Rick Smith - CEO Dan Behrendt - CFO

Mark Strauss - JPMorgan Peter Mahon - Dougherty & Company Glenn Mattson - Sidoti and Company

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 is focused on a high performance product that officers hit point of view from the officers’ visual perspective. Well I should be sending out over twitter, a graphic of the market segment. So this first market segment is obviously up into the right, in purple if you could see that graphic. So our Axon Flex product is perfect for this high performance market segment for head cameras. And we believe we are winning the significant majority of the market in this segment. In fact since we introduced Flex last year, I am personally unaware of any orders that we have lost to a competitor in the United States in this segment. Of course it’s a large road out there, and there may be competitive orders, that we aren’t aware of, but we are winning the ones on our radar screen in this segment domestically. There is a second segment in the market, which also requires a high quality, rugged and weather proof police camera. However this segment favors convenience over performance. So but if only these are the officers who don’t want to wear a camera on their head or have to run a wire from the camera to a battery package at time they suit up. This market segment is willing to accept less performance namely, the back of the video is fixed from their chest, and it doesn’t fall over the officers’ point of view or head movements. They are willing to give up that performance in exchange for more convenient and comfortable product that they just clip on their vest and go. This market segment would end up buying police grade body cameras typically in the same price range of which we sell AXON Flex in the $700 to $1000 range. However, until now we have not had a body camera to compete in this segment. There is a third segment of the market that is highly price sensitive. These are typically agencies that are new to on-officer video, and are trying it out for the first time. These customers will typically buy a consumer grade camera such as you might find in Sky Mall for around a $100. When these segments – the customers in this segment see higher prices of the rugged eyed police cameras, they don’t even evaluate them. Many agencies that buy the cheap consumer grade cameras end up seeing the value of video but having a poor experience with the equipment itself. Further we learn the logistics cost of having officers sit at a computer to manually offload videos on to CDs or local hard drives; at about 20 minutes per officer per day this lost productivity accounts for about $4,000 per officer, per year. So net sum, buying a cheap camera, you spend a lot of money on lost productivity. Now so many agencies that start in this third low price segment eventually shift up into the professional grade equipment after experiencing the limitations of the consumer gear. An example of this is the Albuquerque Police Department. Albuquerque previously purchased around a 1,000 consumer grade cameras. They are experiencing high breakage rate, over a 100% per year and huge logistics cost. Albuquerque tested AXON Flex, has began purchasing and transitioning over to Flex and Evidence.com. Chief (inaudible) recently talked at a police conference about dramatic improvement and reliability efficiency that they are seeing with AXON and Evidence.com solution when compared to the prior system they were using. While we could take a position that we would focus solely on the high end of the camera market, and allow our customers to migrate toward us like Albuquerque did. We don’t believe this is the right strategy. The long term value in this business will not be in the camera hardware. It is in the software and services that handle the tidal wave of digital information, seamlessly and easily. Our goal here is not to have a profitable camera hardware segment in a portion of the market. Our goal is to build a software platform with evidence.com that creates long term defensible and profitable value, this means we need to accelerate the market and focus on how do we get to a 100% market share, not focus on building a profitable camera hardware product in a smaller subset of the market. We believe AXON Body is a key element in our strategy to accelerate our market penetration, so its return to our three market segments, AXON Flex is a well suited to per segment for high performance point of view video. AXON Body now used this as product that outperforms every product in the second market segment for rugged eye please spay body cameras. No other product in that segment offers a full work shift battery with prevent buffer, fantastic low light capability, and automatic data uploads and integration with service like evidence.com, and we’re selling it under half the price of our typical competitor. In banks, we’re selling the hardware at a price down near our cost levels something that would not make sense for a hardware only vendor to do, but because of the evidence.com service business and the long term value for customer we believe it make sense to follow a disruptive pricing strategy to gain dominant market share and fast. We believe customers will love our camera and they will also love the evidence.com service that handles all the technology challenges seamlessly. We believe that AXON Body should have a dominant position in this second premium market segment and AXON Body also gives us a good shot at the third very price sensitive segment, so while there is so much cheaper consumer cameras out there at 299 we believe we’re close enough in price to win a significant share in this third market segment. And leading up to the call today, we actually receive a question by email as to now that we've introduced AXON Body at 99 why would agencies continue to pay 950 for the AXON Flex, and the answer is simple, the AXON Flex still comes with a bundled full year of the evidence.com service and it offers the ability to mount upon the head in about a dozen different mounting location, so for the premium buyer who is looking for the top tier capability and during that first year they don’t want to have to worry about your configuration settings done at evidence.com et cetera, they get an unlimited evidence.com package, so apples to apples we believe both products have place in the marketplace but we did feel it was important with AXON Body, what we are really trying to do is make our technology acceptable to the low end price segment of the market who otherwise aren’t paying attention to the high end segment. So, they’re de-bundling evidence.com from AXON Body, get this into those accounts and it’s obviously much easier to upgrade an existing customer onto evidence.com because AXON Body can be used with our without evidence.com. We believe it’s in our interest to have our cameras in those agencies, not some consumer camera that we have to later displace. So now that having with both AXON Flex and AXON body coupled with the aggressiveness of our pricing strategy, we’re focused on consolidating in the market and avoiding fragmentation among numerous hardware vendors. In the past few months I’ve been talking with many chiefs from some of the largest agencies in the North America and they’re now consistently saying that within five to 10 years every officer will be wearing a camera, obviously we find this very encouraging but let ask ourselves, how do we turn five to 10 years into one or two years and probably answer is AXON Body, but other camera that gives us the ability to serve all three major market segments and price them so aggressively, we remove the cost barrier for new agencies to adapt this new technology. We are very excited to see how the next two quarters develop with both AXON Flex and AXON body as well as evidence.com. Now we’re turning to the quarter, last quarter I’ve talked about the launch of the X26P Smart Weapon which integrated many of the new features of the X2 but kept the same training requirements and form factors the legacy X26P. We saw strong interest in the first quarter and that trend has continued this quarter with sales of the product continuing to grow. The X26P has seamlessly integrated itself into our suite of products and the feedback continues to be very positive. The upgrade cycle is currently benefited from our strong product platform, as of June 30, we have upgraded a total of 12% of our installed base of units that over five years old and this space opportunity grows each quarter as the old units continue to age out. Our sale teams are also hearing extremely positive feedback in response to our TASER protection plan and the TASER Assurance Plan programs. These are programs which help our customers smooth out future requirements for capital purchases such as TASER products. When people continue to see this program grows as our customers get more exposure to them and realize how much easier they can make the procurement process. for example, I recently heard a story from one of our sales team members about a visit in a major city to discuss their future TASER needs. at this meeting, there were law enforcement officers and city finance and procurement employees. Sensing and opportunity with all the players in the room our sales team simply asked what the biggest pain points were in their procurement process, the city personnel went onto describe a scenario that is easily resolved by our TAP program to the TASER Assurance Plan. The response upon learning more about our new purchase program was overwhelmingly positive and the city finance officials stated to the agency, you better plan this in your budget because it’s fantastic, it’s almost like this in a budgetary environment it continues to be on edge that show that a partnership approach and dedication of our team is paying off. Moving onto international business, in the second quarter we have approximately 4.9 million in sales which is about 15% of total revenue. this is up from 10% of revenue last quarter. On a dollar basis, international sales increased 1.8 million or 58.5%. We’re happy to see these sequential progress but international revenues are still progressing little bit slower than we would like. In the past, we’ve cautioned that international deals tend to be large in size and more intermittent in nature due to the varying profile of customers and the political processes. for example we’ve used France as an example while there is some local agencies which were in the market comes from very two large national agencies, the Police National and Don Marie. And working with agencies that size generally comes to more stakeholders in the decision process which inevitably takes longer. Now shifting gears a bit let’s discuss our video segment where we are really seeing promising momentum and trends. As I mentioned previously, the video segment grew over 47% year-over-year to 1.9 million in revenue during the second of 2013 on a GAAP basis. Now revenues were down sequentially largely due to a higher percentage of sales bookings for multiyear service contracts. Bookings for the video segment grew over 350% to 2.0 million albeit from a small base last year. so we continue to view bookings as a solid measure of traction in this business given the deferral of revenues related to evidence.com service. in fact positive things that we are seeing the Evidence.com portion of booking continuing to rise, we are seeing a lot of people that bought last year now coming in and renewing the service which is probably the most important trend you want to keep your eye on. Global interest in the AXON and Evidence.com Solutions is also increasing with trial now incurring in the UK, France, Australia, New Zealand, Brazil, Canada and other countries. New Zealand renewed their Evidence.com subscription in the second quarter based on strong favorable internal feedback they have received since its implementation. In addition, one prominent agency (inaudible) in Brazil made the Brazilian national news as a key technology needed for law enforcement in the region. We strongly feel our investments to grow the international part of the business will pay-off but RRI would like do not be seen for a period of 12 to 18 months from the time of our initial investments. Currently the majority of Flex sales include one for a year of Evidence.com given that we are one year past the first quarter shipment of Flex; we are going to hopefully be seeing an increasing number of customers renewing the data management service. As a result, as we move forward, we think the renewal rates of Evidence.com service will be a meaningful way for investors to track our progress. The On-Officer video is still a technology that is relatively new to the market and as such research is meaningful to show acceptance and reactions. A few months ago, we mentioned a groundbreaking relative study that detailed the dramatic reduction in complaints which fell by 87.5% and use of force which fell by almost 60% upon the introduction of On-Officer video to that agency. Chief Farrar who offered that study just within the past few weeks was actually awarded a major award from the Evidence-Based Policing society in the United Kingdom and it’s getting a lot of in fact that has spurred much interest in UK Police agencies to try to replicate that study in the United Kingdom. And since that time PoliceOne which is a major law enforcement online community has come out with a study that found over 90% of law enforcement officers that have responded to a survey saw a need for On-Officer video and nearly 50% of the responded saw TASR as being the market leader in this space, I think it speak volumes of our efforts and future potential in On-Officer video and data management. We are often asked how the budget-climate is progressing across our customer base which obviously something we monitor closely and we needed adjust our sales efforts accordingly. The aforementioned, TPP and TAPS programs are great examples of ways of us finding ways to become better partners with our customers and work around the budget-climate of the last few years. Today we are finding that are agencies that are spending money may do not in droves but the budget is recovering. Our Chief Operating Officer Jeff Kukowski has done a great job working with our sales team to find new ways to become a funded priority. We feel that if we are in the top two or three priorities for a chief, then there is a good chance that the deal will happen. Accordingly, we focus on (inaudible) places where we will be a top priority. Another way we proactively address the sluggish budgetary environment is through our telesales function. This group has already proven to be a cost-effective way of reaching agencies that have historically been underserved by our outside sales team and the distribution network. This quarter yet again we provided immense value and booked $4.7 million in sales bookings. We are continuing to invest this team and continue to see ROI on each incremental investment. As of today, we have 12 individuals in this function. Finally, I want to discuss a new offering in the consumer segment, the StrikeLight. We announced the Taser StrikeLight earlier this month as a low price stun gun combining a flashlight offering the supplement to our suite of consumer products. Unlike our conductive (inaudible) weapon, StrikeLight did not causing incapacitations rather causes temporary pain and discomfort. We developed it as because we see rather consistent feedback from the market that there was a desire for a low profile device that was less aggressive. There were no darts to shoot, it has rechargeable battery and it has a much lower price point and it can basically do double duty, it functions as a flashlight. The initial feedback from customers and distributors has been phenomenal on this product, so we expect this to be incrementally beneficial to our business. The consumer segment historically (inaudible) but we now have a wide products to hopefully move that forward over the longer term. We also recently introduced a consumer version of (inaudible) X2 so we have now X2 multi-shot home defender at the high end of the range, we have our C2 affordable single shot Taser in the $400 price point range and now we have the StrikeLight at $129 and those are all available at Taser.com. You can go check them out. With that I am going to pass t over to Dan to go over the financials in more detail.

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 improving gross margins. In a video segment revenues increased $0.6 million year over year or 47.4% to $1.9 million in the second quarter of 2013. The loss from operation the video segment incurred from 2.5 million in the second quarter of ’12 to 2.7 million in the second quarter of ’13. The reduction in the cost to service delivered that we saw in this quarter was offset by higher investments and personnel and support cost in the business as well as some incremental cost relating to the redesign of our EVIDENCE transfer machine. There is cost associated with accelerating depreciation of that equipment as well as some write-offs of inventory of the first generation product. Sequentially, loss from operations in the video segment group $1.2 million from $1.5 million in the first quarter of 2013. Again, the decline was partially influenced by the lower product sales in the second quarter, about $0.5 million, compared to the first quarter. One of the big drivers is we had a large sales in the first quarter that was from a customer that was not going to use the EVIDENCE.com so that we were able to recognize the entire sale at the time of shipping versus the normal traditional sale where we allocate roughly half of the sale to EVIDENCE.com recognize over the service period. So, that sale allowed us to sort of accelerate the sale and deliver the higher gross margin for the video segment in the first quarter versus the second. We also have seen potential cost increases for SG&A due to expenses for account management, sales operations, implementation, services, as well as the hiring of Vice President of Information Security, those costs are driving up the cost in the video segment, but we do feel that those will pay off over time and help to grow the business. We did see, on the R&D side, R&D was relatively flat for the quarter. We had about $300,000 benefit in the quarter for a huge tax refund venture, the video R&D. Obviously, which backed it in the second half of the year the R&D expense will go up with that item that’s repeating itself as well as the additional investments we’ll make in the video segment. With that being said, we do expect the operating income to improve from these levels in the video business as the revenues in the segment grow. The sales, general and administrative expenses were $10.9 million in the second quarter of 2013 compared to $8.3 million in the second quarter of 2012. As a percentage of sales, SG&A was 34% of net sales in the second quarter of ’13 versus 29.4% in the second quarter of 2012. The primary driver for the increase was personal expenses, which increased approximately $1.3 million due to incremental strategic hirers we made over the last year in our efforts to grow the business and expand our customer facing team. We also expect (inaudible) our teams are brought as we work to and grow the international part of the business. The international expenses were up about $400,000 versus the same quarter last year. We also saw higher litigation expenses about $500,000 higher in the second quarter of 2013 versus 2012 due to the timing of litigation that tend to… we do have a number of case to come to trial so they are typically end of being higher spend in anticipation of that. Sales and marketing expenses increased year-over-year as a result of the higher commissions due to the higher sales value, that’s about $200,000 as well as $200,000 increase in some of our e-marketing activities that took place in this year versus the prior year. R&D expenses of $2 million in second quarter of ’13, that’s pretty much flat with the same period last year. Again, we did benefit from the Arizona huge tax refund of about $300,000 otherwise R&D within up about $300,000. So again expect to see R&D tick up in the second half of the year. Adjusted EBITDA, which excludes certain items as detailed in the press release, was $9.5 million for the second quarter of 2013 compared to $8.5 million for the second quarter of 2012 with improvement being driven by the leverage on the higher sales. Income from operations was $6.8 million in the second quarter this compares to $6.1 million in the second quarter of 2012. For the quarter, we had net income of $4.5 million or $0.09 per share basic and $0.08 per share on a diluted basis, compared to net income of $3.4 million or $0.06 per share and basis and diluted basis, in the second quarter of 2012. Moving on to the balance sheet, as of June 30th, the company has generated $7.7 million in operating cash flow. This has led to the company having $31.8 million of cash, cash equivalents and investments on the balance sheet. So the decrease of $6.1 million to levels we ended 2012 due to the $25 million share repurchase program being completed in the first six months of 2013. Accounts receivables of $16.9 million were down $1.2 million due to timing differences. Inventory grew to $0.2 million from the year end balances to $13.2 million, really just more generally attributed to the build-up in our weapons segment inventory anticipation in future sales. Investment and property plant equipment of $20 million is down roughly $1.9 million basically as the results of depreciation expense offset by roughly $800,000 of CapEx taken place so far this year in 2013. The total deferred revenue on the balance sheet of $15.6 million has actually increased $3.5 million from year end, primarily due to the upgrade program of the X26 and X2, which includes extended warranty. Also, the sales of AXON Flex and EVIDENCE.com solution have also increased deferred revenue. The deferred revenue relating to the video segment of the business actually grew $1.2 million from the 12/31/12 balances. Total liabilities were $33.3 million in the company since the quarter of $79.7 million of stockholders’ equity. Moving on to the slight information on cash flows, company had cash provided from operations of $7.7 million during the second quarter of 2013. In the six months ended June 30th, company had cash provided operations of $12.2 million. Net cash used in investment activities for the six months ended June 30th was $12 million. That’s really just by the purchases of investments during the quarter. Cash used in financing activities was $17.3 million for the six months ended June 30, 2013 compared to $15.7 million used in the same period last year. Again, during the six months ended June 30th this year, company has repurchased 3,048,000 shares at average price of $8.17 a share, so that’s really been outflow in our financing area of cash flow of 25 million. Again, this is partially offset by $3.9 million of tax benefit from employee stock option exercises as well as $4 million of cash provided by employee exercise in stock options. So the company gets the cash on the (inaudible) option that provided $4 million of cash so far this year. In order to leave out more time for the Q&A portion, we have included the unit sales statistics in our press release, so please refer to the release for that. With that we'll turn it back over to Rick Smith to take some questions.

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. Mark Strauss - JPMorgan: 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. Mark Strauss - JPMorgan: 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. Mark Strauss - JPMorgan: 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. Mark Strauss - JPMorgan: 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 be running more systems on-site. So as A class customer we are seeing that the beauty of that business model and how wonderful it is when you have a good customer experience our customer are obtaining that as well but it’s a relatively small portion of the market that we have using it today but to me the most encouraging thing is that people that are using evidence.com are renewing. We had a good number of renewals at last quarter to my awareness I am not aware of an agency with a significant user of evidence.com that has decided to go off the system and try and handle the data themselves what we are hearing is wow, this works great we like it. And so as we look at the market I can’t tell you if it’s this quarter, next quarter or next year but we are making these investments because we see that there is a huge opportunity here and it’s ours to lose at this point we have got several year head start in the sort of visual evidence management cost services in law enforcement and we're going after it pretty aggressively. Peter Mahon - Dougherty & Company: And then finally from me, you guys I assume are still kind of running a trade in program on your X-26 and X-3 unit, could you kind of remind us where that stands today?

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. Glenn Mattson - Sidoti and Company: 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. Glenn Mattson - Sidoti and Company: 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 a walk or in their car, in their purse more comfortably and more frequently. We've also seen that same dynamic with some of the larger retailers, where they're looking at this very differently it's more sort of a high end security flashlight, not a weapon, so we are getting more interest from big bucks retailers than we did historically and we do think that the lower price point 129, and the simplified nature of the product that it can be successful in big bucks, it's not going to require all the questions and answers and the handholding that selling one of the weapons does, so obviously, it's a new product, we haven't announced anything with big bucks retailers but I would say it does look much more promising than with our traditional weapons. And so with that let`s go ahead and wrap up the call for today. You can continue to send questions and our IR department will respond over Twitter or by email, to ir@taser.com and we appreciate you all tuning in. You obviously look pretty proud and excited, just had a good first half and we're really forward to the second half this year and see how the market continues to develop for on officer video and continue to drive upgrades. Right, thanks everyone, have a great day.

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