Axon Enterprise Inc (AXON) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to TASER International, Inc. Q4 2014 earnings conference call.

(Operator Instructions)

As a reminder, this conference is being recorded. I would now like to introduce your host for today's conference, Chief Executive Officer Mr. Rick Smith. You may begin, sir.

Thank you and good morning to everyone. Welcome to TASER International's fourth-quarter 2014 earnings conference call. Before we get started I am going to turn the call over to Dan Behrendt, our CFO, to read the Safe Harbor statement.

Thank you. Statements made on today's call will include forward-looking statements including statements regarding our expectations, beliefs, intentions or strategies regarding the future including statements around projected spending. We intend that such forward-looking statements be subject to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995.

The forward-looking information is based on current information and expectations regarding TASER International, Inc. These estimates and statements speak only as to date in which they are made, are not guarantees of future performance and involve certain risk, uncertainties and assumptions that are difficult to predict.

All forward-looking statements that are made on today's call are subject to the risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in 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'll turn it back over to Rick.

Thanks, Dan. As a reminder to everyone on the call we are going to be accepting some questions via Twitter during the Q&A portion of the call.

To follow our updates on Twitter during the call follow the account @taser_ir. For those of you without Twitter all updates and graphics stream directly to our Investor Relations website at investor.taser.com.

The conclusion of 2014 was yet another record Company for the quarter solidifying a record year that we're excited to discuss with you today. We also have a lot of exciting developments and new data points to share with investors on today's call.

First consolidated revenues grew 17% year over year to $46.8 million continuing the streak of record quarters. This marks the 12th straight consecutive quarter of year-over-year top-line double-digit growth. We continue to work hard to aggressively grow the top line and are eager to continue to share our progress and successes throughout 2015.

Bookings related to our AXON and EVIDENCE.com products saw tremendous growth this quarter reaching $24.6 million which is growth of 372% over the fourth quarter of 2013. For the past several quarters we have talked about continuing momentum and new milestones and the fourth quarter is no different. Consolidating the top tier of the market to be on the AXON system continues to be our number one priority in this segment.

The Los Angeles Police Department was our first customer to purchase the new Officer Safety Plan which is actually something we developed in close collaboration with them. LAPD was very proactive in their evaluation and procurement of on-officer cameras and we're thrilled to be the partners with such a large agency who's considered to be a thought leader within the law enforcement community.

They are taking the first steps to ensure their officers are fully equipped on the job not only with on-officer cameras but also with our new TASER smart weapons which historically have not been standard issued equipment at LAPD. LAPD has announced their intent to outfit 7,000 officers in the next year with on-officer cameras and an additional 3,000 officers with X26P smart weapons moving them towards a day when TASER devices and cameras are standard issue for every new officer coming out of the Academy. We have confidence in their full commitment; however, investors should take note that during the public procurement practices there may be delaying factors such as the involvement of their foundation, political entities and/or bid processes.

Another major city win for us this quarter came from San Francisco, a phenomenal example of how the network effects of EVIDENCE.com and information sharing can influence purchasing decisions. As you all should know the Bay Area Rapid Transit Police was one of our early adopters. Therefore, it made sense for its colleagues at the San Francisco PD to follow suit when they were ready to move.

Another notable fact about this deployment in the heart of Silicon Valley is the fact that they do not have TASER weapons meaning that San Francisco is a completely new customer for the Company. We often credit our relationship with agencies from the TASER weapons business where we are a trusted partner with creating a competitive advantage for us in the AXON business. Net new customer wins like San Francisco solidify our superiority in comparison to other vendors in the on-officer cameras and cloud space because of our simple, robust end-to-end solution.

The AXON and EVIDENCE.com business exceeded our best expectations in 2014. At the beginning of the year our internal target was $30 million in bookings. The market grew faster than our expectations as we nearly doubled our target.

We set out to win every major account with AXON and EVIDENCE.com and we succeeded in that endeavor. Every major city that made a new purchasing decision in 2014 selected our solution.

We exceeded our targets in 2014 through a combination of market dynamics and pure execution. But we've had to hire rapidly to support a business that is at least double the size we anticipated in total dollars despite our moving to cut prices significantly in 2013. However, speaking to the long-term view of this opportunity, we have innovated to ensure that we continue to walk customers up the value scale over time, thereby increasing the average revenue per seat through new programs such as the Officer Safety Plan and the new Unlimited Plan.

If we can continue this market momentum through 2015 we believe we can consolidate the market on our platform. We have 15 of the major cities on EVIDENCE.com today and another 28 in serious discussions and/or field tests. Our number one focus is to ensure we win every one of these agencies on EVIDENCE.com and we believe this is possible to achieve.

As we saw with the San Francisco PD and BART there are significant network effects where there will be significant advantages for agencies to all be on the same system. We are determined to be that system.

Given the significant increase in attention to body cameras following the Ferguson incident 2015 is our Super Bowl. We are showing that we can win consistently but we need to make sure we are actively engaged with every account across North America and engaging globally as well.

To this end we will continue to accelerate our investments in sales functions and R&D. Specifically SG&A we anticipate will increase roughly $500,000 in the first quarter from fourth-quarter levels. R&D we anticipate increasing over $1 million from the fourth-quarter levels.

On the SG&A side we are building out a robust professional sales channel and our intent on owning the customer experience from sales through support. Fundamentally the reason to hire more sales staff is because we suspect that there is a greater demand for our products than we are realizing with our current staff who can only handle so many accounts. Our bet is that hiring new staff and support will soon lead to a proportional increase in revenue bookings.

To support our customers in addition to sales reps we are adding incremental product managers, account managers, customer service reps and order processing staff. Each of these functions ensures that customers are having a world-class experience when choosing TASER products and services, thereby gaining loyalty and future business.

On the research and development side we are focused on creating software and hardware that transforms agencies' critical workflows to help them do their job better gaining massive efficiencies in day-to-day operations. Some examples of these are automated uploads through our docking station, automated redaction features and the ability to have smart evidence retention schedules essentially removing the need to have police officers spend time dealing with these processes.

In the fourth quarter a new file was uploaded to EVIDENCE.com every four seconds. And as you will see in the curve that we just tweeted out system utilization measured by file uploads continues to grow on an exponentially increasing curve.

TASER increasingly views the business of the technology for public safety as a very large market in which we are the de facto leader. However, we cannot maintain or grow that leadership position unless we are hiring more of the best and brightest software engineers.

We are competing for engineering talent with companies like Facebook, Amazon, Google and Dropbox. This does increase our cost but it also means that the caliber of the products and services we can deliver in public safety have the opportunity to grow from our leadership in the market for years to come.

This bet has already proven itself in the bookings growth for AXON and EVIDENCE.com last year. We are hopeful to innovate further in these platforms and to create new ones as well for continued market success.

We've also shown that new programs and features are creating more value for our customers resulting in increasing per seat revenues. By continuing to scale our engineering resources we ensure our systems continue to scale reliably and that we continue to streamline the customer experience. We ensure that we're offering key additional capabilities that will not only differentiate us from many follow-on competitors trying to imitate our offering but to create more value for our customers and create additional revenue opportunities.

One of the great challenges where we focus a significant amount of our attention as a management team is balancing the financial rigor of running a profitable enterprise with ensuring that we are making sufficient investments in the long-term business. If we have established the clearly dominant mobile wearables and cloud-enabled technology ecosystem five to seven years from now we will have a massively valuable enterprise on our hands.

If we fail to achieve a dominant position because we failed to invest the resources required today it would be a tremendous loss of potential future shareholder value. And as such and based on in-depth discussion with our technology advisors on our Board of Directors we are continuing to make the significant investments we feel prudent to enable us to own this space.

There are two metrics I'd like to share with you today that help me understand if our level of spending is appropriate to the task at hand. First we compare the customer acquisition cost or CAC to the long-term value per customer or LTV. This is a standard ratio used to evaluate the level of investment spend in software-as-a-service companies.

We're tweeting out a link to a great article from the venture capital firm Andreessen Horowitz that gives a nice overview of the CAC versus LTV that we believe you may find helpful. Typically if the customer acquisition cost compared to the long-term value is a ratio over 3.0, meaning that each customers with at least 3 times what you spend to acquire them, then your investments are probably pretty well placed.

If the number climbs too high it could be an indication that you're under investing relative to the opportunity to gain profitable customers and marketshare. In Q4 our ratio of customer acquisition cost to long-term value was over 4 which is a great indicator that our investments and customer acquisition are well-placed, even raising the question if we are investing enough.

A second metric I use to personally gauge how well we are doing I would call our steady-state earnings. So one of the challenges with a SaaS business is that GAAP accounting revenues are spread out over a very long-time horizon which makes GAAP revenues and earnings a very much lagging indicator. So as a management team you really can't use GAAP revenue and earnings to assess the relative levels of investment especially in a business that's growing at greater than 100% year-over-year growth rate.

So to help me calibrate I play a hypothetical game. What if the business was in a steady-state just like last quarter and we repeated last quarter's performance into the indefinite future? Under this scenario GAAP revenues would eventually equalize to the same level as bookings.

Sure there would be quarter-on-quarter timing differences, etc. but those would likely cancel out over time. Hence in this future steady-state we would have had revenues of $24.6 million instead of the $6.4 million of GAAP revenue.

If we assume a 65% gross margin on this revenue then the additional $18.2 million of revenue would generate an additional $11.8 million of operating income. This would take the operating margin from an actual loss of $5.9 million today to an operating income of $5.9 million. To me this feels like a very reasonable business earning $5.9 million on $24.6 million of revenue, a theoretical operating margin of 24%.

Now I want to emphasize this is a purely theoretical exercise that I use to help me mentally calibrate if our level of expenditure is reasonable for the size of the business we're building. None of the assumptions are going to hold true. We're going to continue to ramp up our investments because we believe that we're in a very steep part of the growth curve.

We also expect the bookings number to climb significantly over time. But this steady-state earnings is a thought exercise I found helpful for me in thinking about how we're doing and balancing our investments versus the business as it exists in a snapshot today.

So I wanted to share it with our investors. This is about as non-GAAP a thought exercise as you could imagine so please pause now, reread all the language from our Safe Harbor statement and multiply by two.

Hopefully we made it clear to you that we are out to win the Super Bowl this year in law enforcement. When you're going for the world championship you need to continually optimize your team.

Sometimes you trade off some of your starting players. You might trade out your starting halfback to refine your team's performance even if you just had a great season.

In December we went through a restructuring process to optimize our team and to flatten the organization at the top. We eliminated the position of Chief Operating Officer which means that Jeff Kukowski is no longer with the Company. He had a great impact at TASER during his time here.

But elevating the position of VP of International with Ron Brandt and then domestically promoting the VP of the Video Sales Organization Josh Isner to oversee all of domestic we as an executive team have greater visibility into the sales organization. We also announced that Luke Larson will be promoted to President in the beginning of April as part of our long-term succession planning. Doug Klint will remain on as General Counsel for the Company.

One of the reasons for this restructuring was to give me more time to focus on where I believe I can add the most value, in customer facing roles. In particular I felt our business has not met our growth goals for international. We're not meeting the potential that we see and as our US business is really hitting on all cylinders I see the greatest value I can add will be spending a lot more time overseas helping to grow our global business.

As such starting in June I'll be spending roughly two-thirds of my time on the ground in international markets helping to build out our teams to drive meetings with high-level public safety leaders. I've already begun significant time investment in the UK where I'll be back again next week.

Starting in June of this year I'll be spending intensive eight-week surges in key markets to drive momentum. Target markets include the UK, France, Italy with the largest police force in Europe, which also recently authorized the use of TASER, Australia and broader Asia.

In order for me to be able to spend as much time out with customers I had to ensure we had the right team in place to continue ramping the business and overseeing day-to-day operations. December's restructuring put the team on the field that I believe will help us win the market this year.

Before I introduce Luke Larson to join us on the call I want to give investors a little background on why I selected Luke for this role. When Luke first joined the Company in 2009 he came to me with an idea.

Rick, you know leading companies like GE and Google have leadership development programs where they recruited top-tier schools, rotate fresh talent across the different parts of the organization and use the program to build a bullpen of international -- I'm sorry, internal talent that you can grow up over time within the organization was an idea that he brought to me. Well this idea became our leadership development program and it's been one of the most transformative programs in our Company's history. The leaders of our engineering and our North American sales organizations both came up through the LDP program as have many of our product managers, our UK country manager, our Asia sales manager and many others.

In fact Bret Taylor, our Board member who was previously the chief technology officer at Facebook after he had earlier created Google maps in his career, well Bret came up through the similar program at Google called the APM program. The Google APM program has yielded many of Google's top leadership and many CEOs of Silicon Valley like Bret and I can't tell you how proud I was when I asked Bret his impression of our LDP candidates versus the APMs at Google.

Bret's opinion is that our people could go toe to toe with the team at Google largely considered the best in the world. That's the type of Company we want to be compared to.

After starting our LDP program Luke took over as product manager of the AXON product when it was a program in crisis. You may recall our first AXON Pro camera big expensive complicated. The program was failing, it was way over budget.

As project manager Luke set the strategy and negotiated the partnerships with Looxcie and Oakley that created the AXON Flex product that is dominating the market today. Now there are many people here at TASER who have worked on this program and contributed greatly but I would point out that Luke played a pivotal leadership role for sure. After his run on AXON I promoted Luke to run marketing.

And since then we've seen a huge increase in both the quality of our programs and the sales pipeline generated. Luke has been a true change agent and a driving force in helping us transition the Company from a weapon company into an integrated technology company with extensive hardware and software offerings.

So as part of our succession planning process Doug Klint and I together with a Board of Directors felt that now is the time to promote Luke to an even larger role as President of the Company. And with that I'd like to introduce you all to Luke Larson and ask him to provide his perspective on our marketing efforts, Q4 and the road ahead.

Thanks, Rick. One of the things that TASER is benefited from is having a founder as CEO because it usually takes a long-term approach to running the business. TASER has always had that in our DNA but as the Company has grown we have made a concerted effort to formalize that as a philosophy and ensure we communicated to all of our stakeholders, investors, customers and our employees.

We believe that using a longer time horizon to make business decisions will directly result in increasing shareholder value as well as increase the total market value of the Company. We believe that by investing to obtain, extend and solidify our market leadership position we will create a public safety platform that we can leverage to create a powerful economic model. Our emphasis on the long term directly influences decisions that we make and is guided by a few principles that we feel are best suited for us to create the preeminent technology Company in the worldwide public safety market.

During last quarter's we spoke about the runway success that TASER enjoyed at the IACP conference with our Don't Be a Dinosaur theme. Over the last couple of months we've had the opportunity to quantify that event. Over 2,500 customers went through our booth experience and we added 21% to our pipeline opportunity from this single event.

Further we have seen a 43% increase in pending trial and evaluation programs at the end of the fourth quarter sequentially from the third quarter ending the fourth quarter with over 200 open T&E programs. We continue to hear over and over from our customers that no one at IACP had the proven scalable end-to-end system that we have spent the last six years developing with AXON and EVIDENCE.com.

Others will try to follow but those starting to make investments now will have an enormous mountain to climb to catch us because we have invested the time, capital and talent years ago to establish a wide first mover advantage upon which we will build aggressively. As of the fourth quarter we now have over 30,000 AXON units in the field and in the fourth quarter nearly 80% of cameras sold also purchased EVIDENCE.com. Further out of those with EVIDENCE.com 87.5% of new EVIDENCE.com contracts were for five-year terms.

We are clearly set to be a long-term partner for law enforcement with on-officer camera programs. In the last year we've talked extensively about the success and future trajectory of the AXON segment but in the fourth quarter our TASER weapons business also showed great execution strength in our corporate strategy of international expansion. There were very large international deployments in Australia, France, Poland the UK.

We also received the first smart weapon order and subsequent deployments in Canada with the Ontario Provincial Police. In aggregate revenue in the TASER weapons business was $40.5 million, growth of 8% over the prior year while adding three additional major city deployments for a total of 43 major cities utilizing smart weapons. We introduced the Officer Safety Plan in December in conjunction with LAPD's deployment of 3,000 weapons.

Not only is this a fantastic avenue for consistently owning the budget line items for law enforcement it is a tool that we are introducing to close the white space gap domestically but we have TASERs on one out of every two officers in the United States. The penetration rate at the largest agencies is much less than that. TASER weapons are vital law enforcement tools for their safety and proven ability to reduce officer and suspect injury rates, reduce litigation, Worker's Compensation cost and ultimately save lives.

When combined with AXON on-officer cameras the synergistic results are astounding. We are setting our sights high. Our vision is a TASER weapon on every officer in the world and in the US we want this to be standard issue equipment at every agency.

To achieve this vision we are continuing to add more headcount in both our telesales function, domestic weapon sales staff, video sales staff and international sales staff to ensure that we are consistently at the top of mind for agencies around the world. We wanted to take some time on this call to go through the new programs that we've introduced in the past couple of months to ensure investors understand the tremendous opportunity they present and the collaboration and relationship with law enforcement they embody. These new license tiers are not only meant to own the budget line items at law enforcement but also to increase the average monthly revenue per seat which as of December 31 was approximately $26.

The first program we've mentioned a couple of times on this call is the Officer Safety Program or the OSP. This was introduced as a means of simplifying the capital expenditure process for agencies. The programs allow agencies to pay $99 per officer per month and know that their entire TASER weapon, cameras and digital evidence programs are covered for the next five years.

The programs include one weapon upgrade every five years, a camera upgrade every 2.5 years, full warranty coverage and unlimited storage for their AXON cameras. In short we take the risks off the table of any unforeseen expenses for maintenance, breakage or data overruns. Early indications are that customers absolutely love it.

Past experiences with agencies indicate that once operating expenses are incorporated into a municipality's budget it becomes much easier to re-budget for such predictable expenses on a go-forward basis versus the need to periodically request inconsistent material funds for ongoing irregular capital expenditures. The Officer Safety Program aims to position TASER's products and services into municipalities' budgets as a consistent and predictable prices as a means of preserving future revenue streams.

Providing such a bundle also helps solidify TASER as a one-stop shop for an agency's technology needs. While TASER may make slightly less per weapons handle on the OSP transaction we anticipate that it will be made up in volume.

Admittedly the revenue recognition for this program is complicated and we are still finalizing how this will be accomplished. We anticipate hosting a webinar to go through the specifics in the relatively near future for those investors who are interested. It is important to note that in terms of bookings approximately 20% of the contract value of an OSP deal is backed out of bookings as it relates to the CW upgrade.

The second new license tier introduced is known as the Unlimited Plan. Maricopa County Sheriff's Office and Pasco County Sheriff's Office were our flagship customers to purchase this tier with their purchase of 700 AXON Flex cameras and 415 AXON Flex cameras respectively. The Unlimited Plan offers unlimited storage for the data uploaded from AXON cameras and EVIDENCE Mobile as well as the added benefit of an agency being able to upgrade their AXON cameras every 2.5 years.

The Unlimited Plan cost $79 user per month and it's offered with a three- to five-year contract. Just to be clear the only difference between the two plans is that the Officer Safety Plan adds the TASER weapon warranty and upgrades to the Unlimited Plan for an additional cost of $20 per month.

Maricopa County was also our flagship customer with the launch of RMS integrations with EVIDENCE.com. This program takes information exported from the agency's record management system and correlates it with videos on EVIDENCE.com.

An agency's AXON videos are then automatically tagged with the correct metadata including incident, ID, category and location. Officers are no longer required to spend valuable time entering this data after each incident and supervisors no longer have to search extensively for untagged or incorrectly tagged videos. The RMS integration is priced at $15 per user per month thereby increasing the average revenue per seat further.

You probably noticed in the press release we are doing a rebrand of our previously called EVIDENCE.com and video segment now to be named the AXON segment. This will serve as the umbrella brand for all of the non-weapon technologies.

We felt that AXON, a name familiar to us, our investors and our customers would give us the flexibility to grow and expand while eliminating the confusion of multiple naming structures. As investors you will see the AXON segment in our SEC filings and press releases as well as in the upcoming brand launches.

Our Seattle office will also be named under the AXON brand as it primarily houses our software R&D and product management teams. We think we've got the same opportunity that we had with the TASER brand to turn the AXON brand into a household name.

I spoke earlier about some of our investments in SG&A but I also wanted to discuss some of our investment philosophy around R&D. We believe that technology shifts are inevitable. In order to maintain a leadership position we will make bold technology investments in emerging technologies such as wearables, mobile and cloud.

Some of these investments will succeed and quite frankly some of them will fail. We believe that the investments we make with both our successes and failures will be critical to maintaining a learning organization that can evolve and adapt to future technologies and market challenges.

Today we are investing heavily in mobile around communication and collaboration features for public safety. We see the trend from desktop to mobile as something that will certainly come to public safety market as it has to so many other markets and we are intent on being the leader in this space.

We could easily make our earnings number in any given quarter by cutting SG&A or R&D investments but then we wouldn't be capturing the marketshare that we need to create a consolidated platform or developing the future innovations that we need. We believe this market is significantly larger than what we're selling to today. We're seeing the tip of the iceberg and we aren't satisfied with monetizing the business we at when we see a significantly larger opportunity.

I'd like to reiterate our commitment to the long term and set the expectation this is a consistent message you'll be hearing from me and our leadership team. We are playing to win a much larger market over the long run. I look forward to generating long-term shareholder value as a result.

Dan will now go over financials in greater detail.

Thanks, Luke. So in the fourth quarter consolidated sales were $46.8 million, a 17% increase from the fourth quarter of 2013. The increase in sales was primarily driven by a total law enforcement smart weapon sales of $20.4 million partially offset by the lower legacy X26 sales which fell by $4.4 million versus the prior year.

As a reminder we have ended the life of the X26E legacy product. While we'll still support warranty handles we will be focusing solely on the smart weapons platform this year.

Cartridge sales also had a strong quarter increasing $2 million over the prior year. Overall, the weapon segment sales increased $2.9 million, or 7.7% over the prior year's fourth quarter with fourth-quarter total sales of $40.5 million.

In the AXON segment AXON camera revenue increased $3.1 million compared to the prior year and service revenues for the AXON segment increased $0.8 million to $1.5 million in the fourth quarter compared to the prior year. Overall the AXON segment sales increased $3.9 million, or 159.4% over the prior-year fourth quarter with fourth-quarter 2014 sales of $6.4 million.

On an annual basis the weapons segment grew $18.1 million, or 14.2% over the total 2013 sales of $127.5 million finishing the year with $145.6 million of sales for 2014. The AXON segment grew $8.6 million, or 82.6% over the total 2013 sales of $10.4 million finishing the year with $18.9 million of sales in 2014. Overall sales grew by $26.7 million or 19.4% finishing the year with $164.5 million of sales which is a new record.

A significant contributor to the overall growth in 2014 was the strong performance in the international part of the business. The Company has been investing heavily to grow the international business and in 2014 we started to see the impact of those investments. International sales grew $10.2 million, or 45.9% over 2013's $22.2 million finishing the year with $32.3 million of sales.

As we look towards the first-quarter revenues investor should note that historically the first and third quarters are seasonally weaker than the fourth and second quarters and normally we see a stepdown in revenues from Q4 to Q1 as a result of this seasonality. Gross margins in the fourth quarter were $27.4 million, or 58.6% as a percent of sales compared to $25.6 million or 63.8% of sales in the prior year. The decrease as a percentage of sales versus the prior year was driven primarily by the $2.1 million of excess inventory reserves and loss contingencies on open purchase orders of inventory.

The gross margins without the reserves for the X26 and the AXON cameras would have been $29.2 million or 63.8% which is in line with the prior year. We also are beginning to see a product mix shift with greater percentage of sales been represented by AXON cameras which we are selling at a low gross margin in order to help drive camera adoption. In the fourth quarter of 2014 7.6% of our total sales were made up of AXON Flex and body cameras as well as the docks compared to the fourth quarter of 2013 where only 1.8% of the total sales were made up of AXON cameras and docks.

We expect this mix shift to continue into 2015 as AXON Flex and body cameras and the docks continue to represent an ever-increasing percentage of total sales. Conversely we do expect that the high-margin license revenue will also increase as a percentage of our total sales over time but because the camera sales are typically recognized at the time of delivery it will take longer for the license revenue to be a greater percentage of sales than what we're seeing with the cameras.

Overall gross margins in the AXON video segment were 9.7% in Q4 of 2014. We do expect these to improve as the business scales because of the profitability of license revenue is high on a variable basis. This currently is depressed because of the high fixed cost.

The weapon segment had gross margins of 66.2% for Q4. Obviously we have room to improve on the supply chain part of the business. We took expenses of $2.1 million in the fourth quarter due to excess inventory reserves and lost contingencies on open purchase orders.

We had two major issues in the fourth quarter. The first was the end of life for the X26 legacy products. We had forecast a stronger demand for X26 in Q4 of 2014 than what materialized as customers who we expected to make some final buys of the X26 legacy products instead started upgrading to the new X26P. As a result we wrote off roughly $700,000 of inventory related to the X26.

The second issue relates to AXON cameras. We have a supply chain issue which affects a key component on the board used in both AXON Flex and AXON Body. We have plenty of parts to satisfy the current camera forecast for 2015 but we have additional inventory and open purchase orders of ancillary parts that are no longer usable due to the shortage of this component. As a result we have recognized $1.1 million of expense in Q4.

Now we are actively working to rectify the issue by trying to find the components in the open market as well as trying to get the manufacturer of this component to make a final production run for us. Thus far we have been unsuccessful in either of those endeavors.

If we are able to find the components on the open market or convince the manufacturer to do a final production run we will be able to reverse all or part of the expense taken in Q4 2014. We are actively working to improve our forecasting and supply chain processes to prevent issues like this from reoccurring in the future. I also want to reiterate that we have enough cameras and supply to satisfy our forecasts for 2015.

SG&A expenses saw an increase of $2.8 million, or 23.7% to $14.4 million for the three months ended December 31, 2014. As a percentage of sales SG&A expenses increased to 30.8% in the fourth quarter of 2014 compared to 29.1% in the fourth quarter of 2013. Compared to the prior year personnel expenses increased $1.4 million mostly due to increased headcount investment in sales and other customer facing positions.

Personnel expense in the fourth quarter of 2014 also included approximately $0.4 million related to restructuring expenses. Travel expenses also increased compared to the prior year due to both the IACP convention as well as additional international travel. And there's increased spend in the sales and marketing area of $0.6 million due to the IACP conference that was held in the fourth quarter of 2014 compared to the third quarter of 2013.

These increases were partially offset by decreased liability expenses and lower legal and accounting piece. We expect to continue to see elevated SG&A spend over the fourth-quarter amounts in the first quarter of 2015 by $500,000 as initiatives to grow the top line internationally and in the AXON segment are executed and further infrastructure is put in place.

Research and development expenses of $3.9 million in the fourth quarter were an increase of about $0.5 million over the fourth quarter of 2013. The increase continues to be primarily due to additional personnel expenses related to the AXON segment development initiatives. With the current planned hires and other research investments in the AXON segment we continue to expect R&D expenses to increase from the fourth-quarter levels in the first quarter by over $1 million.

We're finding that larger customers such as the London Met and Los Angeles Police Department require advanced features and additional functionality at our EVIDENCE.com solution and as a result of this delayed the launch of some of the new products. But we do believe that ensuring that major cities utilizing our solution have the best experience possible we will continue to solidify our position in the market and the new advanced feature set should allow us to continue to drive up our average monthly recurring revenue per seat.

We'd like to also share future billings as of 12/31/14 with investors. We define this metric as cumulative bookings to date net of the cumulative recognized revenue for AXON and EVIDENCE.com revenue and also backing out the AXON E.com deferred revenue balances. So as of 12/31 we have $39.3 million in future billings solely related to the AXON EVIDENCE.com business that are not reflected in the financial statements but will be invoiced and recognized over the next five years.

It's important to note, however, that the future billings are subject to the same non-appropriation clauses as bookings; therefore, if an agency does not appropriate funds in the future years these amounts would be reversed in that period. We expect the amount of future billings will change from quarter to quarter for several reasons including the specific timing, duration of large customer subscription agreements, new bookings, varied billing cycles and subscription agreements and specific time of customer renewals. For multiyear subscription agreements billed annually the associated future billings is typically high at the beginning of a contract, moves to zero in the last year of contract and then increases again when the contract is renewed.

Similar we can look at future contracted revenue which is defined as cumulative AXON bookings minus the cumulative recognized revenue related to the AXON products. This figure like future billings is subject to appropriation clauses that we recognize over the next five years but as of 12/31 future contracted revenue is $53.6 million. Adjusted EBITDA in the fourth quarter was $13.8 million compared to $13.3 million in the fourth quarter of 2013.

Moving on to income from operations that was a $8.9 million in the fourth quarter of 2014 compared to $9 million in the fourth quarter of 2013 and as a percentage of sales operating income was 19.1% in 2014 compared to 22.5% in the fourth quarter of 2013. If we exclude employee severance expenses and inventory reserves income from operations actually would have been $11.4 million or 24.4% of sales. Net income for the fourth quarter was $5.5 million, or $0.09 per diluted share compared to $5.4 million or $0.10 per diluted share in the fourth quarter of last year.

Now deferred revenue on the balance sheet at year-end was $35.7 million. That's actually increased $15.5 million from the prior-year balance due to increased sales of extended warranties, EVIDENCE.com services and the TASER insurance program.

The deferred revenue balance relating to warranties increased $6.1 million to $22 million, the deferred revenue associated with EVIDENCE.com future services yet to be delivered and recognized in the future is actually $9.3 million at year-end which is up $5.3 million from the prior year end and deferred revenue associated with the hardware upgrades increased $3.9 million to $4.3 million during 2014. So as of December 31 our cash and investment balance was $90.4 million which is growth of $27 million over the previous year-end balances of $63.4 million despite the fact that we bought back $22.4 million of Company stock during 2014.

To wrap things up we're continuing to invest in the business because we're serious about executing on our strategy and providing top-line double-digit growth consistently. We're driving even more significant growth in the AXON segment for as long as feasible. We feel that these investments are necessary to continue to solidify our market position in the AXON business, investigate and develop adjacent revenue producing opportunities and continue to grow internationally so we can provide long-term value for all our shareholders.

With that we'll take questions from the queue.

(Operator Instructions) Steve Dyer, Craig-Hallum.

Thanks, good morning guys. Luke, I think you said your average monthly revenue per software seat was $26 which seemed low given what you appear to have been booking lately.

How has that trended? Maybe if you give us what was that a year ago for example?

Yes, Steve, this is Dan. Actually that has trended up. I think part of it is just as we certainly we're seeing the larger agencies gravitate towards the more advanced offerings which drive that up.

But there are a certain amount of bookings especially as people get buy the levels of service that include future camera upgrades, that doesn't count in that monthly recurring revenue. We're counting that, that is sort of getting deferred on the balance sheet. So there is about $15 and a lot of those contracts that's getting deferred which may be the reason why the bookings number seems high compared to what you're seeing in the monthly recurring revenue.

Okay. And I think you had said 80%, again I'm looking more for trends here 80% of the deals signed or the camera sold in Q4 had the E.com subscription and I think 87% or 88% of those had five year.

How has that trended? I guess anecdotally it seems like when this first started the attach rate was much, much lower, 40% or 50%. Is that consistent with what you are seeing?

Yes, Steve, this is Dan again. Yes that definitely trended up both in the amount of the attachment rate is certainly up over time and then the number of five-year deals continues to increase.

So I think we're seeing customers -- I think we're doing a better job of convincing customers across all sort of strata of the market. I think we've always had really good attachment at sort of the large customers. The trouble we had is sort of the smaller customers serviced through telesales, we're having a harder time getting attach rate there.

We put a number of programs in place an order to get a higher attach rate across all the market. In Q3 we had about 75% attach rate so that's gone up to 80% and then the 80%, almost 90% of customers taking five-year deals is certainly up as well.

Okay. I'd like to dig into the investment spend a little bit. Is that primarily sales? Is it software?

It seems like on the bigger deals with the enormous agencies there's more customization required there. Maybe it it's not quite as much of an off-the-shelf solution. Can you give a little bit more color on what you're spending on?

Then secondly a couple of years ago you guys did a big investment spend and then that number came down pretty considerably. Is this a shorter-term year or two type surge to landgrab this thing or is this the new level that we grow off from?

Yes, this is Luke. So on the SG&A side we feel that there is the market is happening now for body cameras and we are winning 90% of the deals that we're in.

We feel by adding additional channel resources we can capture additional marketshare and we believe this is a time to invest so we can consolidate the market. And really our core belief is we want to get these people on the platform so we can capture that reoccurring revenue stream, walk them up the pricing tier and then also have the potential to add on additional applications as we develop them. So that's why we're increasing the spend on the SG&A side.

On the R&D side we really feel that we've got an opportunity to build and become the preeminent technology in law enforcement. And these features that we're creating by having the same talent that works at Google or Dropbox we're able to create transformational value for our customers where it's not iterative but they are capturing real efficiency gains and getting police officers out on the street.

And this is something that philosophically we're getting advice from Bret Taylor, the former CTO of Facebook, and Hadi Partovi are saying we've never seen a company that has enough good engineers. And so you should be strategically building up a world-class engineering department and they will continue to create additional features that we can upsell to and also position us in a competitive advantage where it's going to be very difficult for our competition especially in the law enforcement space to catch up. And I'll maybe turn it to Dan in terms of --

I think that's exactly right. I think that captures the R&D side. I think on the SG&A side I think it's just we want to make sure that we continue to have as many people in customer facing roles that we can make sure that we're in front of every opportunity that post-sale we have good account management and people are helping make sure we have great experiences and every customer is referenceable.

We want to capture this entire market and as a result we don't want to concede any sales due to a lack of coverage. So we're going to make sure we're investing not only to make sure we're getting the sales but also to make sure that once people have bought the product they have great experiences and expand their programs over time.

This is Rick. I want to chime in one last thing. There is a fundamental difference between the bubble in R&D back in the 2008-ish time frame versus what you're seeing today.

I'd say back then we were moving into a new space and we invested very heavily early on. And I think frankly some of that was learning curve for us and we've cut back because I think partially we were early to the market and frankly we made some hiring and other mistakes. I think we tried to grow the team too fast.

This is very different from the position that we're in today. If you just do the math on last quarter we're at a bookings run rate of $100 million in this business and it's growing in the hundreds of percent year over year, so the business is scaling.

The team that we're hiring now is very dialed in. Again this is not new to us anymore. We've been through the learning curve, so I wouldn't expect that this is a bubble in R&D that's going to come up and then the absolute levels of R&D come down.

That's not likely to happen. What I think you're going to see happen is that that team is going to continue to not only build out the revenue stream existing today but we see virtually the biggest problem we've got right now is picking which adjacent software opportunities we go after because there are so many that we could build out in this platform.

So having that team I think is going to enable us not only to meet the needs of our big customers today and we are not doing one-off customizations of any major significance. What we're learning from these big agencies is there is just a lot of additional workload but they are pretty similar across the different agencies. So don't take it that we're doing one-off customizations.

That's not what's going on. We're building out the product to be more robust as we've gotten to better understand our customers.

So I think the R&D spend is here to stay for the long term but that's what's building the business at the levels that we're seeing. And we think in addition the business we've built right now there are a couple of adjacent ones that this same team could continue to go after in the future.

That's very helpful. Rick or team, could you give maybe some examples of those adjacencies and are those things that departments and law enforcement is asking you for or maybe how do we think about the progression of those?

I would say at this point for competitive reasons we don't want to telegraph what we see the next expansions to be. I just don't think we want to comment on exactly where we go yet. Other than that we just say if you look at the spend our customers make on technology we estimate it's in the $15 billion a year range and that's a far larger than the size of our Company today.

But we're the disruptive force that's coming into this industry. These cloud-hosted business models have ripped through industry after industry. And when you think about mobile, cloud, wearables, these tech trends that are massively disrupting other spaces we're the disruptors with the best tech platform.

Yes, I would say one investment that we've made in R&D that's paying off now would be integrations, so the capability for the agency and we talked a little bit about that earlier to pay for an integration with our RMS system but what this does is it deeply seats our software product into their workflows. The other features that we've been investing in are network features where they can do external sharing with DAs or other agencies and we believe that this is integral to our platform strategy.

This software platform play if you want to look to a comparison company Salesforce did a phenomenal job capturing a seat with their CRM system. And then it allowed them to introduce new revenue streams one to two, three years later as they kind of captured that consolidated platform. And that's a company that we emulate in terms of creating the public safety cloud platform.

Great, last question for me and then I will hop back in the queue. As it relates I think you said you are winning 90% of the deals including virtually all the major departments.

Has anything changed on the competitive landscape? Is it getting more crowded, less crowded and when you don't win a deal is there typically a common denominator as to why you wouldn't win it? And I will hop back in the queue, thanks.

When we don't win a deal I'd say it's typically because there is either like it's an agency that has some pre-existing -- they've got an in-car system that they feel heavily invested in and they just decide we want to keep the stuff on-premise. So if we lose that -- in terms of competitive landscape one thing that shifted pretty dramatically is two years ago everybody in the digital evidence space -- basically our competitors are all hardware vendors, for the most part they give away software or sell at very low cost but give very small software development teams.

So two years ago the competitive landscape was those TASER guys are kind of crazy with this cloud thing. You are a law enforcement, you're a law enforcement agency you can't put your data in the cloud. You need to keep it on-premise.

We've seen that flip 180 degrees where our customers are now realizing information security is a specialized field that we and the partners we've put together are bringing information, security practices and technology that individual agencies can do other back over. So I would say our competition has given up the fight against the cloud and so now everyone of our customers I'm sorry competitors is not saying well we're going to have a cloud platform, too.

And I'm just pointing out we know what it's like to transform from a hardware company to a software company. It's not easy. The level of talent and time and investment it takes is significant.

So we're delighted to see all of our competitors following suit. We just think that it validated our business model but we feel very well-positioned to win. But that's another reason to make the big investments now.

I think Luke had a comment on one of our business meetings it's a whole lot easier to take the hill when there's no one on the hill rather than if the market fragments defragmenting it later would be far more expensive and difficult. So that's why we need to take advantage of our unique position now to consolidate the market.

Great, thanks.

Paul Coster, JPMorgan.

Yes, good morning this is Mark Strouse on for Paul. Thanks for taking our questions. So kind of a follow-up to Steve's question.

You said you are winning about 90% of the deals that you go after. But if we think just sticking with the US to start if we think about the total units that are out there is there I guess just trying to see what you peg your marketshare at.

You guys are obviously having very good success with the larger agencies but some of your competitors might have thousands of agencies that are using their solution. So I think from the percentage of agencies it's interesting but if you have anything from a percent of units that would be really helpful.

Yes, so we probably won't talk specifics although I would say we understand our market very well in terms of the distribution of officers in the agencies. And if you look at where the majority of the officers sit 65% of the officers sit in agencies that have more than 100 police officers and that's where the majority of our focus has been.

So it's a little bit misrepresentative, if you were to look at number of agency count there is probably 10,000 agencies that have less than 50 officers and out of those a majority of them might even have less than 10 officers. So we're focusing the majority of our time on the top 1,200 accounts where the majority of the officers sit.

That's not to say we're not also focused on the bottom end. We have a teleteam that focuses there as well so we feel that in the deals that we're in we're very successful. And that's part of the reason that we're increasing the spend in SG&A to get additional channel coverage.

Yes, I would pipe in as well. One of our competitors or some of them have tried to do a pretty good job saying well we sold a bunch of cameras historically and we're in thousands of agencies. These are nonpublic companies, there's no way to verify those claims.

We haven't seen them win any deals of significance in recent history. So if we're looking at the market that's happening today we're very comfortable, we have a very dominant marketshare and we just passed 5,000 agencies using the EVIDENCE.com platform. That's over a quarter of US law enforcement.

We don't think there's anyone else approaching anywhere near that scale. And if you add in the TASER cams you know historically we now have over 100,000 cameras in the field. So we're very confident, we're winning the big agencies and we're doing well in the small agencies but we have some agencies that have gone out and bought cameras on Sky Mall that have bought them in consumer outlets, they've bought some from some competitors.

If they have an in-car system they have bought one maybe from their in-car vendor. That is an area where we are looking to tune up as well to make sure that we're working more deals at the lower end of the market. We don't want to leave any part of this market untouched but the big ones are going to be the leaders.

Okay, that's helpful. Thank you. And then since you gave us an inch I might ask for a mile here.

Thanks for the guidance on OpEx in 1Q but if we look at the year now I mean how should we think about that? I think your OpEx in 2014 was up in the high teens percentage growth. Should we be thinking a similar magnitude year over year in 2015?

Yes, Mark, this is Dan. I'd say that we're going to continue, obviously we want to give some sort of directional information here at least for Q1. But I think we'll continue to build for those levels.

I think part of the gating factor for us will be the high bar we have for hiring. But I think as we continue to find top-quality engineers and top-quality salespeople and other folks that will help to create a great customer experience for our customers we're going to continue to hire throughout 2015. So I do expect that those expenses will continue to arise throughout the year.

Okay. And then last one for me, so I appreciate Rick's comments about the hypothetical operating margins for AXON in the quarter.

But on a GAAP accounting basis they've plateaued here the last two or three quarters. I'm just curious in 2015 as that revenue scales up obviously with the investments if we should expect that to stay at these levels or if we can from a GAAP perspective anyway that should continue getting better?

Yes, that's a tough question to answer. I would say that as you model out certainly we're seeing the revenues go up. And the problem a little bit in our business is that the GAAP revenues I know that's what we're obviously going to continue to focus on that as sort of a lagging indicator.

So we're focused on the leading indicators which are bookings. And I think as long as we continue to see the strength in bookings that gives us the confidence to make those investments. Even though on a GAAP basis it may not look great in the near term we think we're building a really very strong, very profitable business for the long term.

Makes sense. Okay, thanks guys.

Glenn Mattson, Ladenburg Thalmann.

Yes, hi guys. Just two quick ones. I know it's running late.

The camera supply issue, you said you had enough supply to satisfy your forecast. But what about if there's any upside to that forecast like if you get big wins like large agencies that are out there is there any concern should demand exceed what you're currently forecasting?

We're obviously managing that very closely and that is something we're keeping an eye on. We do feel like we've got enough cameras to satisfy the forecasted sales for this year.

We're working hard from a supply chain perspective to make sure that we have enough cameras to satisfy demand even if we get some of those upside orders. But it is something we're addressing and feel like we've got a good team in place working hard to make sure we continue to satisfy the demand as it comes.

Okay. And I guess secondly just conceptually I think you guys have been doing such a great job especially in the US gaining marketshare that it's interesting to see the increased spend because I think a lot of people were already assuming that you're going to win a large majority of the US.

Maybe the wild card out there is international and grabbing a large chunk of the share there. The US is kind of a market that's ripe and that's growing rapidly.

That level of acceptance might be different in different countries. How can you be confident that the demand is there to justify the spend to say the international market?

Yes, I think that's a good question and international you're right it's been a challenge. I think if we looked at the 2013 results it was a little frustrating because we'd started ramping the expenses at the end of 2002 and spent significantly higher amounts in 2013 and really didn't see any impact on sales because the sales cycle international is so long.

But in this year we went up close to over 45% year over year internationally. That was a big part of our growth for the overall business was in international. We think there is tremendous whitespace opportunity.

Rick talked about one out of every two officers carrying a TASER in the US. Internationally that's one in 50. And then we have a camera business because of the way we have engineered the product to be a cloud solution allows us to sell that product around the world and have a localized product in different markets.

So we think we've got not only a big whitespace opportunity in the weapons business around the world we think we have a tremendous camera opportunity as well. And we're confident that the investments we're making will pay off; again, longer-term payouts but I think the growth we saw in 2014 has given us confidence that there is a payoff for those incremental investments.

Okay, great. I had a couple more but I will jump in the queue as I know there are probably some others on the line. Thanks.

Greg McKinley, Dougherty.

Yes, thank you. I'm wondering if you can talk about I guess the breadth of the opportunity in the market or the concentration risk in it.

When you think about your potential big customer relationships from a bookings standpoint it's obviously something investors are monitoring very closely around your bookings levels those numbers have grown dramatically in recent quarters. Is there enough volume of potential customers out there that bookings can continue to grow consistently quarter to quarter or where are we in the maturation of the business such that visibility on bookings levels becomes easier for investors?

Yes, that's a great question. And so the way we think about the market is once we're able to put an officer on our platform we've got additional opportunities to walk them up the pricing tier with features that provide value for the agency. So we think the first phase is we need to grab the marketshare.

Then the second phase which we're investing in now is developing additional features that provide value so we can walk that customer up the pricing tier and we think there's a lot of opportunity. And that's what we're assessing now is how do we develop those features where we can get more price per seat per customer.

Greg, this is Dan. I think the other thing too is that a lot even at these big agencies a lot of the initial bookings are not full deployments. They are the initial deployment for an agency that still has lots of room to grow.

LA is a good example. It's great they are now on our list of customers but there is a lot a tremendous opportunity on top of the booking we've already recognized on LA for future camera sales as they go to full deployment.

So I think it's not only a matter of getting new customers but also getting the customers on the system going to where every patrol officer has a camera. That's still a lot of upside to the numbers we reported.

Yes, I would just chime in. I think what you're getting at is can we expect a relatively smooth upward trajectory of bookings and the answer there is probably not. Because we do have these bookings are coming in relatively large chunks one or two of those slide out a quarter you can see a sequential dip.

We think we're going to continue to see solid year-over-year growth but I just wouldn't want to miss that expectations that we're into this highly predictable phase. We're not dealing with millions of consumers, law of large numbers, lots of small transactions. The big transactions are driving a lot of our bookings so there's going to be some lumpiness quarter to quarter.

Okay, thank you. And then as you are moving after some of these big markets you talked about I think in your Officer Safety Plan the notion of bundling a weapon with a camera and software. Does that help crack the code on some of these major municipalities that historically haven't used weapons and how significant of a change is that to the way you can work with them to get weapons in their hands?

Well I need to contain my enthusiasm here because we're talking about the future. But I would tell you it made a big difference at LAPD.

LAPD we've been working on for 15 years and this opportunity of putting the cameras and the TASERs together I think is what gave them the impetus and the opportunity to expand their TASERs to every officer together with the cameras. Because the cameras answer the major concern you would have about TASERs in a large city which is maybe a more political environment, what's the pushback from various nongovernment organizations that might have concerns about are the police going to potentially misuse the TASER?

Well if they've got a camera the police agency is simultaneously introducing a higher level of oversight, so it worked great at LA. I would say qualitatively we're hearing a lot of interest from other large agencies but it's early in the game.

We're 45 days into this. I'm excited, enthusiastic about it but we need to see how the market actually develops. I'll just tell you reactions have been real positive early.

Okay. Thank you. Then Dan, you had given us a metric I think of $53.6 million of future revenues, $39.3 million of future bookings.

Is it essentially true that the difference between those two is just deferred revenue? And then secondly, on that $53.6 million, any visibility you can provide to us how that splits off between software and hardware?

So on the first question yes that's exactly right, so the only difference between the two numbers are the deferred revenue. If you take the future billings plus the deferred revenue that's going to be future recognized revenue. So that's exactly right.

As far as the mix that's probably one we're probably not ready to talk through. I would say that as you model out the business I think as you up the license count and look at the monthly recurring revenue per seat I think there's a way to model that but we're probably not in a position to give that split between hardware and software at this point.

Okay. And focusing a little bit more on software now so you have a $26 monthly revenue per seat.

Was that in Q4 bookings or is that where the business stands at cumulatively today? And can you comment if it wasn't for Q4 bookings how that changes as people are opting for the OSP and the Ultimate Plans?

So what I can say is that is the cumulative so that is actually December's revenue was at that $26 per seat. So that's sort of the cumulative of all the deals before that that we've already invoiced and recognized the revenue for.

And that did go up and it's been going up. So I would say that the more recent deals that were recognized -- started to be recognized in the fourth quarter helped drive that rate up over the that same number say for the month of September. So we are seeing that head in the right direction.

The one thing just to be clear is that things like Officer Safety Plan or the Ultimate Plan we are going to take roughly 20% of the bookings on Officer Safety Plans and strip that out. That's the weapons part of the business, so that won't be included in that monthly recurring. And then the part that represents future camera upgrades will also be stripped out and put on the balance sheet.

So you're going to have about $15 a month on those plans that include future cameras that are not going to be in that monthly recurring. That's going to be on the hardware side. So that wouldn't be on the monthly recurring even though we're collecting the money every month that's getting deferred so the monthly recurring is actually the revenue recognized in each month.

But just to be super clear on that so on the $99 a month take $20 a month out for the weapon and another $15 a month out for future camera hardware.

That's correct.

So you're taking $35 out there. And then as you go down then to the Unlimited Plan which is the OSP but without the weapon and Unlimited and Ultimate in both of those you would take $15 roughly out for the future camera hardware.

Yes, roughly that would be a good approximation.

Okay, that's helpful. Then lastly can you comment on how many -- so 80% of your cameras booked seats in Q4 up from 75% in Q3. How many seats are you at cumulatively today, is that something you're willing to disclose?

We said last quarter we were above 10,000. We're above 15,000 at this point so we're continuing to grow that seat count.

The other thing, too, is that that seat count we wait for the implementation and everything else before we start recognizing the revenue on the seats. So sometimes there's a little bit of a lag in that seat count from when the booking is just because we need to do implementation services.

Thank you.

I'm showing no further questions at this time so with that I'd like to talk the call back over to Chief Executive Officer Mr. Rick Smith with any further comments.

Great. Well in the interest of time we're not going to take the Twitter questions here.

I think Erin will deal with those offline. I know it's been a long call.

Everybody thank you for tuning in today. Again couldn't be a more exciting time at the business. I feel very excited about the team we've got.

The product is resonating. This year you're going to see us really starting to tuneup some of the international performance and continuing to consolidate the market. So thanks everybody for your time and we look forward to seeing you all at our shareholder meeting coming up in May which will be held at our new Seattle office.

So we look forward to seeing any of you that can make it up in Seattle in May. Thanks and have a great day.

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program and you may now disconnect.