Good day, ladies and gentlemen, and welcome to the First Quarter 2008 TASER International Inc. Earnings Call. My name is Carmen, and I will be your coordinator for today. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions). I would now like to turn the presentation over to your host for today's call, Mr. Rick Smith, CEO. Please proceed, sir.

Thank you. Good morning everyone and welcome to our first conference call. At least for the first quarter of 2008. Before I get started, I am going to turn over to Dan to do the Safe Harbor.

Thank you, Rick. Safe Harbor statements for TASER for this call are certain statements contained in this presentation maybe deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. The TASER International intent is such forward-looking statements be subject to the Safe Harbor created thereby. Such forward looking statements related to expected revenue and earnings growth, estimations regarding the size of our target markets, successful penetration of law enforcement market, expansions of private sales to the private security, military, consumer, self defense markets, growth expectations for new and existing accounts, expansion of production capability, new product introductions, product safety and our business model. We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements herein. Such factors include but are not limited to; market acceptance of our products; establishment and expansion of our direct and indirect distribution channels; attracting and retaining the endorsement of key opinion-leaders in the law enforcement community; the level of product, technology and price competition for our products; the degree and rate of growth of the markets in which we compete, and the accompanying demand for our products; potential delays in the international and domestic orders, implementation risks of manufacturing automation, risks associated with rapid technological change; execution and implementation risks of new technology; new product introduction risks; ramping manufacturing production to meet demand; litigation resulting from alleged product-related injuries and death; media publicity concerning product uses and allegations of injury and deaths and the negative impact which could have on sales; product quality risks; potential fluctuations and quarterly operating results; competition; negative reports concerning TASER device uses; financial and budgetary constraints of prospects and customers; dependence upon sole and limited source suppliers; fluctuations in component pricing; risks of government investigations and regulations; TASER product, tests and reports; dependence on key employees; employee retention risks; and other factors detailed in the company's filings with the Securities and Exchange Commission. And with that, I would like to turn the call back over to Rick Smith, our CEO.

Alright, thanks Dan. Well, we are certainly proud of the results our team was able to turn in. It certainly has become a challenging economic environment here in the United States. In the first quarter, our revenues were up 47% over the same period last year, a record $22.5 million record for our first quarter. Income from operations was $1.6 million, up 361% over the prior year, albeit from a small base. Perhaps most significantly, our margins improved sequentially. Even though we were lower revenue sequential than a strong fourth quarter, we were able to improve margins. And I think you will see a continued focus on that area. Those of you who are looking at our press releases saw that we made a significant hire in the first quarter in Steve Mercier. A strong background out of Intel Corporation. Steve is now responsible for all of our operations, manufacturing and logistics, and obviously he has hit the ground, he is running, and we look forward to seeing his results as the year moves on. We had many significant orders in the first quarter. Some highlights you saw in our press release. North Carolina Highway Patrol, Las Vegas Metropolitan PD, San Diego, Sacramento, LA Port Police Department, etcetera. In fact, we added a total of 304 new agencies up to a total of over 12,700 agencies testing and deploying our products. We added 168 new full deployments. So we now have over 4500 agencies that have deployed TASERs to all frontline officers and make it available at least to each frontline officer. We also added 102 new agencies with TASER CAM. So we are continuing to see new agencies adopting our advanced accountability systems. On another front in sales, we did launch our infomercial in the first quarter. In fact,…

Thanks Rick. I am going to now go through the results for the quarter. Sales for Q1 are $22.5 million, which as Rick indicated are up 47% or $7.2 million over the prior year. Sequentially, we did see our sales fall from the fourth quarter, but again our first quarter is typically our seasonally weakest quarter in the year and it's common for us to see degradation of sales from Q4 to Q1 in the following year. Gross margins up $12.8 million were 56.8% of sales, which are down 1.3% from the prior year. Again, the decrease in margin was caused by increased labor and material cost, which were partially driven by a change in mix, with more of our sales coming from cartridges, C2 handles and TASER CAMs, which carry a lower margin than our TASER law enforcement devices. Cartridges, C2 devices and TASER CAMs constituted 37.6% of our sales from this quarter versus 30.8% in the first quarter of 2007. The good news is that, as we said on the last call that we would eliminate cash discounts that curtail distributor discounts. That we would lower labor cost, while negotiating better material pricing with our suppliers. We did all that, and we continue to look for ways to lower our costs and improve our gross margins, which is why we did see the 1.4% improvement in sequential margins. We do expect to improve that as the year goes on. We saw $347,000 increase in our indirect manufacturing expenses versus the prior year. But again, this is mostly driven by higher direct wages due to the increased headcounts, and quality manufacturing engineering materials departments as well as increased scrap expenses due to the higher level production. The variances are partially offset by a larger allocation of overhead into the…

Great. Well, we are going to go to Q&A in just a moment here, but before we do, I would like to end by inviting folks to come out and join us. Our annual meeting will be May 28, here at TASER headquarters. And as mentioned previously, we are going to be engaging in some very interesting new business this year and we will start to open the kimono a little bit at our annual shareholder meeting. So it should be an interesting time for us. For those shareholders who have been with us for a long time, we really appreciate you being with us for the ride, and we are ready to take this company to the next level. So with that, I am going to open it up for the Q&A.

(Operator Instructions). The first question comes from the line of Steve Dyer from Craig Hallum. Please proceed.

Morning guys. Thanks for taking my call. I'm curious as to whether you are seeing any weakness or pushback from a municipal budget issues, are you hearing sort of reductions in what you had sort of planned as for sales into some of these municipalities?

Yes, morning Steve. We have definitely seen at least some anecdotal evidence of some municipal budgets being a little bit tighter this year than they were in prior years. We are still -- obviously, we think we have a strong value proposition, and even as these municipalities cut back, we are certainly not cutting back our sales efforts. We do think that we have got a unique product that positions us well, but we do have some -- the U.S. economy is certainly a challenge for us. Municipal budgets are a little tighter than what they have been prior years, but our plan is that the new products and new markets that we are focused on will help to offset any weakness in our U.S. law enforcement business. We still feel very good about the international business and the military, the private security, the corrections business, and some of the new products like the C2, and something like the consumer business we are hoping will offset some of that weakness in the U.S. L.E. business.

Okay. And then I guess while we are on the topic, can you give us an update about the international business. It seems like we have had four or five different countries towards the latter stages of testing here for quite some time. Is there any break in the logjam there?

Obviously we had a little bit of a break in the logjam having a new client come on with 3,000 units here in the first quarter. We continue to get very positive feedback from the more public customers like the UK and France that we have been working for years. We expect to continue to see extensions of those deployments in new countries coming online. But there is nothing today we can give you of a specific break with a large number of units that has not been already announced, but we do continue to see momentum overall.

Are you still of the belief that one of the larger guys will come in with an order yet this year or is it too hard to say?

It is really too hard to say. I mean the decision making apparatus of these large organizations is really hard to predict. We continue to get very positive feedback from the user base. By my way of thinking it is just a matter of time, but it is hard to know exactly when that will happen.

Okay. Dan, maybe you could clarify the R&D spends. I think Rick, you had said something about incremental $5 million above and beyond sort of the current spend rate, and I just want to make sure I have that number right. So this quarter you are on about $10 million annual spend, does that imply a full year number, like $15 million or am I thinking about it wrong?

I think we are going to see a total year number in that $13 million to $15 million range. We are definitely going to see a significant increase in the R&D spend. We think we've have got very big opportunities in front of us and we want to make sure we accelerate the R&D spend and capture that and make sure we have got the [first move] or advantages in some of these opportunities we have identified.

Okay. I know you are somewhat limited as to what you want to say, but can you -- I mean obviously with this kind of a spend increase, is there some assurance or belief that there is some good revenue to be generated in the near to mid-term that you turn course like this?

What we are spending on this year will obviously bear its fruits starting in 2009. As a management team, we have been looking very carefully at where the right places are to invest. We have had investors ask us about whether have any plans for acquisition etcetera. We do continue to look, at the make versus buy decisions on new strategic initiatives. The one we are moving into that's at the core of this spend really has to do with a more systematized approach to what has traditionally been a stand alone product business. So it does go to the core of our business. It does apply to our core markets, as well as -- like our core business with the X26, we are able to take that technology and spin it off into things like the C2 that go in to other markets. The spend this year does a little bit of both. So we are doing some pretty innovative stuff. I will tell you this, when you see what we are doing, it has not been done before. The market research we have done -- we have had some real thought leaders in law enforcement that we have queried about this that have -- they slack jawed frankly when they saw the audacity of what we are doing. And it is not cheap. This is one of the biggest programs we have engaged upon, but we are very excited and it is not just exciting technologically. The business model shift has significant implications for increased revenue, increased revenue consistency, and increased recurring revenues as our business model expands again from being a sort of product provider today to integrating those products together into more global solutions.

Okay that is helpful. And then my final question and I will hop back in. Looking back to the start of the quarter, would you say that the performance in the metrics this quarter were in line with your expectations, if not, where was the change or the short fall?

I think as far as the metrics we look at for the business, certain things we are very pleased with. Again, we talked about on the last call some of the activities that were in effect to improve gross margins. We are very pleased with the improved gross margins. Especially considering that the sales are down. It is a challenge given the amount of fixed costs in the business to increase margins on lower sales and certainly we feel very good about those metrics. From a sales perspective, again we are working very diligently on our core U.S. business, but we are also focused on -- we have made the key hires that we talked about before our market makers in the corrections, private security, consumer businesses. So, we are trying to broaden our product offerings and our market offerings here to make sure we have got lots of irons in the fire here to help grow this business longer term.

Okay. So I guess I am reading between the lines. Sales maybe were a little bit disappointing relative to what you expected. Is it safe to say that it's kind of the domestic law enforcement arena that is slowed here?

Definitely the U.S. LE business has definitely been a little bit of a disappointment, but it's one of those things that we still think we have a strong value proposition there are and we are just making sure that redouble our efforts to make sure we get business that is out there.

You know, just to elaborate on that, state and municipal budgets are largely driven by sales tax revenues and property tax revenues. With what has been going on in the housing market, whether we have seen real budgetary impacts in terms of tax collections, certainly we have been hearing from our customers that there is some concern about where the budgets will be in total this year. So I think we have seen some belt tightening.

Ok great. Thanks guys.

And the next question comes from the line of Paul Coster. Please proceed.

Of the 7,000 or 8,000 C2 units that you shipped this quarter, how many of them were sold through versus going in the channel. Can you give us sort of sense of channel build here?

I think the good news is that I think we did not announce a lot of new retail partners during the quarter. So most of that 7,000 almost 8,000 units are really -- I think represent the sell-through versus a pipeline fill. We continue to add retailers, but if you look at the fourth quarter with the backlog of 5,700 units, a lot of that were new customers and sort of pipeline filled whereas this quarter I think is more indicative of sell-through.

I would also say that we have seen a significant uptick in the sell-through, through our website. To be honest, our current website -- we sort of make it challenging. We make sure people really want to buy a C2. I say that jokingly that with Nick coming on Board we are going to be streamlining some of our E-commerce and our web store, and some those initiatives over the next couple of quarters. And so far we have done very little promotions in e-commerce. Most of our sales direct have been folks that have learned of us in the offline world then gone online to research it. We will be bringing up world class e-commerce affiliate programs and other marketing programs this year to really drive that. But my inclination is that fourth quarter I think you can characterize is a fair amount of channel fill. First quarter in my way of thinking, it is mostly sell through.

Great. And presumably as the e-commerce program develops you are going to see better margins out of that as well.

That certainly would be our intentions.

Just going back to the state and local business for a moment, this is a slight disappointment, so in the first quarter, have you witnessed something like this previously in your history? Is there any sort of lessons we can learn from the past here?

Well the first lesson would actually be the quarter a year ago, we saw a similar decline from the fourth quarter to the first quarter, and people looking at street expectations relative to actual results, I think last year was a greater disparity. So we are looking at it as well, trying to determine how much of this is seasonality versus how much of this is some of the budget tightening. Again from the big picture to look at nearly 50% year over year growth, we can't be too disappointed, but we just need to make sure that continue to execute and build our upward trajectory over the course of the year.

Okay, at this point in the quarter, do you feel like you have some kind of spring back in the second quarter?

Yes, it is really too early to say, because for a number of reasons, not the least of which is, generally our quotas tend to be back-end loaded. Particularly the second quarter, because the end of June tends to be a lot of year end budget dollars. So, we will do traditionally over half our business when the second quarter comes in June. So regardless, we would never really be in a position in April to have much of an indicator on how the second quarter is going to turn out.

Okay. The new initiatives that you talked about, you have expressed this notion of being a solutions provider. Many of us as we think of solutions think of a lot of margin service business that kind of compliments an otherwise high margin product business. Is that just kind of erroneous thinking? Can you just give us some reassurance about the nature of the business model at the end of this transition?

Yes. I would say that is an erroneous assumption as it applies to what we are doing. The businesses we are going into we believe will sustain a high margin type of infrastructure. That is not us turning into a systems integrator, and having a bunch of installers go out to the field and earning incremental revenue on a large base of revenue, or people. It's consistent with our focus on high margin, non-commodity revenues streams.

A very high value proposition. So again, we think we will able to command pricing for that to continue to see a strong margin in that part of the business.

And it's enabled by technology not just by feel on the street?

Absolutely. It is a very strong technology plate. That is why you are seeing the level of investment required to support it.

Thanks very much.

Thank you

We have no further questions. I would now like to turn the call back over to Mr. Rick Smith, for closing remarks. Please proceed.

Great. Well, we appreciate everyone tuning in to the conference call this morning. Again, we would invite everyone to come out to our annual meeting on May 28 and learn a little more about what we have been foreshadowing this morning, and look forward to another great year and the opportunity to continue to take our technology to the next level. Thanks everyone and have a wonderful day.

This concludes the presentation for today ladies and gentlemen, you may now disconnect. Have a wonderful day.