Axon Enterprise Inc (AXON) 2014 Q3 法說會逐字稿

Good day ladies and gentlemen and welcome to the TASER International Q3 2014 earnings conference call.

(Operator Instructions). As a reminder this call is being recorded.

I would now like to turn the call over to Mr. Rick Smith, Chief Executive Officer. Sir, the floor is yours.

Thank you and good morning to everyone. Welcome to TASER International's third quarter 2014 earnings conference call. And before we get started, we're going to start with everyone's favorite part with Dan Behrendt reading our Safe Harbor statement.

Thank you Rick. So the safe harbor statements, statements made on today's call will include forward-looking statements including statements regarding our expectations, beliefs, intentions and 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 only speak as of the date to 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 on our Annual Report on Form 10-K for the year ended December 31, 2013, under the caption, Risk Factors. You may find both of these filings, as well as our other SEC filings on our website at www.TASER.com.

And with that, I will turn it back over to Rick.

Thanks Dan. As a reminder we're going to be accepting some questions via Twitter during the Q&A portion of the call, which can be submitted using the hash tag TASR_EARNINGS. To follow our updates on Twitter during the call, which you will want to do, we'll be posting various graphics. Follow the account @TASER_IR, that's @TASER_IR. So we'll be posting graphics and commentary and links to some videos throughout the call. And for those of you without Twitter, all updates and graphics stream directly to our Investor Relations website, investor.TASER.com.

The third quarter of 2014 was a busy one here at TASER and I am personally excited to share some of the progress and milestones reached during the quarter. First off, consolidated revenue grew 26% year-over-year to $44.3 million, yet another new record for the company. This marks the 11th consecutive quarter of year-over-year top line double-digit growth. We continue to work hard to aggressively grow the top line and we're eager to continue to share our progress and success through the remainder of the year and into 2015.

The EVIDENCE.com and video business realized another quarter of increasing momentum and exciting announcements which culminated in a strong looking figure of $15.3 million. And we hit the milestone of selling over 100,000 into the field today including AXON and our TASER CAMs.

In the macro environment, it's ever more clear that we are at a tipping point for this technology in law enforcement. The unfortunate events of Ferguson put a bright spotlight on the issue for on-officer cameras both within communities and in law enforcement. I believe there has never been a more singular point in time for on-officer cameras that has caused such a fundamental shift in customer attitude.

Inquiries increased 10 fold, our video pipeline is the largest that's ever been RPs have more than doubled compared to the last year for video specific [bids]. We feel that Ferguson switched the light on for some officers eliminating some of the resistance remaining to the adoption of this technology. And perhaps the most striking example of this shift in adoption comes from the Seattle Police Union.

A few years ago, the Seattle union has taken a strong stand against wearable video. After Ferguson the president of the union said that they now support wearable cameras to protect their officers.

It's interesting if you compare the adoption for this technology with the beginning of our TASER weapons business so many years ago. TASER weapon implementation was initially pushed by frontline officers. It was typically met with initial top down resistance to change and the potential for controversy.

With on-officer video we now also have officers asking for the technology in order to protect themselves while on duty. In fact some of the were buying these units personally. And we also have broad external support from the community including groups like the ACLU for more accountability by police.

Further, these have very high return on investment for the agency as a result of fewer citizen complains and reduction in the use of force. In one example, the now famous Rialto PD study estimated that they saved $400,000 in hard cost just from the reduction in complaints once they deployed cameras. Their first year cost for the program were $90,000 yielding over a 300% return on investment in the first year. In other words the agency saved $4 for every dollar they spend.

Further, I just sat on the panel with the chief of Rialto at the IACP which is the International Association of Chiefs of Police at the conference, I sat with the chief. And he said that they realized another big savings, before cameras they had three people dedicated full time to internal affairs. Now they have so few complaints he only needs one officer, so he's been able to redeploy the other two officers to do police work. This equates to another approximately $380,000 in savings per year.

And we've also seen that overtime for officers going to court to testify dropped by 41%. We can't yet quantify with that in dollar terms but hopefully by our next call we'll have some estimates. If we add up the numbers the first year ROI starts to reach incredible levels.

We have now three forces pushing for the adoption of video. Police officers, the community and the return on investment. The largest agencies are continuing to choose our solution, AXON and EVIDENCE.com to address this seismic shift in law enforcement.

As of the third quarter we had 11 major cities actively deployed and another 35 in some form of pilot program, that is nearly triple the number of major cities in pilot from what we discussed last quarter. We are very confident that these trials are going well.

Large cities who deployed cameras in previous quarters are standing in their programs. For example Salt Lake City, Birmingham, have decided to manage all their digital leverage not just from AXON cameras but everything on EVIDENCE.com. And Miami Beach have a strong conviction about the benefits of this cameras that they purchase AXON cameras for multiple departments within the city including their fire department, building inspectors, and parking attendants.

These expansion prove the concept of EVIDENCE.com with the digital evidence and management platform and we look forward to integrating more agencies in the future. We're often asked about the benefits of our solution versus our competitors in this space. To our knowledge we are the only proven scalable end to end solution in the market place today which is why we're winning these large agencies.

Birmingham is a great example, like Albuquerque of a turnaround story, they initially went with a competitor of ours but it was not scalable or robust. They came back to TASER and clearly become our advocate with the expansion to all digital evidence.

The 3,700 agencies who are choosing EVIDENCE.com as of the third quarter are doing so because of the end to end solution. And extraordinary customer support experience they get from TASER. By the way, just to be clear those 3,700 agencies include agencies that are using the full EVIDENCE.com with AXON cameras as well as [EVIDENCE Light] for managing their TASER CEW weapons.

EVIDENCE.com received a new file upload every six seconds during the third quarter, culminating in a total of 1.3 million files uploaded thus far in EVIDENCE.com. If you take a look at the graph we're tweeting out right now, the mathematicians among you will notice it is still resembling a smooth exponential curve.

In 2014 approximately 75,000, I'm sorry, approximately 75% of camera sold included an EVIDENCE.com contract initially. So 75% of cameras are sold online. Further other cameras have come online that were initially purchased as offline units. Birmingham is a great example of this, that's the beauty of our system, it is easy as flipping the switch for our customer should they change their mind and deicide to utilize EVIDENCE.com.

Additionally in the third quarter bookings over 87% of contracts were for multiple years. To us this is a fabulous time, not only do agencies understand the value proposition of EVIDENCE.com but [excedence] of the technology and the solution that is here to stay. And that TASER is the right partner for long-term success in new technology implementation.

Thank you, one of our standout benefits, the competitive differentiators, TASER will not allow a customer to fail. We provide the best support in the industry consistently for our customer, our program scale, because of the solution and because of the people behind it.

We're also innovating to develop the most requested features from our customer, last week we announced AXON signal, a Bluetooth add-in that will turn all cameras within a certain radius on with the activation of a police light bar from their car or when a TASER weapon is armed. A unique feature that only TASER could offer.

This feature will be available on AXON Flex cameras starting in the first quarter of 2015 and it's a feature that can be added to previously purchased cameras for a small additional cost. I just returned from the International Association of Chiefs of Police, it was by far the most successful show of my career. There was so much traffic to our booth, we overheard other exhibitors complain why, is this show just all about TASER.

Our theme this year was don't be a dinosaur, we wanted to drive the conversation about the need to adapt the change, particular to adapt the new technology, like the internet, cloud and wearables. There was a line around our booth for two solid days and we estimate around 3,000 attendees. Primarily police chiefs went through the TASER experience.

Many who had came to our show were absolutely energize to help drive change of their agencies and they see TASER and EVIDENCE.com as the key partner to drive that change. To ensure we cap the don't be a dinosaur topic on top of every conversation we have two life size velociraptors walking the show floor all day. And we took them to some key events such as the major city chief of police reception.

And I can tell you, everyone was talking about why we had the dinosaurs roaming the reception. And to place the seed for the exact conversation that we wanted to occur specially among our current customers educating new prospects on the great experience that they are having with EVIDENCE.com. Our dinosaurs even made a guest appearance at the TASER party with another 3,000 plus attendees talking about dinosaurs.

As they had talked about the dinosaurs within their own agencies, exactly the conversation we need to have. And that helped entice people to come through our presentation, we gave away large oversized stuffed dinosaurs. 2,000 people received the EVIDENCE.com dinosaur and everyone of which was a mobile billboard for us to saturate the show floor.

These dinosaurs were too big to stick in a bag so when you carried it you are advertising for us, you'll have a chance to see later on when we tweet out some videos from the show just how impactful this program was. And these dinosaurs will go home to kids and grandkids keeping the don't be a dinosaur campaign alive long after the show was over. I cannot put into words how proud I am of our marketing team for the work they did this week. I think it was the most impactful marketing campaign in the history of law enforcement and certainly the most creative campaign I've ever been involved with.

Last year we set the objective to establish dominant market share and to do what it takes to avoid market fragmentation. We increased our investments and our team has executed rigorously, we have won every major agency that has made the purchase decision in the past year. If we continue this momentum with the 35 major cities that are in some form of trial with us today, it is conceivable that we could have 46 of the 66 major cities or 70% of them on EVIDENCE.com by the end of 2015.

This would establish EVIDENCE.com as nearly undisputable market leader. The smaller agencies will typically call the larger ones which drive standards regionally. We will continue to aggressively invest expanding our sales team, our marketing programs and our product development to maximize our chances to succeed in this mission. And we believe these investments will be as fruitful as investments we made in 2013 that are yielding the results we now enjoy.

Following the Ferguson incident body cameras were everywhere at IACP, one of our people joked that even the hotdog vendor had a cameras to sell. But what we heard over and over from our customers was that no one there had the proven scalable end to end system that we have spent six years developing with EVIDENCE.com. Others will try to follow, but those starting to make investments now will have an enormous mountain to climb to catch-up because we've invested the time, capital, and the talent in the industry years ago to establish a wide advantage upon which we're now building aggressively.

In addition the fantastic momentum we're seeing in our video and cloud business the TASER weapons business continues to execute with strong results. Our revenues were up 26.5%, the $40.0 million. Gross margins for weapons were epic as 68.9% from the third quarter. Domestic weapon sales increased 20% year-over-year, the upgrade of smart weapons within the weapon segment is progressing.

As of the third quarter we have 40 major cities with significant number of smarts weapon deployed. We're able to add Dallas and Houston to that list this quarter. In third quarter there were several large orders that are actually expected to close in the fourth quarter, we brought them forward.

So as we previously mentioned we have 10 to 12 deals a quarter which over $250,000 and we have approximately 4,500 orders total in each quarters. If these large deals shifted in one quarter, it can cause lumpiness into the business. So while the lumpiness was favorable for the third quarter it could potentially have the opposite effect in future quarters.

Our sales team executed flawlessly this quarter, brought in several deals from fourth quarter into the third, which of could cause a bit of lumpiness in the next quarter in both revenue and potentially in bookings. Now on the other hand we are working with some very large international deals which could come in during the fourth quarter.

Internationally there was some great wins as well, in total revenues were $6.7 million, internationally in the third quarter, an increase of 81.6% compared to prior year. In fact year to date 2014 international revenue has surpassed all of 2013. Notable to mention in the quarter international included the sales of smart weapons into Poland for the first time, thereby opening a new market for TASER. A smart weapon expansion in France and Australia and we saw the level London Met double their infield pilot camera program bringing the total up to a 1,000 units with what is arguably the most influential agency in the world and certainly outside of the U.S..

Our international headquarters in Amsterdam is in the process of setting up, [Ron Brandon's] team are busy hiring incremental sales and administrative staff to help run this business which we are confident continue to grow stronger over time. We continue to be excited about the direction of TASER and EVIDENCE.com and look forward to more success in the coming quarters.

Now I'll hand over to Dan to go over the financial results in more detail.

Thank you. As we said earlier in the third quarter consolidated sales of 44.3 million represent 26% increase from the third quarter of 2013. The increase in sales was primarily driven by the total law enforcement weapon handle sales which increased $6.9 million in the third quarter compared to the prior year.

AXON camera revenues increased $1.2 million compared to the prior year and service revenue on the video segment increased $0.7 million to $1.2 million in the third quarter compared to the prior year. The legacy X26 see a bit of decline $4.3 million in the third quarter as a results of agencies embracing the new smart weapon platform.

As we messaged at the last quarter's call, at the end of the fourth quarter, the X26e which is the legacy product, it will be going out of production. While we still support warrantied handles, we will start focusing solely on the smart weapon platform going into 2015. The new single shot smart weapon, the X26p, saw sales increased $8.1 million over the third quarter of 2013 which is the main reason total law enforcement handle sales grew by 6.7 million when compared to the prior year.

Gross margin for the third quarter was $28.7 million or 64.7% of revenue which is up from $22.1 million or 62.8% in the prior year. As sales have increased we continue to benefit from higher operating leverage. Due to the price increase instituted in the beginning of 2014 and more sales being sold directly to the end users rather than through a distribution channels, we've also realized higher [ASP] on our product improving gross margin.

Cost of services delivered increased $0.2 million in the third quarter compared to the prior year, primarily due to the increased personnel and travel cost associated with our professional services team. Cloud storage and hosting fees also increased compared to the prior year as more data and files are uploaded into EVIDENCE.com. Gross margin in the TASER weapon business were specially strong, with gross margins as percent to revenue in the third quarter of 2014 being 68.9% compared to gross margins of 65.5% in the third quarter of 2014.

And EVIDENCE.com, the video segment, revenues increased $0.8 million to $4.3 million for the third quarter of 2014. Lost from operations of EVIDENCE.com video segment worsened to $4 million from a loss of $1.5 million in the third quarter of 2013 largely due to the increase investment in research and development activities and an additional sales representatives and marketing expenses for AXON and EVIDENCE.com.

Investment in sales marketing are continuing to yield results as evidenced by our current customer acquisition cost, lifetime value of the customer ratio. This statistics looks at sales and marketing cost in the quarter divided by a number of new seats acquired in the quarter. And then we compare this to the net present value, future gross margins for that customer.

And in the third quarter the video business had results where the customer acquisition cost and lifetime value ratio is greater than three. As a general rule of thump when you have investments - when you have that ratio above three it indicates that we're getting a lot of leverage out of our sales and marketing and it's good indication that, you know, increase the investment warranted in the future.

SG&A expenses of $12.4 million and $12.3 million for the three months ended June 30th 2014 and 2013 respectively, represented a decrease of $0.4 million for this year or 2.6%. As presented in that sale as gen expenses decrease to 28.1% for the third quarter compared to 36.3% for the third quarter of 2013. Compared to the prior year professional account and legal fees and litigation expenses decreased $2.8 million driving primarily by lower cost of defense related product in partial litigation, that's the major drivers for the reduction year-over-year.

Liability insurance also decreased by [$1.3] million compared to the prior year due to a favorable rate changes in the insurance, these decreases were partially offset by increased personnel cost of $1.2 million. The company has increased customer facing positions as well as some other administrative functions. We expect to see elevated SG&A expense to continue into the fourth quarter due to the timing of the International Association of Chiefs of Police show that Rick mentioned earlier.

That show typically has an investment of roughly $600,000 for us last year, that expense was divided between Q3 and Q4, this year all that expense will be in Q4. So we do expect to see elevated spending in Q4 due to the show as well as additional incremental investment we're making in SG&A. We expect the higher SG&A cost to continue into 2015 as we continue to hire people and in our sales and marketing activities in order to drive the business.

Research and development expenses of $3.8 million for the third quarter of 2014, this represents an increase of $1.3 million compare to the third quarter of 2013. The increase continues to be primarily due to the additional personnel cost relating to our EVIDENCE.com and video segment development initiatives. As the team begins development initiatives the expense will be capitalized until the product launches.

However, given the newness of this initiative the company cannot be certain of the timing of the capitalization or the completion of the development projects and without capitalizing any expense in Q3. The current plan to hire and other research investment in EVIDENCE.com, the video segment, we continue to expect R&D expenses to increase from these levels. We're finding that a larger customers such as the one that require additional functionality in our EVIDENCE.com solution which is the way to develop and launch some of the new product launch. We believe that insuring that major cities utilizing our solution has the best experience possible, we continue to solidify the position in the market.

Adjusted EBITDA which includes items such as detail in the press release was $15.1 million in the third quarter of 2014, this compares to 9 million on the third quarter of 2013, with the increase driven by the higher sales and gross margins in 2014. Income from operation was $12.5 million in the third quarter of 2013 compared to $6.9 million in the third quarter of 2013. As percent to sales operating income was 28.2% in 2014 compare to 19.5% in the third quarter of 2013.

With the increase mostly due to higher gross margins on higher sales in the Q3 of 2014. The income for the third quartet of 2014 was $7.6 million or $0.14 on both the basic diluted share basis compared to net income of $5.1 million or $0.10 per diluted share last year.

So moving on to balance sheet, we finished the quarter with the company generated $16.7 million of operating cash flow which led to finishing the quarter with $74 million in cash, cash equivalence in investments. Account receivable for the end of the quarter is $27.1 million, this is a $4.6 million from the year end balances due to the timing of collections as well as the higher sales in the quarter.

And the inventory balances of $16.1 million is actually up $5 million from the prior year due to increase stocks of both our materials and finished goods anticipation of future sales. Total assets as of September 30, 2014 were $164.1 million. Total differed revenue for the quarter was $30 million, this is the increase of $9.8 million from the yearend balances primarily due to the upgrade program of the X26 and X2 which include extended warranty. We also have sales of EVIDENCE.com solution which contributed $2.8 million in increase in deferred revenue from prior balances. As you know we have deferring revenue related to EVIDENCE.com service at the time of the purchase so the service revenue is being recognize over the service period which is between one to five years depending on the sales agreement.

Also contributing to the increase in deferred revenue is the TASER insurance plan which has increased the balance by year end by $2.6 million as customers continue to embrace the program from both weapons at AXON cameras. Total liabilities of $46.1 million at the quarter - the company finished the quarter with a $180 million in stockholder equity. The company continues to have no long-term debt other than some small capital lease on the balance sheet. We continue to have plenty of liquidity and a strong cash flow engine, our purpose is to fund our sales R&D efforts and operations into the future.

Moving on to the selected information from cash flows the company had cash providers from operations of $ 22.6 million for the first time in 2014. This compares - the company paid approximately $4.5 million year-to-date on several litigation cases including the [AA] and [Saba] consultants. [bank versus TASER] which was a negative cash flow, the operated cash flow were then higher with out those expenses.

Net cash used and the investing activities for the nine months ended September 30, 2014 was $17.1 million compared to cash used of $13.2 million in the same period prior year. The net use of cash is driven by the net purchases of investment during the time period of $23.8 million. Cash use and finance activities was $9.3 million for the first nine months of 2014 compared to the cash use in finance activity of $11 million in the same period of prior year. The net use of cash was really driven by the repurchase of company stock of $22.4 million for approximately $1.7 million, I'm sorry, 1.7 million shares partially offset by proceeds from employee stock option exercises, 8.6 million an excess tax benefit from stock based compensation of $5.8 million.

To wrap up we're continuing to invest in the business because we're serious by executing our strategy of providing top line double digit growth consistently. The deals of this investment are necessary to continue to solidify our market position in the video business, investigate and develop adjacent revenue producing opportunities and continue to grow internationally so we can provide long-term value for all the shareholders.

OK, with that, there's two other things I want to mention that I failed to in my segment. But first some of you might have noticed that during the IACP we launched the EVIDENCE.com partner platform program with three launch partners, a drone company, AeroVironment iRobot and Net Transcripts. We stood up a business development function this year and I can tell you we were frankly overwhelmed with inquiries from companies that want to come in partner with.

I think it is main stay in the industry that do we have the strongest brand and then the platform is the core platform by a fairly large margin. So we see partnering is a way to further solidify the power, the stickiness, and the momentum of EVIDENCE.com.

And probably, I'll point out as well, our party at IACP was the retirement party for the X26. So again our creative team did a great job, we have small [rose to sendoff for the X26 thanking it] for its dozen years of service in the field which is the fun and a cheap way to sort of remind the market that the X26 goes out of production at the end of this year and help customers transition to our newest smart weapon platform.

And so with that we'll transition and we'll take a few question.

Ladies and gentlemen, if you have a question over the phone at this time, that's star and then the number one key on your touchtone telephone. If your question has been answered or you would like to remove yourself from the queue press the pound key. Once again to ask a question that's star then the number one .

Our first question comes from the line [Paul Kosher] of JP Morgan. You line is now open, please proceed with your question.

Yes, good morning, this is [Mark Strauss] on for Paul. Thanks for taking our questions.

Just looking at the EVIDENCE.com bookings, was there anything, any particularly large orders that are worth calling out. I'm just thinking about next quarter and if there's anything from this quarter it would be a tough call for 2014.

Thanks Mark this is Dan. As Rick indicated earlier we certainly are sales team executed flawlessly this quarter and really there's a number of deals we're able to pull forward. You know, individually they weren't, you know, saying sort of the order of magnitude like the San Diego deal last quarter but collectively they were, you know, as they are bigger than the San Diego deal, we have a number of million deals that we close this quarter.

So there's some lumpiness obviously we're going to continue to execute hard as Rick said the pipeline for the video, you know, it continues to be very strong in fact it increased from the last time we talk and continues to be larger than the CEW pipeline. But, you know, it's tough to predict, you know, exactly when those orders will happen but certainly very happy with the results this quarter.

OK, and switching to weapons, I know you guys don't give guidance so this may not be a fair question. But is there anyway to quantify for us the amounts of orders that were pulled forward into 3Q kind of what the whole is in 4Q.

I mean, that's a tough one, again we close the quarter very strong with, you know, sales team executing both in the federal space for some of the yearend moneys that we're able to pull forward and get into Q3 which was useful as well as, you know, a couple of the transactions, you know, the Dallas deals, a deal that could have easily done in the fourth quarter. Kind of a lease deal that we did, you know, it's kind of nip and tuck there at the end, that was a deal for about $2.5 million to $3 million.

So there's certainly, you know, I think that, you know, they executed well and I was very please we're very pleased with the way they executed the quarter. So certainly we had both between the large federal deal and Dallas want to call on particular easy deals that could have been fourth quarter deals.

OK. And one last one if I can, just any thoughts on potentially updating the long-term targets or you're maybe hosting another analyst day?

That's a good question, that's certainly something that, you know, we're looking at, you know, as you can see the things are very much in flux right now, you know, in a positive way. And, you know, we want to make sure that we got, you know, plenty of flexibility to continue to make the investments which we think will payoff long-term for our investors but makes it a little bit tougher to predict certainly down to the net income level with the investment we're making. But we'll continue to look at that, you know, we like, you know, we certainly like to do that and have another analyst day maybe sometime in 2015. But, you know, we'll certainly update you once we're ready to do that.

OK, thank you very much. Congrats on the quarter.

Thank you.

Our next question comes from the line of Greg McKinley with Dougherty & Company. Your line is now open. Please proceed with the question.

Yes, thank you. I wanted to I guess touch on a couple of different topics. First of all, Rick, you talked about international operations, can you maybe just summarize for us what your infrastructure is in international markets where you see that going? And then maybe what are some of the most attractive market opportunity that you think that we'll capitalize on.

OK, well, let me start. So the epicenter is now moving to Amsterdam, that's where [Ron Brand] and his team were based in Amsterdam. I would say we probably have around 8 employees today that are probably growing to 12 to 15 next year as we add international controller et cetera. There are some tax advantages to operate out of Holland so obviously we see that as a - we did a pretty [thorough] review on where may it made the most sense for us to be looking that implications as well as operational implications, one that would be right hard close to the heart of Europe there.

Just as our largest scene international, in Brazil we got a team I think of about five people in Brazil, we're still working to try to get approval from the army to be able to start manufacturing, our contract to manufacture and reenter the Brazil on the weapon side. In the mean time we have some of the largest agencies in Brazil are now in (inaudible) . With AXON and EVIDENCE.com we're able to deploy from Amazon data center in Sao Paulo.

So those are going well so even while the weapons approval has taken much longer that we would have hoped, we are seeing that the camera business down there can be very interesting. We have couple of individuals in other parts of the globe that frankly as we look at 2015 we're just going into our budgeting process now. We've significantly ramp up our investments, international sales and marketing.

And frankly as we look at history we've done well in the English speaking countries, in the U.K., Australia and New Zealand and not as strong elsewhere. So, you know, I think we realized late last year that if we're going to do the truly international we got to get aid more internationally and provide the source of investment and infrastructure to our international customers. And we'll we here, we'll begin internationalizing all of our website in terms of language.

We hired a European observing guide, not just an American we transplanted overseas. Lets say three years ago international sales plan was largely send Americans around the world, you know, senior executives, they'll make presentations, but I don't think we're strong in having scenes on the ground to follow-up and drive the ball down the field. That is changing now and we see a lot of opportunities to drive more growth next year. So you will see some more investments in international as we build out both the team in Europe and I think you'll see investments and putting more structure in larger team in Asia.

OK, thank you, that's helpful. And then one of - on the bookings side within your video business and maybe can you - and Dan you also talked about deferred revenue, can you remind us how much deferred revenue is on the balance sheet today as it relates to EVIDENCE.com? And can you talk about a backlog number, how much is - how much has been already recognized for software and service revenue, how much in backlog just to give us a sense for how that's aggregating?

Yes, you know, it's certainly - yes, we've seen a significant growth, you know, this quarter was almost 3 million of deferred revenue growth just for the video business on top of what was already on the balance sheet. We'll have that in the queue so...

$3 million sequential increase?

Yes, sequential increase. I'll get you that total hopefully by the end o the call here. We got somebody looking to follow out of the queue. You know, we certainly see, it's about - it's almost about $7 million on the balance sheet right now for the revenue for the video business. You know, again that balance would be partly driven by how much cash we received so our, you know, future billing are actually significantly higher than that, you know, this year we had, you know, $32.5 million of bookings, the amount of cash, you know, not the billing, it's a fraction, it's probably about maybe $10 million of billing. So even, you know, this future $22.5 million of future billing, it will be done in subsequent years.

You know, most of the customers with multiyear deals will still prefer to pay for the product annually. So it doesn't create a large revenue but it does create a sort of large future billing amount.

OK, thank you, that's helpful. And then regarding, you know, regarding the EVIDENCE.com product itself and the AXON hardware, I know you've already, you know, recently announced new features on the AXON camera to link it back to, you know, [squad car], you know, turn on the camera remotely. How frequently do you anticipate new features being introduced and is there a long life cycle to be able to get new features into the camera if needed?

You know, I think, you know, I say one of the things that is unique, you know, for TASER and really our competitive advantage is our ability to do a lot of the voice customer research. Customers, you know, we have a really good relationship with customers, they are very open with us as far as features that they desire. Our marketing team and R&D team really does a really good job of, you know, helping customers prioritize the features so we work on the things that are most important to them and we work on those things first and the things that have the most universal need.

So, you know, I think the, you know, a lot of what the team is working on today has been sort of additional feature in EVIDENCE.com that specially for the larger customers that make it more efficient for them to rollout the product make their use of the product more efficient. And again, it create a competitive advantage because these are advance features that are for competition to replicate. And I think it's a big reason why we're waiting for the large deals, talk about, you know, being the only scalable. And then solution part of that scalability is having advance features that make large customers make their experience in our system, you know, excellent and make some reference customer going forward for other big customers, you know, that allows them fully [introduce us] as well.

One of the thing that I would point out is I believe every major deal we've signed was on our ultimate plan, at least the vast majority of them were. And our ultimate plan is where we bundle in and included upgrade every two and a half to three years. So for our customer they love that, we take the risk out of it.

For let's say, " Look, as you get on this plan, you know, you don't have to worry about are you going to be obsolete when the next camera comes out. We can have you on a regular upgrade cycle." And I think frankly that's something uniquely TASER could do with some of our smaller competitors that obviously there's a lot of noise out there, a lot of paper where, you know, the competitors have memorized our product specification to like a comical detail.

But the fact is, you know, customers is not going to get on effectively with a prepaid plan with some company they don't think is going to be here on the year two. I think stability, the type of relationship we have at TASER allows us this relationship and take that risk off the table for our customers. And that's something that is not replicable.

OK, thank you. Nice quarter.

Thank you.

Our next question comes from the line of Steve Dyer of Craig-Hallum Capital Group. Your line is now open. Please proceed with the question.

It's actually Greg Palm on for Steve, congrats on the fantastic results.

Thank you.

I was wondering if you could go into some detail on the bookings number, obviously a big jump sequentially and I'm sure Ferguson had something to do with that? But, you know, can you talk about the cadence of those orders received, you know, obviously results will be lumpy on a quarterly basis going forward. But, you know, given the active deployment and pilots you guys have talked about, kind of what the right level to think about going forward?

First of all let me just say Ferguson had very little to do with the bookings number this quarter. Our customers don't buy in 30 day cycles. Ferguson drove a big shift in inquiries in new trials but we will see the effects of Ferguson in the booking number for another quarter or two. Dan.

Yes, I agree wit that. I think, you know, as I indicated before, you know, earlier on the call, I mean, we have a number of million dollar deals this quarter which I think is really encouraging, the quarter is not dependent on a single deal. Last quarter we have a pretty good percent of the total quarter of bookings where, you know, one transactions.

So, you know, having a number sort of million dollar, you know, size deals I think is useful. You know, certainly on a go forward basis as Rick indicated in his comments earlier, I think there's certainly some lumpiness, it makes tough to predict but we're still very good about the macro environment, we think, you know, continue to win the vast, vast majority of any competitive situation we're in. So, you know, the faster the market, the faster the bookings will grow. But we are at a number of outside influence here as well.

And one other anecdote here about the Ferguson incident, you know, we did have a number of agencies in that area obviously they call us up and say hey we want to get cameras out fast. We're able to deploy I think 70 or 80 cameras at one agency wanted them in a matter of days. And what I heard back, you know, from our team that was out there is that while they were there and one of this agency, one of the competitors also has some product error and the agency couldn't get it to work.

So that's again one of our advantage, this thing scales, we got, you know, in the tens of thousands of cameras, 100,000 total in the field, there's thousands and thousands of camera online and our business processes continue to get more and more streamline so we can bring cameras online faster and earlier for the customer and we believe that those competitive advantage. We have the opportunity to widen the gulf for the position we're at now.

And it's like the one we hard about the agency struggling. You know, it's usually competitors throw lots and lots of features and trying to compete. You know, this stuff is hard to do well, it takes really great engineers and a lot of work and a lot of rigor. And, you know, and a lot of folks trying to do this, we don't see they have the resources and talent and time frankly to be able to do something competitive while the market is forming here.

That's helpful. Moving on to weapons business and I'm sorry if I missed this. But you guys are obviously end of life in the X26 this year, can you talk about the impact on that, what that had on Q3 results if any and then kind of what kind of impact it has going forward on the upgrade cycle for the next couple of quarters?

We certainly - this is Dan. Certainly historically when we end of life the X26 it's certainly help customers that are sort of waiting or on the fence for an upgrade, it help to sort of drive adoption. You know, that gave them sort of one more data points to use with their say the [calculus] as they try to get capital money to buy new weapons. They say like our weapons are so old, they're not supported by manufacture anymore, we think that will be a useful fact for them to have in their argument of why they need to upgrade.

And certainly we think by end of life the X26, you now, they could help to continue to drive the upgrade cycle and start to quantify exactly how much, you know, how big impact it's having at any given quarter. But certainly we know from sort of historically that it is useful and it gives, you know, customer to look at are new products, we think candidly the new smart weapons platform has, you know, have some significant advantages over the legacy products. And by no longer supporting the legacy product it forces customers to take a look at the new products which hopefully will help drive the cycle as well to upgrade.

And then last one, you know, maybe if you take a step back and then kind of compare what's going on with the video segment now. And, you know, think back to maybe what your expectation were like a year ago. You know, what has changed, what's different from your initial thoughts, whether it would be accelerated adoption, take rates, use rate, I know the Ferguson event had probably had a pretty significant effect. But, you know, just trying to get a sense on how things are ramping compared to your initial thoughts.

I think we're very please with the way we are right now. I would say that, you know, a couple of things that we find really encouraging, one is that 87% of the deals this quarter were multiyear deals. That to me is just amazing statistics, it shows confidence on our customers to continue execute, it shows confidence that the solution is something that they're going to need long-term, this isn't a one year and we'll figure our a year if we really need it. They get it, you know, I think our sales team has done a great job of helping our customers understand, you know, the complexities of trying to manage this on their own without a robust solution behind them.

So the fact that we're seeing, you know, 75% of the camera sold this quarter were online meaning they bought subscription to EVIDENCE.com and then 87% of bought like multiyear deals. I think we're very encouraged by both of those statistics and we feel, you know, compared to our expectation I'd say we're very pleased in, you know, meeting it or even exceeding our expectations at this point.

Well, I'll add to this as well, look, we're feeling phenomenal right now. Five years ago when we started on this path lots of people thought we were crazy, cops, you know, a lot of people said cops aren't going wear cameras, big brother. I mean, we had police use the overwhelming feedback, we'll never put our data outside of the four walls of the agency and in the cloud. And frankly a lot of people thought we were kind of crazy.

And we went through some dark years there, it's hard to transform the business, this has not been an easy transformation, what we build was intense from a capital perspective, from an effort in engineering perspective. And we went through some dark days, you know, it was about two years ago we had folks in the company asking us, hey, is this time to shut things down, is this thing ever going to scale.

Well, I think we have that answer now, and the great news is when you can see what's coming when the rest of the world doesn't see it yet, you know, that can setup for a great advantage. And so everybody - what everybody thought was crazy five years ago is now accepted as inevitable and we are well positioned. And I like to thank our shareholders, some of you guys have stuck with us through those dark days and through the years where we, you know, bounce around break even to get this done.

And I got to tell you, it feels great right now to have the validation of the market and the validation of the customers. And we are running hard and we're going to own this thing. And, you know, we feel like we - much like the taste of business, we created it from nothing. And, you know, we're going to run hard and I think we could win this, we could run the table, we're winning every major city right now and I think, you now, we may have a couple of blips along the way, things aren't always sunny and challenge free but you know, as we see a few years ago, this could be a very competitive place, there's lots of cameras, people can do software.

But this also have some aspect where if a true market leader emerges there would be a lot of momentum for people to consolidate around that market leader, and we got a shot at it, it's not in the bag. But in another year or two we could have this really doubted and lockup. And this business is materially more valuable that we are the dominant industry standard than if we are just one of several in the market fragments.

So we set the message before and we'll repeat it again and that is a battle cry for our employees and frankly for our investors. We know that you guys aren't always delighted when you say hey we're going to invest more as we get this done. But when you see the sort of growth possibilities, so when Dan talked about that customer acquisition, the long term value number, to me that's a super conservative approach because we're just modeling in the customer value with our current products today.

Every customer that we're in, we have opportunities to expand with future products with additional premium add-ons. If we started modeling that, the number increases even further. But of course as investors we want to be conservative. But in case you can't tell, I'm feeling great, and the wins in our back and this is not the time for us to relax and let up, it's time to go for the kill.

Thanks again for the insight and congrats again.

Thank you.

Our next question comes from the line of [Glen Madison] with [Ladenburg Feldman]. Your line is now open. Please proceed with you question.

Yes, hi good morning everybody. So I guess keeping on that same thing - same theme, it's nice to see the uptake in new services by some of the other agencies like Salt Lake City and Birmingham. The fire and building department in Miami, curious if those extended use cases are being brought up in other cities. But then also I think we've spoken on the past about next year 2015 you guys started to potentially release some new product down that EVIDENCE.com sales channel and I was curious how that process is coming along. But also is it customer feedback, is it things that they're asking for and requesting that's driving the new product development there or is it things that you guys think that the market needs that they don't know they need yet. So any thoughts on that?

So this is Rick I'll comment on that. The introduction of sort of completely new product is likely delayed. I would say we made resourcing decisions for example deploying in England with the London Met, you know, that required some significant work to get that done because we couldn't use Amazon web services long-term, we have to deploy on a local provider that match certain requirements within the U.K.. So as we look at it we have to make some prioritization decisions where it said, you know what, we got to win every big deal that's coming across to the table right now and so we've invest a little more heavily and we redeployed some of our engineering resources on making sure.

So our number of priority is win every big deal and right behind that we make everyone of those customers ecstatic, we have a successful program that they're bragging about that it's going so well. Now it requires a lot of support.

And the reason we'll do that is two fold, these guys all talk to each other that's going to impact the next deal and then frankly that's setting the stage for when we want to come in with our next products and services, some of which are going to displace in the common system they've got. Customer [sat] is typically very low at law enforcement agencies with their existing systems, we think our customer [sat] is like the secrete weapon that will enable us to come in with the next generation product as we expand out from our [product].

So, you know, we're doing obviously what we feel is the right thing from a discipline perspective to make sure that we have the current business opportunity under control stable scaling and working and not overextend ourselves, we need to do something else too soon without taking resources off of the opportunity at hand. Dan anything you want to add on that?

No, you hit that perfectly, that's great. I think the only thing I would add is you had a question about sort of digital evidence management and, you know, examples like Salt Lake I would say that's definitely something our sales team, you know, reinforces with all the customers. We've engineered the system to be a digital management solution for all the digital evidence not just our video.

So having customers like Salt Lake and store our other digital evidence in there I think, you know, makes them referenceable for other customers consider using our product for everything and having all their evidence in one place from a digital perspective. I think that's, you know, I think that's a, you know, one more value proposition we offer, we got good workflow for other products. So and, you now, some of the partnership stuff will work out and will certainly allow for other things to be loaded in the system and have all the digital evidence in one place.

One other thing I like to add, I missed answering the second part of your question which is are we developing thins that customer are asking for, are we going to sneak up on things that the don't know they need. We sort of learned our lesson many year ago about trying to sneak up on our customers, you know, with things that we haven't gotten their feedback on. You know, we always tend to do that, again, so you're not going to see something come out on the left field that, you know, is totally out of the blue that we hope law enforcement would like.

The engineering team when we acquire last year, they spent four months in the field on ride along with customer going to swap call out on dispatch centers. So it's not just giving products but engineer are in the field with cops painting their feedback into what they need and those are the things we're building so it's a very customers driven approach it is not, you know, an internal engineering driven approach on all products and services.

Yes ,that's great, I think the X26p was a good example of how you guys have moved towards the listening to the customers and what a success that product has been. But...

The X3 is still my favorite TASER, we've ever made, I put that one by my bedside. Unfortunately I'm sort of alone in that perspective and we don't want to have another one of those. So we're going to make sure it's right for the customer not right for us.

Right. Quick from Dan, you mentioned the inventory rise due to some, you know, potential like a new sales or kind of how you see the sales kind of plan out. I guess the inventory rise if its mostly related to weapons, would, you know, equate to revenue number, you know, just looking at the year-over-year comparison. So something to flat just slightly up in Q4 sequentially. I'm curious about how the policy is, I know it's a lot of book and ship business within the quarter so what kind of look do you get ahead of time that gives your confidence to build that inventory.

Yes, I mean, one of the things for that, you know, that makes it a little bit easier is we don't have a proliferation skews as TASER. So it makes a little bit easier to go heavier on inventory not to worry about us lessons risk. So, you know, certainly as we look in the business specially as Rick indicate we're making large investments to grow the international business, we expect that to grow faster than the U.S. business over the next few years and become a meaningful part of the business.

And certainly the international business as, you know, tends to be a little bit lumpier, tends to be punctuated by larger individual deal, so you need to keep a little bit more inventory in order to react and be able to satisfy that customer demand when it happens. I think on the video side, you know, candidly the video business has been so strong, it's been it's been hard to build inventory because the demand has been so strong. So we're going to continue to ramp up the supply chain to make sure that, you know, we continue to meet demand both now and in the future.

Great. Last real quick one. The comment at the end of the top line double digit growth, is that something - is that a consistent language you always use or is that a new part you've added to the script?

No, I think, you know, we certainly I think we felt that way and I think that's something we talk about at our analyst day, you know, 18 months ago and we continue to, you know, make the investments to drive that double digit top line growth. And we feel with the international business, the video business and the continue upgrade cycle we have a good growth engine to continue to deliver on that.

Great, good luck.

Thank you.

And our next question is a follow-up from the line of Greg McKinley. Your line is now open. Please proceed.

Yes, thank you. Just a couple of follow-up I can speak, can you give us any color on your telesales group's progress and how that's impacting U.S. performance?

Yes, they're doing - they're just absolutely continue to do exceptionally well, this quarter we had $8 million of telesales deal on the quarter. So it continues to be a big contributor for us both in the top line as well as in gross margins because that's all direct business so that's part of the shift and we've seen higher [ASPs] as well.

And again the purpose of telesales wasn't necessarily, you know, that's more of a buy product that's taking more business practice, making sure we're serving that smaller customer that typically been underserved by both us and our distributors and those customers are getting - having a great experience with our telesales.

OK, thank you. And then Rick at the IACP show you mentioned that you partnered with AeroVironment and iRobot, I thought there was a third company you mentioned. But can you tell me what those partnerships do or how you're collaborating with them?

Yes so AeroVironment and iRobot both have devices that, you know, on those vehicles, if you're aerial or ground based. So they're used for a variety of things whether it's, you know, observation, trying to find missing people outdoors sometimes, bomb disposal unit et cetera. And all those have video piece on them that are typically used for real-time, you know, situational awareness.

And we're partnering with them so that those video piece can be fed into EVIDENCE.com and preserve for evidentiary use later. So obviously these instance when these robots and drones are being used are pretty high-risk incident, they're likely to end up in some sort of legal case after the fact. And so we're just making it seamless for our customers and this solves, you know, it's a great add-on value for our customers there that they can take that video and bring it to a desk they can put it in the EVIDENCE.com and enjoy the chain in custody and sharing and collaboration features that we got.

And then the other one is from Net Transcripts, they are a transcription company specializes in transcription for law enforcement so just make it easy for our customers to click the button and that's a job to have it transcribe and deliver it back to the agency so that they'll have a transcript. You'll see a number of additional, you know, partnerships that we're evaluating, you know, over the coming quarter and years to continue to build out additional functionality for our customers. Really all their digital evidence in one place and that's EVIDENCE.com.

OK, thank you. And then I don't know the degree to which you can comment on this for competitive purposes. But, you know, you talked about expanding EVIDENCE.com features and, you know, responding to other needs that agencies have that aren't being addressed yet. Can you give us smart granularity on helping us understand what are those needs and where you see the bigger opportunities?

Not really. For competitive reason, you know, until we're ready to announce we don't want to put it out there and give our competitors, you know, a head's up which way we're going.

OK. And then last question, Dan, you had shared on this last quarter 75% of your cameras sold also included an EVIDENCE.com subscription. You've quantified camera sales from the past, can you give us a sense for how many licenses are out there either through what's deployed so far or perhaps included in the booking numbers just so we understand how many of those we can look forward to starting to generate revenue when they're deployed?

Yes, we're not quite ready to disclose that, I would say that, you know, we've. You can see sort of the service revenue line that, you know, it is growing at, you know, we can certainly say it's above over 10,000 licenses at this point.

Thanks helpful. Thank you.

Sure.

Thank you. And with that I'm not showing any more phone questions at this time, I would like to turn the call back over to Mr. Rick Smith.

Great. All right, lets take a couple of question from Twitter, I'll take the first one here. Will TASER ever be a dividend stock? And the answer to that is we don't know what the future holds. Certainly it's something that we do consider and we talk at the board level, you know, every quarter about our strategy for our capital structure. As you've seen we've been pretty aggressive over the years with [5x] and we're not shy of returning capital to shareholders.

We are in a phase right now where we're letting some capital accumulate just given the opportunities ahead of us and frankly the uncertainty, you know, I think are moving fast and the target predict the future. So we're letting the cash balances buildup for a bit here so that we make sure that we have the assets available to support our plans and if we need to - if we see opportunities to jump on then we've got the capital available. We've also shown investors that we're disciplined about this, we'd be very careful just because cash in the account certainly we don't feel like we don't have to spend it. But that's something we'll continue to evaluate and, you know, we'll let you know if we ever come to a conclusion if the dividend make sense.

At this point we think that that might be a little too constraint. Because we start hitting a dividend policy right that's forever, it creates a long-term expectation. And right now we just - there was so much opportunity in front of us, I don't think we're prepared to constraint our sort of capital usage. Dan.

I got a second Twitter question asking for capacity constraint at all in the next six months. It's a great question. You know, currently we ran one shift, four days a week. So we've all have the ability to add shifts on Friday and over the weekend and we have the ability to add a second shift which in effect double our capacity.

So, you know, we certainly have plenty of capacity, we're not constrained at this point. You know, the supply chain continues to ramp up to make sure that we got the raw materials produced and the manufacturing team, you know, is working overtime at this point and certainly have the ability to add a second shift. As we move forward we just have to find the personnel to work on the off hours but something we've done successfully in the past and certainly available to us as we go forward.

Let's wrap up with that, you know, if we do give one of these really outside international orders, you now, short term they'll probably see an issue we're trying to get some stuff done in the quarter by the time we got the supply chain along. But, you know, when certainly over a multi quarter basis I don't think we're seeing anything from a capacity constraints, at least on the hardware side.

And we're hiring software developers right now, so anybody who knows a great software developer please send a note in. That might be one area where you might say we're constrained in building out the team to continue to extend our lead.

So with that we'll go ahead and wrap up, we've been on for over an hour. I guess calls like this you wanted to just let them keep going because we're having a ball and really enjoying the results we have this quarter. Thank you again to our shareholders, you stuck with us over the years, we're committed to doing great things here and serving our three stakeholders, our customers, our shareholders and our employees. And with that we're looking forward to wrapping up the year and we'll talk to you all in February on our next conference call and we'll see you at our shareholder meeting next May.

Have a great day.

Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect. Have a good day everyone.