Axon Enterprise Inc (AXON) 2015 Q4 法說會逐字稿

Ladies and gentleman, please stand by. Your conference call will begin momentarily, again, please remain on the line; your conference call will begin momentarily.

Good day, ladies and gentlemen, and welcome to the Q4 2015 TASER International Inc. earnings conference call.

(Operator Instructions)

Now, I would like to hand the conference over to Luke Larson, President of TASER International. Sir, you have the floor.

Thank you and good morning to everyone. Welcome to TASER International's fourth quarter 2015 earnings conference call. Before we get started, I'm going to turn over the call 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 information is based on current information and expectations regarding TASER International, 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 risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in our press release we issued today, and in greater detail in our annual report on Form 10-K and quarterly reports on Form 10-Q, under the caption risk factors.

You may find these filings, as well as our other SEC filings on our website at www.taser.com. With that, I will turn back the call over to Rick Smith, our CEO and founder.

Good morning, and thank you, Dan. What a year; we are proud to yet again, be able to share with our results for the fourth quarter and the full year of 2015.

Fourth quarter results exceeded expectations, for both revenue and profitability, and demonstrated progress on multiple fronts, towards solidifying our market leadership position in the Axon and Evidence.com segment, increasing our TASER weapons penetration, and encouraging the upgrade cycle domestically in the weapon segment while setting up the company for long-term success internationally, as well as domestically.

Looking to 2016, I continue to focus our team on the most important goals. First, extending our hardware and software platform with additional products and services that create more value to the integrated whole.

Examples of this strategy include Axon Fleet, our cloud-connected in-car video system, launching in 2016, and the new video forensic product available through our partnership with Amped. These products add value to our entire ecosystem with each element creating a whole solution more valuable to our customers than each product would as a stand-alone.

Second, focusing on services that create high-valued network effects for our users, such as sharing in inter-agency collaboration tools, and third, extending our customer intimacy to global markets.

The real key to our success over the years has been that we have a unique understanding of law enforcement's challenges, and we have the ability to translate those challenges into distinctly valuable technology solutions. We're continuing to invest in people and focus -- including me personally, spending a lot of time overseas -- to build these relationships around the globe.

In only two years, we went from having zero presence in the body-worn camera market in the United Kingdom, and the digital evidence management market in the United Kingdom, and in two years we've gone from no presence to becoming the market leader, being selected by the largest and most influential agencies.

The body-worn camera market is developing rapidly in many countries, and we are now active contenders in several key markets, where previously, we were not on the radar, even just a few years back. I'm truly excited and optimistic about the trajectory that TASER is on, today, and going into 2016.

We're executing very well across the organization, which is now truly multi-faceted. We're continuing to add the right people and resources. We have built a truly world-class team. We're focused on maintaining a disciplined approach to our investments in the next year.

Even as we increase our operating expenses to grow the business next year, we expect that our bookings growth will exceed our operating expense growth in 2016. This is a very positive indicator of the traction we're generating from our growth initiatives and the return on investment that we're realizing from prior spend.

The energy and pace of innovation is the highest I've ever seen in our Company's history. I look forward to our team updating you on our Q1 progress in April, as well as in-person at our next analyst day, which we're excited to hold in New York City this May.

I'm now going to hand the call over to Luke, our President, who will go through an operational update.

Thanks, Rick; 2015 was a very strong year for the Company. In review, we grew the top line over 20% to record levels, we announced three revolutionary products, introduced partnerships with Microsoft, Ambarella, Amped; we acquired our British Distributor, grew our major city Axon count to 30, and set the international business up for success with country managers, infrastructure and the strategic relationships to hit the ground running.

Our key metrics have also continued to show strength in the period; I'm going to go over those now. Axon and Evidence.com bookings were $44.7 million in the fourth quarter, an increase of 82% compared to fourth quarter of 2014 and a quarterly record for the company.

LTV to CAC in the fourth quarter was 4.3; we are very pleased with the return on our investment in customer-facing roles and marketing efforts this quarter. As a reminder, our calculation for the lifetime value of a customer is based on a blended hardware and software gross margin figure rather than sales.

Operating income in the TASER weapon segment was 37.4% in the fourth quarter. While there will be some near-term pressure on this metric as we invest internationally, we remain very pleased with the fourth quarter result.

We benefitted this quarter from strong revenues in this segment, and continue to evaluate investments to ensure continued operational efficiency. Dan will cover our other key metrics, including ARPU and future contracted revenue in his section. We are providing some additional guidance on our increased investments in operating expenses in 2016 that Dan will go through in a moment.

We are excited by our investments and believe they are well-placed benchmarked to our LTV to CAC ratio, our bookings -- which we expect to grow faster than our operating expenses -- and overall return analysis.

In the fourth quarter, we made a strategic decision to delay shipments of Axon Body 2. Our reputation for quality products is paramount, and we employ the necessary discipline to ensure that this product met TASER's high-quality standards before we began shipping units. As a result, shipments that were expected to go out in the fourth quarter were delayed, as we worked through final quality checks and compliance testing.

We're excited to have begun shipping units in Q1, and expect to be through a heavy backlog in the early part of the second quarter. Internationally, we are continuing to set the business up for long-term success and I've also seen near-term success with a record $12.1 million in international revenues in the fourth quarter.

We feel this is an early sign that our international investments are paying off. We have hired country managers in our tier one target countries and regions that are focused on capturing beachhead accounts, similar to how we built the early U.S. market, where we moved aggressively to get the early large adopters on our platform to serve as important reference accounts.

We expect near-term that the international Axon deals will come at lower margins as we build those reference accounts. Over time, similar to what we experienced in the U.S., we suspect that the next phase of adoptions will be at higher margins. While the international business will always be lumpier than the domestic business in the near-term, due to the centralized purchasing that is typical abroad, we are pleased with the fourth quarter results and we'll continue to invest based on these types of positive indicators for long-term growth.

To calibrate the magnitude of the difference of centralized purchasing, international versus domestically, the U.K. has 43 law enforcement agencies while the U.S., with 5x the population, has over 18,000 purchasing agencies. Operationally, in 2016, I am working with the entire team to continue to execute at our highest levels. We are focused on maintaining organizational excellence as we continue to grow quickly.

In 2015, we hired over 130 professionals and now have six offices in four countries. We are ensuring that we effectively onboard, train and integrate each of these individuals to ensure that we maintain our high bar of excellence across the organization. Part of operational excellence is the diligences to continually evaluate the ROI of our investments. While there have been and will be near-term pressures on margins, we remain focused on growing the Axon and international businesses into profit engines.

We will also continue to push deeper adoption and faster upgrades of weapons domestically. There is still significant white space, in terms of officer count. We have sold weapons to more than 17,000 out of 18,000 agencies in the U.S. There are nearly one-third of the total patrol officers in the U.S. that do not carry a TASER weapon today. This is further highlighted by some of the high-profile incidents that we have seen recently across the country.

We want to close that gap and make TASER weapons standard-issue for all officers in the U.S. through our officer and agency education and programs, such as the Standard Issue Grant. For officers who already have a TASER weapon, we want to ensure that they upgrade to one of our next generation smart weapons. We also believe that there can be synergies between the Axon platform and TASER weapons. The mystery of why a weapon is used by an officer is eliminated by the deployment of an Axon on-officer camera.

The combination of innovative hardware and software differentiates TASER in the market as we solidify our standing as a fully-integrated platform services provider for law enforcement. Finally, we will be relentless in our pursuit of capturing Axon and Evidence.com market share. We are winning the vast majority of deals in the marketplace today due to our unparalleled, end-to-end software platform.

In fact, due to our success, we have seen our competitors take desperate actions, but as we have indicated, their claims are without merit. We will continue to add sales reps in narrow territories to ensure we are in front of every single agency that is making a purchasing decision.

We will refine marketing strategies and measure their relative success in building pipeline and generating leads. We will continue to add innovative products and services to our platform to ensure our offering remains unparalleled, and we will remain competitive in each and every process as we know our offering is the best for our customers and therefore it is a long-term partnership that we are entering with each customer.

Looking into 2016, I am personally really excited about our new product introductions. We launched our Axon Body 2 camera, which has tremendous response for overall user experience and its advanced features. Later this year, we will launch our in-car camera system, which we believe will disrupt the market. We have numerous other products in the pipeline that are progressing very well, which I look forward to announcing later in the year.

We will continue to add differentiating features to our software platform that not only add value for our existing customers, but also makes our products increasingly more attractive for new customers. Dan will now go through a financial update before the Q&A.

Thank you, Luke. As indicated, revenues in the fourth quarter increased 19.7% over the prior year to $56 million, another Company record. Booking has also had a very strong quarter, increasing 21% sequentially to $44.7 million. For the full year, revenues came in at $197.9 million, an increase of 20.3% compared to the prior year, and bookings for the full year of 2015 were $135.1 million, an increase of 136.7% compared to the full year of 2014.

Investors should remember that the first and third quarters are typically our weakest quarters due to the seasonality around the full budget cycles, and as a result, typical Q1 revenues are lower sequentially by 5% to 10% when compared to the fourth quarter.

In reviewing the fourth quarter product line sales, it is notable that on-officer camera units in both Body and Flex were both down sequentially and year over year. This is due to the fact that we delayed shipments on the Axon Body 2, the new camera we announced in October where it has received outstanding reception from our customers due to advanced features including a Wi-Fi offload and high-definition recording.

As Luke discussed, in the fourth quarter we made the strategic decision to hold shipments of the Axon Body 2 as we work through final quality checks to meet TASER's high standards. We began shipping units in Q1, and expect to be through the heavy backlog in the early part of the second quarter.

On the Flex unit side, we had a larger number of bookings at the very end of the quarter, which didn't ship by the time we finished out the year. Between our Body and Flex products in Q4, we finished the year with 7,500 cameras in our backlog to ship.

Service revenues also had a very notable sequential increase in the fourth quarter of $1.6 million, coming in 50% higher than Q3. As we previously mentioned, some of the contracts include implementation services that delay revenue recognition until they are complete. In the fourth quarter, professional services team really delivered and caught up on a backlog of pending implementations. As such, within the fourth quarter there's approximately $900,000 in service revenue catch-up that will not repeat in subsequent quarters.

Normalized service revenue will continue to grow based on new users that we add into our ecosystem. We added 12,900 active paid seats to our Axon platform in Q4, which is significantly more than the 5,000 cameras we shipped in the quarter. This is due to our lag between shipment and [seat] revenue recognition, as well as the backlog of cameras at year-end.

Our strong continued user growth continues to increase our annual recurrent revenue, which at the end of December, is over $16 million. Gross margins in the fourth quarter were 65.8% on a consolidated basis, compared to 58.6% in the prior year.

The improvement in gross margin was largely driven by the increase in smart weapon sales volumes, which have a better margin profile than the Axon hardware, as well as the service revenue catch-up within the period.

The prior period also had reserves taken for obsolete inventory related to the end of life to the X26E, as well as the excess inventory related to a raw component shortage for the Axon hardware. Sales, general and administrative expenses increased 51% compared to the prior year, to $21.9 million. This increase is primarily due to increased headcount, variable commissions and compensation and increased investment in both the IACP and international trade shows.

Research and development expenses in the fourth quarter were $6.5 million, an increase of $2.6 million or 62.9% compared to the prior year. The increase is driven almost entirely by increased headcount in our Axon segment. We are still working at building out the world class software development, hardware engineering and product management teams to ensure that our capabilities to build the preeminent law enforcement technology platform are unparalleled in the market.

As we look to the full year 2016, we will continue to invest in opportunities as appropriate. We're being diligent, evaluating the returns, current or future, of these investments and are quarterly making operational decisions based on these analyses. For example, we've recently discontinued direct investments in Brazil, as the traction in that market place could not justify a continued investment by TASER.

We anticipate the total operating expenses in 2016 to range between $123 million to $128 million between SG&A and R&D combined. The increase in operating expense is primarily due to increased headcount, which includes the full-year impact of 2015 hires as well as our expected 2016 hires.

Approximately 40% of the 2016 headcount adds are customer-facing, 30% are research and development and the remainder are expected to be in administrative and operational support roles. We anticipate the first half of 2016 to see greater operating margin pressures than the second half of 2016, as many of these new roles added don't have an immediate ROI.

As Rick said earlier in the call, it is important to note that we expect bookings growth to exceed operation expense growth in 2016. The way we calibrate the spend on our Axon business to get a sense of the financial health of the Axon segment is to compare our spend to our bookings each quarter. This gives us confidence that our investments in the period are appropriate to the current levels of bookings.

Further, if we can grow bookings at a rate similar or greater than the operating expenses, the Axon business will be very profitable at scale. As Luke mentioned earlier, our LTV to CAC in the fourth quarter was 4.3. This means for every dollar we invest in customer acquisition we get $4.3 million of gross margin over the life of the customer.

Income tax expense for the quarter was $3.4 million, the Company's effective tax rate for 2015 was 43.6%, due to the lack of profitability and the new TASER international BV subsidiary located in the Netherlands.

That really resulted from some manufacturing delays, some start-up costs, and increased expenses to grow the international business that we undertook in 2015. We do expect the effective tax rate to come back down to a more traditional 38% to 40% range in 2016, but the effective tax rate coming down -- continuing to come down -- as the operating income for the international business increases over time.

Operating cash flow in the fourth quarter of 2015 was $16.1 million, an increase of $3.3 million compared to the fourth quarter of 2014. The increase was primarily driven by the change in deferred income taxes of $8.1 million offset by a decrease in cash for working and capital changes of $6.6 million.

The change in cash from working capital changes was due to a decrease in inventory offset by an increase in prepaid expenses in accounts payable. As we announced on this morning's earnings announcements, on Friday, February 26th, the Board of Directors approved a $50 million share repurchase plan.

As we noted in the supplemental materials, there are significant sequential increase in average or revenue per user. Keeping our methodology consistent, the fourth quarter ARPU was $44. In Q4, there was approximately $0.9 million one-time adjustments to service revenue, artificially skewing this metric higher.

Because of the revenue catch-ups that occur in the quarter from implementations that could vary widely, we believe that ARPU is not an accurate measure to track the growth and success for the Axon software platform. Rather the metric, which does accurately reflect both the growth in users and revenue per user is in recurring revenue. At the end of Q4, our annual recurring revenue was $16.7 million. This is up from $12 million at the end of Q3. Please see our supplemental statistics dashboard for our quarterly results for the full year of 2015, as well as our calculation methodology.

Going forward, we'll continue to provide a recurring revenue metric as a replacement for ARPU as part of our key metrics in 2016. Future contracted revenue grew to $159 million in the fourth quarter, representing a sequential growth of nearly 30% from the third quarter of 2015. This metric grew faster than bookings because of our increase in backlog that we mentioned earlier.

Lastly, before going to Q&A, there are a few administrative items I'd like to update investors about. First, while we'll continue at our discretion to announce large or otherwise material orders individually, we're no longer going to be doing the monthly wrap-up order press releases. We believe that monthly press releases have, over time, declined in value and did not necessarily reflect the health of the business.

Second, in keeping with the goal to provide the best set of metrics that are consistent with how we operate and manage the business, we will no longer be providing attachment rate, ARPU, active paid seats and future billings each quarter going forward, starting with the fourth quarter will be the last time we report those metrics.

Thirdly, starting with the first quarter of 2016 earnings release, we're going to start releasing earnings and hosting the call after market hours rather than pre-market. And finally, as Rick said earlier, we'll be hosting an analyst day in New York in May, which will provide us with an opportunity to discuss our long-term objectives for the business. This event will be webcast and details will be forthcoming to invite analysts and investors.

We're now going to move to the Q&A portion of the call. We're going to take two questions from each person in the queue for the first round of questions to make sure that everyone has a chance to ask questions, and should you have additional questions, please hop back in the queue, and with that, we'll turn it over to the operator to set up the Q&A.

Thank you.

(Operator Instructions).

Our first question comes from the line of Mark Strouse of J.P. Morgan. Your line is now open, please go ahead.

Good morning, thanks for taking our questions and congrats on the results. Just touching on the international business, can you just talk about the strength in 4Q? Is that concentrated in one or two particular countries?

And then Rick, if you could just give a quick update on your plans for the year, I think you had -- over the last couple quarters you had talked about the regions that you'd be visiting over time. Just wanted to see if there was an update on that.

Sure, Dan do you want to talk about the distribution of international orders and then I'll take the second part?

Yes, we're continuing to see really strong results in Canada as well as Europe, but really we saw it in almost every region in the fourth quarter. We had some strong sales coming out of Asia with Australia and New Zealand as well as the other Asian countries that we have strong sales into. We're strong -- Europe was strong in the fourth quarter and we saw a strong quarter with Canada as well.

It was across lots of markets. We are starting to see the heavy investments we're making in some of the tier one markets pay off and we're encouraged by the Q4 results.

And in terms of my efforts as you know, I've been focused for the last six months or so on Europe, I'll still be focused on Europe for the next several months, and then over the summer I'll be spending some time in Asia.

I don't know that I want to go into too much detail in terms of actual country focus, because we've got a lot of people trying to complete with us and follow us around the globe, so I don't want to give them a roadmap of everywhere we're going to be.

But I am finding it's been pretty remarkable how spending time abroad you just end up building much better and deeper relationships than you do when you pop in for a week of sales calls and then head home.

In fact, some of the other executives have started to spend a little more time abroad, and we're actually looking at how we can systematize this to where as I come back to the U.S. we start to cycle some other people out. I think it's just important to continue to inject sort of the international customer relationships into our bloodstream at TASER and it's going to be something we're going to want to operationalize and continue long after I'm back from the suspended trip.

Got it, and then just one follow up if I could. I think I seem to ask this every quarter, so I apologize. I still get quite a few questions about the competitive environments; So just wanted to see since the last time, last earnings call, if there's been any lengthening of the sales cycle or any significant change in the competitive dynamics.

Yes, this is Luke, I'll take that one. We've certainly seen an increase in body worn camera competitors. We're still winning the vast majority of deals, especially in major cities and agencies that have over 100 plus officers, where the majority of the market is. We credit that due to our work flow approach, so we believe the camera's just the tip of the iceberg and what really sets us apart in the market is that we solved the work flow from end to end.

One other misperception is we've seen some larger competitors come into this space, and I think if you were to do a channel check and talk with the agencies in law enforcement, TASER's brand is really unparalleled, and when you talk to the agencies they really value our very customer-driven product design focus as well as the service and support that we provide, so we still feel very confident in the market place today from a competitive standpoint.

Okay, good. Thank you very much.

Thank you, our next question comes from the line of Steve Dyer with Craig-Hallum Capital. Your line is now open, please go ahead.

Good morning guys, thanks for taking my question. I'm curious as to your early comments what you're seeing on Axon Fleet. It's a neat looking product, obviously it seems like the price is right. Maybe a little bit more clarity as to when that will start shipping and what you're hearing from departments in the early days?

Yes, we announced Axon Fleet at this year's IACP. Due to the relatively long sales cycle in law enforcement, we tend to find that doing a pre-announcement helps our sales team build the channel before we actually start shipping.

We intend to ship that in the back half of the year. Without giving away too much, I would say the response has been very positive and as these agencies move to this end-to-end work flow on the Axon platform, the notion of adding really disruptive low-price hardware with powerful cloud-based features has been very well received.

Yes, I'd like to add onto that. This is Rick, of course; when I was at IACP I had the opportunity to meet with the heads of the state patrols and that's really a market segment where in-car is frankly, pretty important, because most of what they do as state patrols is in front of the vehicle. I would say historically we have not performed super well in the states patrols with body cameras because body cameras are just seen as secondary to in-car and I would tell you there was a very enthusiastic reaction from a number of the different state patrols.

One of the analogies we used in terms of how we're approaching the market, is effectively by bringing a very cloud-connected small piece of hardware into the vehicle, we're replacing these big, multi-component systems where you install it once, and then if things break, they're very expensive to fix and maintain. So at a disruptive price point, we believe we can bring far more capability by giving police a system that is upgraded through software every 30 days.

There's quite a bit of excitement, I need to temper myself because we're not shipping it yet and until the product's out with customers in mass, you don't want to get too excited but I think it can be a game changer for us in the state patrols and I think it's further building the value of our total ecosystem to be able to have a cloud-connected, disruptively priced in-car video system.

Great, thanks and then just as it relates to the weapons, obviously a very strong quarter, do you still sort of see that as kind of a high single digit type grower over time? Is that still the right way to think about it despite the really strong quarter and the traction internationally?

Yes this is Dan. I think overall between price and volume and ability for the international business to continue to -- there's, as you know, a lot of white space internationally. I think the weapons business is certainly a single digit grower Going forward. Overall we still feel like we've got a 15% CAGR business we feel comfortable with, so I think it's certainly that the weapons are part of that growth.

All right, I'll hop back in queue, thanks.

All right, thank you.

Thank you, our next question comes from the line of Greg McKinley from Dougherty. Your line is now open, please go ahead.

Yes, thank you. Just maybe some questions on investments back into the business in 2016, maybe can you help us understand what are the biggest areas of investment for 2016 and is that different at all -- or new initiatives at all from what you've invested in in the last year or two?

Yes, I would say in 2015 the three key areas that we invested in were sales, engineering and international. Moving into 2016, I think our domestic investments are going to slow down on the sales side relative to the investments we're making in international and engineering, and we expect to start to see the ability to have some leverage in the model as our coverage increases and we can now use the same sales rep to cover multiple product lines.

Okay and in particular from a sales and engineering standpoint, are most of these -- I'm assuming are occurring in the video business? And I don't know metrics or headcount or anything like that you could share with us just to give us the sense of the order of the magnitude of the growth investment in that business?

Yes, this is Dan, I would say overall, yes, I think a lot of it is in the video business, although internationally, the people we're hiring will be really to drive both the weapons part of the business, as well as the Axon part of the business. Those folks tend to be across -- we're hiring people that really are capable of selling both products so we don't always need two sales teams like we've done in the U.S., so there will be some leveraging of those resources over time.

I think overall, as we said earlier, the bookings growth in 2016 will be higher than the operating expense growth, and therefore we think we're calibrating this correctly and getting the right people in place and you're going to continue to see a good ROI on those investments over time.

Very good, thank you. My second question would be could you just remind us a little bit -- you're making some disclosure changes going forward, maybe just highlight those again and the rationale for what about the business do you feel is better described to investors with your new disclosure practices versus the old one?

Yes, this is Dan, I'd say the biggest change is we're replacing ARPU with annual recurring revenue. We just think that we've been tracking a number of these metrics and as you know we've been really transparent with the market but some of these metrics as we've looked through 2015, we've really said, look, like in the case of the ARPU, because of the noise and the quarterly revenue with these catch-ups, it's had this impact on the ARPU each quarter, and again, with the fourth quarter's 44 point -- over $44 for the quarter which is not something we want people to model on.

So we said, look, what's a better metric, and really as we've measured things internally, we said ARR is a better metric to measure both the user growth and revenue growth for that business over time. That's probably the biggest change. We're not really going to disclose attachment rate going forward, that's been pretty consistent so we don't really think there's a lot of meaning in that and then we're going to go to just the total book seats.

And again, because of the timing of when we start recognizing these seats, we think having the total seats that we've sold is probably more meaningful than the exact number of seats that we have on the platform at a point in time, because that backlog of seats is eventually going to be in the number and we'd rather just disclose the total seats that we've sold versus the exact number at that point of time in the quarter.

Okay, thank you.

Sure thing.

Thank you, our next question comes from the line of Glenn Mattson, with Ladenburg Thalmann. Your line is now open, please go ahead.

Dan, you talked about international by region. Can you say the breakdown of international video versus weapons, which was more important there? Then also, the X2 had a great quarter, was there one big international shipment there or anything like that?

Yes, so on the X2 there's definitely some international to help drive that in the quarter, so it's been a strong product for us, especially internationally because you don't have -- a lot of times these are early adopters in the country, so I have the training component of having to train a new weapon platform; you don't have that same headwind that you do in the U.S. where somebody who is using a single-shot weapon needs to get re-trained for the two-shot weapons, so that helps a little bit internationally.

As far as the sales, we're seeing sales in both products internationally. We see opportunities for both productlines, both segments in the business internationally. And as I said earlier, I think that one of the things we're doing is we're building up teams that are really capable of selling both segments so we can leverage those costs on a go-forward basis.

Yes, I would just add one thing that we're seeing internationally is the customers approach us about the video cameras and then that opens up a discussion about the TASER devices, as well, which we've not previously seen so I think there is going to be a lot of channel synergy across the two products.

Okay, great, thanks. And then just a second question on the confidence for the bookings growth in 2016. Can you give us just a little more color as to where that confidence derives from?

Yes, we see a lot of our early adopter customers who have made purchases in the 50 to 100 units that will now be making larger deployments in 2016. We also are starting to see some regional effects where you may have a couple of major cities, or leading cities, in metropolitan areas and the surrounding areas due to network effects and sharing see the benefit of the platform.

We feel really confident about our bookings target for next year.

Okay, great, thanks.

Thank you, our next question comes from the line of Allen Klee with Sidoti, your line is now open, please go ahead.

Good morning. First question, you mentioned that the Axon Body 2 cameras were delayed from Q4 to next quarter. Can you give any sense of the magnitude of that?

Yes, in Q4 we did ship some early tri-units, which is pretty standard when we're doing a production launch. Between our Flex and Body 2 products, we have a backlog of over 8,000 units.

We have been working through this backlog and expect to be caught up in the second quarter. As we mentioned earlier, the backlog of Flex cameras was due to the bookings at the end of the quarter.

Great, okay and then can you comment if there's been any issues on international accepting using your storage in terms of where the product is actually stored and if that has been an issue, has it been alleviated?

Yes, let me take that one. I can tell you it absolutely is an issue, just like it was in the United States. When we first started this venture five years ago, the reaction of our customers was there's no way that we're going to wear a camera and there's no way that we could put our data in the hands of a private company.

We saw that absolutely flip in the U.S., where body cameras -- now when you talk to police chiefs, they're saying yes, every officer is going to be wearing a camera in the near future. And obviously we've seen Evidence.com really become the standard where every major agency we've sold is going on Evidence.com. Now, we have had one or two agencies where there's still this religious we want to build it and run it ourselves, even in the U.S. we've seen a couple of those.

Internationally, I'd say the international space is where the U.S. was five years ago. When I first showed up in Europe six months ago, the general feeling was that it was a real uphill battle for the cloud. We're now seeing that sentiment shift, and luckily it's because police are people too.

I hate to oversimplify, but when I sit with the head of an international police agency, I look at what phone they're carrying and we talk about how is your e-mail experience? You have personal e-mail right? Yes, And you're probably storing some pretty valuable personal information on those e-mails, right, or your online banking. There's so many analogs to how Internet-connected businesses have made our lives better as a consumer that immediately resonates. And then we start to turn to things like security and other issues where once they take the time to dig in, they start to realize that in fact the cloud outperforms what an agency can typically do on their own internally.

In fact, I just met with one customer and we were talking about -- this was a customer that's considering -- and they're still considering -- whether to build on-prem or in the cloud and that same customer told me that they're running Windows 2000 on all their laptops and we both chuckled and said, well, geez, that's an example of how hard it is to keep up with technology when you're running it yourself and you've got to do it in an environment where you have got these incredibly bureaucratic purchasing requirements.

Why wouldn't you want to outsource that to someone that does technology for a living and is able to always make sure you're updated and up to speed with the latest security patches in technology?

It's a bit of a long story, but I'm having a sense of deja vu to where things were in the States years ago, but we're early in the process. I think we've got the U.K. pretty comfortable. At least most of the agencies in the U.K. are now getting comfortable, and with Microsoft putting an Azure instance in the United Kingdom, that's helping.

Our partnership with Azure, having instances in other areas of the EU and other international segments is helping but I would say we're still in the early innings, which is something I actually really like because I think TASER is there as a thought partner, and we're helping to share the thinking that's driving our customers to help them see the advantages of this cloud approach.

I am actually delighted that the international market is where it's at, where we have the opportunity to come in and be the thought partner that helps move these customers into a cloud model. It's an exciting time for us. Certainly there's a lot of work to be done and we're not going to win every account to the cloud, but I think over time the underlying economic and technology advantages of a cloud model are overwhelming.

That's why the cloud-connected business models tend to dominate in just about every other market segment where they've effectively entered. We believe that all those advantages are true to us and we like being the first mover, but it is going to take some time to get the international space to where the U.S. is now, where you have big agencies hopping on the cloud.

Thank you, very helpful.

Thank you, our next question comes from the line of George Godfrey with C.L. King, your line is now open, please go ahead.

Thank you, two questions, the first one is can you give us an update on the financial metrics or any other details on the London Met deal and perhaps where we stand on the New York City? I know they upsized their trial rollout there. Just wanted to see if you can provide an update.

The second question is just the tax rate; you said it comes down. It was 38% roughly in 2014, Dan; 43%, this year. Is it somewhere in that range below 43% but above 38% or is 38% a good metric for tax rate?

Dan, why don't you go ahead and take that last one and then I'll go?

On the tax rate we expect the 2016 tax rate to be between 38% and 40% to get a back to a more normalized rate for 2016.

Let me talk a little bit about the Met. There's been a ton of news flow in the marketplace, for sure. These large agencies do tend to -- it's like turning a battleship, as some folks would say. We're still in process with them finalizing the terms of the deal, there's really not much more we can share at this time.

Similarly, with NYPD there's pretty stringent guidelines that any of the vendors that are participating in their bid processes can't comment on it and so we're really -- in addition to our normal practice of not commenting until we have something really solid to comment, we have to be particularly respectful of the requirements of the process there so we at this point can't carry any additional details on those two accounts.

We actually don't anticipate sharing further details on an account-by-account basis, which is in line with our general policy of not disclosing individual deals, but you'll see them showing up in our quarterly numbers as those mature from being selected into an eventual order and of course, in New York, they've not yet made a selection.

I would just add, we don't really think about the margins on a deal-by-deal basis, we do look at that from a market perspective and I talked a little bit about my section, how we think about going after these markets, and we want to create a healthy margin business and we believe getting these reference accounts is key to doing that.

Got it, thank you very much.

We have a follow-up question from Steve Dyer with Craig-Hallum Capital, your line is now open, please go ahead.

Just real quickly, Rick, you touched on the Azure platform, and obviously you guys partnered up starting at IACP and my own perception was that that was very much the de facto standard for a lot of these governments.

Have you seen any better receptivity to being on Azure as opposed to AWS?

For sure. Let me first start off by saying that Amazon was also a great partner for us. I think that Microsoft, when we did the final analysis for this market sector; Microsoft is particularly good with government compliance, organizations that have lots of compliance issues, and they've got really deep customer relationships around the world with IT departments.

Since we've announced the switch to Azure, we've had a number of agencies that frankly had really deep relationships with Microsoft move further and faster in our sales pipeline and I would say internationally it's making a difference as well, where I've been able to meet with Microsoft sales team and to collaborate.

They're helping introduce us at various points in different organizations. In fact, I just came from a meeting this morning with a Microsoft team here in Europe, so it's a little early; I wouldn't say that we've seen big deals go from start to across the goal line, it's only been a few months, but I'd say early indications are really positive. Microsoft's been great to work with.

Their sales team is really supportive and actually -- one thing I would point out is they do see Axon and Evidence.com as really helpful to Microsoft, which is great. Microsoft has a goal of frankly building out their cloud business and migrating for example, e-mail and on-prem Microsoft Office installations to the cloud with Office 365. One thing we've talked about is for them there's a bit of a challenge where there's just organizational inertia to take, for example, an e-mail system that you have today and then moving it somewhere else.

You've got all the standard sort of points of organizational inertia that might resist that. One thing that I think Microsoft has found very attractive about us as a partner is body cameras are new. They don't displace an existing system and it creates the need for a new system at a scale that's at least an order of magnitude greater than what they're used to building internally.

That makes us a great talking point for Microsoft and it helps get their customers comfortable with the cloud as they think about body cameras and that's strategically advantageous to Microsoft across all their cloud offerings. So I think this is a great example of one of those relationships that's really a win-win, it's been a win for us, it's been a win for Microsoft and as such their people are helping us a lot and we felt it was a great move and it's a great partnership; we're excited to keep working with them.

All right. Great color. Thank you.

Thank you, we have a follow-up question from Greg McKinley at Dougherty, your line is now open, please go ahead.

Yes, thank you. First of all, you provided great visibility on your investment levels for 2016. Can you or are you able to provide sort of a top-line view in percentage growth terms, any sort of high-level guidance you're able to provide there?

Secondly, can you talk to us a little bit about how TASER has or can continue to support agencies -- sort of the complexity of rolling out these systems; because I'm sure you've seen a lot in the news like Memphis is trying to figure out exactly how to administer this new process? What insights would you share with us on that topic?

Yes, let me start with just the top-line guidance. We don't provide exact, specific guidance but we do feel comfortable with a 15% compounded growth rate overall, and that's something we've sort of indicated previously and we still feel comfortable the business has got the ability to continue to grow at that 15% rate annually.

Okay. Thank you.

I'll take the second part. I think in terms of complexity of deployment, that's our biggest differentiator and that's the reason we've seen the majority of the agencies, large agencies, go with our solution and that's why we think we're really well positioned in the next two years, both in the States and internationally.

When an agency is looking to do a scalable deployment, we've thought through the end-to-end work flow, and that makes a really big difference when you look at how much time the officers and the agency is going to invest in this program.

Some of our features, like the ability to add meta-data and then have that automatically trigger retention schedule saves the agency countless hours of time and that's just one example. We also have similar features with redaction and I can list them all but I would say that that's the biggest differentiator TASER has in terms of deploying large-scale deployments for video and software solutions.

I would just add that when we see some of these challenges, a lot of times the challenges end up being more policy related, as agencies that are new to this are working through privacy issues, when they're going to release video, what level of oversight they're going to allow, or access to the videos the public is going to have.

We do help connect agencies with resources that'll help them think through the policies but the good news is most of our deployments are not slowed down from a technology perspective, whereas if they build this on-site they've got to hire people and buy a bunch of data center gear and figure out how to get it up and running, go through all the trials and tribulations of bringing a big system from zero to operational.

In our case really all we need is high-speed Internet access and we can take it from there, so it dramatically decreases the technical lift the agency's got to do. Most of them I think end up where there are delays, they tend to be more on policy issues, negotiations with the unions, negotiations with civil liberty groups, et cetera, over how, when, and where they're going to record, what they're going to do, how long they're going to keep it afterwards and all those policy issues.

Yes, okay, all right, thank you.

Thank you, we have a follow-up question from George Godfrey with C.L. King, your line is now open, please go ahead.

Thank you, just two quick ones, on the share repurchase, do you have a time frame when to start or complete that, and then the second question, Dan, you may have given this but maybe I missed it: did you provide the annual recurring revenue for the Q4? I know you're not going to provide the ARPU going forward and you're going to shift to that metric.

Did you say what it was?

Yes, so George this is Dan, on the end recurring revenue, that's $16.7 million as of the end of the year, and then on the buyback our window will open in a couple days and at that point the buyback will commence. But we are planning on doing it through a 10b-5 plan, so that may take a few days to get put in place.

Got it. Thank you very much.

Thank you, this concludes our question-answer session. I would now like to turn the call back to Luke Larson, President of TASER International for a closing comment.

Thank you for calling in today. We are really pleased with the 2015 results and looking forward to a great 2016. Thank you.

Ladies and gentlemen, this does conclude today's program and you may all disconnect. Everybody have a wonderful day.