Luke Larson - President Andrea James - Vice President, IR Rick Smith - Founder and CEO Jawad Ahsan - Chief Financial Officer

Steve Dyer - Craig Hallum Yuuji Anderson - Morgan Stanley Scott Berg - Needham Mark Strouse - JPMorgan Will Power - Baird Jeremy Hamblin - Dorothy & Company George Godfrey - CL King Saliq Khan - Imperial Capital

Good day, ladies and gentlemen, and welcome to the Q2 2018 Axon Enterprise, Inc. Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. At this time, I would like to turn the call over to your host, Luke Larson, President of Axon. Please go ahead, sir.

Thank you. Good afternoon to everyone. I'm Luke Larson, the President of Axon. Welcome to Axon's second quarter 2018 earnings conference call. Joining me today are CEO and Founder, Rick Smith; and CFO, Jawad Ahsan. Before we get started, Andrea James, our V.P. of Investor Relations, will read the safe harbor statement.

Good afternoon. This call is being broadcast on the Internet and is available on the Investor Relations section of the Axon Enterprise website. During our call, we'll be making references to our reported results, which you can find by reading our quarterly shareholder letter which is available at investor.axon.com and on the SEC website. We'll start with short prepared remarks, and then we'll take questions. 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. This forward-looking information is based upon current information and expectations regarding Axon Enterprise. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict. All forward-looking statements that are made on today's call are subject to risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in greater detail on our annual reports on the Form 10-K and the quarterly reports on the Form 10-Q under the caption Risk Factors. You may find these filings, as well as our other SEC filings at investor.axon.com or at sec.gov and searching for our filings under the AAXN ticker. Okay, now turning the call over to Axon's CEO, Rick Smith.

Thanks, Andrea and welcome, everyone. We’re pleased with our second quarter results and feel great about the way our team is blocking and tackling as we execute against the goals we outline. One of the big accomplishments in the quarter was our follow on offering which we consider a re-IPO. The offering was highly beneficial on a couple of key fronts. First it provided us with significant resources to be able to accelerate our shift across the entire business towards subscription. And we begun executing on the internal functions now to support that, so we can move the TASER business even more aggressively to subscription. We’ll note that subscription is a percentage of orders did drop in Q2 which was hardly the result of mix. We had some international and distributing orders that skewed the percentage, but also with the result the fact that we were not yet pulling every lever to drive subscription sales partly because of resourcing. We now have the flexibility to accelerate our plans. So please stay tuned for some exciting times as we transition the business model more aggressively. As I mentioned earlier, we view Axon is having re-IPO it’s a software and technology company rather than as a weapon hardware manufacturer. It makes sense for us to reintroduce ourselves to the capital markets in a way that more accurately reflects what Axon is rather than what TASER was. The TASER weapon obviously remains a huge and important part of our business. But even the weapon itself we believe has the ability to benefit from the strong network effects that we built into our software platform. There are so many opportunities for us to make the TASER systems more connected and more integrated into the larger Axon network. It’s not easy to transition from a hardware company to a SaaS software plus hardware solutions company. And we’re incredibly excited to be making this happen. And as CEO, I just want to thank our shareholders for responding well and thanks to all of you who have been so supportive of this transition over the years and have allocated the capital that will allow us to continue to execute and return value back to you. Moving now to some of our new initiatives. We’re now entering the testing and refining phase of Axon records which is a pretty exciting place to be. An early version of the product is in field testing with customers. I also want to highlight the new partnerships with DJI and Milestone. This is interesting to note because it shows they were really extending the network beyond the hardware that we manufactured and having robust partners and third-parties that can begin to come to life on the Axon network. We now have 30 petabyte of data, the sheer amount of data that we're hosting in our secured cloud is continuing to grow and customers are continuing to find great value and the goods and the services that we are selling. We also held our annual user conference Axon Accelerate in June and we were overwhelmed by the positive response from the industry. We've had over 1300 police security, legal and technology professionals in attendance which included both members of the Axon network and non-customers putting Axon and our Accelerate conference at the center of our leadership in public safety. And with that I will now hand off to Luke to go deeper into our operations.

Thanks Rick. At Axon we want every police officer in the world to carry a TASER, wear an Axon camera and every public safety official have a seat on the Axon network. Every day we're executing against that mission. Everything we do comes back to our mission making the board obsolete and enabling truth and fairness in our justice system. I want to start off by talking about our VIEVU integration which is an important area of execution for us. As you know we acquired VIEVU in May which was a key body camera competitor because we're building customer synergies across the Axon network the addition of several new law-enforcement agency customers both enhances the value through our existing customers as well as the ones who are joining because they can more easily share data with each other across the public safety and justice system information chain. Those customers can take advantage of our skill and they are pleased to be working with Axon. We also continue to be very impressed with the VIEVU team that joined us in Seattle. We inherited a group of solid people and expanded our capabilities so we feel like we acquired more than just customers and products we added a team that makes us better and stronger. Also I want to mention one more item related to VIEVU. In June we received a letter from the Federal Trade Commission notifying us that they're looking into the acquisition to ensure that the marketplace remain competitive. We view this as a routine matter and you'll see some language around it in our upcoming 10-Q filing later this week. We’ll keep you posted on any developments but we are cooperating fully with the SEC and are confident that the acquisition was a benefit to customers and that the FTC will recognize this. We are highly focused on customer satisfaction and our customers continue validate our approach. You see that in our financial performance and also in new customer sign ups. In July Honolulu became the 45th major city customer to join the Axon network. And at end of June we now have over 300,000 booked seats on the Axon network. That represents a more than 10-fold increase in user account since the first half of 2015. We have 10X our evidence.com subscriptions in about three years. And with the total addressable market of more than 2 million users there is still great run way ahead of us. Now I’ll turn the call over to our CFO, Jawad.

Great, thanks Luke. Our Q2 results reflected another quarter of solid execution and strong operating performance. There are few things I want to touch upon and then we’ll leave plenty time for questions. As Rick said the follow-on offering was success and puts us in a strong financial position for our next stage of growth. We want to transition the majority of our cash flow to subscription pricing models. The cash flow from selling TASER weapons funded two prong growth in investment strategy. First it allows to invest in products that address our existing market such as body and in car cameras and evidence management. Second it allows to invest in products that will expand our market reach such as records dispatch and drones. These investments will come in the form of people, programs, systems and potentially acquisitions. We now have a balance sheet that gives us the financial strength and flexibility to execute aggressively on this strategy. Second you heard from Luke about progress with the VIEVU integration. From a cost perspective as we expected the majority of integration costs hit in the second quarter and we expect about 100 basis points of adjusted EBITDA margin impact to the full-year. As we said last quarter our strict expense controls are allowing us to absorb the gross margin pressure on some of the VIEVU contracts while maintaining our earnings guidance for 2018. As you can see the leverage in our business model continues to be evident in Q2 revenue grew 25% and adjusted net income more than double. We feel great about the leverage we've been demonstrating in the first half. Looking at the back half of the year you can expect to see us invest more heavily in some of our key growth areas including adding engineers to Axon records and dispatch while continuing to generate strong earnings growth and that's reflected in the guidance we’re providing today. You’ll notice that we’re guiding to a full-year adjusted EBITDA margins of 14% to 16%. To be clear this represents the same level of expense control that we talked about in prior quarters. But given the unpredictable stock compensation adjustments related to Rick’s new compensation plan and the one-time acquisition costs related to VIEVU removing over to an existing metric that’s its cleaner and works better for period over period comparison. Thank you all for dialing in today and with that I'll turn it back to Andrea.

Thanks Jawad. Before we go to questions, I have one house keeping item for you guys. And instead of being scrappy, next quarter we're going to ask the majority of listeners to please listen to via webcast, and we'll save the conference call line for those of you who wish to ask questions. Okay, Dylan, let's go to questions.

[Operator Instructions] Our first question comes from Steve Dyer from Craig Hallum. Your question please.

Just couple of quick ones from me, on the software and services side of the business, you'd indicated ARPU down quarter-over-quarter, that's - you attributed some of that to VIEVU. Couple of questions, one, was it up year-over-year? And secondly, would it been up quarter-over-quarter organically?

Yes, organically it is up.

Quarter-over-quarter as well as year-over-year?

And then quarter-over-quarter it's also up, yes.

And then obviously appreciate the guidance for the second half of the year, any more - you can add just in terms of how we should think about the cadence? Typically, Q4 has been materially better than Q3, would you anticipate sort of a similar pattern this year?

Yes, I think that's typically how we see things go from a seasonality perspective, Steve, so I'd expect roughly the same.

And then lastly, can you just remind me what you said at the Analyst Day just in terms of margin or leverage margin expansion beyond this year? It sound like you're kind of reiterating this year but can you just remind us how you had us think about the next several years?

Yes, the guidance that we gave, Steve, at the Analyst Day was that we were going to drive 300 to 400 basis points of operating margin improvement every year for the next three years. And so we're now changing that to adjusted EBITDA because of the stock based compensation expense and some of the volatility there, which Rick explained. But the point is that we're still committing to drive in operating leverage within the business over the next two years. We're not backing up that.

So, still 300 to 400 basis points, just a slightly different metric?

That's correct.

Our next question comes from Yuuji Anderson from Morgan Stanley. Please go ahead.

I had a couple on the TASER side of the business there. First, can you help us unpack the growth between domestic and internationals just relative to the corporate average and then somewhat related, can you describe what percentage of the current TASER installed base is on some kind of a subscription or payment plan? Thanks so much.

Yes, this is Rick. I think the split was relatively typical this past quarter between international and domestic, and then in terms of the total base, it's on a subscription plan. I don' think we published the numbers on what the percentage of the total base is. Some of which is because we've historically sold more through distributors than direct. We've been transitioning to more direct over time. It's a little hard to come up with what the - what we use as the entire denominator of how many of those previous weapons sold many years ago, we're still in the field, but we obviously in the published letter to shareholders we gave the rates for the last four-five quarters.

And just a follow up on the TASER growth, I mean, I guess I was just trying to get sense of just how much international is growing relative to domestic rather than the actual split?

Historically we've seen international be about 20% of our overall business, there's a little fluctuation quarter-to-quarter but that trend has held over the last 18 months or so.

I think we do expect and I think we started to see international has been accelerating little faster than the U.S. and we think that trend over the next couple of years, there's a lot of opportunity for international to actually take up a greater percentage of revenue.

Just to add on that, as we look to the future, our goal would be to see international grow as a relative percentage of our overall revenue, and we feel pretty good, confident about that over the next two to three years.

Our next question comes from Scott Berg from Needham. Your question please.

I have a few here, first one, and I don't know who wants to take this, but I want to see how we should think about organic versus inorganic growth in the quarter with the acquisition of VIEVU. Just specifically, looking at the Axon cloud, I know there were some revenues that came over, just trying to understand how much that revenue growth came from one versus the other? And then maybe looking at that seat count addition, obviously that was a pretty large increase in the quarter, kind of maybe help us understand how much that is organic versus inorganic?

So, I'll take the headcount and then Jawad, you want to take revenue?

Sure.

So, from the seat counts, we had a mix of both organic user growth and then the seats out from VIEVU, as well as we platform some which were originally booked this on-premise. But we're then migrated into the cloud. So, new book seats were up sequentially organically, but we're not going to break it out to any greater level of detail.

On the first part of your question Scott, on the organic versus inorganic, so on revenue VIEVU only contributed about less than 3% to our revenue growth. And from a margin standpoint it was actually - it's at a loss, so, it contributed to a loss organically, there's not much of that. Organically we have most of the growth coming from the business, from the core business and then it didn't really contribute much to that.

And then kind of a bigger level picture, probably for Rick, since you made the comments on the call is - is the transition to the subscription base plan on the TASER product, does that become more of a push or a pull do think over the next, I don't know, two, three, four, years, whatever that time horizon looks like, and I asked the question because obviously the percentage of sales coming from the subscription has been a little scrappy, they're down this quarter, not a surprise I expect that to vary at least for the short term. I'm just trying to understand maybe what those levers, pushes or pulls look like going on a short term? Thank you.

I would say it's - probably you expected it's a mix, we think that there are things that we can do that will make these subscription offerings more compelling in terms of features and services that will help create more pull. So, we think that we can really influence that in a positive way. So, I guess you could say that as push, but ultimately if we can create these interconnections that are even more valuable, it's going to just really simulate demand. If there's anything you need some more details, then like I said, stay tuned, we do have some - we think there's some pretty exciting new programs that we'll be in a position to launch now.

Our next question comes from Mark Strouse from JPMorgan. Your question please.

Just wanted to get some more color on Axon Dispatch? Can you just kind of talk about what the - I know it's early but kind of what their view is and how that is different versus [indiscernible] that are out there. And then how we should think about timing of commercial availability and then also, I guess, is that investment for that new segment, is that contemplated in the long term targets that were given at the Analyst Day as far as margins?

In terms of -- you can think of Dispatch as sort of the more real-time communications where it's record tends to be more proposed incidents, historical data that's collected in reports that have been put through the business processes all the way to prosecution chain, where Dispatch is the process of handling inbound calls, managing your resources, communicating to office, giving them information about the calls that are going on. We see a real opportunity that these systems really want to be integrated tightly, the most pure record that you have is the - the video incident itself, just videos tend to have lot of unstructured data in them. So, the records of a structured data and of course we're working on tools to extract structured data from the unstructured data and of course bring that into a more real-time environment, make that information more actionable with the individual officers. So they're making decisions and they're getting smarter as they're going in to these situations. We've seen -- I mean the fact that you can see call computer aided dispatch, we note a little bit more. What other type of dispatch would we expect in the world today. These are pretty dated systems, we tend to see some really pretty old software that's just been sorted so heavily integrated into a bunch of other things that sort of ossified into a really challenging user experience. And we see the opportunity to leverage the network we build from digital evidence into records and bringing it all real time with Dispatch. So, we see all these pieces coming together in a very progressive way, and yes all that Jawad confirmed, but we do have -- it doesn't change any of our guidance we've given.

And then -- again, I apologize if I missed this, but any update on the weapons testing in some of those larger European countries that you talked about last quarter or two?

Yeah, so those are both progressing, we are not quite at the deal stage yet but we're seeing positive momentum in the U.K. as well as Italy that are two key markets that we're focused on. In the U.K. the chief firearms instructor Simon Chesterman, they comment when I was there in March saying he thought every constable should carry a TASER, and then in Italy the trials that they started are in progress. I'm actually meeting with the rep from Italy next week, so looking forward to that update, very, very confident in expansion in continental Europe with TASER.

We have also seen some pickup of activity and interest in Latin America.

Our next question comes from Will Power from Baird. Please go ahead. Q – Will Power: I guess a couple of questions. I recognize it's early, but it will be great to get any early qualitative feedback with respect to the records deployment. I know, it's just one trial today, but any early learning's there and then just any color kind of qualitatively around the pipeline of opportunities, increasing inbound interest, just any further color on that initiative would be great?

I think it's just too early for us to be providing any real feedback, I would think at this point. The first users who are interfacing with this software, and we've got engineers riding along with them and learning a ton and I think we're really learning, we're hitting the mark generally and of course there is things that we're tweaking and adjusting and trying to be very agile sort of development loop there. So we're feeding those learning's back in quickly. Pipeline, we are getting a lot of interest. I think customers really see the vision that -- the more they interact with Alexa, or their Siri, or their Google Home device, they're seeing that voice to text is not science fiction but that really – we will have the ability to bring this to life in a way that's going to meaningfully impact the way that records are created. I can't give you any real quantitative feedback in terms of pipeline. We are not at a stage where we can show that publically. We do have the International Certification of Chief to Police conference, coming up in early October. That's typically a place where -- if you're interested in seeing customer reactions et cetera, it's a great place to go off the show, get a feel for the competitive landscape and I believe, Andrea, that we'll be hosting an event for investors in Orlando at ITP this year as well. Q – Will Power: And may be a similar answer to the second question here, but coming out of accelerate looking at some of the new products you announced there, Fleet 2, Axon Air, any sense, any update for -- since for timing for revenue I assume those are both more 2019. And I guess, there's also been some early feedback on those products?

Fleet 2, we'll have revenue, we expect same impact certainly by the end of this year. Axon Air is relatively new product for our customers. We don't think it's going to be material this year, but we view that as really creating the framework for another very interesting business over the next three to five years. And Fleet 2 was really you know a lot entered feedback from Fleet 1 as we mentioned in the letter we believe that Fleet 1 is become the top selling in carrying video system within its first year of shipment which is pretty remarkable and Fleet 2 really enhances the major points of feedback that we got on Fleet 1. So we do expect that Fleet 2 should have an accelerating impact on ability to continue making impact in the space.

Our next question comes from Jeremy Hamblin from Dorothy & Company. Please go ahead.

Congratulations on the strong results I also wanted to ask a follow-up question on Axon Air just in terms of the partnership you have with DJI there. Can you talk a little about how you know managing that business it sounds like it's going to be a little bit more of an outsourced model with you really leveraging your selling network. But can you talk to one the kind of the TAM that you expect for that particular product. And then two in terms of thinking about margins and kind of the cost ramp because your partnering with them, do you expect that to be profitable more quickly than maybe some of the other products?

Yes so I will take this one as well so yeah we do have a great partnership with DJI. So we will be reselling their hardware and that will and to be much lower margin than when we were reselling or selling our own hardware. But we do see significant opportunity in value added premium software services. So we are building out the team to really sort of build out a long-term drone roadmap in the software space but this isn’t like a one or two quarter sort of hoping. This is where we’re laying the foundation, your drones is creating new type of metadata related to managing fleet of drones relating to flight data that might be incremental product control giving in place giving some of the privacy concerns people have about how drones are used et cetera. So I think this is it certainly much deeper than us just spying drone stock in the warehouse and having our sales people right orders. We see with our subscription software services we’ll go with those drone leveraging our training network to provide training to drone pilots in the field. I don’t want to speak on behalf DJI but in our discussions I would say share price down is quite near of interest given our training infrastructure for training comps, how to use laser weapons. So we will be able to use that so similar resources and infrastructure to train pilots on drones was pretty important and making this the fact partnership for them. I think it’s over premature for us to setting a password we think it’s going to be profitable, but the good news we’re not going to be incurring a lot of hardware revolving costs. There will be some software revolving cost but I do think overall that this is not going to be one of those heavy lifts huge investments over years before we’re seeing a return that this one it’s a much more sort likely path to profitability.

And then I just wanted to ask a question on the weapon segment you have some really nice I think 110 basis points of gross margin improvement year-on-year but if the operating margins were down about 520 basis points. Can you just give me a little color in terms of that change in profitability was this just allocation of costs as you are selling more kind of package deals or can you just give me color on that?

Jawad?

Yes just broadly speaking Jeremy we had an increase in OpEx and these are to invest we’re continuing to make in the business. So we had some OpEx that hit the TASER segment. We also had some also distributors that are typically at lower pricing. And we talk about before the way that we allocate our cost and we tend to have more of an allocation to the TASER segment. So when we have an increase in OpEx across the business it tends to hit TASER more broadly.

Our next question comes from John Weidemoyer from William Blair & Company. Please go ahead.

This is for [Jonathan Ho] we are having some technology challenges for NATO so thanks for letting me ask the question. So again on the drone first of all can you hear me okay. Okay sorry the relatives to the drones – how big is the drone opportunity relative the fleet of body camera market?

Yes it’s a little hard to say right now just the future is hard to predict I mean you could imagine world where every police carrying has a drone associated with it or if we go further down field you could imagine maybe even drones that are being replaced that might be greater than the number of petrol cars. So yes, I think it’s sort of anyone guesses as you have significant with drone market will be long-term but we do see that there is a real advantages to being able to have over side over the top of the scene both visually and to be able to use in this communication hubs be able to jump wireless communications. What interesting things that we could be done with drones. But it just can be really hard to predict how that market is going to evolve let me based on your customer feedback.

Yes, I would add one point on Axon Air this is one where we definitely see the market is pulling this technology and they are coming to us saying hey, help us understand how do we package in such a way that we can have a simple easy-to-use workflow. And that where we see the real benefit of the Axon cloud and the network that we've developed.

Another question now that you’ve had the officer safety plan and subscriptions for your weapons. Have you seen any sort of change in buying behavior by police department where they might be upgrading stepping up their upgrade to take advantage of it or do you think it's more gated by budgeting in the RFP process?

So compared to a few years before RFP I would say we definitely seeing an increase in the percentage of weapons that are being brought on subscription. We started first doing variants of municipal leases while I mean six or seven years ago with very low attach rates and I think over time as agencies have begun to get used to subscription on the SaaS side of the business with [indiscernible] we’re actually I think first came to us with the idea of bundling together TASER weapons with cameras and software into one easy to budget for subscription price. And we see the generally up trending again there is some noise quarter-to-quarter. And I think we have seen that, that has increased the velocity of sales namely agencies that previously may have wanted to buy a 100 weapons a year over five years so that they could fit it in their budget we’ve got 500 weapons now and paid for them over five years. And the great news there that sudden just bring out one set of orders forward but now only to get to year six all the weapons are five year hold. And they have already got the budget line item in place so it’s far higher likelihood that they them replace all those weapon in the beginning of year six and now we get two or three sales cycles within a 10 year period well us historically. If they done the space rollout the problem you get into is in your six like a good portion their weapons are still pretty new and mostly these don't have mixed fleet they don’t have halfx 26 and halfx 2s. So what we saw in that historical buying pattern is once they finish the multiyear rollout then you got sort wait until the last batch of weapons who sort of coming out with useful life. So you went to that first upgrade probably for nine or 10 years as opposed to right at the end of the buy.

Our next question comes from Mike Lattimore from Northland. Please go ahead.

This is Bailey on for Mike Lattimore congrats on a great question. I know you guys said that your international segment growing faster than the U.S. do you see that this might change your EBITDA margins and your basis points that you’ll guide for the next few years?

So just to clarify that we’ve historically seen international come in at about 20% of revenue. We see our international pipeline is growing faster relative to a percentage. And so we’re optimistic about future international expansion we’re also growing our overall revenue and domestic business very well. So on this needs work that’s ahead us to realize those sales.

That’s it sorry guys as a follow-up do you see that changing the margins at all, can you use – give a little bit more color about how we should think about that?

So, weapons margins are relatively the same across international and domestic. And some of the earlier international markets we’re seeing more of a pull for just a body worn camera a [morocco] was one of our big deals, but they don't have the infrastructure for Axon cloud today. And so they started with a body worn cameras deployment only. And so there's some deal mix on margins in that segment.

So, we do see international across the board tends to start little lower on margins but we're seeing international margins overall are increasing steadily. Q – Unidentified Analyst: And then just as a follow up question, do you expect body and fleet cameras sales to be the main SaaS revenue driver? I assume that records for to be the main one thereafter, but how should we think about that? A – Rick Smith: Yes, I think the - go ahead Jawad.

Yes, sorry in the near term we've got a lot of momentum in our evidence.com enabled services like body camera, fleet. And so over the near term that's going to be the main driver, but as records and dispatch come online, we think that ultimately that's going to be the majority of the growth of the business from a cloud perspective.

[Operator Instructions] Our next question comes from George Godfrey from CL King. Please go ahead.

Just a couple here, the seat count added this quarter roughly 80,000, if we look at the organic adds and the reclassification of Axon let's say 35,000 its 45,000 of reasonable seat count for VIEVU? A – Rick Smith: Yeah, we're not going to go into – sorry for strategic reasons we don't want to go into like explain those numbers up in any finer detail. Q – George Godfrey: Okay, shifting over to the TASER weapon base. What is the installed base for the TASER weapon right now in the U.S.?

Jawad, I'll kick that in VIEVU we are using for the estimate on the installed base on TASER weapon.

Yes, we believe that to be about 450,000. Q – George Godfrey: 450,000 about a 10% increase I want to say from roughly two and half years ago? A – Rick Smith: That's a fair assumption. Q – George Godfrey: The camera count of 300,000 we ended this quarter, what milestone and metric are you waiting for before you start segmenting that domestic versus international? A – Rick Smith: I don't know the reason – I know we set a firm metric for when we started segmenting those out. Q – George Godfrey: Well, that's my question, what are we waiting for? A – Rick Smith: Go ahead Jawad.

At this point as Rick mentioned earlier, we're still establishing our presence in the international markets, and there are some early beachhead accounts that we're trying to win but that we've won. And there is some pricing that's not really indicative of what this business is going to look like long-term. And so, at some point it will make sense when that business is more matured, to split it out but at this point it doesn't really add a lot of value. Q – George Godfrey: And then my last question, is it relates to the artificial intelligence and machine learning that call over in your press release, thinking about the facial recognition software. Two questions, one is, if you invent facial recognition technology into the existing camera base, do you think that's a [PTU] charge extra for or is that an ongoing upgrade to the existing subscription? And then I have one follow on to that. A – Rick Smith: So, at the point when we do launch something like facial recognition biometric, we think likely that would be a premium service, that would be something that just happened within the existing contracts. I would also give you caveat that we've done pretty careful, they were not yet – we don't have a time line to launching facial recognition, we do not have the team actively developing it this is a technology we don't believe that sitting here today the accuracy thresholds are right where they need to be making operational decision of the facial recognition, but once we see sort of daylights where it will be accuracy thresholds and once we've really got a tighter understanding of the privacy and accountability controls that we need to ensure that it'll be acceptable by the public in large, at that point we would then move into commercialization of that capability. But this is one where we think -- you don't want to be premature and end up where you have technical failures with disastrous outcomes or something where there is some unintended use case where it ends up then being unacceptable publicly and impaired for long term of the technology. Q – George Godfrey: And then my last question, you mentioned the 30 petabytes of data, they had a legal restrictions where Police Department even if they want to share data between Seattle and Chicago they can't or under your agreement they're obligated to do so? Thank you very much.

No under our agreements the data belongs to the customer, they have to opt in specifically to any use of their data, and then certainly there are local guidelines or restrictions that may impair whether or not they're – intending – whether they can share that data across to other jurisdictions et cetera. But we do find in many cases that we now the [indiscernible] accredited AI training center where we have a staff that has been cleared to the same standards as other law enforcement agencies that are able to help create training in inference data off of the underlying data and enough to train our models and we are having agency customers that are opting in to participate in those programs. But they do have to opt in.

Our last question comes from Saliq Khan from Imperial Capital. Please go ahead. Q – Saliq Khan: First one being is, you've done a pretty great job of introducing several new offerings over a very short period of time. Are you concerned about being spread too thin and what are you doing to be able to ensure the success of all the programs that you have recently introduced? A – Rick Smith: So, two of our key metrics that we focus across our entire business is net promoter score and usage. And so we really want to make sure on a quarterly basis and even on kind of daily and features set that we're measuring our customers using the product that we're creating and would they give us a positive recommendation. And so we've got a very tight feedback loop for monitoring these systems daily to see are they using and would they recommend. And we've got really, really good customer feedback I would also say, Axon accelerate conference is just a great kind of testament to the customer's satisfaction with the Axon network. We actually sold Axon T-shirts and swag and our customers bought $24,000 worth of Axon swag, which was just I think an incredible testament to the affinity that they have for the Axon kind of brand and network.

Yeah the other thing I would point out is, there is an incredible value to having systems that are integrated and just work well together. And one example I can give you is our – if you stack up Fleet 1, our in-car Fleet system against most of the in-car systems out there today, on a feature-by-feature basis like there's a lot more features in the incumbent systems that are out there. But where our system really shines was it played really well with body cameras. There was a lot of tight integration between them on the back end being able to do multi camera safe tab, all the information stored in one system, they can be shared with prosecutor et cetera. And that seamless integrated user experience was far more important than a list of [indiscernible] features et cetera. Now, some of those features were things were causing customer pains, which is why we had a very fast cycle times from Fleet 1 to Fleet 2. But we believe in each of these segments we’re going into the key advantage we have is if we just make it integrated well and easy to deploy with great customer service and training, that we're going to provide a much better user experience and be able to rapidly gain market share and learn from the customer on which of those incremental features we need to bake back into the product. So, we just think the network affects there are particularly compelling for the end user. Q – Saliq Khan: And then as you continue build out the end-to-end public safety platform – are you finding you're having more success or more successful conversations either in the field, the station, or in the court room. Where are some of these lower hanging fruits for you?

Such a great question, I would say we're definitely -- the conversations are getting easier and easier over time. When we first launched cameras, how long ago is it now, its eight years ago. I think there was a ton of skepticism that, wait a minute, you're a weapon company, you're going to do cameras? And cloud software, hey what is that? And how do we know that you're the people to develop it. I think having delivered on a number of successive transformational product experiences we've gained a ton of creditability with our customers, many of them tell us that evidence.com is the most reliable and enjoyable software that they use on a day-to-day basis. So I think as we extend into things like records and dispatch, we're finding a very hungry user base for better user experiences. Now, we're continuing to see -- the most program is still with law enforcement agencies themselves, but obviously we've extended now into prosecution, it's extending from there into defense attorneys and with court. So there's certainly a ton of opportunities for us to continue expand the network. We just want to make sure, we stay focused on -- the most important thing is that we have a really solid core in law enforcement as we then begin to stand up further into the broader public safety agencies. Q – Saliq Khan: How are you being impacted by any either budgetary or political constraints?

We've not seen any slow back when we sit across from customer. Certainly in the U.S. but really around the globe they are saying we got a need for your products and we've not seen budget being an issue.

Our last question comes from Brian May from Morgan Stanley. Please go ahead. I show no further questions in the queue at this time. I'd like to turn the call back to CEO of Axon, Mr. Rick Smith. Please go ahead with closing remarks.

Great. Thank you - so as you can see this last quarter and frankly last several years, we've really been focused on driving ARR, annual recurring revenues and bookings rev, and you can see we continue to make solid progress there. Thanks for those of you who are relatively new, who've joined us since the secondary in May. We really do believe that sets up a foundation where we've now frankly have to align our investor base with the mission of the Company, it's been a lot of work to transition from manufacturing Company into the leading cloud provider of software and connected devices, in the public safety market, and transitioning to bringing in investors who are excited about in supportive of that vision, it's really great. We believe we've got alignment across all of our stakeholders now, investors, employees, and customers. And stay tune, we're going to use those resources creatively to continue to solve big problems, to continue to accelerate our reach into our customers. And this next quarter we're going to have some really exciting events. I'd encourage you if you get a chance to come and visit us at one of those. We'd love to get to know you all a little bit more personally and stay tuned as we continue to protect life and change the world together. So thanks for joining us today.

Thank you, ladies and gentlemen for attending today's conference. This concludes the program, and you may all disconnect. Good day.