Good day ladies and gentlemen, and welcome to the TASER International Inc. Q2 2013 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions to follow at that time. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to introduce your host for today, Mr. Rick Smith, CEO; you may begin.

Thank you and good morning to everyone. Welcome to our second quarter of 2013 earnings conference call. Before we get started, I am going to turn the call over to Dan Behrendt, our CFO to read the Safe Harbor statement.

Thank you. Today’s call will include forward-looking statements including statements regarding our expectations, beliefs, intentions or strategies regarding the future. 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 they are made, and 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 risk and uncertainties that could cause our actual results to differ materially. These risks are discussed in the press release which we issued today in a greater detail in our Annual Report on Form 10-K for the year ended December 31, 2012 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.

Great. Thanks Dan. As a reminder we are going to accepting some questions today with the twitter during the Q&A portion of the call. And you can submit your questions using the hash tag TASR_EARNINGS, and to follow our updates on twitter during the call in general, just follow our account at the app sign TASER_IR, again that’ app TASER spelled out not the ticker symbol. So add TASER_IR. And we will be posting some graphics and commentary during the call. So I am proud to be kicking off another earnings call to discuss results of the hard work the team here at TASER International has been doing. Sales for the second quarter were $32.2 million, which is the second highest quarter of sales in the company’s history on a consolidated basis. Even more impressive is the fact that this is the sixth quarter of consecutive growth year-over-year for topline and double digit growth. Our three growth pillars, the weapons upgrade cycle, the international expansion and the on-officer video opportunity continued in position as for strong growth moving forward. Specifically out CEW segment, the Weapon segment, delivered revenues that were up 12.4%, to $30.3 million year-over-year. And our Video segments grew 47.4% to $1.9 million compared to last year second quarter. In addition our international business made up about 15% of sales in the quarter so we do continue to invest in our (inaudible) as Dan will touch on later in the call. Now before moving to more details about the quarter’s result, I would like to spend a few minutes on a significant strategic move we announced this morning; the introduction of an industry leading body camera called Axon Body at a disruptive price point under $300. We have identified three market segments for on-officer video. The first segment…

Thank you, Rick. As we mentioned earlier in the second quarter consolidated sales were $32.2 million, a 14% increase from the second quarter of 2012. The increase in sales were primarily driven by the continued option of the X26 Taser smart weapon which contribute $4.6 million in sales respectively in the second quarter. Cartridge sales also saw a significant increase year-over-year due to the increase in the conducted electrical weapons business as well as several distributor stocking order received during the quarter. Sales of our legacy X26 declined 1.7 million for the second quarter of ’13 when compared to the prior years as customers are embracing the new smart weapon platform. As Rick mentioned, as of June 30, 2013 we have upgraded approximately 12% of our installed base of units over five years old and we still feel we have a large opportunity in front of us. In fact our current calculation is roughly $400 million potential upgrades still to be had in the market. Gross margins for the second quarter of $19.7 million or 61.4% of revenue which is up from 58.5% in the prior year. As sales have increased with continue benefit from higher operating leverage within the cost of sold as well as the cost of the service delivered lines, there are number of fixed cost in both segments of the business, so as we generate higher sales, we do leverage those fixed cost and increase gross margin. We have also seen a $532,000 decrease in the cost of service delivered due to lower cost structure of a public filed versus in the prior year we are still operating out of our own data center. We are also seeing the benefit from higher selling prices and this quarter versus a same quarter of last quarter which is…

With that Dan, do you want to start first with the questions from the line? Okay, long term's start on the line and then we'll go to the Twitter questions.

(Operator Instructions). The first question is from Paul Coster of JPMorgan, your line is open.

This is Mark Straus on for Paul. I guess it still might be a bit too early to really have any really useful data. But the free evidence.com users that have passed their one year anniversary. Do you have any churn metrics that you are able to share?

I would say that it is pretty early in the game, I think the one thing that we can, what we have seen so far is the people, we do moderate usage on the system, people who are actively using the system throughout their first year of free products are renewing. So we're encouraged by that. So we'll continue to watch that closely. And we just don't have that big a universe yet. But I think so far people who are using the system are renewing it. So that's it, I think that also sort of supports the strategy the account management we put in place this year, where we want our people here making sure customers have good experiences during that past year in order to drive the renewal, that's really one of the key metrics for all the people, for their customers are making sure that they have great experience. So when that free year is up, they renew.

And then on the video gross margin, Dan you kind of talked about a write-off for the first generation Flex. How significant was that, what you have spent above breakeven and stripping out that kind of one-time item?

Yeah we would have been above breakeven, that was about $250,000 in the quarter, so it's pretty significant. The other thing is the lower gross margin due to the products sales mix because of the sale of the standalone product in Q1 versus this quarter it was about $190,000. So with those two items removed we would have had positive gross margin in the quarter.

And just couple more, I understand overtime the rationale for the body video products and will spur evidence.com and higher margins eventually with that. But how should we think about near-term margins maybe without giving guidance in the back half for the year. Should we expect the video gross margin to be above zero?

Obviously as Rick as the new body cameras priced close to our cost, so really there is not going to be an awful lot of contribution coming from that product. I mean the good news is we will cover our cost, and because it does not include the free year of evidence.com, the expectations we'll see the service revenue from those sales. And those will be profitable sales. We just have to, it won't be at the time of selling, you will see that over the vary use of the products. So I don't expect a large negative impact in the near term, although obviously it's not going to be as bigger contributor out of the gate, but we do expect it over time, the model is really built on driving people to evidence.com. We think this is a very solid strategy to do that.

And then last one really simply, I apologize if I missed this. But how many shares did you buyback during the quarter and what's the status of the buyback program?

Yes we completed the buyback program; we bought back a little over 3 million shares year to date for the total year. And I think it's about $2 million in the quarter, but 2.3 million of those in the quarter. But total free years 3.38 million shares, and we have completed the buyback at this point.

The next question is from Greg of Craig-Hallum Capital. Your line is open.

Can you maybe just quantify the size of each of the three on-officer video markets you talk about, maybe in terms of number of officers, monetary opportunity, maybe kind of characterize difference in adoption rates, expectations between the three markets?

Yes, it's hard for us to really give a great idea of the scale of the market. We really identify those three market segments through surveys. And I would say based on survey results which isn't really normalized based on agencies which is based on number of respondents. It seems to be about a third of third of third that about a third of the market was going for the head cams, about a third was going for body cameras in the premium segments and about a third were just the price based buyers. But what I can really tell you how that would translate into volume per say we do, the way I think about volume is I sat at the major city chiefs, with a number of chiefs that do not have on officer video programs right now. So guys like, Chiefs like Christopher Bank in Salt Lake and Rialto in Albuquerque, these guys that have officers video, they definitely see on officer video being standard equipment in five or ten years. What was really exciting for me was talking to other chiefs that do not have any on-officer video program. And two or three of them say we see it coming as well, we're not there yet, but within the next five to 10 years we know we're going to have to get on-officer getting up and going. So there has been a real shift in the way the market is thinking about it. A year ago those sorts of chiefs that didn't have programs were saying things like well I am not really sure video is for me and I don't know if it hurts or helps, that is really shifting. And there is two things that are doing that, one was data like what’s coming out of Rialto, chief for our Rialto beginning a lot of exposure in the law enforcement community with the results really showing in a well-controlled study, dramatic productions and complains and the other thing is just the rise of smartphones officers are now, I think on the page I study show that 90% of officers are now thinking, hey we see a need for cameras, because they know they are being recorded, any time something controversial happens, consumers are taking their cameras out. So, few dynamic, we need to believe the potential market for officer video is every corporate and inform in the U.S. How you divide that market between the three segments and I think they’re three segments we’ve discussed, really are the three segments that matter across that market. High performance headcams type performance body and low price entry point.

Okay, that’s helpful. Sorry if I missed this but did you give any kind of order expectations for the rest of 2013 for the new body cam product that you just introduced.

We haven't provided that.

Kind of moving at the AXON Flex unit sales you provided are helpful. Can you talk about general order rates; we’re just trying to get an idea of how many of those units sales are from maybe pilot programs versus full roll out follow on orders etcetera.

It’s fairly long sales cycle, we’re still seeing a lot of what we consider to be in this opening order as people evaluate are on-officer camera solution, there is a thought as we move into the second half of this year and into 2014, those trials become potential for now for the adoption of the technology but it’s still a fair amount of trial activity out there versus people who are rolling out these organization.

I would say that we have that some of these just go full deployment, whether buying it for other guys but those so far have been 100 to 200 mad agencies like (inaudible) and we've got a couple other agencies go full roll out but take the largest or in that 100 to 200 range. We’ve added a fair number of pay trials where we have larger agencies buying maybe 50, maybe a 100 of them. The good news is that some of those agencies are coming back and they are continuing to buy in additional increments and we are expecting to see some of those agencies come back with more significant purchase increments in the second half of this year.

Just a couple more quick ones. Kind of moving on to international results, can you talk about maybe what markets you still feel like there is a good opportunity and kind of maybe what it takes to help accelerate the growth there?

I think it’s really the same markets we’ve talked about historically. Obviously we're making investments in countries like France, India, Brazil. So, I think they have good opportunity, as Rick mentioned it takes a fair amount of patients because the time from when we start making those investments so we start seeing those payoff is basically 12 to 18 months or maybe even beyond 18 months, you have to do a fair amount of pick and shovel work in the beginning in order to get the benefit later, we still see significant opportunities in the countries where they’ve gone beyond procurement cycle in to the evaluation and procurement in places like Singapore, South Korea, Australia, New Zealand and UK are all areas where they’ve kind of gone beyond that sort of the initial trial phase into the procurement phase. So, those continue to be attractive market for us as well.

I think we also start the future with that really enter into more be upgrade cycle which spend more predominantly in the U.S. now that France has weapons, their stock of inventories is now all over the five year mark and we’re having some discussion there about timing for when those weapons can get upgraded, similarly in the United Kingdom a big bulk of the weapons there are getting that five to seven year time frame. So, we see upgrade opportunities in addition to new expansions in the international markets.

Tax rate for the second half from which you expect kind of the similar rate to the first half or…

The tax rate we benefited is actually kind of interesting. We benefited from incentive stock option exercises during the quarter, incentive stock options are deductible by the company as they invest, not qualified options are deductible as they invest incentive stock options, you can't deduct that until the employee actually has a taxable event. So, because of the fairly large amount of stock option exercises during the quarter and the good news is they brought in $4 million of cash that also helped to offset some factual income because now you can do that those stock options that brought our cash rate down about 35%. We do expect that the effective tax rate in the second half of the year probably be back in that 38% to 39%.

Thank you. The next question is from Peter Mahon of Dougherty. Your line is open. Peter Mahon - Dougherty & Company: How many units, how many users are on the evidence.com system?

We’ve got over 1,000 agencies that are active users meaning they’ve used it in the past 30 to 60 days and that’s the metric we tend to watch internally, I think it’s over 2,000 agencies that have accounts in total. now many of them are using the free version of evidence.com for managing their TASER weapons where they do handling the TASER uploads, updating the form or etcetera. Some of the are more sporadic users, may or may not upload their weapons more than once a year or do firmware updates. So we’re actually looking at some features in evidence.com we can use to help make evidence.com a more frequent sort of usable system for the people around the free version. So we find actually once they’re using it more, it’s easier for us to up sell them to the paid services. and then in terms of active numbers of users, I say the 3,000 to 5,000 range that are uploading data on a regular basis in terms of individual users. Peter Mahon - Dougherty & Company: Just to kind of recap, but 1,000 active agencies and about 3,000 to 5,000 active users, how many of those 1,000 agencies are actually paying for the service currently?

So in that case we would say it’s about half of the active agencies and it would be the majority of the active users because the users tend to be a lot more active when they have got cameras and when I say paid I am including people that might be in their first year of evidence.com because this basically pays for that with the deferred revenues bundled in at the time of purchase. But the majority of the 3,000 to 5,000 are camera users because in agencies that are using evidence.com lite the free version you might have an agency with 100 officers you are probably going to have just one admin who is logging in and doing the weapons administration. So for somebody who is downloading their TASER device they don’t do that themselves typically they'll bring it in they will hand it to the TASER program administrator that person will log in plug in the TASER device, upload the firmware download the data and give it back to the officer. So the free using agencies tend to have just administrative users, the pay using agencies so everything with a camera effectively is a user that’s probably at least plugging into a dock and uploading but then also you have to log in to the system and be doing to work for around their videos. Peter Mahon - Dougherty & Company: Thank you for that clarification. I just wanted to talk about gross margins briefly you guys did increase those nicely year-over-year and you attributed that largely to using the third-party cloud services in your videos segment. How high do you think that we can get that gross margin rate is there still kind of room to run with the use of the third-party cloud services are we kind of reaching a point now where those kind of topped out?

Yes it’s a good question this is Dan I think there is obviously still room for leverage in the model we could obviously as our sales continue to increase you still have the ability to leverage (inaudible) cost which gives us the ability to improve that. I would say that as Rick mentioned earlier we had -- telesales had a tremendous quarter that also helps gross margin because that’s those sales tend to be direct and as a result we see our full MSRP versus getting a distributor pricing out now it’s not that and kind of that telesales function to take that business direct because we just want to serve that underserved part of the market but that does improve our margin because we see a higher average selling price and that looks to be honest with you a bigger component of the improvements in margin this quarter our average selling prices are up close to 4% from the same quarter last year which is 4% improvement in margin. But that easily could move the other way depending on either product mix or more business falling through distribution versus the direct business. So we are certainly sort of comfortable in the tranche I would say that I think that further improvements from these levels require higher sales and a similar product mix as far as number of direct sales versus distribution sales. Peter Mahon - Dougherty & Company: And then kind of transitioning to the videos segment how do you guys evaluate these investments that you are making. I mean it seems like you are consistently adding people and capabilities and things like that yet it seems like your capacity is really being underutilized based on the kind of the revenue that’s flowing through the system right now. Do you really see there is this massive pent up demand or massive opportunity that’s going to right on the cusp of being realized to kind of ramping up for that or how do you think about that because it would be nice to see those videos same losses kind of shrink rather than grow?

So this is Rick Smith absolutely we see a bog opportunity in the near to midterm but the question is what the market sentiment it’s definitely shifted in a very favorable way. I think the market leaders are pretty universally saying on officer video is coming. The question is how fast and a bigger question for us the reason that we are being doing some pretty aggressive things like we have with AXON Body is we think our primary talent is to make sure that market doesn’t fragment if it fragments into seven to 10 hardware vendors each with a relatively small market share that for us would not be good the value of evidence.com can be massive if we get massive adoption in the marketplace. It’s all about being right now it’s about grabbing as much market share as possible once we are in with evidence.com we already have agencies asking us to develop advanced features frankly given new software products that we could deliver to them could accrue with evidence.com once we are in an agency administrating their users have their security setting setup administrating their evidence on evidence.com not only is evidence.com itself a very valuable property but we now have a sales channel very similar to what you see with salesforce.com we are a sales force customer we are now starting to buy several of the other related products from sales force in addition to their sales force management we are doing our customer service our HR we are doing a lot of our marketing that we are evaluating some of their other systems as well because we are finding as a sales force head wow we are already setup on it we can expand into seeking other systems so our IT group doesn’t have to…

It’s at a $115 for this quarter going down to a $100 in the fourth quarter, so we are continuing to sort of try to create urgency with customers to upgrade sooner by having sort of that amount of the trade in shrink over time, but it'll be down at that $100 level by the end of this year.

Thank you, the next question is from Glenn Mattson of Sidoti and Company, your line is open.

Hi guys interesting new announcement on the AXON body, quick on that note, do you expect to see any cannibalization of the upper segment? I know you do a lot of customer feedback types work so maybe you have some feedback into that but also have you kind of run this through your long term model and does it change what you've kind of presented at the analyst day or is this just kind of part of the price erosion that you expected over time?

So this is Rick, let me first talk about cannibalization, absolutely we expect we're going to see some cannibalization of agencies that would have stayed with just purchasing Flex because of the evidence.com convenience fees, they would not have bought a body cam but at least a portion of their officers, (inaudible) hey this great, because they do have some officers that, they sort of complain about having to wear something up on their head, they don’t like that first and so the chief can now say look, I’ll give you guys a different options so those guys they can wear the body cam, so it will cannibalize some of it. I don't think that that matters a whole lot in the financial models in that the fact we don't bundle in evidence.com. we really sell the Flexes at 950; we end up deferring say about half the revenue.

That's right and our average selling price of Flex is sort of the realized price is probably close to 725 and roughly half of that gets deferred, so as we look at, yes we bought out AXON body in order to add a low price to drive adoption and capture a bigger portion of video market. So although there will be a lot of gross margin from the seller and we do think having more users in the system will drive the user count up and therefore yes, we remain comfortable in sort of the long term the 2017 targets that we presented at the analyst day, we'll just sort of get there a different way, with just more higher user count and obviously the service part of this, this is highly profitable so that's really long term goal here is to get as many people into the system as possible.

Okay, sounds good, and then in the weapons business can you give us any color on the visibility into the second half, I mean I think last quarter you said that you had some deals that got pushed out or whatever, so do have a good feel for the pipeline heading into the back part of the year?

Still you know, we still feel good about that part of the business, there's still as we mentioned earlier, there's 88% of that installed base that's over five years that's not upgraded yet so that continues to provide a solid pipeline and certainly a large number of customers to talk to about the new platforms or weapons, so the results have been very good so far and we feel good about the opportunity in front of us there.

Okay with that we'll take a question from Twitter, (inaudible) said will you look at big bucks retailers for your consumer products rather than just e-tailing? So taking a rear looking view with our the Taser weapons what we found was big bucks retailers a. were sort of scared of the idea of taking the Tasers that fired a dart, and then b. those that did take the C2 for example we were in one of the major sporting goods retailers and frankly it didn't do very well with it and our belief is that's because consumers that come in, it's a new enough product concept, consumers need a fair amount of hand holding, so what we found our traditional C2 and those other again, the dart throwing weapons do well in things like gun stores, small specialty retailers where you've got people that are pretty well trained that are kind of private experts as well as online where people come to our website and do the research and learn about the devices. The flashlight is a game changer in that respect in that the fact that it is not, people don’t look at it as a weapon, it doesn't fire darts. in our consumer testing that led development on that product we found a lot of people that particularly thankfully I the female segment that got squeamish at the idea of putting something in their purse that would fire out projectiles were much more comfortable with the idea of a flashlight that has an electric arc, it's a very bright loud electric arc as a deterrent but they're like going to well, I can’t really screw this up frankly. It's not like I can shoot some darts out and hit somebody by accident, so they might carry it on…

Ladies and gentlemen, that concludes today's program, you may now disconnect, good day.