Good day ladies and gentlemen and welcome to the TASER International Third Quarter 2015 Earnings Call. At this time all participants are in a 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 call is being recorded. I would now like to introduce your host for today's conference Mr. Luke Larson, President of TASER International. Sir, you may begin.

Thank you and good morning to everyone. Welcome to TASER International's third quarter 2015 earnings conference call. Before we get started I'm going to turn it over 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 both of these filings as well as our other SEC filings on our website at www.taser.com. With that, I will turn it back over to Luke Larson, President.

Thank you, Dan. As a reminder, we’re going to be accepting some questions via Twitter today during the Q&A portion of the call. To follow our updates on Twitter during the call follow the account @taser_ir. For those of you without Twitter, all updates and graphics stream directly to our Investor Relations website www.investor.taser.com. Our team is coming of the most exciting IACP events that I have experienced in my seven years at TASER which was a fantastic culmination of a quarter firing on all cylinders of growth oriented execution. Revenues came in over internal expectations and set a new Company record of $50.4 million. We also increased our investments and accelerated spend above our messaging from last year in an intentional and strategic decision to capture market in a limited window of opportunity as the market forms. Based on our leading indicators of marketing pipeline including [cap to] LTV ratio and that we surpassed our internal bookings target for the year, we made a very deliberate decision to continue our investment strategy in order to capture the most market share. We strongly believe these investments will result in a consolidated platform that will create much value for both our customers and the investors. At the beginning of this year we set the FY 2015 booking score at 100 million, it is 10 months into the year and we’ve already surpassed that goal and are expecting our Q4 bookings to exceed the third quarter results. In the third quarter, we not only won the major cities of Denver and Memphis but just last week we learned that we won the City of San Antonio for our largest Axon and Evidence.com deal to-date making our total major city counts 29 cities as of this call. This quarter, we went through an…

Thank you, Luke and good morning to everyone on the call. We are coming off really an exciting and incredible IACP conference and I’m the one excited by the success that we had. By all measurable metrics, this is our most successful show to date. We put over 3,000 people mostly Chiefs of Police through our customer experience and introduced the number of disruptive new products and services. All of our products were met with resounding excitement but there were two that I am dealing particularly impactful. Axon Fleet and our new unlimited HD data storage programs which is made possible through our partnership with Microsoft. After just a few days, I’m personally aware of over $30 million in pipeline for our new fleet offering, already generated through just a few major accounts. Axon Fleet is exciting because this is really the first time we disrupted an existing market as oppose to creating new markets. Now TASER is always been an innovator, when we introduce the TASER conducted electrical weapons to the world, we had to educate our customers on why they needed this new capability that they’ve never seen before. We were then the first mover in the on-officer body camera space and again we had to take time to help our customers understand why they needed this new capability. Overtime, we succeeded in building these markets and creating dominant market positions. With that complete we’re now enjoying the benefits of entering the established market, in a sense that we don’t have to convince our customers that this is a need, they get it, they have been buying in-car systems for years and there is significant budgets that are already in place. We’ve just now built a product that’s smaller, smarter and heck a lot of less expensive than…

Thank you, Rick. So revenues for the third quarter were very strong and above our internal expectations at $50.4 million in the quarter. We expect fourth quarter revenues to come in line with these results due to the strength of third quarter taken projected annually year-over-year growth to approximately 17%. We also expect to see an increase in bookings in the fourth quarter from the third quarter with very strong momentum we’re continuing to see in the market. So revenue recognition asset can be lumpy for several reasons of which we believe investors should be aware. The first is the delay of revenue recognition due to customer request to delay shipping the product in order for their team to have time to get the appropriate policies, training, and roll outs in place. We have had several large customers dictate staggering shipments of the camera for this purpose which can delay the revenue recognition in total. The second is the delay due to the implementation and integration services. Some customer purchase integration services with RMS, Record Management Solution or CAD system through our professional services team. Delays can happen for many reasons during these process and we believe that we waiting for the customer to accept the work is the appropriate time to start revenue recognition. Finally, there is a concept of contingent hardware for highly discounted camera purchases where the customer gets initial camera for free or at highly discounted price. The cases where the hardware is highly discounted we still allocated post of the total contract initial camera purchase based on the sales value the camera versus the other products service in store purchased. We spread that allocated revenue over the life of the camera which causes little revenue be recognize its selling but more camera revenue be recognize…

[Operator Instructions] Our first question comes from the line of George Godfrey with CL King. Your line is open.

Thank you, and thank you for taking the questions. I just want to dig in on the ARPU change sequentially a little bit. Am I understanding this right that exiting Q2 the ARPU was about $29, but as you move through the Q3, the ARPU for those existing seats that you had from Q2 and Q1 there, actual revenue sale, and that's how we get to the 27.6?

Yes, George, that's a good question. It's really more of a reflection of the adjustments that we make each quarter. Basically the ARPU calculation, we've been taking just the total revenue for service and sales in the last month of the quarter divided by the number of paid seats. So there's little bit of noise on that number[at the end of] [ph] each month of the quarter, and in the second quarter, there's little bit more of that some of that noise which alter that number a little bit more in the Q2 versus Q3. I think we're confident that the ARPU is going to continue to go up over time and especially with the new seats signed in Q3, most of those -- about 70% are higher priced tiers that are above that 27.59 rate. So, we do expect that that number will continue to increase.

Okay. Thank you. And then my follow up is, international operation, do you expect those to be profitable next year?

Yes, I mean, right now we're making significant investments. I think that as that business becomes closer to breakeven and profitable, that will get our effective tax rate back down into that more normalized rate, and then over time as the percentage of our profits that get driven from the international part of the business increase, then we'll see that effective tax rate continue to drop below the sort of normal U.S. rates into lower effective tax rate over time, but a lot of that is going to be driven by the percentage of profits that are being generated from that international operations.

Great, thank you very much.

Our next question comes from the line of Andrea James with Dougherty and Company. Your line is open.

Thanks so much for taking my questions. This is a question on future portion of sales that you anticipate will come from outside North America. I know you gave us a long term TAM, I'm just thinking about how do we think about it in next year and next five years kind of in a shorter time frame.

Yes, this is Rick, I think -- traditionally we've been seeing international sales coming in maybe around 20% of the revenues of the business. I think our long term goal would be to see that climb north of 50%, but that's going to take some time. In terms of what's going to happen in next year, the challenges that we’ve got are just that these international customers tend to buy in big lumpy orders. So, it makes it really hard for us to know for sure or predict with a great degree of precision when those are going to come in. So, I don't know that we have a great answer that the next is going to be significantly better than the 20% it’s been historically. But I think we're doing the right things at this point, but putting more resources in these markets, I think one thing we've realized is we're not going to be able to grow the business to the point that it needs to be by just relying on international distributors and not having a direct Company presence in key markets around the world.

Okay. And then another quick question. How sticky do you envision your Evidence.com customers to be? Do you think it's going to be easy or more difficult for competitors to come in and kind of bid that away from you once you’ve won a market? Thank you.

This is Luke. I think our solution is very sticky. We've focused on the work flow from capture to court room. So, all along are kind of value proposition that customers are using our system to add metadata, share cases; we just released, a really, really exciting announcement with our Prosecutor Platform [5.25] [ph] that allows them to securely share digital evidence along out to their prosecutors as well with adjacent agencies. So, we feel really confident in our customers seeing the value in the usage that we're seeing today.

Thank you.

Yes, I would just add that, I think our real differentiator is that we have really focused on a great user experience and I can tell you, I was speaking in front of group of -- in this case the state patrol, the people that run the highway patrols, one of the comments in their executive committee, one of the colonels spoke up to me and said, it's just terrible that the user experience that we have it worked when we go and we deal with our systems it work, it's nothing like the systems that we have in our consumer lines, where we just have these wonderful user experiences. And I think that's something we've heard consistently which you typically will not hear that from our users. We've really spent a lot of effort from the time we acquired Familiar, the mobile company in Seattle about two years ago. We've really sort of taken a different approach that we're winning a lot of market share by winning the hearts and minds of the end-user through a great user experience. And we think that that is what will make us really sticky long term that we're integrating into their business flows in a way that makes our job easier and this is a market that does not change the business processes very readily. So, as long as we're giving them a great user experience, we think there's going to be a very high bar for someone to try and displace us.

Got it. Thank you.

Our next question comes from the line of Steve Dyer with Craig Hallum. Your line is open.

Thanks, good morning. Dan, I don't know if I am a little slow here, but I still am not necessarily understanding given all of the bigger sort of unlimited data plans that you guys have announced off late, and maybe there's a lot of them in the queue in that extra 12.5, but I guess I'm not seeing why your incremental ARPU would be down so much this quarter. Can you elaborate a little bit more on the catch ups or noise et cetera that you talked about?

Yes, I mean, in addition to the catch ups, I think the issue is I think a lot of these larger customers that are buying our high service tiers with unlimited storage, those are typically customers that are more likely to have delays from the time we sort of announce the booking to the time we start recognizing the revenue. They typically take advantage of the implementation and integration services that take time, there's usually more from a policy perspective they need to work through. So, I think the best way to look at it is, I think the ARPU of sort of the 12,000 seats still to be recognized is better than the 27.50 or so that we announced for this quarter, and that will drive that ARPU up over time, because the customers that are sort of easier lift that maybe are not doing implementation integration are the ones that are going to kind of go through quickly. So, I think the ARPU of the sort of still to be recognized customers is better and that's why we think the ARPUs continue to trend up over time.

And I think you added like 5,000 or so if my memory is correct, users onto the network this quarter. I mean why would their ARPUs be incrementally worse than the 28 that you had on previously?

Yes, I mean I think there's just going to be mix differences over time. I think it's depending on the level that people -- obviously our service offering started at $15 a month plus store. So we do have some customers who are going to be at the lower end of the range. So, there's definitely going to be some mix differences and this quarter the new customers added were a little worse than the $29. But the customers that we've already booked, that are still to be added are better and that's why -- this will kind of normalize over time and it's definitely, there's a little bit of lumpiness there but we do expect a long term trend to continue to go up.

Okay. And then my follow up, the 70% of bookings in the quarter that took the $55 and up packages, just for context do you have what that number was in Q2 or even year-over-year?

I don't. I could tell you that it continues to trend positively for us as more and more customers, especially the unlimited storage plans and with the introduction of Body 2 and that's an HD camera, having sort of unlimited storage built in and becoming a predictable cost for agencies, I think is going to be very popular and we're seeing that in sort of the bookings already, and I think we'll continue to see those trends going forward because of -- I think it's really compelling for customers to have that unlimited storage especially with HD video.

Okay. Thanks.

Our next question comes from the line of Paul Coster with JPMorgan. Your line is open.

Yes, good morning. This is Mark Strouse on for Paul. Thanks for taking our questions. So, Dan, last quarter you mentioned that the -- you guys had seen a bit of a lengthening of the sales cycles as some new competitors had come out with solutions. But you kind of reiterated that you're still seeing success in the contracts that you won but just that the sales cycle was lengthening, I'm just kind of curious especially with some new competitors coming out at the conference last week. What's the latest thought on that sale cycle is? Thanks.

Yes, I mean I think it's -- I don't think it's changed that dramatically. Obviously there's lots of new hardware vendors coming in the market. The barrier to get into the sort of camera business isn't that great. But from the beginning, we've looked to differentiate ourselves with the SaaS solution, and we think ultimately that's where customers once they really sort of understand that cameras are going to -- they're going to find new cameras every two and half or three years, so they can't, they're making a long term decision on work flows and other things that are not -- the cameras, it's not that's unimportant but that's not the most important piece of it, and I think that as we get more entrants in the market, I think there is -- certainly the sales cycle, customers will continue to try out vendors besides us, and we actually encourage that because I think that's where we really shine. There's a lot of competitors out there that are promising the world and I think once the customers really understand kind of what they're buying, what the competitor versus us, I think we win the vast majority of those deals and so we feel good about our market position. I don't know if you to add anything to that Luke.

Yes, I think the key announcement that we made at this year’s IACP with Axon Fleet and our Microsoft partnership really positioned us as an innovator and the market leader. With our customer relationships, this is really a customer intimacy story, and when we’re in deals our customers really value the TASER brand, the professional sales force that we have both with kind of the consultation on what’s the ROI the agency is going to see with our solution to eliminate [indiscernible] disks, as well as the post sales service support we offer. And then really the point that Rick mentioned on, we create a great user experience. We’ve got a very, very long reach into our customer base that we pull back into our product development and so we feel confidently if we get –in a face off with a competitor the majority of the time, a high, high percentage of the time we’re going to win those deals based on those factors.

Got it, okay, thanks. And then Dan you touched on this in your prepared remarks about 2016 OpEx. Are you prepared to quantify that at all yet? Maybe a different way of asking it is, I mean you’re seeing the kind of consensus number that are out there can you talk maybe directionally if we’re in the right ballpark or need to go up or down. A – Dan Behrendt: Yes, I think, probably not right - prepared to talk specifically to 2016 other than the fact that we do expect that the OpEx to continue to turn upwards in 2016 as we invest in both sales and marketing resources to capture the business as well as development resources to add to our platform and keep our competitive advantage. So we definitely expect that the OpEx will continue to turn upwards over time. A – Luke Larson: Yes, I’d want to just reiterate, we really like to focus our management team, our Board has alignment around this and investors, how we’re measuring the two businesses really on those five metrics that we called out earlier.

Got it, got it. Okay, makes sense. Thank you very much.

Our next question comes from the line of Andrew Uerkwitz with Oppenheimer. Your line is open.

Thanks, gentlemen, for taking my call. I just wanted to better understand the revenue recognition that's going on here. I think you said, you had about 12,000 seats that have yet to be recognized. Could you give us some color on when you think those could be recognized and when those will originally – just give us an idea of the timeline here to understand some of these bigger contracts better? Thanks.

Andrew, this is Dan. That’s a good question. I think there is some variability with that. I would say that typically we’ve recognized the camera is selling, but then there is a delay around the recognition of the service and storage revenue based on implementation services, milestones with customers and other things and that could certainly delay it by a quarter or even as many as two quarters just based on sort of the variables in a given deal. I think that this quarter we saw it probably more pronounced than we’ve seen it where we have really significantly less new users added into the system versus what we booked. Typically it’s been more of a sort of the users you book in one quarter you recognize the next quarter and there is just sort of a continues sort of snow plow pushing things out a quarter on the revenue recognition on the service side. This quarter we saw that a little bit more pronounced, it’s mostly due to some bigger deals in the system, that’s a little bit more complex but we do feel that within a quarter or two those seats will certainly be in the system and part of the recognized revenue.

That’s helpful. How does that affect the contracts, so is my understanding, you may have shipped some cameras but you may not be booking the Evidence.com. Does a five year contract start when the camera gets shipped or does is start when the Evidence.com get shipped, how do we think about that timing?

Typically for most deals we’ll recognize - there will be sort of a catch up once the customer is up and running on the system. And lot of that depends in where the delay is, if the delay is the customer saying, hey, we’re not quite ready, they make a 10 months of service the first year and then 12 months after that. Most of these customers it’s sort of –to their advantage to get the clock started because that means they’re going to get their - lot of these, especially if they are customer around TASER Assurance Plan deals, where they have sort of prepaying for their next camera, they’re going to want that clock to start and will get the camera sooner. So there is a fair amount of moving pieces there, it does sort of depend deal to deal.

Perfect. And this is my last question, and I will jump offline. If there are delays like this, is there any risk that a city misses a budget cycle?

Can you repeat that question, I’m not sure I heard it clearly.

If some of these major large cities, large deals are having slower implementation issues or having issues that are slowing implementation, is there any chance that they miss a budget cycle and not able to place a second or third order to fulfill their obligations?

Yes, we don’t expect that to really be an issue because most of these deals when a customer is committing to a multi-year deal, they’re thinking about future budget sources and stuff like that. So usually we don’t expect that to be a real issue.

Great, thank you. I really appreciate the color. Thanks guys.

Our next question comes from the line of Glenn Mattson with Ladenburg. Your line is open.

Yes, I think the topic of the adoption rate on the services may have been picked over enough although it’s not I think 100% clear yet but maybe moving onto weapons for a minute, can you say, did you pull any revenue forward from Q4 into weapons because I think you’re expecting something a little down sequentially and it turned out up? And gross margins were a little weaker in that segment, can you talk to that also please?

Yes, we had - so on the sales, we had a real significant weapon sales basically last couple of days of the quarter which easily could have been fourth quarter deal, where our sales people were effective in getting that in the third quarter, so that’s why we’re thinking sort of fourth quarter will be more flat although we had record - this is - the thing we want to just sort of remind ourselves and investors this quarter is the highest quarter sales in the company’s history. So repeating on the fourth quarter is still and putting up sort of 17% year-over-year growth on an annual basis, we still feel good about that trend. On the gross margin, I think it’s really driven mostly by some of the new programs we have like the standard issue grant program, some of the other programs, I think the good news is it’s driving the business which is great. There is some discounting that goes with that which will have a little bit of an impact on margin in the quarter.

Okay. That does it for me. Thanks.

Our next question comes from the line of Allen Klee with Sidoti. Your line is open.

Yes, hi. Just following up on weapons, also how do you think about just normally seasonality of fourth quarter and budget flushes, how that would normally play out?

Yes, that’s a good question, this is Dan. I mean typically we do see some budget flush in the fourth quarter which is - can be a net positive, I think, I guess there is sort of two pieces of color, the third quarter of 2014 still set the record for the highest quarter in CEW sales in Company’s history, so we sort of grew pretty close to matching that this quarter which we feel good about. So I think it’s - as we look at the fourth quarter, we think that sort of repeat, we think it’s a reasonable target. We had some large CEW deals in this quarter which certainly helped and I think those are - that creates sort of a top sort of sequential comp to go against. So we need some of that budget flush to make up for some of these big deals that we saw in the quarter. So I think we feel good about the 17% year-over-year growth on a total year basis and I think some of that puts and takes of big deals versus budget flush are kind of baked into that expectation.

Okay, thank you.

Thank you. And we have a follow-up from the line of Steve Dyer with Craig Hallum. Your line is open.

Thanks. Sticking with weapons, your overall unit sales were down quite a bit more than CEW revenue and I don’t think ASP normally changes all that much. Is there something else in there ex-rep revenue or some other things that that maybe drove revenue to be better than the unit results?

No, I think probably the biggest part is just sort of the amount of direct sales continues to increase both with more direct business in the U.S. as we continue to take more states direct which increases our ASP, as well as some of the international business is now direct which also helps because we are seeing sort of the end user price come through ASP versus the distributor price.

Okay. So it is pretty much entirely explained by ASP?

That’s correct.

Okay. And then you mentioned the incremental 12,500-ish users loaded in the queue and said you expect ARPU to be higher. Is there any way you could quantify at all how much higher et cetera, I mean 70% taken that $55 and up package would imply. It’s quite high barring discounting but are you prepared to give any more color on that?

The $55 is really from – probably just clarify that, the $55 includes sort of camera upgrades. It is really probably more of a $40 ARPU as comparison because the 15 of that is future camera upgrades. But I guess I’m not prepared to quantify that specifically other than the fact that we think this trend towards the higher price service tier should help with the overall ARPU number over time.

Okay, thanks.

Thank you. I’m showing no further questions at this time. I’d like to turn the call back over to Mr. Larson for closing remarks.

Thank you everyone for the time. I’d like reiterate that we are committed to providing a long term shareholder value. We strongly believe in our Axon platform strategy and we look forward to continuing to update you on our incredible progress in this story. Thank you.