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…

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…

(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. Steve Dyer – Craig Hallum: 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.