As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Mr. Luke Larson, President of TASER International. Sir, you may begin.
Thank you, and good morning to everyone. Welcome to TASER International's third quarter twenty fifteen earnings conference call. Before we get started, I'm going to
turn it over to Dan Berrent, 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 statements information is based on current information and expectations regarding Tazir International Incorporated.
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 of today and in greater detail in our annual report on Form 10 K for the year ended December 3134 under the caption Risk Factors. May find both of these filings as well as our other SEC filings on our website at www.taser.com. With that, I'll turn it back over to Luke Larson, our President.
Thank you, Dan. As a reminder, we are going to be accepting some questions via Twitter today during the Q and A portion of the call. To follow our updates on Twitter during the call, follow the account taserir. For those of you without Twitter, all updates and graphics stream directly to our Investor Relations website, www.investor.taser.com. Our team is coming off the most exciting ICP event that I've experienced in my seven years at TASER, which was a fantastic culmination of a quarter firing on all cylinders of growth oriented execution.
Revenues came in over internal expectations and set a new company record of $50,400,000 We also increased our investments and accelerated spend above our messaging from last quarter in an intentional and strategic decision to capture market in a limited window of opportunity as the market forms. Based on our leading indicators of marketing pipeline, including CAC to LTV ratio and that we surpassed our internal bookings target for the year, we made a very deliberate decision to continue our investment strategy in order to capture the most market share. We strongly believe these investments will result in a consolidated platform that will create much value for both our customers and the investors. At the beginning of this year, we set the FY twenty fifteen bookings goal at $100,000,000 It is ten months into the year and we've already surpassed that goal and are expecting our Q4 bookings to exceed the third quarter results. In the third quarter, we not only won the major cities of Denver and Memphis, but just last week we learned that we won the City of San Antonio for our largest Axon and Evidence dot com deal to date, making our total major city counts 29 cities as of this call.
This quarter, we went through an exercise to determine how to best display our total addressable market to investors. In our supplemental package and currently being tweeted, we posted an illustration of how we see the expansion of and execution on the platform strategy that we've been talking about for several years and now it's direct correlation to the size of the opportunity ahead of us. Prior to 2012, this segment was really just a TASER CAM and then our very first generation body cam and Evidence.com in its infancy. These ideas were ahead of their time, but needed refinement. In 2012, we launched the Axon Flex point of view camera, which is still in the market today and was our first real winner with a compelling product market fit for the body camera space.
In 2013, we launched the Axon Body Camera at the Advance of the Market and further expanded our platform into offering professional services. In 2014, we introduced integration services, which further expanded our platform of offerings for those customers who wanted their records management integrated with evidence.com. Finally, in 2015, after years of ramping R and D spend, we have introduced a litany of new products, including Axon Interview Room, Axon Fleet and in car camera system and our next generation body camera, Axon Body two, all with unprecedented unlimited HD storage. We realized our platform can be much more than digital evidence and are now positioning the sum of our total offerings as the Axon platform, we further are continuously offering more advanced platform features such as automatic redaction that are compelling reasons for agencies to choose the premium service tiers. With our current product and service offerings, we view the domestic market as having a total addressable reoccurring annual revenue opportunity of $1,000,000,000 For the international opportunity, we looked at our current focused markets where we have directly placed internal resources.
Note, this does not reflect the entire world. We believe just in those select markets, the opportunity represents 2x of the domestic opportunity or $2,000,000,000 annual recurring opportunity. So the next question is obviously where are we in this opportunity cycle? The next graphic you will see is our progress. In the domestic market, we believe that there is 1,000,000 potential touch points in The U.
S. On our current platform, approximately 600,000 patrol officers and another 400,000 patrol vehicles. To date, we have booked approximately over 45,000 licenses on evidence.com, meaning we are at the very beginning stages of this adoption curve. We are already the dominant force in the market today with over 45,000 licenses and we are dedicated to consolidating the market on our platform. Our vision with the Axon platform strategy is to get every officer in our target markets having seed on our system and using several of the products in our product portfolio.
This is a very customer focused strategy and we are extremely confident in our ability to create great products that create immense value for our customers, investors and society as a whole. This concept of a platform of connected capabilities is by far our shining strength today. We are committed to becoming the preeminent technology provider to law enforcement and are executing accordingly. One of our directors, Hadi Partovi, really crystallized with the announcement of Axon Fleet combined with that of Axon Body two and the expanded Axon platform, this provides an insight into the strategic vision held by TASER. We're witnessing a major shift and exciting transformation of TASER's business that's on par with the likes of Netflix evolving from shipping DVDs to being the world's largest streaming video service or that of Amazon becoming a major cloud computing provider.
TASER's metamorphosis to the Axon software platform with multiple hardware extension provides a unified law enforcement customer experience similar to what consumers see today with the Apple or Android ecosystem. This lays the foundation. I would like to reiterate, we are committed to providing long term shareholder value and look forward to continuing to update you on our progress of this incredible story. This is why we'd like to share with our investors five key metrics that we will continuously be sharing and measuring ourselves against for the foreseeable future and you will see in today's earnings press release that we added a new section to succinctly share the results of each of these metrics with the public. So here's our five metrics.
Number one, Axon and Evidence.com bookings to show the momentum in Axon and Evidence.com contract values. Number two, LTV to CAC to show that our targeted Axon investments are providing long term return on a book seat basis. Number three, ARPU, average revenue per use of the Axon platform. Number four, TASER weapons operating percentage to show continued diligence in running our legacy business profitably while investing in new markets internationally. Number five, future contracted revenue.
This is cumulative booking. We are focused on long term profitability in the more mature TASER weapon segment. Each of these metrics may have hiccups from time to time as we test new markets, products and strategies, but we want to remain transparent with investors about the management about what management looks at to calibrate the business and measure our success. Rick will now discuss the excitement of IACP and an update on the international markets.
Thank you, Luke, and good morning to everyone on the call. We are coming off really an exciting and incredible IACP conference, and I for one am excited by the success that we had. By all measurable metrics, this is our most successful show today. We put over 3,000 people, mostly chiefs of police, through our customer experience and introduced a number of disruptive new products and services. All of our products were met with resounding excitement, but there are two that I'm deeming particularly impactful, Axon Fleet and our new unlimited HD data storage programs, which is made possible through our partnership with Microsoft.
After just a few days, I am personally aware of over $30,000,000 in pipeline for our new fleet offering already generated through just a few major accounts. Axon Fleet is exciting because this is really the first time we've disrupted an existing market as opposed to creating new markets. Now TASER has always been an innovator. When we introduced the TASER conducted electrical weapons to the world, we had to educate our customers on why they needed this new capability that they'd never seen before. We were then the first with Axon fleets, we're now enjoying the benefits of entering the established market in the sense that we don't have to convince our customers that this is a need.
They get it. They've been buying in car systems they're used to, which explains the overwhelming response we're seeing so far. The analogies we've used in talking with customers is similar to how the iPod disrupted the home stereo space. You used to have these big expensive systems with many components wired together. And then this tiny piece of hardware connected to a great software experience gave us all a far better user experience at a fraction of the cost.
Suddenly, you could put a thousand songs in your pocket and you could build a playlist with drag and drop versus the old method of putting CDs or records in and out of your stereo while you made a cassette tape with the music you wanted. While existing in car systems remind me of these old home stereo, they're complex with lots of components from cameras to a digital video recorder in the trunk of the car and wiring harnesses everywhere. Axon Fleet is a simple piece of hardware connected to the power of the cloud. So for a fraction of the cost and with far simpler installation and replacement, we believe Axon Fleet will give more capabilities and a much better user experience. This analogy clearly resonated with people's personal experience as we introduce this product.
We're looking forward to sharing some more about the traction and impact, both with our business and with our customer base that these products have as we move into the coming year. Outside of this being a great product for customers and a compelling addition to our platform, relatively this is a crucial strategic competitive move for us. By introducing a new car camera at a disruptive price point, we're able to gain traction in deals where the incumbent new car providers previously had an advantage. I talked to several agencies that were leaning towards staying with their incumbent in car video providers for body worn cameras. These agencies indicated that they were now much more likely to consider our solution now that we could offer a full suite of in car body worn and interview room video all on one platform.
Strategically, we believe we have the opportunity to rapidly gain market share in the in car video space. Further, given that many of our competitors that are coming into the body worn space have built their core businesses around this bloated economics of a $5,000 InCar Video system, we felt we needed to bring our best game to compete in this market at a price point of just $4.99 or 90 percent below these older systems. Now as many of you know, I've been spending the past six months living abroad working to build out our international infrastructure. We've long discussed that the sales cycle internationally is much longer, but that doesn't mean that we're not starting to see some traction. We're working hard to set up the infrastructure for long term success and met several key milestones over the past quarter.
In our domestic business, our relationships with key decision makers and key influencers is key to our success. On the international side, I've been focusing on developing these same types of strategic relationships in our target markets. Specifically, in Canada, we've launched the Axon Public Safety Canada, a wholly owned subsidiary of KAYS International. And the company is now active employees to function as KAYS's primary contracting and hiring entity in Canada for our Axon solution going forward. We've also hired a new Canadian country manager to focus on the Acton segment.
In Australia, we've hired a country manager to start identifying those specific market needs and setting place plans to hire sales engineers and other support personnel, working with customers on evaluating digital and storage needs ahead of implementations. And we're already starting to see some momentum in Australia. In EMEA or Europe, The Middle East and Africa, we've hired a new general manager to oversee the entire region with plans to hire country specific managers, much like Canada and Australia to own the P and L of those countries over time. And finally, in The UK, as many of you know, we acquired and integrated our former distributor TSR in the third quarter. We're also opening an office to support that growing team.
Now we have some really solid momentum in The UK with early wins at the City of London, a national pilot with the British Transport Police and our 1,000 camera pilot with the London Met. Many investors have inquired status of the London Met, which has announced the procurement for approximately 22,000 cameras. We too are waiting to hear back about this procurement and at this point, we simply just can't comment further. I'd also like to update you on the metric that I use personally to gauge how we're doing our steady state earnings. And as I previously discussed, one of the challenges with our SaaS business is that GAAP revenues are spread out over a very long time horizon, making GAAP revenues and earnings very much a lagging indicator.
So as a management team, you really can't use GAAP revenue and earnings to assess the relative levels of investments and spend, especially in a business that's growing at greater than 100% year over year right now. So to help me calibrate, I conducted this thought exercise where I forecast what the business would be like in the future. Once the business was in a steady state and we just froze last quarter's results and repeated them into the indefinite future. Now under this scenario, GAAP revenues would eventually equalize at the same level of bookings. Sure, there'd be some quarter to quarter timing differences, but those would cancel out over time.
So in this steady state, we would have had $36,900,000 instead of $10,900,000 in revenue. If we assume a 65% gross margin on this revenue at scale, the additional $26,000,000 of revenue would generate additional $16,900,000 of operating margin. Of course, this would take the Acton business unit operating margin from an actual loss of $7,300,000 to an operating income of $9,600,000 or 26% operating margin. Now of course, I want to emphasize this is a purely theoretical exercise, but it really helps me mentally calibrate our level of expenditure versus the size of the business that we're building. We know that these assumptions are not going to hold true.
We are continuing to ramp up our investments as Luke discussed, because we still believe we're in a very steep part of the growth curve. We also expect to see the bookings number climb over time. So this steady state earnings again is a thought exercise I find helpful in balancing our investments versus the size of the business as it exists in a snapshot today. Perhaps a simpler way to look at this, you could just evaluate the growth of spending versus growth in bookings. And I'm happy to see our bookings growth of 20.6%.
That sequential growth from the previous quarter of 20.6% outpaced our SG and A growth of 15.5%. One last thing I'd like to discuss is our philosophy as a management team about creating and growing shareholder value. We understand and acknowledge that dialing the business with two very different kinds of operating units can be challenging. And in Taygeto's case, we have a highly profitable manufacturing business with our weapons business and a fast growing digital evidence management or SaaS business in Axon, which is not currently profitable, but has the potential to deliver significant repeatable profits at scale. This leads to different operating metrics to measure each discrete business and our progress towards success.
So for the weapons business, we're focused on operating income as a percent to sales, which is basically a proxy of EPS for that segment of the business of earnings per share. However, when we look at the Axon business, we measure if we're making the necessary investments in sales, marketing and software development to capture a dominant share in this market that we believe has a potential total available market of around $3,000,000,000 globally. The challenge with that is that the investments we're making do create a significant drag on short term earnings, even though the business we're driving towards is highly profitable at scale. So that's why the metrics that we focus on for the Axon business are around bookings growth and the resulting increase in sales. Every customer we add to the system will be highly profitable for TASER over its life, so we want to capture the bulk of the market now as the market is forming.
The way we know we're on the right path with our sales and marketing investments is our LTV, long term customer value to CAC or customer acquisition ratio. How much are we spending versus how much is each customer worth? As long as that ratio is above three, we feel our investments in sales and marketing working and are being effective. Hence, we do not look at blended operating income across the two business units as the right way for us to maximize shareholder value. We look at operating income in the TASER business the other metrics which measure the growth in long term value in the Axon business.
So at this point, I'm going to hand over to Dan to take you through some of the financial highlights of the quarter.
Thank you, Rick. So revenues for the third quarter were very strong and above our internal expectations at $50,400,000 in the quarter. We expect fourth quarter revenues to come in line with these results due to the strength of the third quarter taking our projected annual year over year growth approximately 17%. We also expect to see an increase in bookings in the fourth quarter from the third quarter with very strong momentum we're continuing to see in the market. So revenue recognition at Axolide seven can be lumpy for several reasons of which we believe investors should be aware.
The first is the delay of revenue recognition due to customer requests to delay shipment of product in order for their team to have time to get the appropriate policies, training and rollouts in place. We've had several large customers dictate staggering shipments of their cameras for this purpose, which can delay the revenue recognition in total. The second is a delay due to the implementation of integration services. Some customers purchase integration services with our RMS, Records Management Solutions or CAT systems through our professional services team. Delays can happen for many reasons during these processes and we believe that waiting for the customer to accept the work is the appropriate time to start revenue recognition.
Finally, there's a concept of contingent hardware for highly discounted camera purchases where the camera gets where the customer gets the initial camera for free or at a highly discounted price. In cases where the hardware is highly discounted, we still allocate a portion of the total contract to the initial camera purchase based on the relative sales value of the camera versus the other products, service and storage purchased. We spread that allocated revenue over the life of the camera, which causes little revenue to be recognized at sell in, but more camera revenue to be recognized each subsequent month versus a traditional sale where the camera revenue is recognized all at once at the time of sell in. Over the life of the contract, the revenue recognized is identical to a similar size deal where the customer pays full price for the initial camera. The only difference is the timing when revenue takes place for the initial camera.
So gross margins for the third quarter came in at 61.7%, which is compared to 64.7% in the prior year and 65.8 in the second quarter. The decrease was driven by a mix shift to the lower margin Video segment hardware, an increase in contingent hardware deals and an increase in discounting through programs such as the Standard of Shoot grant program. As mentioned above, in contingent hardware deals, the revenue of a camera or dock is recognized over the life of the contract, which might be as long as five years, while the cost of the camera is recognized upfront. As a result, we may see some continued fluctuations in gross margins as our product mix changes and proportion of contingent revenue deals recognized varies. However, having a more significant portion of our sales to be the accident cameras is a positive leading indicator of an increasing installed base of seats on evans.com, which will lead to a growing software portion of the business creating predictable high margin recurring revenue stream for TASER in the long run.
We anticipate gross margins on a consolidated basis to range from 60% to 64% in the near term. As Luke mentioned earlier, we want to share with you the key metrics we are using as a management team and our Board are also reviewing constantly with us. These include lifetime value per customer compared to the customer acquisition cost ratio, which keeps us focused on the return on our sales and marketing investments in the business. In the third quarter of twenty fifteen, our lifetime value per customer to acquisition cost ratio was 4.7. So as a reminder, conventional wisdom indicates that anything greater than three means that investments are well placed.
While we're investing in additional sales and marketing costs, we're also introducing incremental revenue producing that increase the lifetime value of each individual customer. In the third quarter, we saw new seats book at an average of $3,500 per seat. As Axon fleet and other products gain traction and along with unlimited HD plans ramp up, we expect the average booking per seat to continue to trend higher over time. We're also very keyed into our active paid user base. These are the seats that are past the integration of customer Austin points and are included in our revenue recognition figure.
In the third quarter, our active paid user base increased to approximately 33,000 seats. While we're still happy with the increase here, as I discussed earlier, some of the items that delay recognition also delay the timing of when seats go on our system. Total booked seats for the third quarter by comparison was approximately 9,300 and on a cumulative basis, we booked over 45,000 seats. That means that we have about 12,000 seats under contract, which will eventually be in our monthly service and storage revenue, but not currently in that statistic at the September. Our average revenue per user, ARPU, was 27.59 percent in the third quarter, which is sequentially down.
It's important for investors to recognize there's some noise in this figure due to catch ups of revenues based on milestones for customers that incurred during the quarter. The second quarter had a larger catch up than the historic run rate, which normalized itself in this quarter. We believe that the trend from approximately $26 per month earlier this year to $27.59 in the third quarter is still favorable. And we expect this trend to continue upwards over time as as we're signing more and more customers into our highest tiers of service. In the third quarter, approximately 70% of customers signed up for either the ultimate, unlimited or officer safety plan license tiers, which list priced at $55 per officer per month and above.
Clearly, all the metrics just discussed are solely focused on the Axon segment. We want to make sure that we're placing our investments in all areas of the highest long term return as we continue to believe they're paying off. In regards to the weapons business, we remain focused on profitable growth. As a result, income from operations and weapons specific earnings per share are the target metrics for the segment. To get to weapons segment EPS, we're simply taking the operating income for the weapons segment plus or minus interest and other expenses less than the allocated provision for income taxes based on our consolidated year to date tax rate.
Based on this calculation, we had weapons earnings per share of $0.14 per diluted share in the third quarter of twenty fifteen and $0.44 per diluted share year to date. This compares to 0.19 and $0.42 of diluted EPS for the same periods in the prior year. As we grow the international portion of the business, there will be some near term drag on the metrics, but we believe the long term ROI is evident given large potential addressable market in our top tier countries alone. There are other ancillary metrics we're including in our statistics dashboard on our website for investor reference such as seats booked, future billings, future contracted revenue, average book contract turnof e Com and e.com attachment rate. However, we believe that the above metrics are the ones that are most critical drivers of the business over time and we're consistently sharing these with investors with commentary on each call.
We are ultimately looking to create long term value for both our customers and our shareholders and want to be consistent in sharing our progress with investors. Sales, general and administrative expenses for the third quarter were $17,800,000 an increase of $5,400,000 compared to the prior year. We recognized this is about 4.7% higher than the amounts we referenced on last quarter's call. But as we messaged over the past year, this market is moving fast. In the third quarter, this momentum peaked at all time high going into IACP.
We knew that incremental investments are necessary to continue to capitalize on this opportunity and capture market share. We spent incremental dollars on Axon PR Blitz. We also hired another 19 sales and marketing employees in the quarter as we are shrinking our sales regions to be able to be in front of ever expanding ground with interested customers. We want to be in front of every deal that is in the marketplace. IACP made it abundantly clear that the competition at Axon Space is multiplying quickly.
We have a very first very large first mover advantage. We need to capitalize on that now in order to avoid market fragmentation. Given that the sales leadership is not adjusting the target bookings or sales on a per rep basis as we increase the number of reps and reduce the size of each territory, we're confident rep that we add will eventually be accretive to both sales and earnings. As we look at Q4, we're further increasing our spending guidance to an incremental $2,100,000 in SG and A compared to the third quarter. We're exhibiting at the middle point stemming from our latest product announcements in the international market.
We also announced an increase of $2,800,000 compared to the prior year. Due to additional test tools and materials related to Axon Body two and associated consulting, we anticipate that research and development will be about $700,000 higher in the fourth quarter of twenty fifteen compared to the third quarter amount. We believe it was imperative to have a fully functioning models of Body two at the IATP show going into last weekend, which proved to be a phenomenal decision as we learned that many of our competitors did not make the same choice and the result had to talk in generalities about their technology. Giving our customers the opportunity to interact and observe live demonstrations of these new products is just one of the many examples of how our team executed to ensure a precedence IACP was tremendous. So income tax for the quarter was $5,200,000 which is obviously abnormally high for the company.
The effective tax rate for 2015 increased to 47.7% due to changes in expectations for the for the profitability of the new TASER International BV subsidiary located in Netherlands. Because of manufacturing delays, SARC costs and increased expenses to grow the international business undertaken in 2015, the company no longer expects the TASER International BV to be profitable in 2015. As a result, the company's effective tax rate has increased to 47.7% for 2015. The company does expect effective tax rate to come down to more traditional 36% to 40% range in 2016 and see additional effective tax rate coming down as the international business increases and international income resulting from that also increases. Operating cash flow in the third quarter of twenty fifteen was $19,300,000 an increase of 2,700,000 compared to the third quarter of twenty fourteen.
The increase was primarily driven by an increase in deferred revenue balances of $7,500,000 and a decrease of inventory of $5,200,000 during the quarter. Finally, as we look into 2016, we want to make it crystal clear to the market that we're going to continue to invest to win the market. Every customer that we get on our platform strategy is significantly more valuable over their lifetime than the cost to acquire them. In addition, we expect the churn of our customer base to be relatively low, making it very important to win the majority of new deals or risk losing a customer's competitor for five or more years. We're now going to move into the question and answer portion of the call, but I would like to remind investors we've added supplemental results package on our investor website, www.investor.taser.com to review the drivers of the third quarter results and provide a dashboard of our statistical metrics.
We're going to take two questions from each person in the queue in the first round of questions and ensure everyone has a chance. Should you have additional questions, please head back into the queue. And with that, we'll turn it back over to the moderator to start the Q and A section.
Our first question comes from the line of George Godfrey with CL King. Your line is open.
Thank you. Thank you for taking the question. I just want to dig in on the ARPU change sequentially a little bit. Am I understanding this right that exiting Q2, the ARPU was about $29 but as you move through the Q3, the ARPU for those existing seats that you had from Q2 and Q1 there, actual revenue fell and that's how we get to the 27.6
Yes, George, that's a good question. It's really more of a reflection of the adjustments that we make each quarter. Basically the ARPU calculation, we've been taking just the total revenue for service and sales in the last month of the quarter divided by the number of paid seats. So there's a little bit of noise in that number at the end of each month of the quarter. And in the second quarter, there's a little bit more of that some of that noise, which alter that number a little bit more in the Q2 versus Q3.
I think we're confident that the ARPU is going to continue to go up over time, and especially with the new seats above that $2,759 rate. So we do expect that that number will continue to increase.
Okay. Thank you. And then my follow-up is international operations. Do you expect those to be profitable next year?
Yes. I mean, right now, we're making significant investments. I think that as those as that business becomes closer to break in and then profitable that will get our effective tax rate back down into that more normalized rate. And then over time as the percentage of our profits that get driven from the international part of the business increase then we'll see that effective tax rate continue to drop below sort of normal U. S.
Rates into a lower effective tax rate over time. But a lot of that's going to be driven by the percentage of profits that are being generated from that international operations.
Great. Thank you very much.
Sure thing.
Our next question comes from the line of Andrea James with Dougherty and Company. Your line is open.
Thanks so much for taking my questions. Just a question on future portion of sales that you anticipate will come from outside North America. I know you gave us a long term TAM. I'm just thinking about how do we think about it in next year, next five years kind of in a shorter timeframe?
Yes, this is Rick. I think, traditionally, we've been seeing international sales coming in maybe around 20% of the revenues of the business. I think our long term goal would be to see that climb north of 50%, but that's going to take some time. In terms of what's going to happen in next year, the challenges that we've got are just that these international customers tend to buy in big lumpy orders. So it makes it really hard for us to know for sure or predict with a great degree of precision when those are going to come in.
So I don't know that we have a great answer that next year it's going to be significantly better than the 20% it's been historically. But I think we're doing the right things at this point, by putting more resources in these markets. I think one thing we've realized is we're not going to be able to grow the business to the place it needs to be by just relying on international distributors and not having a direct company presence in key markets around the world.
Okay. And then another quick question, how sticky do you envision your Evidence.com customers to be? Do you think it's going to be easy or more difficult for competitors to come in and kind of bid that away from you once you've won a market? Thank you.
Yes. I think this is Luke. I think our solution is very sticky. We've focused on the workflow from capture to courtroom. So all along, our kind of value proposition, the customers are using our system to add metadata, share cases.
We just released a really, really exciting announcement with our prosecutor platform last quarter that allows them to securely share digital evidence along out to their prosecutors as well with adjacent agencies. So we feel really confident in our customers seeing the value in the usage that we're seeing today.
Thank you. Yes, I would just add that I think our real differentiator is that we have really focused on a great user experience. And I can tell you, I was speaking in front of a group of in this case, the state patrols, the people that run the highway patrols. One of the comments in their executive committee is one of the colonels spoke up and they said, it's just terrible that the user experience that we have at work, when we go and we deal with our systems at work, it's nothing like the systems that we have in our consumer lives where we just have these wonderful user experiences. And I think that's something we've heard consistently, but you typically will not hear that from our users.
We've really spent a lot of effort from the time we acquired Familiar, the mobile company in Seattle about two years ago. We've really sort of taken a different approach that we're winning a lot of market share by winning the hearts and minds of the end user through a great user experience. And we think that that is what will make us really sticky long term that we're integrating into their business flows in a way that makes their job easier. And this is a market that does not change their business processes very readily. So as long as you change their business processes very readily.
So as long as we're giving them a great user experience, we think there's going to be a very high bar for someone to try and displace us.
Got it. Thank you.
Our next question comes from the line of Steve Dyer with Craig Hallum. Your line is open.
Thanks. Good morning. Dan, I don't know if I'm a little slow here, but I still am not necessarily understanding given all of the all of the bigger sort of unlimited data plans that you guys have announced of late and maybe there's a lot of them in the queue in that extra 12.5%. But I guess I'm not seeing why your
incremental ARPU would be down so
much this quarter. Can you elaborate a little bit more on the talked about?
Yes. I mean, in addition to the catch ups, I think that the issue is I think a lot of these larger customers that are buying our high service tiers with unlimited storage, those are typically customers that might they're more likely to have delays from the time we sort of announce the booking to the time we start recognizing the revenue. They typically take advantage of the implementation and integration services that take time. There's usually more from a policy perspective they need to work through. So I think the best way to look at it is, I think that the ARPU of sort of the 12,000 seats still to be recognized is better than the 2,750 or so that we announced for this quarter.
And that will drive that ARPU up over time because the customers that are sort of easier lift that maybe are not doing implementation integration are the ones that are going to kind of go through quickly. So I think the ARPU of the sort of still to be recognized customers is better. That's why we think the ARPUs continue to trend up over time.
But and I think you added like 5,000 or so, if my memory is correct, users onto the network this quarter. I mean, why would their ARPUs be incrementally worse than the 28 that you had on previously?
Yes. I mean, I think it's there's just going to be mix differences over time. I think it's depending on the level that people obviously, our service offerings start at $15 a month plus stores. So we do have some customers are going to be at that lower end of the range. So there's definitely going to be some mix mix differences.
And this quarter, the new customers added were a little worse than the $29 but the customers that we've already booked that are still to be added are better and that's why this will kind of normalize over time. And it's definitely there's a little bit of lumpiness there, but we do expect the long term trend to continue to go up.
Okay. And then my follow-up, the 70% of bookings in the quarter that took the 55 and up packages. Just for context, do you have what that number was in Q2 or even year over year?
I don't. I can tell you that it continues to trend positively for us as more and more customers, especially the unlimited storage plans and with the introduction of Body two and with the 10 HD camera, having sort of unlimited storage built in and becoming a predictable cost for agencies, I think is going to be very popular and we're seeing that and sort of the bookings are ready and I think we'll continue to see those trends going forward because of I think it's really compelling for customers to have that unlimited storage especially with HD video.
Okay. Thanks.
Our next question comes from the line of Paul Coster with JPMorgan. Your line is open.
Yeah. Good morning. This is Mark Strauss on for Paul. Thanks for taking our questions. So Dan, last quarter you mentioned that the you guys had seen a bit of a lengthening of the sales cycle as some new competitors had come out of solutions.
But I mean you kind of reiterated that you're still seeing success curious, especially with some new competitors coming out at the conference last week, what the latest thought on that sales cycle is? Thanks.
Yes, I mean, I think it's I don't think it's changed that dramatically. Obviously, there's lots of new hardware vendors coming into the market. The barrier to get into the sort of camera business isn't that great. But from the beginning, we've looked at to differentiate ourselves with the SaaS solution. And we think ultimately that's where customers, once they really sort of understand that cameras are going to they're going to buy new cameras every two and half or three years.
So they can't they're making a long term decision on workflows and other things that are not the cameras, it's not that's unimportant, but that's not the most important piece of it. And I think that as we get more interest in the market, I think there's certainly the sales cycle customers will continue to try out vendors besides us. And we actually encourage that because I think that's where we're really shine. There's a lot of competitors out there that are obviously in the world. And I think once the customers really understand kind of what they're buying with the competitor versus us, I think we win the vast majority of those deals.
And so we feel good about our market position. I don't know if you want to add anything to that, Luke?
Yes. I think the key announcements that we made at this year's ICP with Axon fleet and our Microsoft partnership really positioned us as an innovator and the market leader. With our customer relationships, this is really a customer intimacy story. And when we're in deals, our customers really value the TASER brand, the professional sales force that we have both with kind of the consultation on what's the ROI the agency is going to see with our solution to eliminate driving around disks as well as the post sale service support we offer. And then really the point that Rick mentioned on, we create a great user experience.
We've got a very, very long reach into our customer base that we pull back into our product development. And so we feel confidently if we get in a bake off with a competitor, the majority of the time, a high, high percentage of the time, we're going to win those deals based on those factors.
Got it. Okay. Thanks. And then Dan, you kind of touched on this in your prepared remarks about 2016 OpEx. Are you prepared to quantify that at all yet?
Maybe a different way of asking it is, I mean, you've seen the kind of the consensus numbers that are out there. Can you talk maybe directionally if we're in the right ballpark or need to go up or down?
Yes. I mean, I think I'm probably not right compared to talk specifically to 2016 other than the fact that we do expect that the OpEx to continue to trend upwards in 2016 as we invest in both sales and marketing resources to capture the business as well as development resources to add to our platform and keep our competitive advantage. So we definitely expect that OpEx will continue to trend upwards over time.
Yes. I would just want to reiterate, we'd really like to focus our management team, our board has alignment around this and investors, how we're measuring the two businesses really on those five metrics that we called out earlier.
Got it. Okay. Makes sense. Thank you very much.
Our next question comes from the line of Andrew Yerkowitz with Oppenheimer. Your line is open.
Yes. Hi. Thanks, gentlemen, for taking my call. Just trying to better understand the revenue recognition that's going on here. I think you said you had about 12,000 seats yet to be recognized.
Could you kind of give us some color on how when you think those could be recognized and when those kind of when those were originally booked? Just give us kind of an idea of the timeline here to understand some of these bigger contracts better? Thanks.
Yes. No, Andrew, this is Dan. That's a good question. I think it's there's some variability with that. I would say that typically we recognize the camera sell in, but then there's a delay around the recognition of the service and storage revenue based on implementation services, milestones with customers and other things.
And that could certainly delay it by a quarter or even as many as two quarters just based on sort of the variables in a given deal. I think that this quarter we saw that probably more pronounced than we've seen it where we have really significantly less new users added into the system versus what we booked. Typically, it's been more of a sort of the users you book in one quarter, you recognize the next quarter and there's just sort of a sort of continue sort of snowplow pushing things out a quarter on the revenue recognition on the service side. This quarter we saw that a little bit more pronounced. I think it's mostly due to some bigger deals in the system that are a little bit more complex, but we do feel that within a quarter or two those seats will certainly be in the system and part of the recognized revenue.
That's helpful. How does that affect the contracts? So if I'm understanding right, you may have shipped some cameras, but you may not be booking the evis.com. Is the five year contract start when the camera gets shipped or does it start when the evis.com gets shipped? How do we think about kind of that timing?
Yes. That's typically for most deals, we'll recognize that there'll be sort of a catch up once the customer is up and running on the system. And a lot of that depends on where the delay is. If the delay is the customer saying, hey, we're not quite ready, they may get ten months of service the first year and then twelve months after that. Most of these customers are sort of there to their advantage to get the clock started because that means they're going to get their a lot of these especially bigger customers are on TASER Assurance plan deals where they've sort of prepaying for the next camera and they're going to want that clock to start in order to get the camera sooner.
So there's a fair amount of moving pieces there. It does sort of depend deal, Dale.
Perfect. And then just my last question here, I'll jump offline. If there are delays like this, is there any risk that a city misses a budget cycle?
Yes. Can you repeat that question? I'm not sure I heard it clearly.
Yes. I just if some of these major large cities, large deals are having slower implementation issues or having issues that are slowing their implementation, is there any chance that they miss a budget cycle and not able to place a second or third order to fulfill their obligations?
Yes. We don't expect that to really be an issue because most of these deals when the customer is committing to the multi year deal, they're thinking about future budget sources and stuff like that. So usually it's we don't expect that to be a real issue.
Great. Thank you. I really appreciate the color. Thanks guys.
Sure thing.
Our next question comes from the line of Glenn Mattson with Ladenburg. Your line is open.
Yes. I think the topic of the adoption rate on the services maybe been picked over enough, although did you pull any revenue forward from Q4 in the weapons? Because I think you're expecting something a little down sequentially and it turned out up. And gross margins were a little weaker in that segment. Can you talk to that also please?
Yes, we had yes, so on the sales, we had a real significant weapons sale that basically the last couple of days of the quarter, which easily could have been a fourth quarter deal or just our salespeople were effective in getting that into the third quarter. So that's why we're thinking sort of fourth quarter will be more flat. Although we had record this is the thing we want to just sort of remind ourselves and investors is this quarter is the highest quarter sales in the company's history. So repeating that in the fourth quarter is still and putting up sort of 17% year over year growth on an annual basis. We still feel good about that trend.
On the gross margin, I think it's really driven mostly by some of the new programs we have like the standard issue grant program and some of the other programs. I think the good news is it's driving the business, which is great. There is some discounting that goes with that, which will have a little bit of an impact on margin in the quarter.
Okay. That does it for me. Thanks.
All right. Sure thing.
Our next question comes from the line of Alan Klee with Sidoti. Your line is open.
Yes. Hi. Just following up on weapons. Also, how do you think about just normally seasonality of fourth quarter and budget flushes of how that would normally play out?
Yes, that's a good question. This is Dan. I mean, typically, we do see some budget flush in the fourth quarter, which is can be a net positive. I think I guess just sort of two pieces of color. The third quarter of twenty fourteen is still set the record for the highest quarter in CW sales in the company's history.
So we sort of we're pretty close to matching that this quarter, which we feel good about. So I think it's as we look at the fourth quarter, we think a sort of repeat quarter would certainly help. And I think that those are that creates sort of a tough sort of sequential comp to go against. So we need some of that budget flush to make up for some of these big deals that we saw in the quarter. So I think it's we feel good about the 17% year over year growth on a total year basis.
And I think some of that puts and takes of big deals versus budget flush are kind of baked into that expectation.
Okay. Thank you.
Sure thing.
Thank you. And we have a follow-up from the line of Steve Dyer with Craig Hallum. Your line is open.
Thanks. Sticking with weapons, your overall unit sales were down quite a bit more than CEW revenue and I don't think ASP normally changes all that much. Is there something else in there ex rep revenue or some other things that maybe drove revenue to be better than the unit results?
No, I think probably the biggest part is just sort of the amount of direct sales continues to increase both with more direct business in The U. S. As we continue to take more states direct, which increases our ASP as well as some of the international businesses now direct, which also helps because we're seeing sort of the end user price come through ASP versus the distributor price.
Okay. So it is pretty much entirely explained by ASP?
That's correct.
Okay. And then you mentioned the incremental 12,500 ish users loaded in the Q and said you expect ARPU to be higher. Is there any way you could quantify at all how much higher etcetera? I mean 70% kind of taking that $55 and up package would imply it's quite
Yes. Well, the $55 is really from a probably just clarify that the $55 includes sort of camera upgrades. It's really probably more of a $40 ARPU comparison because the $15 of that is future camera upgrades. But I guess I'm not prepared to quantify that specifically other than the fact that we think this trend towards the higher priced service tier should help with the overall ARPU number over time.
Okay. Thanks.
Sure then.
Thank you. And I'm showing no further questions at this time. I'd like to turn the call back over to Mr. Larson for closing remarks.
Thank you everyone for the time. I would like to reiterate that we are committed to providing long term shareholder value. We strongly believe in our Axon platform strategy and we look forward to continuing to update you on our incredible progress in this story. Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone have a wonderful day.