10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2016

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-16391

TASER International, Inc.

(Exact name of registrant as specified in its charter)

Delaware	86-0741227
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
17800 North 85th Street Scottsdale, Arizona	85255
(Address of principal executive offices)	(Zip Code)

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	ý	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  ý

The number of shares of the registrant’s common stock outstanding as of October 31, 2016 was 52,281,856.

TASER INTERNATIONAL, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2016

			Page
PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements		3
		Condensed Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015	3
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015	4
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		46
	Item 4. Controls and Procedures		46
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings		48
	Item 1A. Risk Factors		48
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		48
	Item 3. Defaults Upon Senior Securities		48
	Item 4. Mine Safety Disclosures		48
	Item 5. Other Information		48
	Item 6. Exhibits		49
	SIGNATURES		50

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

TASER INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2016			December 31, 2015
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	50,600		$	59,526
Short-term investments	45,620			50,254
Accounts and notes receivable, net of allowance of $431 and $322 as of September 30, 2016 and December 31, 2015, respectively	32,858			27,701
Inventory, net	25,503			15,763
Prepaid expenses and other current assets	13,867			8,165
Total current assets	168,448			161,409
Property and equipment, net of accumulated depreciation of $37,653 and $36,020 as of September 30, 2016 and December 31, 2015, respectively	22,976			21,848
Deferred income tax assets, net	16,753			13,719
Intangible assets, net	7,116			7,588
Goodwill	8,885			9,596
Long-term investments	6,260			8,525
Other assets	21,762			7,196
Total assets	$	252,200		$	229,881
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	8,982		$	7,333
Accrued liabilities	16,086			8,643
Current portion of deferred revenue	41,284			20,851
Customer deposits	1,367			1,226
Current portion of notes payable and capital lease payable	51			87
Total current liabilities	67,770			38,140
Deferred revenue, net of current portion	35,968			30,190
Liability for unrecognized tax benefits	1,332			1,315
Long-term deferred compensation	3,111			2,199
Long-term business acquisition contingent consideration	—			952
Other long-term liabilities	2,691			81
Total liabilities	110,872			72,877
Commitments and contingencies (Note 11)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2016 and December 31, 2015	—			—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 52,245,605 and 53,692,192 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	1			1
Additional paid-in capital	184,937			178,143
Treasury stock at cost, 20,220,227 and 18,432,158 shares as of September 30, 2016 and December 31, 2015, respectively	(155,947		)	(122,201		)
Retained earnings	111,934			100,978
Accumulated other comprehensive income	403			83
Total stockholders’ equity	141,328			157,004
Total liabilities and stockholders’ equity	$	252,200		$	229,881

The accompanying notes are an integral part of these condensed consolidated financial statements.

3

TASER INTERNATIONAL, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
Net sales	$	71,882		$	50,376		$	186,168		$	141,851
Cost of products sold and services delivered	25,317			19,308			65,402			50,192
Gross margin	46,565			31,068			120,766			91,659
Operating expenses:
Sales, general and administrative	28,121			17,834			77,333			47,842
Research and development	7,358			6,528			20,995			16,992
Total operating expenses	35,479			24,362			98,328			64,834
Income from operations	11,086			6,706			22,438			26,825
Interest income and other (expense) income, net	(455		)	(22		)	(460		)	12
Income before provision for income taxes	10,631			6,684			21,978			26,837
Provision for income taxes	6,788			5,163			11,022			12,008
Net income	$	3,843		$	1,521		$	10,956		$	14,829
Net income per common and common equivalent shares:
Basic	$	0.07		$	0.03		$	0.21		$	0.28
Diluted	$	0.07		$	0.03		$	0.20		$	0.27
Weighted average number of common and common equivalent shares outstanding:
Basic	52,206			53,709			52,791			53,509
Diluted	53,141			54,691			53,656			54,671
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	3,843		$	1,521		$	10,956		$	14,829
Foreign currency translation adjustments	61			(115		)	320			(18		)
Comprehensive income	$	3,904		$	1,406		$	11,276		$	14,811

The accompanying notes are an integral part of these condensed consolidated financial statements.

4

TASER INTERNATIONAL, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2016			2015
Cash flows from operating activities:
Net income	$	10,956		$	14,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,744			2,310
Purchase accounting adjustments to goodwill	520			—
Loss on inventory nonmonetary exchanges	147			—
Loss (gain) on disposal of property and equipment, net	40			(13		)
Loss on disposal of intangible assets	21			216
Bond premium amortization	980			1,252
Stock-based compensation	6,742			5,086
Deferred income taxes	(2,672		)	(888		)
Unrecognized tax benefits	17			(273		)
Tax benefit from stock-based compensation	(919		)	(6,314		)
Change in assets and liabilities:
Accounts and notes receivable	(5,277		)	7,718
Inventory	(10,804		)	(37		)
Prepaid expenses and other assets	(19,573		)	(5,520		)
Accounts payable, accrued and other liabilities	12,566			1,697
Deferred revenue	26,331			10,667
Customer deposits	140			(416		)
Net cash provided by operating activities	21,959			30,314
Cash flows from investing activities:
Purchases of investments	(49,316		)	(50,598		)
Proceeds from call / maturity of investments	55,235			32,719
Purchases of property and equipment	(3,335		)	(3,839		)
Proceeds from disposal of property and equipment	40			13
Purchases of intangible assets	(339		)	(402		)
Business acquisitions, net of cash acquired	—			(11,186		)
Net cash provided by (used in) investing activities	2,285			(33,293		)
Cash flows from financing activities:
Repurchase of common stock	(33,746		)	(7,556		)
Proceeds from options exercised	431			2,573
Payroll tax payments for net-settled stock awards	(1,299		)	(848		)
Payments on capital lease obligation	(29		)	(28		)
Payments on notes payable	(77		)	(26		)
Tax benefit from stock-based compensation	919			6,314
Net cash (used in) provided by financing activities	(33,801		)	429
Effect of exchange rate changes on cash and cash equivalents	631			70
Net decrease in cash and cash equivalents	(8,926		)	(2,480		)
Cash and cash equivalents, beginning of period	59,526			48,367
Cash and cash equivalents, end of period	$	50,600		$	45,887
Supplemental disclosure:
Cash paid for income taxes, net of refunds	$	11,308		$	5,830
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	145		$	195

The accompanying notes are an integral part of these condensed consolidated financial statements.

5

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

TASER International, Inc. (“TASER” or the “Company”) is a developer and manufacturer of advanced conducted electrical weapons (“CEWs”) designed for use by law enforcement, military, corrections, and private security personnel, and by private individuals for personal defense. In addition, the Company has developed full technology solutions for the capture, storage and management of video/audio evidence as well as other tactical capabilities for use in law enforcement. The Company sells its products worldwide through its direct sales force, distribution partners, online store and third-party resellers. The Company was incorporated in Arizona in September 1993, and reincorporated in Delaware in January 2001. The Company’s corporate headquarters and manufacturing facilities are located in Scottsdale, Arizona. The Company’s software development unit facility is located in Seattle, Washington. TASER International BV, a wholly owned subsidiary of the Company, serves as the Company's international headquarters, and is located in Amsterdam, Netherlands. TASER International BV wholly owns two subsidiaries, Axon Public Safety U.K. LTD and Axon Public Safety AU, that serve as direct sales operations in the United Kingdom and Australia, respectively. In 2015, the Company formed Axon Public Safety Canada, Inc., a wholly owned subsidiary, to facilitate transactions for its products and services with new and existing customers located in Canada.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All material intercompany accounts, transactions, and profits have been eliminated.

a. Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in the Company’s annual consolidated financial statements for the year ended December 31, 2015, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the Company’s Form 10-K for the year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

• product warranty reserves,

• inventory valuation,

• revenue recognition allocated in multiple-deliverable contracts or arrangements,

• valuation of goodwill, intangibles and long-lived assets,

• recognition, measurement and valuation of current and deferred income taxes,

• fair value of stock awards issued, the estimated vesting period for performance-based stock awards and forfeiture rates, and

• recognition and measurement of contingencies and accrued litigation expense.

Actual results could differ materially from those estimates.

b. Segment Information

The Company is comprised of two reportable segments: the manufacture and sale of CEWs, accessories and other products and services (the “TASER Weapons” segment); and the video business which includes the TASER Cam, Axon cameras and related accessories, Evidence.com and MediaSolv (the “Axon” segment). Reportable segments are determined based on discrete financial information reviewed by the Company’s Chief Executive Officer who is the Chief Operating Decision Maker (the “CODM”) for the Company. The Company organizes and reviews operations based on products and services, and currently there are no operating segments that are aggregated. The Company performs an annual analysis of its reportable segments. Additional information related to the Company’s business segments is summarized in Note 14.

6

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

c. Geographic Information and Major Customers

For the three and nine months ended September 30, 2016 and 2015, net sales by geographic area were as follows (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
United States	$	60,558	84.2	%	$	43,689	86.7	%	$	155,245	83.4	%	$	117,885	83.1	%
Other Countries	11,324		15.8		6,687		13.3		30,923		16.6		23,966		16.9
Total	$	71,882	100.0	%	$	50,376	100.0	%	$	186,168	100.0	%	$	141,851	100.0	%

Sales to customers outside of the U.S. are typically denominated in U.S. dollars, and are attributed to each country based on the shipping address of the distributor or customer. For the three and nine months ended September 30, 2016 and 2015, no individual country outside the U.S. represented more than 10% of net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of the Company's customers.

For the three and nine months ended September 30, 2016 and 2015, no customer represented more than 10% of total net sales. At September 30, 2016 there was one outstanding customer balance from one unaffiliated customer that comprised 18.6% of the aggregate accounts receivable balance. At December 31, 2015, the Company had a trade receivable from one unaffiliated customer comprising 12.5% of the aggregate accounts receivable balance.

d. Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Potentially dilutive securities include outstanding stock options and unvested restricted stock units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Numerator for basic and diluted earnings per share:
Net income	$	3,843	$	1,521	$	10,956	$	14,829
Denominator:
Weighted average shares outstanding - basic	52,206		53,709		52,791		53,509
Dilutive effect of stock-based awards	935		982		865		1,162
Diluted weighted average shares outstanding	53,141		54,691		53,656		54,671
Anti-dilutive stock-based awards excluded	227		160		304		160
Net income per common share:
Basic	$	0.07	$	0.03	$	0.21	$	0.28
Diluted	$	0.07	$	0.03	$	0.20	$	0.27

7

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

e. Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable

The Company derives revenue from two primary sources: (1) the sale of physical products, including CEWs, Axon cameras, corresponding extended warranties, and related accessories such as E-docks, cartridges and batteries, among others, and (2) subscription to the Company's Evidence.com software as a service ("SaaS") (including data storage fees and other ancillary services), which includes varying levels of support. To a lesser extent, the Company also recognizes training and other professional services revenue. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, title has transferred, the price is fixed and collectability is reasonably assured. Contractual arrangements may contain explicit customer acceptance provisions, and under such arrangements, the Company defers recognition of revenue until formal customer acceptance is received. Extended warranty revenue, SaaS revenue and related data storage revenue are recognized ratably over the term of the contract beginning on the commencement date of each contract.

Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendor-specific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence exists, management uses its best estimate of selling price. The majority of the Company’s allocations of arrangement consideration under multiple element arrangements are performed using vendor-specific objective evidence by utilizing prices charged to customers for deliverables when sold separately. The Company’s multiple element arrangements may include future CEWs and/or Axon devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price. The Company has not utilized third party evidence of selling price.

The Company offers the right to purchase extended warranties that include additional services and coverage beyond the standard limited warranty for certain products. Revenue for extended warranty purchases is deferred at the time of sale and recognized over the warranty period commencing on the date of sale. Extended warranties range from one to five years.

Evidence.com and Axon cameras and related accessories have stand-alone value to the customer and are sometimes sold separately, but in most instances are sold together. In these instances, customers typically purchase and pay for the equipment and one year of Evidence.com in advance. Additional years of service are generally billed annually over a specified service term, which has typically ranged from one to five years. Generally, the Company recognizes revenue for the Axon equipment at the time of the sale consistent with the discussion of multiple deliverable arrangements above. Revenue for Evidence.com is deferred at the time of the sale and recognized over the service period. At times the Company subsidizes the cost of Axon devices provided to customers to secure long-term Evidence.com service contracts. In such circumstances, revenue related to the Axon devices recognized at the time of delivery is limited to the amount collected from the customer that is not contingent upon the delivery of future Evidence.com services. The Company recognizes the remaining allocated revenue related to subsidized Axon devices over the remaining period it provides the contracted Evidence.com services.

In 2012, the Company introduced a program, the TASER Assurance Program (“TAP”) whereby a customer purchasing a product and joining the program will have the right to trade-in the original product for a new product of the same or like model in the future. Upon joining TAP, customers also receive an extended warranty for the initial products purchased and spare inventory. Under this program the customer generally pays additional annual installments over the contract period, generally three to five years. The Company records consideration received related to the future product purchase as deferred revenue until all revenue recognition criteria are met, which is generally when the new product is delivered. Consideration related to future product purchases is determined at the inception of the arrangement using management’s best estimate of selling price. Management’s estimate is principally based on the current selling price for such products, with due evaluation of the impact of any expected product and pricing changes, which have historically had an immaterial influence on management’s best estimate of selling price.

In 2015, The Company introduced the Officer Safety Plan (“OSP”) whereby a customer enters into a five year Evidence.com subscription that includes all of its standard advanced features along with unlimited storage. The OSP also includes a service plan that includes upgrades of (i) the Axon devices every 2.5 years and (ii) a TASER CEW at any point within the contract period. Upon entering into the OSP, customers also receive extended warranties on the Axon and CEW devices upon delivery to cover the contract periods as well as spare inventory units. Under this program the customer generally makes an initial purchase of Axon cameras and related accessories, and CEWs at inception along with annual installments for services and future hardware deliverables over the contract period. The Company records consideration received related to the future purchase as deferred revenue until all revenue recognition criteria are met, which is generally when the products or services are delivered.

8

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In 2016, the Company introduced the TASER 60 Plan ("TASER 60") whereby a customer typically enters into a five year CEW installment purchase arrangement. The TASER 60 plan also includes extended warranties on the CEW devices upon delivery covering the contract periods as well as on-site spares, holsters and cartridges. Generally, the Company recognizes revenue for the amount allocated to the CEW at the time of sale for the amount of the customer receivable, net of imputed interest, and the amount allocated to the extended warranty is recognized over five years.

Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis. Training and professional service revenues are recorded as the services are provided.

Deferred revenue consists of payments received in advance related to products and services for which the criteria for revenue recognition have not yet been met. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as long-term. Deferred revenue does not include future revenue from multi-year contracts for which no invoice has yet been created. Generally, customers are billed in annual installments. See Note 6 for further disclosures about the Company’s deferred revenue.

Sales are typically made on credit, and the Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition, and maintains an allowance for estimated potential losses. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts and notes receivable are presented net of an allowance for doubtful accounts. This allowance represents management’s best use of estimates, and is based on judgment after considering a number of factors, including third-party credit reports, actual payment history, cash discounts, customer-specific financial information and broader market and economic trends and conditions.

f. Standard Warranties

The Company warranties its CEWs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold and services delivered when revenue is recorded for the related product. Future warranty costs are estimated based on historical data related to returns and warranty costs on a quarterly basis and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated returns from customers. The accrued warranty liability expense is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. Costs related to extended warranties are charged to cost of products sold and services delivered when incurred. The reserve for warranty returns is included in accrued liabilities on the accompanying condensed consolidated balance sheets. 

Changes in the Company’s estimated product warranty liabilities are as follows (in thousands):

	Nine Months Ended September 30,
	2016			2015
Balance, beginning of period	$	314		$	675
Utilization of accrual	(97		)	(293		)
Warranty expense	531			19
Balance, end of period	$	748		$	401

g. Fair Value of Financial Instruments

The Company uses the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

9

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

• Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

• Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company's own assumptions about inputs that market participants would use in pricing an asset or liability.

The Company has cash equivalents and investments, which at September 30, 2016 and December 31, 2015 were comprised of money market funds, state and municipal obligations, corporate bonds, and certificates of deposits. See additional disclosure regarding the fair value of the Company’s cash equivalents and investments in Note 2. Included in the balance of Other assets as of September 30, 2016 and December 31, 2015 was $3.0 million and $2.2 million, respectively, related to corporate-owned life insurance policies which are used to fund the Company’s deferred compensation plan. The Company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

The Company’s financial instruments also include accounts and notes receivable, accounts payable, notes payable and accrued liabilities. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the accompanying condensed consolidated balance sheets.

h. Valuation of Goodwill, Intangibles and Long-lived Assets

Management evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets may warrant revision or that the remaining balance of these assets may not be recoverable. Such circumstances could include, but are not limited to, a change in the product mix, a change in the way products are created, produced or delivered, or a significant change in the way products are branded and marketed. In performing the review for recoverability, management estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows. The Company recorded losses on disposal of intangible assets of $21,000 and $0.2 million during the nine months ended September 30, 2016 and 2015, respectively.

i. Recently Issued Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. Subsequently, the FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

• ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.

• ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing

• ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients in May 2016. ASU 2016-12 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance.

The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has established an internal implementation team and has engaged a third party advisory firm to assist in the implementation of the new standard. The Company is performing ongoing assessment activities to evaluate the proper method of adoption as well as the impact the adoption of the guidance will have on its consolidated financial statements.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). The amendments require that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for the fiscal year beginning after December 15, 2016, including interim periods within that fiscal year. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company does not expect the adoption of this guidance to have any impact on its financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for the fiscal year beginning after December 15, 2018 (including interim periods within that year) using a modified retrospective approach and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (Topic 718), Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within that fiscal year and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which amends ASC 326. The new guidance differs from existing GAAP wherein previous objectives generally delayed recognition of credit losses until the loss was probable. ASU 2016-13 eliminates the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2019, and interim periods within that fiscal year and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-13 on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

j. Out-of-Period Adjustments

During the preparation of the condensed consolidated financial statements for the quarter ended March 31, 2016, the Company identified certain transactions that were recorded in the first quarter of fiscal 2016 that should have been recorded in the fourth quarter of 2015. The transactions would have resulted in a reduction in income from operations for the year and quarter ended December 31, 2015 of $0.8 million. Of the $0.8 million, $0.4 million was for variable selling costs related to certain international sales contracts that were recorded and incurred during the fourth quarter, $0.2 million related to a correction of the calculation related to bonus expense that should have been recorded during fiscal 2015, and the remainder was primarily attributable to operating expenses that were incurred but not accrued for as of December 31, 2015.

The Company performed various quantitative and qualitative analyses and determined that these errors were not material to the results reported for the year and quarter ended December 31, 2015. The Company also determined that recording these entries as an out-of-period adjustment during the first quarter of 2016 is not expected to be material to the projected results for the full year ended December 31, 2016.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

k. Reclassification of Prior Year Information

Certain prior year amounts have been reclassified with the current year presentation. These reclassifications had no effect on the reported results of operations.

2. Cash, Cash Equivalents and Investments

The following tables summarize the Company's cash, cash equivalents, and held-to-maturity investments at September 30, 2016 and December 31, 2015 (in thousands):

	As of September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	45,792	$	—	$	—		$	45,792	$	45,792	$	—	$	—
Level 1:
Money market funds	4,163		—		—			4,163		4,163		—		—
Corporate bonds	36,331		3		(35		)	36,299		645		29,911		5,775
Subtotal	40,494		3		(35		)	40,462		4,808		29,911		5,775
Level 2:
State and municipal obligations	15,152		1		(8		)	15,145		—		14,667		485
Certificates of deposit	1,042		—		—			1,042		—		1,042
Subtotal	16,194		1		(8		)	16,187		—		15,709		485
Total	$	102,480	$	4	$	(43	)	$	102,441	$	50,600	$	45,620	$	6,260

	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	57,137	$	—	$	—		$	57,137	$	57,137	$	—	$	—
Level 1:
Money market funds	2,389		—		—			2,389		2,389		—		—
Corporate bonds	36,406		—		(70		)	36,336		—		35,677		729
Subtotal	38,795		—		(70		)	38,725		2,389		35,677		729
Level 2:
State and municipal obligations	19,002		11		(9		)	19,004		—		12,000		7,002
Certificates of deposit	3,371		—		—			3,371		—		2,577		794
Subtotal	22,373		11		(9		)	22,375		—		14,577		7,796
Total	$	118,305	$	11	$	(79	)	$	118,237	$	59,526	$	50,254	$	8,525

The Company believes the unrealized losses on the Company’s investments are due to interest rate fluctuations. As these investments are either short-term in nature, are expected to be redeemed at par value, and/or because the Company has the ability and intent to hold these investments to maturity, the Company does not consider these investments to be other than temporarily impaired at September 30, 2016.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the amortized cost and fair value of the short-term and long-term investments held by the Company at September 30, 2016 by contractual maturity (in thousands):

	Amortized Cost		Fair Value
Due in less than one year	$	45,620	$	45,581
Due after one year, through two years	6,260		6,260
Due after two years	—		—
Total short-term and long-term investments	$	51,880	$	51,841

3. Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average cost of raw materials which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventories consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Raw materials	$	12,908	$	8,748
Work-in-process	6		105
Finished goods	12,589		6,910
Total inventory	$	25,503	$	15,763

4. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2016 were as follows (in thousands):

Balance, beginning of period	$	9,596
Purchase accounting adjustments (a)	(520		)
Foreign currency translation adjustment	(191		)
Balance, end of period	$	8,885

^(a) Purchase accounting adjustments related to deferred tax liabilities for MediaSolv and Axon Public Safety U.K. LTD. There was no impact to the condensed consolidated statements of operations for these adjustments as a result of the adoption of ASU 2015-16, which was effective for the Company on January 1, 2016.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2016							December 31, 2015
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized:
Domain names	5 years	$	125	$	(125	)	$	—	$	125	$	(120	)	$	5
Issued patents	4-15 years	1,926		(749		)	1,177		1,866		(659		)	1,207
Issued trademarks	3-11 years	628		(301		)	327		603		(255		)	348
Customer relationships	4-8 years	945		(206		)	739		1,035		(93		)	942
Non-compete agreements	3-4 years	450		(218		)	232		464		(164		)	300
Developed technology	7 years	3,470		(699		)	2,771		3,470		(326		)	3,144
Total amortized		7,544		(2,298		)	5,246		7,563		(1,617		)	5,946
Not amortized:
TASER trademark		900					900		900					900
Patents and trademarks pending		970					970		742					742
Total not amortized		1,870					1,870		1,642					1,642
Total intangible assets		$	9,414	$	(2,298	)	$	7,116	$	9,205	$	(1,617	)	$	7,588

Amortization expense relative to intangible assets for the three months ended September 30, 2016 and 2015 was approximately $0.2 million and $0.3 million, respectively, and for the nine months ended September 30, 2016 and 2015 was approximately $0.7 million and $0.5 million, respectively. Estimated amortization for intangible assets with definitive lives for the remaining three months of 2016, the next five years ended December 31, and thereafter, is as follows (in thousands):

2016 (remaining three months)	$	235
2017	935
2018	922
2019	801
2020	738
2021	731
Thereafter	884
Total	$	5,246

5. Other Long-Term Assets

Other long-term assets consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Cash surrender value of corporate-owned life insurance policies (Note 1)	$	3,014	$	2,180
Prepaid commissions (i)	4,927		3,543
Accounts receivable (ii)	10,359		1,227
Restricted cash (iii)	3,095		—
Prepaid expenses, deposits and other	367		246
Total other long-term assets	$	21,762	$	7,196

⁽ⁱ⁾ Prepaid commissions represent customer acquisition costs to secure long-term contracts. The Company capitalizes incremental and direct costs related to a specific contract and recognizes expense over the term of the contract.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

⁽ⁱⁱ⁾ Long-term accounts receivable as of September 30, 2016 and December 31, 2015 consist of balances related to sales made under the Officer Safety and TASER 60 Programs (Note 1e). These balances are collectible over the stated contract period, which is typically five years, and are actively monitored for collectability.

⁽ⁱⁱⁱ⁾ Restricted cash represents sales proceeds related to a long-term contract with a specific customer. These proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to the Company's operating accounts.

6. Deferred Revenue

Deferred revenue consisted of the following (in thousands):

	September 30, 2016						December 31, 2015
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER Weapons	$	10,304	$	16,286	$	26,590	$	7,278	$	13,982	$	21,260
Axon	3,299		2,398		5,697		2,332		2,344		4,676
	13,603		18,684		32,287		9,610		16,326		25,936
Hardware:
TASER Weapons	1,240		2,441		3,681		952		2,459		3,411
Axon	10,257		10,441		20,698		786		7,382		8,168
	11,497		12,882		24,379		1,738		9,841		11,579
Axon Services	15,818		4,402		20,220		9,303		4,023		13,326
Other	366		—		366		200		—		200
Total	$	41,284	$	35,968	$	77,252	$	20,851	$	30,190	$	51,041

	September 30, 2016						December 31, 2015
	Current		Long-Term		Total		Current		Long-Term		Total
TASER Weapons	$	11,910	$	18,727	$	30,637	$	8,430	$	16,441	$	24,871
Axon	29,374		17,241		46,615		12,421		13,749		26,170
Total	$	41,284	$	35,968	$	77,252	$	20,851	$	30,190	$	51,041

7. Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Accrued salaries, benefits and bonus	$	5,286	$	3,637
Accrued professional, consulting and lobbying	1,807		1,098
Accrued warranty expense	748		314
Accrued income and other taxes	2,169		1,215
Other accrued liabilities	6,076		2,379
Accrued liabilities	$	16,086	$	8,643

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

8. Income Taxes

Deferred Tax Assets

Net deferred income tax assets at September 30, 2016, include capitalized research and development costs, research and development tax credits, non-qualified stock-based compensation expense, deferred warranty revenue, warranty and inventory reserves, accrued vacation, and other items, partially offset by accelerated depreciation expense and intangible amortization that is not tax deductible. The Company’s total net deferred tax assets at September 30, 2016 were $16.8 million.

In preparing the Company’s condensed consolidated financial statements, management assesses the likelihood that its deferred tax assets will be realized from future taxable income. In evaluating the Company’s ability to recover its deferred income tax assets, management considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining its provisions for income taxes, its deferred tax assets and liabilities, and its future taxable income for purposes of assessing its ability to utilize any future tax benefit from its deferred tax assets.

Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit by tax authorities in the ordinary course of business. As of each reporting date, management considers new evidence, both positive and negative, that could impact management’s view with regards to future realization of deferred tax assets. As of September 30, 2016, the Company continues to demonstrate three-year cumulative pre-tax income in the U.S. federal and Arizona tax jurisdictions; however, the Company's Arizona R&D Tax Credits start to expire in 2018 with a significant tranche with a gross value of $1.2 million expiring if not used by the end of 2019. Under the Company’s new tax structure, it appears that long term investments, which impact short term profits, will likely result in some of the R&D credits expiring before they are utilized. Therefore, management has concluded that it is more likely than not that a portion of the Company’s deferred tax assets will not be realized and has established a valuation allowance.

The Company has completed research and development (“R&D”) tax credit studies which identified approximately $12.9 million in tax credits for federal, Arizona and California income tax purposes related to the 2003 through 2016 tax years. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $3.5 million as of September 30, 2016. In addition, management accrued approximately $0.1 million for estimated uncertain tax positions related to certain state income tax liabilities as of September 30, 2016. The Company does not expect a significant increase or decrease in the total amount of unrecognized tax benefits within 12 months. Should the total unrecognized tax benefit of $3.6 million be recognized, the Company’s effective tax rate would be favorably impacted. Approximately $1.4 million of the unrecognized tax benefit associated with research and development credits has been netted against the research and development credit deferred tax asset.

Effective Tax Rate

The Company’s overall effective tax rate for the nine months ended September 30, 2016, after discrete period adjustments, was 50.1%. Before discrete adjustments the tax rate was 48.3%, which is more than the statutory rate primarily due to the impact of non-deductible losses in certain foreign jurisdictions, state taxes and non-deductible expenses for items such as incentive stock option expense, meals and entertainment and lobbying fees, partially offset by the domestic production activities and research and development tax credit deductions. The effective tax rate was most impacted by the adverse impact from foreign losses for which the Company is not expected to receive a tax benefit. Additionally, the Company's effective tax rate was impacted by an unfavorable $0.4 million return-to-provision adjustment recorded in connection with the finalization of its annual tax return. The Company has completed the full implementation of its new international structure, which began in 2015. In accounting for the income tax effects of this new structure, the Company has recognized income tax expense in the current quarter based on the results it expects for the full year.  Actual results could be different, impacting the Company’s income tax expense in future quarters. 

9. Stockholders’ Equity

In May 2016, the Company’s stockholders approved a new stock incentive plan authorizing an additional 2.0 million shares, plus remaining available shares under a prior plan for issuance under the new plan. Combined with the legacy stock incentive plans, there are approximately 2.9 million shares available for grant as of September 30, 2016.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Performance-based stock awards

The Company has issued performance-based stock options and performance-based restricted stock units ("RSUs"), the vesting of which is contingent upon the achievement of certain performance criteria related to the operating performance of the Company, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service-based vesting requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the implicit service period (the longer of the period the performance condition is expected to be achieved or the required service period) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2016 (number of units and aggregate intrinsic value in thousands):

	Number of Units		Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,139		$	19.30
Granted	501		17.84
Released	(321	)	15.72
Forfeited	(106	)	21.61
Units outstanding, end of period	1,213		19.45		$	34,704

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $28.61 per share, multiplied by the number of RSUs outstanding. As of September 30, 2016, there was $18.0 million in unrecognized compensation costs related to RSUs under the Company's stock plans. The Company expects to recognize the cost related to the RSUs over a weighted average period of 2.52 years. RSUs are released when vesting requirements are met.

During the nine months ended September 30, 2016, the Company granted approximately 0.1 million performance-based RSUs, which are included in the table above. As of September 30, 2016, the performance criteria had not been met for any the 0.2 million performance-based RSUs outstanding. Certain of the performance-based RSUs granted in 2016 , 2015 and 2014 contain provisions whereby the amount of RSUs that ultimately vest is dependent upon the level of achievement of performance metrics. The amount of RSUs included in the table above related to such grants is the target level, which is the Company's best estimate of the amount of RSUs that will vest. The maximum additional number of performance-based RSUs that could be earned is 0.2 million, which are not included in the table above.

Certain RSUs that vested in the nine months ended September 30, 2016 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld were approximately 67,400 and had a value of approximately $1.3 million on their respective vesting dates as determined by the Company’s closing stock price. Payments for the employees’ tax obligations are reflected as a financing activity within the statement of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the amount of shares that would have otherwise been issued as a result of the vesting.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2016 (number of units and aggregate intrinsic value in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	1,103		$	5.37
Granted	—		—
Exercised	(88	)	4.92
Expired / terminated	—		—
Options outstanding, end of period	1,015		5.41		2.50	$	23,555
Options exercisable, end of period	985		5.43		2.51	22,823
Options expected to vest, end of period	25		4.75		2.23	597

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of the Company's common stock of $28.61 on September 30, 2016. The intrinsic value of options exercised for the nine months ended September 30, 2016 and 2015 was $1.8 million and $13.3 million, respectively. Options expected to vest are presented net of forfeitures. As of September 30, 2016, total options outstanding includes approximately 0.2 million performance-based stock options, of which approximately 30,600 were unvested and 25,000 expected to vest.

Stock-based Compensation Expense

The estimated fair value of stock-based awards is amortized to expense on a straight-line basis over the service periods. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s forfeiture rate was calculated based on its historical experience of awards which ultimately vested. The following table summarizes the composition of stock stock-based compensation for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of products sold and services delivered	$	77	$	118	$	247	$	276
Sales, general and administrative expenses	1,348		1,123		4,197		2,982
Research and development expenses	791		622		2,298		1,828
Total stock-based compensation	$	2,216	$	1,863	$	6,742	$	5,086

Stock Repurchase Plan

In February 2016, the Company announced that TASER’s Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. During the three months ended September 30, 2016, no common shares were purchased under the program. During the nine months ended September 30, 2016, the Company purchased, under a Rule 10b5-1 plan, approximately 1.8 million common shares for a total cost of approximately $33.8 million, or a weighted average cost of $18.90 per share. The weighted average cost includes the average price paid per share of $18.87, plus applicable administrative costs for the transaction. During the nine months ended September 30, 2015, the Company purchased approximately 0.3 million common shares for a total cost of approximately $7.6 million, or a weighted average cost of $25.86 per share. As of September 30, 2016, $16.2 million remains available under the plan for future purchases. The Company suspended its 10b-5 plan, and any future purchases will be discretionary.

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TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

10. Line of Credit

The Company has a $10.0 million revolving line of credit with a domestic bank. At both September 30, 2016 and December 31, 2015, there were no borrowings under the line. As of September 30, 2016, the Company had letters of credit outstanding of approximately $3.9 million under the facility and available borrowing of approximately $6.1 million. The line is secured by substantially all of the assets of the Company, and bears interest at varying rates (currently LIBOR plus 1.5% or Prime less 0.75%). The line of credit matures on July 31, 2017, and requires monthly payments of interest only. The Company’s agreement with the bank requires it to comply with certain financial and other covenants including maintenance of a maximum leverage ratio and minimum fixed charge coverage ratio. The leverage ratio (ratio of total liabilities to tangible net worth) can be no greater than 1:1, and the fixed charge coverage ratio can be no less than 1.25:1, based upon a trailing twelve-month period. At September 30, 2016, the Company’s leverage ratio was 0.88:1 and its fixed charge coverage ratio was 2.23:1. Accordingly, the Company was in compliance with these covenants.

11. Commitments and Contingencies

Product Litigation

The Company is currently named as a defendant in eight lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used (or present) by law enforcement officers in connection with arrests or during training exercises. While the facts vary from case to case, the product liability claims are typically based on an alleged product defect resulting in injury or death, usually involving a failure to warn, and the plaintiffs are seeking monetary damages. The information throughout this note is current through the date of these financial statements.

As a general rule, it is the Company’s policy not to settle suspect injury or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to the Company. Also, on occasion, the Company’s insurance company has settled such lawsuits over the Company’s objection where the risk is over the Company’s liability insurance deductibles. Due to the confidentiality of the Company's litigation strategy and the confidentiality agreements that are executed in the event of a settlement, the Company does not identify or comment on which specific lawsuits have been settled or the amount of any settlement.

In 2009, the Company implemented new risk management strategies, including revisions to product warnings and training to better protect both the Company and its customers from litigation based on ‘failure to warn’ theories - which comprise the vast majority of the cases against the Company. These risk management strategies have been highly effective in reducing the rate and exposure from litigation post-2009. From the third quarter of 2011 to the third quarter of 2016, product liability cases have been reduced from 55 active to eight active cases.

Management believes that pre-2009 cases have a different risk profile than cases which have occurred since the risk management procedures were introduced in 2009. Therefore, the Company necessarily treats certain pre-2009 cases as exceptions to the Company’s general no settlement policy in order to reduce caseload, legal costs and liability exposure. The Company intends to continue its successful practice of aggressively defending and generally not settling litigation except in very limited and unusual circumstances as described above.

19

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

With respect to each of the pending lawsuits, the following table lists the name of plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status of the matter.

Plaintiff	Month Served	Jurisdiction	Claim Type	Status
Derbyshire	Nov-09	Ontario, Canada Superior Court of Justice	Officer Injury	Discovery Phase
Doan	Apr-10	The Queen's Bench, Alberta, Red Deer Judicial Dist.	Wrongful Death	Discovery Phase
Shymko	Dec-10	The Queen's Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Ramsey	Jan-12	12th Judicial Circuit Court, Broward County, FL	Wrongful Death	Discovery Phase
Firman	Apr-12	Ontario, Canada Superior Court of Justice	Wrongful Death	Pleading Phase
Schrock	Sep-14	San Bernardino County Superior Court, CA	Wrongful Death	Motion of Summary Judgment Granted on all claims except negligent design and manufacture, subject to repleading by Plaintiff. Plaintiff filed an amended complaint for negligent design claims as well as a Petition for Writ of Mandate or Prohibition Petition from the Court; which writ was summarily denied.
Bennett	Sep-15	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Discovery Phase
Suarez	Sep-16	US District Court, Southern District of Florida	Wrongful Death	Pleading Phase

There are no product litigation matters in which the Company is involved that are currently on appeal.

The following cases were dismissed or judgment entered during the third quarter of 2016 and through the date of these financial statements.

Plaintiff	Month Served	Jurisdiction	Claim Type	Status
Thompson	Mar-10	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Dismissed
Hernandez/llach	Sep-15	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Dismissed
Williams	Aug-16	US District Court for the Northern District Georgia	Wrongful Death	Dismissed

The claims, and in some instances the defense, of each of these lawsuits have been submitted to the Company’s insurance carriers that maintained insurance coverage during the applicable periods. The Company continues to maintain product liability insurance coverage with varying limits and deductibles. The following table provides information regarding the Company’s product liability insurance. Remaining insurance coverage is based on information received from the Company’s insurance provider (in millions).

Policy Year	Policy Start Date	Policy End Date	Insurance Coverage	Deductible Amount	Defense Costs Covered	Remaining Insurance Coverage	Active Cases and Cases on Appeal
2009	12/15/2008	12/15/2009	10.0	1.0	N	10.0	Derbyshire
2010	12/15/2009	12/15/2010	10.0	1.0	N	10.0	Shymko, Doan
2011	12/15/2010	12/15/2011	10.0	1.0	N	10.0	n/a
Jan-Jun 2012	12/15/2011	6/25/2012	7.0	1.0	N	7.0	Ramsey, Firman
Jul-Dec 2012	6/25/2012	12/15/2012	12.0	1.0	N	12.0	n/a
2013	12/15/2012	12/15/2013	12.0	1.0	N	12.0	n/a
2014	12/15/2013	12/15/2014	11.0	4.0	N	11.0	Schrock
2015	12/15/2014	12/15/2015	10.0	5.0	N	10.0	Bennett
2016	12/15/2015	12/15/2016	10.0	5.0	N	10.0	Suarez

Other Litigation

In November, 2015 the Company filed a complaint against Phazzer Electronics Inc. and Sang Min International Co. Ltd. for patent infringement, trademark infringement and false advertising. Defendant Phazzer has filed a motion to dismiss as well as an ex parte reexamination request with the United States Patent and Trademark Officer of TASER’s US Patent No. 7,234,262, which request was granted. This litigation is in the motion/discovery phase.

20

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In February, 2016 the Company was served with a first amended complaint filed by Digital Ally in the Federal District Court for the District of Kansas alleging patent infringement, commercial bribery, contracts, combinations and conspiracies in restraint of trade and unfair or anti-competitive acts and practices. In March 2016, the Company was served with a second amended complaint with similar allegations. The second amended complaint seeks a judgment of infringement, monetary damages, a permanent injunction, punitive damages and attorneys’ fees and costs. The Company believes the second amended complaint is frivolous and the Company will vigorously defend this litigation. The Company has filed a motion to dismiss the claims involving commercial bribery, contracts, combinations and conspiracies in restraint of trade and unfair or anti-competitive acts and practices. This litigation is in the discovery phase.

In April, 2016 the Company was served with a notice of arbitration claim filed by Antoine di Zazzo, the Company’s former distributor in France, for commissions allegedly owed Mr. di Zazzo. The arbitration claim was filed with the International Court of Arbitration of the International Chamber of Commerce in Paris, France, and the amount that is claimed in controversy is approximately $0.6 million. The Company’s records reflect that all commissions that were due Mr. di Zazzo under his contract were paid or offered to him and the Company will vigorously defend this arbitration claim.

General

From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is the Company’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the Company. After carefully assessing the claim, and assuming the Company determines that it is not at fault or it disagrees with the damages or relief demanded, the Company vigorously defends any lawsuit filed against the Company. In certain legal matters, the Company records a liability when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, the Company takes into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. The Company reevaluates and updates accruals as matters progress over time.

Based on the Company's assessment of outstanding litigation and claims as of September 30, 2016, the Company has determined that it is not reasonably possible that these lawsuits will individually, or in the aggregate, materially affect its results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by its insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Off-Balance Sheet Arrangements

Under certain circumstances, the Company uses letters of credit and surety bonds to guarantee its performance under various contracts, principally in connection with the installation and integration of its Axon cameras and related technologies. Certain of the Company's letters of credit contracts and surety bonds have stated expiration dates with others being released as the contractual performance terms are completed. At September 30, 2016, the Company had outstanding letters of credit of approximately $3.9 million. Of that amount, $2.7 million is expected to expire in May 2017 and $1.2 million is expected to expire in February 2017. Additionally, the Company had approximately $5.7 million of outstanding surety bonds at September 30, 2016, with $0.4 million expiring in 2018, $2.4 million expiring in 2020, and the remaining $2.9 million expiring in 2021 and thereafter.

21

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

12. Related Party Transactions

The Company engages Dr. Mark Kroll, a member of the Board of Directors, to provide consulting services. The expenses related to these services were approximately $14,000 and $44,000 for the three months ended September 30, 2016 and 2015, respectively, and $111,000 and $156,000 for the nine months ended September 30, 2016 and 2015, respectively. At September 30, 2016 and December 31, 2015, the Company had liabilities of approximately $3,000 and $31,000, respectively, related to these services.

The Company subscribes to a mobile collaboration software suite co-founded and managed by Bret Taylor, a member of the Company's Board of Directors. The cost to license this software is approximately $30,000 per quarter, and as of September 30, 2016 and December 31, 2015 the Company had $80,800 and $36,000, respectively, of prepaid costs related to the license subscription.

In connection with the acquisition of Tactical Safety Responses Limited (Note 15), the Company assumed a long-term non-cancellable operating lease for office space with the former owners, one of whom is an employee of the Company. The lease has a remaining contractual term of approximately five years and requires annual rental payments of approximately $25,000.

13. Employee Benefit Plans

The Company has a defined contribution profit sharing 401(k) plan for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum allowed by law of their eligible compensation.

The Company also has a non-qualified deferred compensation plan for certain executives, key employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation, including stock-based compensation, received from the Company. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows for (i) matching and discretionary employer contributions and (ii) the deferral of vested RSU awards. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are allocated fully to plan participants and the Company does not guarantee a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in other assets in the condensed consolidated balance sheets. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of the Company’s general creditors.

Contributions to the plans are made by both the employee and the Company. Company contributions to the 401(k) plan are based on the level of employee contributions and are immediately vested. The Company’s matching contributions to the 401(k) plan for the three months ended September 30, 2016 and 2015, were approximately $0.4 million and $0.3 million, respectively, and for the nine months ended September 30, 2016 and 2015, were approximately $1.2 million and $0.9 million, respectively. The Company expects to make contributions to the non-qualified deferred compensation plan related to the three months ended September 30, 2016, of approximately $8,000. Future matching or profit sharing contributions to the plans are at the Company’s sole discretion.

22

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

14. Segment Data

The Company’s operations are comprised of two reportable segments: the manufacture and sale of CEWs, accessories and other products and services (the “TASER Weapons” segment); and the video business, which includes the TASER Cam, Axon products, Evidence.com, and MediaSolv (the “Axon” segment). The Company includes only revenues and costs attributable to the Axon segment in that segment. Included in Axon segment costs are: costs of sales for both products and services, overhead allocation based on direct labor, selling expense for the Axon sales team, Axon product management expenses, trade shows and related expenses, and research and development for products included in the Axon segment. All other costs are included in the TASER Weapons segment. The CODM does not review assets by segment as part of the financial information provided; therefore, only limited asset information is provided in the following tables.

Information relative to the Company’s reportable segments is as follows (in thousands):

	Three Months Ended September 30, 2016							Three Months Ended September 30, 2015
	TASER Weapons		Axon			Total		TASER Weapons		Axon			Total
Product sales	$	52,938	$	10,266		$	63,204	$	39,520	$	7,745		$	47,265
Service revenue	—		8,678			8,678		—		3,111			3,111
Net sales	52,938		18,944			71,882		39,520		10,856			50,376
Cost of products sold	14,973		8,691			23,664		12,445		5,829			18,274
Cost of services delivered	—		1,653			1,653		—		1,034			1,034
Gross margin	37,965		8,600			46,565		27,075		3,993			31,068
Sales, general and administrative	16,439		11,682			28,121		11,941		5,893			17,834
Research and development	1,408		5,950			7,358		1,151		5,377			6,528
Income (loss) from operations	$	20,118	$	(9,032	)	$	11,086	$	13,983	$	(7,277	)	$	6,706
Purchase of property and equipment	$	1,064	$	307		$	1,371	$	1,900	$	169		$	2,069
Purchase of intangible assets	77		77			154		114		87			201
Purchase of property and equipment and intangible assets in connection with business acquisition	—		—			—		1,453		1,452			3,005
Depreciation and amortization	537		364			901		603		345			948

	Nine Months Ended September 30, 2016							Nine Months Ended September 30, 2015
	TASER Weapons		Axon			Total		TASER Weapons		Axon			Total
Product sales	$	144,307	$	23,438		$	167,745	$	115,686	$	18,177		$	133,863
Service revenue	—		18,423			18,423		—		7,988			7,988
Net sales	144,307		41,861			186,168		115,686		26,165			141,851
Cost of products sold	43,998		17,174			61,172		34,805		12,692			47,497
Cost of services delivered	—		4,230			4,230		—		2,695			2,695
Gross margin	100,309		20,457			120,766		80,881		10,778			91,659
Sales, general and administrative	46,395		30,938			77,333		33,469		14,373			47,842
Research and development	3,773		17,222			20,995		3,418		13,574			16,992
Income (loss) from operations	$	50,141	$	(27,703	)	$	22,438	$	43,994	$	(17,169	)	$	26,825
Purchase of property and equipment	$	2,729	$	606		$	3,335	$	2,345	$	1,404		$	3,839
Purchase of intangible assets	190		149			339		195		207			402
Purchase of property and equipment and intangible assets in connection with business acquisition	—		—			—		1,453		11,146			12,599
Depreciation and amortization	1,669		1,075			2,744		1,689		621			2,310

23

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

15. Business Acquisitions

MediaSolv Solutions Corporation

On May 5, 2015, the Company acquired all of the outstanding capital stock of MediaSolv Solutions Corporation, a Delaware corporation for a total purchase price of $8.8 million, net of $0.1 million of cash acquired. MediaSolv primarily provides solutions for interview room video, closed-circuit television ("CCTV") and on-premise digital evidence management. These products connect with the Company's Axon on-officer cameras and, in some cases, its Evidence.com cloud platform, further enabling law enforcement to unify existing silos of digital media and evidence into a seamless workflow from capture to the courtroom. The Company believes the acquisition will continue to allow the Company to leverage MediaSolv’s existing network and relationships to further strengthen its position in the market.

The purchase price consisted primarily of cash, net of cash acquired and working capital adjustments, of $7.8 million and contingent consideration of $1.0 million representing potential earn-outs to former stockholders based on predetermined future financial metrics. The Company also agreed to additional earn-out provisions and compensation adjustments totaling approximately $4.0 million based, in part, on predefined future financial metrics. The additional earn-outs were not included as part of the purchase price and will be expensed as compensation in the period earned.

During the first quarter of 2016, the $1.0 million of earn-outs to former stockholders were earned in full and were paid during the second quarter of 2016. During the three and nine months ended September 30, 2016, the Company recorded $0.2 million and $1.2 million, respectively, of earn-outs that were recorded as commission expense, and as of September 30, 2016, $0.2 million of earn-outs were recorded as accrued liabilities within the accompanying condensed consolidated financial statements.

The major classes of assets and liabilities to which the Company allocated the purchase price were as follows (in thousands):

Accounts receivable and other current assets	$	590
Inventory	35
Property and equipment	53
Intangible assets	4,145
Goodwill	5,496
Accounts payable and accrued liabilities	(697		)
Deferred revenue	(111		)
Deferred income tax liabilities, net	(688		)
Total purchase price	$	8,823

The Company has assigned the goodwill to the Axon segment. Other identifiable definite lived intangible assets were assigned a total weighted average amortization period of 6.5 years. MediaSolv has been included in the Company's consolidated results of operations subsequent to the acquisition date. Pro forma results of operations for MediaSolv have not been presented because they are not material to the consolidated results of operations. In connection with the acquisition, the Company incurred and expensed costs of approximately $0.2 million, which included legal, accounting and other third-party expenses related to the transaction.

Tactical Safety Responses Limited

On July 16, 2015, TASER International B.V., a wholly owned subsidiary of the Company, acquired all of the outstanding capital stock of Tactical Safety Responses Limited ("TSR"), a United Kingdom ("UK") corporation. TSR was the Company's licensed distributor of TASER CEWs and Axon cameras and related accessories in the UK. The acquired entity operates under the name Axon Public Safety UK. The acquisition is intended to help expand the Company's growth across the UK by growing its in-country sales and support team. The total purchase was $3.3 million consisting of $4.0 million cash at close, net of $0.7 million of cash acquired. The Company also agreed to additional amounts in the form of earn-outs, subject to the achievement of predefined performance metrics. The earn-outs were not included as part of the purchase price and will be expensed as compensation in the period earned. During the three and nine months ended September 30, 2016, $0.1 million was recorded as commissions expense under these earn-out provisions.

24

TASER INTERNATIONAL, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The major classes of assets and liabilities to which the Company has allocated the purchase price are as follows (in thousands):

Accounts receivable	$	726
Inventory	497
Property and equipment	583
Other Assets	20
Intangible assets	881
Goodwill	1,441
Accounts payable and accrued liabilities	(207		)
Notes payable	(169		)
Income tax liabilities	(438		)
Total purchase price	$	3,334

The Company has assigned the goodwill to the consolidated entity. Other identifiable definite lived intangible assets were assigned a total weighted average amortization period of 7.0 years. TSR has been included in the Company's consolidated results of operations subsequent to the acquisition date. Pro forma results of operations for TSR have not been presented because they are not material to the consolidated results of operations. In connection with the acquisition, the Company incurred and expensed costs of approximately $0.1 million, which included legal, accounting and other third-party expenses related to the transaction.

25

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following is a discussion of the Company’s financial condition as of September 30, 2016, and results of operations for the three and nine months ended September 30, 2016 and 2015. The following discussion may be understood more fully by reference to the consolidated financial statements, notes to the consolidated financial statements, and Management’s Discussion and Analysis of Financial Condition and Results of Operations section contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015.

Certain statements contained in this report may be deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995, and the Company intends that such forward-looking statements be subject to the safe-harbor created thereby. Such forward-looking statements may relate to, among other things: our strategies relating to our Axon business; future income trends and our ability to realized deferred tax assets; our belief that customers will honor multi-year contracts despite the existence of appropriations (or similar) clauses; the sufficiency and availability of our liquid assets and capital resources; our litigation strategy, including the outcome of legal proceedings in which we are currently involved; future trends relating to Axon margins; that we may make further repurchases of our common stock; our estimated effective tax rate for full year 2016; that we may engage in currency hedging activities; and the impact of recently adopted and future accounting standards. We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward looking statements herein. Such factors include, but are not limited to: the adverse effect of the United Kingdom's exit from the European Union; market acceptance of our products; our dependence on sales of our TASER X26P and X2 CEWs; our ability to design, introduce and sell new products; delays in development schedules; rapid technological change and competition; product defects; breach of our security measures resulting in unauthorized access to customer data; outages and disruptions relating to our Evidence.com service; budgetary and political constraints of prospects and customers; the length of our sales cycle and our ability to realize benefits from our marketing and selling efforts; our exposure to cancellations of government contracts due to appropriation clauses; changes in civil forfeiture laws; the long-term revenue recognition cycle for our SaaS Evidence.com product; our reliance on third party cloud-based storage providers; litigation risks resulting from alleged product-related injuries and media publicity concerning allegations of deaths occurring after use of the TASER device and the negative impact this publicity could have on sales; the outcome of pending or future litigation; our ability to protect our intellectual property as well as intellectual property infringement claims and relating litigation costs; our successful identification of existing intellectual property rights that might infringe on our developments; competition in foreign countries relating to our inability to protect our patents; risks of governmental regulations, including regulations of our products by the United States Consumer Product Safety Commission, regulation of our products as a "crime control" product by the Federal government, state and local government regulation and foreign regulation and the adverse effects that could result from our products being classified as firearms by the United States Bureau of Alcohol and Firearms; regulatory and political challenges presented by international markets; our compliance with regulations governing the environment, including but not limited to, regulations within the European Union; regulations relating to voice, data and communications services; regulations relating to conflict minerals;  our dependence on third party suppliers for key components of our products; component shortages; rising costs of raw materials and transportation relating to petroleum prices; that we may experience declines in gross margins due to a shift in product sales from CEW to Axon devices; our ability to manage our growth and increase manufacturing production to meet demand; establishment and expansion of our direct and indirect distribution channels; our ability to pursue sales directly with customers; risks relating to acquisitions and joint ventures; goodwill impairment; catastrophic events; quarterly fluctuations in our operating results; the adverse effects on our operations and financial results from foreign currency fluctuations; fluctuations in our effective tax rate; counter-party risks relating to cash balances held in excess of FDIC insurance limits; employee retention risks; volatility in our stock price; and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2015.

Overview

TASER International, Inc.’s (the “Company” or “TASER” or “we” or “our”) core mission is to protect life and to protect truth through technologies that make communities safer. We are the market leader in the development, manufacture and sale of conducted electrical weapons (“CEWs”) and other electronic weapons designed for use in law enforcement, military, corrections, private security and personal defense. To address challenges faced by law enforcement officers subsequent to post-incident, we have developed a fully integrated hardware and software solution to provide our law enforcement customers the capabilities to capture, store, manage, share and analyze video and other digital evidence.

26

Results of Operations

Three Months Ended September 30, 2016 Compared to the Three Months Ended September 30, 2015

The following table presents data from our statements of operations as well as the percentage relationship to total net sales of items included in our statements of operations (dollars in thousands):

	Three Months Ended September 30,
	2016					2015
Net sales	$	71,882		100.0	%	$	50,376		100.0	%
Cost of products sold and services delivered	25,317			35.2		19,308			38.3
Gross margin	46,565			64.8		31,068			61.7
Operating expenses:
Sales, general and administrative	28,121			39.1		17,834			35.4
Research and development	7,358			10.2		6,528			13.0
Total operating expenses	35,479			49.4		24,362			48.4
Income from operations	11,086			15.4		6,706			13.3
Interest income and other (expense) income, net	(455		)	(0.6	)	(22		)	—
Income before provision for income taxes	10,631			14.8		6,684			13.3
Provision for income taxes	6,788			9.4		5,163			10.2
Net income	$	3,843		5.3	%	$	1,521		3.0	%

Net sales to the U.S. and other countries are summarized as follows (dollars in thousands):

	Three Months Ended September 30,
	2016				2015
United States	$	60,558	84.2	%	$	43,689	86.7	%
Other Countries	11,324		15.8		6,687		13.3
Total	$	71,882	100.0	%	$	50,376	100.0	%

27

Net Sales

Net sales by product line were as follows for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,								Dollar Change			Percent Change
	2016				2015
TASER Weapons segment:
TASER X26P	$	18,943	26.4	%	$	12,901	25.6	%	$	6,042		46.8	%
TASER X2	13,514		18.8		10,928		21.7		2,586			23.7
TASER X26	1,549		2.2		1,570		3.1		(21		)	(1.3	)
TASER Pulse and Bolt	1,039		1.4		530		1.1		509			96.0
Single cartridges	13,898		19.3		10,351		20.5		3,547			34.3
Extended warranties including TAP	2,645		3.7		1,876		3.7		769			41.0
Other	1,350		1.9		1,364		2.7		(14		)	(1.0	)
TASER Weapons segment	52,938		73.6		39,520		78.5		13,418			34.0
Axon segment:
Axon Body	3,540		4.9		1,144		2.3		2,396			209.4
Axon Flex	2,316		3.2		2,936		5.8		(620		)	(21.1	)
E-Dock	2,438		3.4		1,562		3.1		876			56.1
Evidence.com	8,544		11.9		2,764		5.5		5,780			209.1
TASER Cam	696		1.0		1,444		2.9		(748		)	(51.8	)
Extended warranties including TAP	1,015		1.4		511		1.0		504			98.6
Other	395		0.5		495		1.0		(100		)	(20.2	)
Axon segment	18,944		26.4		10,856		21.5		8,088			74.5
Total net sales	$	71,882	100.0	%	$	50,376	100.0	%	$	21,506		42.7

* Not meaningful

Net unit sales for the TASER Weapons handles and other products and Axon segment products are as follows:

	Three Months Ended September 30,		Unit Change		Percent Change
	2016	2015
TASER X26P	23,259	13,659	9,600		70.3	%
TASER X2	12,481	8,036	4,445		55.3
TASER X26	365	818	(453	)	(55.4	)
TASER Pulse and Bolt	1,936	1,801	135		7.5
Cartridges	544,671	435,237	109,434		25.1
Axon Flex	4,961	6,759	(1,798	)	(26.6	)
Axon Body	25,093	4,778	20,315		425.2
E-Dock	6,432	2,075	4,357		210.0
TASER Cam	1,323	2,887	(1,564	)	(54.2	)

Net sales were $71.9 million and $50.4 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $21.5 million or 42.7%. International revenues were $11.3 million and $6.7 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $4.6 million or 69.3%.

Net sales for the TASER Weapons segment were $52.9 million and $39.5 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $13.4 million or 34.0%. The increase is primarily attributable to upgrades and continued adoption of Smart Weapons both domestically and internationally. Sales related to TASER Smart Weapons increased by approximately $8.6 million during the quarter ended September 30, 2016 as compared to the comparable quarter in 2015. The

28

Company also experienced increased purchases under its installment payment programs; Officer Safety Plan and TASER 60. Additionally, the Company increased cartridge sales by $3.5 million to $13.9 million during the quarter ended September 30, 2016 as compared to $10.4 million during 2015.

Net sales for the Axon segment were $18.9 million and $10.9 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $8.1 million or 74.5%. The overall increase in the Axon segment was driven by continued adoption of on-officer cameras and related technologies, including the Company's Evidence.com digital evidence management software suite. Recognized revenue related to the Company's on-officer cameras and related accessories increased approximately $2.7 million. The Company is continuing to enter into new contracts with domestic and international agencies seeking to deploy its technologies. Evidence.com revenues for the three months ended September 30, 2016 increased $5.8 million to $8.5 million as compared to the same period in 2015. This increase was primarily driven by an increase in active users on the Company's Axon platform, but was also due to catch up revenue adjustments for arrangements where services were being provided as contracted, but certain revenue recognition criteria precluded the Company from recognizing the service revenues earlier.

To gain more immediate feedback regarding activity for Axon camera products and Evidence.com services, we also review bookings for these products. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales), net of cancellations, placed in the relevant fiscal period, regardless of when the products or services ultimately will be provided. Some bookings will be invoiced in subsequent years. Due to municipal government funding rules, certain of the future year amounts included in bookings are subject to budget appropriation or other contract cancellation clauses. Although TASER has entered into contracts for the delivery of products and services in the future and anticipates the contracts will be completed, if agencies do not appropriate funds in future year budgets, or enact a cancellation clause, revenue associated with these bookings may not ultimately be recognized, resulting in a future reduction to bookings. Bookings related to Evidence.com and Axon products and services, net of cancellations, were $57.5 million and $36.9 million during the three months ended September 30, 2016 and 2015, respectively, an increase of $20.6 million, or 55.9%.

The chart below illustrates the Company's Axon segment quarterly bookings for each of the previous six fiscal quarters (in thousands):

Cost of Products Sold and Services Delivered

Cost of products sold and services delivered was $25.3 million and $19.3 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $6.0 million or 31.1%. As a percentage of net sales, cost of products sold and services delivered decreased to 35.2% for the three months ended September 30, 2016 compared to 38.3% during the same period in 2015.

Within the TASER Weapons segment, cost of products sold increased to $15.0 million for the three months ended September 30, 2016 from $12.4 million in 2015, but decreased as a percentage of sales to 28.3% from 31.5%, respectively. The decrease as a percentage of sales in the third quarter of 2016 compared to the same period in 2015 was primarily attributable to increased leveraging of fixed overhead costs partially offset by increased discounting. Variable manufacturing costs remained relatively consistent during these periods.

29

Within the Axon segment, cost of products sold and services delivered increased to $10.3 million for the three months ended September 30, 2016 from $6.9 million for the same period in 2015. Cost of products sold and services delivered as a percentage of sales decreased to 54.6% for the three months ended September 30, 2016 from 63.2% for the same period in 2015. The overall increase in costs was driven by higher sales volumes, while the decrease in costs as a percentage of sales is driven by the combination of lower direct manufacturing costs for the Axon Body 2 camera compared to the legacy Axon Body camera coupled with overall improvements to our hardware and Evidence.com SaaS margins. There are a number of fixed costs for the Axon segment which, as we generate additional traction in the business, we expect to remain relatively stable and should allow for lower cost of services delivered as a percentage of service revenue over time.

Gross Margin

Gross margin increased $15.5 million to $46.6 million for the three months ended September 30, 2016 compared to $31.1 million for 2015. As a percentage of net sales, gross margin increased to 64.8% for the three months ended September 30, 2016 compared to 61.7% for 2015.

As a percentage of net sales, gross margin for the TASER Weapons segment increased to 71.7% from 68.5% for the three months ended September 30, 2016 and 2015, respectively. As a percentage of net sales, gross margin for the Axon segment was 45.4% and 36.8% for the three months ended September 30, 2016 and 2015, respectively.

Sales, General and Administrative Expenses

Sales, general and administrative (“SG&A”) expenses were comprised as follows for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,						Dollar Change		Percent Change
	2016			2015
Salaries, benefits and bonus	$	10,956		$	6,402		$	4,554	71.1	%
Stock-based compensation	1,348			1,129			219		19.4
Professional, consulting and lobbying	4,808			3,767			1,041		27.6
Sales and marketing	2,925			2,113			812		38.4
Travel and meals	2,506			1,401			1,105		78.9
Other	5,578			3,022			2,556		84.6
Total sales, general and administrative expenses	$	28,121		$	17,834		$	10,287	57.7
Sales, general, and administrative as a percentage of net sales	39.1		%	35.4		%

SG&A expenses were $28.1 million and $17.8 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $10.3 million or 57.7%. As a percentage of total net sales, SG&A expenses increased to 39.1% for the three months ended September 30, 2016 compared to 35.4% for the same period in 2015.

30

SG&A by type and by segment was as follows for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,								Dollar Change			Percent Change
	2016				2015
TASER Weapons segment:
Salaries, benefits and bonus	$	6,214	22.1	%	$	4,113	23.1	%	$	2,101		51.1	%
Stock-based compensation	806		2.9		809		4.5		(3		)	(0.4	)
Professional, consulting and lobbying	2,165		7.7		2,882		16.2		(717		)	(24.9	)
Sales and marketing	1,357		4.8		1,174		6.6		183			15.6
Travel and meals	1,152		4.1		729		4.1		423			58.0
Other	4,745		16.9		2,234		12.5		2,511			112.4
TASER Weapons segment	16,439		58.5		11,941		67.0		4,498			37.7
Axon segment:
Salaries, benefits and bonus	4,742		16.9		2,289		12.8		2,453			107.2
Stock-based compensation	542		1.9		320		1.8		222			69.4
Professional, consulting and lobbying	2,643		9.4		885		5.0		1,758			198.6
Sales and marketing	1,568		5.6		939		5.3		629			67.0
Travel and meals	1,354		4.8		672		3.8		682			101.5
Other	833		3.0		788		4.4		45			5.7
Axon segment	11,682		41.5		5,893		33.0		5,789			98.2
Total sales, general and administrative expenses	$	28,121	100.0	%	$	17,834	100.0	%	$	10,287		57.7

* Not meaningful

Within the TASER Weapons segment, SG&A increased $4.5 million, or 37.7%, to $16.4 million during the three months ended September 30, 2016 as compared to $11.9 million for the three months ended September 30, 2015. Salaries, benefits and bonus along with stock compensation increased approximately $2.1 million during the three months ended September 30, 2016 as compared to 2015 as the Company continued its efforts to build out international and direct sales teams internally along with the related support staff during the current quarter. The decrease is stock-based compensation as compared to the increase in salaries, benefits and bonus was primarily due to performance-based compensation for sales personnel being commission-based versus equity-based, coupled with forfeitures that were recorded during the third quarter of 2016 that did not occur during the same period in 2015. Sales and marketing expenses for the TASER Weapons segment increased approximately $0.2 million during the three months ended September 30, 2016 as compared to 2015 primarily related to higher variable commissions on increased sales during the period. Professional, consulting and lobbying expense decreased $0.7 million primarily due to higher international expenses related to set up of the BV during the three months ended September 30, 2015. Included in other expenses was $2.0 million of litigation costs incurred, including resolution expenses, that were not incurred during the same period in 2015.

Within the Axon segment, SG&A increased $5.8 million, or 98.2%, to $11.7 million during the three months ended September 30, 2016 as compared to $5.9 million for the same period in 2015. Salaries, benefits and bonus along with stock compensation increased approximately $2.7 million during the three months ended September 30, 2016 as compared to 2015 as the Company continues to build its employment infrastructure to continue to scale the Axon segment and its emerging technologies. The increase in travels and meals of $0.7 million during this time period correlated with the increase in employees during the period. The increase in sales and marketing of $0.6 million during the three months ended September 30, 2016 as compared to 2015 was due primarily to higher commission on increased sales. The Company has increased its lobbying efforts during the three months ended September 30, 2016 as compared to 2015 which made up a large portion of the $1.8 million increase in professional, consulting and lobbying expense. This ongoing effort is aimed at increasing awareness and brand recognition of the Company's Axon platform. Also included in the increase in professional expenses were legal fees related to the on-going patent litigation suit filed by a competitor of the Company.

31

Research and Development Expenses

Research and development expenses (“R&D”) expenses were comprised as follows for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,						Dollar Change			Percent Change
	2016			2015
Salaries, benefits and bonus	$	4,332		$	3,436		$	896		26.1	%
Stock-based compensation	791			623			168			27.0
Professional and consulting	673			1,079			(406		)	(37.6	)
Sales and marketing	158			9			149			*
Travel and meals	213			262			(49		)	(18.7	)
Other	1,191			1,120			71			6.3
Total research and development expenses	$	7,358		$	6,528		$	830		12.7
Research and development as a percentage of net sales	10.2		%	13.0		%

* Not meaningful

R&D expenses were $7.4 million and $6.5 million for the three months ended September 30, 2016 and 2015, respectively, an increase of $0.8 million, or 12.7%. As a percentage of net sales, R&D decreased to 10.2% for the three months ended September 30, 2016 compared to 13.0% for the same period in 2015.

R&D by type and by segment was as follows for the three months ended September 30, 2016 and 2015 (dollars in thousands):

	Three Months Ended September 30,								Dollar Change			Percent Change
	2016				2015
TASER Weapons segment:
Salaries, benefits and bonus	$	707	9.6	%	$	421	6.4	%	$	286		67.9	%
Stock-based compensation	143		1.9		105		1.6		38			36.2
Professional and consulting	230		3.1		324		5.0		(94		)	(29.0	)
Sales and marketing	—		—		4		0.1		(4		)	(100.0	)
Travel and meals	34		0.5		48		0.7		(14		)	(29.2	)
Other	294		4.0		249		3.8		45			18.1
TASER Weapons segment	1,408		19.1		1,151		17.6		257			22.3
Axon segment:
Salaries, benefits and bonus	3,625		49.3		$	3,015	46.2		610			20.2
Stock-based compensation	648		8.8		518		7.9		130			25.1
Professional and consulting	443		6.0		755		11.6		(312		)	(41.3	)
Sales and marketing	158		2.1		5		0.1		153			*
Travel and meals	179		2.4		214		3.3		(35		)	(16.4	)
Other	897		12.2		870		13.3		27			3.1
Axon segment	5,950		80.9		5,377		82.4		573			10.7
Total research and development expenses	$	7,358	100.0	%	$	6,528	100.0	%	$	830		12.7

* Not meaningful

32

The Company's Axon segment was responsible for almost 70% of the overall increase in R&D. The main increase in the Weapons segment was approximately $0.3 million salaries, benefits and bonus along with stock compensation as the Company continues to invest in the development of new CEW related technologies. Of the $0.6 million increase in R&D for the Axon segment, $0.8 million related to salaries and benefits, inclusive of stock-based compensation. The increase in sales and marketing of $0.2 million relates to contractual earn-outs for legacy MediaSolv employees, who work in R&D, that are recorded as commissions expense, as they are tied to executed sales contracts. The Company remains focused on growing the Axon segment as it adds headcount and external resources to develop new products and services to further advance its scalable cloud-connected device platform. These increases were partially offset by decreases in professional and consulting of $0.3 million related primarily to the Company being more selective in the utilization of consultants versus hiring additional internal resources.

Provision for Income Taxes

The provision for income taxes was $6.8 million for the three months ended September 30, 2016, which was an effective tax rate of 63.9%. Our estimated full year effective income tax rate for 2016, before discrete period adjustments, is approximately 42.3%, which is more than the statutory rate primarily due to the impact of non-deductible losses in certain foreign jurisdictions, state taxes and non-deductible expenses for items such as meals and entertainment and lobbying fees. The effective tax rate was most impacted by the adverse impact from foreign losses for which the Company is not expected to receive a tax benefit. Additionally, the Company's effective tax rate was impacted by an unfavorable $0.4 million return-to-provision adjustment recorded in connection with the finalization of its annual tax return. The Company has completed the full implementation of its new international structure, which began in 2015. In accounting for the income tax effects of this new structure, the Company has recognized income tax expense in the current quarter based on the results it expects for the full year.  Actual results could be different, impacting the Company’s income tax expense in the future. The Company has chosen this method, from among those available to it, because of its expectation that it will produce the least amount of variability during the year.

Net Income

Our net income increased by $2.3 million to $3.8 million for the three months ended September 30, 2016 compared to $1.5 million for the same period in 2015. Net income per basic and diluted share was $0.07 for the three months ended September 30, 2016 compared to $0.03 per basic and diluted share for the same period in 2015.

Nine Months Ended September 30, 2016 Compared to the Nine Months Ended September 30, 2015

The following table presents data from our statements of operations as well as the percentage relationship to total net sales of items included in our statements of operations (dollars in thousands):

	Nine Months Ended September 30,
	2016					2015
Net sales	$	186,168		100.0	%	$	141,851	100.0	%
Cost of products sold and services delivered	65,402			35.1		50,192		35.4
Gross margin	120,766			64.9		91,659		64.6
Operating expenses:
Sales, general and administrative	77,333			41.5		47,842		33.7
Research and development	20,995			11.3		16,992		12.0
Total operating expenses	98,328			52.8		64,834		45.7
Income from operations	22,438			12.1		26,825		18.9
Interest income and other (expense) income, net	(460		)	(0.2	)	12		0.0
Income before provision for income taxes	21,978			11.8		26,837		18.9
Provision for income taxes	11,022			5.9		12,008		8.5
Net income	$	10,956		5.9	%	$	14,829	10.5	%

33

Net sales to the U.S. and other countries are summarized as follows (dollars in thousands):

	Nine Months Ended September 30,
	2016				2015
United States	$	155,245	83.4	%	$	117,885	83.1	%
Other Countries	30,923		16.6		23,966		16.9
Total	$	186,168	100.0	%	$	141,851	100.0	%

Net Sales

Net sales by product line were as follows for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,								Dollar Change			Percent Change
	2016				2015
TASER Weapons segment:
TASER X26P	$	52,257	28.1	%	$	41,257	29.1	%	$	11,000		26.7	%
TASER X2	37,136		19.9		29,565		20.8		7,571			25.6
TASER X26	4,330		2.3		5,793		4.1		(1,463		)	(25.3	)
TASER Pulse and Bolt	2,636		1.4		1,491		1.1		143			9.6
Single cartridges	37,013		19.9		28,584		20.2		8,429			29.5
Extended warranties including TAP	7,102		3.8		5,384		3.8		1,718			31.9
Other	3,833		2.1		3,612		2.5		221			6.1
TASER Weapons segment	144,307		77.5		115,686		81.6		28,621			24.7
Axon segment:
Axon Body	7,217		3.9		3,433		2.4		3,784			110.2
Axon Flex	4,759		2.6		5,529		3.9		(770		)	(13.9	)
E-Dock	4,923		2.6		3,442		2.4		1,481			43.0
Evidence.com	18,021		9.7		7,355		5.2		10,666			145.0
TASER Cam	3,311		1.8		4,430		3.1		(1,119		)	(25.3	)
Extended warranties including TAP	2,434		1.3		1,156		0.8		1,278			110.6
Other	1,196		0.6		820		0.6		376			45.9
Axon segment	41,861		22.5		26,165		18.4		15,696			60.0
Total net sales	$	186,168	100.0	%	$	141,851	100.0	%	$	44,317		31.2

* Not meaningful

34

Net unit sales for the TASER Weapons handles and other products and Axon segment products are as follows:

	Nine Months Ended September 30,		Unit Change		Percent Change
	2016	2015
TASER X26P	58,385	45,946	12,439		27.1	%
TASER X2	34,697	25,510	9,187		36.0
TASER X26	1,886	4,341	(2,455	)	(56.6	)
TASER Pulse and Bolt	6,522	5,785	737		12.7
Cartridges	1,424,656	1,189,118	235,538		19.8
Axon Flex	11,026	15,921	(4,895	)	(30.7	)
Axon Body	40,977	15,381	25,596		166.4
E-Dock	11,236	5,554	5,682		102.3
TASER Cam	6,460	8,993	(2,533	)	(28.2	)

Net sales were $186.2 million and $141.9 million for the nine months ended September 30, 2016 and 2015, respectively, an increase of $44.3 million or 31.2%. Net sales for the TASER Weapons segment were $144.3 million and $115.7 million for nine months ended September 30, 2016 and 2015, respectively, an increase of $28.6 million or 24.7%. Net sales for the Axon segment were $41.9 million and $26.2 million for the nine months ended September 30, 2016 and 2015, respectively, an increase of $15.7 million or 60.0%.

The increase in net sales for the nine months ended September 30, 2016 compared to same period in 2015 in the TASER Weapons segment was primarily attributable to upgrades and continued adoption of Smart Weapons both domestically and internationally. The Company received increased purchases under its installment payment programs; Officer Safety Plan and TASER 60. Additionally, the Company experienced growth in cartridge sales increasing $8.4 million to $37.0 million during the six months ended September 30, 2016 as compared to $28.6 million during 2015. The overall increase in the Axon segment was driven by continued adoption of on-officer cameras and related technology. The Company continued to see increased recurring revenues related to its long-term Evidence.com arrangements. Revenues related to Evidence.com services increased $10.7 million to $18.0 million during the nine months ended September 30, 2016 compared to $7.4 million during the same period in 2015. This increase was primarily driven by increased active users on the Company's Axon platform.

Cost of Products Sold and Services Delivered

Cost of products sold and services delivered was $65.4 million and $50.2 million for the nine months ended September 30, 2016 and 2015, respectively, an increase of $15.2 million or 30.3%. As a percentage of net sales, cost of products sold and services delivered decreased to 35.1% for the nine months ended September 30, 2016 compared to 35.4% during the same period in 2015.

Within the TASER Weapons segment, cost of products sold increased $9.2 million, or 26.4%, to $44.0 million for the nine months ended September 30, 2016, compared to $34.8 million in 2015, and increased slightly as a percentage of sales to 30.5% from 30.1%. This increase is primarily attributable to higher discounting under the Company's upgrade programs and installment payment plans. Variable manufacturing costs remained relatively consistent during these periods.

Within the Axon segment, cost of products sold and services delivered were $21.4 million for the nine months ended September 30, 2016, an increase of $6.0 million, or 39.1% from the same period in 2015. The overall increase in costs was driven by higher sales volumes, while the decrease in costs as a percentage of sales is driven by the combination of lower direct manufacturing costs for the Axon Body 2 camera compared to the legacy Axon Body camera coupled with overall improvements to our hardware and Evidence.com SaaS margins. There are a number of fixed costs for the Axon segment which, as we generate additional traction in the business, we expect to remain relatively stable and should allow for lower cost of services delivered as a percentage of service revenue over time.

Gross Margin

Gross margin increased $29.1 million to $120.8 million for the nine months ended September 30, 2016 compared to $91.7 million for 2015. As a percentage of net sales, gross margin increased slightly to 64.9% for the nine months ended September 30, 2016 compared to 64.6% for the nine months ended September 30, 2015. As a percentage of net sales, gross margin for the TASER Weapons segment was flat at 69.5% and 69.9% for the nine months ended September 30, 2016 and 2015, respectively, while the same measure for these periods for the Axon segment were 48.9% and 41.2%, respectively.

35

Sales, General and Administrative Expenses

Sales, general and administrative (“SG&A”) expenses were comprised as follows for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,						Dollar Change		Percent Change
	2016			2015
Salaries, benefits and bonus	$	29,957		$	17,391		$	12,566	72.3	%
Stock-based compensation	4,197			2,987			1,210		40.5
Professional, consulting and lobbying	13,661			9,408			4,253		45.2
Sales and marketing	11,252			6,435			4,817		74.9
Travel and meals	6,593			4,265			2,328		54.6
Other	11,673			7,356			4,317		58.7
Total sales, general and administrative expenses	$	77,333		$	47,842		$	29,491	61.6
Sales, general, and administrative as a percentage of net sales	41.5		%	33.7		%

SG&A expenses were $77.3 million and $47.8 million for the nine months ended September 30, 2016 and 2015, respectively, an increase of $29.5 million or 61.6%. As a percentage of total net sales, SG&A expenses increased to 41.5% for the nine months ended September 30, 2016 compared to 33.7% for the same period in 2015.

SG&A by type and by segment was as follows for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,								Dollar Change		Percent Change
	2016				2015
TASER Weapons segment:
Salaries, benefits and bonus	$	17,084	22.1	%	$	11,712	24.5	%	$	5,372	45.9	%
Stock-based compensation	2,427		3.1		2,117		4.4		310		14.6
Professional, consulting and lobbying	8,055		10.4		7,514		15.7		541		7.2
Sales and marketing	6,127		7.9		3,487		7.3		2,640		75.7
Travel and meals	3,061		4.0		2,373		5.0		688		29.0
Other	9,641		12.5		6,266		13.1		3,375		53.9
TASER Weapons segment	46,395		60.0		33,469		70.0		12,926		38.6
Axon segment:
Salaries, benefits and bonus	12,873		16.6		5,679		11.9		7,194		126.7
Stock-based compensation	1,770		2.3		870		1.8		900		103.4
Professional, consulting and lobbying	5,606		7.2		1,894		4.0		3,712		196.0
Sales and marketing	5,125		6.6		2,948		6.2		2,177		73.8
Travel and meals	3,532		4.6		1,892		4.0		1,640		86.7
Other	2,032		2.6		1,090		2.3		942		86.4
Axon segment	30,938		40.0		14,373		30.0		16,565		115.3
Total sales, general and administrative expenses	$	77,333	100.0	%	$	47,842	100.0	%	$	29,491	61.6

Within the TASER Weapons segment, SG&A increased $12.9 million, or 38.6%, to $46.4 million during the nine months ended September 30, 2016 as compared to $33.5 million for nine months ended September 30, 2015. Salaries, benefits and bonus along with stock compensation increased approximately $5.7 million during the nine months ended September 30, 2016 as compared to 2015 as the Company continued its efforts to build out international and direct sales teams internally along with the related support staff. Sales and marketing expenses for the TASER Weapons segment increased approximately $2.6 million during the nine months ended September 30, 2016 as compared to 2015 primarily related to higher variable commissions on increased sales during the period. Included in other expenses was $2.0 million of litigation costs incurred, including resolution expenses, that were not incurred during the same period in 2015.

36

Within the Axon segment, SG&A increased $16.6 million, or 115.3%, to $30.9 million during the nine months ended September 30, 2016 as compared to $14.4 million for the same period in 2015. Salaries, benefits and bonus along with stock compensation increased approximately $8.1 million during the nine months ended September 30, 2016 as compared to 2015 as the Company continues to hire additional sales and marketing personnel and general support staff to extend its market leadership position in the on-officer camera and digital evidence management space as well as to ensure the appropriate infrastructure is in place for scalable growth. The increase in sales and marketing personnel also related to an increase in travel and meals of $1.6 million during this period. The increase in sales and marketing of $2.2 million during the nine months ended September 30, 2016 as compared to 2015 was due primarily to increased commissions on higher sales. The Company has increased its lobbying efforts during the nine months ended September 30, 2016 as compared to 2015 resulting in higher consulting and lobbying services expense of $1.6 million. This effort is aimed at increasing awareness and brand recognition of the Company's Axon platform. Professional fees increased during the nine months ended September 30, 2016 as compared to the same period in 2015 due to the ongoing Digital Ally patent infringement claims (Note 11).

Research and Development Expenses

Research and development expenses were comprised as follows for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,						Dollar Change			Percent Change
	2016			2015
Salaries, benefits and bonus	$	12,033		$	9,200		$	2,833		30.8	%
Stock-based compensation	2,298			1,828			470			25.7
Professional and consulting	2,240			2,766			(526		)	(19.0	)
Sales and marketing	676			52			624			*
Travel and meals	705			713			(8		)	(1.1	)
Other	3,043			2,433			610			25.1
Total research and development expenses	$	20,995		$	16,992		$	4,003		23.6
Research and development as a percentage of net sales	11.3		%	12.0		%

* Not meaningful

R&D expenses were $21.0 million and $17.0 million for the nine months ended September 30, 2016 and 2015, respectively, an increase of $4.0 million, or 23.6%. As a percentage of net sales, R&D decreased to 11.3% for the nine months ended September 30, 2016 compared to 12.0% for the same period in 2015.

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R&D by type and by segment was as follows for the nine months ended September 30, 2016 and 2015 (dollars in thousands):

	Nine Months Ended September 30,								Dollar Change			Percent Change
	2016				2015
TASER Weapons segment:
Salaries, benefits and bonus	$	1,420	6.8	%	$	1,339	7.9	%	$	81		6.0	%
Stock-based compensation	428		2.0		288		1.7		140			48.6
Professional and consulting	740		3.5		778		4.6		(38		)	(4.9	)
Sales and marketing	5		0.0		18		0.1		(13		)	(72.2	)
Travel and meals	226		1.1		179		1.1		47			26.3
Other	954		4.5		816		4.8		138			16.9
TASER Weapons segment	3,773		18.0		3,418		20.1		355			10.4
Axon segment:
Salaries, benefits and bonus	10,613		50.6		7,861		46.3		2,752			35.0
Stock-based compensation	1,870		8.9		1,540		9.1		330			21.4
Professional and consulting	1,500		7.1		1,988		11.7		(488		)	(24.5	)
Sales and marketing	671		3.2		34		0.2		637			*
Travel and meals	479		2.3		534		3.1		(55		)	(10.3	)
Other	2,089		9.9		1,617		9.5		472			29.2
Axon segment	17,222		82.0		13,574		79.9		3,648			26.9
Total research and development expenses	$	20,995	100.0	%	$	16,992	100.0	%	$	4,003		23.6

* Not meaningful

The Company's Axon segment made up essentially the entire increase of R&D. Of the $3.6 million increase in R&D for the Axon segment, $3.1 million related to salaries and benefits, inclusive of stock-based compensation. The Company remains focused on growing the Axon segment as it adds headcount and external resources to develop new products and services to further advance its scalable cloud-connected device platform. The increase in sales and marketing in the Axon segment of $0.6 million relates to contractual earn-outs for legacy MediaSolv employees, who work in R&D, that are recorded as commissions expense, as they are tied to executed sales contracts. Other expenses in the Axon segment increased $0.5 million, and includes costs such as supplies, building related expenses and general operating expenses, which have increased due to higher employee head-count during 2016 as compared to 2015.

Provision for Income Taxes

The provision for income taxes was $11.0 million for the nine months ended September 30, 2016, which was an effective tax rate of 50.2%. Our estimated full year effective income tax rate for 2016, before discrete period adjustments, is approximately 42.3%, which is more than the statutory rate primarily due to the impact of non-deductible losses in certain foreign jurisdictions, state taxes and non-deductible expenses for items such as meals and entertainment and lobbying fees. The effective tax rate was most impacted by the adverse impact from foreign losses for which the Company is not expected to receive a tax benefit. Additionally, the Company's effective tax rate was impacted by an unfavorable $0.4 million return-to-provision adjustment recorded in connection with the finalization of its annual tax return. The Company has completed the full implementation of its new international structure, which began in 2015. In accounting for the income tax effects of this new structure, the Company has recognized income tax expense in the current quarter based on the results it expects for the full year. Actual results could be different, impacting the Company’s income tax expense in the future. The Company has chosen this method, from among those available to it, because of its expectation that it will produce the least amount of variability during the year.

Net Income

Our net income decreased by $3.9 million to $11.0 million for the nine months ended September 30, 2016 compared to $14.8 million for the same period in 2015. Net income per basic and diluted share was $0.21 and $0.20, respectively, for the nine months ended September 30, 2016, compared to $0.28 and $0.27 per basic and diluted share, respectively, for the same period in 2015.

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Three Months Ended September 30, 2016 Compared to the Three Months Ended June 30, 2016

Net Sales

Net sales by product line were as follows for the three months ended September 30, 2016 and June 30, 2016 (dollars in thousands):

	Three Months Ended September 30, 2016				Three Months Ended June 30, 2016				Dollar Change			Percent Change
TASER Weapons segment:
TASER X26P	$	18,943	26.4	%	$	14,538	24.7	%	$	4,405		30.3	%
TASER X2	13,514		18.8		14,008		23.8		(494		)	(3.5	)
TASER X26	1,549		2.2		1,383		2.4		166			12.0
TASER Pulse and Bolt	1,039		1.4		1,055		1.8		(16		)	(1.5	)
Single cartridges	13,898		19.3		10,928		18.6		2,970			27.2
Extended warranties including TAP	2,645		3.7		2,306		3.9		339			14.7
Other	1,350		1.9		1,318		2.2		32			2.4
TASER Weapons segment	52,938		73.6		45,536		77.5		7,402			16.3
Axon segment:
Axon Body	3,540		4.9		2,194		3.7		1,346			61.3
Axon Flex	2,316		3.2		1,521		2.6		795			52.3
E-Dock	2,438		3.4		1,997		3.4		441			22.1
Evidence.com	8,544		11.9		4,887		8.3		3,657			74.8
TASER Cam	696		1.0		1,624		2.8		(928		)	(57.1	)
Extended warranties including TAP	1,015		1.4		776		1.3		239			30.8
Other	395		0.5		221		0.4		174			78.7
Axon segment	18,944		26.4		13,220		22.5		5,724			43.3
Total net sales	$	71,882	100.0	%	$	58,756	100.0	%	$	13,126		22.3

Net unit sales for the TASER Weapons handles and other products and Axon segment products are as follows:

	Three Months Ended September 30, 2016	Three Months Ended June 30, 2016	Unit Change		Percent Change
TASER X26P	23,259	16,559	6,700		40.5	%
TASER X2	12,481	13,479	(998	)	(7.4	)
TASER X26	365	700	(335	)	(47.9	)
TASER Pulse and Bolt	1,936	3,020	(1,084	)	(35.9	)
Cartridges	544,671	414,828	129,843		31.3
Axon Flex	4,961	3,668	1,293		35.3
Axon Body	25,093	9,686	15,407		159.1
E-Dock	6,432	3,402	3,030		89.1
TASER Cam	1,323	3,132	(1,809	)	(57.8	)

Net sales were $71.9 million and $58.8 million for the three months ended September 30, 2016 and June 30, 2016, respectively, an increase of $13.1 million or 22.3%. Net sales for the TASER Weapons segment were $52.9 million and $45.5 million for the three months ended September 30, 2016 and June 30, 2016, respectively, an increase of $7.4 million or 16.3%. International revenues increased $4.8 million or 73.2% in the current quarter to $11.3 million for the three months ended September 30, 2016 from $6.5 million during the three months ended June 30, 2016. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of the Company's customers.

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Net sales for the Axon segment were $18.9 million and $13.2 million for the three months ended September 30, 2016 and June 30, 2016 respectively, an increase of $5.7 million or 43.3%. The overall increase in the Axon segment is driven by continued adoption of on-officer cameras and related technology.

Liquidity and Capital Resources

Summary

As of September 30, 2016, we had $102.5 million of cash, cash equivalents and investments, a decrease of $15.8 million from the end of 2015.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

	Nine Months Ended September 30,
	2016			2015
Operating activities	$	21,959		$	30,314
Investing activities	2,285			(33,293		)
Financing activities	(33,801		)	429
Effect of exchange rate changes on cash and cash equivalents	631			70
Net decrease in cash and cash equivalents	$	(8,926	)	$	(2,480	)

Operating activities

Net cash provided by operating activities in the first nine months of 2016 of $22.0 million consisted of $11.0 million in net income impacted by the net increase of non-cash income statement items totaling $7.6 million and decrease of $3.4 million for the net change in operating assets and liabilities. Included in the non-cash items were $2.7 million in depreciation and amortization expense, $6.7 million in stock-based compensation expense and $1.0 million of bond premium amortization. These non-cash impacts were partially offset by deferred income tax expense of $2.7 million. Changes in operating assets and liabilities resulted in a net increase to cash provided by operating activities of $3.4 million. The largest increases were from increased accounts payable, accrued and other liabilities of $12.6 million along with increased deferred revenue of $26.3 million. The increase in deferred revenue was primarily driven by the continued adoption of Axon products and services that are typically invoiced at inception of the contract, and recognized over the duration of the contract period as hardware and services are delivered. Of the increase in deferred revenue, $12.8 million resulted from increased hardware deferred revenue along with increased deferred warranty revenue of $6.4 million, and increased Axon Services, including Evidence.com subscriptions, of $6.9 million, with the remaining $0.2 million made up primarily of deferred training revenue. These increases were partially offset by various items with the most significant component related to increases in prepaid expenses and other assets of prepaid expenses and other assets of $19.6 million which was primarily driven by an increase in long-term accounts receivable of $9.1 million related to the Company's Officer Safety Plan and TASER 60 purchase program, $4.0 million related to increased deferred cost of goods sold related to contracts where product had been shipped but revenue was deferred related to contractual provisions, increased prepaid commissions of $2.2 million related to higher sales, and $1.3 million related to increases in prepaid software licenses and related maintenance arrangements. These decreases were partially offset by an increase of $3.1 million of restricted cash related to a customer contract requiring certain contractual payments to be deposited in escrow until approved for release. Cash from operations also decreased due to increases in accounts and notes receivable of $5.3 million driven by higher sales and increases in inventory of $10.8 million as the Company continues to invest in anticipation of higher future sales.

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Net cash provided by operating activities in the first nine months of 2015 of $30.3 million consisted of $14.8 million in net income impacted by the net increase of non-cash income statement items totaling $1.4 million and decrease of $14.1 million for the net change in operating assets and liabilities. Included in the non-cash items were $2.3 million in depreciation and amortization expense, $5.1 million in stock-based compensation expense and $1.3 million of bond premium amortization. These additions were offset by an $6.3 million reduction related to excess tax benefit from stock-based compensation that was treated as a financing activity for cash flow purposes. The most significant increases to the portion of cash from operating activities related to the changes in operating assets and liabilities were a $7.7 million decrease in accounts receivable, an increase in deferred revenue of $10.7 million, and an increase in accounts payable, accrued liabilities and other liabilities of $1.7 million. The increase in deferred revenue was primarily driven by the continued adoption of Axon products and services that are typically invoiced at inception of the contract, and recognized over the duration of the contract period as hardware and services are delivered. Of the increase in deferred revenue, $5.1 million resulted from increased hardware deferred revenue along with increased deferred warranty revenue of $2.3 million, and increased Axon Services, including Evidence.com subscriptions, of $3.3 million. Offsetting these increases in cash from operating activities were increased prepaid expenses and other assets of $5.5 million.

Investing activities

We generated $2.3 million from investing activities during the first nine months of 2016. Maturities and calls of investments, net or purchases, were $5.9 million. The Company invested $3.7 million in the purchase of property and equipment and intangible assets which partially offset the increase related to net investment activity.

Primarily as a result of investing cash generated from operating activities, we used $33.3 million for investing activities during the first nine months of 2015. Purchases of investments, net of calls and maturities, were $17.9 million. In May 2015, the Company acquired the net assets MediaSolv for an aggregate purchase price of $8.8 million, including $7.9 million of cash. In July 2015, the Company acquired its UK distributor, Tactical Safety Responses Limited ("TSR"), for a purchase price of $3.3 million which represented the gross purchase price of $4.0 million net of $0.7 million of cash acquired. In addition, the Company invested $4.2 million in the purchase of property and equipment and intangible assets, excluding the assets acquired in the MediaSolv and TSR acquisitions.

Financing activities

Net cash used in financing activities was $33.8 million during the first nine months of 2016. During the first nine months of 2016, the Company repurchased $33.7 million of the Company's common stock, reflecting a weighted average cost of $18.90 per share, inclusive of applicable administrative costs for the transactions. Additionally, the Company paid payroll taxes of $1.3 million on behalf of employees who net-settled stock awards during the period.

Net cash provided by financing activities was $0.4 million during the first nine months of 2015. This was comprised primarily of $2.6 million of proceeds from the exercise of stock options and $6.3 million of excess tax benefit from stock proceeds offset by the repurchase of $7.6 million of our common stock, reflecting a weighted average cost of $25.86 per share, inclusive of applicable administrative costs for the transactions, and $0.8 million of payroll taxes funded by the Company on behalf of employees who net-settled stock awards during the period.

Liquidity and Capital Resources

Our most significant sources of liquidity continue to be funds generated by operating activities and available cash and cash equivalents. In addition, our $10.0 million revolving credit facility is available for additional working capital needs or investment opportunities. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. The line is secured by substantially all of the assets of the Company, and bears interest at varying rates, currently LIBOR plus 1.5% or Prime less 0.75%. At September 30, 2016 and December 31, 2015, there were no borrowings under the line. As of September 30, 2016, we had letters of credit outstanding of $3.9 million, leaving the net amount available for borrowing of approximately $6.1 million. The facility matures on July 31, 2017.

Our agreement with the bank requires us to comply with certain financial and other covenants including maintenance of a maximum leverage ratio and minimum fixed charge coverage ratio. The leverage ratio (ratio of total liabilities to tangible net worth) can be no greater than 1:1, and the fixed charge coverage ratio can be no less than 1.25:1, based upon a trailing twelve-month period. At September 30, 2016, the Company’s leverage ratio was 0.88:1 and its fixed charge coverage ratio was 2.23:1. Accordingly, the Company was in compliance with these covenants.

Based on our strong balance sheet and the fact that we only had approximately $0.1 million of total long-term debt and capital lease obligations at September 30, 2016, we believe financing will be available, both through our existing credit line and possible additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all.

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We believe funds generated from our expected results of operations, as well as available cash and investments, will be sufficient to finance our operations and strategic initiatives for the remainder of 2016 and the foreseeable future. From time to time, our board of directors considers repurchases of our common stock. Further repurchases of our common stock may take place on the open market, may be financed with available cash and are subject to board authorization as well as market and business conditions.

Off-Balance Sheet Arrangements

The discussion of off-balance sheet arrangements in Note 11 to the unaudited consolidated financial statements included in PART I, ITEM I of this Form 10-Q is incorporated by reference herein. 

Critical Accounting Estimates

We have identified the following accounting estimates as critical to our business operations and the understanding of our results of operations. The preparation of this Quarterly Report on Form 10-Q requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. While we don’t believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates. The effect of these estimates on our business operations is discussed below.

Product Warranties

The Company warranties its CEWs, Axon cameras and E-Docks from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for our standard warranty are charged to cost of products sold and services delivered when revenue is recorded for the related product. We estimate future warranty costs based on historical data related to returns and warranty costs on a quarterly basis and apply this rate to current product anticipated returns from our customers. We have also historically increased our reserve amount if we become aware of a component failure that could result in larger than anticipated returns from our customers. The accrued warranty liability is reviewed quarterly to evaluate whether it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. As of September 30, 2016 and December 31, 2015, our reserve for warranty returns was approximately $0.7 million and $0.3 million, respectively. Warranty expense for the nine months ended September 30, 2016 and 2015 was $0.5 million and $19,000, respectively. The increase in warranty reserve and related expense as of and for the nine months ended September 30, 2016 was primarily driven by additional warranty reserves related to the launch of the Axon Body 2 on-officer body camera, for which the Company has provided a supplemental reserve for uncertainties surrounding potential return rates due to the product being new without a well-established return rate, which is standard with a new product the Company introduces. As the Company continues investing in the development of new technologies it will continue to assess the adequacy of its reserve related to inherent uncertainties with new product offerings.

Revenue related to separately-priced extended warranties is recorded as deferred revenue at its contractual amount and subsequently recognized in net sales on a straight-line basis over the delivery period. Costs related to extended warranties are charged to cost of products sold and services delivered when incurred.

Inventory

Inventories are stated at the lower of cost or market, with cost determined using the weighted average cost of raw materials, which approximates the first-in, first-out (“FIFO”) method, and an allocation of manufacturing labor and overhead costs. The allocation of manufacturing labor and overhead costs includes management’s judgments of what constitutes normal capacity of our production facilities and a determination of what costs are considered to be abnormal fixed production costs, which are expensed as current period charges. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. These provisions are based on our best estimates after considering historical demand, projected future demand, inventory purchase commitments, industry and market trends and conditions and other factors. During the nine months ended September 30, 2016, the Company recorded provisions for excess and obsolete inventory of approximately $0.8 million compared to recoveries of $0.1 million during the same period in 2015. The increase for the nine months ended September 30, 2016 was driven by analyses looking at projected sales data for existing products and making corresponding adjustments to state inventories at their lower of cost or market. When the Company phases out previous generations of its CEWs and body-worn cameras and related accessories, and slows or ceases production of these products, the finished goods and related raw materials may become excess or obsolete. No specific product or product lines made up a meaningful portion of the overall increase.

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Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable

We derive our revenue from two primary sources: (1) the sale of physical products, including our CEWs, Axon cameras, corresponding hardware extended warranties, and related accessories such as E-docks, cartridges and batteries, and (2) subscription to our Evidence.com digital evidence management SaaS (including data storage fees and other ancillary services), which includes varying levels of support. To a lesser extent, we also recognize training and other revenue. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, title has transferred, the price is fixed and collectability is reasonably assured. Contractual arrangements may contain explicit customer acceptance provisions, and under such arrangements, the Company defers recognition of revenue until formal customer acceptance is received. Extended warranty revenue, SaaS revenue and related data storage revenue are recognized ratably over the term of the contract beginning on the commencement date of each contract.

Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendor-specific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence exists, management uses its best estimate of selling price. The majority of the Company’s allocations of arrangement consideration under multiple element arrangements are performed using vendor-specific objective evidence by utilizing prices charged to customers for deliverables when sold separately. The Company’s multiple element arrangements may include future CEWs and/or Axon devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price. The Company has not utilized third party evidence of selling price.

For the three and nine months ended September 30, 2016 and 2015, the composition of revenue recognized from arrangements containing multiple elements and those not containing multiple elements was as follows (dollars in thousands):

	Three Months Ended September 30, 2016												Three Months Ended September 30, 2015
	TASER Weapons				Axon				Total				TASER Weapons				Axon				Total
Arrangements with multiple elements	$	10,818	20.4	%	$	17,532	92.5	%	$	28,350	39.4	%	$	4,735	12.0	%	$	8,267	76.2	%	$	13,002	25.8	%
Arrangements without multiple elements	42,120		79.6		1,412		7.5		43,532		60.6		34,785		88.0		2,589		23.8		37,374		74.2
Total	$	52,938	100.0	%	$	18,944	100.0	%	$	71,882	100.0	%	$	39,520	100.0	%	$	10,856	100.0	%	$	50,376	100.0	%

	Nine Months Ended September 30, 2016												Nine Months Ended September 30, 2015
	TASER Weapons				Axon				Total				TASER Weapons				Axon				Total
Arrangements with multiple elements	$	22,010	15.3	%	$	35,718	85.3	%	$	57,728	31.0	%	$	8,014	6.9	%	$	18,992	72.6	%	$	27,006	19.0	%
Arrangements without multiple elements	122,297		84.7		6,143		14.7		128,440		69.0		107,672		93.1		7,173		27.4		114,845		81.0
Total	$	144,307	100.0	%	$	41,861	100.0	%	$	186,168	100.0	%	$	115,686	100.0	%	$	26,165	100.0	%	$	141,851	100.0	%

Evidence.com, Axon cameras and related accessories are sometimes sold separately, but in most instances are sold together. In these instances, customers typically purchase and pay for the equipment and one year of Evidence.com in advance. Additional years of service are generally billed annually over a specified service term, which has typically ranged from one to five years. Axon equipment represents a deliverable that is provided to the customer at the time of sale, while Evidence.com services are provided over the specified term of the contract. Generally, the Company recognizes revenue for the Axon equipment at the time of the sale consistent with the discussion of multiple deliverable arrangements above. Revenue for Evidence.com is deferred at the time of the sale and recognized over the service period. At times the Company subsidizes the cost of Axon devices provided to customers to secure long-term Evidence.com service contracts. In such circumstances, revenue related to the Axon devices recognized at the time of delivery is limited to the amount collected from the customer that is not contingent upon the delivery of future Evidence.com services. The Company recognizes the remaining allocated revenue related to subsidized Axon devices over the remaining period it provides the contracted Evidence.com services.

Deferred revenue consists of payments received in advance related to products and services for which the criteria for revenue recognition have not yet been met. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as long-term. Deferred revenue does not include future revenue from multi-year contracts for which no invoice has yet been created. We generally bill customers in annual installments.

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Sales are typically made on credit and we generally do not require collateral. We perform ongoing credit evaluations of our customers’ financial condition and maintain an allowance for estimated potential losses. Uncollectible accounts are written off when deemed uncollectible, and accounts and notes receivable are presented net of an allowance for doubtful accounts. This allowance represents our best estimate and is based on our judgment after considering a number of factors including third-party credit reports, actual payment history, customer-specific financial information and broader market and economic trends and conditions. In the event that actual uncollectible amounts differ from our estimates, additional expense could be necessary.

Valuation of Goodwill, Intangibles and Long-lived Assets

The recoverability of the goodwill is evaluated and tested for impairment at least annually during the fourth quarter or more often, if and when circumstances indicate that goodwill may not be recoverable. Finite-lived intangible assets and other long-lived assets are amortized over their useful lives. We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and intangible assets may warrant revision or that the remaining balance of these assets, including intangible assets with indefinite lives, may not be recoverable.

Circumstances that might indicate long-lived assets might not be recoverable could include, but are not limited to, a change in the product mix, a change in the way products are created, produced or delivered, or a significant change in the way our products are branded and marketed. When performing a review for recoverability, we estimate the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows.

Income Taxes

We recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or refundable in the current fiscal year by tax jurisdiction. We also recognize federal, state and foreign deferred tax assets or liabilities, as appropriate, for our estimate of future tax effects attributable to temporary differences and carry forwards.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. Management must also assess whether uncertain tax positions as filed could result in the recognition of a liability for possible interest and penalties if any. We have completed research and development tax credit studies which identified approximately $12.9 million in tax credits for federal, Arizona and California income tax purposes related to the 2003 through 2016 tax years. Management determined that it was more likely than not that the full benefit of the research and development tax credit would not be sustained on examination and accordingly, has established a liability for unrecognized tax benefits of $3.5 million as of September 30, 2016. In addition, we established a $0.1 million liability related to uncertain tax positions for certain state income tax liabilities, for a total unrecognized tax benefit at September 30, 2016 of $3.6 million. Approximately $1.4 million of the unrecognized tax benefit associated with research and development credits has been netted against the research and development credit deferred tax asset. Our estimates are based on the information available to us at the time we prepare the income tax provision. Our income tax returns are subject to audit by federal, state, and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and involves dealing with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax assets and liabilities may change based, in part, on added certainty or finality to an anticipated outcome, changes in accounting or tax laws in the U.S. and overseas, or changes in other facts or circumstances. In addition, we recognize liabilities for potential U.S. tax contingencies based on our estimate of whether, and the extent to which, additional taxes may be due. If we determine that payment of these amounts is unnecessary, or if the recorded tax liability is less than our current assessment, we may be required to recognize an income tax benefit, or additional income tax expense, respectively, in our consolidated financial statements.

In preparing our consolidated financial statements, management assesses the likelihood that our deferred tax assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, management considers all available positive and negative evidence, including operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if we determine that it is more likely than not that some portion or all of the net deferred tax assets will not be realized.

Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit by tax authorities in the ordinary course of business. As of September 30, 2016, the Company would need to generate approximately $44 million, $2.6 million, and $0.7 million of pre-tax book income in the U.S., United Kingdom, and Australia, respectively, in order to realize the net deferred tax assets for which a benefit has been recorded. This

44

estimate considers the reversal of approximately $10.8 million of taxable temporary differences, which produce $4.1 million of deferred tax liabilities. The Company has state NOLs which expire at various dates between 2024 and 2034. The Company also has federal NOLs of $0.9 million which expire between 2032 and 2034, and are subject to limitation under IRC Section 382. The Company has $43,000 of federal R&D credits which expire in 2022 and 2023, and are also subject to limitation under IRC Section 382. The Company has $6.4 million of Arizona R&D credits carrying forward, which expire at various dates between 2018 and 2031. In the United Kingdom and Australia, the Company has $3.8 million and $0.2 million, respectively, of NOLs which do not expire.

We anticipate the Company’s future income to continue to trend upward from our 2016 results, with sufficient pre-tax book income to realize a large portion of our deferred tax assets. As such, we have not recorded a valuation allowance on our deferred tax assets as of September 30, 2016, with the exception of a reserve of approximately $3.5 million that has been recorded due to specific income projections in years in which certain tax assets are set to expire.

We consider the earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash needs and our specific plans for reinvestment of those subsidiary earnings. It is not practicable to estimate the amount of the deferred tax liability, if any, related to investments in those foreign subsidiaries. If we decide to repatriate the foreign earnings, we would need to adjust our income tax provision in the period we determined that the earnings will no longer be indefinitely invested outside the United States.

Stock-Based Compensation

We have historically granted stock-based compensation to key employees and non-employee directors as a means of attracting and retaining quality personnel. We have historically utilized restricted stock units and stock options; however, no stock options have been issued since 2011. The fair value of restricted stock units is estimated as the closing price of our common stock on the date of grant. We estimate the fair value of granted stock options by using the Black-Scholes-Merton option pricing model, which requires the input of highly subjective assumptions. These assumptions include estimating the length of time employees will retain their stock options before exercising them (expected term), the estimated volatility of our common stock price over the expected term and the number of options that will ultimately not vest (forfeitures). The expense for both restricted stock units and stock options is recorded over the life of the grant, net of forfeitures.

We have granted a total of approximately 1.7 million performance-based awards (options and restricted stock units) of which approximately 0.4 million are outstanding as of September 30, 2016, the vesting of which is contingent upon the achievement of certain performance criteria including the successful development and market acceptance of future product introductions as well as our future sales targets and operating performance. These awards will vest and compensation expense will be recognized based on management’s best estimate of the probability of the performance criteria being satisfied using the most currently available projections of future product adoption and operating performance, adjusted at each balance sheet date. Changes in the subjective and probability-based assumptions can materially affect the estimate of fair value of stock-based compensation and consequently, the related amount recognized in our statements of operations.

Contingencies and Accrued Litigation Expense

We are subject to the possibility of various loss contingencies arising in the ordinary course of business, including product-related litigation, . We consider the likelihood of loss or impairment of an asset or the incurrence of a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to us to determine whether such accruals should be adjusted and whether new accruals are required. Refer to Note 11 of our condensed consolidated financial statements for further discussion.

45

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We typically invest in a limited number of financial instruments, consisting principally of investments in money market accounts, certificates of deposit and corporate and municipal bonds with a typical long-term debt rating of “AA” or better by any nationally recognized statistical rating organization, denominated in U.S. dollars. All of our cash equivalents and investments are treated as “held-to-maturity.” Investments in fixed-rate interest-earning instruments carry a degree of interest rate risk as their market value may be adversely impacted due to a rise in interest rates. As a result, we may suffer losses in principal if we sell securities that have declined in market value due to changes in interest rates. However, because we classify our debt securities as “held-to-maturity” based on our intent and ability to hold these instruments to maturity, no gains or losses are recognized due to changes in interest rates. These securities are reported at amortized cost. Based on investment positions as of September 30, 2016, a hypothetical 100 basis point increase across all maturities would result in a $0.3 million incremental decline in the fair market value of the portfolio. Such losses would only be realized if the Company sold the investments prior to maturity.

Additionally, we have access to a $10.0 million line of credit borrowing facility which bears interest at varying rates, currently at LIBOR plus 1.5% or Prime less 0.75%. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled $3.9 million at September 30, 2016. At September 30, 2016, there was no amount outstanding under the line of credit and the available borrowing under the line of credit was approximately $6.1 million. We have not borrowed any funds under the line of credit since its inception; however; should we need to do so in the future, such borrowings could be subject to adverse or favorable changes in the underlying interest rate.

Exchange Rate Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, in each case compared to the U.S. Dollar, related to transactions by TASER Europe SE, Axon Public Safety UK LTD, Axon Public Safety AU, Axon Public Safety Canada and TASER International BV. To date, we have not engaged in any currency hedging activities, although we may do so in the future. Fluctuations in currency exchange rates could harm our business in the future.

The majority of our sales to international customers are transacted in U.S. dollars and therefore, are not subject to exchange rate fluctuations on these transactions. However, the cost of our products to our customers increases when the U.S. dollar strengthens against their local currency, and the Company may have more sales and expenses denominated in foreign currencies during the remainder of 2016 which would increase its foreign exchange rate risk.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer are responsible for the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure.

During the first six months of fiscal 2016, we identified a material weakness in our internal control over financial reporting. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our financial statements will not be prevented or detected on a timely basis.

During the first six months of fiscal 2016, we identified deficiencies in our internal controls over the identification and recording of liabilities that resulted in the Company recording out-of-period adjustments that should have been recorded in the fourth quarter of 2015. Additionally, we identified deficiencies in our internal controls over revenue recognition and reporting for deferred revenue. These deficiencies in internal control over financial reporting resulted from the lack of certain preventative and detective controls which resulted in the Company not recording these transactions correctly. The timing of the Company’s financial close and reporting process has been adversely impacted by the continued growth in both the volume and complexity of transactions, and as such, the aggregation of these deficiencies resulted in a material weakness in our account reconciliations and monitoring processes which resulted in the adjustments noted above.

46

To remediate the material weakness described above, we are working to design and implement new controls and procedures to properly ensure transactions are identified and recorded timely and accurately. Specifically:

• we have added and will continue to add staff to support the growing operations of the Company. Since March 31, 2016, we have added additional resources to our revenue accounting and general accounting teams to ensure that we have the knowledge and resources to properly execute revenue recognition in accordance with GAAP;

• we have implemented and are continuing to implement additional internal reporting procedures, including those designed to add depth to our detailed review processes of revenue transactions;

• we have implemented and are continuing to implement additional system controls that would help prevent data entry errors of transactional information within the Company’s general ledger system, as well as adding and refining existing system reports that would help isolate outliers within the Company’s transactional data for further review;

• we have improved and are continuing to improve communication and coordination among our finance and accounting departments and we have expanded cross-functional involvement and input into period-end accruals; and

• we are in the process of documenting, assessing and testing our internal control over financial reporting as part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act.

The material weakness will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of these deficiencies will be completed prior to the end of fiscal year 2016. As remediation has not yet been completed, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of September 30, 2016 at a level that provides reasonable assurance as of the last day of the period covered by this report.

Changes in Internal Control over Financial Reporting

Except as noted above, there was no change in our internal control over financial reporting during the fiscal quarter ended September 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

47

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The discussion of legal proceedings in Note 11 to the unaudited condensed consolidated financial statements included in PART I, ITEM 1 of this Form 10-Q is incorporated by reference herein.

Item 1A. Risk Factors

In addition to the other information set forth in this report, you should carefully consider the factors discussed in our Annual Report on Form 10-K for the year ended December 31, 2015, under the heading “Risk Factors,” which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially, adversely affect our business, financial condition and/or operating results. Except as disclosed below, there has been no material change in our risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015.

United Kingdom Vote to Exit the European Union

On June 23, 2016, the United Kingdom (“U.K.”) held a referendum in which voters approved an exit from the European Union (“E.U.”), commonly referred to as “Brexit”. As a result of the referendum, it is expected that the British government will begin negotiating the terms of the U.K.’s future relationship with the E.U. Although it is unknown what those terms will be, it is possible that there will be greater restrictions and potential increased costs, as well as increased regulatory complexities. These changes may adversely affect our operations and financial results.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In February 2016, the Company announced that TASER’s Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. The repurchase plan does not have a stated expiration date. The Company did not make any purchases under the repurchase plan during the three months ended September 30, 2016, and as of September 30, 2016, $16.2 million remains available under the plan for future purchases.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

48

Item 6. Exhibits

31.1*	Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**	Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*    Filed herewith

**    Furnished herewith

49

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

TASER INTERNATIONAL, INC.
Date:	November 9, 2016
		By:	/s/ PATRICK W. SMITH
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 9, 2016	By:	/s/ DANIEL M. BEHRENDT
			Chief Financial Officer
			(Principal Financial and
			Accounting Officer)

50

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) or RULE 15d-14(a)

SECURITIES EXCHANGE ACT OF 1934

I, Patrick W. Smith, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 of TASER International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 9, 2016	By:	/s/ Patrick W. Smith
			Patrick W. Smith
			Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) or RULE 15d-14(a)

SECURITIES EXCHANGE ACT OF 1934

I, Daniel M. Behrendt, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2016 of TASER International, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 9, 2016	By:	/s/ Daniel M. Behrendt
			Daniel M. Behrendt
			Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of TASER International, Inc. (the “Company”) for the quarterly period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick W. Smith, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick W. Smith

Patrick W. Smith

Chief Executive Officer

November 9, 2016

In connection with the Quarterly Report on Form 10-Q of TASER International, Inc. (the “Company”) for the quarterly period ended September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel M. Behrendt, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Daniel M. Behrendt

Daniel M. Behrendt

Chief Financial Officer

November 9, 2016

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Oct. 31, 2016
Document And Entity Information [Abstract]
Entity Registrant Name	TASER INTERNATIONAL INC
Entity Central Index Key	0001069183
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		52,281,856

XML

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Current assets:
Cash and cash equivalents	$ 50,600	$ 59,526
Short-term investments	45,620	50,254
Accounts and notes receivable, net of allowance of $431 and $322 as of September 30, 2016 and December 31, 2015, respectively	32,858	27,701
Inventory, net	25,503	15,763
Prepaid expenses and other current assets	13,867	8,165
Total current assets	168,448	161,409
Property and equipment, net of accumulated depreciation of $37,653 and $36,020 as of September 30, 2016 and December 31, 2015, respectively	22,976	21,848
Deferred income tax assets, net	16,753	13,719
Intangible assets, net	7,116	7,588
Goodwill	8,885	9,596
Long-term investments	6,260	8,525
Other assets	21,762	7,196
Total assets	252,200	229,881
Current liabilities:
Accounts payable	8,982	7,333
Accrued liabilities	16,086	8,643
Current portion of deferred revenue	41,284	20,851
Customer deposits	1,367	1,226
Current portion of notes payable and capital lease payable	51	87
Total current liabilities	67,770	38,140
Deferred revenue, net of current portion	35,968	30,190
Liability for unrecognized tax benefits	1,332	1,315
Long-term deferred compensation	3,111	2,199
Long-term business acquisition contingent consideration	0	952
Other long-term liabilities	2,691	81
Total liabilities	110,872	72,877
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2016 and December 31, 2015	0	0
Common stock, $0.00001 par value; 200,000,000 shares authorized; 52,245,605 and 53,692,192 shares issued and outstanding as of September 30, 2016 and December 31, 2015, respectively	1	1
Additional paid-in capital	184,937	178,143
Treasury stock at cost, 20,220,227 and 18,432,158 shares as of September 30, 2016 and December 31, 2015, respectively	(155,947)	(122,201)
Retained earnings	111,934	100,978
Accumulated other comprehensive income	403	83
Total stockholders’ equity	141,328	157,004
Total liabilities and stockholders’ equity	$ 252,200	$ 229,881

XML

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Allowance on accounts receivable	$ 431	$ 322
Accumulated depreciation	$ 37,653	$ 36,020
Preferred stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Preferred stock, shares authorized	25,000,000	25,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized	200,000,000	200,000,000
Common stock, shares issued	52,245,605	53,692,192
Common stock, shares outstanding	52,245,605	53,692,192
Treasury stock, shares	20,220,227	18,432,158

XML

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Income Statement [Abstract]
Net sales	$ 71,882	$ 50,376	$ 186,168	$ 141,851
Cost of products sold and services delivered	25,317	19,308	65,402	50,192
Gross margin	46,565	31,068	120,766	91,659
Operating expenses:
Sales, general and administrative	28,121	17,834	77,333	47,842
Research and development	7,358	6,528	20,995	16,992
Total operating expenses	35,479	24,362	98,328	64,834
Income from operations	11,086	6,706	22,438	26,825
Interest income and other (expense) income, net	(455)	(22)	(460)	12
Income before provision for income taxes	10,631	6,684	21,978	26,837
Provision for income taxes	6,788	5,163	11,022	12,008
Net income	$ 3,843	$ 1,521	$ 10,956	$ 14,829
Net income per common and common equivalent shares:
Basic (in dollars per share)	$ 0.07	$ 0.03	$ 0.21	$ 0.28
Diluted (in dollars per share)	$ 0.07	$ 0.03	$ 0.20	$ 0.27
Weighted average number of common and common equivalent shares outstanding:
Basic (in shares)	52,206	53,709	52,791	53,509
Diluted (in shares)	53,141	54,691	53,656	54,671
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 3,843	$ 1,521	$ 10,956	$ 14,829
Foreign currency translation adjustments	61	(115)	320	(18)
Comprehensive income	$ 3,904	$ 1,406	$ 11,276	$ 14,811

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Cash flows from operating activities:
Net income	$ 10,956	$ 14,829
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,744	2,310
Purchase accounting adjustments to goodwill	520
Loss on inventory nonmonetary exchanges	147
Loss (gain) on disposal of property and equipment, net	40	(13)
Loss on disposal of intangible assets	21	216
Bond premium amortization	980	1,252
Stock-based compensation	6,742	5,086
Deferred income taxes	(2,672)	(888)
Unrecognized tax benefits	17	(273)
Tax benefit from stock-based compensation	(919)	(6,314)
Change in assets and liabilities:
Accounts and notes receivable	(5,277)	7,718
Inventory	(10,804)	(37)
Prepaid expenses and other assets	(19,573)	(5,520)
Accounts payable, accrued and other liabilities	12,566	1,697
Deferred revenue	26,331	10,667
Customer deposits	140	(416)
Net cash provided by operating activities	21,959	30,314
Cash flows from investing activities:
Purchases of investments	(49,316)	(50,598)
Proceeds from call / maturity of investments	55,235	32,719
Purchases of property and equipment	(3,335)	(3,839)
Proceeds from disposal of property and equipment	40	13
Purchases of intangible assets	(339)	(402)
Business acquisitions, net of cash acquired	0	(11,186)
Net cash provided by (used in) investing activities	2,285	(33,293)
Cash flows from financing activities:
Repurchase of common stock	(33,746)	(7,556)
Proceeds from options exercised	431	2,573
Payroll tax payments for net-settled stock awards	(1,299)	(848)
Payments on capital lease obligation	(29)	(28)
Payments on notes payable	(77)	(26)
Tax benefit from stock-based compensation	919	6,314
Net cash (used in) provided by financing activities	(33,801)	429
Effect of exchange rate changes on cash and cash equivalents	631	70
Net decrease in cash and cash equivalents	(8,926)	(2,480)
Cash and cash equivalents, beginning of period	59,526	48,367
Cash and cash equivalents, end of period	50,600	45,887
Supplemental disclosure:
Cash paid for income taxes, net of refunds	11,308	5,830
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$ 145	$ 195

XML

Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

TASER International, Inc. (“TASER” or the “Company”) is a developer and manufacturer of advanced conducted electrical weapons (“CEWs”) designed for use by law enforcement, military, corrections, and private security personnel, and by private individuals for personal defense. In addition, the Company has developed full technology solutions for the capture, storage and management of video/audio evidence as well as other tactical capabilities for use in law enforcement. The Company sells its products worldwide through its direct sales force, distribution partners, online store and third-party resellers. The Company was incorporated in Arizona in September 1993, and reincorporated in Delaware in January 2001. The Company’s corporate headquarters and manufacturing facilities are located in Scottsdale, Arizona. The Company’s software development unit facility is located in Seattle, Washington. TASER International BV, a wholly owned subsidiary of the Company, serves as the Company's international headquarters, and is located in Amsterdam, Netherlands. TASER International BV wholly owns two subsidiaries, Axon Public Safety U.K. LTD and Axon Public Safety AU, that serve as direct sales operations in the United Kingdom and Australia, respectively. In 2015, the Company formed Axon Public Safety Canada, Inc., a wholly owned subsidiary, to facilitate transactions for its products and services with new and existing customers located in Canada.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company. All material intercompany accounts, transactions, and profits have been eliminated.

a. Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in the Company’s annual consolidated financial statements for the year ended December 31, 2015, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the Company’s Form 10-K for the year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

• product warranty reserves,

• inventory valuation,

• revenue recognition allocated in multiple-deliverable contracts or arrangements,

• valuation of goodwill, intangibles and long-lived assets,

• recognition, measurement and valuation of current and deferred income taxes,

• fair value of stock awards issued, the estimated vesting period for performance-based stock awards and forfeiture rates, and

• recognition and measurement of contingencies and accrued litigation expense.

Actual results could differ materially from those estimates.

b. Segment Information

The Company is comprised of two reportable segments: the manufacture and sale of CEWs, accessories and other products and services (the “TASER Weapons” segment); and the video business which includes the TASER Cam, Axon cameras and related accessories, Evidence.com and MediaSolv (the “Axon” segment). Reportable segments are determined based on discrete financial information reviewed by the Company’s Chief Executive Officer who is the Chief Operating Decision Maker (the “CODM”) for the Company. The Company organizes and reviews operations based on products and services, and currently there are no operating segments that are aggregated. The Company performs an annual analysis of its reportable segments. Additional information related to the Company’s business segments is summarized in Note 14.

c. Geographic Information and Major Customers

For the three and nine months ended September 30, 2016 and 2015, net sales by geographic area were as follows (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
United States	$	60,558	84.2	%	$	43,689	86.7	%	$	155,245	83.4	%	$	117,885	83.1	%
Other Countries	11,324		15.8		6,687		13.3		30,923		16.6		23,966		16.9
Total	$	71,882	100.0	%	$	50,376	100.0	%	$	186,168	100.0	%	$	141,851	100.0	%

Sales to customers outside of the U.S. are typically denominated in U.S. dollars, and are attributed to each country based on the shipping address of the distributor or customer. For the three and nine months ended September 30, 2016 and 2015, no individual country outside the U.S. represented more than 10% of net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of the Company's customers.

For the three and nine months ended September 30, 2016 and 2015, no customer represented more than 10% of total net sales. At September 30, 2016 there was one outstanding customer balance from one unaffiliated customer that comprised 18.6% of the aggregate accounts receivable balance. At December 31, 2015, the Company had a trade receivable from one unaffiliated customer comprising 12.5% of the aggregate accounts receivable balance.

d. Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Potentially dilutive securities include outstanding stock options and unvested restricted stock units. The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of the Company’s common stock can result in a greater dilutive effect from potentially dilutive securities.

The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Numerator for basic and diluted earnings per share:
Net income	$	3,843	$	1,521	$	10,956	$	14,829
Denominator:
Weighted average shares outstanding - basic	52,206		53,709		52,791		53,509
Dilutive effect of stock-based awards	935		982		865		1,162
Diluted weighted average shares outstanding	53,141		54,691		53,656		54,671
Anti-dilutive stock-based awards excluded	227		160		304		160
Net income per common share:
Basic	$	0.07	$	0.03	$	0.21	$	0.28
Diluted	$	0.07	$	0.03	$	0.20	$	0.27

e. Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable

The Company derives revenue from two primary sources: (1) the sale of physical products, including CEWs, Axon cameras, corresponding extended warranties, and related accessories such as E-docks, cartridges and batteries, among others, and (2) subscription to the Company's Evidence.com software as a service ("SaaS") (including data storage fees and other ancillary services), which includes varying levels of support. To a lesser extent, the Company also recognizes training and other professional services revenue. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, title has transferred, the price is fixed and collectability is reasonably assured. Contractual arrangements may contain explicit customer acceptance provisions, and under such arrangements, the Company defers recognition of revenue until formal customer acceptance is received. Extended warranty revenue, SaaS revenue and related data storage revenue are recognized ratably over the term of the contract beginning on the commencement date of each contract.

Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendor-specific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence exists, management uses its best estimate of selling price. The majority of the Company’s allocations of arrangement consideration under multiple element arrangements are performed using vendor-specific objective evidence by utilizing prices charged to customers for deliverables when sold separately. The Company’s multiple element arrangements may include future CEWs and/or Axon devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price. The Company has not utilized third party evidence of selling price.

The Company offers the right to purchase extended warranties that include additional services and coverage beyond the standard limited warranty for certain products. Revenue for extended warranty purchases is deferred at the time of sale and recognized over the warranty period commencing on the date of sale. Extended warranties range from one to five years.

Evidence.com and Axon cameras and related accessories have stand-alone value to the customer and are sometimes sold separately, but in most instances are sold together. In these instances, customers typically purchase and pay for the equipment and one year of Evidence.com in advance. Additional years of service are generally billed annually over a specified service term, which has typically ranged from one to five years. Generally, the Company recognizes revenue for the Axon equipment at the time of the sale consistent with the discussion of multiple deliverable arrangements above. Revenue for Evidence.com is deferred at the time of the sale and recognized over the service period. At times the Company subsidizes the cost of Axon devices provided to customers to secure long-term Evidence.com service contracts. In such circumstances, revenue related to the Axon devices recognized at the time of delivery is limited to the amount collected from the customer that is not contingent upon the delivery of future Evidence.com services. The Company recognizes the remaining allocated revenue related to subsidized Axon devices over the remaining period it provides the contracted Evidence.com services.

In 2012, the Company introduced a program, the TASER Assurance Program (“TAP”) whereby a customer purchasing a product and joining the program will have the right to trade-in the original product for a new product of the same or like model in the future. Upon joining TAP, customers also receive an extended warranty for the initial products purchased and spare inventory. Under this program the customer generally pays additional annual installments over the contract period, generally three to five years. The Company records consideration received related to the future product purchase as deferred revenue until all revenue recognition criteria are met, which is generally when the new product is delivered. Consideration related to future product purchases is determined at the inception of the arrangement using management’s best estimate of selling price. Management’s estimate is principally based on the current selling price for such products, with due evaluation of the impact of any expected product and pricing changes, which have historically had an immaterial influence on management’s best estimate of selling price.

In 2015, The Company introduced the Officer Safety Plan (“OSP”) whereby a customer enters into a five year Evidence.com subscription that includes all of its standard advanced features along with unlimited storage. The OSP also includes a service plan that includes upgrades of (i) the Axon devices every 2.5 years and (ii) a TASER CEW at any point within the contract period. Upon entering into the OSP, customers also receive extended warranties on the Axon and CEW devices upon delivery to cover the contract periods as well as spare inventory units. Under this program the customer generally makes an initial purchase of Axon cameras and related accessories, and CEWs at inception along with annual installments for services and future hardware deliverables over the contract period. The Company records consideration received related to the future purchase as deferred revenue until all revenue recognition criteria are met, which is generally when the products or services are delivered.

In 2016, the Company introduced the TASER 60 Plan ("TASER 60") whereby a customer typically enters into a five year CEW installment purchase arrangement. The TASER 60 plan also includes extended warranties on the CEW devices upon delivery covering the contract periods as well as on-site spares, holsters and cartridges. Generally, the Company recognizes revenue for the amount allocated to the CEW at the time of sale for the amount of the customer receivable, net of imputed interest, and the amount allocated to the extended warranty is recognized over five years.

Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis. Training and professional service revenues are recorded as the services are provided.

Deferred revenue consists of payments received in advance related to products and services for which the criteria for revenue recognition have not yet been met. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as long-term. Deferred revenue does not include future revenue from multi-year contracts for which no invoice has yet been created. Generally, customers are billed in annual installments. See Note 6 for further disclosures about the Company’s deferred revenue.

Sales are typically made on credit, and the Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition, and maintains an allowance for estimated potential losses. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts and notes receivable are presented net of an allowance for doubtful accounts. This allowance represents management’s best use of estimates, and is based on judgment after considering a number of factors, including third-party credit reports, actual payment history, cash discounts, customer-specific financial information and broader market and economic trends and conditions.

f. Standard Warranties

The Company warranties its CEWs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold and services delivered when revenue is recorded for the related product. Future warranty costs are estimated based on historical data related to returns and warranty costs on a quarterly basis and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated returns from customers. The accrued warranty liability expense is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. Costs related to extended warranties are charged to cost of products sold and services delivered when incurred. The reserve for warranty returns is included in accrued liabilities on the accompanying condensed consolidated balance sheets. 

Changes in the Company’s estimated product warranty liabilities are as follows (in thousands):

	Nine Months Ended September 30,
	2016			2015
Balance, beginning of period	$	314		$	675
Utilization of accrual	(97		)	(293		)
Warranty expense	531			19
Balance, end of period	$	748		$	401

g. Fair Value of Financial Instruments

The Company uses the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

• Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

• Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company's own assumptions about inputs that market participants would use in pricing an asset or liability.

The Company has cash equivalents and investments, which at September 30, 2016 and December 31, 2015 were comprised of money market funds, state and municipal obligations, corporate bonds, and certificates of deposits. See additional disclosure regarding the fair value of the Company’s cash equivalents and investments in Note 2. Included in the balance of Other assets as of September 30, 2016 and December 31, 2015 was $3.0 million and $2.2 million, respectively, related to corporate-owned life insurance policies which are used to fund the Company’s deferred compensation plan. The Company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

The Company’s financial instruments also include accounts and notes receivable, accounts payable, notes payable and accrued liabilities. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the accompanying condensed consolidated balance sheets.

h. Valuation of Goodwill, Intangibles and Long-lived Assets

Management evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets may warrant revision or that the remaining balance of these assets may not be recoverable. Such circumstances could include, but are not limited to, a change in the product mix, a change in the way products are created, produced or delivered, or a significant change in the way products are branded and marketed. In performing the review for recoverability, management estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows. The Company recorded losses on disposal of intangible assets of $21,000 and $0.2 million during the nine months ended September 30, 2016 and 2015, respectively.

i. Recently Issued Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. Subsequently, the FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

• ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.

• ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing

• ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients in May 2016. ASU 2016-12 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance.

The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has established an internal implementation team and has engaged a third party advisory firm to assist in the implementation of the new standard. The Company is performing ongoing assessment activities to evaluate the proper method of adoption as well as the impact the adoption of the guidance will have on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). The amendments require that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for the fiscal year beginning after December 15, 2016, including interim periods within that fiscal year. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company does not expect the adoption of this guidance to have any impact on its financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for the fiscal year beginning after December 15, 2018 (including interim periods within that year) using a modified retrospective approach and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (Topic 718), Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within that fiscal year and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which amends ASC 326. The new guidance differs from existing GAAP wherein previous objectives generally delayed recognition of credit losses until the loss was probable. ASU 2016-13 eliminates the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2019, and interim periods within that fiscal year and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-13 on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

j. Out-of-Period Adjustments

During the preparation of the condensed consolidated financial statements for the quarter ended March 31, 2016, the Company identified certain transactions that were recorded in the first quarter of fiscal 2016 that should have been recorded in the fourth quarter of 2015. The transactions would have resulted in a reduction in income from operations for the year and quarter ended December 31, 2015 of $0.8 million. Of the $0.8 million, $0.4 million was for variable selling costs related to certain international sales contracts that were recorded and incurred during the fourth quarter, $0.2 million related to a correction of the calculation related to bonus expense that should have been recorded during fiscal 2015, and the remainder was primarily attributable to operating expenses that were incurred but not accrued for as of December 31, 2015.

The Company performed various quantitative and qualitative analyses and determined that these errors were not material to the results reported for the year and quarter ended December 31, 2015. The Company also determined that recording these entries as an out-of-period adjustment during the first quarter of 2016 is not expected to be material to the projected results for the full year ended December 31, 2016.

k. Reclassification of Prior Year Information

Certain prior year amounts have been reclassified with the current year presentation. These reclassifications had no effect on the reported results of operations.

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Cash, Cash Equivalents and Investments

9 Months Ended

Sep. 30, 2016

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

The following tables summarize the Company's cash, cash equivalents, and held-to-maturity investments at September 30, 2016 and December 31, 2015 (in thousands):

	As of September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	45,792	$	—	$	—		$	45,792	$	45,792	$	—	$	—
Level 1:
Money market funds	4,163		—		—			4,163		4,163		—		—
Corporate bonds	36,331		3		(35		)	36,299		645		29,911		5,775
Subtotal	40,494		3		(35		)	40,462		4,808		29,911		5,775
Level 2:
State and municipal obligations	15,152		1		(8		)	15,145		—		14,667		485
Certificates of deposit	1,042		—		—			1,042		—		1,042
Subtotal	16,194		1		(8		)	16,187		—		15,709		485
Total	$	102,480	$	4	$	(43	)	$	102,441	$	50,600	$	45,620	$	6,260

	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	57,137	$	—	$	—		$	57,137	$	57,137	$	—	$	—
Level 1:
Money market funds	2,389		—		—			2,389		2,389		—		—
Corporate bonds	36,406		—		(70		)	36,336		—		35,677		729
Subtotal	38,795		—		(70		)	38,725		2,389		35,677		729
Level 2:
State and municipal obligations	19,002		11		(9		)	19,004		—		12,000		7,002
Certificates of deposit	3,371		—		—			3,371		—		2,577		794
Subtotal	22,373		11		(9		)	22,375		—		14,577		7,796
Total	$	118,305	$	11	$	(79	)	$	118,237	$	59,526	$	50,254	$	8,525

The Company believes the unrealized losses on the Company’s investments are due to interest rate fluctuations. As these investments are either short-term in nature, are expected to be redeemed at par value, and/or because the Company has the ability and intent to hold these investments to maturity, the Company does not consider these investments to be other than temporarily impaired at September 30, 2016.

The following table summarizes the amortized cost and fair value of the short-term and long-term investments held by the Company at September 30, 2016 by contractual maturity (in thousands):

	Amortized Cost		Fair Value
Due in less than one year	$	45,620	$	45,581
Due after one year, through two years	6,260		6,260
Due after two years	—		—
Total short-term and long-term investments	$	51,880	$	51,841

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Inventory

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventory

Inventory

Inventories are stated at the lower of cost or market. Cost is determined using the weighted average cost of raw materials which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventories consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Raw materials	$	12,908	$	8,748
Work-in-process	6		105
Finished goods	12,589		6,910
Total inventory	$	25,503	$	15,763

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2016 were as follows (in thousands):

Balance, beginning of period	$	9,596
Purchase accounting adjustments (a)	(520		)
Foreign currency translation adjustment	(191		)
Balance, end of period	$	8,885

^(a) Purchase accounting adjustments related to deferred tax liabilities for MediaSolv and Axon Public Safety U.K. LTD. There was no impact to the condensed consolidated statements of operations for these adjustments as a result of the adoption of ASU 2015-16, which was effective for the Company on January 1, 2016.

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2016							December 31, 2015
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized:
Domain names	5 years	$	125	$	(125	)	$	—	$	125	$	(120	)	$	5
Issued patents	4-15 years	1,926		(749		)	1,177		1,866		(659		)	1,207
Issued trademarks	3-11 years	628		(301		)	327		603		(255		)	348
Customer relationships	4-8 years	945		(206		)	739		1,035		(93		)	942
Non-compete agreements	3-4 years	450		(218		)	232		464		(164		)	300
Developed technology	7 years	3,470		(699		)	2,771		3,470		(326		)	3,144
Total amortized		7,544		(2,298		)	5,246		7,563		(1,617		)	5,946
Not amortized:
TASER trademark		900					900		900					900
Patents and trademarks pending		970					970		742					742
Total not amortized		1,870					1,870		1,642					1,642
Total intangible assets		$	9,414	$	(2,298	)	$	7,116	$	9,205	$	(1,617	)	$	7,588

Amortization expense relative to intangible assets for the three months ended September 30, 2016 and 2015 was approximately $0.2 million and $0.3 million, respectively, and for the nine months ended September 30, 2016 and 2015 was approximately $0.7 million and $0.5 million, respectively. Estimated amortization for intangible assets with definitive lives for the remaining three months of 2016, the next five years ended December 31, and thereafter, is as follows (in thousands):

2016 (remaining three months)	$	235
2017	935
2018	922
2019	801
2020	738
2021	731
Thereafter	884
Total	$	5,246

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Other Long-Term Assets

9 Months Ended

Sep. 30, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Long-Term Assets

Other Long-Term Assets

Other long-term assets consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Cash surrender value of corporate-owned life insurance policies (Note 1)	$	3,014	$	2,180
Prepaid commissions (i)	4,927		3,543
Accounts receivable (ii)	10,359		1,227
Restricted cash (iii)	3,095		—
Prepaid expenses, deposits and other	367		246
Total other long-term assets	$	21,762	$	7,196

⁽ⁱ⁾ Prepaid commissions represent customer acquisition costs to secure long-term contracts. The Company capitalizes incremental and direct costs related to a specific contract and recognizes expense over the term of the contract.

⁽ⁱⁱ⁾ Long-term accounts receivable as of September 30, 2016 and December 31, 2015 consist of balances related to sales made under the Officer Safety and TASER 60 Programs (Note 1e). These balances are collectible over the stated contract period, which is typically five years, and are actively monitored for collectability.

⁽ⁱⁱⁱ⁾ Restricted cash represents sales proceeds related to a long-term contract with a specific customer. These proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to the Company's operating accounts.

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Deferred Revenue

9 Months Ended

Sep. 30, 2016

Deferred Revenue Disclosure [Abstract]

Deferred Revenue

Deferred Revenue

Deferred revenue consisted of the following (in thousands):

	September 30, 2016						December 31, 2015
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER Weapons	$	10,304	$	16,286	$	26,590	$	7,278	$	13,982	$	21,260
Axon	3,299		2,398		5,697		2,332		2,344		4,676
	13,603		18,684		32,287		9,610		16,326		25,936
Hardware:
TASER Weapons	1,240		2,441		3,681		952		2,459		3,411
Axon	10,257		10,441		20,698		786		7,382		8,168
	11,497		12,882		24,379		1,738		9,841		11,579
Axon Services	15,818		4,402		20,220		9,303		4,023		13,326
Other	366		—		366		200		—		200
Total	$	41,284	$	35,968	$	77,252	$	20,851	$	30,190	$	51,041

	September 30, 2016						December 31, 2015
	Current		Long-Term		Total		Current		Long-Term		Total
TASER Weapons	$	11,910	$	18,727	$	30,637	$	8,430	$	16,441	$	24,871
Axon	29,374		17,241		46,615		12,421		13,749		26,170
Total	$	41,284	$	35,968	$	77,252	$	20,851	$	30,190	$	51,041

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Accrued Liabilities

9 Months Ended

Sep. 30, 2016

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Accrued salaries, benefits and bonus	$	5,286	$	3,637
Accrued professional, consulting and lobbying	1,807		1,098
Accrued warranty expense	748		314
Accrued income and other taxes	2,169		1,215
Other accrued liabilities	6,076		2,379
Accrued liabilities	$	16,086	$	8,643

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Income Taxes

9 Months Ended

Sep. 30, 2016

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Deferred Tax Assets

Net deferred income tax assets at September 30, 2016, include capitalized research and development costs, research and development tax credits, non-qualified stock-based compensation expense, deferred warranty revenue, warranty and inventory reserves, accrued vacation, and other items, partially offset by accelerated depreciation expense and intangible amortization that is not tax deductible. The Company’s total net deferred tax assets at September 30, 2016 were $16.8 million.

In preparing the Company’s condensed consolidated financial statements, management assesses the likelihood that its deferred tax assets will be realized from future taxable income. In evaluating the Company’s ability to recover its deferred income tax assets, management considers all available positive and negative evidence, including its operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining its provisions for income taxes, its deferred tax assets and liabilities, and its future taxable income for purposes of assessing its ability to utilize any future tax benefit from its deferred tax assets.

Although management believes that its tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become subject to audit by tax authorities in the ordinary course of business. As of each reporting date, management considers new evidence, both positive and negative, that could impact management’s view with regards to future realization of deferred tax assets. As of September 30, 2016, the Company continues to demonstrate three-year cumulative pre-tax income in the U.S. federal and Arizona tax jurisdictions; however, the Company's Arizona R&D Tax Credits start to expire in 2018 with a significant tranche with a gross value of $1.2 million expiring if not used by the end of 2019. Under the Company’s new tax structure, it appears that long term investments, which impact short term profits, will likely result in some of the R&D credits expiring before they are utilized. Therefore, management has concluded that it is more likely than not that a portion of the Company’s deferred tax assets will not be realized and has established a valuation allowance.

The Company has completed research and development (“R&D”) tax credit studies which identified approximately $12.9 million in tax credits for federal, Arizona and California income tax purposes related to the 2003 through 2016 tax years. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $3.5 million as of September 30, 2016. In addition, management accrued approximately $0.1 million for estimated uncertain tax positions related to certain state income tax liabilities as of September 30, 2016. The Company does not expect a significant increase or decrease in the total amount of unrecognized tax benefits within 12 months. Should the total unrecognized tax benefit of $3.6 million be recognized, the Company’s effective tax rate would be favorably impacted. Approximately $1.4 million of the unrecognized tax benefit associated with research and development credits has been netted against the research and development credit deferred tax asset.

Effective Tax Rate

The Company’s overall effective tax rate for the nine months ended September 30, 2016, after discrete period adjustments, was 50.1%. Before discrete adjustments the tax rate was 48.3%, which is more than the statutory rate primarily due to the impact of non-deductible losses in certain foreign jurisdictions, state taxes and non-deductible expenses for items such as incentive stock option expense, meals and entertainment and lobbying fees, partially offset by the domestic production activities and research and development tax credit deductions. The effective tax rate was most impacted by the adverse impact from foreign losses for which the Company is not expected to receive a tax benefit. Additionally, the Company's effective tax rate was impacted by an unfavorable $0.4 million return-to-provision adjustment recorded in connection with the finalization of its annual tax return. The Company has completed the full implementation of its new international structure, which began in 2015. In accounting for the income tax effects of this new structure, the Company has recognized income tax expense in the current quarter based on the results it expects for the full year.  Actual results could be different, impacting the Company’s income tax expense in future quarters.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

In May 2016, the Company’s stockholders approved a new stock incentive plan authorizing an additional 2.0 million shares, plus remaining available shares under a prior plan for issuance under the new plan. Combined with the legacy stock incentive plans, there are approximately 2.9 million shares available for grant as of September 30, 2016.

Performance-based stock awards

The Company has issued performance-based stock options and performance-based restricted stock units ("RSUs"), the vesting of which is contingent upon the achievement of certain performance criteria related to the operating performance of the Company, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service-based vesting requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the implicit service period (the longer of the period the performance condition is expected to be achieved or the required service period) based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2016 (number of units and aggregate intrinsic value in thousands):

	Number of Units		Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,139		$	19.30
Granted	501		17.84
Released	(321	)	15.72
Forfeited	(106	)	21.61
Units outstanding, end of period	1,213		19.45		$	34,704

Aggregate intrinsic value represents the Company’s closing stock price on the last trading day of the period, which was $28.61 per share, multiplied by the number of RSUs outstanding. As of September 30, 2016, there was $18.0 million in unrecognized compensation costs related to RSUs under the Company's stock plans. The Company expects to recognize the cost related to the RSUs over a weighted average period of 2.52 years. RSUs are released when vesting requirements are met.

During the nine months ended September 30, 2016, the Company granted approximately 0.1 million performance-based RSUs, which are included in the table above. As of September 30, 2016, the performance criteria had not been met for any the 0.2 million performance-based RSUs outstanding. Certain of the performance-based RSUs granted in 2016 , 2015 and 2014 contain provisions whereby the amount of RSUs that ultimately vest is dependent upon the level of achievement of performance metrics. The amount of RSUs included in the table above related to such grants is the target level, which is the Company's best estimate of the amount of RSUs that will vest. The maximum additional number of performance-based RSUs that could be earned is 0.2 million, which are not included in the table above.

Certain RSUs that vested in the nine months ended September 30, 2016 were net-share settled such that the Company withheld shares with value equivalent to the employees’ minimum statutory obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld were approximately 67,400 and had a value of approximately $1.3 million on their respective vesting dates as determined by the Company’s closing stock price. Payments for the employees’ tax obligations are reflected as a financing activity within the statement of cash flows. These net-share settlements had the effect of share repurchases by the Company as they reduced the amount of shares that would have otherwise been issued as a result of the vesting.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2016 (number of units and aggregate intrinsic value in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	1,103		$	5.37
Granted	—		—
Exercised	(88	)	4.92
Expired / terminated	—		—
Options outstanding, end of period	1,015		5.41		2.50	$	23,555
Options exercisable, end of period	985		5.43		2.51	22,823
Options expected to vest, end of period	25		4.75		2.23	597

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of the Company's common stock of $28.61 on September 30, 2016. The intrinsic value of options exercised for the nine months ended September 30, 2016 and 2015 was $1.8 million and $13.3 million, respectively. Options expected to vest are presented net of forfeitures. As of September 30, 2016, total options outstanding includes approximately 0.2 million performance-based stock options, of which approximately 30,600 were unvested and 25,000 expected to vest.

Stock-based Compensation Expense

The estimated fair value of stock-based awards is amortized to expense on a straight-line basis over the service periods. As stock-based compensation expense recognized is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s forfeiture rate was calculated based on its historical experience of awards which ultimately vested. The following table summarizes the composition of stock stock-based compensation for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of products sold and services delivered	$	77	$	118	$	247	$	276
Sales, general and administrative expenses	1,348		1,123		4,197		2,982
Research and development expenses	791		622		2,298		1,828
Total stock-based compensation	$	2,216	$	1,863	$	6,742	$	5,086

Stock Repurchase Plan

In February 2016, the Company announced that TASER’s Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of the Company’s outstanding common stock subject to stock market conditions and corporate considerations. During the three months ended September 30, 2016, no common shares were purchased under the program. During the nine months ended September 30, 2016, the Company purchased, under a Rule 10b5-1 plan, approximately 1.8 million common shares for a total cost of approximately $33.8 million, or a weighted average cost of $18.90 per share. The weighted average cost includes the average price paid per share of $18.87, plus applicable administrative costs for the transaction. During the nine months ended September 30, 2015, the Company purchased approximately 0.3 million common shares for a total cost of approximately $7.6 million, or a weighted average cost of $25.86 per share. As of September 30, 2016, $16.2 million remains available under the plan for future purchases. The Company suspended its 10b-5 plan, and any future purchases will be discretionary.

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Line of Credit

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Line of Credit

Line of Credit

The Company has a $10.0 million revolving line of credit with a domestic bank. At both September 30, 2016 and December 31, 2015, there were no borrowings under the line. As of September 30, 2016, the Company had letters of credit outstanding of approximately $3.9 million under the facility and available borrowing of approximately $6.1 million. The line is secured by substantially all of the assets of the Company, and bears interest at varying rates (currently LIBOR plus 1.5% or Prime less 0.75%). The line of credit matures on July 31, 2017, and requires monthly payments of interest only. The Company’s agreement with the bank requires it to comply with certain financial and other covenants including maintenance of a maximum leverage ratio and minimum fixed charge coverage ratio. The leverage ratio (ratio of total liabilities to tangible net worth) can be no greater than 1:1, and the fixed charge coverage ratio can be no less than 1.25:1, based upon a trailing twelve-month period. At September 30, 2016, the Company’s leverage ratio was 0.88:1 and its fixed charge coverage ratio was 2.23:1. Accordingly, the Company was in compliance with these covenants.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Product Litigation

The Company is currently named as a defendant in eight lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used (or present) by law enforcement officers in connection with arrests or during training exercises. While the facts vary from case to case, the product liability claims are typically based on an alleged product defect resulting in injury or death, usually involving a failure to warn, and the plaintiffs are seeking monetary damages. The information throughout this note is current through the date of these financial statements.

As a general rule, it is the Company’s policy not to settle suspect injury or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to the Company. Also, on occasion, the Company’s insurance company has settled such lawsuits over the Company’s objection where the risk is over the Company’s liability insurance deductibles. Due to the confidentiality of the Company's litigation strategy and the confidentiality agreements that are executed in the event of a settlement, the Company does not identify or comment on which specific lawsuits have been settled or the amount of any settlement.

In 2009, the Company implemented new risk management strategies, including revisions to product warnings and training to better protect both the Company and its customers from litigation based on ‘failure to warn’ theories - which comprise the vast majority of the cases against the Company. These risk management strategies have been highly effective in reducing the rate and exposure from litigation post-2009. From the third quarter of 2011 to the third quarter of 2016, product liability cases have been reduced from 55 active to eight active cases.

Management believes that pre-2009 cases have a different risk profile than cases which have occurred since the risk management procedures were introduced in 2009. Therefore, the Company necessarily treats certain pre-2009 cases as exceptions to the Company’s general no settlement policy in order to reduce caseload, legal costs and liability exposure. The Company intends to continue its successful practice of aggressively defending and generally not settling litigation except in very limited and unusual circumstances as described above.

With respect to each of the pending lawsuits, the following table lists the name of plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status of the matter.

Plaintiff	Month Served	Jurisdiction	Claim Type	Status
Derbyshire	Nov-09	Ontario, Canada Superior Court of Justice	Officer Injury	Discovery Phase
Doan	Apr-10	The Queen's Bench, Alberta, Red Deer Judicial Dist.	Wrongful Death	Discovery Phase
Shymko	Dec-10	The Queen's Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Ramsey	Jan-12	12th Judicial Circuit Court, Broward County, FL	Wrongful Death	Discovery Phase
Firman	Apr-12	Ontario, Canada Superior Court of Justice	Wrongful Death	Pleading Phase
Schrock	Sep-14	San Bernardino County Superior Court, CA	Wrongful Death	Motion of Summary Judgment Granted on all claims except negligent design and manufacture, subject to repleading by Plaintiff. Plaintiff filed an amended complaint for negligent design claims as well as a Petition for Writ of Mandate or Prohibition Petition from the Court; which writ was summarily denied.
Bennett	Sep-15	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Discovery Phase
Suarez	Sep-16	US District Court, Southern District of Florida	Wrongful Death	Pleading Phase

There are no product litigation matters in which the Company is involved that are currently on appeal.

The following cases were dismissed or judgment entered during the third quarter of 2016 and through the date of these financial statements.

Plaintiff	Month Served	Jurisdiction	Claim Type	Status
Thompson	Mar-10	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Dismissed
Hernandez/llach	Sep-15	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Dismissed
Williams	Aug-16	US District Court for the Northern District Georgia	Wrongful Death	Dismissed

The claims, and in some instances the defense, of each of these lawsuits have been submitted to the Company’s insurance carriers that maintained insurance coverage during the applicable periods. The Company continues to maintain product liability insurance coverage with varying limits and deductibles. The following table provides information regarding the Company’s product liability insurance. Remaining insurance coverage is based on information received from the Company’s insurance provider (in millions).

Policy Year	Policy Start Date	Policy End Date	Insurance Coverage	Deductible Amount	Defense Costs Covered	Remaining Insurance Coverage	Active Cases and Cases on Appeal
2009	12/15/2008	12/15/2009	10.0	1.0	N	10.0	Derbyshire
2010	12/15/2009	12/15/2010	10.0	1.0	N	10.0	Shymko, Doan
2011	12/15/2010	12/15/2011	10.0	1.0	N	10.0	n/a
Jan-Jun 2012	12/15/2011	6/25/2012	7.0	1.0	N	7.0	Ramsey, Firman
Jul-Dec 2012	6/25/2012	12/15/2012	12.0	1.0	N	12.0	n/a
2013	12/15/2012	12/15/2013	12.0	1.0	N	12.0	n/a
2014	12/15/2013	12/15/2014	11.0	4.0	N	11.0	Schrock
2015	12/15/2014	12/15/2015	10.0	5.0	N	10.0	Bennett
2016	12/15/2015	12/15/2016	10.0	5.0	N	10.0	Suarez

Other Litigation

In November, 2015 the Company filed a complaint against Phazzer Electronics Inc. and Sang Min International Co. Ltd. for patent infringement, trademark infringement and false advertising. Defendant Phazzer has filed a motion to dismiss as well as an ex parte reexamination request with the United States Patent and Trademark Officer of TASER’s US Patent No. 7,234,262, which request was granted. This litigation is in the motion/discovery phase.

In February, 2016 the Company was served with a first amended complaint filed by Digital Ally in the Federal District Court for the District of Kansas alleging patent infringement, commercial bribery, contracts, combinations and conspiracies in restraint of trade and unfair or anti-competitive acts and practices. In March 2016, the Company was served with a second amended complaint with similar allegations. The second amended complaint seeks a judgment of infringement, monetary damages, a permanent injunction, punitive damages and attorneys’ fees and costs. The Company believes the second amended complaint is frivolous and the Company will vigorously defend this litigation. The Company has filed a motion to dismiss the claims involving commercial bribery, contracts, combinations and conspiracies in restraint of trade and unfair or anti-competitive acts and practices. This litigation is in the discovery phase.

In April, 2016 the Company was served with a notice of arbitration claim filed by Antoine di Zazzo, the Company’s former distributor in France, for commissions allegedly owed Mr. di Zazzo. The arbitration claim was filed with the International Court of Arbitration of the International Chamber of Commerce in Paris, France, and the amount that is claimed in controversy is approximately $0.6 million. The Company’s records reflect that all commissions that were due Mr. di Zazzo under his contract were paid or offered to him and the Company will vigorously defend this arbitration claim.

General

From time to time, the Company is notified that it may be a party to a lawsuit or that a claim is being made against it. It is the Company’s policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on the Company. After carefully assessing the claim, and assuming the Company determines that it is not at fault or it disagrees with the damages or relief demanded, the Company vigorously defends any lawsuit filed against the Company. In certain legal matters, the Company records a liability when losses are deemed probable and reasonably estimable. In evaluating matters for accrual and disclosure purposes, the Company takes into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. The Company reevaluates and updates accruals as matters progress over time.

Based on the Company's assessment of outstanding litigation and claims as of September 30, 2016, the Company has determined that it is not reasonably possible that these lawsuits will individually, or in the aggregate, materially affect its results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by its insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Off-Balance Sheet Arrangements

Under certain circumstances, the Company uses letters of credit and surety bonds to guarantee its performance under various contracts, principally in connection with the installation and integration of its Axon cameras and related technologies. Certain of the Company's letters of credit contracts and surety bonds have stated expiration dates with others being released as the contractual performance terms are completed. At September 30, 2016, the Company had outstanding letters of credit of approximately $3.9 million. Of that amount, $2.7 million is expected to expire in May 2017 and $1.2 million is expected to expire in February 2017. Additionally, the Company had approximately $5.7 million of outstanding surety bonds at September 30, 2016, with $0.4 million expiring in 2018, $2.4 million expiring in 2020, and the remaining $2.9 million expiring in 2021 and thereafter.

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Related Party Transactions

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

The Company engages Dr. Mark Kroll, a member of the Board of Directors, to provide consulting services. The expenses related to these services were approximately $14,000 and $44,000 for the three months ended September 30, 2016 and 2015, respectively, and $111,000 and $156,000 for the nine months ended September 30, 2016 and 2015, respectively. At September 30, 2016 and December 31, 2015, the Company had liabilities of approximately $3,000 and $31,000, respectively, related to these services.

The Company subscribes to a mobile collaboration software suite co-founded and managed by Bret Taylor, a member of the Company's Board of Directors. The cost to license this software is approximately $30,000 per quarter, and as of September 30, 2016 and December 31, 2015 the Company had $80,800 and $36,000, respectively, of prepaid costs related to the license subscription.

In connection with the acquisition of Tactical Safety Responses Limited (Note 15), the Company assumed a long-term non-cancellable operating lease for office space with the former owners, one of whom is an employee of the Company. The lease has a remaining contractual term of approximately five years and requires annual rental payments of approximately $25,000.

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2016

Compensation and Retirement Disclosure [Abstract]

Employee Benefit Plans

Employee Benefit Plans

The Company has a defined contribution profit sharing 401(k) plan for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum allowed by law of their eligible compensation.

The Company also has a non-qualified deferred compensation plan for certain executives, key employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation, including stock-based compensation, received from the Company. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows for (i) matching and discretionary employer contributions and (ii) the deferral of vested RSU awards. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are allocated fully to plan participants and the Company does not guarantee a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in other assets in the condensed consolidated balance sheets. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of the Company’s general creditors.

Contributions to the plans are made by both the employee and the Company. Company contributions to the 401(k) plan are based on the level of employee contributions and are immediately vested. The Company’s matching contributions to the 401(k) plan for the three months ended September 30, 2016 and 2015, were approximately $0.4 million and $0.3 million, respectively, and for the nine months ended September 30, 2016 and 2015, were approximately $1.2 million and $0.9 million, respectively. The Company expects to make contributions to the non-qualified deferred compensation plan related to the three months ended September 30, 2016, of approximately $8,000. Future matching or profit sharing contributions to the plans are at the Company’s sole discretion.

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Segment Data

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Segment Data

Segment Data

The Company’s operations are comprised of two reportable segments: the manufacture and sale of CEWs, accessories and other products and services (the “TASER Weapons” segment); and the video business, which includes the TASER Cam, Axon products, Evidence.com, and MediaSolv (the “Axon” segment). The Company includes only revenues and costs attributable to the Axon segment in that segment. Included in Axon segment costs are: costs of sales for both products and services, overhead allocation based on direct labor, selling expense for the Axon sales team, Axon product management expenses, trade shows and related expenses, and research and development for products included in the Axon segment. All other costs are included in the TASER Weapons segment. The CODM does not review assets by segment as part of the financial information provided; therefore, only limited asset information is provided in the following tables.

Information relative to the Company’s reportable segments is as follows (in thousands):

	Three Months Ended September 30, 2016							Three Months Ended September 30, 2015
	TASER Weapons		Axon			Total		TASER Weapons		Axon			Total
Product sales	$	52,938	$	10,266		$	63,204	$	39,520	$	7,745		$	47,265
Service revenue	—		8,678			8,678		—		3,111			3,111
Net sales	52,938		18,944			71,882		39,520		10,856			50,376
Cost of products sold	14,973		8,691			23,664		12,445		5,829			18,274
Cost of services delivered	—		1,653			1,653		—		1,034			1,034
Gross margin	37,965		8,600			46,565		27,075		3,993			31,068
Sales, general and administrative	16,439		11,682			28,121		11,941		5,893			17,834
Research and development	1,408		5,950			7,358		1,151		5,377			6,528
Income (loss) from operations	$	20,118	$	(9,032	)	$	11,086	$	13,983	$	(7,277	)	$	6,706
Purchase of property and equipment	$	1,064	$	307		$	1,371	$	1,900	$	169		$	2,069
Purchase of intangible assets	77		77			154		114		87			201
Purchase of property and equipment and intangible assets in connection with business acquisition	—		—			—		1,453		1,452			3,005
Depreciation and amortization	537		364			901		603		345			948

	Nine Months Ended September 30, 2016							Nine Months Ended September 30, 2015
	TASER Weapons		Axon			Total		TASER Weapons		Axon			Total
Product sales	$	144,307	$	23,438		$	167,745	$	115,686	$	18,177		$	133,863
Service revenue	—		18,423			18,423		—		7,988			7,988
Net sales	144,307		41,861			186,168		115,686		26,165			141,851
Cost of products sold	43,998		17,174			61,172		34,805		12,692			47,497
Cost of services delivered	—		4,230			4,230		—		2,695			2,695
Gross margin	100,309		20,457			120,766		80,881		10,778			91,659
Sales, general and administrative	46,395		30,938			77,333		33,469		14,373			47,842
Research and development	3,773		17,222			20,995		3,418		13,574			16,992
Income (loss) from operations	$	50,141	$	(27,703	)	$	22,438	$	43,994	$	(17,169	)	$	26,825
Purchase of property and equipment	$	2,729	$	606		$	3,335	$	2,345	$	1,404		$	3,839
Purchase of intangible assets	190		149			339		195		207			402
Purchase of property and equipment and intangible assets in connection with business acquisition	—		—			—		1,453		11,146			12,599
Depreciation and amortization	1,669		1,075			2,744		1,689		621			2,310

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Business Acquisitions

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Business Acquisitions

Business Acquisitions

MediaSolv Solutions Corporation

On May 5, 2015, the Company acquired all of the outstanding capital stock of MediaSolv Solutions Corporation, a Delaware corporation for a total purchase price of $8.8 million, net of $0.1 million of cash acquired. MediaSolv primarily provides solutions for interview room video, closed-circuit television ("CCTV") and on-premise digital evidence management. These products connect with the Company's Axon on-officer cameras and, in some cases, its Evidence.com cloud platform, further enabling law enforcement to unify existing silos of digital media and evidence into a seamless workflow from capture to the courtroom. The Company believes the acquisition will continue to allow the Company to leverage MediaSolv’s existing network and relationships to further strengthen its position in the market.

The purchase price consisted primarily of cash, net of cash acquired and working capital adjustments, of $7.8 million and contingent consideration of $1.0 million representing potential earn-outs to former stockholders based on predetermined future financial metrics. The Company also agreed to additional earn-out provisions and compensation adjustments totaling approximately $4.0 million based, in part, on predefined future financial metrics. The additional earn-outs were not included as part of the purchase price and will be expensed as compensation in the period earned.

During the first quarter of 2016, the $1.0 million of earn-outs to former stockholders were earned in full and were paid during the second quarter of 2016. During the three and nine months ended September 30, 2016, the Company recorded $0.2 million and $1.2 million, respectively, of earn-outs that were recorded as commission expense, and as of September 30, 2016, $0.2 million of earn-outs were recorded as accrued liabilities within the accompanying condensed consolidated financial statements.

The major classes of assets and liabilities to which the Company allocated the purchase price were as follows (in thousands):

Accounts receivable and other current assets	$	590
Inventory	35
Property and equipment	53
Intangible assets	4,145
Goodwill	5,496
Accounts payable and accrued liabilities	(697		)
Deferred revenue	(111		)
Deferred income tax liabilities, net	(688		)
Total purchase price	$	8,823

The Company has assigned the goodwill to the Axon segment. Other identifiable definite lived intangible assets were assigned a total weighted average amortization period of 6.5 years. MediaSolv has been included in the Company's consolidated results of operations subsequent to the acquisition date. Pro forma results of operations for MediaSolv have not been presented because they are not material to the consolidated results of operations. In connection with the acquisition, the Company incurred and expensed costs of approximately $0.2 million, which included legal, accounting and other third-party expenses related to the transaction.

Tactical Safety Responses Limited

On July 16, 2015, TASER International B.V., a wholly owned subsidiary of the Company, acquired all of the outstanding capital stock of Tactical Safety Responses Limited ("TSR"), a United Kingdom ("UK") corporation. TSR was the Company's licensed distributor of TASER CEWs and Axon cameras and related accessories in the UK. The acquired entity operates under the name Axon Public Safety UK. The acquisition is intended to help expand the Company's growth across the UK by growing its in-country sales and support team. The total purchase was $3.3 million consisting of $4.0 million cash at close, net of $0.7 million of cash acquired. The Company also agreed to additional amounts in the form of earn-outs, subject to the achievement of predefined performance metrics. The earn-outs were not included as part of the purchase price and will be expensed as compensation in the period earned. During the three and nine months ended September 30, 2016, $0.1 million was recorded as commissions expense under these earn-out provisions.

The major classes of assets and liabilities to which the Company has allocated the purchase price are as follows (in thousands):

Accounts receivable	$	726
Inventory	497
Property and equipment	583
Other Assets	20
Intangible assets	881
Goodwill	1,441
Accounts payable and accrued liabilities	(207		)
Notes payable	(169		)
Income tax liabilities	(438		)
Total purchase price	$	3,334

The Company has assigned the goodwill to the consolidated entity. Other identifiable definite lived intangible assets were assigned a total weighted average amortization period of 7.0 years. TSR has been included in the Company's consolidated results of operations subsequent to the acquisition date. Pro forma results of operations for TSR have not been presented because they are not material to the consolidated results of operations. In connection with the acquisition, the Company incurred and expensed costs of approximately $0.1 million, which included legal, accounting and other third-party expenses related to the transaction.

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Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation and Use of Estimates

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information related to the Company’s organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in the Company’s annual consolidated financial statements for the year ended December 31, 2015, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state the Company’s financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with the Company’s Form 10-K for the year ended December 31, 2015. The results of operations for the three and nine months ended September 30, 2016 and 2015 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

• product warranty reserves,

• inventory valuation,

• revenue recognition allocated in multiple-deliverable contracts or arrangements,

• valuation of goodwill, intangibles and long-lived assets,

• recognition, measurement and valuation of current and deferred income taxes,

• fair value of stock awards issued, the estimated vesting period for performance-based stock awards and forfeiture rates, and

• recognition and measurement of contingencies and accrued litigation expense.

Actual results could differ materially from those estimates.

Segment Information

Segment Information

The Company is comprised of two reportable segments: the manufacture and sale of CEWs, accessories and other products and services (the “TASER Weapons” segment); and the video business which includes the TASER Cam, Axon cameras and related accessories, Evidence.com and MediaSolv (the “Axon” segment). Reportable segments are determined based on discrete financial information reviewed by the Company’s Chief Executive Officer who is the Chief Operating Decision Maker (the “CODM”) for the Company. The Company organizes and reviews operations based on products and services, and currently there are no operating segments that are aggregated. The Company performs an annual analysis of its reportable segments. Additional information related to the Company’s business segments is summarized in Note 14.

Geographic Information and Major Customers

Sales to customers outside of the U.S. are typically denominated in U.S. dollars, and are attributed to each country based on the shipping address of the distributor or customer.

Income per Common Share

Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented.

Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable

Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable

The Company derives revenue from two primary sources: (1) the sale of physical products, including CEWs, Axon cameras, corresponding extended warranties, and related accessories such as E-docks, cartridges and batteries, among others, and (2) subscription to the Company's Evidence.com software as a service ("SaaS") (including data storage fees and other ancillary services), which includes varying levels of support. To a lesser extent, the Company also recognizes training and other professional services revenue. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, title has transferred, the price is fixed and collectability is reasonably assured. Contractual arrangements may contain explicit customer acceptance provisions, and under such arrangements, the Company defers recognition of revenue until formal customer acceptance is received. Extended warranty revenue, SaaS revenue and related data storage revenue are recognized ratably over the term of the contract beginning on the commencement date of each contract.

Revenue arrangements with multiple deliverables are divided into separate units and revenue is allocated using the relative selling price method based upon vendor-specific objective evidence of selling price or third-party evidence of the selling prices if vendor-specific objective evidence of selling prices does not exist. If neither vendor-specific objective evidence nor third-party evidence exists, management uses its best estimate of selling price. The majority of the Company’s allocations of arrangement consideration under multiple element arrangements are performed using vendor-specific objective evidence by utilizing prices charged to customers for deliverables when sold separately. The Company’s multiple element arrangements may include future CEWs and/or Axon devices to be delivered at defined points within a multi-year contract, and in those arrangements, the Company allocates total arrangement consideration over the life of the multi-year contract to future deliverables using management’s best estimate of selling price. The Company has not utilized third party evidence of selling price.

The Company offers the right to purchase extended warranties that include additional services and coverage beyond the standard limited warranty for certain products. Revenue for extended warranty purchases is deferred at the time of sale and recognized over the warranty period commencing on the date of sale. Extended warranties range from one to five years.

Evidence.com and Axon cameras and related accessories have stand-alone value to the customer and are sometimes sold separately, but in most instances are sold together. In these instances, customers typically purchase and pay for the equipment and one year of Evidence.com in advance. Additional years of service are generally billed annually over a specified service term, which has typically ranged from one to five years. Generally, the Company recognizes revenue for the Axon equipment at the time of the sale consistent with the discussion of multiple deliverable arrangements above. Revenue for Evidence.com is deferred at the time of the sale and recognized over the service period. At times the Company subsidizes the cost of Axon devices provided to customers to secure long-term Evidence.com service contracts. In such circumstances, revenue related to the Axon devices recognized at the time of delivery is limited to the amount collected from the customer that is not contingent upon the delivery of future Evidence.com services. The Company recognizes the remaining allocated revenue related to subsidized Axon devices over the remaining period it provides the contracted Evidence.com services.

In 2012, the Company introduced a program, the TASER Assurance Program (“TAP”) whereby a customer purchasing a product and joining the program will have the right to trade-in the original product for a new product of the same or like model in the future. Upon joining TAP, customers also receive an extended warranty for the initial products purchased and spare inventory. Under this program the customer generally pays additional annual installments over the contract period, generally three to five years. The Company records consideration received related to the future product purchase as deferred revenue until all revenue recognition criteria are met, which is generally when the new product is delivered. Consideration related to future product purchases is determined at the inception of the arrangement using management’s best estimate of selling price. Management’s estimate is principally based on the current selling price for such products, with due evaluation of the impact of any expected product and pricing changes, which have historically had an immaterial influence on management’s best estimate of selling price.

In 2015, The Company introduced the Officer Safety Plan (“OSP”) whereby a customer enters into a five year Evidence.com subscription that includes all of its standard advanced features along with unlimited storage. The OSP also includes a service plan that includes upgrades of (i) the Axon devices every 2.5 years and (ii) a TASER CEW at any point within the contract period. Upon entering into the OSP, customers also receive extended warranties on the Axon and CEW devices upon delivery to cover the contract periods as well as spare inventory units. Under this program the customer generally makes an initial purchase of Axon cameras and related accessories, and CEWs at inception along with annual installments for services and future hardware deliverables over the contract period. The Company records consideration received related to the future purchase as deferred revenue until all revenue recognition criteria are met, which is generally when the products or services are delivered.

In 2016, the Company introduced the TASER 60 Plan ("TASER 60") whereby a customer typically enters into a five year CEW installment purchase arrangement. The TASER 60 plan also includes extended warranties on the CEW devices upon delivery covering the contract periods as well as on-site spares, holsters and cartridges. Generally, the Company recognizes revenue for the amount allocated to the CEW at the time of sale for the amount of the customer receivable, net of imputed interest, and the amount allocated to the extended warranty is recognized over five years.

Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis. Training and professional service revenues are recorded as the services are provided.

Deferred revenue consists of payments received in advance related to products and services for which the criteria for revenue recognition have not yet been met. Deferred revenue that will be recognized during the succeeding twelve month period is recorded as current deferred revenue and the remaining portion is recorded as long-term. Deferred revenue does not include future revenue from multi-year contracts for which no invoice has yet been created. Generally, customers are billed in annual installments. See Note 6 for further disclosures about the Company’s deferred revenue.

Sales are typically made on credit, and the Company generally does not require collateral. Management performs ongoing credit evaluations of its customers’ financial condition, and maintains an allowance for estimated potential losses. Uncollectible accounts are charged to expense when deemed uncollectible, and accounts and notes receivable are presented net of an allowance for doubtful accounts. This allowance represents management’s best use of estimates, and is based on judgment after considering a number of factors, including third-party credit reports, actual payment history, cash discounts, customer-specific financial information and broader market and economic trends and conditions.

Standard Warranties

Standard Warranties

The Company warranties its CEWs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold and services delivered when revenue is recorded for the related product. Future warranty costs are estimated based on historical data related to returns and warranty costs on a quarterly basis and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated returns from customers. The accrued warranty liability expense is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. Costs related to extended warranties are charged to cost of products sold and services delivered when incurred. The reserve for warranty returns is included in accrued liabilities on the accompanying condensed consolidated balance sheets. 

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The Company uses the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. The Company categorizes each of its fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

• Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

• Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

• Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect the Company's own assumptions about inputs that market participants would use in pricing an asset or liability.

The Company has cash equivalents and investments, which at September 30, 2016 and December 31, 2015 were comprised of money market funds, state and municipal obligations, corporate bonds, and certificates of deposits. See additional disclosure regarding the fair value of the Company’s cash equivalents and investments in Note 2. Included in the balance of Other assets as of September 30, 2016 and December 31, 2015 was $3.0 million and $2.2 million, respectively, related to corporate-owned life insurance policies which are used to fund the Company’s deferred compensation plan. The Company determines the fair value of its insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

The Company’s financial instruments also include accounts and notes receivable, accounts payable, notes payable and accrued liabilities. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the accompanying condensed consolidated balance sheets.

Valuation of Goodwill, Intangibles and Long-lived Assets

Valuation of Goodwill, Intangibles and Long-lived Assets

Management evaluates whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets may warrant revision or that the remaining balance of these assets may not be recoverable. Such circumstances could include, but are not limited to, a change in the product mix, a change in the way products are created, produced or delivered, or a significant change in the way products are branded and marketed. In performing the review for recoverability, management estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows.

Recently Issued Accounting Guidance

Recently Issued Accounting Guidance

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 requires entities to recognize revenue through the application of a five-step model, which includes identification of the contract, identification of the performance obligations, determination of the transaction price, allocation of the transaction price to the performance obligations and recognition of revenue as the entity satisfies the performance obligations. Subsequently, the FASB issued the following accounting standard updates related to Topic 606, Revenue Contracts with Customers:

• ASU No. 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net) in March 2016. ASU 2016-08 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on principal versus agent considerations.

• ASU No. 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing in April 2016. ASU 2016-10 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on identifying performance obligations and the licensing

• ASU No. 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients in May 2016. ASU 2016-12 does not change the core principle of revenue recognition in Topic 606 but clarifies the implementation guidance on a few narrow areas and adds some practical expedients to the guidance.

The amendments are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company has established an internal implementation team and has engaged a third party advisory firm to assist in the implementation of the new standard. The Company is performing ongoing assessment activities to evaluate the proper method of adoption as well as the impact the adoption of the guidance will have on its consolidated financial statements.

In July 2015, the FASB issued ASU 2015-11, Inventory (Topic 330). The amendments require that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for the fiscal year beginning after December 15, 2016, including interim periods within that fiscal year. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. The Company does not expect the adoption of this guidance to have any impact on its financial position, results of operations or cash flows.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) in order to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for those leases classified as operating leases under previous GAAP. ASU 2016-02 requires that a lessee should recognize a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term on the balance sheet. ASU 2016-02 is effective for the fiscal year beginning after December 15, 2018 (including interim periods within that year) using a modified retrospective approach and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-02 on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends Accounting Standards Codification (Topic 718), Compensation – Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within that fiscal year and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of the ASU on its consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses ("ASU 2016-13"), which amends ASC 326. The new guidance differs from existing GAAP wherein previous objectives generally delayed recognition of credit losses until the loss was probable. ASU 2016-13 eliminates the probable initial recognition threshold and, instead, reflect an entity’s current estimate of all expected credit losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. ASU 2016-13 is effective for the fiscal year beginning after December 15, 2019, and interim periods within that fiscal year and early adoption is permitted. The Company is currently in the process of evaluating the impact of adoption of ASU 2016-13 on its consolidated financial statements.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments. ASU 2016-15 eliminates the diversity in practice related to the classification of certain cash receipts and payments. ASU 2016-15 designates the appropriate cash flow classification, including requirements to allocate certain components of these cash receipts and payments among operating, investing and financing activities. The retrospective transition method, requiring adjustment to all comparative periods presented, is required unless it is impracticable for some of the amendments, in which case those amendments would be prospectively as of the earliest date practicable. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements.

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Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Net Sales by Geographic Area

For the three and nine months ended September 30, 2016 and 2015, net sales by geographic area were as follows (in thousands):

	Three Months Ended September 30,								Nine Months Ended September 30,
	2016				2015				2016				2015
United States	$	60,558	84.2	%	$	43,689	86.7	%	$	155,245	83.4	%	$	117,885	83.1	%
Other Countries	11,324		15.8		6,687		13.3		30,923		16.6		23,966		16.9
Total	$	71,882	100.0	%	$	50,376	100.0	%	$	186,168	100.0	%	$	141,851	100.0	%

Weighted Average Number of Shares Outstanding and Income Per Share

The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Numerator for basic and diluted earnings per share:
Net income	$	3,843	$	1,521	$	10,956	$	14,829
Denominator:
Weighted average shares outstanding - basic	52,206		53,709		52,791		53,509
Dilutive effect of stock-based awards	935		982		865		1,162
Diluted weighted average shares outstanding	53,141		54,691		53,656		54,671
Anti-dilutive stock-based awards excluded	227		160		304		160
Net income per common share:
Basic	$	0.07	$	0.03	$	0.21	$	0.28
Diluted	$	0.07	$	0.03	$	0.20	$	0.27

Summary of Changes in Estimated Product Warranty Liabilities

Changes in the Company’s estimated product warranty liabilities are as follows (in thousands):

	Nine Months Ended September 30,
	2016			2015
Balance, beginning of period	$	314		$	675
Utilization of accrual	(97		)	(293		)
Warranty expense	531			19
Balance, end of period	$	748		$	401

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Cash, Cash Equivalents and Investments (Tables)

9 Months Ended

Sep. 30, 2016

Cash and Cash Equivalents [Abstract]

Summary of Cash, Cash Equivalents and Held-to-Maturity Investments by Type

The following tables summarize the Company's cash, cash equivalents, and held-to-maturity investments at September 30, 2016 and December 31, 2015 (in thousands):

	As of September 30, 2016
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	45,792	$	—	$	—		$	45,792	$	45,792	$	—	$	—
Level 1:
Money market funds	4,163		—		—			4,163		4,163		—		—
Corporate bonds	36,331		3		(35		)	36,299		645		29,911		5,775
Subtotal	40,494		3		(35		)	40,462		4,808		29,911		5,775
Level 2:
State and municipal obligations	15,152		1		(8		)	15,145		—		14,667		485
Certificates of deposit	1,042		—		—			1,042		—		1,042
Subtotal	16,194		1		(8		)	16,187		—		15,709		485
Total	$	102,480	$	4	$	(43	)	$	102,441	$	50,600	$	45,620	$	6,260

	As of December 31, 2015
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	57,137	$	—	$	—		$	57,137	$	57,137	$	—	$	—
Level 1:
Money market funds	2,389		—		—			2,389		2,389		—		—
Corporate bonds	36,406		—		(70		)	36,336		—		35,677		729
Subtotal	38,795		—		(70		)	38,725		2,389		35,677		729
Level 2:
State and municipal obligations	19,002		11		(9		)	19,004		—		12,000		7,002
Certificates of deposit	3,371		—		—			3,371		—		2,577		794
Subtotal	22,373		11		(9		)	22,375		—		14,577		7,796
Total	$	118,305	$	11	$	(79	)	$	118,237	$	59,526	$	50,254	$	8,525

Summary of Amortized Cost and Fair Value of Short-term and Long-term Investments

The following table summarizes the amortized cost and fair value of the short-term and long-term investments held by the Company at September 30, 2016 by contractual maturity (in thousands):

	Amortized Cost		Fair Value
Due in less than one year	$	45,620	$	45,581
Due after one year, through two years	6,260		6,260
Due after two years	—		—
Total short-term and long-term investments	$	51,880	$	51,841

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Inventory (Tables)

9 Months Ended

Sep. 30, 2016

Inventory Disclosure [Abstract]

Inventory

Inventories consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Raw materials	$	12,908	$	8,748
Work-in-process	6		105
Finished goods	12,589		6,910
Total inventory	$	25,503	$	15,763

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2016 were as follows (in thousands):

Balance, beginning of period	$	9,596
Purchase accounting adjustments (a)	(520		)
Foreign currency translation adjustment	(191		)
Balance, end of period	$	8,885

^(a) Purchase accounting adjustments related to deferred tax liabilities for MediaSolv and Axon Public Safety U.K. LTD. There was no impact to the condensed consolidated statements of operations for these adjustments as a result of the adoption of ASU 2015-16, which was effective for the Company on January 1, 2016.

Intangible Assets Other than goodwill

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2016							December 31, 2015
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortized:
Domain names	5 years	$	125	$	(125	)	$	—	$	125	$	(120	)	$	5
Issued patents	4-15 years	1,926		(749		)	1,177		1,866		(659		)	1,207
Issued trademarks	3-11 years	628		(301		)	327		603		(255		)	348
Customer relationships	4-8 years	945		(206		)	739		1,035		(93		)	942
Non-compete agreements	3-4 years	450		(218		)	232		464		(164		)	300
Developed technology	7 years	3,470		(699		)	2,771		3,470		(326		)	3,144
Total amortized		7,544		(2,298		)	5,246		7,563		(1,617		)	5,946
Not amortized:
TASER trademark		900					900		900					900
Patents and trademarks pending		970					970		742					742
Total not amortized		1,870					1,870		1,642					1,642
Total intangible assets		$	9,414	$	(2,298	)	$	7,116	$	9,205	$	(1,617	)	$	7,588

Estimated Amortization Expense of Intangible Assets

Estimated amortization for intangible assets with definitive lives for the remaining three months of 2016, the next five years ended December 31, and thereafter, is as follows (in thousands):

2016 (remaining three months)	$	235
2017	935
2018	922
2019	801
2020	738
2021	731
Thereafter	884
Total	$	5,246

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Other Long-Term Assets (Tables)

9 Months Ended

Sep. 30, 2016

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Long-Term Assets

Other long-term assets consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Cash surrender value of corporate-owned life insurance policies (Note 1)	$	3,014	$	2,180
Prepaid commissions (i)	4,927		3,543
Accounts receivable (ii)	10,359		1,227
Restricted cash (iii)	3,095		—
Prepaid expenses, deposits and other	367		246
Total other long-term assets	$	21,762	$	7,196

⁽ⁱ⁾ Prepaid commissions represent customer acquisition costs to secure long-term contracts. The Company capitalizes incremental and direct costs related to a specific contract and recognizes expense over the term of the contract.

⁽ⁱⁱ⁾ Long-term accounts receivable as of September 30, 2016 and December 31, 2015 consist of balances related to sales made under the Officer Safety and TASER 60 Programs (Note 1e). These balances are collectible over the stated contract period, which is typically five years, and are actively monitored for collectability.

⁽ⁱⁱⁱ⁾ Restricted cash represents sales proceeds related to a long-term contract with a specific customer. These proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to the Company's operating accounts.

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Deferred Revenue (Tables)

9 Months Ended

Sep. 30, 2016

Deferred Revenue Disclosure [Abstract]

Summary of Deferred Revenue

Deferred revenue consisted of the following (in thousands):

	September 30, 2016						December 31, 2015
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER Weapons	$	10,304	$	16,286	$	26,590	$	7,278	$	13,982	$	21,260
Axon	3,299		2,398		5,697		2,332		2,344		4,676
	13,603		18,684		32,287		9,610		16,326		25,936
Hardware:
TASER Weapons	1,240		2,441		3,681		952		2,459		3,411
Axon	10,257		10,441		20,698		786		7,382		8,168
	11,497		12,882		24,379		1,738		9,841		11,579
Axon Services	15,818		4,402		20,220		9,303		4,023		13,326
Other	366		—		366		200		—		200
Total	$	41,284	$	35,968	$	77,252	$	20,851	$	30,190	$	51,041

	September 30, 2016						December 31, 2015
	Current		Long-Term		Total		Current		Long-Term		Total
TASER Weapons	$	11,910	$	18,727	$	30,637	$	8,430	$	16,441	$	24,871
Axon	29,374		17,241		46,615		12,421		13,749		26,170
Total	$	41,284	$	35,968	$	77,252	$	20,851	$	30,190	$	51,041

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2016 and December 31, 2015 (in thousands):

	2016		2015
Accrued salaries, benefits and bonus	$	5,286	$	3,637
Accrued professional, consulting and lobbying	1,807		1,098
Accrued warranty expense	748		314
Accrued income and other taxes	2,169		1,215
Other accrued liabilities	6,076		2,379
Accrued liabilities	$	16,086	$	8,643

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2016

Equity [Abstract]

Summary of Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2016 (number of units and aggregate intrinsic value in thousands):

	Number of Units		Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,139		$	19.30
Granted	501		17.84
Released	(321	)	15.72
Forfeited	(106	)	21.61
Units outstanding, end of period	1,213		19.45		$	34,704

Summary of the Company's Stock Options Activity

The following table summarizes stock option activity for the nine months ended September 30, 2016 (number of units and aggregate intrinsic value in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	1,103		$	5.37
Granted	—		—
Exercised	(88	)	4.92
Expired / terminated	—		—
Options outstanding, end of period	1,015		5.41		2.50	$	23,555
Options exercisable, end of period	985		5.43		2.51	22,823
Options expected to vest, end of period	25		4.75		2.23	597

Reported Share-Based Compensation

The following table summarizes the composition of stock stock-based compensation for the three and nine months ended September 30, 2016 and 2015 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2016		2015		2016		2015
Cost of products sold and services delivered	$	77	$	118	$	247	$	276
Sales, general and administrative expenses	1,348		1,123		4,197		2,982
Research and development expenses	791		622		2,298		1,828
Total stock-based compensation	$	2,216	$	1,863	$	6,742	$	5,086

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Loss Contingencies

With respect to each of the pending lawsuits, the following table lists the name of plaintiff, the date the Company was served with process, the jurisdiction in which the case is pending, the type of claim and the status of the matter.

Plaintiff	Month Served	Jurisdiction	Claim Type	Status
Derbyshire	Nov-09	Ontario, Canada Superior Court of Justice	Officer Injury	Discovery Phase
Doan	Apr-10	The Queen's Bench, Alberta, Red Deer Judicial Dist.	Wrongful Death	Discovery Phase
Shymko	Dec-10	The Queen's Bench, Winnipeg Centre, Manitoba	Wrongful Death	Pleading Phase
Ramsey	Jan-12	12th Judicial Circuit Court, Broward County, FL	Wrongful Death	Discovery Phase
Firman	Apr-12	Ontario, Canada Superior Court of Justice	Wrongful Death	Pleading Phase
Schrock	Sep-14	San Bernardino County Superior Court, CA	Wrongful Death	Motion of Summary Judgment Granted on all claims except negligent design and manufacture, subject to repleading by Plaintiff. Plaintiff filed an amended complaint for negligent design claims as well as a Petition for Writ of Mandate or Prohibition Petition from the Court; which writ was summarily denied.
Bennett	Sep-15	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Discovery Phase
Suarez	Sep-16	US District Court, Southern District of Florida	Wrongful Death	Pleading Phase

There are no product litigation matters in which the Company is involved that are currently on appeal.

The following cases were dismissed or judgment entered during the third quarter of 2016 and through the date of these financial statements.

Plaintiff	Month Served	Jurisdiction	Claim Type	Status
Thompson	Mar-10	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Dismissed
Hernandez/llach	Sep-15	11th Judicial Circuit Court, Miami-Dade County, FL	Wrongful Death	Dismissed
Williams	Aug-16	US District Court for the Northern District Georgia	Wrongful Death	Dismissed

Information Regarding the Company's Insurance Coverage

The following table provides information regarding the Company’s product liability insurance. Remaining insurance coverage is based on information received from the Company’s insurance provider (in millions).

Policy Year	Policy Start Date	Policy End Date	Insurance Coverage	Deductible Amount	Defense Costs Covered	Remaining Insurance Coverage	Active Cases and Cases on Appeal
2009	12/15/2008	12/15/2009	10.0	1.0	N	10.0	Derbyshire
2010	12/15/2009	12/15/2010	10.0	1.0	N	10.0	Shymko, Doan
2011	12/15/2010	12/15/2011	10.0	1.0	N	10.0	n/a
Jan-Jun 2012	12/15/2011	6/25/2012	7.0	1.0	N	7.0	Ramsey, Firman
Jul-Dec 2012	6/25/2012	12/15/2012	12.0	1.0	N	12.0	n/a
2013	12/15/2012	12/15/2013	12.0	1.0	N	12.0	n/a
2014	12/15/2013	12/15/2014	11.0	4.0	N	11.0	Schrock
2015	12/15/2014	12/15/2015	10.0	5.0	N	10.0	Bennett
2016	12/15/2015	12/15/2016	10.0	5.0	N	10.0	Suarez

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Segment Data (Tables)

9 Months Ended

Sep. 30, 2016

Segment Reporting [Abstract]

Summary of Operational Information Relative to the Company's Reportable Segments

Information relative to the Company’s reportable segments is as follows (in thousands):

	Three Months Ended September 30, 2016							Three Months Ended September 30, 2015
	TASER Weapons		Axon			Total		TASER Weapons		Axon			Total
Product sales	$	52,938	$	10,266		$	63,204	$	39,520	$	7,745		$	47,265
Service revenue	—		8,678			8,678		—		3,111			3,111
Net sales	52,938		18,944			71,882		39,520		10,856			50,376
Cost of products sold	14,973		8,691			23,664		12,445		5,829			18,274
Cost of services delivered	—		1,653			1,653		—		1,034			1,034
Gross margin	37,965		8,600			46,565		27,075		3,993			31,068
Sales, general and administrative	16,439		11,682			28,121		11,941		5,893			17,834
Research and development	1,408		5,950			7,358		1,151		5,377			6,528
Income (loss) from operations	$	20,118	$	(9,032	)	$	11,086	$	13,983	$	(7,277	)	$	6,706
Purchase of property and equipment	$	1,064	$	307		$	1,371	$	1,900	$	169		$	2,069
Purchase of intangible assets	77		77			154		114		87			201
Purchase of property and equipment and intangible assets in connection with business acquisition	—		—			—		1,453		1,452			3,005
Depreciation and amortization	537		364			901		603		345			948

	Nine Months Ended September 30, 2016							Nine Months Ended September 30, 2015
	TASER Weapons		Axon			Total		TASER Weapons		Axon			Total
Product sales	$	144,307	$	23,438		$	167,745	$	115,686	$	18,177		$	133,863
Service revenue	—		18,423			18,423		—		7,988			7,988
Net sales	144,307		41,861			186,168		115,686		26,165			141,851
Cost of products sold	43,998		17,174			61,172		34,805		12,692			47,497
Cost of services delivered	—		4,230			4,230		—		2,695			2,695
Gross margin	100,309		20,457			120,766		80,881		10,778			91,659
Sales, general and administrative	46,395		30,938			77,333		33,469		14,373			47,842
Research and development	3,773		17,222			20,995		3,418		13,574			16,992
Income (loss) from operations	$	50,141	$	(27,703	)	$	22,438	$	43,994	$	(17,169	)	$	26,825
Purchase of property and equipment	$	2,729	$	606		$	3,335	$	2,345	$	1,404		$	3,839
Purchase of intangible assets	190		149			339		195		207			402
Purchase of property and equipment and intangible assets in connection with business acquisition	—		—			—		1,453		11,146			12,599
Depreciation and amortization	1,669		1,075			2,744		1,689		621			2,310

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Business Acquisitions (Tables)

9 Months Ended

Sep. 30, 2016

Business Combinations [Abstract]

Schedule of Business Acquisitions, by Acquisition

The major classes of assets and liabilities to which the Company has allocated the purchase price are as follows (in thousands):

Accounts receivable	$	726
Inventory	497
Property and equipment	583
Other Assets	20
Intangible assets	881
Goodwill	1,441
Accounts payable and accrued liabilities	(207		)
Notes payable	(169		)
Income tax liabilities	(438		)
Total purchase price	$	3,334

The major classes of assets and liabilities to which the Company allocated the purchase price were as follows (in thousands):

Accounts receivable and other current assets	$	590
Inventory	35
Property and equipment	53
Intangible assets	4,145
Goodwill	5,496
Accounts payable and accrued liabilities	(697		)
Deferred revenue	(111		)
Deferred income tax liabilities, net	(688		)
Total purchase price	$	8,823

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Organization and Summary of Significant Accounting Policies - Additional Information (Detail) $ in Thousands	3 Months Ended			9 Months Ended		12 Months Ended
	Sep. 30, 2016 USD ($) subsidiary country	Dec. 31, 2015 USD ($)	Sep. 30, 2015 USD ($) country	Sep. 30, 2016 USD ($) Segment subsidiary Source Customer country	Sep. 30, 2015 USD ($) Customer country	Dec. 31, 2015 USD ($) Customer
Summary Of Significant Accounting Policy [Line Items]
Number of wholly owned subsidiaries | subsidiary	2			2
Number of reportable segments | Segment				2
Number of revenue sources | Source				2
Warranty period				1 year
Corporate owned life insurance policies fair value	$ 3,000	$ 2,180		$ 3,000		$ 2,180
Loss on disposal of intangible assets				(21)	$ (216)
Net income	3,843		$ 1,521	10,956	14,829
Cost of products sold and services delivered	25,317		19,308	65,402	50,192
Sales, general and administrative	$ 28,121		$ 17,834	$ 77,333	$ 47,842
Recognition of Transaction
Summary Of Significant Accounting Policy [Line Items]
Net income		(800)				(800)
Cost of products sold and services delivered		$ 400
Sales, general and administrative						$ 200
Minimum
Summary Of Significant Accounting Policy [Line Items]
Service term for services purchased				3 years
Maximum
Summary Of Significant Accounting Policy [Line Items]
Service term for services purchased				5 years
Extended Product Warranty | Minimum
Summary Of Significant Accounting Policy [Line Items]
Extended warranty period				1 year
Service term for services purchased				1 year
Extended Product Warranty | Maximum
Summary Of Significant Accounting Policy [Line Items]
Extended warranty period				5 years
Service term for services purchased				5 years
Evidence. Com
Summary Of Significant Accounting Policy [Line Items]
Subscription period				5 years
Device upgrade period				2 years 6 months
Geographic Concentration Risk | Sales Revenue, Net
Summary Of Significant Accounting Policy [Line Items]
Number of foreign countries | country	0		0	0	0
Customer Concentration Risk | Sales Revenue, Net
Summary Of Significant Accounting Policy [Line Items]
Number of customers | Customer				0	0
Customer Concentration Risk | Accounts Receivable
Summary Of Significant Accounting Policy [Line Items]
Number of customers | Customer				1		1
Concentration risk, percentage				18.60%		12.50%

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Organization and Summary of Significant Accounting Policies - Net Sales by Geographic Area (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Segment Reporting Information [Line Items]
Net sales by geographic area	$ 71,882	$ 50,376	$ 186,168	$ 141,851
Percentage of net sales by geographic area	100.00%	100.00%	100.00%	100.00%
United States
Segment Reporting Information [Line Items]
Net sales by geographic area	$ 60,558	$ 43,689	$ 155,245	$ 117,885
Percentage of net sales by geographic area	84.20%	86.70%	83.40%	83.10%
Other Countries
Segment Reporting Information [Line Items]
Net sales by geographic area	$ 11,324	$ 6,687	$ 30,923	$ 23,966
Percentage of net sales by geographic area	15.80%	13.30%	16.60%	16.90%

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Organization and Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding and Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Numerator for basic and diluted earnings per share:
Net income	$ 3,843	$ 1,521	$ 10,956	$ 14,829
Denominator:
Weighted average shares outstanding—basic	52,206	53,709	52,791	53,509
Dilutive effect of stock-based awards (in shares)	935	982	865	1,162
Diluted weighted average shares outstanding	53,141	54,691	53,656	54,671
Anti-dilutive stock-based awards excluded	227	160	304	160
Net income (loss) per common share:
Basic (in dollars per share)	$ 0.07	$ 0.03	$ 0.21	$ 0.28
Diluted (in dollars per share)	$ 0.07	$ 0.03	$ 0.20	$ 0.27

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Organization and Summary of Significant Accounting Policies - Summary of Changes in Estimated Product Warranty Liabilities (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
Movement in Standard and Extended Product Warranty, Increase (Decrease) [Roll Forward]
Balance, beginning of period	$ 314	$ 675
Utilization of accrual	(97)	(293)
Warranty expense	531	19
Balance, end of period	$ 748	$ 401

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Cash, Cash Equivalents, and Investments - Summary of Cash, Cash Equivalents and Held-to-Maturity Investments by Type (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	$ 102,480	$ 118,305
Gross Unrealized Gains	4	11
Gross Unrealized Losses	(43)	(79)
Fair Value	102,441	118,237
Cash and Cash Equivalents	50,600	59,526
Short-term investments	45,620	50,254
Long-term investments	6,260	8,525
Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	40,494	38,795
Gross Unrealized Gains	3	0
Gross Unrealized Losses	(35)	(70)
Fair Value	40,462	38,725
Cash and Cash Equivalents	4,808	2,389
Short-term investments	29,911	35,677
Long-term investments	5,775	729
Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	16,194	22,373
Gross Unrealized Gains	1	11
Gross Unrealized Losses	(8)	(9)
Fair Value	16,187	22,375
Cash and Cash Equivalents	0	0
Short-term investments	15,709	14,577
Long-term investments	485	7,796
Fair Value, Inputs, Level 2 | State and Municipal Obligations
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	15,152	19,002
Gross Unrealized Gains	1	11
Gross Unrealized Losses	(8)	(9)
Fair Value	15,145	19,004
Cash and Cash Equivalents	0	0
Short-term investments	14,667	12,000
Long-term investments	485	7,002
Fair Value, Inputs, Level 2 | Certificates of Deposit
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	1,042	3,371
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	1,042	3,371
Cash and Cash Equivalents	0	0
Short-term investments	1,042	2,577
Long-term investments		794
Cash
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	45,792	57,137
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	45,792	57,137
Cash and Cash Equivalents	45,792	57,137
Short-term investments	0	0
Long-term investments	0	0
Money Market Funds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	4,163	2,389
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	4,163	2,389
Cash and Cash Equivalents	4,163	2,389
Short-term investments	0	0
Long-term investments	0	0
Corporate Bonds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	36,331	36,406
Gross Unrealized Gains	3	0
Gross Unrealized Losses	(35)	(70)
Fair Value	36,299	36,336
Cash and Cash Equivalents	645	0
Short-term investments	29,911	35,677
Long-term investments	$ 5,775	$ 729

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Cash, Cash Equivalents, and Investments - Summary of Amortized Cost and Fair Value of Short-term and Long-term Investments (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Due in less than one year	$ 45,620	$ 50,254
Due after one year, through two years	6,260	$ 8,525
Amortized Cost
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Due in less than one year	45,620
Due after one year, through two years	6,260
Due after two years	0
Total short-term and long-term investments	51,880
Fair Value
Fair Value, Balance Sheet Grouping, Financial Statement Captions [Line Items]
Due in less than one year	45,581
Due after one year, through two years	6,260
Due after two years	0
Total short-term and long-term investments	$ 51,841

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Inventory (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Inventory Disclosure [Abstract]
Raw materials	$ 12,908	$ 8,748
Work-in-process	6	105
Finished goods	12,589	6,910
Total inventory	$ 25,503	$ 15,763

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Goodwill and Intangible Assets - Schedule of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($)
Goodwill [Roll Forward]
Balance, beginning of period	$ 9,596
Purchase accounting adjustments	(520)
Foreign currency translation adjustment	(191)
Balance, end of period	$ 8,885

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Goodwill and Intangible Assets - Intangible Assets Other than Goodwill (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Gross Carrying Amount	$ 7,544	$ 7,563
Accumulated Amortization	(2,298)	(1,617)
Total	5,246	5,946
Not amortized intangible assets, Carrying Amount	1,870	1,642
Intangible assets, Gross Carrying Amount	9,414	9,205
Intangible assets, Net Carrying Amount	7,116	7,588
TASER trademark
Acquired Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	900	900
Patents and trademarks pending
Acquired Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	$ 970	742
Domain names
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	5 years
Amortized intangible assets, Gross Carrying Amount	$ 125	125
Accumulated Amortization	(125)	(120)
Total	0	5
Issued patents
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Gross Carrying Amount	1,926	1,866
Accumulated Amortization	(749)	(659)
Total	$ 1,177	1,207
Issued patents | Minimum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	4 years
Issued patents | Maximum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	15 years
Issued trademarks
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Gross Carrying Amount	$ 628	603
Accumulated Amortization	(301)	(255)
Total	$ 327	348
Issued trademarks | Minimum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	3 years
Issued trademarks | Maximum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	11 years
Customer relationships
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Gross Carrying Amount	$ 945	1,035
Accumulated Amortization	(206)	(93)
Total	$ 739	942
Customer relationships | Minimum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	4 years
Customer relationships | Maximum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	8 years
Non-compete agreements
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Gross Carrying Amount	$ 450	464
Accumulated Amortization	(218)	(164)
Total	$ 232	300
Non-compete agreements | Minimum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	3 years
Non-compete agreements | Maximum
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	4 years
Developed technology
Acquired Indefinite-lived Intangible Assets [Line Items]
Amortized intangible assets, Useful Life	7 years
Amortized intangible assets, Gross Carrying Amount	$ 3,470	3,470
Accumulated Amortization	(699)	(326)
Total	$ 2,771	$ 3,144

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Goodwill and Intangible assets - Estimated Amortization Expense of Intangible Assets (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense	$ 200	$ 300	$ 700	$ 500
2016 (remaining three months)	235		235
2017	935		935
2018	922		922
2019	801		801
2020	738		738
2021	731		731
Thereafter	884		884
Total	$ 5,246		$ 5,246		$ 5,946

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Other Long-Term Assets (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2016	Dec. 31, 2015
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Cash surrender value of corporate-owned life insurance policies	$ 3,000	$ 2,180
Prepaid commissions	4,927	3,543
Accounts receivable	10,359	1,227
Restricted cash	3,095	0
Prepaid expenses, deposits and other	367	246
Total other long-term assets	$ 21,762	$ 7,196
Long-term accounts receivable, typical collectability term	5 years

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Deferred Revenue - Summary of Deferred Revenue (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	$ 41,284	$ 20,851
Deferred revenue, Long-Term	35,968	30,190
Total deferred revenue	77,252	51,041
Warranty
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	13,603	9,610
Deferred revenue, Long-Term	18,684	16,326
Total deferred revenue	32,287	25,936
Hardware
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	11,497	1,738
Deferred revenue, Long-Term	12,882	9,841
Total deferred revenue	24,379	11,579
AXON services
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	15,818	9,303
Deferred revenue, Long-Term	4,402	4,023
Total deferred revenue	20,220	13,326
Other
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	366	200
Deferred revenue, Long-Term	0	0
Total deferred revenue	366	200
TASER Weapons
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	11,910	8,430
Deferred revenue, Long-Term	18,727	16,441
Total deferred revenue	30,637	24,871
TASER Weapons | Warranty
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	10,304	7,278
Deferred revenue, Long-Term	16,286	13,982
Total deferred revenue	26,590	21,260
TASER Weapons | Hardware
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	1,240	952
Deferred revenue, Long-Term	2,441	2,459
Total deferred revenue	3,681	3,411
Axon
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	29,374	12,421
Deferred revenue, Long-Term	17,241	13,749
Total deferred revenue	46,615	26,170
Axon | Warranty
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	3,299	2,332
Deferred revenue, Long-Term	2,398	2,344
Total deferred revenue	5,697	4,676
Axon | Hardware
Deferred Revenue Arrangement [Line Items]
Deferred revenue, Current	10,257	786
Deferred revenue, Long-Term	10,441	7,382
Total deferred revenue	$ 20,698	$ 8,168

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Accrued Liabilities (Detail) - USD ($) $ in Thousands	Sep. 30, 2016	Dec. 31, 2015	Sep. 30, 2015	Dec. 31, 2014
Payables and Accruals [Abstract]
Accrued salaries, benefits and bonus	$ 5,286	$ 3,637
Accrued professional, consulting and lobbying	1,807	1,098
Accrued warranty expense	748	314	$ 401	$ 675
Accrued income and other taxes	2,169	1,215
Other accrued liabilities	6,076	2,379
Accrued liabilities	$ 16,086	$ 8,643

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Income Taxes - Additional Information (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($)
Tax Credit Carryforward [Line Items]
Deferred tax assets, net	$ 16.8
Research and development tax credit studies	12.9
Unrecognized tax benefits	$ 3.6
Overall effective tax rate, after discrete period adjustments	50.10%
Effective tax rate, before discrete period adjustment	48.30%
Return-to-provision adjustment	$ 0.4
Federal
Tax Credit Carryforward [Line Items]
Unrecognized tax benefits	3.5
State
Tax Credit Carryforward [Line Items]
Unrecognized tax benefits	0.1
Expiring in 2019
Tax Credit Carryforward [Line Items]
Tax credit carryforward, amount	1.2
Research and Development Credits
Tax Credit Carryforward [Line Items]
Tax credit carryforward, valuation allowance	$ 1.4

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Stockholders' Equity - Additional Information (Detail) - USD ($)	1 Months Ended	3 Months Ended	9 Months Ended
	May 31, 2016	Sep. 30, 2016	Sep. 30, 2016	Sep. 30, 2015	Feb. 29, 2016	Dec. 31, 2015
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option available for future grants (in shares)		2,900,000	2,900,000
Tax payments, for net share settlement of share based award			$ 1,299,000	$ 848,000
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense related to non-vested stock options		$ 18,000,000	$ 18,000,000
Weighted average period over which costs are recognized			2 years 6 months 7 days
Units meeting performance criteria (in shares)			321,000
Approximate units outstanding (in shares)		1,213,000	1,213,000			1,139,000
Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Approximate units of performance restricted stock granted (in shares)			100,000
Approximate units outstanding (in shares)		200,000	200,000
Maximum additional shares to be issued		200,000	200,000
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Shares withheld, for net share settlement of share based award			67,400
Tax payments, for net share settlement of share based award			$ 1,300,000
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)		$ 28.61	$ 28.61
Total intrinsic value of options exercised			$ 1,800,000	$ 13,300,000
Number of options outstanding (in shares)		1,015,000	1,015,000			1,103,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding (in shares)		200,000	200,000
Unvested performance options (in shares)		30,600	30,600
Unvested shares, expected to vest		25,000	25,000
2013 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional shares authorized	2,000,000
2014 Stock Repurchase Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding common stock repurchase program authorized amount (up to)					$ 50,000,000.0
Shares repurchased during period		0	1,800,000	300,000
Cost of shares repurchased			$ 33,800,000	$ 7,600,000
Average cost of shares repurchased (in dollars per share)			$ 18.90	$ 25.86
Average price of shares repurchased (in dollars per share)			$ 18.87
Remaining authorized repurchase amount		$ 16,200,000	$ 16,200,000

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Stockholders' Equity - Summary of Restricted Stock Unit Activity (Detail) - Restricted Stock $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Number of Units outstanding, beginning of year (in shares) | shares	1,139
Number of Units, Granted (in shares) | shares	501
Number of Units, Released (in shares) | shares	(321)
Number of Units, Forfeited (in shares) | shares	(106)
Number of Units outstanding, end of period (in shares) | shares	1,213
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted Average Grant Date Fair Value, Units outstanding, beginning of year (in dollars per share) | $ / shares	$ 19.30
Weighted Average Grant Date Fair Value, Granted (in dollars per share) | $ / shares	17.84
Weighted Average Grant Date Fair Value, Released (in dollars per share) | $ / shares	15.72
Weighted Average Grant Date Fair Value, Forfeited (in dollars per share) | $ / shares	21.61
Weighted Average Grant Date Fair Value, Units outstanding, end of period (in dollars per share) | $ / shares	$ 19.45
Aggregate intrinsic value at end of period | $	$ 34,704

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Stockholders' Equity - Summary of the Company's Stock Options Activity (Detail) - Stock Options $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2016 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Options outstanding, beginning of year (in shares) | shares	1,103
Number of options, Granted (in shares) | shares	0
Number of options, Exercised (in shares) | shares	(88)
Number of options, Expired / terminated (in shares) | shares	0
Number of options, Options outstanding, end of year (in shares) | shares	1,015
Number of options, Options exercisable, end of period (in shares) | shares	985
Number of options, Options expected to vest, end of period (in shares) | shares	25
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price, Options outstanding, beginning of year (in dollars per share) | $ / shares	$ 5.37
Weighted average exercise price, Granted (in dollars per share) | $ / shares	0.00
Weighted average exercise price, Exercised (in dollars per share) | $ / shares	4.92
Weighted average exercise price, Expired / terminated (in dollars per share) | $ / shares	0.00
Weighted average exercise price, Options outstanding, end of period (in dollars per share) | $ / shares	5.41
Weighted average exercise price, Options exercisable, end of period (in dollars per share) | $ / shares	5.43
Weighted average exercise price, Options expected to vest, end of period (in dollars per share) | $ / shares	$ 4.75
Weighted average remaining contractual life, Options outstanding, end of period	2 years 6 months
Weighted average remaining contractual life, Options exercisable, end of period	2 years 6 months 4 days
Weighted average remaining contractual life, Options expected to vest, end of period	2 years 2 months 23 days
Aggregate intrinsic value, Options outstanding, end of period | $	$ 23,555
Aggregate intrinsic value, Options exercisable, end of period | $	22,823
Aggregate intrinsic value, Options expected to vest, end of period | $	$ 597

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Stockholders' Equity - Reported Share-Based Compensation (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 2,216	$ 1,863	$ 6,742	$ 5,086
Cost of products sold and services delivered
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	77	118	247	276
Sales, general and administrative expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,348	1,123	4,197	2,982
Research and development expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 791	$ 622	$ 2,298	$ 1,828

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Line of Credit - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2016 USD ($)	Dec. 31, 2015 USD ($)
Debt Instrument [Line Items]
Total availability under line of credit agreement	$ 10,000,000.0
Line of credit borrowings	0	$ 0
Letters of credit outstanding amount	3,900,000
Available borrowing under letter of credit	$ 6,100,000
Varying interest on line of credit agreement	LIBOR plus 1.5% or Prime less 0.75%
Maturity date of line of credit	Jul. 31, 2017
Maximum ratio of total liabilities to tangible net worth	1
Minimum required fixed coverage charge ratio	1.25
Trailing period used for calculating ratios	12 months
Company's leverage ratio	0.88
Fixed coverage charge ratio	2.23
Line of Credit | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Line of credit interest rate	1.50%
Line of Credit | Prime Rate
Debt Instrument [Line Items]
Line of credit interest rate	0.75%

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Commitments and Contingencies - Additional Information (Detail) $ in Millions	3 Months Ended
	Sep. 30, 2011 Case	Sep. 30, 2016 USD ($) Lawsuit	Apr. 30, 2016 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Number of lawsuits against Company | Lawsuit		8
Number of active product liability cases | Case	55
Loss Contingencies [Line Items]
Letters of credit outstanding amount		$ 3.9
Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		5.7
Expiring May 2017
Loss Contingencies [Line Items]
Letters of credit outstanding amount		2.7
Expiring February 2017
Loss Contingencies [Line Items]
Letters of credit outstanding amount		1.2
Expected to be Released in 2018 | Surety Bond
Loss Contingencies [Line Items]
Outstanding surety bonds expected to be released during period		0.4
Expiring in 2020 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		2.4
Expiring in 2021 and thereafter | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		$ 2.9
Paris, France | International Chamber of Commerce
Loss Contingencies [Line Items]
Loss contingency, estimate of possible loss			$ 0.6

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Commitments and Contingencies - Information Regarding the Company's Insurance Coverage (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2016 USD ($)
2009
Product Liability Contingency [Line Items]
Insurance Coverage	$ 10.0
Deductible Amount	1.0
Remaining Insurance Coverage	10.0
2010
Product Liability Contingency [Line Items]
Insurance Coverage	10.0
Deductible Amount	1.0
Remaining Insurance Coverage	10.0
2011
Product Liability Contingency [Line Items]
Insurance Coverage	10.0
Deductible Amount	1.0
Remaining Insurance Coverage	10.0
Jan - Jun 2012
Product Liability Contingency [Line Items]
Insurance Coverage	7.0
Deductible Amount	1.0
Remaining Insurance Coverage	7.0
Jul - Dec 2012
Product Liability Contingency [Line Items]
Insurance Coverage	12.0
Deductible Amount	1.0
Remaining Insurance Coverage	12.0
2013
Product Liability Contingency [Line Items]
Insurance Coverage	12.0
Deductible Amount	1.0
Remaining Insurance Coverage	12.0
2014
Product Liability Contingency [Line Items]
Insurance Coverage	11.0
Deductible Amount	4.0
Remaining Insurance Coverage	11.0
2015
Product Liability Contingency [Line Items]
Insurance Coverage	10.0
Deductible Amount	5.0
Remaining Insurance Coverage	10.0
2016
Product Liability Contingency [Line Items]
Insurance Coverage	10.0
Deductible Amount	5.0
Remaining Insurance Coverage	$ 10.0

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Related Party Transactions - Additional Information (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Dec. 31, 2015 USD ($)	Jul. 16, 2015 USD ($) owner
Consulting | Officer
Related Party Transaction [Line Items]
Transaction expenses incurred by parent company	$ 14,000	$ 44,000	$ 111,000	$ 156,000
Outstanding payables due to related party	3,000		3,000		$ 31,000
Software Licensing and Subscription | Officer
Related Party Transaction [Line Items]
Quarterly software licensing fee	30,000
Deferred costs related to annual software subscription	$ 80,800		$ 80,800		$ 36,000
Non-cancellable Operating Leases | Employee
Related Party Transaction [Line Items]
Number of former owners | owner						1
Term of contract			5 years
Aggregate annual rental payments						$ 25,000

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Employee Benefit Plans - Additional Information (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Defined Benefit Plan Disclosure [Line Items]
Employee deferrals deemed vested percentage upon contribution			100.00%
Company's contributions to the plan	$ 400	$ 300	$ 1,200	$ 900
Company's expected contributions to the plan			$ 8
Maximum
Defined Benefit Plan Disclosure [Line Items]
Deferral percentage of base salary (up to)			80.00%
Deferral percentage of other compensation (up to)			100.00%

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Segment Data - Additional Information (Detail) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2016 USD ($)	Sep. 30, 2015 USD ($)	Sep. 30, 2016 USD ($) Segment	Sep. 30, 2015 USD ($)
Segment Reporting [Abstract]
Number of reportable segments of company | Segment			2
Segment Reporting Information [Line Items]
Product sales	$ 63,204	$ 47,265	$ 167,745	$ 133,863
Service revenue	8,678	3,111	18,423	7,988
Net sales	71,882	50,376	186,168	141,851
Cost of products sold	23,664	18,274	61,172	47,497
Cost of services delivered	1,653	1,034	4,230	2,695
Gross margin	46,565	31,068	120,766	91,659
Sales, general and administrative	28,121	17,834	77,333	47,842
Research and development	7,358	6,528	20,995	16,992
Income from operations	11,086	6,706	22,438	26,825
Purchase of property and equipment	1,371	2,069	3,335	3,839
Purchase of intangible assets	154	201	339	402
Purchase of property and equipment and intangible assets in connection with business acquisition	0	3,005	0	12,599
Depreciation and amortization	901	948	2,744	2,310
Operating Segments | TASER Weapons
Segment Reporting Information [Line Items]
Product sales	52,938	39,520	144,307	115,686
Service revenue	0	0	0	0
Net sales	52,938	39,520	144,307	115,686
Cost of products sold	14,973	12,445	43,998	34,805
Cost of services delivered	0	0	0	0
Gross margin	37,965	27,075	100,309	80,881
Sales, general and administrative	16,439	11,941	46,395	33,469
Research and development	1,408	1,151	3,773	3,418
Income from operations	20,118	13,983	50,141	43,994
Purchase of property and equipment	1,064	1,900	2,729	2,345
Purchase of intangible assets	77	114	190	195
Purchase of property and equipment and intangible assets in connection with business acquisition	0	1,453	0	1,453
Depreciation and amortization	537	603	1,669	1,689
Operating Segments | Axon
Segment Reporting Information [Line Items]
Product sales	10,266	7,745	23,438	18,177
Service revenue	8,678	3,111	18,423	7,988
Net sales	18,944	10,856	41,861	26,165
Cost of products sold	8,691	5,829	17,174	12,692
Cost of services delivered	1,653	1,034	4,230	2,695
Gross margin	8,600	3,993	20,457	10,778
Sales, general and administrative	11,682	5,893	30,938	14,373
Research and development	5,950	5,377	17,222	13,574
Income from operations	(9,032)	(7,277)	(27,703)	(17,169)
Purchase of property and equipment	307	169	606	1,404
Purchase of intangible assets	77	87	149	207
Purchase of property and equipment and intangible assets in connection with business acquisition	0	1,452	0	11,146
Depreciation and amortization	$ 364	$ 345	$ 1,075	$ 621

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Business Acquisitions (Details) - USD ($)			3 Months Ended		9 Months Ended
	Jul. 16, 2015	May 05, 2015	Sep. 30, 2016	Mar. 31, 2016	Sep. 30, 2016	Dec. 31, 2015
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Goodwill			$ 8,885,000		$ 8,885,000	$ 9,596,000
MediaSolv Solutions Corporation
Business Acquisition [Line Items]
Consideration transferred		$ 8,800,000	200,000	$ 1,000,000	1,200,000
Cash acquired		100,000
Payments to acquire businesses, net		7,800,000
Contingent liability		1,000,000
Additional earn-out provisions and compensation adjustments		$ 4,000,000
Intangible assets, weighted average useful life		6 years 6 months
Acquisition transaction costs		$ 200,000
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Accounts receivable and other current assets		590,000
Inventory		35,000
Property and equipment		53,000
Intangible assets		4,145,000
Goodwill		5,496,000
Accounts payable and accrued liabilities		(697,000)
Deferred revenue		(111,000)
Deferred income tax liabilities, net		(688,000)
Total purchase price		$ 8,823,000
MediaSolv Solutions Corporation | Commission Expenses | Accrued Liabilities
Business Acquisition [Line Items]
Contingent liability			200,000		200,000
Tactical Safety Responses Limited
Business Acquisition [Line Items]
Consideration transferred	$ 3,300,000
Cash acquired	$ 700,000
Intangible assets, weighted average useful life	7 years
Acquisition transaction costs	$ 100,000
Cash payments to acquire business	4,000,000
Business Combination, Recognized Identifiable Assets Acquired, Goodwill, and Liabilities Assumed, Net [Abstract]
Accounts receivable and other current assets	726,000
Inventory	497,000
Property and equipment	583,000
Intangible assets	881,000
Other Assets	20,000
Goodwill	1,441,000
Accounts payable and accrued liabilities	(207,000)
Notes payable	(169,000)
Deferred income tax liabilities, net	(438,000)
Total purchase price	$ 3,334,000
Tactical Safety Responses Limited | Commission Expenses | Accrued Liabilities
Business Acquisition [Line Items]
Contingent liability			$ 100,000		$ 100,000