Good day, ladies and gentlemen, and welcome to the second quarter 2014 TASER International earnings conference call. At this time, all participants are in a listen only mode. Later, we will have a question and answer session, and instructions will follow at that time. If anyone should require assistance during today's conference, hit star and then zero to reach an operator. I would now like to turn the call over to Mr. Rick Smith, Chief Executive Officer. Sir, the floor is yours.
Thank you very much, good morning to everyone. Welcome to TASER International's second quarter 2014 earnings conference call. Before we get started, I'm going to turn the call over to Dan Behrendt, our Chief Financial Officer, to read the Safe Harbor statement.
Thank you. Statements made on today's call will include forward-looking statements, including statements regarding our expectations, beliefs, intentions, or strategies regarding the future, including statements around projected spending. We intend that such forward-looking statements be subject to the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based upon current information and expectations regarding TASER International, Inc.. These estimates and statements speak only as of the date in which they are made, are not guarantees of future performance, and involve certain risks, uncertainties, and assumptions that are difficult to predict. All forward-looking statements that are made on today's call are subject to the risks and uncertainties that could cause our actual results to differ materially.
These risks are discussed in our press release we issued today and in greater detail in our annual report on Form 10-K for the year ended December 31st, 2013, under the caption Risk Factors. You may find both of these filings, as well as our other SEC filings, on our website at www.taser.com. With that, I'll turn it back over to Rick.
Thank you, Dan. As a reminder to everyone on the call, we are going to be accepting some questions via Twitter during the Q&A portion, which can be submitted using the hashtag TASR_earnings. To follow our updates on Twitter during the call, follow the account @taser_ir. That's at T-A-S-E-R underscore I-R. We'll be posting graphics and commentary throughout the call. For those of you without Twitter, all updates and graphics do stream directly to our investor relations website at investor.taser.com. The second quarter of 2014 was a busy one for TASER, and I'm personally excited to share some of the progress and milestones that we had during the quarter. First off, consolidated revenue grew 15.5% year-over-year to $37.2 million on a consolidated basis. This marks the 10th consecutive quarter of year-over-year top line double-digit growth.
We continue to work hard to aggressively grow the top line and are eager to continue to share our progress and successes throughout the remainder of the year. Traction in the EVIDENCE.com and video segment continues to accelerate. Most notably, the leading indicator of bookings increased to $11.3 million in the second quarter, which is a significant increase, nearly doubling from the run rate of the past three quarters in the $5 million-$6 million range. There were several major city wins this quarter that contributed to this level of bookings growth, including the Winston-Salem Police Department, the Spartanburg County Sheriff's Office, and the San Diego Police Department. Out of the 72 major cities, we now have active deployments in seven cities, with three more currently in paid trials and roughly another 10 in some form of pilot or active discussion.
We continue to win the competitive deals we're pursuing. We are aware of only one large competitive procurement which we lost in the past year. The purchase of cameras and the decision for managing the digital evidence is a highly visible, complicated decision for these agencies. It's not as simple as handing out cameras and sending officers on their way. There are policies that must be written and implemented, IT departments to work with, public relations messaging to be crafted by these cities. Time and again, the largest agencies in the world are choosing TASER and EVIDENCE.com because we work so closely with command staff and the city to make sure that these implementations and rollouts of our solution in particular go smoothly. Because of this and our continued marketing efforts, we're seeing continued positive indicators for the business.
We're also finding that the usage of our EVIDENCE.com solution is growing exponentially. In the second quarter, we saw approximately 950,000 files and 95,000 gigabytes of data uploaded into EVIDENCE.com versus approximately 250,000 files and 20,000 gigabytes uploaded a year ago. See the graph in the tweet we just sent out. We're seeing an impressive curve in accelerating system usage. Our pipeline of actionable deals is the largest it's ever been, and in fact, the number of requests for proposals or RFPs that we have done for cloud and wearables surpassed those for weapons this quarter. Further, initial survey results from our technology summit attendees shows that these thought-provoking events are paying off. We found that 98% of attendees would recommend attending a technology summit to a colleague.
72% of attendees reported that the event helped to remove any objections they have had regarding video and/or cloud technology, 95% of the attendees reported that after the event, they viewed TASER International as a technology company, not a weapons manufacturer. This is a very important shift in perception in our opinion. We want to continue to be seen as a thought partner and a natural choice for agencies to partner with to implement the seismic changes coming to law enforcement in the future through cloud and wearable technologies. Internationally, the video business continues to pick up steam following the London Met pilot announced earlier this year. This pilot has spurred interest in several additional markets that look up to the Met as a leader in international policing. The Brazilian market has now begun adopting our video and cloud products.
In the second quarter, we have received orders from two of the largest agencies in Brazil for initial deployments. We expanded our partnership with Amazon to have an instance of their data centers in Brazil as well as Dublin, so that we can be prepared for the evidence produced and the potential concerns that international customers may have about storing that data in the U.S. In addition to Amazon, we are also evaluating other partners with in-country data centers so that we will not be restricted by data center location in our sales process. Our team in the Netherlands continues to set up the infrastructure to grow the international part of the business, we look forward to continuing to share their success in future quarters.
We do anticipate that due to the large incremental jump in Q2, that the third quarter video bookings will fall in the range somewhere between the first and second quarter levels. One way to show why we're excited about the current video business is to look at one recent win. Let's talk about San Diego. San Diego is a major city that will ultimately pay Taser about $4 million over the next five years for the Axon and EVIDENCE.com solution. If, for example, they'd instead upgraded their CEW weapons base to X26Ps, we would be recognizing approximately $1.6 million over the same five-year period, including cartridges, batteries, et cetera. The Axon and EVIDENCE.com deal creates a five-year opportunity that's two and a half times larger than the CEW opportunity. Now, of course, Taser has the opportunity to close both of these types of deals.
San Diego benefits in this deal as well, as they will realize a significant return on their investment and gain incremental IT capabilities by making EVIDENCE.com a core and critical system for the city. This example truly exemplifies why we are so enthusiastic about the current opportunity in front of us. Yes, we are investing for adjacent technologies and new revenue streams, but the size of the present opportunity, a camera on every officer, remains enormous. The Taser Weapons business continues to execute and also shows strong results, delivering revenue that were up 7.9% to $32.7 million. Gross margins continue to be extremely strong at 67.4% for the second quarter. Domestic weapon sales increased 9% year-over-year as well. Internationally, while the revenues were a bit lower than the last two quarters, which is a result of the lumpy nature of that segment, there were some great wins.
We received our first Smart Weapon sale in Canada following the approval that occurred in Ontario and the completion of a successful evaluation of our Smart Weapon technology by a governmental study. We believe these approvals have now cleared the way for an upgrade of the large installed base of older weapons in Canada of more than 10,000 weapons, which are ripe for an upgrade. We think this is a great indication of future international weapons growth. We're also expecting approvals from several additional international markets in the coming quarters, which will clear the way for further upgrades around the globe. Finally, there are several international markets we're working on significant programs for new TASER weapon deployments, setting the stage for what we believe will be a record year in international sales.
I'd also like to provide an update on the highly successful telesales program we launched last year. In short, the telesales team continues to do an outstanding job closing business with smaller law enforcement agencies in weapons and Axon and EVIDENCE.com. In the second quarter, they booked approximately $9.7 million in new business, and they've shown consistent quarterly growth every quarter since we launched the program. The team is now up to 10 employees, and we'll be adding one or two more reps who will be focused solely on selling and renewing EVIDENCE.com. We wanted to share their success with investors to help you better understand and model our business. Every quarter, we ship thousands of orders. The large majority of them, including those through telesales, are small orders. As we all know, small orders can add up very quickly, but they won't be material in their own right.
These small orders will never get announced on a press release. With the telesales function growing and the smallest tier of the market procuring more TASER products, that base of small orders looks different today than it did a year and a half ago. We've heard some speculation in the marketplace about pending revenue levels in any quarter based upon adding up the orders announced in a press release. We don't think this is a very accurate methodology. We've continued, committed to updating the market on our material orders for each part of our business once a month, but caution that due to timing, small orders and other factors, such as some agencies requesting to refrain from public announcements, that approximation of revenues from these press releases is not a reliable way to estimate revenue performance.
Another positive event that occurred during the quarter was the addition of a new board member. Bret Taylor, the former chief technology officer of Facebook, the co-creator of Google Maps, and currently the CEO of Quip, joined TASER's board in early June as a replacement for Dr. Matt McBrady, who unfortunately had to leave our board to focus on his new position of chief investment officer with BlackRock. Bret's background is founded in high tech. He's widely seen as a thought leader in software and online technology. We think that he'll be a great contributor to driving our strategy around our cloud and wearables business. Bret told us the clincher for him joining TASER's board was shortly after speaking with Hadi Partovi, another tech leader on our board.
He took his family on a trip to Disneyland, and he saw an officer wearing an Axon Flex in the wild, which bolstered his hunch that TASER was going to be the leader in this space, and it was something he wanted to help guide us as a board member. We have a great video with Bret on our evidence.com website. If you want to learn more about him and his interest in TASER, you can find the link on Twitter now. In March 2013, the company held its first Analyst Day at the Nasdaq marketplace in New York. At that time, we shared TASER's five-year long-term financial projections for 2017 for both top line and operating results based on a number of underlying assumptions. Our business has evolved rapidly since March 2013.
We've seen increasing success in our international sales efforts, as well as adoption of our video solutions, particularly by the largest agencies, faster than anticipated. We continue to win the vast majority of our competitive bids on larger deals. We also acquired a top-notch software development team when we purchased Familiar in the fourth quarter of last year. Because of the traction we're seeing in the business, as evidenced by the continued significant increases in evidence.com and AXON bookings, we've continued to expand our investment in marketing initiatives and customer-facing roles to enhance our ability to compete in the all-new video camera and evidence management opportunities. We have also continued our investments in research and development as we develop products and applications in adjacent technologies that will meet the needs of law enforcement.
We have the goal of having a highly integrated platform, which offers capabilities that will fundamentally change how law enforcement agencies operate. We feel that our current success is based on our full feature cameras, as well as best-in-industry end-to-end solution, which not only captures events on video, but makes the management of digital evidence far easier and more effective than competing solutions. The success we're seeing in large agencies and in international trials also creates the opportunity to not only develop new features for our current products, but to launch adjacent products and services with significant additional long-term revenue opportunities. We believe the investments we are making in R&D and sales and marketing will yield long-term results, but at a near and medium term, impact the profitability.
As a result, we no longer feel that investors should rely on the long-term financial projections we presented at the Analyst Day in March 2013. The company plans on conducting an Analyst Day in the future, where we may update the market on our long-term expectations as we gain more visibility on these new opportunities. We continue to be excited about the direction of TASER and evidence.com and look forward to sharing more success in the coming quarters. Dan will now go over the financial results in greater detail.
Thank you, Rick. In the second quarter, consolidated sales were $37.2 million, a 15.5% increase from the second quarter of 2013. The increase in sales was primarily driven by our law enforcement weapons handle sales, which increased to $2.5 million at the end of the second quarter compared to the prior year. AXON cameras, EVIDENCE.com, and TASER CAM sales also grew by $2.6 million to $4.5 million in the second quarter of 2014. Service revenues for the EVIDENCE.com and Video segment increased $0.6 million to $0.9 million in the second quarter compared to the prior year. Included in service revenues are approximately $83,000 in professional service revenue for implementation of our solution. These are generally one-time billings that can introduce some lumpiness into the service revenue line. The legacy TASER X26 CEW declined $2.1 million in the second quarter as a result of agencies embracing the new Smart Weapons platform.
There are still some international and federal customers who are continuing to purchase the legacy TASER X26, because it is the only CEW that has been approved for their market or application. We're working with these customers to get them to review and approve the new Smart Weapons platform. At the end of 2014, the TASER X26 will be going out of production. While we will support the warrantied handles, we'll be focused solely on the Smart Weapons platform going into 2015. The new single-shot Smart Weapon, the TASER X26P, saw its sales increase $5.7 million over the second quarter of 2013, which is the main reason why the total handle sales grew by $2.5 million when compared to the prior year. Gross margin for the second quarter was $23.2 million or 62.4% of revenue, which is up from $19.7 million or 61.4% in the prior year.
As sales have increased, we continue to benefit from higher operating leverage. Due to price increases instituted in the beginning of 2014, as well as more sales being sold directly to the end user through our own distribution channels, we're seeing higher ASPs on our products also improving gross margin. Although service revenue increased quarter-over-quarter, the cost of service delivered actually decreased by $0.1 million in the second quarter compared to the prior year due to the continued benefit of the completion of the depreciation related to the capitalization of the EVIDENCE.com software development cost, which was around $300,000 a quarter previously. Gross margins in the TASER weapons business were especially strong, with gross margins as a percent of revenue in the second quarter of 2014 up 67.4%, compared to gross margins of 65.6% in the second quarter of 2013.
In the EVIDENCE.com and Video segment, revenues increased $2.6 million to $4.5 million for the second quarter of 2014. The loss from operations in the EVIDENCE.com and Video segment worsened to $4.1 million from a loss of $2.7 million in the second quarter of 2013, largely due to the increased investment in research and development activities, as well as additional sales representatives and marketing expenses for the AXON and EVIDENCE.com products. The good news is the investments in sales and marketing are yielding results. In the past 12 months, we've sold nearly four times the number of cameras as we did in the prior 12-month period. SG&A expenses were $13.5 million versus $10.9 million in the three months ended June 30th, 2013. This represents an increase of $2.6 million or 23.8%.
As a percentage of net sales, SG&A expenses increased to 36.4% for the second quarter of 2014 compared to 34% for the second quarter of 2013. Within the current quarter SG&A, there's approximately $2.2 million relating to settlements of commercial litigation cases that related to disagreements with two former distributors. Excluding these settlement expenses, SG&A for the second quarter would've been $11.3 million or 30.5% of revenues. Compared to the prior year, personnel expenses increased by $0.4 million as the company has increased customer-facing positions as well as some administrative functions. Expenses also increased related to the TASER-hosted technology summits, which take place to promote law enforcement awareness about recent developments in cloud technology in the past year. Increases were also seen in travel expenses as the company works to grow its international presence.
These increases are partially offset by lower spending on liability insurance, expert witness fees, and legal fees. We expect to see the elevated spend in the SG&A continue through 2014 as initiatives to grow the top line internationally and the EVIDENCE.com and video segment are expected to continue and further infrastructure is put in place. Research and development expenses were $3.5 million for the second quarter of 2014, an increase of approximately $1.5 million when compared to the second quarter of 2013. The increase continues to be primarily driven by the additional personnel expense related to EVIDENCE.com and the video segment, basically hiring of developers in that segment of the business. As the team begins development initiatives, expenses will be capitalized until the product launches.
However, given the newness of some of these initiatives, the company cannot be certain of the timing of the capitalization or the completion of the development projects, and we did not capitalize any development expenses in the second quarter of this year. With the addition of the Familiar team, as well as planned hires and other research investments in EVIDENCE.com and 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 to our EVIDENCE.com solution. While we're able to roll this functionality out on a more widespread basis in the future, it has delayed the start of development of some of the new initiatives we had in place. We believe that ensuring that major cities utilizing our solution have the best experience possible will continue to solidify our position in the market.
Adjusted EBITDA, which excludes certain items as detailed in our press release, was $9 million for the second quarter of 2014 compared to $9.5 million in the second quarter of 2013, with the decrease being driven by the higher R&D and SG&A expenses in 2014. Income from operations was $6.2 million in the second quarter of 2014 compared to $6.8 million in the second quarter of 2013. The net income for the second quarter of 2014 was $3.9 million, or $0.07 per diluted share, compared to net income of $4.5 million or $0.08 of diluted share in prior year second quarter. As we move on to the balance sheet, the company generated $1.7 million of operating cash flow, and we finished the quarter with $59.8 million in cash equivalents, and investments.
Accounts receivable of $22.1 million were down about $0.4 million from the year-end balances due to the timing of collections. Inventory finished the quarter at $15.1 million, which is an increase of $4 million from the prior year-end balances due to basically increased raw materials and finished goods in anticipation of 2014 sales. Total assets at June 30, 2014, were $149.4 million. The total deferred revenue of $24.4 million actually increased $3.9 million from the year-end, primarily due to the upgrade program sales of the X26 and X2, which increases our sales of extended warranties. Sales of our Axon cameras and EVIDENCE.com solution also contributed $0.8 million to the increase as we defer revenue relating to those sales and recognize it over the service life of those deals.
Also contributing to the increase in the deferred revenue is the TASER Assurance Plan, which has increased the balance from year-end by $1.2 million as customers continue to embrace the program for both weapons and Axon cameras. The total liabilities are $37.9 million. The company finished the quarter with $110.5 million in stockholder equity. The company continues to have no long-term debt other than a capital lease and will continue to have the liquidity and strong cash flow engine for our core business to fund sales, R&D efforts, and operations in the future. As we move on to the selected statements of cash flows, the company had cash provided by operations of $6 million for the first six months of 2014. During the first six months, we did have a number of settlements related to litigation that ran through the cash.
We paid $4.5 million on the AA and Saba consultants case versus TASER, and an additional $0.8 million on the Turner case. Both those cases were a large use of cash in the first half of the year. Net cash from investing activities for the six months ended June 30, 2014, was $14.4 million, compared to cash used of $12 million in the same period in the prior year. The net use of cash was driven by the net purchase of investments during this time period of $13.1 million. Cash used in financing activities was $7.9 million for the first six months of June 30, 2014, compared to cash used of $17.3 million in the same period last year.
The net use of cash was driven by the repurchase of $19.6 million for approximately 1.5 million shares, partially offset by the proceeds of stock option exercises of $7.4 million and the excess tax benefit from stock-based compensation of $5.5 million. As we stated last quarter, to leave more time for the Q&A portion of the call, we've started to include unit sales statistics in the press release for your reference. To wrap up, we're continuing to invest in the business because we're serious about executing on our strategy and providing top-line, double-digit growth consistently. We feel these investments are necessary to continue to solidify our position in the video business, investigate and develop adjacent revenue-producing opportunities, and continue to grow internationally so we can provide long-term value for our shareholders. With that, we'll turn it over to the questions.
We're ready to take questions now with the operator instruction.
Ladies and gentlemen, if you have a question over the phone at this time, that's * 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 # key. Once again, to ask a question, that's * and then the number 1. We'll give it a few moments for questions to queue up. Our first question comes from the line of Steve Dyer with Craig- Hallum. Your line is now open. Please proceed with your question.
Morning, Rick. Morning, Dan.
Good morning.
Morning. If I could start on the weapons side of the business, I'm wondering if kind of the end of life-ing, so to speak, of the X26, are you seeing anecdotally that that's helping sort of drive the changeover or the upgrade here, or do you anticipate that it will as to Q4 or Q1 when it actually does happen?
Yeah, this is Rick. I would say, I think we'll see that have a greater impact as we get close to the end of the year. I don't know that it's had a major impact yet in the deals that we've been working up until this point. It'll be interesting to see how this plays out as we get towards the end of the year.
Okay. I noticed in your prepared remarks, you talked about how that the X26 is really all that is approved in a lot of places internationally. Do you anticipate any kind of an air pocket or delay, or do you think they can move in time to keep that fairly continuous?
We believe we've given sufficient lead time for most major customers, if not all of them, to be able to get through the approval process. We're pretty delighted that Canada sort of got through their approval process this quarter. Some of the other major markets internationally are looking at the issue right now. I certainly don't expect to see any air pockets of significance.
Okay. On the video side, I'm wondering, if not the pure number, if there's any way that you can quantify kind of the number of users that you've onboarded onto the recurring system, whether it's quarter-over-quarter or year-over-year, just to get some sense. I mean, you can kind of see how the service revenue is trending, any way of kind of being able to see that would be helpful. Anything there?
I think the best example you'll see there is the chart we tweeted out earlier showing system-wide usage. We thought that that was a good indicator to go ahead and share with investors. Dan, do you want to answer about users?
No, I think, Rick, I would agree with that. I think that's probably the best metric we can share at this point. I think what's really important about it is not only are we selling customers on the solution, they're actively using it. When we see almost 950,000 files uploaded in a quarter, obviously this is a solution that's adding value for those customers, and they're utilizing it.
Okay. Can you remind me roughly how big San Diego was in terms of bookings in the quarter?
It was roughly $4 million for the quarter.
Okay, you still saw some pretty impressive momentum outside of that one large order.
That's correct.
Okay. Last software question. When would you anticipate we could see some revenue from an adjacent software product? Is that a 2014 thing or is that best thought of next year?
I think that's best thought of next year at this point.
Okay. Last question, just as it relates to the operating expenses, I'm assuming at least as we think about it today, that all of the legal settlements are sort of behind us. If you back that out and you call it kind of a $15 million or so OpEx run rate, I mean, is that a good run rate to use with a little bit of growth each quarter, or is there a step-up here, whether it be for video or telesales or anything that's material that would raise it from that number?
I think it's good. Obviously the settlements have had a material impact on the expenses this quarter. It'd be good to sort of use the, on a normalized basis, to sort of back that out. On a go-forward basis, we're going to continue to ramp our SG&A costs as we add salespeople for coverage, both to grow the video business as well as international. I think we're seeing that there's a large opportunity internationally. We probably under-invested historically, and I think we're addressing that by putting more people in market to assist our distributors to drive that part of the business.
In the U.S., the fact that we've only lost one competitive situation in the last year tells us that when we have visibility to the deals and can participate, we've got a great solution, but we need to make sure we're staying in front of those customers, and things aren't going to other vendors because we're not aware of it. We're going to continue to invest pretty heavily, to grow both the international as well as the video sales.
On R&D, we're going to continue to look for top-caliber people because we think we've got a long-term platform play here, and we want to make sure. I think what we've seen this quarter, because we're seeing just the traction we're getting in the business, I think it's given us the confidence that we wanted to execute a number of these strategies at the same time versus doing it sequentially. I think you'll see both the ramp in both the SG&A and the R&D expenses.
Are you able to quantify the magnitude at all, Dan? I mean, are we talking $1 million a quarter for the next couple of quarters or less or how. I mean, just I guess some sense of magnitude.
I think it's going to depend on how fast we find good people. We've got a high bar on hiring here, I think it could certainly be the sort of upper end of that range on a quarterly kind of increase each quarter. It's going to depend on how fast we find good people. We're definitely. We see a big opportunity here and we're going to continue to expand our investments both on the SG&A and the R&D side.
Okay. I will hop back in queue. Thanks, guys.
All right. Thanks, Dave.
Thank you. Our next question comes from the line of Greg McKinley with Dougherty. Your line is now open. Please proceed with your question.
Yeah, thank you. I guess I wanted to just make sure I understood a little more context. Rick, you made the comment that you're not really saying investors should no longer purely rely on sort of that, I think you had base case, bull case, and bear case scenario, from the Analyst Day. What are the maybe puts and takes around that comment? Where are you seeing the differences in those potential scenarios and why the change?
Well, I would, and I'll let Dan give a little color for my initial comment here. It's mostly around the expense level, I would say, in the video business. We could still manage the business to hit those ranges, but we've come to the conclusion that's not the optimal strategy for the business. We believe we're more likely than not going to be investing more heavily, particularly, again, for the reasons of, there's a lot of additional work to winning these big agencies. They've got a lot of additional requirements. Then internationally, there's some additional cost and complexity both around sales support and having to deploy internationally, in some cases, outside of the Amazon ecosystem, which means there's more engineering to be done to make that work.
Okay.
We believe those are the right things to do for the business. I would say we, in general, believe the opportunity is greater than it was 18 months ago, and at least it's coming into focus as we're seeing more success. We believe the right thing for the business will likely be to invest at higher levels, not only in the existing business that exists today, but also in some of the adjacencies. One of the great things about EVIDENCE.com, frankly, compared to our TASER weapons business, from the TASER weapon business, it's not as clear what are the adjacent revenue streams around the weapons. Whereas with the software, once we're in with EVIDENCE.com, there's a whole host of additional extensions. We believe each sale becomes easier to the agency as we can offer more integrated services on one platform.
Investing in those opportunities to grow the overall size of the business, we believe is the right strategy. We felt it was appropriate to share that with investors at this point. Dan, do you have any other color you'd want to add?
I think that's right. I think the maybe ironic part is, I think it's because this business, we're gaining traction faster, especially with larger agencies. Typically, larger agencies can be a little bit slower to move to a new technology. We've seen the opposite with video cameras, and I think that's encouraged us to make bigger investments. A result, we think sort of profit targets we laid out, we don't want sort of people to rely on those numbers. We don't want to sort of be hamstrung with the investments we're making to build what we think will be a very successful business in the video, as well as growing the international part of the CEW business.
Okay. That's helpful. Thank you. Then, I wonder if you can talk about how you're viewing the domestic market right now. I think you indicated domestic weapons sales were up, what? 9% year-over-year in the second quarter. Obviously, continue to get older and older installed base. Sequentially, things are maybe flat from Q1 to Q2. Any color you can give us on how you view that incremental agency upgrading, versus what might have been the case, I don't know, three, six, nine months ago?
This is Dan. I think, we continue to feel very good about our business there. I think that, certainly a large installed base. We think that we're going to continue to message to customers the fact that we think the most appropriate thing for them to do is to proactively replace their TASERs before they break, and replace them. We think we've got attractive upgrade programs in place still to drive them. I think the good news from my perspective is that regardless of whether somebody thinks that five years is the appropriate useful life or it's six or seven, eventually all weapons get to that age. The upgrade opportunity in front of us continues to grow.
At this point, I would say that we're continuing to see that total opportunity actually grow faster, because we're probably upgrading less units in the year versus how many units hit that five-year mark.
Yeah.
I think, we talked a little bit earlier, I think the X26 going into life, I think will help. We saw that with the M26. I think sometimes it gives our agencies a little bit of political cover. They can go back to their city councils and command staff and say, "Hey, the product we have isn't even supported by the manufacturer anymore." I think that that can help to drive it. We hope that as we go into next year that's one more thing that sort of helps. The domestic CEW business is pretty much where we expect it to be. I think that we had a couple years of significant growth as the upgrade started, the significant growth as we go forward from this point is going to be driven by the international expansion. The U.S.
The U.S. business continues to be a solid base to build both the international strategy on top of, as well as the video strategy.
Okay, thank you. Rick, you mentioned $9.7 million of revenues generated from telesales. I've heard you guys mention numbers in the past, anywhere from sort of that $3 million-$5 million range. Can you give us a sense where that was maybe a year ago so we understand how quickly that's growing?
Yeah. I don't have the numbers in front of me as I sit here. I can tell you it's been pretty consistent upward trajectory every quarter in a fairly linear fashion since we first launched telesales.
Okay.
Dan, do you have the numbers handy to give a little more color on that?
Yeah, about $5 million.
Okay.
We've seen, as Rick said, that's been pretty consistent growth engine for us. The thing that encourages me is, part of it, some of this is actually white space growth. Dealing with some of these smaller customers are probably underserved by ourselves as well as our distributors. Now calling on them, explaining the product, we're helping to expand the use of the weapons from maybe previously it was only at the supervisor level, because of the amount of sort of care and feeding we can give these customers, we're helping to grow to a patrol issue product versus maybe stuff that's only at the supervisors. That's helping with our growth as well.
Great. Just last two questions. You shared some comments, 7 major city deployments, but you also shared how many major cities are testing. Could you also just revisit Brazil for a moment? What are you doing differently with AxonEvidence.com down there than you are in the U.S.? Thank you.
We have 7 of the major cities that are in what we would call active deployments at some sort of scale. I believe we have another 3 major agencies that are in effectively paid trials. We've got around another 10 that are in some form of either a free trial or active discussions where there's RFPs and other indications that they're in an active purchasing cycle.
Okay. What were your comments regarding Brazil?
In Brazil, and your question specifically was what's different in Brazil than in the U.S.?
Yeah.
Number one, virtually every international market wants their data stored outside of the United States due to Patriot Act issues. In Brazil, we have set up and we're running on in-country servers within the Amazon ecosystem. Of course, the entire solution had to be ported or translated into Portuguese. Those are the primary differences. Then, of course, we've been hiring and deploying sales and support staff down in Brazil, to support the AxonEvidence.com solution.
Okay. Thank you.
Thank you.
Thank you. With that, speakers, I'm not showing any further questions in the queue.
At this point, I'm going to take a question that came in from Twitter. I believe it was from August Berman, asks, "Now that prices for body and Axon Flex have increased since the beginning of July, is that a sign of confidence in the market space?" Well, the early adopter leaders pricing programs have been very successful in rewarding agencies that wanted additional financial incentives to realize the benefits of body-worn video. We actually announced the pricing would be at its lowest levels initially, and then would slowly increase over time to more normal levels. That was intended to really help reward those agencies that moved first. It took a leadership position, which is why we called it the leaders pricing promo or promotion. There will be, I believe, one or two more pricing step-ups in the future.
There are still incentives for people to continue to move more expeditiously. As bookings ramp, the number of large agency wins and deployments are showing that we believe the space is moving from sort of the early adopters into the mainstream. With that, I think we're going to go ahead and wrap up the call for today. Certainly, you can continue to contact us through ir@taser.com or through Twitter, et cetera. Obviously, we're very excited about the progress that we're making, particularly in AxonEvidence.com. I'd refer you back again, those of you that track tech companies, probably the most important factor you would want to look at is user adoption. We tweeted out the curve there showing utilization of the system. Which again, is pretty rewarding for us to see our customers are continuing to accelerate their utilization of what we've built.
We look forward to joining you all again in another few months to report on our third quarter. Again, we'd like to thank our shareholders for your patience over the years as we've invested heavily to build out this new business segment. It's really exciting to see it crossing over into mainstream. With that, everybody, have a great day, and thanks for joining us.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program.