Good day, ladies and gentlemen and welcome to Tandem’s Fourth Quarter and Full Year 2015 Earnings Conference Call. [Operator Instructions] As a reminder, today’s conference call is being recorded. I would now like to turn the conference over to Susan Morrison, Chief Administrative Officer. Please go ahead.

Thanks. Good afternoon, everyone and thank you for joining Tandem’s fourth quarter and full year 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 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 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. And at this time, I will turn it over to Kim.

Thank you, Susan. Good afternoon, everyone. Joining me on today’s call is our CFO, John Cajigas. We entered 2015 with bigger aspirations for growth, product development and operational progress and I am proud that we delivered on all those fronts. It was our third full year of commercial sales and those three years we have grown from offering the t:slim pump, our flagship product to offering a full family of products that meet different needs of people with diabetes. We have also demonstrated greater than 40% annual sales growth each year and quickly progressed to 36% gross margins, all while narrowing our operating loss for maintaining a number one rating by customers in the independent surveys. These achievements are a direct result of the hard work, passion and dedication of our employees and I am thrilled with all that we have accomplished in a relatively short period of time. In 2015, we achieved $73 million in sales, meaningful reduction in our cash earnings quarter, the clearance in successful launch of the t:flex pump and approval of our first PMA followed by the launch of the t:slim G4 within a matter of weeks. And looking to the year ahead, 2016 is once again positioned for outpaced growth and continued improvement with our gross margin and operating margin as we manage the business towards profitability. We also have a number of exciting product development initiatives for our customers and the diabetes community and continue to strive to provide people with diabetes the utmost care and support. We are the first and only company to offer three different insulin pumps that address different needs of the diabetes community and we now have more than 33,000 customers. We continue to see that about 50% of our shipments have been to people who are new…

Thank, Kim. Good afternoon, everyone. Overall, I am very happy we ended 2015 with a strong fourth quarter performance with our record sales for a single quarter, highest quarterly gross margins ever, and our entire organization continuing to manage our operating expenses and provide the highest range of customer service in the industry. Our performance over the last 12 months and in the fourth quarter, in particular, continues to give us confidence as we manage the business towards profitability. Looking at our sales and product shipment progress, first I will discuss our rolling 12-month metrics, which we continue to view as better indicators of our progress, followed by some particulars for Q4. As Kim mentioned, for the third in a row, we have delivered annual sales growth exceeding 40%. Our sales for 2015 were $72.9 million, an increase of 47% from $49.7 million in 2014. This growth was driven by the increase in productivity of our sales force and contribution of our new product, the t:flex and the t:slim G4. Pumps shipped for the 12 months ended December 31 were 15,483, an increase of 43% from the previous 12 months. As of the end of 2015, our cumulative shipments have grown to more than 33,000 pumps. Our average productivity per territory over the rolling 12 months ended December 31 was 21 pumps per month per territory compared to 17 for the previous 12 months. In 2016, we expect our average annual territory productivity to increase to between 24 and 26 pumps per month per territory. The higher productivity is expected to be driven by having a family of insulin pumps to offer customers in ACPs, new product enhancements that Kim will discuss and the opportunity to retain customers that purchase a t:slim in 2012 whose warranty will expire in 2016.…

Thanks. As John outlined, we continue to have bigger aspirations for Tandem and are confident in our ability to reach our long-term goals, offering three pumps is a game changer for our business as it’s an inflection point for sales as well as leveraging our internal infrastructure. In 2016, we are managing the business towards profitability while continuing to make investments that will grow sales and further expand our offerings to the diabetes community. These new offerings can be best divided into two groups: enhancements to our current products and new products. Starting with product enhancements, I am happy to share that we filed a 510(k) for extending our pediatric indication for the t:slim pump to ages 6 and above. As a reminder, the t:slim is currently indicated for individuals ages 12 and older. We believe that with an expanded claim, the t:slim is moderate to look and easy to use interface will be able to market the benefits of pump therapy to the caregivers for this younger audience. While approval is always at the discretion of the FDA, we are planning for clearance of a lower age indication in the second quarter, after which time we plan to submit a PMA supplement to expand our pediatric indication for the t:slim G4. The next enhancement we are making in 2016 is the t:connect, our cloud-based data management application that is compatible with all of our insulin pump products. We have been working on an enhanced version of t:connect, called t:connect HCP that simplifies the ability of patients to share their data with their healthcare providers. The t:connect HCP also allows the healthcare provider to establish a separate account that makes t:connect data from all their enrolled patients, more acceptable to the HCP’s offers. t:connect regularly receives the number one rating…

Thank you. [Operator Instructions] And our first question comes from Rick Wise of Stifel. Your line is now open.

Hi, good afternoon everybody and truly congratulations on the excellent quarter. Kim, John, maybe I will start of just with if I guess more – thoughts in reflections on your 2016 sales guidance of 44% to 54%, you very recently – just, whatever 6 to 8 weeks ago, said that you thought that you could grow 40% plus in 2016. I am just curious what’s giving you the confidence although obviously 44% and 54% is 40% plus. What’s changed if anything that makes you more confident in putting a stake in the ground with such excellent growth outlook?

Well, probably one of the things is the fact that we have expanded our sales force, Rick. And that productivity really is going to come online probably in the second half of the year as these people get more seasoned in their territories. Also it’s going to be the having in the first full year of having three different products in the marketplace. So with the fast start that we got off to in the fourth quarter with the CGM and handheld enabled products, I mean, I really have high hopes for that for the year. So, it’s probably those elements together that really give us confidence about that guidance.

And I will just echo that. It has been very helpful in the fourth quarter that we had three pumps into the market to offer HCPs. And the diabetes community basically they have their choice of what pump they want to use.

Yes. And John, you talked about in the past mid 20s type territory productivity as a goal, you already – it seems like you are sort of there, maybe help us think through how do we think where it can go and when it can go there as we look at our – go ahead….

Well, I think we are looking for 2016 to sort of average between 24 and 26. And as a point that is an average. So, we are going to have people that are a board spectrum of performance above and below that average. And so our goal is to try to make sure that we have a tighter range and a higher range and potentially take that average up to something north of that number, but I really want to see where the year goes. I think as I mentioned its family of three products is something we expect to have a high impact on productivity for the sales force and that’s why we expanded the sales force here in the first quarter.

Alright. And just last from me, a couple of questions on gross margin. The COGS charge this quarter and the deferred cost, how do we think about those charges in the fourth quarter? Should we be looking at the fourth quarter gross margin normalize excluding those costs? And maybe just – again help us think about if you exited with a 46% gross margin in 2015 that’s something like a 600 basis point expansion. Should we be thinking about similar expansion or no greater even in 2016 given the volume and the mix and everything else?

Well, a couple of things for the fourth quarter on that exchange program, our margin overall was 46% on a GAAP basis. That included deferred revenue of $700,000 and deferred cost of sales of $230,000, but we also incurred a $2,000 charge for the actual G4 pumps that we sent out as well as the shipping cost going back and forth. So, at the end of the day, if you do the math on that, you can see that the impact to Q4’s gross margins, we actually could have had a slightly higher margin without the exchange program, but roughly the same. The reason why it’s so high is primarily because of the volume and primarily because we had high pump sales during the quarter. And that’s the expectation we have always had is that we can put three pumps into the market addressing unique un-penetrated markets to be able to get pumps into those markets in that segment, that will allow us to maintain a high level of our concentration of our sales in pumps, which have the higher gross margin. And that’s the expectation we have for 2016. And I do expect gross margins to progress to a level that we see moving towards profitability towards that 50% that we see in 2 to 4 years.

Right. Thanks, again and congrats on the outstanding quarter.

Thanks, Rick.

Thank you. And our next question comes from Tao Levy of Wedbush. Your line is now open.

Hi, good afternoon.

How are you, Tao?

Good. So, couple of quick technology questions if I might. So, with the device updater will that allow a t:slim to have its Bluetooth turned on?

That’s correct.

Yes. The first iteration won’t actually allow for that, but the long-term potential is work to be able to turn on. And so the first generation or the first software that we are going to be able to give our customers access to is actually the more recent software update that we launched mid last year, which gives basically enhanced features. So, we want to be able to offer our early customers the same benefits that we are able to offer our t:slim customers today.

Got it. Okay, prefect. And also on the updater, will that be – will that also potentially turn t:slim G4 into artificial pancreas type device once you get the algorithm approved?

Yes, that’s our hope. I mean, that would be the purpose of it would be to push through these enhancements that are really software-based. So, that’s very much potential. I would have a regulatory path of its own, but it definitely would be our potential.

Great. And then just lastly on the financial side, any difference in the quarter, direct versus distributor sales that might have helped your gross margin?

No, it was fairly consistent – it’s right around 77%.

Okay, perfect. Great. Thanks.

Thank you. And our next question comes from Thomas Gunderson of Piper Jaffray. Your line is now open.

Hi, good afternoon. This is actually Kyle on for Tom. I hope that you mentioned in your filings of the 510(k) the reduced indication from age 12 and above to 6 and above, can you talk a bit about what you think the expanded opportunity will be from capturing the younger patient cohort and sort of how many addressable type 1 diabetics are in that 6 to 11 age range?

I don’t think we have any good data on what the potential increase in total market is, but I can tell you it’s really hampered our activities on the marketing basis, the sales basis to pediatrics, because there is no clear cut lines in these conference that we attend or in practices that we call on. So, we really have to be careful not to market over the limits of our indication. So, it will sort of take the gloves off on those activities. And I think we can be more aggressive and see sales into that segment, but we don’t have our quantified number of how many are at that 6 to 12 age group.

Okay. And you said you expect to have all 72 reps on board by the end of this quarter. How many you have now and what’s your longer term goal as you get closer to commercializing your next-gen AP pumps?

Are you talking about our sales force side?

Yes.

So we have expanded the 72 in this quarter counting on and start being productive in the second quarter and we haven’t really given guidance as to how large our sales force is going to be ultimately as we expand our product offerings, but as we take market share I would guess we probably have a sales force of 100 or so and we haven’t really determined in what steps we are going to be stepping up to that level, but that’s the sort of size I would receive based upon market share gains and product introductions.

Okay, great. And then just lastly, how was pricing in the quarter?

It’s fairly steady, consistent, nothing dramatic.

Okay, great. Thank you.

Thank you. And our next question comes from Ben Andrew of William Blair. Your line is now open.

Hi, good afternoon. This is Alexa in for Ben. Thanks for taking my question. Can you hear me okay?

Yes, you didn’t sound like Ben.

So, going back to that distributor question, so you said it was consistent like last quarter around 77% distributor, how do you think this is going to trend going forward?

I think it’s going to be fairly steady. I think my comments haven’t changed. I think the landscape hasn’t changed for us dramatically. So, we are continuing to try to work on that, but with where we are, with the contracts we have in place, with where the peers are with consolidation, I think it’s probably pretty steady for the foreseeable future.

Okay, great. That’s helpful. Thank you. And then in terms of your long term gross margin goals of 60%, does this goal assume no change in distributor I am assuming?

Very modest.

Modest, okay. And then the second question for me, I guess, would be on t:flex, for now that you are a couple quarters in, could you just kind of flesh out a little bit more detail on what your – what kind of interest you are seeing from clinicians and pushing traditional non-pumping T2s on to the pump and kind of what would it take to see adoption really accelerate in the T2 market?

Well, I think we saw an overwhelming uptick in the CGM products in the fourth quarter which sort of overwhelmed t:flex, which was available in the third quarter and had probably more attention to it. So, my assessment of it, it really does has an opportunity to expand that type 2 segment we are seeing that people have added to, ACPs have added to is a pretty more type 2s on the pumps. We think that we score very highly in the ease of use, ease of training categories of being able to offer that only reservoir that really meets the needs of that patient population. So, we expect to have good growth over the coming several years as trends move on getting more type 2s on the pumps.

Okay, that’s helpful. I think that’s it for me. Thanks, guys.

Alright, thank you.

Thank you.

Thank you. And our next question comes from Doug Schenkel of Cowen. Your line is now open.

Hi, this is Ryan Blicker in for Doug. Thanks for taking my questions. Following up on the gross margin, the long-term gross margin target, can you give us a sense of what is assumed from a revenue growth perspective to reach that 50% target over the next 2 to 4 years? I guess at the midpoint, do you needed to stay in this robust 40% growth to get there? Any color would be helpful.

Sure. I am not able to sort of give you the revenue level that we would need to obtain in order to get that margin, but I will tell you that our goal is to make sure that we grow on the long-term at least 40% per year, which is what we are trending towards, including 2016 in our history. And I want to make sure that we maintain a high level of sales of pumps in our distribution of our sales among our products. So that is primarily what’s going to drive that to that level as well as just the efficiencies we gain with having volumes as well as the efficiencies in the process.

Okay, thank you. That’s helpful. And two pipeline questions, first on the second generation AP products, I guess if all goes to plan with the first generation type of products, should we expect the second generation product potentially on the market by the end of 2018?

I don’t think we have announced a formal timeline on it, but it’s going to be a PMA product obviously and start work after we are done with that first product. So that guess is as good as mine.

Okay. And lastly, on t:sport, it’s been a while since we have heard you talk about this one. Can you give us a sense of, I guess, what portion of the market you are missing out on here? Is this to more I guess directly compete with patch pump competitors there any other information?

Yes. I would say that there is a desire on the part of people wearing patches that have a detachable catheter. And so what we are sort of doing is becoming a hybrid patch pump and it’s discrete. It’s a much smaller. It’s only about half the size of the t:slim. So I think it’s going to appeal with that market segment and probably into the pediatric segment as well. So it’s showing pretty good marks, actually good marks in terms of market research. So we feel like it’s a viable product to pursue development on in this year.

Okay. Thanks guys.

Thank you. And our next question comes from Jeff Johnson of Robert Baird. Your line is now open.

Thank you. Good afternoon guys. So a couple of modeling questions and maybe a couple of pipeline questions as well, but John just starting on the modeling questions. I mean, what are the end market growth assumptions in 2016 guidance from a top line perspective. And then I guess Kim, a higher level question, but how do you view guidance, I think the feedback I have been getting from investors here just after the fourth quarter prereleases, no upside to the year and that was a little disappointing maybe added a little pressure to the stock. And then you put a big ‘16 guide out there, I mean do you aspire to beat numbers, do you put numbers out there from a guidance perspective that you think you can beat, you put numbers out there that you think are very realistic view at your outlook for the year, I just haven’t covered you long enough, maybe it would be just helpful to hear kind of how you think conceptually about guidance?

We think conceptually about – first of all, guiding in ranges because a spot numbers probably not a wise thing to do, but we are more aspirational probably in the guidance that we are giving out. We hope that our activities during the year give us numbers that we can raise guidance and certainly what we want to rather than lowering guidance. Sorry, hear to that that earlier guidance was disappointing, but we thought to send the message that we were going to have another year of 40% growth. I would send the right message to the Street. But we are looking for a higher growth from that and again our aspirations and how we incent our sales force is higher than that guidance.

And John anything on the end market assumptions in the guidance?

No. I think our assumption is that the market is growing mid to high single-digits, overall.

Yes. Fair enough. And then Kim, just on [Technical Difficulty] Okay, just two pipeline questions. So Kim one, I think when you talk about first-gen verses second-gen AP in the past, the FDA it kind of given you feedback that you need to develop in the sequential nature, it sounds like you are pivotal on the second-gen could start in ‘17 before you have approval for the first-gen, has something changed there are they freeing up a little bit like move forward on second-gen before first-gen is completely wrapped up or anything I m missing there?

No. I think it’s still in the same sequence that we have given guidance on before. Exactly, when we can start those feasibility and then the pivotal on the hyper portion of it is probably really going to be coming after the hypo portion is finished.

Okay, that’s helpful. And then my last one just on t:sport, half the size of the t:slim, what would you at this point, how are you thinking about the reservoir size on that, number one. And number two, would you view this as an alternative to t:slim, would this be anything what you would expect or think that patients might buy this as a second pump to use in certain situations or would this be a primary pump with just a smaller reservoir smaller size?

Yes. It will have a smaller reservoirs targeted to have a 200 unit reservoir. And so I think it is targeting the population that doesn’t have the need for 300 units or 480 units, and I think is a significant part of the market for that probably 20% of 25% given what animus has been able to with lower volume reservoir.

Got it. Very helpful. Thanks guys.

Thank you. And our next question comes from Greg Chodaczek of CRT Capital. Your line is now open.

Thank you. Just two quick housekeeping questions for you John, how many t:slim G4s were there in the fourth quarter?

How many did we sell?

Yes.

We sold 3,857.

Fantastic and the $100 that goes to Dexcom, can you explain where that ends up on the P&L?

It’s really in the liability. And then on the P&L itself, it’s on the liability on the balance sheet and on P&L, it’s on the cost of sales line.

Okay. And technology wise is the Bluetooth radio on the current t:slim strong enough for a G5 Dexcom sensor?

Yes. Absolutely.

Okay. I am just checking. And in terms of the t:slim AP, what device would you go to the FDA with, would it be a G4 or would it be a t:slim with a G5?

Well, right now, the plan is t:slim G5, but it’s possible that G6 may be pushed up in time to be included in that product development cycle. So Dexcom has some new news on their timing of the G6, so it may have an impact on our program.

Okay. So it would be using the Bluetooth radio and a regular t:slim using their G5, their latest and greatest G5?

That’s correct.

Okay, great. Fantastic. Thanks guys. And our next question comes from Kristen Stewart of Deutsche Bank. Your line is now open.

Hi. Thanks for taking my questions. Hi everybody. And just wanted to see if I could get your thoughts on the competitive environments, given that you guys are growing so slowly at 40%, 50% and then markets have been growing like mid single-digits may be high?

Okay. Sarcastic.

Yes. You sense a sarcasm, can you may be just talk about the competitive environment that you were seeing, obviously kind of entering into 2015, there were some concerns like competitively speaking with J&J’s launch and Medtronic, with their new pumps and you guys have seemingly done while obviously exceeding 40% in 2015 and guiding to – you have guided in 2016 so you seem to navigating the environment, but maybe if you could just give us a refresh on what you have seen in 2015 and just kind of how you are thinking the landscape is going to be shaking out in 2016? And I should clarify that with sarcasm?

With sarcasm. Yes. We charged on…

That probably doesn’t hear to my voice.

Okay. We probably saw the most change in ‘14 and ‘15 with the availability of the Medtronic low-glucose suspend product, the threshold version of that, it’s not a predictive version, let’s say – it’s a threshold point. And that had a lot of noise around and seem to sort of confuse the markets they positioned it as the artificial pancreas and they have got lot of press and so forth. But it just simply didn’t do well in the market because there was CGM underperforms the Dexcom product. And then, the vibe integration with CGM also was sort of the headwind for us that gave us to two competitors, we didn’t have that feature, we have to wait to the end of the year to sort of remove that headwind, but our growth from the CGM segment certainly show that we have a very competitive product with all the t:slim features and the CGM stacked on there. So I mean I think if I look back on the year, the biggest landscape changing was us in terms of being able to come to market with CGM.

I guess, was thinking through the guidance for next year, I guess reflecting back to the beginning of 2015 you did have a little bit of that recall and I guess the increased awareness the higher number of territories and then the full completeness of the product. I guess, then all that should speak to I guess, I higher rate of growth for next year and for the replacement cycle – that really just kicks in, in the fourth quarter and then really it’s more – really more of a 2017 growth driver, correct?

Correct.

Okay. And with that you are building that into your productivity numbers?

Yes, I am. It’s a smaller proportion. So just as a reminder, 2012 we sold about 1,000 pumps. The majority of that was sold in the month of December. So there is an assumption on our part of how many of those will actually renew in December, complete the selling process, complete the insurance verification process when we shipped out prior to December 31. So that’s a tall order to get through so we have a more modest assumption on what we expect for those pumps in December that were sold in December 2012 to be renewed in December 2016.

Okay. And Medtronic has huge call center that typically handles a lot of their referrals. Your approach is going to be doing that more through the rep at this point rather than centralize that?

We will utilize our inside sales force and our IVS could do same thing. It’s just trying to move it through the process that is compacted by the timing of when the year end occurs and deductibles resetting whether they can get done in.

Okay. Alright. Congrats on a good quarter and nice guidance for the year. Thanks, everybody.

Thanks, Kristen.

Thanks.

Thank you. And I am showing no further questions at this time. I would like to turn the conference back over to Mr. Blickenstaff for closing remarks.

Okay. Thanks everybody for joining us on this call today and listening to the Q&A. We will be presenting at the Cowen Annual Healthcare Conference, which is on March 9, that’s going to be in Boston. So, we can give you more of an update then and we have meetings in person. In conclusion, I am pleased with the tremendous progress we made throughout the business in 2015 and look forward to continuing this momentum into 2016. So, we look forward to keeping you updated as the company continues its progress in 2016. So, thanks for joining us today.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day everyone.