously, looking at longer comparative windows rather than individual quarters is important to understanding the progress and trajectory of our business. This is even more important because of the t:slim G4 approval and launch timing that took place in the third quarter. Our sales for the rolling 12 months ended September 30 were $61.6 million, an increase of 46% from $42.1 million for the previous 12 months. This was mainly driven by the increasing productivity of our expanded sales force, as well as the first full quarter contribution of t:flex and the initial shipments of t:slim G4 in the last week of September. Pumps shipped for the rolling 12 months ended September 30 were 13,178, an increase of 42% from the previous 12 months. Our average productivity per territory over the rolling 12 months ended September 30 was 18 and year-to-date it was 17. The average productivity of our sales force for Q3 was 19 pumps per month per territory compared to 16 in Q3 of 2014. We expect the annual average productivity of our sales force to continue to increase based on our organic growth and anticipated market acceptance…

Thanks John. I’d like to provide a few other updates on our products and development. I mentioned previously that we will be filing a 510(k) for a lower age indication for t:slim by year-end. We are pleased to report that we’re also planning to submit for a lower age indication for t:slim G4 in the first half of 2016. The other products enhancement we were working on is for t:connect. As a reminder t:connect is our state-of-the-art Mac and PC compatible data management software that provides Tandem pump users and their healthcare providers a fast, easy, and visual way to display data from the pump and supported blood glucose meters. It has been continuously greater than number one consumer software and independent customer survey and now the family of product is available in more than 27,000 customers [who want to enhance to experienced healthcare providers have] with our t:connect offering. In the first half of 2016, we plan to launch our t:connect [indiscernible] which will offer subscribers features they’ve been asked for such as different reporting capabilities and streamlining to access to multi-patient data. It is a project that our development group has been working on behind the scenes and that we are excited to introduce to ACP, the additional value-add to their practices. Our R&D team also continues to make great progress on our AP efforts. In Q3, we met with the FDA regarding our pre-IDE submission, which provided an insight on our first commercial AP product design and clinical trial protocol. Our next step will be a feasibility study followed by a pivotal study in the regulatory submission for our first generation AP product. This product will be an integrated t:slim with CGM pump that will automate insulin delivery based on predictive hypoglycaemia algorithm. We’re on track to…

Thank you. [Operator Instructions] Our first question is from Rick Wise with Stifel. You may begin.

Hi Kim, hi everybody, congratulations truly on an excellent quarter in a complicated period here.

Thanks.

There’s so many things to ask, I mean it seems like you are having great momentum with the new products, maybe start with some perspective, you mentioned Kim that, I think opening up of new accounts, help us understand the new accounts you are opening, are you being helped because of the, the three products is it specific to t:slim G4, how many new accounts are you opening, just additional color around that and if you would?

Well I can’t quantify and give you a number on the number of new accounts, but I’d definitely say the integration of CGM really is the leader in terms of opening up these new accounts, you have seen products available from Medtronic and then later animus that were integrated and so that was a feature set that we didn’t have. So, this really a land mark for us to be able to offer that product offering. Because it really does open up accounts that were dedicated CGM technology integration fans and we have been able to really play in those accounts. So, we are hopeful that it’s going to being to expand our penetration as we expand our sales territories as well.

Okay, and maybe John, just turning back to guidance here, you didn’t change your guidance range obviously, but I think I just read you correctly, the product guidance did not assume or include at least as best understood t:slim G4, so does that also did it imply that you are thinking about a 100% cannibalization here or I mean, should we view it, obviously it implies very strong growth, don’t mistake me on that, but it still would seem conservative based on the early launch, the early reaction, new accounts etcetera, how do we think about it?

Well, I don’t think it assumes a 100% cannibalization, but there is a high level of interest in the t:slim G4, our preliminary orders for September and October that are going through insurance verification now, are highly skewed towards the G4 product and it is the newest product and as Kim mentioned, those are accounts and customers that are looking for that feature that we now are able to offer.

I hear you, still hard to understand it seems like you got a lot of momentum, the numbers could prove conservative. Just one last question from me, Kim, you are adding 12 territories that makes a ton of sense just, what’s the timing of that, how you’re going to serve stage that or rule that out and obviously in the earlier stage of your evolution you increased territories and it was a little disruptive, should we be concerned how can you sort of re-assure us that we won’t see that same kind of disruption, we will get the good stuff and not the bad stuff? Thank you.

Well I think that what we are doing here is sort of filling black holes, areas that are poorly covered, areas that really didn’t have good representation, so we are hoping that we will be able to accomplish the expansion by the end of the first quarter. We are first starting on it now obviously and we would like to have that up and running by the end of the first quarter. We don’t expect to see the kind of disruption that we saw when we nearly doubled the sales force and changed every territory out in that process. So, we think it will be far more additive and less disruptive than the additions we have done in the past.

And just a quick follow-up, how quickly could those be incremental contributors to the top line, does it take 6 months, 12 months, what should we assume, thanks and I will stop there.

Yeah, 6 months to 12 months is a reasonable expectation for them being productive and adding to the top line. I mean that’s part of our goal for increased revenues next year, first line is new products, second line is expansion of the sales force.

Thanks again.

Thank you. Our next question is from Tom Gunderson with Piper Jaffray. You may begin.

Hi, good afternoon everybody. I, just to start, couple of clarifications, Rick was talking about the 12 territories, just to make sure we have our words right, these are 12 new territories, commission carrying, not managers, not juniors, this is new territories, is that the way to think of it?

Yes, that’s right.

All right and then the other is, I know you got the FDA approval in early September, did you say the 487 is shipped all in the last week of the quarter?

That’s correct.

Okay. Then for the question, we’re all going to try and figure out how much is cannibalization and how much is going to be new and you commented quite a bit in your prepared remarks. I’m just wondering as you look at those preliminary orders that come through for t:slim in October, are those maintaining a rate that was within the range that you were expecting given the launch of the other two products? In other words, if we were to look at overall growth rate for t:slim based on the first six months of the year, is that fitting within your expectations as we head into Q4?

The percentage of the pump orders that are ranked to the process now are highly skewed towards the Q4 and at this point it’s too early to tell whether that’s pent up demand or if that’s really a continuing trend that we’ll see continuously. The orders for t:slim are generally lower than that so that we just believe that there is some cannibalization going on.

Okay. And then final question, by definition everybody on the call has heard about these products and probably heard about these products for the last six to nine months but that doesn’t mean that all of your customers are as up-to-date particularly because you couldn’t market until after September 09. Can you give us a little feel of what’s happened between 09/09 and 10/09, 20/09 as far as informing the diabetes community about G4?

Certainly we had a strong effort in trying to inform our own customers who were in the queue as to the availability of the t:slim G4, so there was a lot of activity there but all I can tell you is that based upon the demand we are seeing from our own customer base, there is a great deal of interest in the product. Obviously in the larger community, the availability of more integrated CGM options is something that is highly in favor of the community and so we hope that’s going to continue to expand demand but I really can’t quantify that for you.

Okay. That’s it from me guys. Thanks.

Thank you.

Thank you. Our next question comes from Ben Andrew with William Blair. You may begin.

Good afternoon. Thanks for taking the questions guys. John, can you give us a sense what percentage of the orders went through distributors this quarter as you typically do?

It was consistent, it’s 77%.

Okay, great. And then Kim I thought you said that you’re going to file for the G4 algorithm upgrade in the first half of 2016 is that right?

The algorithm upgrade?

On the t:slim G4.

For AP?

For pediatric.

Yes, that’s correct.

Okay. I missed what that was for. So are you planning to file for the new software algorithm that Dexcom got I guess last fall?

No.

Okay. And so the next upgrade is just you’re going to go straight to the AP versus anything else on the sensor side?

Correct.

Okay. That’s helpful. And then just to clarify do you get a place advantage when you sell a t:slim G4 over a t:slim?

No, they are build under the same codes among our three products, so there really is no differential in the pricing for us generally.

Okay, great. And then it’s like early days as some of the other people we are asking about with the product in the marketplace and you talked about a majority of the pumps being G4 in the fourth quarter. Where should we look for that to be overtime? Is there consensus of all, we know it’s still early but what have you heard back from the user base both patients and physicians?

That’s probably really the hardest question to answer really at this point looking forward at what percentage of that base is going to be. The t:slim G4 versus the phase 2 slim and we really don’t have a good handle on that yet which is part of the problem with having good guidance here in the fourth quarter. So we expect to be a high percentage because it has been, so [indiscernible] that people have asked for but I really can’t give any answer on basically quantify it for you.

I think that longer term that we still believe that t:slim has the advantage as we move towards AP products because of its Bluetooth radio and so the Project Odyssey hopefully will get that approved next year and be able to utilize that capability to bring some added benefits to the t:slim products.

Okay. And then Kim if you walk through the timing on the AP project a little more granularity at this time with the hypo and hyper algorithms. Is that just a function of the number of patients in the size of the trials perhaps that FDA would require to do both at once or what was the bad story there?

It’s the guidance that we got from the FDA that it was better to do it sequentially than it was to try to do it simultaneously or we haven’t given really any granularity what the studies are but there are decidedly different studies and they are step wise moving towards in home setting and so the revise [ph] that we got from the FDA that we put them up when we do it sequentially.

Okay, great. Thank you. That’s it from me.

Thanks, Ben.

Thank you. Our next question is from Doug Schenkel with Cowen and Company. You may begin.

Hi, this is Ryan Blicker filling in for Doug. Thanks for taking my questions. Starting with the pediatric indication expected for next year, do you believe the lack of a pediatric indication to date has been a real bottleneck or doctors have been comfortable offering t:slim to pediatric patients off label.

No, I think we have been pretty strict about our marketing guidelines and so we cannot market below the age indication that we had approved. And so I think that maybe obviously since we can’t market it accurately, it doesn’t form the community obviously the availability of its core lower usage. There has been obviously physicians to make choice to prescribe it, but we certainly can’t promote that. So I think it’s a real opportunity for us to do marketing activities that we really stay away from including summer camps and activities where the lower age indication where we weren’t approved were present. So we’ve been hamstrung by the syndication in this. We’ll take that limitation away.

Okay. Thank you. That’s helpful and then shifting to the AP program, it sounds like you made some great progress. Can you provide an update on your search for an algorithm partner and when do this really need to be secured in order to remain on track with your timelines?

We haven’t really given the details of who our algorithm partner is and which one we are using. So I can’t really give you any indication on that but we have selected as it part of the protocol that we review with the FDA.

Okay. Thank you. And then last one from me with operating margin. After making some heavy investments in 2014, you‘ve done a great job managing OpEx so far in 2015 both with SG&A and R&D. Moving to 2016 with the sales force expansion you talked about as well as a number of ongoing R&D projects including your AP program, how should we be thinking about OpEx? Should growth here track a bit closer to revenue growth than what we’ve seen in 2014?

We are not giving 2016 guidance in particular at this time but I can tell you that we are moving towards trying to get to cash flow breakeven and we do expect that our progress that we’ve made on the operating margin line over the last year, year and a half is going to continue into 2016.

Okay. Thank you.

Thank you. Our next question comes from Tao Levy with Wedbush. You may begin.

Great, thanks. Good afternoon. So maybe if I could ask a little bit on the September insurance verification that you talked about, do those start to kick in now in the October timeframe in terms of pumps that are shipped?

That’s correct.

Generally it’s a 30 day insurance cycle, sometimes it’s been run a little long with the G4 here because people are also looking to verify their CGM insurance at the same time. So now you are going to two processes at the same time.

Okay. It sounds that you’ve had one record month and then followed by another record month there, well positioned for the fourth quarter. Is there anything that could do real some of these trends that you’ve seen over the last I guess month?

The only question is whether or not what we’ve seen early on in the launch of G4 is a pent up demand that will sort of level out. But we don’t consider that to be a high likelihood. I think we hear obviously a lot of excitement from the customer base, feedback, our sales force is excited to have this attitude to their bag and it is also our seasonal high quarter where we generally see the most of our pumps sold. So I think we are highly confident we are going to hit our guidance range on sales for the year.

Okay, great. And anything, is there such a thing as g:flex G4?

No, there is not.

Is there a need or do you think in the marketplace?

We don’t say there is a need in the marketplace at this point in time, type 2 is generally or not to CGM by using patient population who we really don’t have in the pipeline.

But you’re saying if I understood your comments earlier on properly, you are actually seeing more uptick in the Type 1 than the Type 2s.

Correct.

Okay. And then just lastly maybe a clarification, when you talked about the sequential clinical trial process that the FDA is asking for the AP program, I think I thought I heard you mentioned that the agency wanted an easy use the most accurate CGM sensor for the second tranche of patients. Are you referring to the G5 and if so when do you start to talk to us about G5 integration with I don’t know which pump it will be, but…

Right, the integration roll out, we’ll probably give you more guidance on that next quarter. We haven't really disclosed which sensors we are using and in which trial, but we have discussed that with the FDA and we will give you more granularity when we have our next conference call.

Okay. Great. Thank you very much.

Thank you.

Thank you. Our next question is from Jeff Johnson with Robert Baird. You may begin.

Thanks guys, just a couple of questions here. Kim, maybe just on the FDA feedback on the AP, would be interested in hearing why they thought sequential would be better than running them simultaneously as it just ease of looking at the data and I think I heard you it makes sense that you start hypo first but I just want to make sure that’s what I heard correctly?

Yes, you heard that correctly. No, the first one is just the feasibility study and the second study is more of a validation study and that’s very typical in clinical trial process with the FDA. So I mean this is sort of the normal standard way they will do about [indiscernible].

But I just want to make sure I’m understanding that you still will be going after hypo indication first and then through a hyper later.

That’s correct.

And you will have to get the hypo indication approved before you can start any work on the hyper, is that what the FD&A is telling you?

No, we haven’t really talked about that but…

Okay, that’s helpful and then just on t:connect, when that portal goes live in the first half of 2016, just remind me is there any way to monetize anything there? Is that just a selling feature that obviously improves the attractiveness of your offering?

It’s the latter. It’s really an added benefit we want to provide our customers and then also the HCPs.

All right, thanks. And then last question John I guess from me is just more than the cash burn rate, I mean it’s come down here in the last quarter I guess even if we adjust for the Dexcom payment, it came down even nicer. It looks like to me you could probably shake out in the mid 60s here for the year on a cash burn rate. As we go into next year, I know you’re not providing guidance but is some of the G 4 t:slim launch costs are still in there, you’re expanding territories and that, is there any way to think about that cash burn rate coming down below $60 million or do we probably need to stay above $60 million just we think about 2016.

Again, not really given specifics on 2016 but again with three products going into 2016 versus going into this year we put single product plus we intent to hopefully get some approvals for some other products that we can offer next year that will help our credibility with the customers on the HCPs. I think you will see not only enough lift in sales but gross margins as well as operating margins moving towards that profitability.

Okay, that’s helpful. Thank you.

Thank you. Our next question comes from Kristen Stewart with Deutsche Bank. Your may begin.

Hi, everybody, hope you’re doing well. Most of my questions have been answered so just a couple of clarifications. Just with respect to the sales guidance for the year, I always have thought that some portion of t:slim G4 had been included. I just wanted to make sure that I understood that correctly when you had answered Rick’s question, he had said that it wasn't – I just want to make sure I understand what was originally 70, 75?

Sure. In the original guidance we provided at the beginning of the year, Rick was correct in what he understood and that it was 70 to 75 and did not include t:slim G4.

Okay.

And part of the reason we’re looking at this and not adjusting the guidance is that because it is early in the launch we’re seeing a high interest in t:slim G4. We do see some cannibalization at t:slim product itself, as well as just with the sequential growth expectation is between Q3 and Q4 and what we see in the pipeline we think that’s adequately represented of what we think we can do for the year.

Okay. So you always thought it was going to get approved this year, but never included any incremental revenues for it?

Correct. Well, the key new assumption is the cannibalization portion of that.

Right.

Yeah. At the level since we launched.

Got you.

Now, whether that’s just the pent-up demand, aspect or that’s the continuing trend remains for us to be evaluated.

Okay. So, the earlier approval certainly would enhance your confidence to get certainly to the range?

Definitely. We are highly confident we’ll be in the range.

Okay. And then can you just walk through again I just wanted to make sure I understand the expansion of territories correctly and the number.

We intend to have 12 territories.

Okay.

And we are working on recruiting those today and the timing of one that would come on board is highly depended on when the offers occur, but it’s probably, they will all be on board probably in the next six months and up and running and as Kim mentioned we’d like to see those become highly productive within six to 12 months.

Okay. Perfect. And then just the improvement in the operating loss this year what’s kind of driving that just controlling...

Obviously there is a sales growth component that you see overall. On the expense side, it really as we put in an infrastructure in place that we’re now beginning to leverage against the sales. I won’t say that we won’t make incremental additions to the operating expense infrastructure as the business grows and we will, but we expect that to be at a much lower rate than our sales growth. Another key aspect is, gross margin is improving as the volume has increased, we are also making improvements that have helped our warranty costs come down and that has also played a big portion of what we have started to see here in the third quarter.

Okay. And no improvements in terms of cost of goods sold for the disposables outside of just the benefits of increased scale?

There is increased scale. We’re also working on just improving our efficiencies in that process and that’s happening. Those margins are increasing as well.

Okay. Perfect, great, thank you very much and great quarter.

Thank you.

Thank you. Our next question is from Ben Haynor with Feltl and Company. You may begin.

Good afternoon, everyone. Thanks for taking the questions.

Hi, Ben.

First off, how long was this suspension of shipments, I know you said you suspended them on September 09, was it just the two weeks in total launch on the 23rd or was it shorter or longer?

What we did was basically when we announced it on the 9th, we suspended shipments for three days, no shipments went out the door at all for any products and we did an outreach to all the customers that opened orders with us and basically informed them that t:slim G4 was available and asked them if they would like us to place hold on their order, while they’ve determined whether or not that new product was something they would like better than the t:slim or the t:flex. And then after that if they had told us immediately that they wanted to stay with their orders we would fulfill that order, but if they wanted time to evaluate it, we would basically put a hold on their order until they came back.

Okay. That makes sense. And then a couple of quick ones on R&D expense, first off kind of following on Kristen’s question I think was the Dexcom milestone originally included in guidance?

Yes.

Okay. And then for Q4 would you expect that the total R&D expense to step down sequentially by about that amount or will some of the other development efforts cause the decline to be somewhat less there?

I think there will be a step down equivalent to that milestone payment. There will be some nominal increases in R&D as activity increases with the project that we are working on, but nothing extravagant.

Okay. Great. Thank you very much.

Thank you.

Thank you. [Operator Instructions] Our next question comes from Bob Hopkins with Bank of America. You may begin.

Thanks and good afternoon.

Hi, Bob.

Hi, Bob.

Hey guys, two quick questions. First, I’m sorry if I missed this, but can you give us a sense as to trends in terms of percentage of pump sales coming from wins over competitors versus MDI conversions, I’m not sure how closely you’re able to track that, but just curious as to trends in the quarter on that regard?

The trend continues to be consistent. We’re continuously right around 50% of our business coming from conversions from competitor pumps and 50% due to pump therapy MDIs.

Okay. And that’s been pretty similar to the last few quarters?

Definitely, that trend has been there for a while.

Okay, and the other quick thing I wanted to ask about is just, the consensus I believe is a little over $100 million for you guys for next year in revenues and you will talk about this more later, I realize, but I am just wondering are there any thing that you would have us consider either positive or negative for next year, obviously a lot of the disclosures today seem quite encouraging, suggesting that number might be pretty conservative. So, I just wonder if there is some things that at this point without giving specific guidance you would have us consider as we think about modeling for 2016.

Well, I will say that. We will go into 2016 with the three pump offerings that we have - that we didn’t have here at the beginning of this year, we had just t-slim and so us getting t-flex and t-slim G4 approved with the ability to have some experience in 2015 bodes well for us going into 2016. We wouldn’t be adding territories, the 12 territories have been [indiscernible] highly confident that the products that we’re going to sell during 2016 will be utilized by the sales force at a high level and then we will see some time to ramp, but I think 2016 the gross margin line will improve as well. I think from the other thing on the sales line to consider is that 2016 will be the first year in which renewals will become a portion of the business that we can basically go after, so that will be new incremental that we haven’t seen prior to, but that will also be not very much, I think it’s about a 1000 pumps starting in August of next year that we’ll be able to go after, but 2017 that number will jump to close to 6000.

Okay. Great, that’s helpful. That’s all I have. Thank you.

Okay. So, thanks Bob.

Thank you. I am showing no further questions at this time. I’d like to turn the call back over to Mr. Kim Blickenstaff for closing remarks.

Okay. Thanks again everyone for joining us today. I’ll give you an update really quick update on two upcoming investor conferences that we’re going to be attending. On November 18, we are presenting at the Stifel Conference in New York City. So we will be there at that conference and then on December 01, we’ll be at the Piper Jaffray Healthcare Conference, which will also be in New York City. So we’ll be travelling to New York. So, thanks again for joining us on today’s call and we look forward to keeping you updated as the company progresses. Thanks for joining us today.

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.