Good day, ladies and gentlemen, and welcome to your TASER International Second Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to hand the conference over to Mr. Luke Larson, President. Sir, you may begin.

Thank you, and good afternoon to everyone. Welcome to TASER International’s second quarter 2016 earnings conference call. Before we get started, I’m going to turn the call over to Dan Behrendt, our CFO, to read the Safe Harbor statement.

Thank you. This call is being broadcast on the Internet and is available on the Investor Relations section of the TASER International website. Please note that the earnings press release as well as supplemental materials, including our key operating metrics, are available on our website. Today, we will open the call with prepared remarks. We’ll follow up the prepared remarks with our standard live question-and-answer session. 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 information is based upon current information and expectations regarding TASER International Incorporated. These estimates and statements speak only as to the date in which they’re 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 results are discussed in our press release we issued today and in greater detail in our annual reports on Form 10-K and quarterly reports on Form 10-Q under the caption Risk Factors. You may find these filings as well as other SEC filings our website at www.taser.com. With that, I’ll hand the call over to Rick Smith, our CEO and Founder.

Thank you, Dan, and Good afternoon, everyone. What’s an exciting time to be at this company. Second quarter results were yet another record for revenue and bookings. Our strong results reflect the demand for our range of technology solutions to meet the needs of law enforcement. Axon bookings reached a record $72 million for the period and right now our 2016 bookings for the first half of the year are approaching the full year bookings from 2015. Axon segment revenues grew 49% year-over-year driven by a 65% increase in service revenue and a 41% increase in hardware revenue. Weapon segment revenue grew 20% year-over-year driven by an increase in both weapon and cartridge unit sales. These results reflect the positive return on significant investments that we’ve made previously we’ll continue to make to extend TASER’s leadership position in public safety technology. Specifically the Axon network lead the industry in bringing the power and truth to public safety by connecting people and technologies. While we view both the segments as complimentary. It’s important to note that for the second quarter in a row Axon bookings didn’t simply surpassed weapons revenue Axon bookings surpassed revenue by $13 million as Axon bookings grew over 135% versus last year. We start investing in these connected devices and software in 2008 because we believe from the outset that the inherent benefits of video for law enforcement would be significant. Today these systems are seen as indispensable in helping to address suicidal challenges. For private served law enforcement and communities that they serve as we offer most sophisticated and scalable, found in wearable camera solutions available anywhere in the world. As evidenced by an important milestone, more than half of the major cities of the United States now deploy our Axon network and cameras and more…

Thanks, Rick. We continue to execute in the second quarter of 2016, and I’m proud to share the results of our continued success. Revenues came in very strong at $58.8 million, with international sales contributing $6.5 million to the total. Our other key metrics also showed continued strength within the quarter. Bookings on our Axon platform were $72 million in the second quarter, yet another record and an increase of 135% compared to the second quarter of 2015. Annual recurring revenue in the second quarter was $21.1 million, an increase of 16.9% during the same period. In the second quarter, we booked approximately 20,200 incremental new seats on our Axon platform that brings our cumulative total of book seats to 95,000 since inception, and represents a growth of 28% sequentially. As Dan will discuss, we did see an increase in the GAAP between booked and paid seat, however, we are increasing capacity to meet the demand. Operating income in the TASER Weapons segment was 33.2% in the second quarter of 2016, which partially reflects higher international sales expenses and additional infrastructure and investments. Over the near-term, we reiterate our expectations that as we build out the international team and gain beachhead accounts, there could be some pressure on these margins. We will continue to evaluate future investments to ensure continued operational efficiency. The ratio of lifetime value of a customer to the customer acquisition cost in the second quarter was 6.2, a continued increase over prior periods. Our focus investments continue to produce incremental bookings growth. We continue to expand our lineup of Axon solutions. During the second quarter we shipped our first trials of Axon fleet our in car camera solution, which is the only in car product offering that seamlessly linked the devices to the cloud. Initial feedback…

Thanks, Luke. Revenues in the second quarter set yet another company record increasing 26% from the prior year to $58.8 million. The increase was driven by a 49% increase in the Axon video segment revenues and a 20% increase in Weapons segment revenues. The increase in the Weapons segment was entirely driven by domestic sales as we continue to upgrade older weapons and increase deployments within agencies. Bookings growth was also exceptionally strong increasing 38.4% from the first quarter of this year to $72 million. The LAPD order represented $20.5 million of the second quarter bookings. International revenues in the quarter were $6.5 million compared to $8 million in the prior year, as we’ve discussed previously due to procurement patterns and typical size of international orders. We continue to expect to see lumpiness from quarter-to-quarter in the international part of the business. As we look to full year consolidated results for 2016 and beyond, we continue to be comfortable with the annual consolidated revenue CAGR of 15% for the overall business. It’s fair to say that we are pace to exceed this target in 2016, driven primarily by the single $6 million order and $5 million orders in Q1 and Q2 respectively, due primarily to the $5 million weapons deal in Q2, which made Q2 exceptionally strong. We do expect Q3 revenue to be relatively flat with the Q2 this year. During the first quarter earnings call, we discussed our significant backlog of Axon Body 2 cameras going into the second quarter, which was a function of previously held shipments as we finalized quality checks. We worked through that backlog shipping 13,350 cameras approximately in the quarter versus 8,600 in the first quarter. Even with the strong shipments in the quarter we received more new orders for cameras than we…

Thank you. [Operator Instructions]. And our first question comes from George Godfrey from CL King. Your line is open please go ahead.

Thank you very good afternoon and thank you for taking my questions. Two questions, the first one is looking at the weapons now two quarters where you’ve had really large single deal $6 million last quarter $5 million this quarter. I’m just wondering are you seeing a renewed emphasis on the TASER Weapons we’re all aware recent events, but is the TASER Weapon itself becoming a greater focal point both internationally and here in domestically perhaps relative to what it’s been over the last couple of year? And then I have a follow up on that please.

This is Rick. I would say that we are seeing renewed interest and I would say even a more generalized acceptance of TASER Weapons. With LAPD moving to standard issue, I think that was a pretty important event for these larger agencies, in the city of Chicago around Rama Manual [ph] is engaged on this issue and basically said if I remember correctly they are going to make TASERs at least available to every patrol car that’s going on shift. We believe this is moving towards standard issue. I might be a little bit, bias but it seems a little crazy to be sent somebody up in 2016 with a gun and without the best non-legal alternative to prevent them from having to use it. We are also seeing more acceptance in Canada, a few years ago I think there was a lot controversy in Canada. More recently the controversy has been around police shooting where they didn’t have TASERs available. So I think the core technologies has been sort of through the public wedding process. So where it’s now accepted as sort of standard policing equipment and I would say it’s kind of we hope to see continue to expand.

Got it. And then my follow-up question is just looking at the Axon service revenue and I know you touched on this a little bit. Sequential growth 4% in Q1, 1% here and the seat count is exploding at 27% plus growth on a sequential basis. How quickly do you think you can get those to converge? And does that mean you need to hire more implementation consulting person or outsource that function?

George, this is Dan. Yeah, I’d say there is really a couple of things. One is we did ship a lot of the cameras we shipped in Q2 pretty late in the quarter. So that definitely had an impact on the number of seats we are actually recognizing in revenue. So we expect it just a normal sort of floor of recognized in those in the subsequent quarter will happen for those camera shipped late. We do have a number of larger scale deals that typically attach implementation services to it. We continue to ramp up our implementation folks to keep up with that demand and sometimes it’s the city itself that is will work on their schedule. We are trying to make sure we’ve got enough people here and we feel like we are well positioned. I think again some of this is just the backlog as well as shipping 10,000 cameras in July should certainly help that count as well. So we do expect that the seats there included in that ARR to come up pretty sharply in Q3.

I would add operationally we do use both internal employees and consultants and we are expanding that network to make sure we’ve got the right infrastructure team to be able to support and not rely entirely on employees.

Great, thank you. Nice quarter.

Thank you.

Thank you. Our next question comes from Mark Strouse from JPMorgan. Your line is open. Please go ahead.

Hey, guys. Thanks for taking our questions. Can you just talk about the sales process on the video side? Is that shortening at all? I am just kind of curious if all of the recent events and all the really free advertising that you guys have got. If that’s helping educate your customers before you even knocking the door and making the process a bit shorter?

It’s a great question Mark. We’ve certainly seen an increased demand and the awareness is at an all-time high. However we have not seen an acceleration in the sales cycle. We still I would say anywhere from 6 to 18 months they have to go get the funding and move it through. So we are seeing very strong demand, but even with the increase we don’t see that accelerating the sales cycle.

Okay. That makes sense. Thank you. And then just a quick one the latest you are hearing on NYPD and if you think the transition and the commissioner will have any impact on that contract? Thank you.

So at this point New York City has really specific guidelines for vendors participating in bids, which prevent us from giving any commentary or color on the status. So we really can’t say anything.

Okay, that’s fair enough. Thanks guys.

Thanks.

Thank you. And our next question comes from Steve Dyer from Craig Hallum. Your line is now open, please go ahead.

Thanks, good afternoon. I think you said about $20 million sort of bookings was LA, how many seats was that then?

I’m not entirely sure to be honest with you, Steve. We’ll have to take a look at that. With that booking it’s really takes them to sort of full deployment.

It should have been around 6,000 cameras and the seats associated with those, and we’ve even some additional non-camera user seats.

Yeah I think right around, I’d say between 5,500 and 6,000 roughly.

Okay. And how many of those were shipped? I mean roughly in the quarter. I’m trying to get a sense for how many of the 13,000 actually went to LA.

Yes. So we’ve started just some initial rollouts, but the bulk of that is going to happen over time.

Yes. Okay, got it. Staying on the body cam side, the video side, have you seen any changes in terms of competition, I know there has been a couple of cities where a competitor has tried throw up the road block here or there. Are you seeing any changes in who you’re seeing in the bake offs and the success?

Steve, that’s a great question. We’re certainly seeing a lot of increased competition on the camera side. Our end-to-end solution has really met the market needs. And so, with the major cities, we’re still very confident that we’ve got the only product that really meets the market need.

Okay, got it. And then just lastly, I know you don’t give bookings guidance, but given that you had LA in the second quarter. I’m assuming, we shouldn’t necessarily expect that number to be up again sequentially in Q3?

Yeah, this is Dan. I think clearly LA is one of those sort of bluebird orders, there is only agency, or a couple of agencies of that size in the country. So I would say that makes for a tough sequential comp. Although, I’d say the overall demand remained strong. But I think it’s been tough to increase at least in the subsequent quarter from this quarter.

Okay, got it. I’ll hop back in queue. Thanks, guys.

Thank you.

Thank you. [Operator Instructions]. Our next question comes from Jeremy Hamblin from Dougherty & Company. Your line is open, please go ahead.

Good evening, guys. Congratulations on the strong results. Wanted to just see if I could get an active Evidence.com license number for the second quarter?

Yeah this is Dan. We’re actually not disclosing that anymore. We’ve kind of moved to the ARR number on a go forward basis.

Okay. But just in terms of -- is there a time waiting associated with that active licenses number how we should be thinking about this? It sounds like a lot of stuff kind of transpired at the very end of the quarter.

Yes. I guess, so the only color -- it’s a good question. I think the only I could give is that a pretty significant number of seats that are in that book seats that aren’t in the license count yet or the sort of ARR, and we expect a lot of those to come on in the -- they aren’t start coming on and it will better magnitude in Q3.

Okay. And just as a follow-up to that. In terms of that ramp time, right, from winning contract to an active user on or seat on Evidence.com. Is that starting to compress? Are you guys -- the business kind of exploding higher? Are you starting to see efficiencies and compression of the time, or is it some of these contracts are so big, and it’s coming fast and furious that you are not getting that efficiency yet?

Yeah this is Dan. I would say that it’s really more of a factor of how quickly agencies can roll it out. And that’s -- I don’t know if that’s really sort of efficiency driven more than just that these large deployments might take two, three months from the time we shipped a camera to the time they are deployed and up and running, and we start counting those seats. So I think that, we’re very good at getting people up and running, but depending on how big the agency is, how many pre seats there are, how much training they need, what level of support there maybe a little bit of time from when we ship the camera to when we start recognizing those seats.

And thinking as a follow-up to that point, am I right in thinking that you’re not really starting to accrue that revenue associated with that camera or I should say on the service side of it until they’re actually an active user?

That'’ correct yeah so we don’t -- so it wouldn’t be in the revenue for the quarter nor would it be in the ARR until that become an active seat.

So as we look at kind of it's thinking about it in a straight line sense as these contracts I know they’re all individual contracts that’s not really the right way to be thinking about it you're getting capturing a lot of this revenue on the backend as you’ve got all the licenses associated with that up and running.

Let me kind of clarify. So if we add an agency that said hey they want to take 200 cameras every six months for the next two years. Once that first 200 cameras implemented we would start recognizing those at that point. And then we’d add each additional shipping once they became active. So we wouldn’t delay the all 800 cameras in that case until the end, we sort of recognize and readably as they came online and were implemented.

No I guess maybe I was asking more in the service revenue side of it rather than the Camera itself.

Yeah service would be the same thing. So if an agency said everyone rollout over two years we’d start recognizing the service and the cameras are actually active throughout that rollout period as they became active.

Right, okay thanks for clarifying. Best of luck.

Alright, thank you.

Thank you. [Operator Instructions]. Our next question comes from Glenn Mattson from Ladenburg Thalmann. Your line is open, please go ahead.

Hi perhaps I missed it could you explain a little bit better Dan on maybe why the backlog grew this quarter. Is it production issue or just trying to figure out why that number expanded?

Yeah I’ll take this one Glenn. We work through a significant part of the backlog that we had in Q1, but the demand has continue to be extremely strong.

Okay. So it’s just -- it’s going to be ramp up in production is there plan for that I guess is there capacity for that?

Yeah so during the period we will continue to ramp capacity. And I think our Q2 shipments -- our Q3 shipments will definitely exceeds Q2.

Okay. And then Dan would you comment or maybe Luke also about how to begin to think about expenses for 2017 with the LTV to cap ratio still being so high if it remains at this levels would you continue to invest aggressively in operating expenses?

Yeah this is Dan, I would say the sort of two things. One I think is that as we add people throughout 2016, 2017 will naturally be higher because you have the full year of expense to the people you added this year. So I think that 2017 will definitely be up regardless. As far as looking at investments we’re making to grow the business, we’ll continue to look at that if the business is continues to expand faster than expectations we’ll continue to add resources to make sure we’re meeting that demand and capturing as much market share as possible.

Okay, great. Thanks good luck guys.

Thank you.

Thank you. We have follow up from George Godfrey from CL King. Your line is open. Please go ahead.

Thank you. Just one follow-up on Scotland Yard, can you give us any update there on when we would expect to hear any further updates?

At this point I don't think we’re going to be issuing further comments on the London Met program.

Okay.

Although we’re excited about it, but I think we’ve release all the details that we planned at least at this point.

Thank you. Our next question comes from Jeremy Hamblin from Dougherty & Company. Your line is open, please go ahead .

Hey guys, just a follow-up on operating, thinking about the operating expenses. I think you noted based on the updated guidance that we'd be looking kind of in that $130 million to $132 million range for 2016. As we look forward into ‘17 do you think that you’re kind of in a position now where you're starting to harvest a little more of that spend? Or is the name of the game still we’ve got to win contracts and we need to be as aggressive as possible to win those first contracts internationally in particular, but certainly in the remaining large agencies in the U.S.

Yeah that’s a good question. I mean today I don’t think we’re going to get into any specific guidance for next year. But I would say we’re -- this is an issue we’re constantly looking at. It really just comes down to identifying where we believe investments are going to have significant net positive net present value. And while we’re in the -- most of the to be bought I mean the growth we’ve seen here in the U.S. is consistently exceeded our financial plans over the last couple of years. And so we’ve been ramping -- we feel it’s more important that we're agile that we're matching the investments just given the size of what's developing in the market opportunity. We’re seeing similar opportunities now happen internationally. So I would say in terms of direction there is likely to be international ramping as we're starting to see some of the same things that we’ve done in the U.S. now paying off internationally first in the UK now in Australia and we certainly are putting people in additional markets. So again we're not really prepared to give more color at this point in terms of next year’s spending. I'd say we're really -- that’s something that we're managing in real time just given the growth slope of the company.

Okay, great. And then one last question actually coming back to the licensing for a second, what’s the approximate churn rate that you're seen?

This is Dan. I would say that most of the deals that we’re booking at this point are multi-year deals, three, four, five year deals. So we haven’t seen a significant number of contracts come up for renewal if you will. As a result we haven’t I would say the churn rate so far has not then meaningful.

Okay. Alright, thanks guys.

And one thing I would add to your last question is we do want to assure that we -- our goal here is to build a very profitable sustainable business in the Axon segment over the long-term. While we are in the steep growth curve we do have to -- we are making the right investments but we're fully committed that that is going to be very profitable at scale. Right now our goal is making that scale is large as possible.

Thank you.

Thank you. And our next question comes from Andrew Uerkwitz from Oppenheimer. Your line is open, please go ahead.

Hey thanks for taking my question. I was just -- I'm trying to understand the bookings conversion to paid seats a little bit better. As my understanding that most of the time you book revenue for EBITDA comp a month after the camera ships except in cases where there are larger deals. If that is the case could you kind of talk about mix between and the camera sales between large agencies and smaller agencies.

Yeah this is Dan. I would say that even some small agencies will take advantage of implementation services it’s a pretty good value for them because this is again it’s lot of lessons learned from prior customers. So a lot of even small and mid-sized agencies will take advantage of implementation services because it really gets them off on a right foot. So it's not necessarily just the large agency. So we'll contract for implementation services. You’re right any deal that we just ship the camera without implementation we recognize a month later. But deals with implementations those can definitely get delayed a little bit. There is also some of the bigger customers may have some milestones that could cause that to slow up a little bit if there are some specific things we’re looking for on our end. But we do expect it will hopefully we’ll narrow that gap between the contracted sheets and the sheets we’re actually recognizing in Q3 with I think two things will help one is we'll have we’ll catch up on that backlog hopefully this quarter. Secondly with ramp in production and supply chain we’ll be able to ship cameras earlier in the quarter versus in Q2 we ship cameras late in the quarter, which really led to a lot of cameras ship not being in that recognized revenue yet on the service side.

Great. So is it fair to say at this point majority or more than half are taking the services? Or at milestone payments.

I don't know if I can make a specific comment that that. Let me take a look at that as you preload out the bigger deals almost always do it, but we also have a lot of smaller size to medium size cities. So we'd have to take a look at those as well. Let us do a little research and we'll put something out of that.

Sure, that's fair. And then one last question on the camera backlog included in that number do you include cameras that you know will ship in later quarters, for example, like in LA that's on a schedule. Are those later quarters in that backlog numbers so we should always expect a camera backlog or is that backlog just cameras that need to be shipped out next quarter you’re just trying to ramp production?

Andrew it's the really the ones that we actually could ship right now and we're could actually ship at the end of June that we had not shipped yet.

Perfect, appreciate it. Thank you gentlemen.

Sure thanks.

Thank you. And our final question comes from Steve Dyer from Craig-Hallum. Your line is open. Please go ahead.

Yeah I know you started a shipping a little bit of the fleet in the quarter, when should we sort of expect that revenue to become a little bit more material is that still a ‘16 event or is this still very much trailing?

Yeah Steve so we expect to ship our Axon fleet in the coming months, we've got couple of early shipments already, but we expect to see some revenue in Q4 on that.

Alright, great. And then kind of a little talked about area the pulse and the bolt, I mean, you've redesigned that a little bit how are you thinking about that? I mean what are sort of the expectation going forward for those programs?

Yeah this is Rick. My expectations are certainly optimistic I think it's a good refresh for and important part of our long-term vision. I'm not sure from the perspective of financial modeling that it’s going to be material at this point. So we’re in the long game in the consumer space. And it’s interesting I read Elon Musk's blog poster earlier this week where he talked about Tesla and how they think about autopilot given the controversy over the one case in Florida where they had Adept. He made an interesting statement based on the moral obligation to continue to push autopilot out there because it's already improving safety when used properly. And I would say that the way I think about the consumer business in some ways is kind of a moral obligation that we keep that business alive. It is small, it's still profitable, it's a small team we've done on it. But we started this business because we are in a country where 35,000 people die of bullet wounds every year. Our goal is to make the bullet obsolete. In order to do that I think we need to not only service the business sector and law enforcement where our primary business is today. But we need to keep the option available for consumers to have a viable alternative to a firemen and I would say that alterative is going to get better and better over the next decade. Got really exciting things in our product technology pipeline. But we need just a conservatism the purpose financial modeling it’s not something we should be moving the needle on at this point.

Thank you.

Thank you. I would like to hand the conference back over to management closing remarks at this time.

Great, well again thank you everybody for joining us today. 2016 continues to be incredibly strong in all front. Our focus on ensuring the remainder of the year successful as we strengthen our position as the trusted technology solutions provider to the public safety market domestically and internationally. We look forward to updating you on our progress during third quarter earnings call little later this year. So thanks so much have a great day.

Ladies and gentlemen thank you for participating in today's conference. This concludes our program. You may all disconnect and have a wonderful day.