Mark Strouse - JP Morgan Steve Dyer - Craig-Hallum Jeremy Hamblin - Dougherty & Company George Godfrey - CL King Glen Madsen - Ladenburg Diamond Allen Klee - Sidoti Good day, ladies and gentlemen, and welcome to the Third Quarter Axon Enterprise Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to turn the call over Luke Larson, President at Axon Enterprise.

Thank you, and good afternoon to everyone. Welcome to Axon’s Third Quarter 2017 Earnings Conference Call. Joining on today’s call from management are Rick Smith, CEO and Founder; and Jawad Ahsan, our CFO. Before we get started, I’m going to turn the call over to Andrea James, our VP of Investor Relations, to read the safe harbor statement.

Thanks, Luke. Our earnings are available on the SEC website and our Investor Relations site. This call is being broadcast on the Internet and is available on the Investor Relations section of the Axon Enterprise website. Please note that the earnings shareholder letter as well as supplemental materials, including our key operating metrics, is available on our website. Today, we will open the call with prepared remarks. And we will follow 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 on current information and expectations regarding Axon Enterprise Inc. 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 the risks and uncertainties that could cause our actual results to differ materially. These risks are discussed 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 on our website, www.axon.com. With that, I will now hand the call over to Rick Smith, our CEO and Founder.

Thank you, Andrea, and good afternoon, everyone. Thanks for joining our call and thank for your interest in Axon. In Q3, we executed against our long-term plan of creating the end-to-end technology platform for policing and public safety. We are proud our revenue and product milestones achievements in the quarter. While we incurred some additional costs, they were necessary for the long-term success of our business. We are also taking a harder look at our operating margin performance and improving rigor around operating expenses. Specifically our domestic body camera business is now transitioning from the early market formation phase where growth is the dominant focus to our scaling phase where we are now placing significant emphasis on operating leverage and building the foundations of long-term profitability. Our strong quarterly revenue is indicative of our product leadership across all categories. There is no doubt about our market leadership and our strong customer relationships. Our record revenue in the quarter was driven by strength across our product segments including strong international weapons revenue growth. Our weapons revenue growth is quality growth. Giving on budget line item where police department grows the long term revenue stream from the customers by giving them a clear mechanism to be able to consistently upgrade every five years. Without these budget line items in place, we estimate our historic upgrade cycle was closer to the 8 to 10 years range. We believe that we can shorten that cycle to five years for agencies with a budget line item in place. We also believe that service plans for the weapon will pave the way for us to add software training and other service plans as upgrades to create additional customer value and revenue opportunities starting in 2018. Our operating loss in the quarter was caused by three key…

Thanks Rick. We had had exceptional bookings in Q3 of $78 million as we continue to lead the market. Bookings grew 36% or by $20 million from the prior year quarter similar to the 2017 second quarter, this quarter's strong bookings were not reliant on any one large order. Fleet bookings made a more meaningful contribution representing over 10% of this quarter's booking. Our customers see and appreciate the value in our end-to-end solutions which improved the workflow of everyone in the chain from officers to prosecutors to defenders. This was evidenced by 12 wins in Q3 where our body-worn camera or fleet offering displaced competitors. This is on top of 12 win backs we announced in Q2. It's not easy for any agency to switch body camera providers but the fact that they do and migrate to our platforms speaks to the quality and value proposition of this solution we are providing. We also saw four large customers' expansions in Q3 where agencies including the Las Vegas Metropolitan Police Department chose to upsize their contract and their reliance on the Axon network. Las Vegas was one of earliest body-worn camera customers and in Q3 they decided to renew their contract early and sign on to our officer safety plan. We are pleased with the pace of our product development which is accelerating and our software and sensors segment has seen a rise in operational discipline in 2017 as we've seen improvement in hitting product development milestones compared with past year. I want to touch on four product development milestones or accomplishments in this quarter. Artificial Intelligence, evidence.com, Signal Sidearm and Axon Citizen. First Artificial Intelligence. We are investing in AI and machine learning that will deploy across our product for enhanced functionality. We see AI as a productivity multiplier…

Great. Thanks Luke. Before I begin my prepared remarks, we want to briefly address the SEC's comment letter. We've been working to address the SEC's questions and earlier today we received a letter from the SEC stating that they completed their review of our Form 10-K filing. Turning back to the quarter. We had record revenue of $90.3 million in Q3 which represents 26% annual growth. On the weapon side we continue to execute in domestic weapons penetrating in deeper in agencies who are upgrading at a healthy pace. International weapons was also pretty exciting as we drove a lot of growth there. In software and sensors, we continue to add users to the Axon network and to shift hardware to new customers. That switchover 63% revenue growth of that segment in the quarter. Within software and sensors, Axon service grew 88% and hardware grew 42% as we shift nearly 37,000 cameras in Q3. This quarter's record camera unit volume was driven by continued strength in the domestic market, shipments to international customers and contractual upgrades on customers who have hit 2.5 year market in their five year contract. The third quarter also included $2 million in catch up service revenue previously held pending fulfillment of contractual terms or milestones. The 12% year-over-year increase in weapon segment revenue to $59.4 million was driven primarily by an increase in both international revenue and domestic revenue. International revenue growth was driven by strong X2 smart weapon sales in the UK and some large orders outside of our Tier 1 markets. For the first time this quarter, we offer our TASER 60 payment plan in the UK. This help drive our total weapon order on payment plan to 43%. Total international revenue in the second quarter increased $5.7 million or 51% from the…

[Operator Instructions] Our first question comes from Mark Strouse of JP Morgan. Your line is open

Hi, guys. Thanks for taking our questions. So I just want to clarify something if I could. The one time items that way down on gross margin this quarter. Sound like they are still some impact in 4Q but by the time we get to 1Q of 2018 it will be much cleaner margin number, is that accurate?

Yes, that's exactly right. We have -- as we mentioned the data migration we had some of the leader pricing on the international beachhead account and we are expecting by Q1 that's going to behind us.

Okay, okay. And then as you mentioned transitioning into profitability phase you are now for the market. In 2018, you are going to have a pretty easy year-over-year comp for operating margin. So, I guess can you just kind of maybe I am stealing your thunder from next week but is there any kind of more specific target you can give for operating margins next year.

So that's absolutely something that we are going to discuss next week. I can tell you though that what I -- as Rick mentioned we are making this shift to profitability and we are going to be also Rick mentioned incentivizing our executive team and frankly all of our employees to be driving towards profitability.

Got it. And if I can just sneak in one more if I can. Rick just your high level thoughts coming out of IACP on the competitive landscape, people getting more aggressive and the competitors exceeding and then your latest thoughts on where you see Axon's market share in the domestic body cam space. Thanks.

Yes. I mean we feel really good about coming out of this. We are continuing to see lots of win backs. We are having discussions with some senior team customers that have gone on different platforms and are really struggling and they are hearing really positive things from the people who run at our platform. I was particularly delighted at the feedback on Axon fleet that product took us a little longer to get market that we initially we expected. I think we tried got on previous call, the complexity of immigrating into wireless networks and all the hardware in the patrol cars turned out to be big a little lift when we first launched that product. But I was just delighted at the positive feedback, every chief I talked to who had Axon fleet was telling me that they were just sort of blown away by the experience, the sort of connected nature of the cloud in their car was really compelling, the light weight hardware approach that we had taken it makes it easy to maintain, as well as giving really great feedback on the overall experience with our customer service staff we got to build sort of new function of people to be handling the customer installs and professional services related to that. So that I think felt a really good, we feel well position in the in car space. I had a great meeting with lot of state police colonels; they are very interested in our product. Then I think we are continuing to see a lot of customer excited around our AI strategy. A year ago we sort of announced going into record management with the idea that really video records and text records should end up in one system and ultimately the text record should be meta data that's extracted from the video record. And we made a lot of progress towards that with the build out of our AI capabilities in our team. So I think that is really resonating at a number of customers coming back and frankly tell us they selected us for their body camera vendor because they believe that vision is the right one that's much bigger than camera, so this is about a new whole new way to collecting and analyze information. So I think it was really solid show for us and we are feeling I mean better than ever about the overall competitive positioning.

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

Thanks for taking my question. On the software and services side even if I exclude the one time hits in the quarter for severance revenue, gross margin was still down year-over-year which sort of seems kind of intuitive given the bigger installed base now. Any other color you can add us to why that would be?

Yes. I think there is two items. And one we had a big shipment on one of this older contract from last year internationally that just really not high margins particularly the way the contingent hardware is handled so those things were at significant negative margin actually the way they accounted for and then there was fleet. The fleet hardware was sort of some of our initial pricing which is more aggressive and as Jawad pointed out early on there were some confusions with some of our customers about supporting hardware that they might need such as in-car routers et cetera and we made the call in some cases we provided at our cost some of combinations to those customers and that we think that's the right-- most important thing when you are entering new market space is make sure your first customer is have a great experience and so in that case we determine the right thing to do was to ease the cost and get off on a greater advantage. I think that was the right call but it did impact the quarter adversely. Though we got pretty good deals on that we should see continued improvement in fleet although fleet relative to body cameras is going to -- that we are in still sort of market introduction phase there so the margin and fleet will be less favorable than they are in body camera. I think it especially started in Q1, we expect to see overall net improvements so they are significant particularly in the body camera segment. And then fleet will improve relative to its performance last quarter. But we will provide more detail on that in the future.

Great. And that sort of ducktails into our -- my next question. Just you talked about 2018 being a transition year more focused on profitability in the body camera market. Is that -- should I take that to mean the same thing as software and services or is that sort of deliberate distinction where there might not be as much profitability on that overall segment of the business?

You are good. Yes, I mean we are being very specific that body cameras are entering the profitability base. We do see that the overall software and sensors segment, at least what we have traditionally had in the software and sensors will be improving not only due to margin on hardware but also we will be launching some premium software services that are only possibly now that we build the network. It's going to help raise ARPU and those should be high margin services. The effect of fleet because of that using your product with lower gross margin will sort of counteract that a bit, the question comes out is how successful fleet is relative to body cameras. And that remains to be seen. Ultimately we've run the long term model on fleet; it is going to be very profitable segment for us. But we did -- when we call out that specifically as we think about these different segments, each of them are going to show their own S curve and they are on lifecycle and we are just calling it out now that very deliberately we think we had a hit a point now where body camera it is high on shift toward profitability.

Steve, I want to clarify that this is also we are talking profitability in the body camera segment and we are making investment in other areas but at a enterprise level we are absolutely looking to drive leverage.

Right. I guess maybe relative to Mark's earlier question, I mean is it fair to expect improved operating margins next year at least directionally?

Yes.

Okay. A quick housekeeping one Jawad and then I'll jump back in queue. The new effective rate is obviously a plus. When is that effective and I don't even know what that will be? Your tax rate is jumps around so much I mean how are you thinking about that in terms of modeling?

Yes. So it has jumped around a bit and we had a little bit of noise with that accounting change relative to equity this year but the headline point for us was that we simplified our tax structure that took effect in October and so we would expect that in Q4 you should start to see it come down. So at this point-- so it's hard to estimate what the impact is going to be from any of new equity tax changes but we are anticipating it will be south of 40%.

Okay, got it. I'll hope back in queue. Thank you.

One thing I'd like to jump in adds is just Jawad only been here for a few months and the impact on the organization has been pretty significant. Right of the gate he identified our international tax strategy was not optimal and moved aggressively to rectify it. And to have that completed a few months into job I think was a pretty big accomplishment. I mean that took a lot of work of booking accounting and legal to figure strategy, implement and execute. And then frankly bringing Jim Zito in .over in accounting, Jawad moved aggressively there as well. So let you -- we know we have not been great at forecasting our expenses and that we really need more rigor in our financial systems here -- also the material weaknesses are not something that are acceptable going forward. And I have been very pleased to see Jawad brought in, known people he has worked with in the team at E&Y, he has been I think pretty awesome as well to make sure that we move aggressively to get all leasing dialed in so they are behind us as we move into 2018.

Our next question comes from Jeremy Hamblin of Dougherty & Company. Your line is open.

Hi, guys. I want to come back to the hardware margins and think about -- you mentioned that fleet was about 10% of bookings in this quarter and I am guessing that it's probably going to be even larger portion moving forward but you know that you expect hardware margins to return to the 25% level as we enter 2018 but you also know that excluding fleet. So from the perspective of what -- given the difficulties that you had with gross margins this year and the underperformance on that. Should we -- what type of level should we be assuming that the Axon fleet gross margins are going to look like? I mean is this going to be selling at kind of negative 5%, negative 10% gross margin or how much of an impact could that have on next year's gross margin overall.

I think the question would probably better answered at our Investor Day where we are going go through a little bit more detail both between 2018 and the long term

Also I wanted to clarify Jeremy that we said excluding fleet pass through hardware not excluding fleet in its entirety. So they are component of the deal which are third party pass through and that's where we are excluding.

Just putting more color there we got in your discussions there is elements like routers and servers that are frankly sort of commodity items where we've gone through the debate do we have our customers go buy those independently rather than having a significant portion of pass through at very low margin and ultimately we made the decision that we need to make it easy for our customers that's more important than trying to optimize the margins and how they look on our income statement. So we think that's right call. We also I think understand it better but a lot of the deals through this quarter were early deals where we didn't have a great handle on that. And so there are lot more accommodations that we expect to make in a future.

Yes, now that's helpful. I think what I am -- the heart of my question is there is -- that they had really, really difficult time forecasting gross margin this year including this last quarter when you expected them to sequentially be up from Q2 and yet they were down significantly from Q2. So what I am really trying to get at is thinking ahead to next year and forecast in next year it sounds like there will be some improvement but maybe not that much of an improvement.

Yes. This is Luke here. I mean with these new products it's difficult to know exactly what the core cost is going to be. We owned that. We are trying to communicate that in such way where we can get more confidence in the products that have more maturity. With fleet we are very confident in the long term. With the storage we just had the largest data migration in history and it was hard for all of the parties involved to understand what are all the components of that transfer would be. And we did not have accurate visibility on that. And therefore we couldn't forecast it. That something that's now behind us. At the Investor Day we are going to sign up for bottom line growth over the next three years and we feel really confident about it. We are putting both annual as well as long term performance act in place for key leaders to hit those targets.

No, I understand that Luke. And just to be fair even I add back the three times that were called out in your summary release. You still have gross margins that would have been just under 60%. So I am just trying to wrap my head around thinking is maybe kind of low 60s a better baseline to be thinking about rather than historically the company has been in the 63%, 64%, 65% range. And I just want expectations to be set appropriately.

So with something like fleet as we talked about it's tough to know what that pricing is going to do in the early stages. And as we shift that hardware there is going to be given the accounting rules, it is going to be some compression in the upfront margin but we are confident that over time these deals are going to be accretive to our margins and you may not see that effect immediately but again over time we do -- we are confident that that's going to be accretive.

And just the silver lining on this fleet will be largely incremental to the existing business so it will be adding gross margin dollars even if a percentage rate may not be as high as the average segment so more the fleet we are adding the more gross margin dollars we will have in the business which is not maybe the same margin percentage.

Let me move on to operating expenses which also came in higher than forecast. In terms of -- I just wanted to clarify the guidance for the fourth quarter is $53 million $54.5 million, is that or do we need to back out the recurring amortization expense for the Australian distributor. I mean since it's recurring I am assuming that's inclusive of your guidance. But I want to just pin down the range. $53 million to $54.5 million.

That's correct, it includes --

And does that include any cost related to the free camera trial?

Yes.

It does, okay, great. So let me transition to something that was a very strong positive. On your Evidence.com revenues it looks like they were up about $3.5 million sequentially to about $16 million. In terms of what drove that growth - how much did your active paying licenses increase in Q3.

I am not sure I understand the question.

Your Evidence.com service revenues right they occurred to roughly $16 million in the quarter. My question is how many active paying licenses, what was the increase in active paying licenses in the quarter. Paying licenses not the booking.

17000 domestic

Okay, great. And then thinking into Q4, is there going to be a similar type of growth in terms of the number of licenses turned on or how should we be thinking about that.

Yes. We would expect to be roughly in line of that same growth rate.

Okay, great, thanks guys for taking --

One thing I am going to add there is just to punctuate this 2018 I think will be the first year that you start to see us adding additional up sales services that would tend to go back and the uplifting some of those existing fees to some of the additional services we are launching. So historically our primary focus has been on growing the size of the network. We are certainly going to be continuing to do that but some of the things we are doing with AI et cetera there is an opportunity to go back and increase revenue for existing customers.

Yes. While you are already growing a pretty nicely on the service revenue side. So we look forward to continue growth and thanks for taking the questions.

Our next question comes from George Godfrey of CL King. Your line is open

Thank you and thank you for taking my question. So just to be clear on the Q4 so given the revenue growth on full year 25% and the OpEx so operating income should be a loss of about $2.5 million is what I am getting. Maybe a little bit more.

So I think we are not going to give guidance specific guidance on operating margins for next quarter. What I can tell you that first of all we acknowledge that we got an opportunity to better at our forecasting and so we are -- and I owned that right. That's part of what we are doing with the building out the team and ensuring our capabilities. And so we are trying to -- we want to give guidance that we felt we could hit for Q4 as far as operating expenses. The other thing which shouldn't be lost in the comments we've given you is that we are bringing additional expense rigor and it is absolutely our intention to call back as much as of the increase as we can. And we are not going to give any specific guidance relative to that. But it is our intention to get Q4 as close to Q3 as we can.

Yes. And I would just highlight I think Jawad shown a lot of leadership here. This is a tough call for a new CFO to come in and say I want to add expense structure to get ready for the 606 change as well as remediate the material weakness and we could choose not to make those investments but we feel strongly and supporting that we enter into 2018 prepared for 606 as well as have this restructuring with our international entity in addition to really having a handle on these material weaknesses., and so Jawad made a strong push to come in and say let's bring in the right consultants, E&Y to get this done. And there is a cost to that and so I am supportive of that and I think we really believe this is the right investment for the company.

I appreciate all that I am just trying to understand what the impact of these financial implications is in Q4 and where they are going to go over the next three years. What I was getting at is if we start at margin of minus 3 and will go back to the Investor Day a target margin of 30% and we take a three year timeframe and I realized they are probably won't work on a linear basis but that's 12 quarters of adding 300 basis points of operating margin per quarter. So my question is, are we resetting base expectations relative to where we were a year and half ago or just the 350,000 seats you are looking just Axon gets to that steady state 200% margin or these -- or those figures and number that we talked about a year ago, do they need to be reset?

Yes. So we are obviously going to be resetting the forward looking models in just a few days. So rather than getting into some of the details here I would tell you just in general we are really - -we are not optimizing for EPS in the fourth quarter. We are optimizing of a very solid 2018 and a predictable trajectory towards high profitable business over the next three years. And we know that our -- it is not surprised nor shock anybody in this call our ability to actually be forecast expenses in the street is not going to be bright spot for us. And Jawad has committed that those days will be behind us as we roll into next year. So he is got a team that's really focus on it and we are going to improve our performance there.

Our next question comes from [Glen Madsen of Ladenburg Diamond] your line is open

Yes, thanks for taking the question. And just on the weapons little better than I expected. Can you talk about what drove that? There was one large deal that you called out, I might have missed that and I am just looking at the units. It doesn't look like there was any unit growth between X26 and X2; the decline in one offset the gain in the other. So what drove your revenue growth and maybe a lot of it attributed to cartridges as there is no growth in weapons. Can you give us idea why cartridges are growing fast?

Yes. So couple of things. There were some big federal orders. The approval of TASER in the UK, in United Kingdom, Jawad, how many cartridges do they typically use in training for TASER, it's significantly higher than the US.

15 to 20 per officer per year

So right there the expansion of TASER in the UK that's significantly more cartridges they consume in training than our typical US customer. Then they are also launching LASER 60 in the UK is also have been helpful and helping them to sort of drive growth in bundle cartridges into service plan.

Sorry Rick what was the number on the cartridges?

Jawad?

15 to 20 cartridges per officer per year between training and --

Versus from what I remember in the US it was like 3 to 5 or something wasn't it?

Yes, that's accurate.

And that's sustainable. I mean if they train everyone after a while they will stop using them at that rate or is that I mean it seems like --

It's completely sustainable so much so that most of our UK customers are committing to TASER 60 premium which builds in that number of cartridges every year and so that's -- it's going to turn that way here now in UK specifically. It's something they are particularly proud of I'll tell you in the UK. If you talk to UK policing that they believe that they are making the proper investment in weapon handling and weapon training and it's we don't see that going way they would get other countries and that may have more misuse issues and they believe part of the reason they've got lesser than in UK is the extensive training they do.

Next question on you said international large beachhead accounts margins also, was that in video and could you give us more color on what you are talking about the new countries that we haven't heard about before or just a little color there Rick?

No, again we don't like to give too much specific details but this is one very large customer that we signed last year. It was important flagship customer that opens international market for us and we shift a lot of cameras on that order.

Okay, great. And then one last point someone asked couple of questions ago about the video service sales growing sequentially but there was a one time catch up in that right. There was $2.5 million catch up or something. $2.5 million catch up.

That's right. $2 million catch up.

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

Yes, hi. Two questions just clarifying some stuff you mentioned. First for going forward for fleet gross margins for new sales, can you give us a sense of what type of range that gross margin would be? And then -- probably well I will just start with that.

Yes. I don't think we are prepared to release that number here today.

Okay. And then for that - you said that you are going to add profitability metric to management compensation. Could you just tell us what profitability metric that would be?

Yes. So the way we that we calculate our bonus plan is we have annual set of metric for the entire company is pay down and we are going to have one of the key metrics be tied to EBITDA and then for key executives we do long term three years performance [RQ] that will also be tied to EBITDA and next at the Analyst Day Investor conference we are going to lay out the plan for three year growth on the top line and the bottom line and we will kind be showing some targets that we are aiming at that we believe this incentive plan will align.

I actually want just to highlight something here so what you can takeaway from this is that we don't have any of those profitability metrics in our compensation today. They have all that historically we focused on top line growth and that's exactly what the organization delivered. It's the system is working really well to do what it was designed to do. And now with the shift this pivot towards profitability we are fully expecting that we are going to execute on exactly the same thing and gain profitability. And so I think -- I point to our execution on our top line growth over the past few years as a proof point and more near term there were some concerns recently about inventory but we've executed on that and we are very much trending towards the guidance that we gave by year end, we will also have a line of cash flow. So I think the team has got a track record of executing and when we introduce profitability into our compensation metrics and I am fully expecting that you are going to start see manifest itself in the P&L.

Our next question is a follow up from Steve Dyer of Craig-Hallum Capital. Your line is open

Thanks. Just a couple of follow up. I guess directionally Jawad the puts and takes of 606 in your business I mean are there any obvious swing that we should be thinking about. I mean I have some familiarity with it. But as you look at what's gotten to be a fairly complex P&L. What's your sort of US puts and takes and opportunities here?

Yes, good question. So on an overall level we are not expecting 606 to have a huge impact on the business. But there is a lot of complexity in our revenue recognition and when we talked about as far as modifying or standardizing our contract language would in effect mimic the effect of 606 which will allow us to accelerate the revenue on hardware components that are delivered upfront. And there is really no other meaningful impact other than that we are expecting.

So just to be really clear we expect to see hardware margins improves significantly based on 606 although there is going to be some other pressure, the other direction from fleet being at lower margin hardware product and --

That exactly right.

Okay, got it. And then I guess just bigger picture as it relates to operating expenses. I think one of the hard things about kind of giving operating leverage is there is always something new or really interesting new opportunity to invest in which sort of keeps it from -- keeps you guys from really optimizing the model. I think you will sound likes you will layout some bullies next week. But just in terms of the OpEx spend et cetera is there anyway you think about or you are willing to sort of take a stab at what you are guys are spending on a quarterly or annual basis on non revenue producing products or services? Because I mean the growth has been great and it's obviously important to see that pipeline but I think it would help investors a lot to know sort of what's going in the managing business and what's going into three years from those revenue.

Yes. That's a great question, Steve. Currently we think about our business in four key value stream, TASER, our digital evidence management and body-worn camera business have include ancillary product like Axon Signal, we got Axon fleet and then we have RMS. We will at our Investor Day talk about how we are thinking about signaling, how we are having dents in the body camera business contribute to the bottom line. One metric that we are discussing is showing percentage of our R&D invested on net new products. So great question, we will have more to talk about at the Investor Day and how we are thinking about that.

Our next question is a follow up from George Godfrey of CL King. Your line is open

Thank you. Just two quick ones I hope. Headcount at the end of the quarter?

We will get that. I don't have it on hand.

Okay. And then just directionally and now that we will be lapping TASER 60 program, is working capital likely to be a drain or generator of cash in 2018?

I would say that we are going to -- we are in this transition right now to the subscription model. Where historically we've been actually selling more booking shift and so you are going to see an impact on working capital but as our top line continues to grow I would expect that to normalize.

There are no further questions. I'd like to turn the call back over to Mr. Smith for any closing remarks.

Very good. So thanks everybody for joining us today. Obviously we are delighted with the top line growth that we experienced in the quarter. And we know we got some work to chop we got on expense issues. We've got some short term expenditures that we are making to really shore up our finance function. We are confident that we are in the right rigor in place so that we can improve more dramatically on both the top and bottom line as we roll out into 2018 and beyond. We look forward to giving you guys more details on that plan. Hope to see you all in New York. Thanks. Have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. And you may all disconnect. Everyone have a great day.