Good day, ladies and gentlemen, and welcome to the TASER International Q3 2014 earnings conference call. At this time, all participants are in listen only mode. Later, we will have a question and answer session, and instructions will follow at that time. If anyone should require assistance during the conference, that is star then zero to reach an operator. As a reminder, this call is being recorded. I would now like to turn the call over to Mr. Rick Smith, Chief Executive Officer. Sir, the floor is yours.
Thank you. Good morning, everyone. Welcome to TASER International's third quarter 2014 earnings conference call. Before we get started, we are going to start with everyone's favorite part, with Dan Behrendt reading our safe harbor statement.
Thank you, Rick. The safe harbor statement. Statements made on today's call will include forward-looking statements, including statements regarding our expectations, beliefs, intentions, and 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 only speak as to the date on 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 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 31st, 2013, under the caption Risk Factors. You may find both these filings as well as our other SEC filings on our website at www.taser.com. With that, I will turn it back over to Rick.
Thanks, Dan. As a reminder, we're going to be accepting some questions via Twitter during the Q&A portion of the call, which can be submitted using the hashtag TASR_earnings. To follow our updates on Twitter during the call, which you will want to do, we'll be posting various graphics, follow the account @TASER_IR. That's at T-A-S-E-R underscore I-R. We'll be posting graphics and commentary and links to some videos during the call. For those of you without Twitter, all updates and graphics stream directly to our investor relations website, investor.taser.com. The third quarter of 2014 was a busy one here at TASER, and I'm personally excited to share some of the progress and milestones reached during the quarter. First off, consolidated revenue grew 26% year-over-year to $44.3 million. Yet another new record for the company.
This marks the eleventh consecutive quarter of year-over-year top-line double-digit growth. We continue to work hard to aggressively grow the top line, and we're eager to continue to share our progress and success through the remainder of the year and into 2015. The Evidence.com and video business realized another quarter of increasing momentum and exciting announcements which culminated in a strong-looking figure of $15.3 million. We hit the milestone of selling over 100,000 cameras into the field to date, including Axon and our TASER Cams. In the macro environment, it's ever more clear that we are at a tipping point for this technology in law enforcement. The unfortunate events at Ferguson put a bright spotlight on the issue of on-officer cameras, both within communities and in law enforcement.
I believe there has never been a more singular point in time for on-officer cameras that has caused such a fundamental shift in customer attitude. Inquiries increased tenfold. Our video pipeline is the largest it's ever been, RFPs have more than doubled compared to last year for video-specific bids. We feel that Ferguson switched the light on for some officers, eliminating some of the resistance remaining to the adoption of this technology. Perhaps the most striking example of this shift in adoption comes from the Seattle Police Union. A few years ago, the Seattle Union had taken a strong stance against wearable video. After Ferguson, the president of the union said that they now support wearable cameras to protect their officers. It's interesting to compare the adoption trends of this technology with the beginnings of our TASER weapons business so many years ago.
TASER weapon implementation was initially pushed by frontline officers and was typically met with initial top-down resistance to change and the potential for controversy. With on-officer video, we now also have officers asking for the technology in order to protect themselves while on duty. In fact, some of them are buying these units personally. We also have broad external support from the community, including groups like the ACLU, for more accountability by police. Further, there's a very high return on investment for the agency as a result of fewer citizen complaints and reductions in the use of force. In one example, the now famous Rialto PD study estimated that they saved $400,000 in hard costs just from the reduction in complaints once they deployed the cameras.
Their first-year costs for the program were $90,000, yielding over a 300% ROI in the first year. In other words, the agency saved four dollars for every dollar they spent. Further, I just sat on a panel with the chief of Rialto at the IACP, which is the International Association of Chiefs of Police. At the conference, I sat with the chief, and he said that they realized another big savings. Before cameras, they had three people dedicated full time to internal affairs. Now they have so few complaints, he only needs one officer, so he's been able to redeploy the other two officers to do police work. This equates to another approximately $380,000 in savings per year. They've also seen their overtime for officers going to court to testify drop by 41%.
We can't yet quantify what that is in dollar terms, but hopefully by our next call, we'll have some estimates. If we add up the numbers, the first-year ROI starts to reach incredible levels. We now have three forces pushing for the adoption of video. Police officers, the community, and the ROI. The largest agencies are continuing to choose our solution, Axon and Evidence.com, to address this seismic shift in law enforcement. As of the third quarter, we had 11 major cities actively deployed and another 35 in some form of pilot program. That is nearly triple the number of major cities in pilot from what we discussed last quarter. We are very confident that these trials are going well. Large cities who deployed cameras in previous quarters are expanding their programs.
For example, Salt Lake City and Birmingham have decided to manage all their digital evidence, not just from Axon cameras, but everything on Evidence.com. Miami Beach held such a strong conviction about the benefits of these cameras that they purchased Axon cameras for multiple departments within the city, including their fire department, building inspectors, and parking attendants. These expansions prove the concept of Evidence.com as a digital evidence management platform, and we look forward to integrating more agencies in the future. We're often asked about the benefits of our solution versus our competitors in this space. To our knowledge, we are the only proven, scalable end-to-end solution in the marketplace today, which is why we are winning these large agencies. Birmingham is a great example, like Albuquerque, of a turnaround story. They initially went with a competitor of ours but found it was not scalable or robust.
They came back to TASER and have clearly become our advocate with the expansion to all digital evidence. The 3,700 agencies who are choosing Evidence.com as of the third quarter are doing so because of the end-to-end solution, an extraordinary customer support experience they get from TASER. By the way, just to be clear, those 3,700 agencies include agencies who are using the full Evidence.com with Axon cameras, as well as Evidence Lite for managing their TASER CEW weapons. Evidence.com received a new file upload every six seconds during the third quarter, culminating in a total of 1.3 million files uploaded thus far into Evidence.com. If you take a look at the graph we're tweeting out right now, the mathematicians among you will notice it is still resembling a smooth exponential curve. In 2014, approximately 75% of cameras sold included an Evidence.com contract initially.
75% of cameras are sold online. Further, other cameras have come online that were initially purchased as offline units. Birmingham is a great example of this. That's the beauty of our system. It's as easy as flipping a switch for a customer should they change their mind and decide to utilize Evidence.com. Additionally, in the third quarter, bookings, over 87% of contracts were for multiple years. To us, this is a fabulous sign. Not only do agencies understand the value proposition of Evidence.com, but they see this as a technology and a solution that is here to stay, and that Axon is the right partner for long-term success in new technology implementation. Frankly, one of our standout benefits and competitive differentiators, Axon will not allow a customer to fail. We provide the best support in the industry, and we hear that consistently from our customers.
Our programs scale because of the solution and because of the people behind it. We're also innovating to develop the most requested features from our customers. Last week, we announced Axon Signal, a Bluetooth add-in that will turn all cameras within a certain radius on with the activation of a police light bar from their car or when a TASER weapon is armed, a unique feature that only Axon could offer. This feature will be available on Axon Flex cameras starting in the first quarter of 2015, and it's a feature that can be added to previously purchased cameras for a small additional cost. I just returned from the International Association of Chiefs of Police. It was by far the most successful show of my career. There was so much traffic to our booth, we overheard other exhibitors complain, "What?
Is this show just all about Axon?" Our theme this year was "Don't be a dinosaur." We wanted to drive a conversation about the need to adapt to change, particularly the need to adapt to new technology, like the internet, cloud, and wearables. There was a line around our booth for two solid days, and we estimate around 3,000 attendees, primarily police chiefs, went through the Axon experience. Many who came to our show were absolutely energized to help drive change at their agencies, and they see Axon and Evidence.com as the key partner to drive that change. To ensure we kept the "Don't be a dinosaur" topic on top of every conversation, we had two life-size velociraptors walking the show floor all day. We took them to some key events, such as the Major Cities Chiefs Association reception.
I can tell you, everyone was talking about why we had dinosaurs roaming the reception. It placed the seed for the exact conversation that we wanted to occur, especially among our current customers educating new prospects on the great experience that they are having with Evidence.com. Our dinosaurs even made a guest appearance at the Axon party with another 3,000-plus attendees talking about dinosaurs. Many of them talked about the dinosaurs within their own agencies. Exactly the conversation we need to have. To help entice people to come through our presentation, we gave away large, oversized stuffed dinosaurs. 2,000 people received the Evidence.com dinosaur, and every one of which was a mobile billboard for us that saturated the show floor. These dinosaurs were too big to stick in a bag, so when you carried it, you were advertising for us.
You'll get a chance to see later when we tweet out some videos from the show just how impactful this program was. And these dinosaurs will go home to kids and grandkids, keeping the Don't Be a Dinosaur campaign alive long after the show was over. I cannot put into words how proud I am of our marketing team for the work they did this week. I think it was the most impactful marketing campaign in the history of law enforcement, and certainly the most creative campaign I've ever been involved with. Last year, we set the objective to establish dominant market share and to do what it takes to avoid market fragmentation. We increased our investments and our team has executed rigorously. We've won every major agency that has made a purchase decision in the past year.
If we continue this momentum with the 35 major cities that are in some form of trial with us today, it is conceivable that we could have 46 of the 66 major cities, or 70% of them, on evidence.com by the end of 2015. This would establish evidence.com as a nearly unassailable market leader. The smaller agencies will typically follow the larger ones, which drive standards regionally. We will continue to aggressively invest in expanding our sales team, our marketing programs, and our product development to maximize our chances to succeed in this mission. We believe these investments will be as fruitful as the investments we made in 2013 that are yielding the winning results we now enjoy. Following the Ferguson incident, body cameras were everywhere at IACP. One of our people joked that even a hot dog vendor had a camera to sell.
What we've heard over and over from our customers was that no one there had the proven, scalable end-to-end system that we have spent six years developing with Axon and evidence.com. Others will try to follow, but those starting to make investments now will have an enormous mountain to climb to catch us, because we've invested the time, capital, and the best talent in the industry years ago to establish a wide first-mover advantage upon which we are now building aggressively. In addition to the fantastic momentum we're seeing in our video and cloud business, the TASER weapons business continues to execute and show strong results, delivering revenues that were up 26.5% to $40.0 million. Gross margins for the weapons were epic, at 68.9% for the third quarter. Domestic weapons sales increased 20% year-over-year. The upgrade to Smart Weapons within the weapons segment is progressing.
As of the third quarter, we have 40 major cities with significant numbers of Smart Weapons deployed. We were able to add Dallas and Houston to that list this quarter. In the third quarter, there were several large orders that were actually expected to close in the fourth quarter. We brought them forward. As we previously mentioned, we have 10 to 12 deals a quarter which are over $250,000, but we have approximately 4,500 orders total in each quarter. If these large deals shift in one quarter, it can cause lumpiness in the domestic business. While the lumpiness was favorable for the third quarter, it could potentially have the opposite effect in future quarters.
Our sales team executed flawlessly this quarter and brought in several deals from the fourth quarter into the third, which of course could cause a bit of lumpiness next quarter in both revenues and potentially in bookings. On the other hand, we are working some very large international deals which could come in during the fourth quarter. Internationally, there were some great wins as well. In total, revenues were $6.7 million internationally in the third quarter, an increase of 81.6% compared to the prior year. In fact, year-to-date 2014 international revenue has surpassed all of 2013. Notable events in the quarter internationally included the sale of Smart Weapons into Poland for the first time, thereby opening a new market for TASERs.
A Smart Weapon expansion in France and Australia. We saw the London Met double their in-field pilot camera program, bringing the total up to 1,000 units, with what is arguably the most influential agency in the world, and certainly outside of the U.S. Our international headquarters in Amsterdam is in the process of setting up. Ron Brandt and his team are busy hiring incremental sales and administrative staff to help run and expand that business, which we are confident will continue to grow stronger over time. We continue to be excited about the direction of TASER and evidence.com, and look forward to sharing more success in the coming quarters. Let me hand over to Dan to go over the financial results in more detail.
Thank you. As we stated earlier, in the third quarter, consolidated sales of $44.3 million represented a 26% increase from the third quarter of 2013. The increase in sales was primarily driven by the total law enforcement weapon handle sales, which increased $6.9 million in the third quarter compared to the prior year. Axon revenues increased $1.2 million compared to the prior year. Service revenues for evidence.com in the video segment increased $0.7 million to $1.2 million in the third quarter compared to the prior year. The legacy X26 CEW declined $4.3 million in the third quarter as a result of agencies embracing the new Smart Weapon platform. As we messaged at the last quarter's call, at the end of the fourth quarter, the X26E, which is the legacy product, will be going out of production.
While we will still support warrantied handles, we will start focusing solely on the Smart Weapon platform going into 2015. The new single-shot Smart Weapon, the X26P, saw sales increase $8.1 million over the third quarter of 2013, which is the main reason total law enforcement handle sales grew by $6.7 million when compared to the prior year. Gross margin for the third quarter was $28.7 million, or 64.7% of revenue, which is up from $22.1 million, or 62.8%, in the prior year. As sales have increased, we've continued to benefit from higher operating leverage. Due to the price increase instituted at the beginning of 2014 and more sales being sold directly to the end users rather than through distribution channels, we've also realized higher ASPs on our product, improving gross margin.
Cost of services delivered increased $0.2 million in the third quarter compared to the prior year, primarily due to the increased personnel and travel costs associated with our professional services team. Cloud storage and hosting fees also increased compared to the prior year, as more data and files are uploaded into evidence.com. Gross margins in the TASER weapons business were especially strong, with gross margins as a percentage of revenue in the third quarter of 2014 being 68.9%, compared to gross margins of 65.5% in the third quarter of 2013. In the evidence.com and video segment, revenues increased $0.8 million to $4.3 million for the third quarter of 2014.
Loss from operations in the evidence.com and video segment worsened to $4 million from a loss of $1.5 million in the third quarter of 2013, largely due to an increased investment in research and development activities and in additional sales representatives and marketing expenses for Axon and evidence.com. The investment in sales and marketing are continuing to yield results, as evidenced by our current customer acquisition cost to lifetime value Of the customer ratio. This statistic looks at sales and marketing costs in the quarter, divided by the number of new seats acquired in the quarter, and then we compare this to the net present value of future gross margins for that customer. In the third quarter, the video business had results where the customer acquisition costs to lifetime value ratio was greater than three.
As a general rule of thumb, when you have investments, when that ratio is above three, it indicates that we're getting a lot of leverage out of our sales and marketing, and it's a good indication that increased investment's warranted in the future. SG&A expenses of $12.4 million and $12.8 million for the three months ended June 30, 2014 and 2013, respectively, represent a decrease of $0.4 million for this year or 2.6%. As a percentage of net sales, SG&A expenses decreased to 28.1% for the third quarter, compared to 36.3% for the third quarter of 2013. Compared to the prior year, professional accounting, legal fees, and litigation expenses decreased to $2.8 million, driven primarily by lower costs of defense relating to product and commercial litigation. That's the main driver for the reduction year-over-year.
Liability insurance also decreased approximately $0.3 million compared to the prior year, due to favorable rate changes in the procurement of that insurance. These decreases were partially offset by increased personnel costs of $1.2 million as the company has increased customer-facing positions as well as some other administrative functions. We expect to see elevated SG&A expense continue into the fourth quarter due to the timing of the International Association of Chiefs of Police show that Rick mentioned earlier. That show typically has an investment of roughly $600,000 for us. Last year, that expense was divided between Q3 and Q4. This year, all that expense will be in Q4. We do expect to see elevated spending in Q4 due to the show, as well as additional incremental investments we're making in SG&A.
We expect the higher SG&A cost to continue into 2015 as we continue to hire people and spend money on sales and marketing activities in order to drive the business. Research and development expenses of $3.8 million for the third quarter of 2014. This represents an increase of $1.3 million compared to the third quarter of 2013. The increase continues to be primarily due to additional personnel costs relating to our Evidence.com and Video Segment development initiatives. As the team begins development initiatives, expenses will be capitalized until the product launches. However, given the newness of this initiative, the company cannot be certain of the timing of the capitalization or the completion of the development projects, and we do not capitalize any expenses in Q3. With current planned hires and other research investments in Evidence.com and the Video Segment, we continue to expect R&D expenses to increase from these levels.
We're finding that larger customers, such as the London Met, require additional functionality in our Evidence.com solution, which has delayed the development and launch of some of the new product lines. We believe in ensuring that major cities utilizing our solution have the best experience possible, will continue to solidify our position in the market. Adjusted EBITDA, which includes items such as detailed in the press release, was $15.1 million in the third quarter of 2014. This compares to $9 million in the third quarter of 2013, with the increase being driven by the higher sales and gross margins in 2014. Income from operations was $12.5 million in the third quarter of 2014, compared to $6.9 million in the third quarter of 2013.
As a percentage of sales, operating income was 28.2% in 2014 compared to 19.5% in the third quarter of 2013, with the increase mostly due to higher gross margins on the higher sales in the Q3 of 2014. Net income for the third quarter of 2014 was $7.6 million, or $0.14 on both a basic and diluted share basis, compared to net income of $5.1 million, or $0.10 per diluted share last year. Moving on to the balance sheet. We finished the quarter with the company generating $16.7 million of operating cash flow, which led to finishing the quarter with $74 million in cash equivalents, and investments. Accounts receivable for the end of the quarter, $27.1 million. This is up $4.6 million from the year-end balances due to the timing of collections, as well as the higher sales in the quarter.
Inventory balances of $16.1 million is actually up $5 million from the prior year due to increased stocks of both raw materials and finished goods in anticipation of future sales. Total assets as of September 30, 2014, were $164.1 million. Total deferred revenue for the quarter was $30 million. This is an increase of $9.8 million from the year-end balances, primarily due to the upgrade program of the X26 and X2, which includes extended warranty. We also had sales of Evidence.com solution, which contributed $2.8 million to an increase in deferred revenue from prior year balances. As you know, we're deferring revenue related to the Evidence.com service at the time of the purchase, so the service revenue ends up being recognized over the service period, which is between one and five years, depending on the sales agreement.
Also contributing to the increase in deferred revenue is the TASER Assurance Plan, which has increased the balance by year-end by $2.6 million as customers continue to embrace the program for both weapons and Axon cameras. Total liabilities of $46.1 million. The company finished the quarter with $118 million in stockholders' equity. The company continues to have no long-term debt other than some small capital lease on the balance sheet, continue to have plenty of liquidity and a strong cash flow engine in our core business to fund our sales, R&D efforts, and operations into the future. Moving on to the selected information from cash flows. The company had cash provided from operations of $22.6 million for the first nine months of 2014. The company paid approximately $4.5 million year to date on several litigations cases, including the A.A. & S. Consultants, Inc.
versus TASER, which was a negative cash flow. The operating cash flow would have been higher without those expenses. Net cash used in investing activities for the nine months ended September 30, 2014, was $17.1 million, compared to cash used of $13.2 million in the same period of the prior year. The net use of cash was driven by the net purchases of investments during the time period of $23.8 million. Cash used in finance activities was $9.3 million for the first nine months of 2014 compared to the cash use in finance activities of $11 million in the same period of the prior year.
The net use of cash was really driven by the repurchase of company stock of $22.4 million for approximately 1.7 million shares, partially offset by proceeds from employee stock option exercises by $8.6 million, and excess tax benefit from stock-based compensation of $5.8 million. To wrap up, we're continuing to invest in the business because we're serious about executing on our strategy of providing top-line double-digit growth consistently. We feel that these investments are necessary to continue to solidify our market position in the video business, investigate and develop adjacent revenue-producing opportunities, and continue to grow internationally so we can provide long-term value for all our shareholders.
Okay. With that, there's two other things I want to mention that I failed to in my segment. The first, some of you might have noticed that during the IACP, we launched the Evidence.com partner platform program with three launch partners, a drone company, AeroVironment, iRobot, and Net Transcripts. I can tell you we were frankly overwhelmed with inquiries from companies that want to come and partner with us. I think it is being seen in the industry that we have the strongest brand and that our platform is the core platform by a fairly large margin. We see partnering as a way to further solidify the power, the stickiness, and the momentum of Evidence.com. Finally, I'd point out as well, our party at IACP was themed as a retirement party for the X26.
Our creative team did just a great job. We had a small roast and a send-off for the X26, thanking it for its 12 years of service in the field, which is a fun, tongue-in-cheek way to remind the market that the X26 goes out of production at the end of this year and help customers transition to our newer Smart Weapons platforms. With that, we will transition and we will take a few questions.
Ladies and gentlemen, if you have a question over the phone at this time, that is star and then the number 1 key on your touch-tone telephone. If your question has been answered or you would like to remove yourself from the queue, please press the pound key. Once again, to ask a question, that is star and then the number 1. Our first question comes from the line of Paul Coster, JP Morgan. Your line is now open. Please receive your question.
Yeah, good morning. This is Mark Strouse. I am for Paul. Thanks for taking our questions. Just looking at the Evidence.com bookings, was there any particularly large orders that are worth calling out? I am just thinking about next quarter and if there is anything from this quarter that would be a tough comp for future.
Yeah, thanks, Mark. This is Dan. As Rick indicated earlier, our sales team executed flawlessly this quarter, really there is a number of deals we are able to pull forward. Individually, they were not orders of magnitude like the San Diego deal last quarter, collectively, they were as big or bigger than the San Diego deal. We had a number of million-dollar deals that we closed this quarter. There is some lumpiness. Obviously, we continue to execute hard. As Rick said, the pipeline for video continues to be very strong. In fact, it increased from the last time we talked and continues to be larger than the CEW pipeline. It is tough to predict exactly when those orders will happen, certainly very happy with the results this quarter.
Okay. Switching to weapons, I know you guys don't give guidance, so this may not be a fair question, but is there any way to quantify for us the amount of orders that were pulled forward into 3Q? Kind of what the hold is in 4Q?
Yeah, that's a tough one. We closed the quarter very strong with the sales team executing both in the federal space with some year-end monies that we were able to pull forward and get into Q3, which was useful, as well as a couple of the transactions. The Dallas deal was a deal that could have easily been in the fourth quarter. It was a lease deal that we did. It was kind of nip and tuck there at the end. That was a deal for about $2.5 million-$3 million. Certainly, I think that they executed well, and I was very pleased. We're very pleased as a company with the way they executed the quarter. Certainly, we had both between the large federal deal and Dallas is one to call on particular, easily deals that could have been fourth quarter deals.
Okay. One last one, if I can. Just any thoughts on potentially updating the long-term targets or maybe hosting another analyst day?
Yeah, no, that's a good question. That's certainly something that we're looking at. As you can see, things are very much in flux right now in a positive way, and we want to make sure that we've got plenty of flexibility to continue to make the investments which we think will pay off long term for our investors. It makes it a little bit tougher to predict, certainly down to the net income level with the investments we're making. We'll continue to look at that. We'd certainly like to do that, have another analyst day maybe sometime in 2015. We'll certainly update you once we're ready to do that.
Okay. Thank you very much.
Thanks.
Congrats on the quarter.
Thank you.
Our next question comes from the line of Greg McKinley with Dougherty & Company. Your line is now open. Please receive the question.
Yeah, thank you. I wanted to, I guess, touch on a couple different topics. First of all, Rick, you talked a little bit about international operations. Can you maybe just summarize for us what your infrastructure is in international markets, where you see that going, and then maybe what are some of the most attractive market opportunities you think that'll help you capitalize on?
Okay. Well, let me start. The epicenter is now moving to Amsterdam. That's where Ron Brandt and his team are based. In Amsterdam, I'd say we probably have around eight employees today. That'll probably be growing to 12 to 15 next year as we add international controller, et cetera. There are some tax advantages to operating out of Holland. Obviously, we did a pretty exhaustive review on where it made the most sense for us to be looking at tax implications as well as operational implications. Wanted to be close to the heart of Europe there. That's our largest team internationally. In Brazil, we've got a team, I think of about five people. In Brazil, we're still working to try to get approval from the army to be able to start manufacturing TASERs with our contract manufacturer and reenter Brazil on the weapons side.
In the meantime, we've had some of the largest agencies in Brazil are now in paid pilots with Axon and evidence.com, and we're able to deploy from Amazon's data center in São Paulo. Those are going well. Even while the weapons approval has taken much longer than we would've hoped, we are seeing that the camera business down there can be very interesting. We have a couple of individuals in other parts of the globe. Frankly, as we look at 2015, we're just going into our budgeting process now. We intend to significantly ramp up our investments in international sales and marketing. Frankly, as we look at history, we've done well in the English-speaking countries, in the U.K., in Australia, New Zealand, and not as strong elsewhere.
I think we've realized late last year that if we're going to be truly international, we've got to behave more internationally and provide the sorts of investments in infrastructure and personnel to our international customers as we do here. We began internationalizing all of our websites in terms of language. We hired a European, a German guy, to run our thing, not just an American we transplanted overseas. I'd say three years ago, our international sales plan was largely send Americans around the world as senior executives to go make presentations, but I don't think we were as strong on having teams on the ground to follow up and drive the ball down the field. That is changing now, and we see lots of opportunity to drive more growth next year.
You will see some more investments in international as we build out both the team in Europe, I think you'll see investments in putting a more structured and larger team in Asia.
Okay. Thank you. That's helpful. I wonder if on the bookings side within your video business, Dan, you also talked about deferred revenue. Can you remind us how much deferred revenue is on the balance sheet today as it relates to evidence.com? Can you talk about a backlog number? How much has been already recognized for software and service revenues versus how much is in backlog? Just to give us a sense for how that's aggregating.
Yeah. Certainly, we've seen a significant growth. This quarter, it was almost $3 million of deferred revenue growth just for the video business on top of what was already on the balance sheet. We'll have that in the queue.
Okay. It was a $3 million sequential increase?
Yeah, sequential increase. I'll get you that total hopefully by the end of the call here, or we'll get somebody looking at pulling it out of the Q. We certainly see it's almost about $7 million on the balance sheet right now for the deferred revenue for the video business. Again, that balance will be partly driven by how much cash have we received. Our future billings are actually significantly higher than that. This year we've had $32.5 million of bookings. The amount of billings is a fraction of that. It's probably about maybe $10 million of billings. Even this future $22.5 million of future billings that'll be done in subsequent years. Most of the customers with multi-year deals will still prefer to pay for the product annually. It doesn't create a large deferred revenue, but it does create a sort of large future billing amount.
Okay. Thank you. That's helpful. Regarding the Evidence.com product itself and the Axon hardware, I know you've already recently announced new features on the Axon camera to link it back to a squad car or turn the camera on remotely. How frequently do you anticipate new features being introduced, and is there a long life cycle to be able to get new features into the camera if needed?
Yeah. I'd say one of the things that is unique for TASER, and really a competitive advantage, is our ability to do a lot of voice of the customer research. We have a really good relationship with customers. They are very open with us as far as features that they desire. Our marketing team and our R&D team does a really good job of helping customers prioritize the features, we work on the things that are most important to them, and we work on those things first, and the things that have the most universal need. I think a lot of what the team is working on today has been sort of additional features in Evidence.com that, especially for the larger customers, that make it more efficient for them to roll out the product, make their use of the product more efficient.
Again, this creates a competitive advantage because these are advanced features that are hard for competition to replicate. I think it's a big reason why we're winning the large deals. Rick talked about being the only scalable end-to-end solution. Part of that scalability is having advanced features that make large customers make their experience in our system excellent and makes them reference customers going forward for other big customers. It allows them pulling into the system as well.
Dan, one other thing I would point out is, I believe every major deal we've signed this past quarter was on our ultimate plan, or at least the vast majority of them were. Our ultimate plan is where we bundle in an included upgrade every two and a half to three years. For our customers, they love that. We take the risk out of it for them and say, "Look, as you get on this plan, you don't have to worry about, are you going to be obsolete when the next camera comes out. We can have you on a regular upgrade cycle." Frankly, I think that's something that uniquely TASER could do with some of our smaller competitors that Obviously, there's a lot of noise out there. There's a lot of vaporware a lot of the competitors have memorized our product specifications to comical detail.
The fact is, a customer is not going to get on effectively a prepaid plan with some company they don't know if it's going to be here in a year or two.
Yeah.
The stability, the customer relationship we have at TASER allows us to enter into these relationships and take that risk off the table for our customers. That's something that is not replicable.
Yeah. Okay. Thank you. Nice quarter.
Thank you.
Our next question comes from the line of Steve Dyer with Craig-Hallum Capital Group. Your line is now open. Please proceed with the question.
Hey, guys. It's actually Greg Palm on for Steve. Congrats on the fantastic results.
Thanks.
Thank you.
I was wondering if you could go into some detail on the bookings number. Obviously, a big jump sequentially, and I'm sure Ferguson had something to do with that. Can you talk about the cadence of those orders received? Obviously, results will be lumpy on a quarterly basis going forward, but given the active deployments and pilots you guys have talked about, what's the right level to think about going forward?
Got you. Well, first of all, let me just say, Ferguson had very little to do with the bookings number this quarter. Our customers don't buy in 30-day cycles. Ferguson drove a big shift in inquiries and new trials, but we won't see the effects of Ferguson in the booking number for another quarter or two. Dan?
Yeah. No, I agree with that. I think, as I indicated before a little bit earlier on the call, we had a number of million-dollar deals this quarter, which I think is really encouraging that the quarter's not dependent on a single deal. Last quarter, we had a pretty good percentage of the total quarter bookings were one transaction. Having a number of sort of million-dollar sized deals, I think is useful. Certainly, on a go-forward basis, as Rick indicated in his comments earlier, I think that there's certainly some lumpiness. It makes it tough to predict, but we feel very good about the macro environment. We think we continue to win the vast majority of any competitive situation we're in. The faster the market moves, the faster the bookings will grow, but we are dependent on a number of outside influencers as well.
One other anecdote I would share about the Ferguson incident. We did have a number of agencies in that area obviously call us up and say, "Hey, we want to get cameras out fast." We were able to deploy, I think 70 or 80 cameras at one agency that wanted them in a matter of days. What I heard back from our team that was out there is that while they were there, in one of these agencies, one of the competitors also had some product there, and the agency couldn't get it to work. That's, again, one of our advantages. This thing scales. We've got in the tens of thousands of cameras, 100,000 total in the field.
We have thousands and thousands of cameras online, our business processes continue to get more and more streamlined so we can bring cameras online faster and easier for the customer. We believe that those competitive advantages, we have an opportunity to widen the gulf, from the position we're at now. Incidents like the one we heard about there with that agency struggling, as new competitors throw lots and lots of features and try to compete. This stuff's hard to do well. It takes really great engineers and a lot of work and a lot of rigor. A lot of folks trying to do this, we don't see have the resources and talent, and time, frankly, to be able to do something competitive, while the market is forming here.
That's helpful. Moving on to weapons business, and sorry if I missed this, but you guys are obviously end of life in the X26 this year. Can you talk about the impact of that, what that had on Q3 results, if any, and what kind of impact it has going forward on the upgrade cycle for the next couple of quarters?
Yeah. This is Dan. Certainly, historically, when we end of life the M26, it certainly helped customers that are sort of waiting or on the fence for an upgrade. It helped to sort of drive adoption. That gave them sort of one more data point to use with their city councils as they try to get capital money to buy new weapons. They'd say, "Look, our weapons are so old, they're not supported by the manufacturer anymore." We think that'll be a useful fact for them to have in their argument of why they need to upgrade. Certainly, we think by end of life in the X26, that could help to continue to drive the upgrade cycle. It's tough to quantify exactly how big an impact it's having in any given quarter. Certainly, we know from sort of historically that it is useful.
It forces customers to look at our new products. We think, candidly, the new Smart Weapon Platform has some significant advantages over the legacy products, and by no longer supporting a legacy product, it forces customers to take a look at the new products, which hopefully will help drive the cycle as well to upgrade.
Last one, maybe as you take a step back and compare what's going on with the video segment now and think back to maybe what your expectations were like a year ago, what has changed? What's different from your initial thoughts, whether it be accelerated adoption, take rates, usage rates? I know the Ferguson events have probably had a pretty significant effect, but just trying to get a sense on how things are ramping compared to your initial thoughts.
I think we're very pleased with where we are right now. I would say that a couple of things that we find really encouraging. One is that 87% of the deals this quarter were multi-year deals. That, to me, is just an amazing statistic. It shows confidence in our customers to continue to execute. It shows confidence that the solution is something that they're going to need long-term. This isn't a one-year, we'll figure out in a year if we really need it. They get it. I think our sales team has done a great job of helping our customers understand the complexities of trying to manage digital evidence on their own without a robust solution behind them. I think the fact that we're seeing 75% of the cameras sold this quarter were online, meaning they bought subscriptions to Evidence.com, and then 87% of those bought multi-year deals.
I think we're very encouraged by both of those statistics, and we feel compared to our expectations, I would say we're very pleased and meeting or even exceeding our expectations at this point.
Yeah, I'd add in as well. Look, we're feeling phenomenal right now, right? I mean, five years ago when we started down this path, a lot of people thought we were crazy. A lot of people said cops aren't ever going to wear a camera. It's Big Brother. I mean, we had police chiefs, the overwhelming feedback was, "We'll never put our data outside of the four walls of the agency in the cloud." I mean, frankly, a lot of people thought we were kind of crazy. We went through some dark years there. I mean, this was hard to transform the business. This has not been an easy transformation. What we've built was intense from a capital perspective, from an effort and engineering perspective. We went through some dark days.
I'd say about two years ago, we had folks in the company asking us, "Hey, is it time to shut this thing down? Is this thing ever going to scale?" Well, I think we have that answer now. The great news is when you can see what's coming, when the rest of the world doesn't see it yet, that can set up for a great advantage. What everybody thought was crazy five years ago is now accepted as inevitable, and we are well-positioned. I'd like to thank our shareholders. Some of you guys have stuck with us through those dark days and through the years where we bounced around break even to get this done.
I got to tell you, it feels great right now to have the validation of the market and the validation of the customers, and we are running hard, and we're going to own this thing. We feel like much like the TASER business, we created it from nothing, and we're going to run hard, and I think we could win this. We could run the table. We're winning every major city right now. I think we may have a couple blips along the way. Things aren't always sunny and challenge-free, but as people pointed out a few years ago, this could be a very competitive place. There's lots of cameras, people can do software. This business also has some aspects where if a true market leader emerges, there would be a lot of momentum for people to consolidate around that market leader.
We got a shot at it. It's not in the bag, but in another year or two, we could have this really dialed in and locked up. This business is materially more valuable if we are the dominant industry standard than if we are just one of several in the market fragments. We've said that message before, and we'll repeat it again, and that is a battle cry for our employees and frankly, for our investors. We know that you guys aren't always delighted when we say, "Hey, we're going to invest more to get this done." When we see the sort of growth possibilities, and when Dan talked about that customer acquisition to long-term value number, to me, that's a super conservative approach because we're just modeling in the customer value with our current products today.
Every customer that we're in, we have opportunities to expand with future products with additional premium add-ons. If we started modeling that in, the number increases even further. Of course, with investors, we want to be conservative. In case you can't tell, I am feeling great, the wind's at our back, and this is not the time for us to relax and let up. It's time to go for the kill.
Thanks again for the insight, Dan. Congrats again.
Thank you.
Our next question comes from the line of Glenn Mattson with Ladenburg Thalmann. Your line is now open. Please proceed with your question.
Yeah. Hi, good morning, everybody. I guess keeping on that same theme, it's nice to see the uptake in new services by some of these other agencies like Salt Lake City and Birmingham, the fire and buildings departments in Miami. Curious if those extended use cases are being brought up in other cities. Also, I think we've spoken in the past about next year 2015, you guys starting to potentially release some new products down that Evidence.com sales channel, and was curious how that process is coming along, but also is it customer feedback? Is it things that they're asking for and requesting that's driving the new product development there? Is it things that you guys think that the market needs that they don't know they need yet? Any thoughts on that?
Yeah. This is Rick. Let me comment on that. The introduction of sort of completely new products is slightly delayed. I would say as we've made resourcing decisions, for example, deploying in England with the London Met. That required some significant work to get that done because we couldn't use Amazon Web Services long-term. We had to deploy on a local provider that met certain requirements within the U.K. As we've looked at it, we have had to make some prioritization decisions where we've said, "You know what? We've got to win every big deal that's come across the table right now." We've invested a little more heavily, and we've redeployed some of our engineering resources on making sure. Our number one priority is win every big deal, and right behind that is we want to make every one of those customers ecstatic.
We want them to have a successful program that they're bragging about that it's going so well, and that requires a lot of support. The reason we want to do that is twofold. These guys all talk to each other. That's going to impact the next deal. Frankly, that's setting the stage for when we want to come in with our next products and services, some of which are going to displace some incumbent systems they've got. Customer sat is typically very low at law enforcement agencies with their existing systems. We think our customer sat is like the secret weapon that will enable us to come in with the next generation products and as we expand out from our beachhead.
I think obviously, we feel it's the right thing from a discipline perspective to make sure that we have the current business opportunity under control, stable, scaling, and working, and not overextend ourselves and introduce something else too soon, if that means taking resources off of the opportunity at hand. Dan, anything you'd want to add on that?
Yeah. No, I think that you hit that perfectly. That's great. I think the only thing I would add is you had a question about the sort of digital evidence management and examples like Salt Lake. I would say that's definitely something our sales team reinforces with all the customers. We've engineered the system to be a digital evidence management solution for all digital evidence, not just our videos. Having customers like Salt Lake store other digital evidence in there, I think, makes them referenceable for other customers consider using our product for everything and having all their evidence in one place from a digital perspective. I think that's one more value proposition we offer. We've got good workflow for ingest of other products.
Some of the partnership stuff we're working on will certainly allow for other things to be loaded in the system and have all the digital evidence in one place.
One other thing I missed answering the second part of your question, which is, are we developing things that customers are asking for, or are we going to sneak up on them with some new things they don't know they need? We sort of learned our lesson, those of you who were here many years ago, about trying to sneak up on our customers, with things that we haven't gotten their feedback on. We'd always tend to do that again, so you're not going to see something come out of left field, that is just totally out of the blue that we hope law enforcement would like. The engineering team, when we acquired Familiar last year, they spent four months in the field on ride-alongs with cops and going on SWAT call-outs and sitting in dispatch centers. It's not just the product management.
Engineers are in the field with cops, taking their feedback into what they need, and those are the things we're building. It's a very customer-driven approach. It is not an internal engineering-driven approach on all of our new products and services.
That's fair. I think the X26P was a good example of how you guys have moved towards the listening to the customers and what a success that product's been.
Yeah. The TASER X3 is still my favorite TASER we ever made. I've got one by my bedside. Unfortunately, I'm sort of alone in that perspective, and we don't want to have another one of those.
Right
We want to make sure it's right for the customer, not right for us.
Yeah. Right. Quick from Dan, you mentioned the inventory rise due to some potential, I guess, new sales or kind of how you see the sales kind of playing out. I guess the inventory rise, if it's mostly related to weapons, would equate to a revenue number, just looking at the year-over-year comparison, to something sort of flat to slightly up in Q4 sequentially. I'm curious about how the policy is. I know there's a lot of book and ship business within the quarter, so, what kind of look do you get ahead of time that gives you the confidence to build that inventory?
Yeah. I think one of the things that makes it a little bit easier is we don't have a proliferation of SKUs at TASER. It makes it a little bit easier to go heavier on inventory and not worry about obsolescence risk. Certainly as we look at the business, especially as Rick indicated, we're making large investments to grow the international business. We expect that to grow faster than the U.S. business over the next few years and become a more meaningful part of the business. Certainly, the international business, as you know, tends to be a little bit lumpier. It tends to be punctuated by larger individual deals. You need to keep a little bit more inventory in order to react and be able to satisfy that customer demand when it happens.
I think on the video side, candidly, the video business has been so strong, it's been hard to build inventory because the demand has been so strong. We're continuing to ramp up the supply chain to make sure that we continue to meet demand both now and in the future.
Great. The last real quick one, the comment at the end of top-line double-digit growth, is that a consistent language that you've always used, or is that a new part you've added to the script?
No, I think we certainly felt that way, I think that that's something we talked about at our Analyst Day 18 months ago, we continue to make the investments to drive that double-digit top-line growth. We feel with the international business, the video business, and the continued upgrade cycle, we have a good growth engine to continue to deliver on that.
Great. Good luck.
Thank you.
Our next question is a follow-up from the line of Greg McKinley. Your line is now open. Please proceed.
Yeah, thank you. Just a couple follow-up items. Can you give us any color on your telesales group's progress and how that's impacting U.S. performance?
Yeah. They're just absolutely continuing to do exceptionally well. This quarter, we had $8 million of telesales deals in the quarter. It continues to be a big contributor for us, both in the top line as well as in gross margins, because that's all direct business. That's part of the shift and we've seen higher ASPs as well. Again, the purpose of telesales wasn't necessarily. That's more of a byproduct of taking more business direct. It's making sure we're serving that smaller customer that's typically been underserved by both us and our distributors, and those customers are having a great experience with our telesales.
Okay, thank you. Rick, at the IACP show, you mentioned that you partnered with AeroVironment and iRobot. I thought there was a third company you mentioned, but can you tell me what those partnerships do, or how you're collaborating with them?
Yeah. AeroVironment and iRobot both have devices that are autonomous vehicles, either aerial or ground-based. They're used for a variety of different things, whether it's observation, trying to find missing people outdoors sometimes, bomb disposal units, et cetera. All those have video feeds on them that are typically used for real-time situational awareness. We're partnering with them so that those video feeds can be fed into evidence.com and preserved for evidentiary use later. Obviously, these incidents where these robots and drones are being used are pretty high-risk incidents that are likely to end up in some sort of legal case after the fact.
We're just making it seamless for our customers, and it's a great add-on value for our customers there, that they can take that video, and rather than bringing it to a desk, they can put it into evidence.com and enjoy all the chain of custody and sharing and collaboration features that we've got. The other one is with Net Transcripts. They're a company that specializes in transcription for law enforcement. This makes it easy for our customers to click a button and batch a job to have it transcribed and delivered back to the agency so that they have a transcript. You'll see a number of additional partnerships that we're evaluating over the coming quarters and years to continue to build out additional functionality for our customers. Really, we want all their digital evidence in one place, and that's evidence.com.
Okay. Thank you. I don't know the degree to which you can comment on this for competitive purposes, but you talk about extending evidence.com features and responding to other needs that agencies have that aren't being addressed yet. Can you give us some more granularity on helping us understand what are those needs and where you see the bigger opportunities?
Not really.
Okay.
For competitive reasons, until we're ready to announce stuff, we don't want to put it out there and give our competitors a heads up which ways we're going.
Okay. Last question. Dan, you had shared on this last quarter, 75% of your cameras sold also included an Evidence.com subscription. You've quantified camera sales in the past. Can you give us a sense for how many licenses are out there, either through what's deployed so far or perhaps included in the bookings numbers, just so we understand how many of those we can look forward to starting to generate revenue when they're deployed?
Yeah. We're not quite ready to disclose that. I would say that you can see from sort of the service revenue line that it is growing. We can certainly say it's over 10,000 licenses at this point.
Okay. That's helpful. Thank you.
Sure.
Thank you. With that, I'm not showing any more phone questions at this time. I would like to turn the call back over to Mr. Rick Smith.
Great. All right, let's take a couple questions from Twitter. I'll take the first one here. Will TASER ever be a dividend stock? Answer to that is, we don't know what the future holds. Certainly, it's something that we do consider, and we talk at the board level every quarter about our strategy for our capital structure. As you've seen, we've been pretty aggressive over the years with buybacks, so we are not shy about returning capital to shareholders. We are in a phase right now where we're letting some capital accumulate, just given the opportunities ahead of us and frankly, the uncertainty. Things are moving fast and it's hard to predict the future. We're letting the cash balances build up for a bit here, so that we make sure that we have the assets available to support our plans.
If we see opportunities to jump on, we've got the capital available. I think we've also shown to investors that we're disciplined about this. We're going to be very careful. Just because cash is in the account, certainly we don't feel like we need to go spend it. That's something we'll continue to evaluate, and we'll let you know if we ever come to the conclusion we think a dividend makes sense. I think at this point, we think that that might be a little too constraining, because when you start setting a dividend policy, that's forever. It creates a long-term expectation. Right now, there is so much opportunity in front of us, I don't think we're prepared to constrain our capital usage. Dan?
Yeah. I've got a second Twitter question asking if we're capacity constrained at all in the next six months. It's a great question. Currently, we run one shift, four days a week. We've always had the ability to add shifts on Friday and over the weekend, and we have the ability to add a second shift, which in effect double our capacity. We certainly have plenty of capacity. We're not constrained at this point. The supply chain continues to ramp up to make sure we've got the raw materials to produce, and the manufacturing team is working overtime at this point and certainly has the ability to add a second shift as we move forward. We just have to find the personnel to work the off hours. Something we've done successfully in the past and certainly available to us as we go forward.
I guess I'd wrap up with that. If we do get one of these really outsized international orders, short term, there could always be an issue with trying to get stuff done in the quarter by the time you've got to move supply chain along. We wouldn't certainly, over a multi-quarter basis, I don't think we're seeing anything from a capacity constraint, at least on the hardware side. We're hiring software developers right now, so anybody who knows some great software developers, keep sending those in. That might be one area where you might say we're constrained just in building out the team to continue to extend our lead. With that, we'll go ahead and we'll wrap up. We've been on for over an hour.
I guess calls like this, you want to just let them keep going because we're having a ball and really enjoying the results we had this quarter. Thank you again to our shareholders who've stuck with us over the years. We're committed to doing great things here and serving our three stakeholders, our customers, our shareholders, and our employees. With that, we're looking forward to wrapping up the year, and we'll talk to you all in February on our next conference call, and we'll see you at our shareholder meeting next May. Have a great day.
Thank you.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, you may all disconnect. Have a good day, everyone.