Good day, ladies and gentlemen and welcome to the Q4 2015 TASER International Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference is being recorded. Now I would like to hand the conference over to Luke Larson, President of TASER International. Sir, you have the floor.

Thank you and good morning to everyone. Welcome to TASER International's fourth quarter 2015 earnings conference call. Before we get started I'm going to turn over the call to Dan Behrendt, our CFO to read the Safe Harbor Statement.

Thank you. Statements made on today's call will include forward-looking statements including statements regarding our expectations, beliefs, intentions or strategies regarding the future, including statements around projected spending. We intend that such forward-looking statements be subject to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking statements information is based on current information and expectations regarding TASER International Incorporated. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. All forward-looking statements that are made on today's call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in our press releases we issued today and in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2014 under the caption Risk Factors. You may find these filings as well as our other SEC filings on our website at www.taser.com. And \with that, I will turn back the call over to Rick Smith, our CEO.

Good morning and thank you, Dan. What a year. We're proud to yet again be able to share with our results for the fourth quarter and the full year of 2015. Fourth quarter results exceeded expectations for both revenue and profitability and demonstrated progress on multiple fronts towards solidifying our market leadership position in the Axon and Evidence.com segment, increasing our TASER weapons penetration and encouraging the upgrade cycle domestically in the weapons segment, while setting up the company for long-term success internationally as well as domestically. Looking to 2016, I continue to focus our team on the most important goals. First, extending our hardware and software platform with additional products and services, that create more value to the integrated whole. Examples of this strategy include Axon Fleet, our pod connected in-car video system launching in 2016 and the new video forensic products available through our partnership with Amped. These products add value to our entire ecosystem with each element creating a whole solution more valuable to our customers than each product would as a standalone. Second, focusing on services that create high value network effects for our users such as sharing and interagency collaboration tools and third, extending our customer intimacy to global markets. The real key to our success over the years has been that we have a unique understanding of law enforcement's challenges and we have the ability to translate those challenges into distinctly valuable technology solutions. We're continuing to invest in people and focus, including me personally spending a lot of time overseas to build these relationships around the globe. In only two years, we went from having zero presence in the body-worn camera market in the United Kingdom and the [digital] management market in the United Kingdom and in two years we've gone from no…

Thanks Rick. 2015 was a very strong year for the company. In review, we grew the topline over 20% to record levels. We announced three revolutionary products, introduced partnerships with Microsoft, Ambarella, Amped. We acquired our British distributor, grew our major city Axon count to 30 and set the international business up for success with country managers, infrastructure and the strategic relationships to hit the ground running. Our key metrics have also continued to show strength in the period. I’m going to go over this. Axon and Evidence.com bookings were $44.7 million in the fourth quarter, an increase of 82% compared to fourth quarter of 2014 and a quarterly record for the company. LTV to CAC in the fourth quarter was 4.3. We're very pleased with the return on our investment in customer facing roles and marketing efforts this quarter. As a reminder, our calculation for the lifetime value of a customer is based on a blended hardware and software gross margin figure rather than sales. Operating income in the TASER weapon segment was 37.4% in the fourth quarter while there will be some near-term pressure on this metric as we invest internationally, we remain very pleased with the fourth quarter results. We benefited this quarter from strong revenue in this segment and continue to evaluate investments to ensure continued operational efficiency. Dan will cover our other key metrics including ARPU and future contracted revenue in his section. We're providing some additional guidance on our increased investments and operating expenses in 2016 that Dan will go through in a moment. We're excited by investments and believe they're a well placed benchmark to our LTV to CAC ratio, our bookings, which we expect to grow faster than our operating expenses and overall return analysis. In the fourth quarter we made a…

Thank you, Luke. As indicated, revenues in the fourth quarter increased 19.7% over the prior year to $56 million, another company record. Bookings also had a very strong quarter, increasing 21% sequentially to $44.7 million. For the full year, revenues came in at $197.9 million, an increase of 20.3% compared to the prior year and bookings for the full year of 2015 were $135.1 million, an increase of 136.7% compared to the full year of 2014. Investors should remember that the first and third quarters are typically our weakest quarters due to the seasonality around this full budget cycles and as a result, typical Q1 revenues are lower sequentially by 5% to 10% when compared to the fourth quarter. In reviewing the fourth quarter product line sales, it is notable that on officer camera units in both body and flex were both down sequentially and year-over-year. This is due to the fact that we delayed shipments on the Axon Body 2, the new camera we announced in October, which has received outstanding reception from our customers due to advanced features, including a Wi-Fi offload and high definition recording. As Luke discussed, in the fourth quarter we made a strategic decision to hold shipments of the Axon Body 2 as we work through final quality checks to meet TASER's high standards. We've begun shipping units in Q1 and expect it through the heavy backlog in the early part of the second quarter. On the Flex unit side, we had a large number of bookings at the very end of the quarter, which didn't ship by the time we finished out the year. Between our Body and Flex products in Q4, we finished the year with 7500 cameras in our backlog to ship. Service revenues also had a very notable sequential increase…

Thank you. [Operator Instructions] Our first question comes from the line of Mark Strouse of JPMorgan. Your line is now open. Please go ahead.

Good morning. Thanks for taking our questions. Congrats on the results. Just touching on the international business, can you just talk about the strength in 4Q? Is that concentrated in one or two particular countries? And then Rick, if you could just give a quick update on your plans for the year, I think you had over the last couple of quarters you had talked about the regions you would be visiting over time. I just wanted to see if there is an update on that?

Dan, do you want to talk about the distribution of international order and then I'll take the second part?

Yeah, we’ll continue to see really strong results in Canada as well as Europe, but really we saw at in almost every region in the fourth quarter. We had some strong sales coming out of Asia with our Australia, New Zealand as well as the other Asian countries that we have strong sales into. We're strong, Europe was strong in the fourth quarter and we saw strong quarter with Canada as well. So it was across lots of markets. We are starting to see the heavy investments we're making in some of the Tier 1 market pay off. So we're encouraged by the Q4 results.

And then in terms of my efforts as you know and focused for the last six months or so on Europe, I'll still will be focusing Europe in the next several months and then over the summer, I'll be spending some time in Asia. I don’t know that I want to go into too much detail in terms of actual country focus because we've got lot of people trying to compete with us and follow us around the globe. So I don't want to give a roadmap of everywhere we're going to be, but I’m finding it's been pretty remarkable how spending time aboard you just end up building much better and deeper relationships then you do when you pop in for a weak of sales calls and then at home. In fact some of the other executives have started to spend little more time aboard and we're actually looking at how can system tie with us, so when I come back to the U.S. we start to cycle some other people out. I think it's just important to continue to inject the international customer relationships into our bloodstream at TASER and its going to be something we're going to want to operationalize and continue long after I am back from the extended trip.

Got it. And then just one follow-up if I could. I think I seem to ask this every quarter, so I apologize. I still get quite a few questions about just competitive environment. So I just wanted to see since the last time -- last earnings call, there has been any lengthening of the sales cycle or any significant change in those dynamics.

Yeah, this is Luke, I'll take that one. We've certainly an increase in body-worn camera competitors. We're still winning the vast majority of deals, especially in major cities and agencies that have over a 100-plus officers where the majority of the market is. And we credit that due to our work flow approach. So we believe the camera is just the tip of the iceberg and what really sets us apart in the market is that we solve the workflow from end to end. One other miss perception is we've seen some larger competitors come into the space. And I think if you were to do a channel check and talk with the agencies in law enforcement, TASERs brand is really unparalleled and when you talk to the agencies, they really value our very customer driven product design focus as well as the service and support that we provide. So we still feel very confident in the marketplace today from a comparative standpoint.

Okay. Thank you very much.

Thank you. Our next question comes from the line of Steve Dyer with Craig Hallum Capital. Your line is now open. Please go ahead.

Good morning, guys. Thanks for taking my question. Curious as to your early comments what you're seeing on Axon fleet, the new looking product obviously it seems like the price is right. Maybe a little bit more clarity as to when that will start shipping and what you're hearing from departments in the early days?

Yes, so we announced Axon fleet at this year's ICP due to the relatively long sales cycles. In law enforcement we tend to find that doing a pre-announcement helps our sales team build the channel before we actually start shipping. We intend to ship that in the back half of the year. Without giving away too much, I would say the response has been very positive and as these agencies move to this kind of end to end workflow on the Axon platform, the notion of adding really disruptive low price hardware with really powerful cloud based features has been very well received.

Yes, I would like to add on to that. This is Rick of course. When I was at ICP, I had the opportunity to meet with the heads of the State controls and that's really a market segment where in-cars is frankly pretty important because most of what they do is state patrols is in front of the vehicle. I would say historically, we've not performed super well in the state patrols with body cameras because body cameras are just seen as secondary to in-car and I would tell you there was a very enthusiastic reaction from a number of the different state patrols. One of the analogies we used in terms of how we're approaching the market is effectively by bringing a very connected, a cloud connected small piece of hardware into the vehicle where we're plating these big multi-component systems where you install it once and then as things break, they're very expensive to fix and maintain. So at a disruptive price point, we believe we can bring far more capabilities by getting in place a system that is upgraded through software within 30 days. So there is quite a bit of excitement. I need to temper myself because you know we're not shipping it yet and until the product is out with customers in mass, you don't want to get too excited. But I think it can be a game changer for us in the state patrols and I think it's further building the value of our total ecosystem to be able to have a cloud connected disruptively priced in-car video system.

Great. Thanks. And then just as it relates to the weapons, obviously a very strong quarter; do you still see that as a high single digit type grower over time? Is that still the right way to think about it despite the really strong quarter in the traction internationally?

Yes, this is Dan. Yes, I think overall I think between price and volume and the ability for the international business to continue to -- there is lot of -- as you know, a lot of wide space internationally. I think the weapons business is certainly a single digit grower. Going forward we feel, overall we still feel like we've got a 15% CAGR business as we feel comfortable and so I think it's -- certainly the weapons is a part of that -- part of that growth.

All right. I'll hop back in queue. Thanks Rick.

All right. Thank you.

Thank you. Our next question comes from the line of Greg McKinley with Dougherty. Your line is now open. Please go ahead.

Yes. Thank you. So just maybe some questions on investments back into the business in 2016. Maybe can you help us understand where you what are the biggest areas of investment for '16 and is that different at all or new initiatives at all from what you've invested in the last year too?

Yes, I would say in 2015, the three key areas that we invested in were sales, engineering and international. Moving into 2016, I think our domestic investments are going to slow down on the sales side relative to the investments we're making in international and engineering and we expect to see the ability to have some leverage in the model as our coverage increases and we can now use the same sales rep to cover multiple product line.

Okay. Great. Thank you. And in particular from a sales and engineering standpoint, are most of these I am assuming are recurring in the video business and I don't know if there is any I don't know, metrics or headcount or anything like that you could share with us just to give us a sense of the order of the magnitude of the growth investments in that business?

Yes, this is Dan, Greg. I would say overall yes, I think a lot of it is in the video business. So internationally the people we're hiring will be really to drive both the weapons part of the business as well as the Axon part of the business. So those folks tend to be across -- we're hiring people that really are capable of selling both products that we don't always need two sales teams like we're done in the U.S. So there will be some leverage going out of those resources over time. I think overall, as we said earlier, the bookings growth in 2016 will be higher than the operating expense growth and therefore we think we're calibrating this correctly and getting the right people in place and you're going to continue to see a good ROI on those investments over time.

Very good. Thank you. And then my second question would be, can you just remind us a little bit, you're making some disclosure changes going forward, maybe just highlight those again and the rational for what about the -- what about the business do you feel is better described to investors with your new disclosure practices versus the old ones?

Yes, this is Dan. I would say the biggest changes we're replacing ARPU with annual recurring revenue. We just think that -- we've been tracking a number of these metrics and really as you know, we've been really transparent with the market, but some of these metrics as we've looked through 2015, we're really said look like in the case of the ARPU because of the noise in the quarterly revenue with these catch-ups, it's had this impact on the ARPU each quarter. And again with the fourth quarter's 44 -- over $44 for the quarter, which is not something we want to keep the model on. So we said, look what's a better metric and really as we've measured things internally, we said ARR is a better metric to measure both the user growth and revenue growth for that business over time. That's probably the biggest change. We're not really going to disclose the traction rate going forward. That's been pretty consistent. So we don't really think there is a lot of meaning in that. And then, we're going to go to really just the total book sheets and again because of the timing of when we start recognizing these sheets, we think having the total sheets that we've sold is probably more meaningful than the exact number of sheets that we have on the platform at a point in time because that backlog of sheets is eventually going to be the number and we would rather just disclose the total sheets that we've sold versus the exact number at that point in time in the quarter.

Okay. Thank you.

Sure Greg.

Thank you. Our next question comes from the line of Glenn Mattson with Ladenburg Thalmann. Your line is now open. Please go ahead.

Yes, Dan maybe you talked about the international by region. Can you say the breakdown of international video versus weapons, which was more important there? And then also the X2 had a great quarter, was there one big international shipment there or anything like that?

Yes, so on the X2, there was definitely some international to help drive that in the quarter. So it's been a strong product for us, especially international because you don't have -- lots of times, these are early adopters in the company. So I have a training component of having to train our new weapon platform. You don't have that same headwind that you do in the U.S. where somebody is using a single shot weapon and he used to get pretty trained for the two-shot weapon. So that helps a little bit internationally. As far as the sales, we're seeing sales in both products internally. We see opportunities for both product lines, both segments of the business internally. And as I said earlier, I think that one of the things we're doing is we're building up teams that are really capable of selling both segments. So we can leverage those costs on a go-forward basis.

Yes, I would just add one thing that we're seeing internationally is the customer's approaches about video cameras and then that opens up a discussion about the TASER devices as well, which we've not previously seen. So I think there is going to be a lot of channel synergy across the two products.

Okay. Great. Thanks. And then just a second question on the confidence for the bookings growth in 2016. Can you give us just little more color as to where that confidence derives from?

Yeah. We see a lot of our early adopter customers who've made purchases in the 50 to 100 units that will now be making larger deployments in 2016. We also are starting to see some regional effects where you may have a couple major cities or leading cities in metropolitan areas and the surrounding areas due to network effects in sharing, see the benefit of the platform. So we feel really confident about our bookings target for next year.

Okay. Great. Thanks.

Thank you.

Thank you. Our next question comes from the line of Allen Klee with Sidoti. Your line is now open. Please go ahead.

Good morning. First question on -- you mentioned that some of the -- the Axon Body 2 cameras were delayed from Q2 to -- I am sorry, Q4 to next quarter. Can you give any sense of the magnitude of that?

Yeah, in Q4 we did ship some early try units, which is pretty standard when we're doing a production launch. Between our Flex and Body 2 products, we have a backlog of over 8,000 units. We've been working through this backlog and I expect to be caught up in the second quarter. As we mentioned earlier, the backlog of Flex cameras was due to the bookings at end of the quarter.

Great. Okay. And then can you comment if there has been any issues with -- on international accepting -- using your storage in terms of where the product is actually stored and if that has been an issue, has it been elevated?

Yeah, let me take that one. I can tell you it absolutely is an issue. Just like it was in the United States, we first started this venture five years ago. The reaction of our customers was there is no way that we’re going to wear our camera and there is no way that we can put our data in the hands of a private company. We saw that absolutely slip in the U.S. where body cameras now when you talk at least to users they're saying, every officer is going to be wearing a camera in the near future and obviously we've seen Evidence.com really become a standard where every major agency we've sold is going on Evidence.com. Now we have that one or two agencies where there are still this religious -- we want to build it and we run it ourselves. Even in the U.S. we've seen a couple of those. Internationally I’d say, the international space is where the U.S. was five years ago. When I first showed up in Europe six months ago, the general feeling was that it was a real uphill battle, up at the cloud. We're now seeing that sentiment shift and luckily it's because police or people too I hate to over-simplify, but when I sit with the Head of an International Police Agency, I look at what phone they're carrying and we talk about how is your email experience? You have personnel email right? Yes, and you're probably storing some pretty valuable personal information on those emails right? Or your online banking, there are so many analogues to how internet connected businesses have made our lives better as a consumer that immediately resonates. And then we start to turn to things like security and other issues where once they take…

Okay. Thank you. Very helpful.

Thank you. Our next question comes from the line of George Godfrey with C.L. King. Your line is now open. Please go ahead.

Thank you. Two questions, the first one is can you give us an update on the financial metrics or any other details on the London met deal and perhaps where we stand on the New York City? I know they upsize their trial role out there. I just want to get -- see if you can provide an update? And then second question is just the tax rate, you said it comes down; it was 38% roughly in the '14, then 43% this year. Is it somewhere in that range below 43%, but above 38% or is 38% a good metric for tax rate? Thank you.

Well Dan, why don't you go and take that last and then I will go -- take the tax one.

Okay. Yeah so on the tax rate yeah we expect the 2016 tax rate to be between 38% and 40% to get to back to more normalized rate for 2016.

Great, Thank you. Got it.

And let me talk a little bit about the -- there has been a ton of news flow in the marketplace for sure. These large agencies do tend to -- they've got good -- it's like turning a battleship that some folks would say. So, we’re still in process with them finalizing the terms of the deal and there is really not much more we can share at this time. Similarly with the NYPD, there is pretty stringent guidelines than any of the vendors that are participating in their bid processes. Can’t comment on it and so we’re really in addition to our normal practices of not commenting until we have something really solid to comment. We have to be particularly respectful of the requirements of the process there. So we at this point can’t share any additional details on those two accounts. We don’t -- we actually don't anticipate sharing further details on an account by account basis, which is in line with our general policy of not disclosing individuals deals, but you'll see that I am showing up in our quarterly numbers as those mature into -- from being selective into an prudential order and of course in New York, they’ve not yet made a selection.

Yes, and I would just add, we don’t really think about the margins on a deal-by-deal basis. We do look at that from a market perspective and I talked a little bit about my section how we think about going after these markets and we want to create a healthy margin business and we believe getting these reference accounts is key to doing that.

Got it. Thank you very much.

Thank you.

Thank you. We have follow-up question from Steve Dyer of Craig Hallum Capital. Your line is now o pen. Please go ahead.

Yes just real quickly, Rick you touched on the Azure platform and obviously you guys partnered up starting at IACP and my own perception was that that was very much the defect of standard for a lot of these governments. Have you seen any better receptivity to being on Azure as opposed to AWS?

For sure let me first up by saying that Amazon was also a great partner for us, I think that Microsoft when we did the final analysis. For this market sector, Microsoft is particularly good with government compliance. Organizations that have lots of compliance issues and they've got really deep customer relationships around the world with the IT departments. Since we’ve announced the switch to Azure we've had a number of agencies that frankly were -- had really deep relationships with Microsoft move further and faster in our sales pipeline and I would say internationally it's making a difference as well, where I've been able to meet with Microsoft sales team and to collaborate their helping introduce us. You had various points in different organization like I just came from a meeting this morning with a Microsoft team here in Europe. So it’s a little early, I wouldn’t say that we've seen things, big deals go from start to across the go line as its only been a few months but I would say, the early indications are really positive. Microsoft has been great to work with. Their sales team is really supportive and they actually -- one thing I would point out is they do see Axon and Evidence.com as really helpful to Microsoft, which is great. So Microsoft has a goal of frankly building out their cloud business and migrating for example email and on prem Microsoft office installations to the cloud Office 365. And one thing we've talked about is for them, there is a bit of a challenge where there is just organizational inertia to take for example an email system that you have today and then moving it somewhere else, you've got all the standard point of organizational inertia that might resist that. One thing that I think Microsoft has found very attractive about us as a partner is body cameras aren’t new. They don’t displace an existing system and it creates the need for a new system and it’s a scale that's at least in order of magnitude greater than what they're used to building internally. And that makes us a great talking point for Microsoft in it helps to make customers comfortable with the cloud as they think about body cameras and that’s strategically advantageous to Microsoft across all their cloud offerings. So I think this is a great example of one of those relationships. It's really a win-win. It's been a win for us. It's been for Microsoft and as such their people are helping us a lot and we’re really -- we felt it was a great move and it’s a great partnership and we're excited to keep working with them.

All right. Great color. Thank you.

Thank you. We have a follow up question from Greg McKinley with Dougherty. Your line is now open. Please go ahead.

Yeah, thank you. First of all you provided great visibility on your investment levels for '16, can you or are you able to provide a topline view, I don’t know on percentage growth in terms of any high level guidance you're able to provide there? And then secondly can you talk just a little bit about how TASER has or can continue to support agencies, the complexity of rolling out theses system because I’m sure you've seen a lot of the news like Memphis is trying to figure out exactly how to administer this new process. What insights would you share with us on that topic?

Yes. This is Dan. Let me start with just topline guidance. We don’t provide exact specific guidance, but we do feel comfortable with a 15% compounded growth rate overall and that's something we've indicated previously and we still feel comfortable that the business has got the ability to continue to grow at that 15% rate annually.

Okay. Thank you.

I will take the second part. I think in terms of complexity of deployment, that's our biggest differentiator and that's the reason we've seen the majority of the agencies, large agencies go with our solution and that's why we think we're really well positioned in the next two years both in the States and internationally. When an agency is looking to do a scalable deployment, we've got through the end-to-end workflow and that makes a really big difference when you look at how much time the officers and the agency is going to invest in this program. And some of our features like the ability to add Metadata and then have that automatically trigger retention schedule saves the agency countless hours of time and that's just one example. We also have similar features with [indiscernible] and I can list them all, but I would say that that's the biggest differentiator TASER has in terms of deploying large scale deployments for video and software solutions.

Okay.

Yes I would just add, when we, this is Rick, when we see some of these challenges, a lot of times the challenges end up being more policy related as agencies that are new to this are working through privacy issues. When they're going to release video? What level of oversight they're going to allow or access as the public is going to have. And we do help connect agencies with resources that will help them think through the policies, but the good news is most of our deployments are not slowed down from a technology perspective, whereas if they build this on site, they've got to hire people and buy a bunch of the data center gear and then prove to get it up and running, go through all the trials and fibrillations of bringing a big system from zero to operational. In our case, really all we need is high speed Internet access and we can take it from there. So it dramatically decreases the technical lift the agencies got to do. So most of it I think end up where there are delays, they tend to be more on policy issues, negotiations with union, negotiation with simple groups etcetera over how, when, where they're going to report and what they're going to do? How long they're going to keep it afterwards and all those policy issues.

Yes. Okay. All right. Thank you.

Thank you. We have a follow up question from George Godfrey with C.L. King. Your line is now open. Please go ahead.

Thank you. Just two quick ones. On the share repurchase, do you have a timeframe when to start or complete that? And then the second question Dan, you may have given this, but maybe I missed it, did you provide the annual recurring revenue for the Q4? I know you're not going to provide the ARPU going forward and you're going to shift to that metric, did you say what it was?

Yes, so George, this is Dan. So on the annual recurring revenue, that's $16.7 million as of the end of the year. And then on the buyback, our window will open in a couple days and at that point we'll -- the buyback will commence, but we're planning to do it through a 10b5 plan. So that may take a few days to be put to -- to get put in place.

Got it. Thank you very much.

Sure thing.

Thank you. This concludes our question-and-answer session. I'd like to turn the call back to Luke Larson, President of TASER International for closing comments.

Thank you for calling in today. We're really pleased with the 2015 results and looking forward to a great 2015. Thank you.