Steve Pacelli - Executive Vice President of Strategy and Corporate Development Kevin Sayer - President, Chief Executive Officer Jess Roper - Chief Financial Officer

Ben Andrew - William Blair William Plovanic - Canaccord Robbie Marcus - JPMorgan Brooks West - Piper Jaffray Jayson Bedford - Raymond James Tao Levy - Wedbush Shaun Rodriguez - Cowen and Company Danielle Antalffy - Leerink Partners Anthony Petrone - Jefferies

Welcome to the DexCom Fourth Quarter and Full Year 2014 Earnings Release Conference Call. My name is Leslie, and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Kevin Sayer. Mr. Sayer, you may begin.

Good afternoon, everyone. We’ll start off with Steve Pacelli reading our Safe Harbor statement.

Thanks, Kevin. Some of the statements that we will make in today's call may constitute forward-looking statements. These statements reflect management's expectations about future events, operating plans and performance and speak only as of the date hereof. These forward-looking statements involve a number of risks and uncertainties. A list of the factors that could cause actual results to be materially different from those expressed or implied by any of these forward-looking statements is detailed under Risk Factors and elsewhere in our Annual Report on Form 10-K, our quarterly reports on Form 10-Q, and our other reports filed with the SEC. We undertake no obligation to update publicly or revise these forward-looking statements for any reason. Additionally, we will discuss certain financial information that has not been prepared in accordance with GAAP with respect to our cash operating result. This non-GAAP information is provided to enhance your overall understanding of our current financial performance. The presentation of this additional information should not be considered in isolation or as a substitute for results or superior to those results prepared in accordance with GAAP. Kevin?

Thank you, Steve. Joining me today are Jess Roper, our Chief Financial Officer and Steve Pacelli, our Executive Vice President of Strategy and Corporate Development. Just being my first call as DexCom’s CEO I have decided to change the format slightly. Steve will start with a review of our detailed fourth quarter 2014 financial results and some commentary on 2015. I will then provide our customary operations update and obviously some concluding thoughts before opening the line for questions. But before I turn the call over to Steve, let start big. At the JPMorgan Healthcare conference in January, we announced Q4 and full year 2014 Product revenue of approximately $84 million and $257 million respectively. What we did not disclose at JPMorgan, well I am pleased to announce today is that for Q4 2014 we were profitable for the very first time on a GAAP basis. Yes, it happened. We have earnings per share. I’m also very proud to announce that our G5 Mobile PMA Supplement all 15 volumes of it was filed earlier this week. What a greater confidence for our team and obviously we’ve fulfilled several exciting milestones here at DexCom. I actually thought about with my new title just handling the call right now and taking Q&A but I don’t think we can do that. We have a lot more to talk about, so with that I’ll turn it over to Steve.

Thanks, Kevin. DexCom generated $84.3 million in product revenue for the fourth quarter of 2014 compared to $51.3 million for the same quarter in 2013, a $33 million or 64% increase. Sequentially product revenue for Q4 of 2014 increased $16.4 million up 24% from the prior quarter. Total revenue for the fourth quarter of 2014 was $84.3 million compared to $51.7 million during the same quarter in 2013. Our product gross profit totaled $59.4 million generating a product gross margin of 70% for the fourth quarter of 2014, compared that to your product gross profit of $34.1 million and a product gross margin of 66% for the same quarter in the prior year. Sequentially, product gross margin for Q4 increased few margin points from the prior quarter. Although we are now achieving our gross margin targets of 70% to 75% on our sensor disposable and approximately 50% to 60% on our hardware. Going forward we will continue to seek improved gross margins, increased volumes, continued manufacturing improvements, continued shift in the sales mix to more disposables revenue and to cost savings in future product designs. However, in the first quarter of 2015 due to our typical seasonality together with the financial impact of the launch of our SHARE Receiver plant from March that we will discuss momentarily, we expect product gross margin to be down sequentially in Q1. We do expect margins to return to normal over the course of 2015. And final thoughts on our product revenue and our gross profit. During Q4 we added more new patients and sold more sensors than in any prior quarter. Just to add in perspective, our Q4, 2014 product revenue of $84 million was just shy of our full year 2012 product revenue at $93 million. Our mix between durable and consumable products remain steady approximately 30% durable and 70% consumable, the mix we expect to remain fairly constant going forward. ASP for sensors has stayed consistent at approximately $73 per sensor and the ASP for our hardware continued approximately $850 to $900 per starter kit. Finally, our international business continued to exceed our performance expectations in 2014 and it was up over 150% year-over-year and represented approximately 14% of product revenue in 2014. Research and development expense totaled $21.6 million for Q4 of 2014 compared to $12.6 million in Q4 of 2013 with the increase due primarily to additional payroll related cost and expenses related to work on a near term product pipeline and work on our advanced product pipeline. Sequentially R&D expense was up $3.1 million with the increase primarily due to activities related to our G5 mobile filing, work on our next generation applicator system, software app development and work on our advanced product pipeline. As we look to 2015 we expect that R&D expense for the full year will be up approximately 25% on a GAAP basis versus 2014 and less than 15% on a cash basis. Some expenses such as our overhead and share base compensation expense will increase as a cost of doing business. Additional increases will depend upon our development progress and regulatory timelines with respect to continued system performance improvement, including completion of our Gen 5 system, work on our advanced sensor programs, work on our mobile and cloud based data platforms and a variety of clinical trial opportunities we expect to execute here in 2015. Similar to prior years and consistent with our commitment to continued innovation we will consider additional R&D spending opportunities as they will better position the business for the future. Selling, general and administrative expense totaled $36.2 million in Q4 of 2014 compared as to $23.8 million during the same quarter of 2013. The increase was primarily related to the increased headcount in our sales organization including both yield sales and internal sales support staff, increased sales commissions resulting from our robust product sales during the quarter and increased marketing expenses. Just as a reminder, we are growing our U.S. sales team by 20% to 25% with continued additional investment on the distribution channel team and our in-house support staff. Much of our 2015 sales expansion was completed by the end of fiscal 2014 and the remainder will be completed by the end of Q1, 2015. We have also targeted several key international sales and marketing hirers for 2015. It is also important to note that the year-over-year increase in SG&A expense includes $4.5 million of increased non-cash share based compensation expense. As we look to fiscal 2015 we anticipate an increase in SG&A expense of approximately 25% on a GAAP basis and approximately 20% on a cash basis. The increase will be driven primarily by sales and marketing investments I discussed previously as well as IT and related infrastructure investments to support our growth. The increase will also include expense related due to an additional 90,000 square foot facility adjacent to our headquarters at San Diego that we leased in Q4, 2014. Finally the increase will include additional non-cash share based compensation expense largely resulting from our higher share price. Our net income for the fourth quarter of 2014 totaled $1.3 million and included $17.4 million in non-cash expense, centered in share based compensation, depreciation and amortization. Absent these non-cash charges, cash operating income was $19 million for Q4 and was $37 million for fiscal 2014. For Q4, that cash based, cash based operating income number represents 23% of our sales. Our business model was achieving the success we have always envisioned, obviously we are quite pleased with our cash operating results as this compares quite favorably to our cash based operating income for fiscal 2013 from $5 million. Our earnings per share for the quarter were $0.02. With respect to our balance sheet we entered the fourth quarter with $84 million in cash and marketable securities up approximately $9 million sequentially. I would like further discussion of our financial results with some thoughts on Q1 and 2015. At JPMorgan we gave product revenue guidance for 2015 of between $340 million to $360 million and we remain quite comfortable with that range. While we do not provide specific quarterly guidance, I remind investors that the first quarter is traditionally a seasonally slow quarter for our businesses and new insurance deductibles we said to flexible spending accounts are largely unfunded. As a result our patients typically purchase as much product as they can during the fourth quarter and based on reported Q4 sales you can see that 2014 was no exception. Add to that the fact that we have become much more efficient in our processing capabilities we were quite successful during Q4 filings virtually every rotor in the pipeline taking care of those patients who could purchase at year end with little or no out of pocket expense. Of course that means at the start of 2015 we need to rebuild our new patient pipeline and we often experience some delay in sensor and transmitter re-orders by existing patients who loaded in December. As we look to further out February, however, I am pleased to report that our pipeline of new patient opportunities is larger than it has ever been. To add some final additional color I remind investors that in years passing within year 2014 approximately 40% to 45% of our product revenue was generated in the first half of the year and 55% to 60% was generated in the second half and we do not view 2015 any differently. Q1 is typically represented around 20% of our revenue for the year and 2014 Q1 revenue represented only 18%. I also like to take this opportunity to give some color on the Q1 financial impact of our sooner than expected FDA approval of our SHARE Receiver, as this approval will affect both our product revenues and our gross profits for Q1. We announced that all U.S. patients who purchased a G4 PLATINUM system from January 1 until the launch of the SHARE Receiver will receive a free upgrade to the SHARE Receiver. This program requires us to differ a portion of our G4 PLATINUM revenue until we ship the upgrade receiver. We also announced that we would ship a SHARE Receiver free of charge to any patient who previously purchased a share cradle. Additionally, we will be recording a charge to cost of sales for each of the upgrade receivers that we ship with no additional revenues. Consistent with past practices we will offer a low cash, cost low cost cash upgrades to the SHARE Receiver for those patients who were still on their warranty with their existing receiver. We set the cash upgrade price at $199. We expect to begin shipping SHARE Receiver in early March, but to the extent we are unable to ship the full allotment of receiver upgrades before the end of Q1 we will be required to defer revenue until we ship in Q2. Finally with respect to inventory and cost of goods sold we expect to write down certain and obsolete inventory related to our G4 PLATINUM receivers as a result of this approval. With that, I’d now like to turn the call back over to Kevin for a business update. Kevin?

Thank you, Steve. For our business update today I would like to discuss several major initiatives for 2015. Let’s start with innovation. On a worldwide basis we launched a total of five new products in 2014, compared to a total of three worldwide product launches in the previous two years combined. We are currently planning at least five more launches in 2015 and depending upon execution and regulatory time frames we can see that number go up to as many as ten product launches in 2015. Our nearest term innovation is the DexCom SHARE Receiver. Work on the receiver of this nature commenced more than two years ago, when we received the research grant from the Juvenile Diabetes Research Foundation to develop better Juveniles to support artificial pancreas research. We want to take the opportunity to recognize JDRF support of this project. This is a great example of how industry and research collaborations can greatly benefit both parties. The SHARE Receiver uses his secure wireless connection via Bluetooth low energy or BLE between the patients receiver and an app on the patients smartphone to transmit glucose information to apps on the mobile devices of up to five designated recipients of ours. Initially the system will be compatible with the Apply iPhone, iPod touch or iPad but we plan to launch apps on an android platform later this year and on other devices like smartwatches including the apple watch. I am also pleased to note that the SHARE Receiver will be compatible with the G5 mobile system. As I stated in my opening remarks, we submitted our G5 mobile PMA supplement to the FDA earlier this week. We believe that this system will truly make the cell phone the center of diabetes universe for our patients. Some unique features of this system are the G5 mobile platform operates through a smart transmitter meaning glucose values are computed on the transmitter eliminating the need for a receiver. Glucose values will go directly from the transmitter to a patient’s mobile device. Patients will still be able to use receiver if they wish because the G5 smart transmitter can communicate with two manually enabled devices simultaneously, now patients will have a choice. The communication protocol will enable our system to display on a number of different platforms, glucose when you want it, and where you want it. The user interface with a G5 mobile platform is completely different from the current patient experience and anything seen before in diabetes. It looks very much like other apps in the mobile environment. We have conducted many, many, many hours of human factor studies to develop and refine our apps to best meet our patient’s needs. Finally, the G5 mobile system will take full advantage of all of the FDA approved data sharing capabilities of our share platform. While it is impossible to predict FDA timing, we are cautiously optimistic that this product will be available before year end. We also plan to introduce this platform in our major all U.S. markets with timing to be discussed in the future. Shifting to integration partnerships, I am pleased to report that Animas has initiated shipment of the Vibe in the U.S. and initial reports from the field suggest that patients are quite pleased with the user interface for CGM as displayed on the pump. Just yesterday Tandem reported that they have completed an FDA side inspection associated with their T-Slim G 4 PMA filing and are encouraged by the outcome. Tandem also reported that they are preparing for the launch during the second half of 2015. We recently returned from the annual Advanced Technologies and Treatments for Diabetes meeting in Paris last week. I brought the cold with me and would like to share some observations with you. With our recently launched 505 Software or G4 AP algorithm DexCom has truly set a new standard for CGM accuracy and system performance. This represents a major hurdle for all of our competitors. We met with several groups utilizing G4, CGM and developing closely and partially close with our efficient pancreas type systems. And a significant progress has been made by many of these groups, but the pathway to commercialization for many of these projects remains unclear and we will continually evaluate our own path to the artificial pancreas closely. With the world’s most accurate and reliable CGM system we intend to play in this arena. We left the meeting very confident that with execution of our plant, product portfolio we will remain the world’s leader in continues glucose monitoring. With our new insertion system, the G6 and other advanced sensor platforms, expanding connectivity with user-friendly apps and the ability to perform advanced analytics, one CGM and other diabetes data is in the cloud we believe we are position to lead this industry for a very, very long time. In addition to innovation, access and awareness are major initiatives for 2015.We have made much progress to make it easier for patients to gain access to CGM. We have frequently discussed our plan to migrate CGM coverage to a pharmacy benefit. In 2014, we laid the foundation to make significant progress in 2015 and beyond by putting in place several key PDM wholesale and regional payer contracts. We are currently in discussion with several major payers and plan to offer additional detail on these initiatives in future quarters. Increased access for our patients not only includes moving from DME benefit, pharmacy benefit, but it also include obtaining broader coverage from those plans that choose remain – to maintain CGM as DME benefit. We have succeeded in broadening coverage with several payers and introducing documentation to streamline processing. But the most consistent question we get in the field with respect to access is very simple. Where are you with Medicare? We continue to pursue both traditional and legislative pathways. Bills were introduced in the Congress last year with the elections and adjournment of Congress, no progress was made in past production. We expect the bill has to be reintroduce in early 2015. But we are not going to relying solely upon legislation. CMS was very clear with us that the product with non-adjunctive plan will be required to obtain Medicare coverage. So, we are planning the clinical study necessary to support this claim, in other words, to truly replace fingersticks for diabetes management decisions. We are actively engaged with the FDA and we’ll update you on our progress in this area in future quarters. Finally, we recognize the need to expand our clinical study activity beyond simply supporting product approvals. Enrollment to our CGM first study entitled the DIAMOND study has commenced and will continue throughout the year. A large imbursement study is underway in Sweden and we have a study plan for Germany later this year. We will continue to evaluate opportunities to conduct additional studies to demonstrate the effectiveness to CGM as a most important tool in diabetes management today. All of these initiatives will lead to increase awareness. While we are making progress we still see awareness as a tremendous opportunity for future growth. Just last week we had an individual with Type 1 diabetes in our office for an interview. The person is treated by San Diego-based Endocrinologist that we know very well. The person had not heard of DexCom or CGM until they were introduced to our company for potential employment and could not understand why CGM recommendation had not made for this person. Unfortunately these types of conversations happen far too frequently. The expansion of our sales team should certainly help with awareness as more sales staff will allow more frequent contact with healthcare providers and patients. We have also expanded our DTC advertising programs. Our mobile platforms also provide us with a great opportunity to increase awareness. Just look at the tremendous amount of press has been generated through discussion of our Apple mobile platforms. We will diligently look for opportunity to increase awareness and we will increase our investment as opportunities present themselves. Finally, I want to emphasize that all these efforts support the ultimate goal of scaling and simplifying our business activities. New product must be more cost effective and more efficient than the products they replace. For example, our new insertion system has been design with a goal of fully automated assembly. Our Gen 6 manufacturing line eliminates many of the variables involved in the manufacturing of our current sensor. This is a key step in reducing and eventually when proven safe, eliminating calibrations all together. Improved access reach to more official sales process giving our sales team more and more time to spend with healthcare providers and patients and not just collecting documents that’s been on the phone. The efforts of our sales process improvements were clearly demonstrated – excuse me, the success of our sales process improvements. We’re clearly demonstrated with our incredible performance in Q4 2014. But we will continue to improve these processes. In conclusion, 2014 was an amazing year all the way around. We had over $100 million of revenue growth year-over-year and we were able to drop $30 million – more than $30 million of that to our cash based operating results. We brought an FDA approved CGM system to children all the way down to two years of age. Our G 4 AP Algorithm or Software 505 is known commercially, as truly set a single digit MARD accuracy standard for the entire industry and will become the foundation of our fingerstick replacement claims. Finally, our first data sharing platform was approved and launched via the SHARE Cradle, even though we rendered it obsolete just three months later with our SHARE receiver. We are moving fast, we move fast in 2014 and we’re going to move even faster in 2015. I’ll now turn the call over – open the call up for Q&A

Thank you. [Operator Instructions] And the first question from Ben Andrew with William Blair.

Good afternoon, guys. Thanks for taking the questions. The first one from me I guess is, as you look at – as you said, stronger than ever pipeline for new patient flows. Is the contribution there similar to what you saw maybe six or 12 months ago or is it shifted relatively heavily towards Pete’s?

Yes. I mean, Ben, we’re not to breakout the distribution between adult and Peds, what we said kind of earlier – at launch what we said was that, the education effort required a pediatric was slightly greater than we expected, even the education of parent and patients with their parent was taking a little longer than expected. By Q2 we felt like better kind of normalize what we disclose that is that we were tracking basically to what we thought was the ratio of adult to Peds in the U.S., so roughly 25% of our new patients as back in Q2. We said at the time that we weren’t going to break it out, because frankly internally a five-year old or 15 year old or 50 year old to us if they are on the system and using disposables, are basically look and feel like same patient. But I guess, I’d summarize, by saying just our Peds ads are strong and we’re quite please with where we are at the pediatric [indiscernible].

Okay. And then do you expect the insertion device to be able with the G 5 platform, is that going to be in time?

Not initially, as again we like to stop thinking about this and we said before – we like to lump everything into generations, but at the same time as you saw when we launch new algorithm, for example, with sort of in between generations if you will, we’re probably going to – we’re not necessarily Gen 6 may or may not have a new applicator could before or could slightly after the sensor is ready go and there’s a lot of moving parts here. But it definitely won’t be with Gen 5 I guess, that’s a short answer.

Now to start, I’d answer that, of all the things we are doing operationally that is by far and away the most complex.

Sure. And see a lot of benefits as well, of course. But may talking about the pharmacy benefit, Kevin, I know this is important on a lot of different levels, but how much leverage can this create on kind of standalone basis a year end when you’re fully implemented with pharmacy benefit, because obviously you eliminate lot of the back office function, you eliminate lot o paper work et cetera. And how does mix look several years and because you’d refer to some DMEs function sticking around overtime with certain payers?

Our long term goal is 70/30 split, 70% through the pharmacy, 30% through DME. It will take us a long time to get there. We – as I’ve said in my remarks we’ve got a lot of major discussions going on right now. And I would tell you guys probably after the second quarter we’ll give you more of an update as to where we are. We really don’t want to give anything away. But people are very interested and we’re getting lot of attraction here.

Can you comment on organizational leverage in terms of through the P&L?

Organizational leverage, what this will enable us to, Ben, more than anything is not add a bunch of bodies to process sales, I think we can keep our staff levels much broader as we go forward. The tricky part of this is if price erosion comes into play how much price are you willing to give up versus the leverage you obtained operationally and those are the types of equations that Jess and I look at all the time, and those types of tradeoffs.

Okay. Thank you.

Next question is from William Plovanic with Canaccord.

Great. Thanks, good evening. Can you hear me okay?

Yes.

Good. So I’m trying to pick which questions ask you or I want to ask. Just clarity I mean that was amazing gross margin in the quarter. And as you think about it are you pretty much kind of capped out until we move on to – I think it was the Gen 6 you said on where we sit on the gross margin or do you continue to get operating overhead leverage?

I think we can continue to get some overhead leverage as we continue to increase volumes. I mean, our volume increased last year was amazing. That looks very helpful in getting G 4 sensors through the margin level that we obtained. I think over time we are going to have new platforms and new processes. But I mean, we never thought we’d above 80% and we’re clearly in the 70% to 75% range on our sensors now. So, there will some upside. Bill, I don’t know how much more. I mean, we’ll get it and we’ll see how it goes.

Okay. And then, since I’m on the gross margin topic, Jess, you mentioned that you’re going to have a lot of one time charges as you transition with the old SHARE. Just ballpark a number for us what type of charge should we look for in Q1?

Well, we honest-to-goodness we don’t have any ideal as we sit here today. We’ve got a lot of work to do. Before we get there is bunch of variables for example, patients who want a new receiver have to fill out an application and say, I want my receiver upgraded. So we have to measure that response is to how many. We also have to see what’s left in the distributor and the manufacturing pipeline with respect to potential G 4 write-offs as to what’s in the field. And it’s all very early. I mean, we just got approval. Not too long ago, this wasn’t something we were planning on discussing today, a few weeks ago, so, you just have to give us some time.

Okay. So J&J I believe stock to a little into the fourth quarter. Can you help quantify that just so we understand where the stock to $1 million, to $10 million, $5 million, just so we can understand what’s normal throughput versus maybe once time upfront from that partnership.

Yes. Bill, this is Steve. J&J doesn’t stock anything. J&J does not service his distributor, sensors or transmitters in the U.S. so they sell buyback [ph] and then we support the patients with respect to transmitters and sensor disposable. So there is no stock by J&J, I don’t know where you got that.

Good. And then, is there – who handling the back office reimbursement, I mean, so basically are you handling the paper work to get your stuff approach, the CGM approved and that you just drop shipping to them, is that would you just kind of keeping it separate yet it’s a single-device?

That’s right. As its stands today we treat the patients as our patients from a CGM perspective, so we’re filing all of their GM needs include tactical support on the CGM front. We’re exploring some ways to make it more seamless as its us today that the path

Great. And then last question just – so we can put a stick in the sand. Can you give us idea over the number of patients you had a year end 2014 U.S or…?

That is spectacular Bill. I would reiterate what we said at JPMorgan, we certain grew our new patient base more than 50%, last year it was a great year for us.

All right. You can’t blame me for trying. Congratulations. Thanks.

I can’t blame you for trying and I love it. What it wanted any other way

Next question is from Mike Weinstein with JPMorgan.

Hi. This is actually Robbie Marcus in for Mike. I just want to start last night Tandem announced that they are going to start – going for low glucose suspended or a combo pump using the DexCom’s sensors presumably the G 5, can you give us a little more clarity on that program, how that will impact the income statement and then how you handle the patients there?

Yes. This is really a Tandem program. I don’t think we can comment on these specifics of the Tandem program other than to say that we’re partnering with Tandem and we’ve been supporting him with our current sensor technologies. At this point, we’re not prepared to move forward with G 5 with any partner, because we’re just – literally just filing it for the last week or so. So I would say it’s largely work in progress at this point. But it would not be a meaningful P&L in fact the DexCom’s because it’s really the partner Tandem or any other potential artificial Pancreas partner. The program is really being driven by the partner.

Okay. And then at the ATTD Conference, you or someone from DexCom presented information on the new Gen 6 sensor that a single calibration lead to 11.7 MARD [ph] and there’s one through seven and 12.1 in days, one through 10. Is that good enough to get patients to trade accuracy for the fewer calibrations or do you need to come further on that number?

That is wonderful question. There are three things involving, making our decision, lengths of time, calibrations, while mainly thought length of time, calibrations and then just performance over time and how the sensor works. We are working on the dosing claim with the FDA and that will be our next technological advancement. We will probably focus on getting the dosing claim first and then continue making our sensors accurate enough to service a fingerstick replacement. Making no calibration sensors is pretty hard, you’ve got to manufacture with in a very, very narrow range, so they all performed exactly the same. And we actually had similar data with that system with no calibrations that we did not present at the show. So we’re going to wait over time to convenient versus the calibrations, versus the accuracy, versus the labeling that we look for, all those factors play in together. Honestly, as these guys will tell you, I’m pushing for more accuracy, I’m kind of a jerk when it comes to that. It’s a big deal to me.

Right. And then, let me sneak in one last one. Abbott Freestyle Libre obviously different from CGM, but still doing really well in the initial launch in Europe with a significantly amount of Type 1 patients as a percentage of patients that are using it starting to adopt that product, have you seen this impacting European new patients at all? And this is an area that DexCom would be willing to get into?

Yes. Our goal and Steve will probably some other comments. We’ve already said that Abbott is a very formidable competitor and our view that has never changed. The system they put out, again as you said, it’s not CGM, it is different. There is no alerts or alarms and you don’t get the benefit that comes with CGM there. We can certainly move to that space if we thought was what patient want it and make it go to a phone for example rather than to a handheld reader. But right now we’re focused on intensive management and focus on what we do. We will watch it very closely. Obviously the form factor everybody loves the reduce calibrations. But we heard other things. I mean, we’ve heard for example, that as I said earlier, manufacturing no calibration sensors is very hard. We heard within a certain lot of sensors, if one lot work they all work, we also heard that they have many lot that don’t work and they’re not even adding any new patients due to the manufacturing difficulties. So it’s early, there is lot, lot of working at it as we miniaturize our technologies, as reduced calibrations as we go to our novel platforms we’ll be same space. Now, Steve.

Yes. I would just – I don’t know that we have data to support. I think Abbott has done a great job of creating hype over in Europe. They have had a couple of recalls on the device and my understanding is there are pretty significant back orders, so while there may be interest in the product. I’m not sure that we updated to support that they are having meaningful sales with respect to the product. The other thing that I think as we can keep going back to this is not a GCM, it doesn’t provide the alerts and alarms with the other products you’re going to miss, any reading you time you are asleep and that’s frankly or critical important time particularly for defensive managed new patients. So we said before that we think this could be a very interesting product for the Type 2 market. We’re keeping an eye on it and certainly just to respond the latter part of your question is and this something that Abbott figures out an interesting angle into the Type 2 market and to figuring out the distribution model, the payment model, the education model, because remember Type 2 are typically seen by primary care, by internal medicine and not typically seen endocrinologist, let someone else do some heavy lifting in developing as a different category. But today we’re going to stay focus on insulin using diabetes picture.

Hi. Great. Thanks a lot.

Our next question is from Brooks West with Piper Jaffray.

Hi, guys. Thanks for taking my questions.

You bet.

Kevin, congratulations on the GAAP profitability, I just want to start with is that something on annual basis that we should be thinking about DexCom achieving going forward?

That’s certainly one of our stretch goals for 2015. But Brooks, we had over $50 million in share-based compensation in 2014 and that number is not going down in 2015 as we have more grants come out with our stock price, so we’ll look at it. We measure our results primarily on our cash base performance. And overtime, we that stock-based compensation will come down as a percentage of everything in our financial statements will look more normal. So that’s a stretch goal of ours. We’re also going to not let that deter us from doing all the things that we want to do. If we can increase our cash based operating income number. And we as I said we grew $100 million in revenue and dropped over $30 million to the bottom line, that’s pretty good year and that’s great execution of a plan.

So I guess let me push on that a little Kevin if I could, if we use that metric given the increase spend obviously tied to still strong revenue growth. Should we see that operating cash number increase significantly this year over last year?

We certainly hope so, that’s our plan. I mean, we went from negative 30 in 2012, negative 30 plus to positive five in 2013, to positive 37 in 2014. Our many businesses will show that kind of turn. Our business model is truly scalable Brooks. Now the key question for us is one investment do we may? Terry and I often discuss, if we wanted to just turn this thing into cash money maker there are ways to do it. But that doesn’t position us for the next $0.5 billion in revenues. We got to continue to invest, so we will, so it is a balance –it’s a balance each and every day.

Thanks. And let me ask you one product question then on the partnership, the Vibe and the potential Tandem when that does launch, do those systems support the G 4 AP Algorithm? I think the answer to that no. And if they don’t, how do you kind of rapid adoption of the AP Algorithm impacting those partnerships?

You’re correct in the first question is no, neither the current iteration of the Vibe, the Tandem product when it launches will accommodate the G 4 AP Algorithm. And quite frankly we’re cautiously optimistic by the end of this year we’re going to be on the G 5 platform, so we will also be on our mobile phone. I don’t want to comment specifically on how the new algorithm will or not impact the launch of those products. I think as we said in past earnings calls at conferences, I think from a revenue generation perspective we’re kind of treating the pump company these days is more additive than transformative for business. I think we’re really – we’ve not -- it kind of downplayed slight and we’re not really looking at those guys to be driving the topline in a significant fashion. So I think I’m not sure where that concerned about it, to be honest.

Okay. Thanks so much.

Our next question is from Jayson Bedford with Raymond James.

Hi. Good afternoon and thanks for taken the questions. You added more new patients than you ever have in the fourth quarter and realize that’s becoming a bit of a trend, but you also introduce the AP Algorithm late last year. Obviously, you’re current user base is thrilled with the upgrade, but do you think that the new algorithm was a key driver or the key driver of the new growth in the fourth quarter?

This is Kevin. I think help, but I don’t think it was the key driver. Jason, I think just s we increase awareness that’s what draw it. It certainly is an easy presentation to clinicians, to say, this is more accurate than what we have before. Most patients judge the accuracy of their system not from what’s in the book or what they experience day to day, and the algorithm one of its characteristics it does move quicker with your glucose information of patients, saw that and experience that firsthand. So, it helps, but I don’t know that it was the primary driver. I think it just increased awareness.

And have you file the algorithm for the Peds indication?

We have filed the algorithm for the peds indication.

Okay. And then just lastly from me and I’ll jump off and let someone ask, but international I guess by your math was just under $14 million in the quarter. I guess, first is that correct? And then second, you mentioned adding some key international hires and I’m just wondering if you’re adding more to an existing team or branching out into some new countries? Thanks.

Well, we’re going to do both Jason, we branched out to approximately 10 countries. Last year almost significant new countries, last year we’re in Canada with last year and India near the end of the year, we’re going there. We actually have an employee relationship in India that works with our distributor. We have all of our international employees as we sit here today, first I looking hires that will be the supplement what we have. In particular health are economics expert to help drive imbursement over there. On top of that a clinical expert as we do more studies overseas to prove the effectiveness and demonstrate the effectiveness of CGM we need somebody with mark clinical experience than what we have now. So we’re got a couple of folks lined up in that area and that’s where we’ll start. Most all of our revenue internationally goes through distributors and so we monitor that distribution channel very closely and carefully.

Okay. Thank you.

Next question is from Tao Levy with Wedbush. Please go ahead.

Hi. Good afternoon. So I was wondering may you could talk a little about again on the international business, I want to know if you disclosed our Top 10 in the past about percentage of the OUS business that is changing related or related to the Vibe?

No. We don’t that break that out, frankly J&J would never let us break that out.

Okay. But is that a big part of the growth or is it mainly I guess non J&J?

It certainly a part but we’re not going to give you level materiality for example, but it’s a part but our efforts to our network distributors is obviously very important part.

Okay. And on the Bluetooth, on the G 5, will that enable sort of direct transmission of data from the blood glucose meter to the transmitter during calibration or is just one way?

The transmitter can have a two-way conversation. We have not read in software to take a calibration for many specifics meters yet.

Okay.

We could. I think as we look at our horizon we’re more concerned about getting – and we develop more apps with the Android platform and the watches and stuff.

Okay.

We can look at it.

And just lastly, what are the benefits here in the Medtronic has, they both the pump and the CGM and can work on things all under one roof like threshold, suspend and start to make some progress there. And it seems like they at least moving little bit faster than they have historically on developing new technologies in diabetes. And I was trying to figure whether at some point that is some that DexCom needs to start thinking about this kind of putting everything under the same roof so you can move quickly and kind of go after artificial pancreas and those kind of opportunities?

That’s a great question. As we sit here today and as we’ve sat here for the past several years our message has been CGM first that making CGM systems more and more accurate and reliable and better tools to support artificial pancreas and we’re comfortable with our product pipeline. The question then becomes how do we play in the sensor augmented pump arena. Somebody side early Tandem announce a threshold suspend device yesterday. We know J&J has on-going efforts. There are lots of efforts going on. We won’t sit and let somebody else control our faith forever if nobody does this we will give more involved if we see a product that is going very, very well. We haven’t found anything that we wanted to commit to yet. We support all the artificial pancreas programs or sensors. We support our pump partners, but we’re cognize of it, some were cognizant of The fact that we need to play here. We’ve got the best sensor in World. Our patients are going to love this. We’re going to have to offer something to them.

Okay great. Thank you.

Next question is from Shaun Rodriguez of Cowen and Company.

Hey, guys. Good afternoon. Thanks for taking the questions. So, first another angle to the – one of the pharmacy channel question. So given the growth here, is there a point over the next few years where you actually need to be pushing a significant portion of the business through this channel to just maintain the service and processing support you need to service patients or is this something you think you'll be able to stay ahead of with pretty good visibility in terms of internal resource requirements as you work through the process with the payors?

We don’t want to build the infrastructure to support our business the way it’s designed today. We need to move through these channels. You can just fill building after building after building with employees and the DME environment and clear obviously that’s been one of Medtronics great barriers to entry in the pump where all the other pumps have to have hard time making money. It’s hard to replicate that structure unless you have a huge amount of revenues. We really have a mission to go this way; we need to make it more efficient. And you don’t think about how much easier it is for our patients right now, they call us, they fill our paper work, they get letters from their doctors. It’s said there are glucose lives if we can remove this to the pharmacy and drop some of the criteria, you go to your doctor and get a prescription, drop it off at [Indiscernible] and pick it up the next day when it ships from Cardinal Health or McCusker or whoever in the drug store. And when it comes to re-ordering I don’t know if you have any medications but I can tell you if I have 30 days with the pill, I start getting calls on day 27 every single month. So I think it just makes for a much more efficient better patient order processing experience and the way we’ll track that. We are going to give up some control which is very hard for me, but in all reality when the data is all going to the cloud from your phone, we’ll be able to track those patients and will know who is lying what and how often they use sensors and when there are three order. And that data and this data revolution that’s coming is going to change our business processes combined with pharmacy distribution. We see our accounting in five different place in three years.

Yes, that’s helpful. So jumping around a bit, but you previously talked about some specific reimbursement studies planned for Germany and Sweden I believe, any updates on these and really the question is about the cadence of incremental of U.S. markets that you will be opening up over the next call it 12 or 24 months.

Right now we are opening up smaller countries and most of the large countries certainly in Europe, very little in Asia. Asia we’ve got efforts going on in Japan right now and we are kind of trying to decide what to take to China because we have to take an FDA approved product over there, but it takes some time to get approved and we don’t like to get something approved that we don’t build anymore. So there is a bunch of dominoes that have to fall in place for China approval. We’ve taken a very much a shotgun approach in these countries because there hasn’t been a lot of reimbursement. So the more countries, the more cash paying patients, the more products we can sell. I think as we get reimbursement and hopefully in Germany, hopefully in Sweden and other countries over the next 18 to 24 months you could see some significant pickup. In terms of revenues overseas, as this product is reimbursed. But it’s going to take a while; it’s not going to happen overnight.

Yes. All right, helpful guys. Thanks very much, congratulations.

Thank you.

Next question is from Danielle Antalffy with Leerink Partners.

Good afternoon guys and congrats on turning profitable and filing G5, big milestones in the quarter. And Kevin or Steve, I was hoping maybe if you get some more color on the dosing cream, I think that’s really exciting and just wondering how we should be thinking about what kind of trial that would require from a size and perspective and also endpoints and when just maybe if we can get more color today when we would able to expect some more color from you guys on what that could look like?

I think ultimately Danielle we’ll have very or lot of visibility by the call and I guess for Q2 we have a number of meetings slated with the agency between now and the end of the second quarter to put this trial together, sufficing to say it’s not going to be a small one.

Right, okay that’s the…

Just a whole bunch of things and a whole bunch of different patient population segments etcetera. The guys are doing a great job working for the agency on this; it’s been a very interactive discussion. They want to help us and so we knew regularly we’re going to get there.

Yes, I think that’s awesome. And to a higher level my next question is the G4 obviously there was a big step up in new patient’s apps, how do we think, but now the base is much larger of course. So as you guys continue to evolve the technology how do we think about each sort of next evolution of technology so starting with G5 and then G6 and maybe with a dosing claim and recalibration, the increase in new patients adds, do you see it just sort of the steady 35% to 40% which is what you said historically. Could it be incremental to that? Just high level, how do we think about that? And what could ultimately drive the inflection point here because at the end of the day CGM is still just I think around 15% of type 1 and as this technology moves along I mean I feel like it could be much, much larger than that, and is there any sort of one obstacle you would have to knock over to get it there?

Danielle, I’ll take this one. I think you kind of hit it on the head. You’d said 35% to 40%. We have never said we were going to sustain 60 plus percent growth. So but start with, we need to sustain 40% growth for the foreseeable future, so our real mission internally is over the next several years and two to three four years to be able to continue that 35% to 40% growth rate. In order to do that we have to continue to iterate new and better products to increase the size of the addressable market. The way I like to think about it is way back in the STS [ph] three days there in 2006 the product didn’t work particularly well and there were albeit very small handful of people who were willing to put up with the product that didn’t work particularly well. Much better performance in the 7 incremental improvement in the 7 plus and that drove the addressable market to a much larger size. Now obviously with the G4 PLATINUM that’s been a huge catalyst. You turn the inflection point or not it’s been a huge catalyst for growth in terms of new patients adds, but to sustain, just to sustain this phenomenal growth that we are seeing you need to get to Gen5 with our mobile platform, you need to get a Gen6 to reduce calibration and extend the duration you need to get what call it Gen7, 8, 9 eliminate calibration, miniaturization, new applicant all of the things that we keep talking about in our kind of near to midterm pipeline I mean kind of near to midterm meaning three to five years, we need to do all of these things in my opinion just to sustain the growth that we are trying to achieve. So I don’t think could there be outside of the number sure but I think we are really targeting trying to do the things and iterate the technology in a way that we can assure us also we can continue to grow at the rates we’ve said that we’ve going to grow.

All right. Thanks for that.

Next question is from Anthony Petrone with Jefferies.

Thanks gentlemen. Maybe a follow up for Kevin on no calibration and accuracy and I was thinking ahead as you attempt to do that from a manufacturing standpoint I imagine it would be a little bit of a higher cost manufacturing endeavor so I guess the question is what is DexCom willing to give up in terms of margins in order to achieve reduce to no calibrations coupled with improved accuracy.

That’s a great question and every time we make the sensor more accurate we improve our margins. So far as we’ve had manufacturing improvements they have been designed in mind that it would be more cost effectiveness and produce more accurate sensors and produce better yields. I think the key to the no calibration sensor is to have an extremely reputable manufacturing process. As I discussed earlier the Gen6 manufacturing line eliminates some of the steps that cause errors or yield loss in the G4 system. It is much more automated and much more advanced. There are more steps to automating this process. So I don’t think we’ll have to give up much on the margin side particularly as we go to extended ware and that becomes quite simple. If we have a ten day sensor and we can build up the same pretty rate as the seven day sensor, we can pick up some more margin and even include a little extra cost in that sensor if that’s what we have to do to get that label. I don’t view it as a trade off.

So that’s helpful and maybe if we just switch gears to maybe coverage of the chronologists you are adding to sales capability, maybe just an update on how much room for expansion in the U.S. particularly is there as it relates to adding new practices and then maybe an update on the average penetration of CGM into existing practices.

That’s a great question. And as we have talked on this call several times with Terry while he was here. We have thousands probably more than 8000 physicians who prescribed one CGM system in 2014. We certainly have several champions and we consider champions are certain level of high prescribers and that number has gone up but not as fast as we would like. We need to move everybody up further. Access drives a bit of that. If a patient can go to their doctor and get a prescription signed and go to the drug store and pick up a sensor that will take physicians who have to spend inordinate amount of time doing paperwork for the one CGM they prescribed and get them more accustomed to prescribing CGM for their patients. So Access is going to help with this, our product improvements are going to help with this. The data on the phone that they are in the cloud based platforms, if we can show the physicians that they look, you can sit down and pull up Steve data on your computer without Steve playing in anything in to his machine, that’s pretty cool and that will help. So we are, we call on every end that we can. We’re very, very, very specific as far as calling on those who prescribed a lot of insulin and you will expect this is – and we’ve worked our way down the future and we moved further down those list as we get bigger every year, there is still more room to grow. But at the end of the day we still have too many 1Gs and 2Gs and we got to get out to these other guys again increasing what they are prescribing.

That’s helpful. And just last from me, just a clarification on the share eco system is that an open architecture where eventually that data can be shared with competing offering, do they come down the road or is the data that’s capture in share only compatible with the DexCom CGM therefore it cannot be accessed by competing companies.

The data that is restored in the cloud from our share platform is right now accessed only by DexCom devices. We have made a lot of progress over the past few months with respect to data and possibly sharing data with others. We have not signed any agreements with anybody to let them access that data in the cloud yet. We will consider it if it meets the patient’s need that we can’t meet. And it’s something the patients want we are open with respect to architectures we demonstrated with our relationships today. And we’ll consider that overtime, but we are not going to run out and sign everybody up in the world to distract from what we are doing.

Thanks again.

At this time I am showing no further questions. I will turn it back to speakers for final remarks.

Thank you very much. In closing I want to address one of the frequent questions that we hear as we meet with others on the outside. Now that you are in charge and Tony has graduated on to Executive Chairman, what’s going to change? It’s easy is to tell you what’s not going to change. And that’s our commitment to our patients. Our patient for the strategy has put DexCom in a very enviable position. Even one of our competitors refer to our off the charts net promoter score and one of their presentations at AT&T. Our passion for patients is what drives this company that culture has been put in here by Terry and will never change. I’ve been very fortunate for the past three plus years with Terry and the CEO chair to become familiar with the intimate details of our company and help Terry build an excellent team here. What’s different now is our business is really undergoing major changes. You’ve heard it in my prepared remarks earlier as we compared the number product launches this year to our two previous years. We are much more complex in addition to our growth as this has previously the business has got to be scalable. With this great team we’ve assembled I am very confident that we can execute our very ambitious plans and achieve our simple final goal. We want to replace finger sticks. Thanks everybody.

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating you may now disconnect.