Axon Enterprise Inc (AXON) 2014 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2014 TASER International earnings conference call.

(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'm 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, including statements regarding our expectations, beliefs, intentions, or strategies regarding the future, including statements around projected spending. We intend that such forward-looking statements be subject to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995.

The forward-looking information is based on current information and expectations regarding TASER International Incorporated. These estimates and statements speak only as to 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 these filings, as well as our other SEC filings, on our website, www.taser.com.

With that, I'll turn it back over to Rick.

Thank you, Dan. As a reminder to everyone on the call we're going to be accepting some questions via Twitter during the Q&A portion, which can be submitted using the hashtag #TASR_Earnings. To follow our updates on Twitter during the call, follow the account @TASER_IR, that's at TASER_IR. We'll be posting graphics and commentaries 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 for 2014 was a busy one for TASER and I'm personally excited to share some of the progress and milestones that we had during the q7arter. First of consolidated revenue grew 15 and a half percent year over year to $37.2 million on a consolidated basis. This marks the 10th consecutive of year over year top line double digit growth.

We continue to work hard. We'll gradually grow the top line and are eager to continue to share our progress and successes throughout the remainder of the year. Traction ion the Evidence.com and 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 top three quarters in the five to six million dollar range.

There were several major city wins this quarter that contributed to this level of bookings growth including the Winston Salem Police Department, the [Stotsenberg] County Sherriff's office and the San Diego Police Department. Out of the 72 major cities we now have active deployments in seven cities with three more currently in paid trials and roughly another 10 in some form of pilot or active discussion.

We continue to win the competitive deals 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 out 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 the 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 roll out of our solution in particular go smoothly.

Because of this and our continued marketing efforts we are seeing continued positive indicators for the business. We're also finding that the usage of our EVIDENCE.com solution is growing exponentially. In the second quarter we saw approximately 950 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 and the tweet we just sent out. We're 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 in [wearables] surpass those for weapons this quarter. Further, initial survey results from our technology summit attendees shows that these stock provoking events are paying off.

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

This is a very important shift in perception in our opinion. We want to continue to be seen as a thought partner and a natural choice for agencies to partner with to implement the (sident) changes coming to law enforcement in the future through quality 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 and look up to the [met] as a leader in international policing. Further, the Brazilian market has now began adopting our video and cloud process. In the quarter, we have received orders from two of the largest agencies in Brazil for initial deployments. We standard our partnership with Amazon to have an incidence of their data centers in Brazil as well as Dublin so that we can prepared for the evidence produced ant 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 within country data centers so that we will not be restricted by data center location in our sales process. Our team in the Netherlands continue to set up the infrastructure to grow the international part of the business and we look forward to continue to see their success in future quarters.

We do anticipate that due to the large incremental 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're excited about the current video business is to look at one recent win. Let's talk about San Diego. So San Diego is a major city that will ultimately pay TASER about $4 million over the next five years for the AXON and EVIDENCE.com solutions.

If for example they instead upgraded their CEW weapons based at 2016 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 that's two and a half times larger than the CEW opportunity.

And, now of course TASER is the opportunity to close both of these types of deals. San Diego benefits are in this deal as well as they will realize the significant return on their investment and gain incremental IT capabilities by making EVIDENCE.com a core and critical system to the city. This example truly exemplifies whey we're so enthusiastic about the current opportunity in front of us.

Yes, we are investing for adjacent technologies and new revenue streams but the size of the present opportunity, a camera on every office remains immense. The TASER weapons continues to execute and also shows strong results delivering revenues that we're up 7.9 percent to $32.7 million. Growth margins continue to be extremely strong at 67.4 percent the second quarter.

Domestic weapon sales increase 9 percent year over year as well. Internationally, while the revenues were a bit lower than the last quarter 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 all in the approval that occurred in Ontario and the completion of a successful evaluation of our smart weapon technology by our governmental studies.

We believe these approvals have now cleared the way for an upgrade of the large installed base of older weapon in Canada of m ore 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 for several additional international markets in the coming quarters which will clear the way for further upgrades around the globe.

And, finally there are several international markets we are working on significant programs for new TASER weapon deployment, secondary stage to what we believe will be a record leader in international sales. I'd also like to provide an update on the highly successful telesales program we launched last year. In short, the 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, the booked approximately $9.7 million in new business and they saw consistent quarterly growth every quarter since we launched the program. The team is now of 10 employees and we'll 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 for telesales are smaller ones. And, as we all know the smaller orders can add up very quickly but they won't be material in their own right. The smaller orders will never get announced on a press release and with the telesales function growing and the smallest tier of the market procuring more TASER products that (bases) smaller orders looking different today than it did a year and a half ago.

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

Another positive event that occurred during the quarter was the addition of a new board member. [Bret Taylor] is a 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 replaced for Dr. [Mark McGrady] who unfortunately had to leave our board to focus on his new position of Chief Investment Officer with Blackrock Investments.

[Bret]'s background is found in high-tech and is widely seen as a thought leader in software and online technology. We think he will be a great contributor to driving our strategy around our cloud and [wearable]'s business. [Bret] told us the clincher for him of joining TASER's board was shortly after speaking with [Hoti Patel], our Tech Leader on our board, he took his family on a trip to Disneyland 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 phase and it was something that he wanted to help guide us 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 and you can find the link on Twitter now. In March 2013, the company held it's 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've seen increasing success in our international sales effort 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 a top notch software development team where we purchased [Familiar] in the fourth quarter of last year.

And, because of attraction we're seeing in the business as evidenced by the continued significant increases in EVIDENCE.com and AXON bookings, we continue to expand our investment in marketing initiatives and customer facing roles to enhance our ability to compete in the all new video, camera and evidence management opportunities.

We have also continued with our investments in research and development as we develop products and applications in adjacent technologies that will meet 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 whole feature cameras as well best in the industry and a solution which not only captures events on video but makes the management of digital evidence easier and more effective than competing solutions.

The success we're seeing in large agencies and the international crowds 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 that we're making in R&D and sales marketing will yield long term results but at a near and medium term impact to probability.

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 on conducting an analyst day in the future where we may update the market on our long term expectations as we gain more visibility on these new opportunities. We continue to be excited about the direction of the TASER and EVIDENCE.com and look forward to sharing more success on 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 percent increase from the second quarter of 2013. The increase in sales is 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 and a half million in the second quarter of 2014.

Service revenues for the EVIDENCE.com and video segment increased $6.6 million to $0.9 million in the second quarter compared to the prior year. Included in service revenues are approximately $83,000 in professional service revenue for implementation of our solution. This is a generally one time billing. It can introduce some [locked into] the service revenue line.

The legacy X26CW 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 continue to purchase the legacy X26 because it's only the CW that's been approved for their market or application. We're working with these customers to get them to review and approve the new smart weapons' platform and at the end of 2014 the X26 will be going out of production but we will support the warranty handles will be focused solely on the smart weapons platform going into 2015.

The new single shot smart weapon the X26, saw a sales increase $5.7 million over the second quarter over the second quarter of 2013 which is the main reason why the total handle sales grew by $2 and a half million when compared to the prior year. Gross margin for the second quarter was $23.2 million, our 62.4 percent of revenue which is up from 19.7 million or 61.4 percent in the prior year.

As sales have increased for a continued 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 distribution channels we're seeing higher SPs on our products also improve in gross margin. Although service revenue increase quarter to quarter the cost to service delivery actually decreased by $0.1 million in the second quarter compared to the prior year due to the continued benefit of the completion of the depreciation related to capitalization of the EVIDENCE.com software development cost which was only $300,000 a quarter previously.

Gross margins in the TASER weapons business were especially strong with gross margins as percentage of revenue in the second quarter of 2014 of 67.4 percent compared to gross margins of 65.6 percent in the second quarter of 2013. In the EVIDENCE.com video segment, revenues increased $2.6 million to $4 and a half million dollars for the second quarter of 2014.

The loss from operations in the EVIDENCE.com video segment worsened to $4.1 million from the last $2.7 million in the second quarter of 2013 largely due to the increased investment and research development activity as well as additional sales representatives and market 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've 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 30th 2013. This represents an increase of $2.6 million or 23.8 percent. As percentage in that sales actually in excess has increased to 36.4 percent for the second quarter of 2014 compared to 34 percent for the second quarter of 2013.

Within this current quarter SG&A, there's approximately $0.2 million relating to settlements of commercial litigation cases. They're related to disagreements with two former distributors. Excluding these (inaudible) expenses SG&A for the second quarter would have been $11.3 million or 30.5 revenues. Compared to the prior year, personal expenses increased by$0.4 million as the company has increased customer facing positions as well as some administrative functions.

Expenses also increase related to the TASER hosted technology summits which take place to promote law enforcement awareness about recent developments in cloud technology in the past year. Increases were also seen in travel expenses as the company wants to grow 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 and SG&A continue through to 2014 as initiatives to grow the top line internationally and EVIDENCE.com and video segment are expected to continue and further infrastructure is put in place. Research and development expense were $3.5 million for the second quarter of 2014, an increase of approximately $1 and half million when compared to the second quarter of 2013.

The Increase continues to be primarily driven by the additional personal expense related to EVIDENCE.com and video segment basically hiring of developers in that segment of business and as the team begins development initiatives expenses will be capitalized until the product launches. Given the newness of some of these initiatives the company cannot be certain of the timing of the capitalization of the completion of the development projects.

And we did not capitalize any development expenses in the second quarter of this year. With addition of the [Familiar] tem as well as planned hires and other research investments in EVIDENCE.com and video segment, we continue to expect already expenses to increase from these levels. We're finding that larger customers such as [Wandumet] require additional functionality to our EVIDENCE.com solution.

While we're able to roll this functionality out in a more widespread basis in the future has delayed the start of development of some of the initiatives we had in place. We believe that ensuring that major cities utilize in our solution and have the best experience possible continue to solidify our position in the market. Adjusted EBITDA which excludes certain items that detail our press release was $9 million for the second quarter of 2014 compared to $9 and a half million in the second quarter of 2013 with the decrease being driven by the high 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. And, then net income for the second quarter of 2014 was $3.9 million or 7 cents per diluted share compared to a net income of $4.5 million or 8 cents of diluted share in the prior year to second quarter. As we move on to the balance sheet the company generated $1.7 million of operated 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 end balances due to the [survey collections]. Inventory finished the quarter at $15.1 million which is an increase of $4 million from the prior end year balances due to basically increase of raw materials and finished goods in anticipation of 2014 sales. Total assets at June 30th 2014 were $149.4 million.

The total deferred revenue of $24.4 million actually increased $3.9 million from the year end primarily due to the upgrade program sales of the X26 and X2 which increases our sales of extended warranties. Sales over AXON cameras and EVIDENCE.com solutions also continue $0.8 million to the increase as we defer revenue related to those sales and recognize it over the service life of those deals.

The also contributing the increase in the deferred revenue is the TASER assurance 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 are $30 not $7.9 million and the company finished the quarter with $110.5 million in stockholder equity.

The company continues to have no long term debt other than capital lease and continue to have a liquidity and strong cash flow engine for our core business to fund sales R&D efforts and operations in the future. As we move on to the selected statements 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 a number of settlements for - related to the litigation. They run through - run through the cash. We paid $4 and a half million on the AA [Insaba] consultant case versus TASER, an additional $0.8 million on the Turner case. So, both of those cases are a large use of cash in the first half of the year. Net cash for investing activities for the six months ended June 30th 2014 was $14.4 million compared to cash use to $12 million in the same period in the prior year.

The net cash, use of cash was driven by the net purchase of investments during this time period of $13.1 million. Cash use and financing activities were $7.9 million for the first six months of June 30th 2014 compared to cash use of $17.3 million in the same period last year. The net use of cash was driven by the repurchase of $19.6 million for processing 1.5 million shares partially offset by the proceeds of stock option exercises of $7.4 million and the excess tax benefit from stock base compensation of $5.5 million.

As we stated in the last quarter to leave more time for the Q&A portion of the call we have started including unit sale statistics in the press release for your reference.

To wrap up we continue to invest in the business because we are serious about executing on our strategy and providing top line double digit growth consistently. We feel these investments are necessary to continue to solidify our position in the video business, investigate and develop adjacent revenue producing opportunities and continue to grow internationally so we can drive launching value for our shareholders.

And, that will take - turn over to the questions. We are ready to take questions now with the operator's instruction.

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

If I could start in the weapon side of the business and wondering if kind of the end of lifing so to speak of the X26 are you seeing anecdotally that you are - are you see anything anecdotally that that's helping sort of drive the change over the upgrade here or do you anticipate that it will like you know as Q4 or Q1 when it actually does happen?

This is Rick. I would say, I think we'll see that have a greater impact as we get closer to the end of the year. I don't know that it's you know had a major impact yet, in the deals that we have been working up until this point. So, it will be interesting to see how this plays out as we get towards the end of the year.

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

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

So, I certainly don't expect don't expect to see any air pockets you know of significance.

OK, on the video side I'm wondering, you know if not the pure number if there's any way that you can quantify kind of the number of users that you've on-boarded on to the - on to the recurring system, you know 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, any way of kind of being able to see that would be helpful, anything there?

I think the best example that you'll see there is the chart we [slid] out earlier showing system wide usage. We thought that that was a good imitator we want to share with investors. Dan, do you want to answer about the users?

No, I think you're right; I'd agree with that. I think that's probably the best metric we can share at this point. I think it shows the, you know the fact that not only, I think what's really important about it is not only are we selling customers on the solution but they're actively using it. So, when we see almost not 950,000 files uploaded in the quarter, obviously this is solution that's adding value to those customers and they're - and they're utilizing it.

Okay, and can you remind me roughly how big San Diego was in terms of bookings in the quarter?

Just, it's roughly $4 million for the quarter.

OK, so you still saw some pretty - some pretty impressive momentum outside of that one larger order?

That's correct.

Okay, and then last offer question, when would anticipate we could see kind of some revenue from an adjacent software product? Is that a 14 thing or is that best thought of next year?

I think that's best thought of next year at this point.

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

Yes, I mean I think it's good. You know, I mean obviously the settlements have been, you know had a material impact on the expense this quarter so you know sort it'd be good if you sort of use the, on a normalized basis to sort of back that out. But, on a go for basis we're going to continue to ramp our SG&A cost as we add sales people for our coverage both to grow the video business as well as international.

I think we're seeing that there's a large opportunity internationally. We probably underinvested it historically and I think we're addressing that by putting more people in the market to assist their distributors to drive that part of the business. And, then in U.S. you know the fact that we've only lost one competitive situation in the last year, tells us that when we you know have visibility of the deals and can participate, we've got a great solution.

But, we need to make sure we're standing in front of those customers and things aren't going to other vendors because we're not aware of it. So, we're going to continue to invest pretty heavily to grow both the international as well as the video sales. And, then R&D we're going to continue to look for top caliber people because we think we've got a long term platform play here and want to make sure that, you know I think what we see in this core because we're seeing, just the traction here in the business, I think it's given us the confidence that we wanted to execute a number of the strategies you know at the same time versus doing sequentially.

So I think you'll see both the ramp and both yesterday in R&D expenses.

Are you able to quantify the magnitude at all Dan? I mean are we talking you know a million bucks a quarter for the next couple of quarters or less or 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. We've got a high bar on hiring here so you know I think it could certainly be the, you know sort of the upper end of that range on a quarterly kind of increase each quarter but it's going to depend on how fast we find good people. But, we're definitely - you know, we see a big opportunity here and we continue to expand our investors both on the SG&A and the R&D side.

Okay, I will hope back in queue, thanks guys.

All right, thanks Steve.

Greg McKinley, Dougherty.

Yes, thank you. I guess I wanted to just make sure I understood a little bit context. Rick, you made the comment that we should - you're not really seeing it. Investors should no longer purely rely on sort of 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 the change?

Well, I would - I don't know Dan, you recall from my initial comment here, you know we certainly - it's mostly around the expense level I would say in the - in the video (inaudible) business, we could still manage the business to hit those ranges but we come to the conclusion that's not the optimal strategy for the business. That, we believe we're more likely but not going to be investing you know more heavily particularly again for the reasons of - there's a lot of additional work to wining big agencies.

We've got a lot of additional requirements and then internationally there are some additional costs and complexity both around skill support and having to deploy internationally in some cases outside on the Amazon ecosystem which means there's more engineering to be done to make that work. Possibly, 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 and the lease is coming into focus as we're seeing more success but we believe the right thing for the business will likely be to invest at higher levels. Not only in the 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 is not as clear, what are the adjacent revenue streams around the weapons.

Whereas with the software a (inaudible) on EVIDENCE.com, there's a whole host of additional extensions and we believe it becomes, you know each sales becomes easier to the agencies. We can offer more integrated services on one platform. And, so investing in those opportunities to grow the overall size on the business we believe is the right strategy. And, so we thought it was appropriate to share it out with investors at this point. Dan, do you have any other comments you would want to add?

I think that's right. I think it's - I think you know we're, I think the, you know maybe ironic part is I think it's because we're, you know this business is - we're getting traction faster especially with larger agencies. Typically, larger agencies can be a little bit slower to move to the new technology. We've seen the offset with video cameras and I think that's encouraged us to make bigger investments.

And, the 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're making to build what we think will be a very successful business in the video as well as growing the international part of the CW business.

Okay, that's helpful thank you. And, then yes, I wonder if you can talk about how you're viewing the domestic market right now. I think you indicated domestic weapon sales were up what 9 percent year over year in the first - in the second quarter sorry. You know, they obviously continue to get an older and older installed base. You know sequentially things are maybe flat from Q1 to Q2.

Any comment 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?

You know - you know this is Dan. I think we continue to feel very good about our business there. I think that, you know strongly a large installed base, we think that you know we're going to continue the message to customers, 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've got attractive upgrade programs in place still to drive them. So I think - you know, I think the good news from my perspective is that regardless of whatever some may think that five years is the appropriate useful life or it's six or seven, eventually all weapons get to that age. And, you know the upgrade opportunity in front of us, you know continues to grow.

At this point, I would say that we're continuing to see that total opportunity actually grow faster because we've probably upgrading less units in the year versus how many units hit that five year mark. So, you know and I think - you know we talked about this earlier. You know I think the useful - you know the X26 going into life I think will help.

We saw that with the M26. I think sometimes it gives our agencies a little bit of political cover that can go back to their city capitals and (inaudible) and say that the product we have isn't even supported by the manufacturer anymore and I think that that can help to drive it. So, you know we hope that as we go in the next year that, you know that's one more thing that sort of helps.

But, you know the domestic CW business is pretty much where we're expected to be. You know I think that, you know we had a couple of years to significant growth as the upgrade started and I think that - you know I think that significant growth as we go forward from this point is going to be driven by the international expansion. And - but the U.S. business continues to be a solid base to build the, both the international strategy on top of as well as the video strategy.

Okay, thank you and then Rick you mentioned $9.7 million of revenues generated from telesales. I've heard you guys mention numbers in the past anywhere from sort of that $3 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 a pretty consistent upward trajectory, you know every quarter in a fairly linear fashion since we first launched telesales. Dan, do you have the numbers handy to give a little more color on that?

Yes, about five million. So we've seen - yes, we've seen as Rick said, you know that's been a pretty consistent growth engine for us. I think the thing that encourages me is I think part of it, I think some of this is actually white space growth. I think you know dealing with some of these smaller customers who are probably underserved by ourselves as well as our distributors and now calling on them explaining the product.

I think we're helping to expand the use of the weapons from maybe previously it was only at the supervisor level and because of the amounts we're currently feeling we can give these customers, I think we're helping to grow to a patrol issue product versus maybe stuff that's only at the supervisor. So, I think that's helping with the 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 the - so we are seven of the major cities that are in what we call you know active deployments at some point of scale. I believe we have another three major agencies that are in effectively paid trials. And, then we've got around another 10 that are in some form of either a free trial or you know, active discussions where there's RFPs and other indications that they're in an active purchasing cycle.

Okay, and then what were your comments regarding Brazil?

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

Yes.

Well, number one, you know virtually every international market wants their data stored outside the United States due to Patriot Act issues. So, in Brazil we have set up and we're running in inventory servers within the Amazon ecosystem and of course the entire solution had to imported or translated into Portuguese. So, those are the primary differences and then of course, you know we've been hiring and deploying sales in support staff, you know down in Brazil to support the AXON and EVIDENCE.com solutions.

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'm going to take a question that came in from Twitter and I believe it's from [August Berman] asks, Now, the pricing promos have increased since the beginning of July. Is that a sign of confidence in the market space? Well, the earlier adopter in leading-pricing programs have been very successful in rewarding the agencies wanting additional financial incentives to realize the benefits of (inaudible) video.

You know, we actually announced the pricing would be you know 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 moved first, 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's still incentive for people to continue to move you know more expeditiously.

So, as bookings ramp the number of large agency wins and deployments are showing that we believe the state is moving from sort of the early doctors into the mainstream. So, with that I think we're going to wrap up the call for today. Certainly, you can continue to contact us through ir@Taser.com or through Twitter etcetera. Obviously we're very excited about the progress that we're making particularly in AXON and EVIDENCE.com. I would refer you back again.

Those of you that (inaudible) tech companies is probably the most important factor you would look at with user adoption and we tweeted 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 built. We look forward to joining you all again in another few months to report on our third quarter.

And, again we'd like to thank our shareholders for your patience over the years as we've invested heavily to build out all these new business segment. It's really exciting to see it's crossing over 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.