Good day ladies and gentlemen, and welcome to the TASER International, Inc. Fourth Quarter 2012 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I’d now like to turn the conference over to your host Rick Smith, Chief executive Officer, Sir you may begin.

Hello and thank you all for joining us for our 2012 TASER International Annual results conference call. Before we get started, I’m going to hand over to Dan Behrendt, our CFO for the Safe Harbor statement.

Sure, the Safe Harbor statement. This press release contains forward-looking statements within the meeting of Section 27A of the Securities Act of 1933 as amended and Section 21E of Securities Exchange Act of 1934 as amended, exchange act including statements regarding our expectations, beliefs, intentions or strategies regarding the future that will continue to make investments through increased SG&A in 2013, that we anticipate agencies will take advantage of our operate program and that we are well positioned to execute our strategy. We intended such forward looking statements be subject to the Safe harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based upon our current information and expectations regarding TASER International incorporated. These estimates and savings speak only as of day on which they are made, they are not guarantees of future performance and of certain risks, uncertainties and assumptions that are difficult to project. Be cautioned, these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward looking statements yearend. TASER International assumes to obligation to update this information contained in this conference call. Other factors are identified as documents filed by us with the Securities and Exchange Commission including those set forth in our for 10-K for the year ended December 31, 2011 under the caption of risk factors. And with that, I’d like to turn back over to Rick Smith.

Thanks Dan. We appreciate with the opportunity to report some great results for 2012 and a strong fourth quarter in particular. As you, no doubt have seen in the press release by now, Q4 revenues were up 51% to $32.1 million and annual revenues rose 27.5% from $90 million in 2011 to a $114.8 million in 2012. If we look at this by segment, you may conduct it like a weapon segment, revenues grew $9.6 million or 46.6% over the same quarter last year. In the videos, cloud and software segment, revenues grew a 122% or $1.1 million over the last year. Now although video revenues grew from a small base, we’re seeing consistent growth and evidence of continued traction in the market place. In fact, we are including some new information in our earnings release. We are now releasing the AXON and Evidence.com bookings by quarter. Given that Evidence.com as a service with revenue that will be recognized over the service delivery, we feel it’s an important metric to share the total sales booking each quarter to enable investors to see the overall traction of the business, which can be harder to discern on a GAAP basis, as revenues again are recognized over extended time periods. We define booking as a sales price associated with orders placed in relevant time period including hardware, software licenses, maintenance warranties and other items, which maybe paid for and/or recognized as revenue in future time periods. Bookings for AXON and Evidence.com have grown from 352,000 in the first quarter of 2012 to $1.67 million in the fourth quarter. Across the business gross margins were strong in the quarter as well, coming in at 59.7% compared to 32.7% last year. Of course the number last year includes some significant onetime items In the weapons…

Thank you Rick. As Rick said revenue for the fourth quarter was $32.1 million, which is up approximately $10.8 million or 50.6% from the prior year. The increase in sales versus the prior year was driven by the continued adoption of the X2 conducted at electrical weapon, CW. The North American law enforcement business continues to be strong mostly driven by the upgrade cycle to the new X2. The case of protection plan, our municipal leasing program contributed approximately 10% of our revenue in the fourth quarter which shows continued positive reception in the program as by our customers. North American law enforcements sales are up 33% over the fourth quarter of 2011 and the total year increase for the North American law enforcement sales is $15.6 million or 28.7% year-over-year. The upgrade opportunity in North America remains one of our growth drivers as we are going at 2013. Total year sales of $114.8 million set a new record for TASER surpassing the previous record of a $104.3 million of asset in 2009, so we’re up by 10% over that previous high water market. Gross margin for Q4 was $19.2 million or 59.7% of revenue, which is up significantly from the 32.7% of the prior year. As Rick said earlier in the fourth quarter of 2001, the company did have a number of onetime items including a $3.7 million charge for excess inventory which transferred margin. Gross margin before the excess inventory charges in the fourth quarter of 2011 were at $10.7 million or 50.3% of revenue. But the remaining improvement about the 9.4% in due to the higher operating leverage in the business. We also had a higher percentage of drop shipments in other direct sales to customers in the quarter, which increases our average selling price, but has…

Thanks Dan. So as Dan mentioned, we continued to see traction with the new X2 smart weapon in the fourth quarter, we had major deployments in Phoenix, Tempe, Knox County and Cleveland and other agencies. We’re continuing to see a trend of agencies moving towards what we call our smart platforms, I’ll talk about that more in a minute. However, we still have a lot of upside and room to grow in upgrading our customer base installed weapons in the field. At the end of year, we’ve only upgraded about 9% of the TASER weapons that are more than 5 years old. This number includes not only X2 upgrades, but also some standard X26 purchases where agencies bought new X26 to replace ageing X26’s. In 2013, we believe we have the opportunity to accelerate the upgrade of our installed base of the introduction of the new X26P TASER smart weapon. So, while we’re little over half of sales last quarter of the new X2, the other half continued to be a bit of legacy X26. So working with our customers, we’ve identified that some customers want to retain the smaller size and the familiar reform factor of X26. One of the primary reasons for this has to do with the expense and logistics of retraining officers on a new weapon platform. Some agencies will spend as much or more of their budget on retraining officers as they spend on the equipment. For this reason many agencies as long as they want to stay with the familiar X26. However they have also expressed their interest in some of the new features and the technologies in our X2. So for this reason, we’ve introduced in 2013 just within last month or so, the new X26P TASER smart weapon. The X26P requires no…

(Operator Instructions) Our first question is from Steve Dyer of Craig Hallum. You may begin.

Thank you. Good morning guys.

Good morning Steve.

If I heard the numbers correctly, this is the first quarter that the X2 outsold the X26, is that right?

That is correct. So, X2 for the quarter were – this is – were 11,259 and the X26 was 10,389. It’s an important milestone as well. They have been kind of neck and neck throughout 2012 for this quarter. Mostly driven or partially driven by the Phoenix deal that we had in the fourth quarter, which was an X2 deal, pretty significant X2 deal in Q4 that was close through the TPP program, the new police program helped us to actually have the X2 higher than X26.

Okay. So, is that a trend you would expect to see going forward or it might be neck and neck here for a while? I am just wondering, I remember back kind of when the X crossed over the M, it never turned up, and it’s obviously up a nicer sale. What do you expect going forward, maybe ’13 on the brick out of those two?

Yes, it’s interesting, with the X26P, I think that if we didn’t introduce the P, that’s probably, you know, may have continued, but we certainly got, as Rick indicated earlier, got a lot of feedback from customers who liked the new technology, liked most of the digital technology and all of the features that comes with that, but we really look to hands drawing on the cost and complexity of ops out of the field that retrain on a new platform, the X26P really allows them to do a running change without that training. So, I expect it overtime, the X26 to sort of, what we call the X26E, which is sort of the 2003 vintage X26 will slowly get reduced or replaced by the X26P and X2. The X26P is also a good product, had a slightly higher price point than the X26. So, it’s also a product that we think that would be accretive to our sales and earnings in ’13 and beyond.

Okay. And then with respect to the X2 sales that you have been having, do you have a great sense as to what percentage of that are replacement sales versus new sales?

I would say it’s probably greater than 75% are our upgrades. We have had a number of agencies go right through X2, it’s interesting. I think it’s just sort of taking a fresh look at the CEW technology in general and X2 helps them to do that, and hey, if we are going to be looking at CEW by the latest and greatest, so we have seen some of that, but I would say the majority of our sales in 2012 have been upgrades from existing customers.

Okay. And then, with respect to kind of the body cam and the growth there, do you expect from a unit standpoint that that’s going to follow kind of a similar trajectory that the X26 did back in the day in terms of adoption from a unit standpoint, or would you expect that will be slower to roll out just in general?

With the Flex body cams, obviously we would love to see it follow the unit trajectory that the X26 did. The X26 though had a bit of an advantage and it was just sort of a more convenient smaller form factor of the M26, which have already done the groundwork of laying the fundamental market demand. So, maybe the Flex, which is more like the M26 rollout, which was a new concept really in the late ‘90s, ‘99s through 2003. So, it’s hard to say, you know, there are some different dynamics in the sales process as well. We have got, it’s a bit of more complex sale, there is more stakeholders, it involves IT as well as trainers and in some cases, city councils and other folks in risk management. So, we tend to see the time to close orders, take a little longer for the Flex cameras than they do for the TASERs of either iteration. But we are seeing a lot of evidence that the general concept of on-officer video is really being well accepted in the marketplace. I think on our last conference call, we talked about a survey that police, one did that sounds like 82% to 84% of respondents now felt that officers want to wear on-officer video. And we see the ones that in an agency for about 60 days, officers will begin to have those incidents where they record, where somebody that they are interacting with is very rude to the officer and then files a complaint. And the officer then just cleared and – one or two of those experiences, and all of a sudden, it becomes really supportive of on-officer cameras. In fact, like happen to, now has gone full deployment with both the X2 and the AXON Flex and the Evidence.com deal, they started down this road about 18 months, maybe two years ago. So, it took some time to adapt it into our culture. Once they did, they actually implemented category for complaints call cleared by AXON, which basically mean they never even bring the officer from the field. They watch the video, they see what the officer did, and it’s pretty unilaterally clearing officers. So, we are seeing a lot of the right dynamics. The question is to how fast that it accelerates is, one, we are looking at our crystal ball as well to try to figure out. I believe we know enough to say that long term, there is a very real market there. How fast it develops? It’s a little hard to predict.

And would you expect to see some cannibalization of the cam, the TASER cam as that happens?

Yes. Although, I would say in the on-officer space, we are not the only game in town either, it is a competitive space where there’s different companies with wearable camera options. We are winning the significant majority of deals where we are being compared with competition. In the case of TASER cam, I know I just talked to some of our sales people recently who successfully transitioned some new orders from the TASER cam over to the Flex camera, which we believe is a greater value for our customer. It’s just used much more often and TASER on average gets used once every two years on the street. So, you are getting one video of an incident roughly every two years. The wearable cam is like AXON Flex is wearing every day, it records all sorts of incidents, so much higher utility. So, we are actually very comfortable and we have put programs in place with our sales staff to help with agencies that are buying TASER cam because maybe that’s a historical practice since the camera has been around since 2006, helping to migrate over to the on-body cameras.

Okay. And then, last question and I will hop back in the queue. Dan, I think the SG&A, it sounds like about half of the incremental 3 or so million quarter-over-quarter, and there was sort of what you categorize as one-time thing. Is that sort of a fair split? The new run rate is probably half of that delta?

Yes. There is definitely sort of unusual events, although some of that sort of the variable selling expenses, but again those get offset in gross margins. So, if we not had some of those variable selling expenses, SG&A would have been down and gross margin would have also been down. So, that’s probably a fair approximation.

Okay. All right, thank you.

Thanks, Steve.

Thank you. Our next question is from Greg McKinley of Dougherty. You may begin.

Yes, thank you. Can you just remind us of the economics in terms of margins and ASPs as you compare the X2 to the X26 and then maybe even the X26P to the X26?

Yes, so the X26 sells for about $835. The new X26P will be roughly $900 with the battery, and there’s some holstering options as well for that product, it will be additional sales. And then, the X2 is about $1,050. So, yes, we are definitely, as we introduce the new technologies, we are moving the price up, but providing some pretty valuable new capabilities as well. So, there is trade-in programs for the X26P in the Q1 as well as the X2, and we think that those have been successful in driving that upgrade. We will continue it up to 2013. So, that reduces sort of the realized price, although it also helps us to drive the warranty sales as I mentioned in my earlier comments. You know, these upgrade packages include warranties, we have seen a fair amount of deferred revenue, I guess put on the balance sheet in 2012 and expect that trend to continue in 2013. And what it allows is some very profitable warranty revenue, it just gets deferred into the future.

Okay. And on the handle sales themselves, I guess maybe it’s appropriate to look at it bundled with the differed warranty. Do these end up generating similar margin rates on those ASPs that you would have gotten on an old X26 or when you are bundling a warranty even with a rebate, do you end up getting a higher margin rate overall?

It’s a higher margin of the product, it’s probably comparable after the sell-in. The X26P will probably be slightly lower at selling than X26 because of the trade-in, but over-the-life of the product will be slightly higher. The X2 is slightly higher at sell-in and also higher over-the-life. So, it’s a little, I mean, the good thing with TASER is that we are talking about – we are selling sort of the mid-to-upper 70s as percent on a variable basis in call cases here. So, still pretty lucrative sale even if it’s little lower than X26 by itself. And I think as Rick mentioned, I think driving an upgrade is so important for our growth here in North America with such a heavy install base. So, having new technologies that people can upgrade to, I think is a big part of what will help drive growth in North American part of the business. And even it’s a slightly less profitable sales, it still will be really accretive, it will drive our overall increase in sales, which I think at the end of the day, we will add the profitability.

On an accounts basis, it’s certainly more profitable because the warranties are paid upfront.

Okay. Can you just remind us a little bit of your tele sales effort now? I think you said what you have eight people in your tele sales group, going into ’13 or 12 [ph] people here in ’13, can you remind us when that initiative started? I want to say it was like early Q2. And then of the revenues generated by that group for the last couple of quarters?

Yes, so the tele sales really began in May. I think it started to hit traction in July. So, the team wasn’t fully staffed until September. And the total sales, depending on how you look at it, between $5 million and $7.5 million, really about the half year. And the reason I would give a range, there is direct sales that the tele sales team generates in direct orders, and then there’s also orders that are passed from the tele sales team through distributors, which are already working those accounts. So, it’s well over $5 million of incremental direct order business, and then there is $2 million to $3 million of additional business that’s generated that we find out that the customers work with the distributor, so then the distributor fulfils that order.

Okay. Can you remind us, what were your comments that you made on the North American law enforcement market? I think you said Q4 revenues up 33% or so, I just wanted to make sure I understood that.

Yes, so North America in Q4 was up 33%, and for the total year, are actually up $15.6 million or 28.7% for the total year. So, really strong results in North America. The majority of that is really driven by the X2 and the upgrade programs that we had in place in 2012, and as Rick said, with only 9% of the installed base over five years upgrade, there is still I think a lot of room to continue that.

The $15.6 million growth, that was 28% growth off the ’11 [ph] base?

That’s correct.

Okay. And then, maybe just two housekeeping questions, your share count, I don’t know as maybe with the performance of the stock that’s brought more options into the share count calculation, can you help us understand what do you think the share count should look like in ’13?

Yes, that’s definitely between – we have some issues divested in Q4 as well as with, as you point with the strong stock performance we had, some employee stock option exercises in the fourth quarter. This is as people that kind of on the sidelines for a while with options, some of which were getting towards the tail end of their line, exercised in Q4. And as a result, that drove up the share count. I think we have our issues that also vest in ’13, and depending on the stock performance in ’13, I think we will continue to see employee stock option exercises as well, but we feel, and I think the buyback, one of the advantage is it really took a lot of that potential delusion from where we started out of the stock count. So, (inaudible) exercise will end up with a share counts that are less than what we started, which I think is favorable.

Okay. Prior to year buy, okay. And then, lastly, you talked about the X26P and that’s bringing some of the smart technology to market and you feel that your customers might trial that product initially before if that wasn’t in the market, they may just go ahead and replace with an X26 or a new X2. How should we think about that in terms of the financial impact of some of these delayed purchase decisions?

Well, anytime we introduce a new weapon platform, there is – people want to get in there and take a look at it. So, with the X26P, we are pretty careful in timing the release, doing it early in the quarter. We have built thousands of devices on the shelf ready to go prior to the announcement. So, we have been able to fulfill all the requests out there for test and evaluation weapons. I would say we may see some impacts in the first quarter. I really wouldn’t expect much impact on that. There might be some agencies who maybe just don’t get their evaluations on between late January in the end of March, but I think you all know, we tend to do about half of our business in the last month of the quarter with a lot of that, the majority of that preponderance being in the last two weeks of last month. Lot of enterprise sales businesses, as people budget, budgets are frequently aligned to quarter end. So, we don’t have any evidence per se at this point that it would push any orders out, but if we look at it, we thought it was something that it will actually make sense and something we should make the investment community aware of. But I would say that shouldn’t be an impact we would see beyond the first quarter.

And as Rick mentioned in his earlier comments, we expect it won’t really have an impact on the total year, it’s really just sort of pushing some business out in Q1 later into the year, but the total year won’t be impacted by that.

Okay.

It’s not a negative way. We see a very positive impact on an annualized basis.

Thank you.

Thanks Greg.

Thank you. Our next question is from Glenn Mattson of Sidoti & Company. You may begin. Glenn Mattson - Sidoti & Company: Hi Rick, Dan, how is it going?

Good. Glenn Mattson - Sidoti & Company: Thanks for some of the clarifications on the SG&A, I think that number kind of jumped out at people. Just to start off the press release, but one question I have is, what is your safer 2013 SG&A? Did you guide to that?

So, in 2013, we are actually encouraged by deductions we made. We have had a really strong sales year in 2012 and part of that is driven by some of these investments we made in customer facing roles, and some of the sort of targeted investments in SG&A. We expect that to continue in ’13. So, we expect about 10%, approximately 10% increase in 2013 total year spend versus 2012 total year spend. Glenn Mattson - Sidoti & Company: Okay, thanks. That helps. I guess moving on to international market, can you give a little more color on what gives you so much of enthusiasm as Rick kind of talked about earlier?

Yes, I think the – if you look at the North American business, there’s roughly depending on how you look at it, there’s close to two out of three officers carry TASER at patrol level. Internationally, it’s still less than one in 50. So, there’s still just lots of wide space internationally. We do feel that by putting people in country, we can help drive some of these countries that have been buying the product albeit slowly and accelerate some of those sales, by in some cases assisting the distributions there in some cases, taking more of that business ourselves and just being focused on putting sales and marketing resources in those countries. The technology obviously is while it was opted in the U.S. and we think that the international market is still ripe for new sales opportunities and we expect that, that – we had actually pretty strong results in ’12 and we expect that there is a lot of wide space there that allowed us to grow that part of the business in ’13. Do you have anything to add to that, Rick?

Yes, the only thing I think I would add is we see a lot of new opportunities with what we are doing with video and Evidence.com in the international markets as well. One of the things that’s made for slower adoption, I think of the weapons internationally is that most countries organized their police into much larger agencies, like France is when we have talked about regularly that has a gendarmerie and police national. These are like 150,000 person organization, and the decision-making happens up at the minister level. So, it becomes much more political in nature, and certainly there’s groups like Amnesty International that might take a position towards police and for its TASER devices, but even those groups what we see is being generally much more supportive of the idea of on-officer video. So, we think there’s less risk in adopting – from a political perspective in adopting the cameras, so we may actually see the international markets start to adopt even at a faster pace than they have with the weapons over the coming years. Glenn Mattson - Sidoti & Company: Yes, that sounds good. And I guess kind of related to that either, you talked about international or domestic, but you had the big orders in Q4, particularly the Arizona one, I guess it’s tougher to lap those, do you have any foresight of big orders in the pipeline and anything on that?

We do have a number of orders, some of which are even larger than the Arizona order in our pipeline for ’13. Of course, we can’t count those chickens until they hatch, but there’s plenty of pipeline of large orders in 2013 relative to 2012 for us to be able to continue to grow the business this year. Glenn Mattson - Sidoti & Company: Okay. Thanks. And also, I guess lastly, the cash generation is pretty impressive and should continue. So, what are the plans going forward? You haven’t talked about another buyback or anything like that?

We will continue to evaluate as we accumulate cash on the balance sheet. We kind of take a pause here at the end of the year. Obviously, we are happy with the results of the buyback, but we will continue to evaluate that with over $37 million in cash on the balance sheet and really as you pointed out, strong cash generation of business, we will have to just sort of evaluate what the best way to deploy that cash as we move forward, but I guess stay tuned, nothing to announce on that yet. Glenn Mattson - Sidoti & Company: Okay. Thanks.

Thanks, Glenn.

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

Great. Well, thanks everyone for joining us this morning. Obviously, as we look back at 2012, it was a record year for us in a lot of ways. We are very happy to see the growth in the core business as well as the trends we think in 2013, we should be able to see some significant improvements at both top and bottom line in the video business, which is now showing a lot of the signs of gaining traction. And we look forward to also seeing you all certainly on our Analyst Day and investors are welcome to tune in on the web and I think that will be very helpful as we have been putting a lot of thought into helping folks model what the business still look like, including the video and software business over the next three to five years. I think you will see that why we are so excited about the opportunity that presents for us in addition to our core business. So, thanks for your time today and we will see you all in March.

Ladies and gentlemen, this concludes today’s conference. Thanks for your participation and have a wonderful day.