Luke Larson - President Dan Behrendt - Chief Financial Officer Rick Smith - Chief Executive Officer, Director and Cofounder.

Glenn Mattson - Ladenburg Thalmann Steve Dyer - Craig Hallum Mark Strouse - JP Morgan Jeremy Hamblin - Dougherty & Company George Godfrey - CL King.

Good day, ladies and gentlemen, and welcome to your TASER International, Incorporated first quarter 2016 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference may be recorded.

I would like to introduce your host for today’s conference, Luke Larson, President of TASER International. Sir, you may begin..

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

This call is being broadcast on the Internet and is available on the Investor Relations section of the TASER International Web site. Please note that the earnings press release as well as supplemental materials, including our key operating metrics, are available on our Web site. Today, we will open the call with prepared remarks.

We’ll follow up the prepared remarks with our standard live question-and-answer session. Statements made on today’s call will include forward-looking statements including statements regarding our expectations, beliefs, intentions and/or strategies regarding the future, including statements around projected spending.

We intend that such forward-looking statements be subject to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based upon current information and expectations regarding TASER International Incorporated.

These estimates and statements speak only as of the date in which they’re made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict.

All forward-looking statements that are made on today’s call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in our press release we issued today and in greater detail in our annual reports on Form 10-K and quarterly reports on Form 10-Q under the caption Risk Factors.

You may find these filings as well as other SEC filings our Web site at www.taser.com. And with that, I’ll hand the call over to Rick Smith, our CEO and Founder..

Thank you, Dan, Luke. Good afternoon, everyone. First quarter results exceeded expectations for both revenue and bookings, reflecting strong performance in our Weapons business and continuing gains in the Axon segment. In fact, we passed an important milestone this quarter.

For the first time ever, our Axon bookings of $52 million surpassed our TASER Weapons segment revenue of $46 million. We’re excited to see the years of effort, the significant investments in building this platform paying off for the business that is now booking greater sales than our core business.

Operating expenses for the quarter were in line with our expectations, which keeps us on track with our previously discussed outlook on operating expenses for the full year. Luke and Dan will have more on that subject in a moment, but let me speak at a high level in terms of our progress in the period against our longer-term objectives.

We continue to execute on our strategic initiatives, including solidifying our market leadership in the Axon and Evidence.com segment, increasing our TASER Weapons penetration and setting up the international business for long-term success.

All these initiatives are consistent with our broader vision for the company of offering a comprehensive technology platform to the global law enforcement community. Axon segment revenues grew 51% year-over-year, driven by a more than doubling of service revenue.

This growth illustrates the continued interest in the network of devices that we’re building as we connect public safety officers to each other and to their core technology tools. And if the customer response to Axon Body 2 is any indication, we are trending in the right direction.

We did extensive voice-of-the-customer research in developing this generation of body camera and that research paid off in yet another camera favored by law enforcement professionals in the market.

We shipped over 8,000 cameras in the first quarter and continue to work through the backlog of orders, which we expect to be caught up in the current quarter. With Axon Body 2, we’ve been able to add three more major cities to our Axon ecosystem – Chicago, Minneapolis and Baltimore during the first quarter.

We see the largest agencies as being the key drivers to broader adoption. We see the market leaders as being a significant influencer on what on-body camera and, more importantly, what digital evidence management solutions get deployed in any given region. So we’ve been laser focused on winning the biggest agencies on to our platform.

81% of major cities who have deployed on-officer cameras have chosen Axon as their trusted partner. Axon has captured 29 of the 60 US major city police departments using our Axon cameras and Evidence.com with an additional three agencies on our MediaSolv platform. However, only 36 agencies in total have made a purchasing decision to date.

We’re also seeing the benefits of the network effects we’ve historically effects by the addition of major prosecutor offices. In fact, the State of Delaware recently standardized on Evidence.com for their statewide information sharing system with digital evidence.

Now, we may not win every opportunity, but we’re certainly winning a dominant share as we lead with the best hardware and then offer a service platform no other provider can match.

As we continue to build the community around our platform, we’ll only further extend our leadership because we’ve become the entrenched incumbent with even deeper competitive advantages.

What I mean by that is we are creating a networked community of users from police officers on the front lines to management within their agencies to third parties in the criminal justice system like prosecutors, city’s attorneys or various federal and state agencies, bringing all together under one unified platform encompassing video capture, smart weapons and general digital evidence management.

That is what we’re offering to our end user customers today. And our financial model, which includes both recurring revenue on the hardware and software sides, reflects how law enforcement relies on TASER as a trusted integrated partner increasingly at every step of the way.

Our Weapons business had a very strong performance in the period, including a large international order as well as continued performance in upgrading agencies here in the US under our newer smart weapons platform. Internationally, for the second quarter in a row, we had record results.

We’ve also made several key hires in our tier one markets and expect to see – to really start seeing traction in international bookings later this year in the Axon business. We’re generating momentum and building advocacy in our target markets for both TASER and Axon.

Building beachhead accounts will remain a priority over the coming months and years to capture market share and replicate our successful strategy here in the United States. After the past year in Europe, leading the relationship building effort there, I, along with my family, will relocate back to the United States permanently in September.

I’m confident we have the right hires and have an excellent team in place in Europe to manage day-to-day operations. Of course, I’ll continue to contribute to the ongoing development of Europe. However, I can – and additionally, I plan to spend time between now and August focusing on our international teams in key Asian markets.

Looking ahead, I’ll continue to lead our team in the development of new technology that extends our valuable platform strategy to set us up to be the dominant market leader in law enforcement technology arena. We will continue to add the right people and resources to our already world-class team, with a disciplined approach.

And now, I'm going to turn over to Luke Larson, our President, for additional details on the quarter..

Thanks, Rick. The first quarter of 2016 has been about execution and I am extremely proud to share the results of our continued focus. Revenues came in very strong at $55.5 million with international sales contributing a record of $13.1 million to the total. Our other key metrics also showed continued strength within the quarter.

Axon and Evidence.com bookings were $52.1 million in the first quarter, yet another record, and an increase of 127% compared to the first quarter of 2015. Annual recurring revenue for the first quarter was $18.1 million, an increase of 8.4% during the period. In the first quarter, we booked approximately 15,800 incremental seats on Evidence.com.

That brings our cumulative total booked seats to 75,000 since inception and it’s a growth of 20% sequentially. Operating income in the TASER Weapons segment was 33.5% in the first quarter of 2016, which is lower than the prior quarter and our long-term target, and it’s partially due to the fewer related international sales expenses.

Over the near term, we reiterate our expectations that as we build out the international team and gain beachhead accounts, there could be some pressure on these margins. We’ll continue to evaluate future investments to ensure continued operational efficiency.

The ratio of the lifetime value of a customer to the customer acquisition cost in the first quarter was 5.1, a continued increase over prior periods. Our focused investments continue to produce incremental bookings growth.

As Rick discussed, we believe that the major cities in the US will drive the purchasing decisions for much of the middle tiers of the market and the body-worn camera and digital evidence management space.

Therefore, we have focused our sales teams to win these major cities by showcasing our advanced features, the end-to-end workflow of our platform, and our proven ability to successfully implement and support large-scale deployments. We are proud to officially add Chicago, Minneapolis and Baltimore to our platform in the first quarter.

Subsequent to March 31, we've also been awarded the pilot in Philadelphia. Out of the total of 69 major cities in the US, 36 have made a decision on body-worn camera deployments. Of the 36, 29 of them have selected our Axon solution. And of the other seven cities, the market is fragmented among three other vendors.

There's a lot of noise in the marketplace, but we are focused on continuing to provide a bar-raising platform that makes the decision easy for cities to choose us as their long-term technology partner. We will not let them fail.

On the Weapons side, we continue to push deeper penetration into the domestic market, highlighted by CEW purchases in Chicago and San Antonio. Internationally, we are continuing to gain traction in our tier one markets as well as in secondary markets.

As stated earlier, international agencies are much more centralized than domestic agencies and, therefore, we will and do expect some lumpiness in international orders. In summary, the first quarter showcased the focused execution of our 2016 strategic plan.

Our team is diligently working both internationally and domestically to capture market share in all segments and continue to build out our infrastructure for future growth. We continue to innovate and invest in the development of new products to lead the market and build our pipeline. Dan will now go through our financial update before the Q&A..

Thank you, Luke. Revenues in the first quarter increased 24.1% over the prior year to $55.5 million, driven by a 51% sales increase in the Axon video segment and a 20% increase in the Weapons segment. Bookings also had a very strong quarter, increasing 16.5% sequentially to $52.1 million.

International revenues in the quarter were a company record of $13.1 million in sales. This is the second quarter in a row of strong international results. But it’s important to note that we expect continued lumpiness from quarter to quarter internationally due to the procurement patterns and typical deal size in international orders.

As we look to the full year 2016 consolidated results and beyond, we continue to be comfortable with the annual consolidated sales CAGR of 15% for the overall business.

During the fourth quarter earnings call, we updated the market on our strategic decision to hold shipments on the new Axon Body 2 for final quality checks to ensure product performance at a level that meets our exacting standards.

In the first quarter, primarily in the month of March, we worked through the significant portion of the backlog, shipping approximately 8000 Body 2 cameras.

Even with the strong shipments in March, we still had a backlog of approximately 9,000 Axon 2 body units at end of the first quarter, but anticipate working through the backlog in the month of May, which is in line with what we discussed on the February call.

Annual recurring revenue in the first quarter was $18.1 million, representing growth of 8.4% sequentially. As we worked through the body camera backlog during the first quarter, the majority of the shipments occurred in March.

As a reminder, we began service revenue recognition one month after the shipment of the hardware and, therefore, expect significantly stronger growth in our second quarter in recurring revenue.

Future contracted revenues in the first quarter were $202.3 million, an increase of 27% sequentially from the fourth quarter, which is driven by our increased bookings and are made up of both service and hardware components.

Gross margins in the first quarter were 66.5% on a consolidated basis and are relatively flat compared to the 66.7% in the prior year. Sales, general and administrative expenses increased 70.5% compared to the prior year to $24.8 million.

This increase is primarily due to increased headcount, variable compensation, increased travel related to international operations, international trade show expense and consulting expenses. The increases also included approximately $2.5 million of non-recurring expenses related to contractual agreements.

Research and development expenses for the first quarter were $6.9 million, an increase of $2.4 million or 52% compared to the prior year. The increase is almost entirely driven by increased headcount in our Axon segment. We continue to expect operating expenses to be in the range of $123 million to $128 million for the full year 2016.

However, variable compensation related to sales and customer acquisition targets may push us to the higher end of that range. We expect operating margins in the first half of 2016 to experience more pressure and then improve in the second half of the year.

We continue to expect the full year 2016 bookings growth to exceed the full-year operating expense growth as was the case in the first quarter. Income tax expense in the quarter was $1.8 million. The company's effective tax rate was 34.1%.

We now expect the effective tax rate for the full year of 2016 to be approximately 35% to 36% for the year versus our prior expectation of 38% to 40% due to an increased contribution from the international segment and then certain discrete beneficial items in the US.

Operating cash flow in the first quarter of 2016 was $7.1 million, a decrease of $5.9 million compared to the first quarter of 2015.

The decrease was primarily driven by decrease in net income of $3.7 million and a decrease in cash from working capital of $1.5 million, partially offset by the change in excess tax benefits from stock-based compensation of $1.7 million. On February 26, 2016, our Board of Directors approved a $50 million share repurchase program.

As of May 3, we’ve completed over 50% of the repurchase under a 10b(5) plan. We have repurchased 1.4 million shares for $25.4 million at an average per-share price of $18.57. As a reminder, we’ll be hosting our Analyst Day in New York City on May 16. Space is limited and attendance is by invite only.

To those investors and analysts invited, if you have yet to RSVP, please do so. The event will be webcast on our IR website, which is investor.taser.com, so that a broader community will have access to it. We’re now going to move into the question and answer part of the call..

Thank you. [Operator Instructions] Our first question comes from the line of Glenn Mattson from Ladenburg Thalmann. Your line is now open..

Hi. Thanks for taking the question. I’m really curious about the strength in international.

I guess, could you kind of highlight how big that one large international order is? And then, secondly, maybe, Rick, can you describe – is this kind of the normal up-and-down you see in international Weapons or is this somewhat related to some of the work you're doing, travelling around, trying to build those markets up a little bit?.

Great. Thanks for the question. It was around $6 million order, so it was a big one. I would love to take credit for it, but I really can’t. This was the fruit of some investments that we made several years ago in, frankly, some of our non-tier one markets. The work that I’ve been doing is – I think we’ll start to see that come to fruition next year.

These tend to have longer cycle times. I would say, in several markets, we’ve definitely moved from being sort of way behind in markets we’re looking at body cameras, et cetera, to I think moving into a very competitive position.

We’ve really put some great people on the ground in Europe, whether it’s in our in our Amsterdam office, new country managers in Italy, and France we’re hiring couple more. So the strength we’re seeing right now, I think, is really related more to some of the investments made a couple of years ago.

We, obviously, hope to see the fruits of the new level of investments start to kick in probably next year. And between now and then, it’s going to continue to be a little bit bumpy along the way..

Okay, great.

And can you give us an update on what's happening in the UK while we’re talking about international?.

Well, we’re feeling great about the UK. We've now won the three largest agencies in the United Kingdom, who’re all on Evidence.com and Axon, which is a big shift to year-and-a-half ago or so. We were starting cold in a market where there was a pretty strong local competitor that has done a pretty good job.

And for us to move in and sort of aggressively have the impact that we’ve had. We also have the national rail police on Evidence.com. The next sort of big opportunity in the UK is we really see an opportunity for an upgrade cycle there. We’re still working with the home office to gain approval for the new smart weapons.

I say new, in that they will be new in the UK. The UK has a pretty rigorous approval process.

We’re hopeful that we’ll – I'm not going to try to prognosticate in which month or quarter it will happen, but we believe there’s some real pent-up demand that we’ll be able to unlock in the UK once we get the new smart weapons through the last stages of the approval process.

So we’re feeling really good across both segments of the business in the United Kingdom at this point. And I think we’ve done some good foundational work in Continental Europe that we’ll start to see again probably in the next year..

Okay, great. Thanks. I’ll hop back in the queue..

Thank you..

[Operator Instructions]. You next question comes from the line of Steve Dyer from Craig Hallum. Your line is now open..

Good afternoon. And congratulations on the good results..

Can you speak up?.

Is that better?.

A little..

Let’s try this.

Is that better?.

Much better..

All right, great. Sorry about that.

I was wondering, as you look out into Q2, you obviously had the big order in Q1, any guidance, maybe even directionally, as to how you see things shaking out for Q2 from a top line perspective?.

Yes. Steve, this is Dan Behrendt. We certainly had a great first quarter. As you know, the first quarter is typically seasonally weak. So it’s a good base and it’s great to start the year so strongly.

Typically, we would see – I think with a strong first quarter, we wouldn’t necessarily expect significant growth from the first quarter because it was exceptionally high. And, again, as we indicated, we had one international order that was roughly 10% of the sales or a little over 10% of the sales for the quarter.

So it creates a tough comparison from a sequential basis. So we wouldn’t expect any growth from this at this point..

Okay. And then, I think you had said you have a backlog or you had a backlog on March 31 of 9,000 of the Body 2s, how many of those did you ship in Q1. I think it was 8,500.

Are those numbers right?.

Yeah. We shipped roughly 8,000 of the Body 2s in Q1..

Got it. Okay. And then last for me and I’ll jump back in the queue. I’m wondering if you could comment a little bit on the video side, just sort of about the pace of deployments. It seems like a lot, at least anecdotally reading.

It seems like a lot of departments have kind of made a decision and they kind of run into – whether it's policy or funding or what have you and it ends up sort of delaying things a little bit. Can you talk maybe just anecdotally about the pace of what you're seeing? Thanks..

Yeah. So we see the average deal cycle for an Axon is anywhere from 6 to 12 months. And there are some instances where those get caught up in procurement for maybe a quarter or so and we have a high-profile ones that have been even longer.

But we see the adoption still is extremely high and we think in the next 2 to 3 years the majority of the top 1,200 are going to move to a body worn camera and a digital evidence management system..

Got it. Okay, thanks..

Our next question comes from the line of Mark Strouse from JP Morgan. Your line is now open..

Hey, guys. Thanks for taking our questions. So just following up on Steve's question there, a lot of media coverage about the LAPD contracts year-to-date. Without getting into details that you're not able to share, just wondering if there's anything that you can share with us regarding the status of that contract..

We’re not commenting on that deal specifically, but just in general around some of the noise around sole-source and procurement, we've invested heavily, as you know, in bringing a product to market that’s not just simply a body camera, but an entire workflow solution. About 40% of agencies’ procurements go through a sole-source.

And those are generally for items that are unique solutions that aren’t lowest bidder kind of commodity type purchases. Axon and Evidence.com are clearly not a commodity. And that's why we’ve seen the majority of the major cities go with our solution.

What I think a really interesting fact is, is out of the 50 – out of the major cities that have purchased us, 50% of those have actually gone out to bid and they still selected our solution. So we’re very proud of the solution we’ve built and we expect more major cities to go with us..

Okay, that’s helpful. Thanks, Luke. And then just a quick follow-up. Any update on the competitive environment? You talked about – you’ve won 29 of the 36 large cities that are out there.

The other seven, is there – what have you learned from those losses? Is there a hole in any of your offerings or is it really coming down to price?.

Again, we don't comment on specific individual deals. I would say, we have seen some losses come back over to us. And I could see that trend happen in the major cities as well. We’ve developed the best solution and that’s why I think we’re seeing the majority of the agencies go with us.

Coverage was an issue where we were very concerned about not having coverage. We’ve ramped up our customer-facing teams with a real focus on the major cities and the top 1,200 agencies as well as a robust tele-channel.

In addition to that, we've invested heavily to bring to market three really compelling offerings, with a POV camera, our latest body camera, and also announcing a fleet camera. In addition to that, we’re making heavy investments in our software platform with mobile and cloud feature offerings.

So we’re certainly not going to win every deal, but we are incredibly well positioned and we have a strong conviction to really win the dominant market position here..

Yeah, this is Rick. I’m going to maybe add a little bit more color. Several – I think at least three of those agencies – had made purchasing decisions before we had the Axon Body camera when we only had Flex several years ago, only the head-mounted camera. So a couple of those agencies were driven by the convenience factor of a body camera.

So that covers probably half of the agencies that had gone with competitive solutions before we had that.

At least one or two of them have gone – frankly, it was an on-premise thing where IT departments decided that they really – how to say this politely, they weren’t going to sort of go with what’s happening in the worldwide trend towards the cloud, but they wanted to stay on-prem and what, frankly, we consider a pretty outdated business model.

And the agencies that have done that, the feedback we're getting is that they’re struggling. They’re having a hard time. This is hard stuff to do.

And then there’s a couple that frankly – at least two more come to mind where the agency, I think, really wanted to – we felt really good going into it, but sometimes these procurement processes are sort of unpredictable bureaucratic processes that sometimes comes up – which, again, some of the reasons that a lot of agencies do look at the sole-source where something this important, they want to test it and actually control what they're going to purchase, so they get something that’s going to work for them and not sort of turn it over to an unpredictable bureaucracy.

And there’s been a couple of those. So I think, in general, when it comes down to the product, we’re winning the deals..

Got it. Thank you..

Our next question comes from the line of Jeremy Dougherty with Dougherty & Company. Your line is now open..

Thanks, guys. Jeremy Hamblin with Dougherty. Thanks for taking the question.

I wanted to ask about the – in the international operations, in thinking about how those contracts are being laid out, negotiated, and the opportunities, do you see the storage side as a solution as any different from the opportunities you're seeing in the US? Is there some greater hesitancy, it appears, from international agencies to have the storage solution be outside of the control of their agency?.

For sure. There are differences. And I would characterize that, for the most part, the international markets are probably five years behind the US. So sometimes it feels a little bit like Groundhog Day with some customer meeting there and I have the sensation of déjà vu that I had these same meetings with the US agencies five years ago.

So there's certainly some more trepidation about the cloud because it’s newer and it just is not as far along in some of those countries.

But what’s been really encouraging is, when you sit down and you talk with people through it, in almost every meeting I can think of that I’ve had overseas, the net outcome of the meeting is, wow, yeah, this is the direction we need to go. Now, there might still be – you get the but.

This is clearly the direction we need to go, this makes sense, but we need to check and see if we can do it here. A lot of times there's sort of almost these preconceptions that they can’t do it.

So we’ve gotten – it’s been a great learning experience where a lot of times these police agencies might have beliefs just because they’ve never done it before, they think they can’t.

And so, we’re developing strategies that probably going into a lot of detail here on to help sort of give them concrete sort of analysis and feedback from third-party sources that show they clearly can use the cloud and that there’s real benefits. So I think we’ve made a ton of progress conceptually.

Like, in the UK, we’ve got three or four big agencies on the cloud today. And I think we’re going to see some continental agencies starting to deploy on the cloud within the next 12 months. But it certainly – I wouldn’t say that it is fundamentally different other than it’s just further behind where the cloud trend was relative to the US.

This is Dan. I guess, the one thing I’d add to that potentially is that – one of the things, I think, we feel good about is we’ve engineered the system to be able to be localized both from a language perspective as also where the data is housed.

So that sensitivity of getting comfortable with the cloud, the next question is where is this going to be domiciled? We’ve engineered the system’s ability to domicile locally, which I think helps with some of those objections as well..

And in fact, it’s been really helpful – the partnership with Microsoft that we announced last year has been really quite helpful because Microsoft has got a pretty extensive set of relationships around the world in enterprises. They’ve got probably the strongest sales team. They’re a thought leader.

And their number one priority right now as well as – is helping their customers migrate to the cloud. So that’s lining up nicely for not just us in there at the customer, but they’re seeing us partner with some real industry leadership, and that helps get them comfortable that the cloud is a safe, scalable and it’s the right choice for the future..

Should we then think of initial international orders as being a little bit lower value since the likelihood of initial storage kind of coming with that being lower than what you’re seeing in the US?.

I would say it’s probably more – it is likely to be probably lower margin on some of these countries when they’re new. Much like when we were in the US, we did some things with, like, Bay Area Rapid Transit and some of our first US customers, getting the first agencies to move, sometimes you’ve got to be really aggressive from a cost perspective.

And then as the market matures, the margin will get better. I do think we’re going to see that dynamic take place internationally..

Okay. And then just one additional one. In terms of – we haven’t talked a lot about weapons upgrade cycle. But my sense is, the average age of a TASER weapon deployed out there is six, seven years old. And I think you recommend replacement at about five years.

So, one, where do you see the opportunity and how are those discussions going? And then, secondly, are there any new weapons on the horizon?.

I’ll take the last question because it’s the easiest one to answer, which is, we can't answer about our future products. We’re always investing in future products. We can’t really give you any details. I think your assessment of the age of weapons in the field is actually maybe a little bit understated.

I think of the weapons that are on the field today that are not smart weapons, their age is probably up in that seven, eight, nine sort of time frame. So there’s a big upgrade opportunity still out there. And actually we just did something we’re pretty excited about that we think is going to help move the upgrade. And I’ll turn over to Luke..

So about 12% of our weapons deals come in through payment programs where they pay for the device. It's not just a book and ship type deal. At the Analyst Day in New York City, we’re going to go into some greater depth on a new program that we just introduced that we’re really excited about.

Unfortunately, I'm not going to go into too much more depth on that today, but if you come to the Analyst Day we’re going to be talking through some of our new pricing programs that would move that book and ship business over to more of a subscription model that we are really, really excited about..

When I think early customer indication, they’re really excited about it too..

Great. Thanks for taking the questions. I’ll hop back in the queue..

Sure, thank you..

[Operator Instructions] The next question comes from the line of Steve Dyer from Craig Hallum. Your line is now open..

Just a follow-up to that. It’s my understanding that some civil asset forfeiture laws, I guess, or monies were not flowing maybe in your Q1. You didn’t seem to be impacted by that. Is that anything that you're concerned about? I don’t know what percentage of your sales you feel like comes from that.

But any color would be helpful?.

Yeah, that is something that we were quite frankly concerned about, which drove some of our thinking around offering more flexible pricing programs. We've actually seen a little bit of a reversal on the state and municipal level. And what we’re hearing from our customers is they don't think that will be an impact to them.

At the federal level, there is a much stronger and definitive statement around removing asset forfeiture funds. So it’s something that we’re keeping an eye on.

The great thing about our business, though, is, especially for the TASER Weapons and even now the cameras, these have kind of turned into mission-critical devices, and so we’re not currently seeing funding being an issue.

But it's something that we’re keeping an eye on and we want to offer the customers flexible pricing program, so they can get these mission-critical items..

Got it. And then just back – Rick, you had indicated – I think that you said the top three departments in the UK were all on Evidence.com. Presumably, the London Met is one of those. I don't know how much you can comment on sort of what they've decided on a bigger rollout, but anything would be helpful there. Thanks..

Yeah. I’m not really in a position to provide any more color on London Met. They are one of the big ones. They are the biggest and I think we have a really solid working relationship with London. But that’s about all I can say on it at this point. We’re helping to get their plans in place to deploy those 22,000 cameras..

Thanks..

Our next question comes from the line of George Godfrey from CLK. Your line is now open..

Thank you. Good evening. I was just looking at the operating metrics page. I just want to make sure I understand.

The annual service revenue, recurring piece, $18.1 million, that’s based on the active seat count that you have, am I right?.

This is Dan. Yeah, the annual recurring revenue, yeah, would be based on the active seat count at the end of the quarter..

Okay.

Which you don't disclose now? We’d look at the total seats booked, but not the active, correct?.

That’s correct..

Okay. If I look at the total value for the customer acquisition cost, I see it’s $5.1 million versus $3.5 million a year ago.

Can you help me breakdown the math on how you get to that, the roughly 40%, 50% increase in the value?.

This is Dan. I think a lot of that is really just driven by the fact that we’ve really seen a dramatic increase in the number of new seats booked each quarter.

So even though we’re continuing to invest heavily in sales and marketing, the growth in the seats is really growing very quickly and that’s actually allowing us to have that customer acquisition cost stay relatively low even with the higher spend. And that’s why we continue to see that metric go up even with the higher spending..

Okay.

What do you assume for the lifetime length of a customer? Is that indefinitely?.

Yes. So, basically, it is an indefinite life. We do have a – we basically plug in an annual attrition rate, even though, for the most part, most of our deals are multi-year deals and we won’t see any attrition for three or five years. But we do have – we basically have an annual attrition rate that we plug in today..

Okay, thank you. And then on the London Met deal, when the camera deal was announced, details were thought to be coming soon.

But how much is it that you can work with them to get them over whatever their hurdles are or is it something that they just have to deal with and get comfortable with on their own and then they come back to you?.

They are an enormous agency in terms of the scale. And I’d say it’s largely internal planning, logistics. I’ve sat in some of the meetings where they're planning this rollout. It’s a big logistical lift for them. So I’d say it’s primarily internal process..

Okay, that’s it. Thank you very much..

Thank you..

At this time, I’m showing no further questions. I would like to turn the call over to Rick Smith, CEO of TASER, for any closing remarks..

Great. Well, everybody, I’d like to thank you for your time here with us today. 2016 is off to a solid beginning and we’re focused on ensuring the remainder of the year is as successful with our Axon market domination and our international expansion.

We look forward to discussing our long-term trajectory of the business in greater detail at our upcoming Analyst Day in New York and we hope to see you all there..

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