Luke Larson - President Rick Smith - CEO Dan Behrendt - CFO

Mark Strouse - JPMorgan Steve Dyer - Craig Hallum Greg McKinley - Dougherty & Co. Glenn Mattson - Ladenburg Thalmann Allen Klee - Sidoti George Godfrey - CL King

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 presence to becoming the market leader being selected by the largest and most influential agencies.

The body-worn camera market is developing rapidly in many countries and we're now active contenders in several key markets where previously we were not on the radar even just a few years back. I am truly excited and optimistic about the trajectory that TASER is on today and going into 2016.

We're executing very well across the organization, which is now truly multifaceted. We're continuing to add the right people and resources.

We've built a truly world-class team. We're focused on maintaining a disciplined approach to our investments in the next year.

Even as we increase our operating expenses to grow the business next year, we expect that our bookings growth will exceed our operating expense growth in 2016. This is a very positive indicator of the traction we're generating from our growth initiatives and the return on investment that we're realizing from prior spend.

The energy and pace of innovation is the highest that's ever seen in our company's history. I look forward to our team updating you on our Q1 progress in April as well as in person at our next Analyst Day, which we're excited to hold in New York City this May.

I am now going to hand the call over to Luke, our President, who will go through an operational update.

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 strategic decision to delay shipments of Axon Body 2, our reputation for quality products is paramount and we employed the necessary discipline to ensure that this product met TASER's high quality standards before we began shipping units. As a result, shipments that were expected to go out in the fourth quarter were delayed as we work through final quality checks and compliance testing.

We're excited to have begun shipping units in Q1 and expect to be through a heavy backlog in the early part of the second quarter. Internationally, we're continuing to set the business up for long-term success and have also seen near-term success with a record $12.1 million in the international revenues in the fourth quarter.

We feel this is an early sign that our international investments are paying off. We've hired country managers in our Tier 1 target countries and regions.

They're focused on capturing beachhead accounts similar to how we built the early U.S. market where we moved aggressively to get their early large adopters on our platform to service as important reference accounts.

We expect near-term that the international Axon deals will come at lower margins as we build those reference accounts. Over time similar to what we experienced in the U.S.

we expect that the next phase of adoptions will be at higher margins. While the international business will always be lumpier than the domestic business in the near term due to the centralized purchasing that is typical and broad, we're pleased with the fourth quarter results and will continue to invest based on these types of positive indicators for long-term growth, To calibrate the magnitude of the difference of centralized purchasing international versus domestically the U.K.

has 43 law enforcement agencies while the U.S. with 5X of population has over 18,000 purchasing agencies.

Operationally, in 2016 I’m working with the entire team to continue to execute at our highest levels. We're focused on maintaining organizational excellence as we continue to grow quickly.

In 2015 we hired over 130 professionals and now have six offices in four countries. We're ensuring that we effectively on-board, train and integrate each of these individuals to ensure that we maintain our high bar of excellence across the organization.

Part of operational excellence is the diligence to continually evaluate the ROI of our investments. While there have been and will be near-term pressures on margins, we remain focused on growing the Axon and international businesses into profit engines.

We'll also continue to push deeper adoption and faster upgrades of weapons domestically. There is still significant white space in terms of officer account.

We've sold weapons to more than 17,000 out of 18,000 agencies in the U.S. There are nearly one third of the total patrol officers in the U.S.

that do not carry a TASER weapon today. This is further highlighted by some of the high profile incidents that we've seen recently across the country.

We want to close that gap and make TASER weapon standard issue for all officers in the U.S. through our officer and agency education and programs such as the Standard Issue Grant.

For officers who already have a TASER weapon, we want to ensure that they upgrade to one of our next generation smart weapons. We also believe that there can be synergies between the Axon Platform in TASER weapons.

The mystery of why a weapon is used by an officer eliminated by the deployment of an Axon on officer camera. The combination of innovative hardware and software differentiates TASER in the market as we solidify our standing as a fully integrated platform services provider for law enforcement.

Finally, we'll be relentless in our pursuit of capturing Axon and Evidence.com market share. We're winning the vast majority of deals in the marketplace today due to our unparalleled end-to-end software platform.

In fact, due to our success, we've seen our competitors take desperate actions, but as we've indicated, their claims are without merit. We will continue to add sales reps in narrow territories to ensure we are in front of every single agency that is making a purchasing decision.

We will refine marketing strategies and measure their relative success in building pipeline and generating leads. We will continue to add innovative products and services to our platform to ensure our offering remains unparallel and we will remain competitive in each and every process as we know our offering is the best for our customers and therefore it is a long-term partnership that we're entering with each customer.

Looking into 2016, I am personally really excited about our new product introductions. We launched our Axon Body 2 camera, which has tremendous response for overall user experience and it's advanced features.

Later this year, we will launch our in-car camera system, which we believe will disrupt the market. We had numerous other products in the pipeline that are progressing very well, which I look forward to announcing later in the year.

We will continue to add differentiating features to our software platform that not only add value for our existing customers, but also makes our products increasingly more attractive for new customers. Dan will now go through our financial update before the Q&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 in the fourth quarter of $1.6 million, coming in 50% higher than Q3.

As we previously mentioned, some of the contracts include implementation services that delay revenue recognition until they're complete. In the fourth quarter, professional services team really delivered and caught up on the backlog of pending implementations.

As such, within the fourth quarter, there is approximately $900,000 of service revenue catch up that will not repeat in subsequent quarters. Normalized service revenue will continue to grow based on new users that we add into our ecosystem.

We added 12,900 active paid sheets to our Axon platform in Q4, which is significantly more than the 5,000 cameras we shipped in the quarter. This was due to our lag between shipping and C revenue recognition as well as the backlog of cameras at yearend.

Out strong, continued user growth continues to increase our annual recurring revenue, which at the end of December is over $16 million. Gross margins in the fourth quarter were 65.8% on a consolidated basis compared to 58.6% in the prior year.

The improvement in gross margin was marginally driven by the increase in smart weapon sales volumes, which have a better margin profile than the Axon hardware as well as the service revenue catch-up within the period. The prior period also had reserves taken for obsolete inventory related to the end of life for the X26E as well as the excess inventory related to raw component shortage for the Axon hardware.

Sales, general and administrative expenses increased 51% compared to the prior year to $21.9 million. This increase is primarily due to increased headcount, variable commissions and compensation and increased investment in both the ICP and international trade shows.

Research and development expenses in the fourth quarter were $6.5 million, an increase of $2.6 million or 62.9% compared to the prior year. The increase is driven almost entirely by increased headcount in our Axon segment.

We're still working at building out the world-class software development, hardware engineering and product management teams to ensure that our capabilities to build the preeminent law enforce technology platform are unparalleled in the market. As we look to the full year 2016, we'll continue to invest in opportunities as appropriate.

We’re being diligent in evaluating the returns, current or future of these investments and are quarterly making operational decisions based on these analyses. For example we've recently discontinued direct investments in Brazil as a traction in that marketplace could not justify continued investment by TASER.

We anticipate that total operating expenses in 2016 to range between $123 million to $128 million between SG&A and R&D combined. The increase in operating expense was primarily due to increased headcount, which includes the full year impact of 2015 hires as well as our expected 2016 hires.

Approximately 40% of the 2016 headcount ads are customer facing, 30% are research and development and the remainder are expected to be in administrative and operational support roles. We anticipate the first half of 2016 to see greater operating margin pressures than the second half of 2016 as many of the new roles added don’t have an immediate ROI.

As Rick said earlier in the call, it is important to note that we expect bookings growth to exceed operation and expense growth in 2016. The way we calibrate the spend in our Axon business to get a sense of the financial help in Axon segment is to compare our spend to our bookings each quarter.

This gives us confidence that as our investments in the period are appropriate to the current levels of bookings. Further if we can grow bookings at a rate similar or greater than the operating expenses the Axon business will be very profitable at scale.

As Luke mentioned earlier, our LTV to CAC in the fourth quarter was $4.3 million. This means for every dollar we invest in customer acquisition, we get $4.3 million of gross margin over the life of the customer.

Income tax expense for the quarter was $3.4 million. The company’s effective tax rate for 2015 was 43.6% due to the lack of profitability and the new TASER international BV Subsidiary located in Netherlands that was really resulted from some manufacturing delays, some start-up cost and increased expenses to grow the international business that we undertook in 2015.

We do expect the effective tax rate to come back down to more traditional 38% to 40% range in 2016 with the effective tax rate coming down -- continue to come down as the operating account for the international business increases over time. Operating cash flow in the fourth quarter of 2015 was $16.1 million, an increase of $3.3 million compared to the fourth quarter of 2014.

The increase was primarily driven by the change in deferred income taxes at $8.1 million offset by a decrease in cash from working capital changes of $6.6 million. The change in cash and working capital changes was due to a decrease in inventory offset by an increase in prepaid expenses and accounts payable.

As we announced on this morning’s earnings announcement, on Friday, February 26, the Board of Directors approved a $50 million share repurchase plan. As we noted in the supplemental materials there is significant sequential increase in average revenue per user.

Keeping our methodology consistent, the fourth quarter ARPU was $44. In Q4 there was approximately $0.9 million one-time adjustments to service revenue our officials skewing this metrics higher.

Because of the revenue catch-ups that occur in the quarter from implementation completions that could vary widely, we believe that ARPU is not an accurate measure to track the growth and success with the Axon software platform. Rather the metric, which does accurately reflect both the growth in users and revenue per user, is annual recurring revenue.

At the end of Q4, our annual recurring revenue was $16.7 million. This is up from $12 million at the end of Q3.

Please see our supplemental statistics dashboard for our quarterly results for the full year of 2015 as well as our calculation methodology. Going forward we'll continue to provide annual recurring revenue metric as a replacement for ARPU as part of our key metrics in 2016.

Future contracted revenue grew to $159 million in the fourth quarter, representing a sequential growth of nearly 30% from the third quarter of 2015. This metric grew faster than bookings because of our increase in backlog that we mentioned earlier.

Lastly before going to Q&A, there are a few administrative items I would like to update investors about. First, while we'll continue at our discretion to announce large otherwise material orders individually, we're no longer going to be doing the monthly wrap-up or the press release.

We create the monthly press releases have over time to claim in value and do not necessarily reflect the health of the business. Second, and keeping with the goal to provide the best set of metrics there consistent with how we operate and manage the business, we'll no longer be providing attachment rate, ARPU, active pay sheets and future billings each quarter going forward starting with the fourth quarter of the last time we report those metrics.

Thirdly, and starting with the first quarter of 2016 earnings release, we're going to start releasing earnings and hosting the call after market hours rather than pre market and finally as Rick said earlier, we'll be hosting an Analyst Day in New York in May, which will provide us with an opportunity to discuss our long-term objectives for the business. This event will be webcast.

The details will be forthcoming by the Analyst investors. We're now going to move to the Q&A portion of the call.

We’re going to take two questions from each person in the queue for the first round of questions to ensure everyone has a chance to ask questions and should you have additional questions, please hop back in the queue. And with that, I'll turn it over to the operator to set up the Q&A.

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.

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.

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.

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.

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 the time to dig in, it start to realize the impact the cloud outperforms what an agency can typically do on their own internally. In fact they're just number one customer and we're talking about this is the customer that’s considering and they're still considering whether to build on camera and the cloud and that same customer told me that they're running Windows 2000 on all their laptops.

And we then -- we both kind of chuckled and said, well that's sort of an example of how hard it is to keep up with technology when you're running it yourself and you’ve got to do it an environment where you've got these incredibly bureaucratic purchasing requirements, why wouldn’t you want to outsource that to someone that does technology for a living and is able to always make sure you're updated and up to speed with the latest security patches and technology. So, it’s a bit of a long story, but I’m having a sense of déjà vu to where things were in the state years ago, but we’re early in the process.

I think we’ve got the U.K. pretty comfortable.

At most of the agencies in the U.K. are now getting comfortable and with Microsoft putting an amateur instance in the United Kingdom and it's helping our partnership with [Amped] having instances in other areas of the EU and other international segment is helping.

But I would say -- we're still in the early innings, which is something I actually really like because I think TASER is there as a thought partner and we're helping to share the thinking that it's driving our customers to help them see the advantages of this cloud approach. So I’m actually delighted that the international markets is where it's at where we have the opportunity to come in be the thought partner that helps to move these customers into a cloud model.

So it’s an exciting time for us. Certainly there is a lot of work to be done and we’re not going to win every account to the cloud.

But I think over time the underlying economics and technology advantages of our cloud model are overwhelming. That’s why the cloud connected business models tend to dominate in just about every other market segment where they've effectively entered.

We believe all those advantages accrue to us and we’ve liking the first mover, but it is going to take some time to get the international space to where the U.S. is now where you just see big agency after big agency hop in on the cloud.

Okay. Thank you.

Very helpful.

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.

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.

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

Thank you.