Rick Smith - Chief Executive Officer Dan Behrendt - Chief Financial Officer.

Steve Dyer - Craig Hallum Greg McKinley - Dougherty.

Good day, ladies and gentlemen and welcome to the Second Quarter 2014 TASER International Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will have a question-and-answer session and instructions will follow at that time. (Operator Instructions) I would now like to turn the call over to Mr.

Rick Smith, Chief Executive Officer. Sir, the floor is yours..

Thank you very much and good morning to everyone. Welcome to TASER International’s second quarter 2014 earnings conference call. Before we get started, I am going to turn the call over to Dan Behrendt, our Chief Financial Officer to read the Safe Harbor statement..

Thank you. Statements made on today’s call will include forward-looking statements regarding our expectations, beliefs, intentions or strategies regarding the future, including statements around projected spending.

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

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

All forward-looking statements that are made on today’s call are subject to the risks and uncertainties that could cause our actual results to differ materially. These risks are discussed in our press release we issued today and in greater detail in our Annual Report on Form 10-K for the year ended December 31, 2013, under the caption Risk Factors.

You may find both of these filings, as well as our other SEC filings on our website at www.taser.com. And with that, I will turn it back over to Rick..

Thank you, Dan. As a reminder to everyone on the call, we are going to be accepting some questions via Twitter during the Q&A portion, which can be submitted using the hash tag TASR_EARNINGS. To follow our updates on Twitter during the call follow the account at TASER_IR, that’s at TASER_IR.

We will be posting graphics and commentary throughout the call. And for those of you without Twitter, all updates and graphics do stream directly to our Investor Relations website at investor.taser.com.

The second quarter of 2014 was a busy one for TASER and I am personally excited to share some of the progress and milestones that we had during the quarter. First off, consolidated revenue grew 15.5% year-over-year to $37.2 million on a consolidated basis. This marks the 10th consecutive quarter of year-over-year top line double-digit growth.

We continue to work hard to aggressively grow the top line and are eager to continue to show our progress and successes throughout the remainder of the year. Traction in the EVIDENCE.com & Video segment continues to accelerate.

Most notably, the leading indicator of bookings increased to $11.3 million in the second quarter, which is a significant increase nearly doubling from the run-rate of the past three quarters in the $5 million to $6 million range.

There were several major city wins this quarter that contributed to this level of bookings growth including the Winston-Salem Police Department, the Spartanburg County Sheriff’s Office and the San Diego Police Department.

Out of the 72 major cities, we now have active deployments in 7 cities with 3 more currently in paid trials and roughly another 10 in some form of pilot or active discussion. We continue to win the competitive deals that we are pursuing. We are aware of only one large competitive procurement, which we lost in the past year.

The purchase of cameras and the decision for managing the digital evidence is a highly visible complicated decision for these agencies. It’s not as simple as handing them cameras and sending officers on their way. Their policies must be written and implemented IT departments to work with public relations messaging to be crafted by these cities.

Time and again, the largest agencies in the world are choosing TASER and EVIDENCE.com, because we work so closely with command staff and the city to make sure that these implementations and rollout of our solution in particular goes smoothly.

Because of this and our continued marketing efforts, we are seeing continued positive indicators for the business. We are also finding that the usage of our EVIDENCE.com solution is growing exponentially.

In the second quarter, we saw approximately 950,000 files and 95,000 gigabytes of data uploaded into EVIDENCE.com versus approximately 250,000 files and 20,000 gigabytes uploaded a year ago. See the graph on the three we just sent out, we are seeing an impressive curve in accelerating system usage.

Our pipeline of actionable deals is the largest it’s ever been. And in fact the number of request for proposals or RFPs that we have done for cloud and wearables surpassed those for weapons this quarter. Further, initial survey results from our technology summit attendees shows that the soft provoking events are paying off.

We found that 98% of attendees would recommend attending a technology summit to a colleague, 72% of the attendees reported that the event helped to remove any objections they have had regarding video and cloud technology and 95% of the attendees reported that after the event they viewed TASER International as the technology company, not a weapons manufacturer.

This was a very important shift in perception in our opinion. We want to continue to be seen as a strong partner and a natural choice for agencies to partner with to implement the seismic changes coming to law enforcement in the future through cloud and wearable technologies.

Internationally the video business continues to pick up steam following the London Met pilot announced earlier this year. This pilot has spurred interest in several additional markets that look after the Met as a leader in international policing. Further the Brazilian market has now begun adopting our video and cloud products.

In quarter, we had received orders from two of the largest agencies in Brazil for initial deployments.

We extended our partnership with Amazon to have an instance of their data centers in Brazil as well Dublin so that we can be prepared to be evidence produced and the potential concerns that international customers may have about storing that data in the United States.

In addition to Amazon, we are also evaluating other partners with in-country data centers so that we will not be respected by data centre location in our sales process. Our team in the Netherlands continues to set up infrastructure to grow the international part of the business.

And we look forward to continuing to share their success in future quarters. We do anticipate that due to the large incremental little jump in Q2 that the third quarter video bookings will fall in the range somewhere between the first and second quarter levels.

One way to show why we are excited about the current video business is to look at one recent win. I was talking about San Diego. The San Diego was the major city that will ultimately pay TASER about $4 million over the next five years for the AXON and EVIDENCE.com solution.

If for example, they didn’t set upgraded their CEW weapon space X26 we will be recognizing approximately $1.6 million over the same five year period including cartridges, batteries, etcetera.

So the AXON and EVIDENCE.com deal creates a five year opportunity which is 2.5 times larger than the CEW opportunity and offers TASER the opportunity to close both of these types of deals.

Ten years of benefits in this deal as well they will be realizing a significant return on their investment and gain incremental IT capabilities by making EVIDENCE.com a core to critical systems of the city. This example truly exemplifies why we are so enthusiastic about the current opportunity in front of us.

Yes, we are investing for adjacent technologies and new revenue streams of the size of the present opportunity camera on every officer remains unanimous. The TASER Weapons business continues to execute and also showed strong results, delivering revenues that were up 7.9% to $32.7 million.

Gross margins continue to be extremely strong at 67.4% for the second quarter. Domestic weapon sales increased 9% year-over-year as well. Internationally while the revenues were a bit lower than the last two quarters which is a result of the lumpy nature of that segment, there were some great wins.

We received our first smart weapon sale in Canada following the approval that occurred in Ontario and the completion of a success evaluation of our smart weapon technology by a governmental study.

We believe these approvals have now cleared the way for an upgrade of a large install base of all the reference in Canada of more than 10,000 weapons which are right for an upgrade. We think this is a great indication of future international weapons growth.

We are also expecting approvals from several additional international markets in the coming quarters which will clear the way for further upgrades around the globe.

And finally, there were several international markets we are working on significant programs for new TASER weapon deployments, setting the stage for what we believe will be a record year in international sales. I would also like to provide an update on the highly successful telesales program we launched last year.

In short, this telesales team continues to do an outstanding job closing business with smaller law enforcement agencies in weapons and AXON and EVIDENCE.com. In the second quarter they booked approximately $9.7 million in new business. And we saw consistent quarterly growth every quarter since we launched the program.

The team is now up to 10 employees and we will be adding one or two more reps who will be focused solely on selling and renewing EVIDENCE.com. We wanted to share their success with investors to help you better understand and model our business.

Every quarter, we ship thousands of orders the large majority of them including those were telesales or small orders. And as we all know, small orders can add up very quickly, but they won’t be material in their own right.

These small orders will never get announced on the press release and with the telesales function growing and the smallest tier of the market procuring more TASER products that based on small orders looks different today than it did a year and a half ago.

We have heard some speculation in the marketplace about pending revenue levels in any quarter based upon adding up the orders announced in the press release. We don’t think this is a very accurate methodology.

We have continued and committed to updating the market on our material orders with each part of our business once a month, but caution that due to timing small orders and other factors such as some agencies requesting to refrain from public announcements that the approximation of revenues from these press releases is not a reliable way to estimate revenue performance.

Another positive event occurred during the quarter was the addition of the new board member. Bret Taylor, the former Chief Technology Officer of Facebook, the Co-Creator of Google Maps and currently the CEO of Quip joined TASER’s board in early June as a replacement for Dr.

Matt McBrady, who unfortunately had to leave our Board focused on his new position of Chief Investment Officer with (indiscernible) Investments. Bret’s background is founded in high-tech and he is widely seen as a thought leader in software and online technology.

We think that he will be a great contributor to driving our strategy around our cloud and wearables business. (indiscernible) sequential for joining TASER’s board was shortly after speaking with Hadi Partovi, another tech leader on our board.

We took his family on the trip to Disney Land and he saw an officer wearing an AXON Flex in the wild, which bolstered his hunch that TASER was going to be the leader in this space and it was something he wanted to help guide us as a board member. We have a great video with Bret on our EVIDENCE.com website.

If you want to learn more about him and his interest in TASER, you can find the link on Twitter now. In March 2013, the company held its first Analyst Day at the NASDAQ marketplace in New York.

At that time, we shared TASER’s five-year long-term financial projections for 2017 for both top line and operating results based on a number of underlying assumptions. Our business has evolved rapidly since March 2013.

We have seen increasing success in our international sales efforts as well as adoption of our video solutions, particularly by the largest agencies faster than anticipated. We continue to win the vast majority of our competitive bids on larger deals.

We also acquired the top notch software development team when we purchased Familiar in the fourth quarter of last year.

Because of the traction we are seeing the business as evidenced by the continued significant increases in EVIDENCE.com and AXON bookings, we have continued to expand our investment in marketing initiatives and customer facing roles to enter our ability to compete in the all new video camera and evidence management opportunities.

We have also continued our investments in research and development as we developed products and applications in adjacent technologies that will meet the needs of law enforcement. We have the goal of having a highly integrated platform, which offers capabilities that will fundamentally change how law enforcement agencies operate.

We feel that our current success is based on our full featured cameras as well as the best in the industry end-to-end solution, which not only captures events on video, but makes the management of digital evidence far easier and more effective thinking feeding solutions.

The success, we are seeing in large agencies and in international fronts also creates the opportunity to not only develop new features for our current products, but to launch adjacent products and services with significant additional long-term revenue opportunities.

We believe the investments we are making in R&D and sales and marketing will yield long-term results, but at a near and medium term impact the profitability. As a result, we no longer feel that investors should rely on the long-term financial projections we presented at the Analyst Day in March 2013.

The company plans by conducting an Analyst Day in future, where we may to take market on our long-term expectations as we gain more visibility on these new opportunities. We continue to be excited about the TASER and EVIDENCE.com and reported hearing more success in the coming quarters. Dan will now go over the financial results in greater detail..

Thank you, Rick. In the second quarter, consolidated sales are $37.2 million, a 15.5% increase from the second quarter of 2013. The increase in sales was primarily driven by our law enforcement weapons handle sales, which increased $2.5 million at the end of the second quarter compared to the prior year.

AXON cameras, EVIDENCE.com and TASER CAM sales also grew by $2.6 million to $4.5 million in the second quarter of 2014. Service revenues for the EVIDENCE.com & Video segment increased $0.6 million to $0.9 million in the second quarter compared to the prior year.

Including service revenues are approximately $83,000 in professional service revenue for implementation of our solution. These are generally one-time billing to – can introduce some lumpiness into the service revenue line.

The legacy X26 CEW declined $2.1 million in the second quarter as a result of the agencies embracing the new smart weapons platform. There are still some international and federal customers who are continuing to purchase the legacy X26 because it’s the only CEW that’s been approved for their market or application.

We are working with these customers to get them to review and refer the new smart weapons platform. And at the end of 2014, X26 will be going out of production. While we will support the warranty handles, we will be focused solely on the smart weapons platform going into 2015.

The new single-shot smart weapon, the X26P saw a sales increase of d 5.7 million over the second quarter of 2013, which is the main reason why the total handle sales grew by $2.5 million when compared to the prior year.

Gross margin for the second quarter was $23.2 million or 62.4% of revenue, which is up from $19.7 million or 61.4% in the prior year.

As sales have increased, we continue to benefit from higher operating leverage and due to price increases instituted in the beginning of 2014 as well as more sales being sold directly to the end user through our own distribution channels, we are seeing higher ASPs on our products also improving gross margin.

Although, service revenue increased quarter-over-quarter, the cost of service delivery actually decreased by $0.1 million in the second quarter compared to the prior year due to continued benefit of the completion of the depreciation related to capitalization of the EVIDENCE.com software development cost which was only $300,000 recorded previously.

Gross margins in the TASER weapons business were especially strong with gross margins as a percentage of revenue in the second quarter of 2014, up 67.4% compared to gross margins of 65.5% in the second quarter of 2013. In the EVIDENCE.com & Video segment, revenues increased $2.6 million to $4.5 million for the second quarter of 2014.

The loss from operations in EVIDENCE.com & Video segment worsened to $4.1 million from loss of $2.7 million in the second quarter of 2013 largely due to the increased investment in research and development activities as well as additional sales representatives and marketing expenses for the AXON and EVIDENCE.com products.

The good news is the investments in sales and marketing are yielding results. In the past 12 months, we have sold nearly four times the number of cameras as we did in the prior 12 month period. SG&A expenses were $13.5 million versus $10.9 million in the three months ended June 30, 2013. This represents an increase of $2.6 million or 23.8%.

As a percentage of net sales, SG&A expenses increased 36.4% for the second quarter of 2014 compared to 34% for the second quarter of 2013. Within this current quarter SG&A, there is approximately $2.2 million related to settlements of commercial litigation cases related to disagreements with two former distributors.

Excluding these settlement expenses, SG&A for the second quarter would have been $11.3 million or 30.5% of revenues, compared to the prior year personnel expenses increased by $0.4 million as the company has increased customer facing positions as well as some administrative functions.

Expenses also increased related to the TASER-hosted technology summits which take place promote law enforcement awareness, about recent developments in cloud technology in the past year. Increases were also seen in travel expenses as the company works to growth its international presence.

These increases are partially offset by lower spending on liability insurance, expert witness fees, and legal fees. We expect to see the elevated spend in SG&A continue through 2014 as initiatives to grow the top line internationally and EVIDENCE.com & Video segment are expected to continue and further infrastructure is put in place.

Research and development expenses were $3.5 million for the second quarter of 2014, an increase of approximately $1.5 million when compared to the second quarter of 2013.

The increase continues to be primarily driven by the additional personnel expense related to EVIDENCE.com & Video segment basically hiring developers in that segment of the business. And as the team begins development initiatives, expenses will be capitalized until the product launches.

However, given the newness of some of these initiatives, the company cannot be certain on the timing of the capitalization or the completion of the development projects as we – and we did not capitalize any development expenses in the second quarter of this year.

With the addition of the Familiar team as well as same hires in other research investments in EVIDENCE.com & Video segment, we continue to expect R&D expenses to increase from these levels.

We are finding that larger customers such as London Met required additional functionality to our EVIDENCE.com solution and while we are able to roll the step functionality out in more widespread basis of the future has delayed the start developing of some of the new initiatives we had in place.

We believe that ensuring that major cities utilizing our solution have the best experience possible continue to solidify our position in the market.

Adjusted EBITDA, which excludes certain items as detailed in our press release, was $9 million for the second quarter of 2014 compared to $9.5 million in the second quarter of 2013 with the decrease being driven by the higher R&D and SG&A expenses in 2014.

Income from operations were $6.2 million in the second quarter of 2014 compared to $6.8 million in the second quarter of 2013. Net income for the second quarter of 2014 was $3.9 million or $0.07 per diluted compared to net income of $4.5 million or $0.08 a diluted share in the prior year second quarter. As we move onto the balance sheet.

The company generated $1.7 million of operating cash flow, and we finished the quarter with $59.8 million in cash, cash equivalents and investments. Accounts receivable of $22.1 million were down about $0.4 million from the year balances due to timely collections.

Inventory finished the quarter at $50.1 million which is an increase of $4 million from the prior year end balances due to basically increased raw materials and finish goods anticipation of 2014 sales. Total assets at June 30, 2014 were $149.4 million.

The total deferred revenue of $24.4 million actually increased $3.9 million for the year end, primarily due to the upgrade program sales of the X26 and X2, which increases our sales extended warranties.

Sales of our AXON cameras and EVIDENCE.com solution also contributed $0.8 million of increase as we deferred revenue related to those sales and recognized it over the service life of those deals.

The – also contributed increase in the deferred revenue is the TASER insurance plan which has increased the balance from year end by $1.2 million as customers continue to embrace the program for both weapons and AXON cameras. The total liabilities of $37.9 million and the company’s finished the quarter with $110.5 million of stockholder equity.

The companies continues to have no long-term debt other than the capital lease and we continue to have the liquidity and strong cash flow engine for core business to fund sales, R&D efforts and operations in the future. As we move onto selected savings of cash flows.

The company had cash provided by operations of $6 million for the first six months of 2014. During the first six months, we did have number of settlements for related to litigation that ran through the cash. We had paid $4.5 million on the AA & Saba Consultants case versus TASER and additional $0.8 million on the Turner case.

So, there is – both of those cases were a large use of cash in the first half of the year. Net cash from investing activities for the six months ended June 30, 2014 was $14.4 million compared with cash used of $12 million in the same period of prior year.

The net cash – use of cash is driven by the net purchases of investments during this time period of $13.1 million. Cash used in financing activities was $7.9 million for the first six months, June 30, 2014 compared to cash used of $17.3 million in the same period last year.

The net use of cash is driven by repurchase of $19.6 million we are processing $1.5 million shares. Partially offset by the proceeds of stock option exercises of $7.4 million and excess tax benefits from stock-based compensation of $5.5 million.

As we stated in the last quarter, leaving more time to the Q&A portion on the call, we started including the unit sales statistics in this press release for your reference. To wrap up, we are continuing to invest in the business because we are serious about executing on our strategies and providing top-line double-digit growth consistently.

We feel these investments are necessary to continue to solidify position in the video business. Investigate and develop adjacent revenue producing opportunities that continue to grow internationally, so we can provide long-term value for our shareholders. And that will take – turn over to the questions.

We are now ready to take questions now with the operator instruction..

(Operator Instructions) And our first question comes from the line of Steve Dyer with Craig Hallum. Your line is now open. Please proceed with your question..

Good morning, Rick, good morning Dan..

Good morning..

Good morning..

If I could start in the weapons side of the business I am wondering if kind of the end of license sort of speak of the X26, are you seeing anecdotally did your – you’re seeing anything anecdotally but that’s helping sort of drive the change over the upgrade here.

Or do you anticipate that will like Q4, Q1 and actually it does happen?.

Yes, this is Rick. I would say I think we will see that we have greater impact as we get close to the end of the year. I don’t know if it’s had a major impact yet in the deals that we have been working until this point.

So it will be interesting to see how this plays out as we get towards the end of the year?.

Okay and then I noticed in your prepared remarks, you talked about how that’s the X26 is really all of it that is approved in a lot of places internationally, do you anticipate any kind of an air pocket a delay or do you think that they can move in time to keep that fairly continuous?.

We believe we have given sufficient lead time for most major customers, if not all of them to be able to get through the approval process. So we are pretty delighted that Canada sort of got through their approval process this quarter. And some of the other major markets internationally are looking at the issue right now.

So I certainly don’t expect to see any air pockets of significance..

Okay.

On the video side, I am wondering if not the pure number, if there is any way that you can quantify kind of the number of users that you have on-boarded on to the recurring system, whether it’s quarter-over-quarter or year-over-year, just to get some sense I mean you can kind of see how the service revenue is trending, but anyway of kind of being able to see that would be helpful, anything there?.

I think the best example you will see there is the chart which we had earlier showing system wide usage.

We thought that was a good indicator to go and share with investors, Dan do you want to answer about users?.

I think you are right I think that’s probably the best metric we can share at this point. I think it shows the fact that it’s not only, I think what’s really important while it’s not only we are selling customers on this solution, but they are actively using it.

So when we see almost 950,000 files uploaded in a quarter, obviously this is a solution that’s adding value for those customers. And they are utilizing it..

Okay.

And can you remind me roughly how big San Diego was in terms of bookings in the quarter?.

Yes, just it’s roughly $4 million for the quarter..

Okay.

So you still saw some pretty impressive momentum outside of that one large order?.

That’s correct..

Okay.

And then last software question, when would you anticipate we could see kind of some revenue from an adjacent software product, is that a ’14 thing or is that start of next year?.

I think its start of next year at this point..

Okay.

And then one last question just as it relates to the operating expenses, I am assuming at least as we think about it today that all of the legal settlements are sort of behind us, so if you back that and you call it kind of $15 million or so OpEx run rate, I mean is that a good run rate to use with a little bit of growth each quarter or is there a step up here whether it be for video or telesales or anything that’s material that would raise it from that number?.

Yes. I mean I think it’s good, obviously the settlements have been – had a material impact on expenses this quarter.

So because they will sort of use the on a normalized basis to sort of back that out, but on a go forward basis we are going to continue to ramp our SG&A costs as we add sales people for coverage both to grow the video business as well as international. I think we are seeing that there is a large opportunity internationally.

We probably underinvested historically. And I think we are addressing that by putting more people in market to assist our distributors to drive that part of the business.

And then in the U.S., the fact that we have only lost one competitive situation in last year it tells us that when we have visibility of the deals and can participate we have got a great solution, but we need to make sure we are standing in front of those customers and things aren’t going to other vendors because we are not aware of it.

So we are going to continue to invest pretty happily to grow both the international as well as the video sales.

And in our R&D, we are going to continue to look for top caliber people because we think we have got a long-term platform play here and want to make sure that – I think what we have seen in this quarter because we are seeing just the traction we get in the business.

I think it’s giving us the confidence that we wanted to execute a number of the strategies at the same time versus doing sequentially. So I think you will see both the ramp in both the SG&A and R&D expenses..

Are you able to quantify the magnitude at all Dan I mean are we talking $1 million a quarter for the next couple of quarters or less I mean just I guess some sense of magnitude?.

Yes. I mean I think it’s going to depend on how fast we find good people. It’s got a high bar on hiring here.

So I think it can certainly be sort of the upper end of that range on a quarterly kind of increase each quarter, but its going to depend on how fast we find good people, but we are definitely – we see a big opportunity here when we continue to expand our investments both on the SG&A and the R&D side..

Okay, I will hop back in queue. Thanks guys..

Thanks, Steve..

Thank you. Our next question comes from the line of Greg McKinley with Dougherty. Your line is now open. Please proceed with your question..

Yes, thank you. I guess, I wanted to just make sure I understood a little bit context, Rick, you made the comment that you are not really seeing investors in the longer period of reliance or that, I think you had base case, ball case and bare case scenario from the Analyst Day.

What are the maybe puts and takes around that comment? Is it where are you seeing the differences in those potential scenarios and why that changed?.

Well, I would – and I will let Dan give a little color after my initial comment here. We certainly is mostly around the expense level, I would say, in the video business.

We could still manage the business to hit those ranges, but we would come to conclusion that’s not the optimal strategy for the business that we believe we are more likely than not going to be investing more heavily, particularly again for the reasons of there is a lot of additional work to winning these big agencies.

We have got a lot of additional requirements. And then internationally, there is some additional cost of complexity both around sales support and having to deploy internationally in some cases outside of the Amazon ecosystem, which means there is more engineering to be done to make that work..

Okay..

But those are the right things to do for the business. So, I would say, we, in general, believe the opportunity is greater than it was 18 months ago, the leases coming into focus as we are seeing more success.

But we believe the right thing for the business will likely be to invest at higher levels, not only in existing business that exists today, but also in some of these agencies, one of the great things about EVIDENCE.com frankly compared to our TASER Weapons business.

From the TASER Weapon business, it’s not as clear what are the revenue streams around the weapons, whereas with the software once we are in EVIDENCE.com, there is a whole host of additional extensions and we believe it becomes each sale becomes easier to the agencies, we can opt for more integrated services on one platform.

And so investing in those opportunities to grow the overall size of business, we believe this is the right strategy and so we thought it was appropriate to share that with investors at this point.

Dan, do you have any other color you would want to add?.

I think that’s right. I think we are – I think the – maybe ironic part is I think it’s because we are – this business is, we are getting tractions faster, especially with larger agencies, typically larger agencies can be a little bit slower to move to a new technology.

We have seen an offset with video cameras and I think that’s encouraged us to make bigger investments and as a result we think sort of the profit targets we laid out, we don’t want sort of people to rely on those numbers, we don’t want to sort of be hamstrung with the investments we are making to feel what we think will be a very successful business in the video as well as growing the international part of the CEW business..

Okay, that’s helpful. Thank you. And then yes, I wonder if you can talk about how you are viewing the domestic market right now, I think you indicated domestic weapon sales were up about 9% year-over-year in the first – in the second quarter, sorry, obviously continue to get it older and older installed base.

Sequentially, things are maybe flat from Q1 to Q2, any color you can give us on how you view that incremental agency upgrading versus what might have been the case, I don’t know three, six, nine months ago?.

This is Dan. I think we continue to feel very good about our business there. I think that’s certainly a large installed base. We think that we are going to continue to message to customers that the fact that we think the most appropriate thing for them to do is to proactively replace their TASERs before they break and replace them.

We think we have got attractive upgrade programs in place still to drive them. So, I think the good news from my perspective is that regardless of whether so many things to five years is the appropriate useful life or it’s six or seven eventually all weapons get to that age.

And the upgrade opportunity in front of us continues to grow at this point I would say that we are continuing to see that total opportunity actually grow faster, because we are probably upgrading less units in the year versus how many units hit that 5-year mark..

Yes..

So – and I think we talked a little bit earlier, I think the X26 going end of life, I think will help, we saw that with the M26, I think sometimes it gave us our agencies little bit of political cover that can go back to their city councils and command staff and say hey, the product we have is it even supported by the manufacturer anymore.

And I think that, that can help to drive it. So, we hope that as we go into next year that, that’s one more thing that sort of helps. But the domestic CEW business is pretty much where we expected to be. I think that we had a couple of years of significant growth as the upgrade started.

And I think that I think the significant growth as we go forward from this point is going to be driven by the international expansion, but the U.S. business continues to be a solid base to build the both international strategy on top of as well as the video strategy..

Okay, thank you.

And then Rick you mentioned $9.7 million of revenue is generated from telesales, I have heard you guys mentioned numbers in the past anywhere from sort of that $3 million to $5 million range, can you give us the sense where that was maybe a year ago, so we understand how quickly that’s growing?.

Yes, I don’t have the numbers in front of me as I sit here. I can tell you it’s been pretty consistent upward trajectory every quarter in a fairly linear fashion since we first launched telesales..

Okay..

Dan, do you have the numbers handy to give a little more color on that?.

Yes, it’s up $5 million..

Okay..

So, yes we have seen as Rick said that’s been pretty consistent growth engine for us. I think that they encouraged us me, I think part of it, I think some of this is actually wide space growth.

I think dealing with some of these smaller customers are probably underserved by ourselves as well as our distributors and now it’s calling on them, explaining the product, I think we are helping to expand the use of the weapons from maybe predecessors only at the supervisor level, because of the amount of sort of current feeding we can give these customers, I think we are helping to grow to patrol issue product versus maybe something there is only at the supervisor.

So, I think that’s helping with their growth as well..

Great. And then just last two questions, you shared some comments seven major city deployments, but I think you also shared how many major cities are testing? And then could you also just revisit Brazil for a moment, what are you doing differently with AXON and EVIDENCE.com down there than you are in the U.S.? Thank you..

Yes. So, we have 7 of the major cities that are in what we would call active deployments at some sort of scale. I believe we have another 3 major agencies that are in effectively paid trials.

And then we have got around another 10 that are in some form of either a free trial or active discussions, whether it’s RFPs and other indications that they are in an active purchasing cycle..

Okay.

And then what were your comments regarding Brazil?.

So, in Brazil, in your question specifically was what’s different in Brazil than in the U.S.?.

Yes..

Well, number one, virtually every international market wants their data stored outside of the United States due to Patriot Act issues. So, in Brazil, we have setup and we are running on in-country servers within the Amazon ecosystem and of course the entire solution had to be ported or translated into Portuguese.

So, those are the primary differences and then of course we have been hiring and deploying sales and support staff down in Brazil to support the AXON and EVIDENCE.com solution..

Okay, thank you..

Thank you..

Thank you. And with that, speakers, I am not showing any further questions in the queue..

So at this point, I am going to take a question that came in from Twitter and I believe it’s from (indiscernible) now the prices for body and flex have increased since the beginning of July, is that a sign of confidence in the market space? Well, the early adopter in leaders’ pricing programs has been very successful in rewarding agencies that won additional financial incentives to realize the benefits of body-worn video.

We actually announced the pricing would be at its lowest levels initially and then would slowly increase over time to more normal levels. And that was intended to really help reward those agencies that move first. It took a leadership position, which is why we called it the leaders’ pricing promotion.

There will be I believe one or two more pricing step ups in the future. So, there are still incentives for people to continue to move more expeditiously. So, as bookings ramp in the number of large agency wins and deployments are showing that we believe this state is moving from sort of the early adopters into the mainstream.

So, with that, I think we are going to ahead and wrap up the call for today, certainly continue to contact us through ir@taser.com or through Twitter etcetera.

Obviously, we are very excited about the progress that we are making particularly in AXON and EVIDENCE.com and I would refer you back again, those of you that track tech companies probably the most important factor you would want to look at is user adoption and we tweeted out the curve there showing utilization of the system, which again is pretty rewarding for us to see our customers are continuing to accelerate their utilization of what we have built.

We look forward to joining you all again in another few months to report on our third quarter. And again, we like to thank our shareholders for your patience over the years as we have invested heavily to build out this new business segment. It’s really exciting to see it crossing over to the mainstream.

With that, everybody have a great day and thanks for joining us..

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Have a good day everyone..