Good morning, everybody. Welcome to TASER International's first-ever Analyst Day event. We appreciate you taking the time to come today to listen to our team talk about TASER's strategy and long-term vision for the future. My name is Erin Curtis, and I am the investor relations person for TASER. With me today, I have Rick Smith, our CEO and the founder of TASER; Dan Behrendt, our Chief Financial Officer; Doug Klint, our President; Jeff Kukowski, our Chief Marketing Officer and Executive Vice President of Sales; and Jason Droege, the General Manager of Evidence.com. Each of them will be presenting to you today based on their pieces of business, and they'll also be participating in the question-and-answer session at the end.
After the Q and A session wraps up, we will be doing kind of an informal lunch for those of you who are able to stay, as well as product demonstrations of our video products, cloud products, and weapons products. Since this is our very first Analyst Day, I would encourage you to provide us with any feedback you have on how we can improve for future events. You can either do that by talking to myself, one of the team, or emailing IR@TASER.com. With that, I am going to move on to the forward-looking statement disclosure. This presentation contains forward-looking statements within the meaning of Section 27A of Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements without limitation regarding expectations, beliefs, intentions, or strategies regarding the future.
We intend that such forward-looking statements be subject to the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based upon current information and expectations regarding TASER International Incorporated. These estimates and statements speak only as of the date on which they are made and are not guarantees of future performance and involve certain risks, uncertainties, and assumptions that are difficult to predict. Such forward-looking statements relate to expected revenue and earnings growth, estimations regarding the size of our target markets, successful penetration of the law enforcement market, expansion of product sales to the private security, military, and consumer self-defense markets, growth expectations for new and existing products and accounts, expansion of product capability, new product introductions, municipal budget environments, and municipal budget environments.
We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements herein. Throughout the presentation, F, or forecasted, is used to indicate projected amounts. Please see our Form 10-K and 10-Q filings with the SEC for risks and uncertainties which could cause actual results to differ materially from current expectations. Thank you. With that, I would like to pass it on to Rick Smith to kick off the presentation. Thank you.
Great. Thank you, Erin. And thanks, everybody, for giving us a few hours of your day. We're pretty excited about things going on at TASER and want to share with you our vision for where we see the company going over the next five years. With each of us as we come up, we're going to give a little bit of background. My background before TASER is purely academic. So I did my undergrad at Harvard and then two graduate degrees. And when I was living at the University of London doing an MBA, two of my high school friends were shot and killed in a road rage incident. And I became very interested in the whole topic of self-defense, gun control, violence, many of the same issues that are still at the forefront of American society today.
I found a gentleman who's a former NASA scientist who was living in Tucson, Arizona. I was 23 at the time. He was 73. He'd been working on a device called the TASER since the 1960s. We decided to give it one more shot, and we started it in his garage in Tucson. It's been a wonderful 20 years ever since, including our IPO in May of 2001. We've had the opportunity to really transform the global law enforcement community, frankly, even more than our original target of the consumer space, where we're currently used by almost 95% of law enforcement agencies in the United States. So with that, let me talk a little bit about what it is that we do. Virtually everybody knows us for our TASER weapons.
In fact, the TASER brand name, similar to Kleenex or Clorox, is synonymous in many times in many people's minds with what the devices actually are. But I want to introduce to you today some additional concepts where we see the company going and expanding in our future. So if we think of this first from sort of a problem and solution approach, obviously, we got our start in high-risk incidents. We make weapons. They are not risk-free. They do cause people to fall down. That's actually the primary risk. But today, we can estimate, with a fair degree of statistical certainty, we've saved over 100,000 people in dangerous situations where law enforcement was justified in using lethal force. So we can say with a high degree of confidence, we've saved over 100,000 people from potential death or serious injury.
This is a significant issue in the United States with 1.3 million violent crimes every year, around 35,000 people dying in firearm-related incidents, and 60,000 officers being assaulted every year. In agencies that are deploying these TASER devices, we see pretty dramatic decreases in the injuries to officers, injuries to people in the community, and in the number of police-involved shootings. As we look at our future from where we're at today, we're going to talk about our three opportunities for growth. First, I want to talk about how we see the progression of the technologies that we're investing in and bringing to the field. As we got involved in this TASER business and really got to know our customers, what we learned is, for a law enforcement agency, the problem isn't over when the incident's over.
When they hit somebody with a TASER or they get them into custody, that's really just the beginning of the situation. Because any one of these incidents will frequently transition from a physical altercation to a legal altercation, whether that means that the agency is prosecuting someone in a criminal way or maybe that person is suing the agency. Just to put some scope about how big this challenge is for our customers, according to a study from the AP a little over a year ago, U.S. law enforcement agencies spend about $2.5 billion a year on settlements. These are just the checks that they write to make claims go away. This does not include legal costs. This does not include investigative costs. This doesn't include internal affairs costs or any other logistics costs.
They're spending around $2.5 billion, again, due to just the payments against claims against these agencies. Well, TASER has been no stranger to some of the controversy that our customers face. Because today, in law enforcement agencies that use TASER devices, it is the most used force option that they have by a significant margin. According to one NIJ study, they show TASERs were used more than all other force options combined because of its uniquely high effectiveness and its uniquely low injury rate. I've been hit with it seven times, and everybody standing up here has been hit with a TASER device.
So now, as we come to understand that for our customers, while there's great benefit to us helping them deal with these critical incidents, we also would have an opportunity to help them solve a major fiscal challenge if we could help eliminate some of these claims against these agencies. And not just from a fiscal perspective, but what could we do to further improve the relationship between law enforcement and the communities they protect? And we believe the answer there, it really comes down to transparency and on-officer video. Frequently, the controversy rises because the story the police tell is dramatically different than the stories that the families or the people that they arrest tell. And how do you reconcile these? And many times, it ends up with a protest. You get an Al Sharpton or some other civic leader coming out.
In the worst cases, we have cities like Cincinnati where these things deteriorated into riots due to racial tensions between the police and the community. Well, in Cincinnati, we were able to play a big part of the solution. When they brought TASERs into Cincinnati, we saw them go years without a single police-involved shooting and a dramatic shift in the relationship between law enforcement and the community. We can take that to a new level with on-officer video, where now we have an indisputable record of what happened from the officer's perspective, showing what they saw and what they were reacting to. Now, we started putting cameras on TASERs back in 2006 with the TASER CAM. And today, we have over 60,000 TASER CAMs in the field. We were the market leader in on-officer video systems just with our TASER CAM alone.
We learned that the TASER CAM has a much more limited utility than it could otherwise have if we could move that video off the weapon and onto the officer. Because a TASER gets used about once every two years. While it's helpful to have a video of that TASER incident, how much more helpful would it be if that officer could record the incidents they're dealing with every day, either to defend that officer or, in many cases, to even help them prosecute things like DUI arrests or other cases? We know that when video is actually involved, prosecutors are significantly more likely to prosecute those cases, and people are much more likely to plea bargain. It's a game changer in the law enforcement space with video.
But as we go deeper with our customers, we uncovered yet another problem that's even larger in scale and in scope. That is how our customers deal with technology and how they would deal with the logistics around video. As of a few years ago, the majority of U.S. law enforcement that had video were using VHS tapes. There are still many agencies that actually have warehouses full of VHS tapes that's how they record their in-car video. So if we actually look at our customers and their ability to move to digital video, if we're generating two hours per video per officer per day, and this is coming off a device that's meant really for digital data handling, that's a significant technical challenge. If we look at the scope of the opportunity here, our customers are spending $10 billion-$20 billion a year on technology.
This comes from a number of different sources. Probably the most prominent one is a report by IJIS, the Integrated Justice Information Systems Institute, which is formed by the DOJ to help U.S. law enforcement with technology. So they're spending a lot of money on software and hardware to go out and do their jobs. Now, at the bottom there, I put an opportunity. We've also uncovered an opportunity for a $5 billion-$10 billion improvement in efficiency for these departments. And that's by deploying on-officer video and helping them solve the back end with a cloud-based service called Evidence.com, which Jason's going to talk more about shortly. We see this same cloud phenomenon that has swept through the consumer space, that is currently sweeping through enterprise business space, and it's certainly coming to government.
Whether you look at things like the federal government's Cloud First policy or, again, groups like IJIS, they're now accepting that this technology is coming to law enforcement. What better place to come with the scalability of a hosted cloud solution than in a new space like on-officer video that is going to require massive scalability beyond their existing infrastructure and systems? With that, I want to take a moment here to play a quick video that's going to give you a little idea of how all of these systems fit together. Yeah.
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Gotcha. So let me go back real quick. We had a question on the efficiency gains. Actually, the way we bring that, we get to that number, is in the United Kingdom, they started testing on-officer video in 2007. Actually, the U.K. pioneered this concept. And what they found in a six -month field trial was that officers were able to spend almost 10% more time on patrol. 9.2% was the number. And the reason was they were out on patrol more because they didn't have to fill out these long-written reports. In the future, we see video becoming the center of a police report. The whole reason a police report exists is because 100 years ago, it was the only way to create a record of what happened so that it could be reviewed in the judicial system. Well, if you've got a recording, you can dramatically decrease.
You can get rid of the large long-written multi-page narratives. The officer just fills in name and information more like metadata for search. So if we were able to improve U.S. law enforcement by putting 10% more time out on the streets and off of paperwork, that represents this $5 billion -$10 billion number there. We'll come to the competitive space in a few moments.
I want to play a quick video here that just, again, gives you a little bit of an idea of some of the numerical benefits that we've seen with TASER devices and how it fits in with what we're doing with on-officer video in cloud. I'm not sure how we need to do this. Click okay. Here we go.
were the only options for responding to resistance were fists, kicks, batons, or chemical sprays, leading not only to a large number of suspect injuries but lots of injured officers as well. Fortunately, a much safer, more effective technology was developed. It's called a TASER Electronic Control Device, or ECD. So what is a TASER ECD? A TASER ECD uses compressed nitrogen to fire two probes that attach to a subject, sending electricity through attached wires. These electric signals temporarily overwhelm the communications between the brain and the muscles, rendering the subject temporarily incapacitated. Unlike older methods that require pain or injury to be effective, a TASER ECD offers a much safer approach. A study by Sergeant Greg Meyer of the Los Angeles Police Department concluded that many of LAPD's standard tactics resulted in injury rates to subjects of 78% or more.
In cases involving the TASER ECD, significant injuries to subjects and officers fell to zero. Today, 17,000 law enforcement agencies in over 100 countries now deploy TASER ECDs, reporting dramatically lower injuries to officers and the public. TASER ECDs have been used an estimated 1.6 million times in the field, saving over 90,000 lives from potential serious injury or death. TASER ECDs don't just save lives. They save money. When the Houston Police Department deployed TASER ECDs to all its officers, workers' compensation costs fell by over $2 million per year, and more officers returned home safely to their families. In Michigan, the State Risk Management Agency saw excessive force claims drop by almost $7 million per year as police across 150 agencies were able to safely end dangerous confrontations with TASER devices. Today, when U.S.
agencies are paying $2.5 billion each year to settle legal claims. New approaches are needed to safeguard precious budgetary resources and to preserve the trust between public safety officers and the communities they protect. In the 21st century, one of the most important weapons a police officer carries will be his camera. A study from the International Association of Chiefs of Police found that 93% of complaints against police were dismissed when video was present, an impressive result based solely on in-car cameras. 90% of police work doesn't even happen in front of a car. Pioneering the new field of officer-worn cameras, agencies in the U.K. found that complaints against police fell by 100% to zero. Officers spend almost 10% more time out on patrol doing the job they love, with a lightened burden of paperwork due to an original video record.
That's like expanding your patrol force by 10% overnight. TASER now brings officer-based video technology to mainstream policing with the Axon Flex Point of View video system. Coupled with the power of Cloud Computing and Evidence.com, an infinitely scalable and ultimately secure digital evidence management system that can have your agency live with this powerful capability today. Seeing the power and speed of cloud computing, the federal government of the United States announced a new Cloud First policy, requiring federal agencies to use cloud computing when possible to reduce costs and time. With Evidence.com, TASER is using the cloud to accelerate the deployment of new public safety capabilities faster, at a lower cost, and easier to use than has ever been possible before. When you buy TASER products, you're not only getting a quality product; you also get the TASER experience, our world-class customer service, support, reliability, and training.
Protect life, protect truth, protect your agency and your community with TASER.
So in a nutshell, the TASER devices actually help drive the adoption of the cameras as you bring in new technology in law enforcement and some of the controversy that comes around that. The cameras actually drive the need for new back-end data systems. There's a number of disruptive forces at play right now in the technology space, including the cloud, the rise of mobile and high-speed data networks. We believe we're really well-positioned to take advantage of those trends. If I want to touch briefly on what we see are the unique sources of value for TASER. Number one, we have the strategic relationship with over 90% of U.S. law enforcement. When I say it's strategic, we're typically dealing with the chief of police because the TASER has been the most disruptive technology in law enforcement in the past 10-20 years.
This is on the chief's radar. It involves policy. It involves community relations, etc. There's no other company we're aware of that has that sort of market share. Even if we talk about some of the big tech names like Motorola that sells into this space, it's far larger than TASER from an economic footprint. They're still operating in competitive spaces where they might have 30% or 40% market share. But because of our unique position with TASER ECDs, we have, again, 90%, 95% market share. And our core business is highly defensible for a number of reasons. Two of the big ones are we have extensive patents. We created this space with greenfield opportunity. We've got some very broad-claim patents and a great legal team. And we have over 400 medical and field studies on our devices.
So when you see some of the controversy in the media or the press, obviously, our customers are very sensitive when they're rolling out new technology to make sure it's been well-vetted. And those medical studies were exactly on the types of electrical waveforms that are sitting in our patents. Then there's the TASER brand and experience. We have over 90% brand awareness of the TASER name in the U.S. The "Don't Tase Me, Bro" incident in 2007 was actually proclaimed by, I think it's the Yale Dictionary folks, as the most prominent quote of the year 2007. But it's not just the brand around TASER. It's also this experience that we have with our customers. Because of the high-touch, intensive nature of our products, we are very much ingrained with their training, with their policy, with their legal development folks.
And we provide a level of customer service that if you call any police departments and ask them who gives them the best customer service in the industry, there's a very good chance you're going to hear TASER. And we believe that's part of what makes our business so defensible. And we also, in the past few years, have really developed a robust talent pipeline, whether it's recruiting guys like Jason and some of his team out of companies like Microsoft and other great tech firms, or our leadership development program where we're recruiting out of Harvard, Stanford, and Caltech. And we're going up against the Facebooks and the Microsofts and the Goldman Sachs that are recruiting at those places. And we're getting a lot. In the last year, we had a 100% acceptance rate of our candidates out of the school.
So we believe we're pretty unique in the law enforcement public safety space that we're bringing the same sort of talent that you're typically only seeing in either some of the major investment banks or Silicon Valley firms. And then we've got this first-mover advantage in this cloud space. Evidence.com, we've invested heavily in this over the past few years. We're absolutely convinced that we're getting close to a tipping point for both on-officer video and cloud in law enforcement. And we've got a several-year head start. In fact, we have over 1,000 agencies using Evidence.com today. Now, when we talk about, obviously, we're talking about going deeper with our customers in public safety as our primary driving opportunity. So one of the questions we get is, well, how big is that opportunity? How big is the space?
Well, as I mentioned before, we estimate the market spend every year on tech to be between $10 billion and $20 billion. If you look at Motorola, one of the preeminent firms in this space, $3.5 billion is their U.S. public safety government market spend or revenues. Then there's TASER. In the U.S., we're right around $100 million today. So we've got a tremendous brand footprint, a tremendous relationship. I think we've got the team to be ready to take advantage of some of these disruptive technology trends that are happening. And we have an opportunity to take a significant slice of that market share and significantly grow our business by just going deeper with our customers and helping them solve these challenging technical problems. But as I talk here today, we see three major drivers from an investment perspective that are creating value in our business.
First, there's a $350 million weapon upgrade opportunity. This is just for TASER weapons we've already sold into the field that are now past their recommended useful life of five years. If we can upgrade all those weapons, it's currently a $350 million opportunity. Of course, it grows every year as time progresses. The second driver is the video and cloud services. We're entering into a multi-billion dollar law enforcement technology and IT market with a breakthrough product with video that really demands new infrastructure. But now we also have the chance to change our customers' approach to that infrastructure. Rather than a 50- or 40-person police department having to go buy and build and deploy complex IT systems, we can plug them in over the internet and have them live today. The third area is largely untapped international markets.
So internationally, they tend to organize on a more nationwide basis. In the U.S., we have 18,000 police departments. In the country of France, it's largely dominated by two. The national police forces make up 85%-90%. There are some city PDs in France, but really, they're two very large ones. So those larger agencies tend to move more slowly. Whereas we have significant penetration in the U.S., we only have 1%-2% penetration internationally. So a lot of room for us to grow. And with that, I'm going to hand off to each of our team to talk about each of these drivers in more detail. And I'm going to start with Doug Klint, our president, who's going to talk about the smart weapons upgrade.
Thanks, Rick. I'd like to start by giving you a brief overview of my background. I joined TASER a little over 10 years ago as Vice President General Counsel. About three years ago, I became President. In that role, I'm responsible for the weapon business unit, which includes R and D, both hardware for the video as well as for the weapon business, operations, legal, medical, consumer sales, and human resources. Prior to joining TASER, I worked in Silicon Valley for over 10 years for two high-tech publicly traded companies. Zycad manufactured advanced supercomputers that were used for logic and fault simulation of electronic circuits. Aspec Technology produced intellectual property for circuit designers for silicon foundries. An important driver for our upgrade cycle is our smart weapons. Now, our weapons are used in critical life and death situations.
They have to work first time every time, or someone can get killed or seriously injured. This is why we focus on quality and reliability in our design manufacturing process. But like any complex electronic product, our weapons do wear out over time. We have a five-year useful life for our weapons. After five years of use and sometimes abuse in the field, our weapons are ready for replacement. Our customers understand that. They have replacement cycles for all of their critical equipment, including radios, squad cars, body armor. TASER is no exception for that. This slide represents a cumulative upgrade opportunity represented by those units that are more than five years in the field. In 2013, we have an installed base going into the year of 327,000 units.
At the end of 2012, we upgraded 29,500 of those, leaving an available opportunity in 2013 of 298,000 units that are over five years in the field. That represents a cumulative dollar opportunity of over $357 million. During 2014 and 2015, that cumulative opportunity continues to grow. In 2014, that represents a total of 368,000 units for $442 million in opportunity. In 2015, over 400,000 units in the field that could be available for upgrade, representing $530 million. Now, what we do know is eventually these units are going to be replaced. We just aren't sure what the timing is going to be. In addition to the upgrade opportunity represented by units more than five years in the field, our new smart weapon technology also represents a compelling reason for our customers to upgrade.
We're going to move to the bottom part of the slide.
Oh, good idea. On your left is the X26. The X26 was launched in 2003, and it has become the standard conducted electrical weapon for law enforcement. There are more than 16,000 agencies that deploy the X26 in more than 107 countries. 90% of U.S. agencies use the X26. And as good as the X26 is, our new smart weapons are even better. On the right, on the very top, is our X2, which is our new two-shot smart weapon. We launched that in 2011. And the weapon to the right is our new X26P, which is a single-shot smart weapon, which we just launched in the first quarter of 2013. These smart weapons represent and incorporate advanced technology that our customers have been requesting, which includes enhanced safety.
These weapons have charge metering, which delivers a constant charge, which is electrical charge, which is about half of the electrical charge of the X26 for improved safety. In addition, we have an auto shutoff feature. With the X26, if you hold the trigger down, it's going to continuously discharge into the suspect. What our customers told us is that when they're under stress in an arrest-related situation, they often will hold the trigger down, not knowing they're doing it. So we developed an auto shutoff feature that after five seconds, the device will shut off, and you actually have to reactivate the trigger to turn it on again. After four seconds, there is an alert warning the officer that the device is about to shut off. That has also improved safety. In addition, we have advanced data and analytics in our smart weapon.
We have self-calibration, which reports to the customer whether or not the device is operating within factory specs. We also have electrical output charts that show the electrical output of the device. We also have diagnostic analytics built into the weapon, which actually is tied to over 196 error codes that aid our engineers in servicing these weapons. In addition, we have advanced reliability and usability. We have waterproofing. We have advanced ergonomics with the trigger and the grip. For the X-2, and this is a very important feature, we have a dual shot, which provides the customer with a backup shot in case he misses on the first shot. Or if he has two assailants, he can incapacitate two people at one time.
In addition, we have a dual laser, which shows the location of both the top and bottom dart, and a warning arc, which allows them to warn a suspect by arcing across the front of the weapon, even while it's loaded, that he's about to get hit with a TASER unless he complies. Some of the agencies are reporting a 75% success rate with the warning arc. This video explains the technology involved in our smart weapons. Whoops. I'm not exactly sure how to turn this on. Rick, did you have any success with it?
Great. Thanks.
1974, the TASER TF76 introduces the world to the concept of the conducted electrical weapon. While the TF76 was a technological breakthrough, it did not live up to the promise of causing incapacitation, producing only a disorienting shock. Aggressive or focused subjects could fight through its effects. It would take another 20 years of research and development to perfect TASER technology with the introduction of the M26 in 1999, with patented Neuromuscular Incapacitation, or NMI, which specifically targeted the motor nerves that control muscular movement, causing physical incapacitation of even the most focused, aggressive subjects. The M26 used a simple high-voltage blunt pulse to penetrate through the skin and clothing barriers around the body, a process that accounted for over 90% of energy consumed. In 2003, Shaped Pulse Technology was designed to use a highly refined energy pulse delivered in two phases.
The first, called the arc phase, used a small, high-voltage pulse to penetrate across skin and clothing barriers, forming a connection to the body. The second stimulation phase flowed freely across this arc through the barrier, delivering the electrical charge needed to incapacitate the target. Shaped Pulse Technology reduced the power required for NMI by 80%, allowing a dramatically smaller, more portable TASER called the X26. The smaller size of the X26 allowed it to fit on the belt and revolutionized law enforcement for over 500,000 public safety officers who carry it today. 10 years after the original X26, we are upgrading the TASER platform with the new 2013 smart TASER weapons, featuring an all-digital architecture, making TASER devices more robust, safer, and more effective than ever before.
These smart TASERs use enhanced Shaped Pulse Technology with charge metering and an advanced calibration system that measures and adjusts the output of each pulse. Inside the 2003 model X26, an analog gas tube controlled each output pulse. There was no way to measure or adjust the magnitude of the electrical output, which was fixed at one factory setting. The newer smart TASER weapons utilize an SCR, or silicon-controlled rectifier, which measures the electrical output almost 20 times every second, constantly adjusting the output levels for precise charge delivery. When probes from an analog TASER weapon puncture through the skin and clothing, there is a direct connection to the conductive fluids within the body, and the full output charge is delivered. However, if the probes are lodged in the clothing, there is much more electrical resistance, as the electricity has to arc across the gap to connect to the body.
Because of this higher resistance, less of the charge from the Shaped Pulse is delivered. Newer smart TASER weapons measure how much charge actually flows through the circuit in each pulse and adjust the energy of the next pulse to deliver a calibrated amount of electric charge, while maintaining a significantly improved safety margin. In addition to charge metering, smart TASER systems provide advanced data recording capabilities and tri-logs with three components: operator actions, electrical output logs, and engineering logs with maintenance or error alerting. With built-in calibration and charge metering, the new smart TASER line is better than ever, so there's no practical need to incur the logistics cost of taking units off the street to send them to a lab for calibration testing. Smarter, more effective, even safer. Welcome to the new line of smart TASER weapons.
So the key drivers for growth in our weapon business are the compelling new smart TASER weapons. New financing plans: we offer a five-year financing program for our customers. This represented greater than 10% of our Q4 sales. We have declining phase trade-in programs to offer financial incentive for our customers to trade in their aging units for new units. Five-year useful life messaging, and we drive this point home with our customers at every opportunity. And finally, becoming a funded priority. And keeping TASER a funded priority is really critical for us because there are competing demands for law enforcement budgets. This next slide really shows why TASER is a funded priority. The NIJ, National Institute of Justice, funded a report by the Police Executive Research Forum, which included that those agencies that deployed TASERs had 76% fewer officer injuries and 40% fewer suspect injuries.
When you have reduced officer injuries, you have less time off work for officers. You have significantly lower workers' comp costs. In addition, when you have fewer suspect injuries, you have fewer complaints. You've got fewer excessive use of force claims. You've got reduced litigation. And more importantly, there are over 100,000 lives that have been saved from death or serious injury because a TASER was used on them instead of lethal force. Several years ago, we moved from an engineering-focused product development process to one that's driven by customer needs and requirements. And the first step was to understand the customer needs and problems. We do that through surveys, through focus groups, through customer visits.
In our engineering group, we have an engaged process where a significant amount of time is spent by our engineers in the field doing ride-along with police departments to better understand how our products are being used in the field and what their needs and requirements are. We then take that customer information to build solutions to problems that are urgent, pervasive, that the customers will pay to solve. In addition, Rick mentioned that our mission is to save lives, and quality is critically important to that mission. We started a quality-centric design process several years ago where we focus now on design characterization before we even build a product, failure analysis, design for test, design for manufacturability. As a result, we've dramatically increased the quality of our products. Sure.
There's a process called iterative design where you build a prototype, you test it, and then you see if it works or not. If it doesn't work, you go back and iterate for another design, and you keep doing that until you get a design that finally works. It can be fairly time-consuming. Because you're iterating a design, you don't always understand what the quality problems are. What we're doing now is, even before we build the design, we characterize the design beforehand, and we test it to make sure that it performs as it's designed, even before we build it. Then as we build it, we design failure analysis into the product where we test the design and see where the failure modes are, and then we correct it before we even build the design.
And finally, as we build the design, we design it for testability, for manufacturability, and it's made a dramatic improvement in our quality. In addition, we use a platform design concept, meaning that for the X2 and the X26P, we have common components for both those products. We actually are using the same electronic engine in both. And what that does, it allows us to shorten the development time. We get faster time to market. We have lower development costs, lower build material costs, and we have higher quality. And as I said, the X2 and the X26P are great examples of that. Now, TASER is world-class when it comes to designing weapons. We do that better than anybody. However, for video products, there are other people that are world-class in building video products.
As part of our ODM, or original design manufacturer design process, we go to those companies, we select the best-in-class technology, and we use their technology in our products. We do the industrial design, and we do the customer-specific design for our products. As a result, we're getting the best technology. It allows us to get to market faster. We have lower costs, and we have higher quality because we're using a design that has been proven over and over again. The Flex is a great example of that. The focus of our operations is on operational excellence, continuous improvement, and execution. This graph shows the improvements we've made in the gross margin since 2011. We're now at about 64% gross margin. The key drivers for that are, number one, the Six Sigma and lean training that we're doing.
Over the last two years, we've had 74 lean projects that have resulted in savings of approximately $2.4 million. We have increased yields. We have reduced our scrap and rework. Boeing is considered the world-class leader in rework and scrap, and their scrap rate is 3%. Over the last two years, TASER has averaged less than 2.5% scrap, so we're making great improvements there. In addition, we have better labor efficiencies. Over 2012, we reduced the labor component in our products by 10%. As a weapon manufacturer, litigation is an inevitable risk that we have, but we have made great strides in reducing our litigation risk profile. We currently have 180 lawsuits dismissed. We actually had another dismissal yesterday, so we have 180 right now.
We've got two losses during that period of time: Heston, which resulted in a verdict of $153,000 that was fully covered by insurance, and the Turner case, which is currently on appeal. In addition, we won two trials in Q4 of 2012. Since Q4 of 2011, we've had a net reduction of 27 lawsuits. We have approximately half of the pending litigation today that we had in 2011, so we're making great strides there. The reason we're able to do that is we have a very aggressive defense. We issued new warnings over two years ago that make it very difficult for criminal suspects to sue us because it's typically the claim they make is that we provided lack of warnings. We're teaching smart use training to law enforcement officers.
We're giving them guidelines in terms of how they can use our product to avoid excessive use of force claims. In addition, we have a no-settlement policy for criminal suspect cases. We have settled a few officer injury cases where the cost of defense justified us doing that, and we will continue to do that. We have about five officer injury cases left. We aren't afraid to take those cases to trial if we need to. In addition, we have moved to an in-house law firm model. Our rationale for that was, rather than outsource our critical litigation expertise that we've gained through the years, we decided that we're going to retain that in-house, and we're going to be using outside counsel less and less for critical roles going forward. As a result, we have seen some reduction in litigation costs going forward.
This next slide really shows fairly dramatically the reduction in litigation that we've experienced over the last two years. The red line represents the new lawsuits that are filed each quarter. The blue line represents the number of dismissals. You can see the number of dismissals are far greater than the number of new lawsuits. This is an important trend for us. Prior to 2011, it was typical for us to get anywhere from seven-nine new lawsuits a quarter. We're down in the two-three range now, and we hope and fully expect that this is going to be a trend going forward. We have made significant gains in reducing the rate of litigation against the company. One other concern, and this is something we really focus on, is the cost of litigation.
This slide shows for 2012 the gains that we have made in reducing the cost of litigation. If you look at the green boxes, those represent the savings that we've had over the prior years. It totals just over $1 million, and that is a trend that we expect to see going forward. The red box under other operating expenses of $0.65 million really represents one-time charges for an officer injury settlement we did in 2012, as well as for the cost of abandoning and the write-down of some of our patents that were no longer relevant in our business. So we feel that we are trending in reducing litigation costs going forward. At this time, I'm going to ask Jason to come up, and he's going to give you a presentation on our video and E.com business.
Thanks, Doug. Actually, go back. Good morning. I'm Jason Droege. I'm the General Manager of Evidence.com. I'm responsible for the Video and Cloud business unit for TASER International. A little bit of background on myself: prior to TASER, I founded three companies in the technology space. The first was a company called Scour. It was an audio-video image search engine back in 1997, before Google was even around. So audio and video have been in my veins for a long time. The second was an e-commerce and sporting goods business. And then the third was actually a company called Gizmo5, which was the leading voice-over-IP competitor to Skype, 2005, 2006 timeframe. And that was eventually bought by Google and included into Google Voice. So long history of starting companies. Joined TASER to start a company really within a company.
We started the Video and Cloud business back in 2008. So that's a little background on me. So as Rick stated earlier, there's a $2.5 billion liability that law enforcement currently has when it comes to lawsuit settlements. This is a big problem for the agencies. It's a big problem for taxpayers. These are dollars that are spent on claims rather than dollars spent on productivity, equipment, more officers, et cetera. A lot of this is because it's one person's word against somebody else's word. So with the rise of smartphones and the rise of cheap electronic devices, we can help change this through on-officer video. So we covered these stats a little bit before, but want to talk about a couple of these third-party providers to help paint the picture.
So the IACP is sort of the trusted body that law enforcement looks to for recommendations on all kinds of things: for policy, technology, et cetera. They did a study years back for about six months that showed that litigation was reduced by 93% with on-officer video. So simple point of view of an officer has a huge impact on litigation and helps affect that $2.5 billion. Complaints and efficiency gains. That was a study done by the Home Office in the U.K., also as Rick mentioned, reduced complaints by 100%. Now, this is in the time of the study. And then efficiency gains 9% on the street. So when you compare that to the cost of your staff, right? We work for private entities. These are public employees, but we all make salaries.
So when you multiply that 9.2% times the actual cost of a labor force, it's a huge difference, especially in tight budgetary times. Another study that was done in conjunction with one of our customers using our devices, using Evidence.com, the entire system that we're selling today. This was done in Rialto, and that's out in California. It's east of Los Angeles. Rialto and University of Cambridge did a study together. I believe it was over the course of about a year. And what they found was an 87% reduction in citizen complaints and a 59% reduction in use of force. So citizens will complain about officers. Sometimes they're telling the truth. Sometimes they aren't. But when you have video, there's no question. And when you talk about use of force, look at this data another way.
With on-officer video, you get 59% less uses of force, so less hand-to-hand combat or less TASER exposures or less gunshots, et cetera. Without on-officer video, you have twice as many uses of force, which when I look at it the other way, it's almost more impactful to me when I saw this study. And then the chief actually gave us a nice quote here that it was completely attributed to the cameras. It was a scientific study done over a course of a long period of time. And we're actually seeing these results directionally with all of our other customers as well. Obviously, the difference between the 100% and the 87%, it's directional, right, to these studies.
[audio distortion]
Well, I think it's a little bit of both. When people know they're being recorded, they're probably less likely to do something irrational because they know that they can't lie about it later, to be candid. So I think it's a little bit of both. When you know that something could go to court or you can get in trouble for something, on either side, people are just held more accountable. So we have a video here to show you guys what our customers were saying about our products. We did a tech summit last week where we invited a bunch of chiefs and IT people from various agencies out to Scottsdale, sort of a sales event, but also an industry event to really bring the cloud and what are the best technology solutions going forward for our customer base and to discuss things like that.
So if I can get my—there it is.
The worst headlines I've experienced, which were. I wouldn't put these headlines on anybody. But for my first year, if I would have only had Axon Flex in use at that time, it would have never, ever been a media story.
We're already looking at making plans of phasing out in-car cameras and going strictly to the on-officer video.
That cloud, we would not consider doing this without it. Well, we may consider doing it because we kind of had to, but it has been a godsend, I tell you. It's secure. We get the information when we want it. Our DAs can tap right into it and get what they want. Any other stakeholders who we deem need to have access to that information can get it. It's just been no fuss, and it's been the difference between night and day.
87.5% reduction in citizen complaints. I'm sure that you all would like to have that. 59% reduction in use of force. And again, because of the way that we randomly allocated the cameras, okay, this whole thing is because of the cameras. This is an opportunity for law enforcement leaders to step up and be leaders and to define who we are in our communities because we have the capacity to use video to do that.
So when I started here in 2008, I kind of had a dream in the back of my head that we'd eventually see the industry start to move this direction. So kind of just watching that warms my heart that the world is moving. The public sector is moving to adopt new technologies. It's moving to adopt the solutions we've spent so much time building.
What is Axon Flex stand for?
Axon is the name of all of our on-officer camera systems, and then Flex is the specific camera. So Flex is because it's a flexible solution. So the Flex is it can be mounted on the head via a headband. It can be mounted on glasses. It can be mounted on a collar. We have lots of different places because anytime you put computing on a person or an officer, especially an officer, because they're in such a tactical environment, you've got to give them options because they have different outfits and suits and things like that. So I wanted to show you guys a video from an actual incident taken with our cameras. So good illustration of the kind of content that our agencies are getting and using.
You dropped a knife. Hey, listen. I'm the boss, man. Let's just be reasonable. You dropped a knife? I don't have a gun.
You got TASER on your truck?
I'm right here.
Who's the side of your favorite, homie?
Do what?
Shoot me, homie.
Shoot you. It's not my job to shoot you. My job is to save you. I'm going to come and save you.
All right. So we also had uses of TASER in there as well. So what you saw there was a different perspective than what anyone would have gotten before, right? So you wouldn't have got that with a smartphone because you got to hold it with one hand. You wouldn't have got that from a car because the camera in the car is just pointing straight out. So this is information that they've never gotten before for court, for training, for their own review, etc. So there's reasons to go there. There's studies that show that the world should go there. You saw our customers say that they want to go there. Well, what about the rest of the market?
What about the people that didn't come to our tech summit? So Police 1, which is an industry publication, put out a survey, and they said, "Do you feel there's a need for officer-wearing cameras?" And these are actual first responder officers responding to these surveys. It's on a public website. It wasn't filtered. 82% said yes. And the reason why they're so interested in getting this technology is because of this over here, which is you've got everybody in the world, almost everyone in the United States for sure, and everyone in this room has a digital camera, a video camera, an audio recorder in their pocket, right? You might even have two if you have a corporate phone or a personal phone. So everyone is out there recording the police whenever there's an incident. So when something escalates, what happens? Everybody whips out their smartphones, turns them on.
The problem is that only tells two to three minutes of the story because they just want to show the actual conflict. Nothing is shown leading up to it, and the officers know that. They've felt this pain for a long time of what's their side of the story? What about the 20 minutes where someone was throwing rocks at them and then they got to TASER? You only see the one minute on YouTube or Facebook or any of these sites saying that the officer used excessive force, which, in fact, usually the officers are using appropriate force. All right. So on-officer video, we've covered that. But what happens, right? So what happens to all that data? They go out in the field. They record four or five videos a day. That adds up over time because this isn't stuff you can just delete a week later, right?
This stuff is evidence. There are statutes around how long they have to retain it. It's not pictures, right? This is high-quality video. Over the course of three years, 250 officers will produce about 2.3 million videos. It adds up quick because they're doing it every single day on every single call and 156 TB or 155,000 GB of actual data. What this effectively does is it turns every police agency into their own data center, their own IT company. We're not talking about managing email here. We're not talking about documents. We're not talking about a database that's just got text in it. We're talking about huge storage arrays that need to be redundant. They need to be backed up.
There's lots and lots of costs to that, and there's lots of expertise to build those systems that every law enforcement agency in the world can't necessarily acquire. So huge data problem. Before we go into the details of how we fix that problem, we've already alluded to it. It's Evidence.com. But I want to discuss general momentum of technology in the world. So we're going from a world where there's on-premise software, on-premise systems, and on-premise teams managing technology. That's what existed in the 1970s, 1980s, 19`90s. With cloud computing, that's all going outside of the corporation or the agency. This is a movement that has already happened in the private sector. It's definitely already happened in the consumer world with Dropbox and other services. So this is an important movement. It's coming to the public sector, and everybody agrees that it's coming.
The second is the rise of digital video recorders. I mentioned earlier, everyone's got one here. But what this does is it's actually changing the way that agencies report. So whenever an officer goes out on scene or you get pulled over for a speeding ticket, if that's ever happened to you, the officer comes over, collects all the information, goes back to his car, writes a report. What is he writing? He's writing what he saw. He's writing what happened. Well, why not just use the video for that? So rather than writing what happened from memory, just use video for that. So agencies are finding some of those productivity gains they saw in the U.K. were a result of, rather than writing, "Pull the person over at first and second half, see video," right?
Takes a lot less time, a lot less energy, and it's a lot more accurate. Mobile technology, another big trend. Again, these are things that are working their way into the public sector, and we've already seen the gains in the private sector. But what mobile technology really does is it gives you access to your applications. It gives you access to your data wherever you are. So if you're a police officer, that's access to all the systems that you might have internally, right? They have a system called an RMS system, which is records management, which is essentially running and storing all of the data for the agency. Mobile technology allows you to access that wherever you are. It's got a nice rich screen. So that's a big movement. Agencies are finally adopting it. Open standards. This is important because this is how you easily connect systems together.
Normally, rewind the clock 10 or 15 years, maybe more like 10, but an agency had a problem. They wanted to put cameras in cars, or they wanted to track reports digitally rather than making carbon copies of them. So they bought a system to solve that problem. They deployed the application onto the system. They built the infrastructure around it. Problem solved. Well, a couple of years later, someone had another idea. They wanted fixed surveillance cameras put in five locations throughout the city. Okay. So that's collecting data. What do we do with that? Oh, let's build a system. Put all the data on that system. Problem solved. But now we got two systems to go to whenever something happens. Well, that's happened five, 10, 15 times over the course of the years.
As a result, digital data and software is becoming so important to these agencies. They're running their agencies on it that they need those systems to talk because one system has a video of a case that's described in text in another system. And if those don't talk, there's so much data flowing in that something can get missed. So they want to be able to connect all of those systems together. And with Evidence.com, that's what we've done. We've built it easy to integrate with and provided that the other vendor can be integrated with. So this is an important general movement. The multiple systems communicating with each other are smarter than independent systems. Rise of mobile broadband. So we have mobile technology, but that's slightly different than high-speed internet that's wireless because of the kind of data that you can handle.
So, LTE, you can download and view a YouTube video on your phone now. Five or six years ago, it wasn't really the case. In law enforcement, what this means is not just high speed, but high speed that's reliable. So this opens up all kinds of new applications. Uploading video from the field so you don't have to go back to the agency. Live streaming. There's all kinds of potential products and solutions that come from this trend. So those are the five trends that we see that we're trying to capitalize on. Now, as far as these movements, having industry support, CIO, first CIO of the country, excuse me, has had a cloud-first initiative for all the reasons that we've discussed. It's more efficient. It's lower cost. It's more productive, etc. But pushing government there is an important direction that they need to go.
The IJIS Institute. I like the term inevitable just because we're building solutions for this industry. This is a body that advises law enforcement on technology solutions, directions that they should go, cost savings. It's the same theme, right, with all this hosted software. It's simpler, more productive, cost savings, lower maintenance, etc. So the industry is trying to move us there. So we talked a little bit before about digital video becoming more the record, more of the purest record because that's what happened. So we asked our customers, "Hey, do you see that happening?" And the general answer is yes. And do your current systems need to change to leverage all that new technology and all that new video and all that new content? The answer is yes. From 70% of them, they said, "Our systems need to change. They need to be improved.
They need to be different." But their concerns from a technology standpoint are not being handled by their existing systems. They're hard to manage. They're hard to use. If you ever see one of these systems, they're still using command lines and command prompts for accessing these systems. Storage is usually not super efficiently handled at a lot of these places, right? They're not ready for video. They're just able to handle the text data that they have today. The need for integration. On-premise systems today, on-premise systems, especially legacy systems in the government sector, tend to be hard to integrate with. So when you look at buying a new solution, what do you want? You want all the things you hate about your old solution in your new solution. So that's what we looked at.
That's what we heard from our customers, and that's what we built Evidence.com to do. Interesting stat here. 80% of them have zero connected systems. Could you imagine if your corporate systems didn't talk to each other? If your customer relationship management system had no idea when an order actually came in, right? It'd be a huge productivity suck. IACP also did a survey that asked the world, "Hey, why would you want to move to the cloud?" They're seeing the same things as everybody else. Saving money. Number one thing. Limited budgets. How do we save more money? Move to the cloud. No more software and hardware. Let's get out of being IT companies, right? Why are they in this business? They don't build their own cars, right? Dynamic provisioning. We want computing whenever we need it.
We don't want computing when we don't need it because we just want it to go away. That's what the cloud offers, right? You plug in, you connect to the internet. There's your applications and your data. Lots of other things here, features, easier for end users, et cetera. I won't go through all of them. So from a practical standpoint, state of law enforcement today already sort of set the context that there's a lot of frustration. Maybe some of us feel this way too, but a lot of frustration in law enforcement about the current state of things. This is the last thing I'm going to talk about, which is the exact problem that Evidence.com is targeting to solve now. You have all these inputs, right? All these multimedia inputs. We're starting with the hardest things to manage because that's where the biggest pain point is.
You've got fixed surveillance cameras. You've got cameras actually from your local gas station or whatever because these agencies will build relationships with local businesses to get the video streams. Our video, smartphones, et cetera, et cetera, in-car audio recorders. There's lots and lots more, of course. But each of these things is going into their own system. Some of them are going to Evidence.com today. What we're working with agencies today on is connecting more things to Evidence.com. But on the back end, when you have this many systems, what you have is you have lots and lots of people going to lots and lots of different systems. So many inputs, many systems of information, and then many people trying to access them, which is super inefficient. Shouldn't work that way. So where we're driving our product and the market is to put all of that in Evidence.com.
We're investing a lot of resources to do that. It just simplifies everything. When they want to know, "Hey, give me all of the data associated with this case or all of the data associated with this officer," it's all in one system connected together. There's a lot. This is obviously a simplified representation, but there's a lot of engineering work and a lot of technology to make this happen. That's what we've been investing with Evidence.com, and this is the problem we see we need to solve.
Thanks. Next up is Jeff Kukowski.
Good morning. My name is Jeff Kukowski. My responsibilities at TASER are basically for everything that's customer-facing around the world. My background started with an undergraduate degree from Northwestern, MBA from the University of Chicago.
This fall, it's hard to believe, but I entered my 24th year working for technology companies around the globe. So it's been a good long run. I've had the benefit of working for some of the largest software companies in the world. I've also had the benefit of working for a number of different startup firms. Two that are notable relevant to this space are Destinator and Cyclone. Destinator was a company that was early in the mobility, personal navigation, and location-based services space. So the interaction of these smart devices with back-end services was a market that took off in Europe many years ago and became popular here with companies like Apple introducing the iPhone.
And then, more interestingly, as Rick talked about the big opportunity in law enforcement, and Jason went deeper on these information systems in law enforcement not talking, Cyclone was a startup company that basically went from $1 million to $25 million in the enterprise application integration space. So, taking big enterprises in multiple industries around the world, retail, CPG, financial services, healthcare, connecting these value chains securely over the internet. So, both of these companies were net new spaces. They were both startups, and they both grew to critical mass and are continuing on. What I thought I'd do is take the opportunity to talk about how we approach the market, how we sell. I'd then like to transition into the results that this approach is already producing. I'd like to talk about the repeatability of that approach and then also then end on the international opportunity.
So when we talk about the customer group, all of the functions in blue are functions that the company has had for quite a few years. As we talk about how we address the international opportunity and these net new markets in video and evidence management sales, everything in yellow is essentially a net new investment. So Doug talked about a customer-driven process. That came from an investment years ago in product management and getting more in touch with customers to drive our solutions from a customer perspective. Investments in sales teams. In Q3 and Q4, we not only added to our North American team and our video and evidence sales team, but we added substantially to our international teams. And I'm going to cover that later. Telesales is a brand new function.
So we have some information on a hypothesis and a hypothesis that's proven true on a part of the market that was underserved. On the right-hand side, services. When you talk about plugging in something as simple as Evidence.com, all you really need is an internet connection. Well, kind of. Just like we use Salesforce.com, and it's easy to plug in, these agencies have workflows between their front-end officers and other people in the ecosystem. There's supervisors, attorneys, and other parties of interest in that public safety infrastructure. So the account management team and the professional services organization are getting involved upfront in sales cycles, making sure that customers are successful in their trials and then are successful in their implementations and going deeper in their implementations through services. So if we look back a couple of quarters, some of these changes have already started to produce results.
So we started making changes in fundamentally how we sold in the market about the same time we launched the X2 back in mid-2011. You can see in the subsequent quarters that there's growth after those changes, but you can see a big jump in growth about three to four quarters later. So the changes in those processes, along with the changes in solutions that offered even more value to our customers, is driving the growth that you guys are seeing today. Comparatively, we just started making investments, Q3, Q4, even heavier investments in Axon and Evidence.com, field-facing, customer-facing people. So you guys saw the expenses go up there for investments. We also saw a corresponding increase in the camera and evidence sales in Q3 and Q4.
Similarly, we started making investments in international in that same time frame, and we'll talk about what we think those investments are going to yield to investors. Some of the rigor that we've put into place from a customer group perspective really is based upon three different factors. One is, what's our visibility into what's happening in the market? Do we have coverage? Are we talking to those accounts? And then finally, in these absolutely awful economic times for the public sector, how do we get in front of those accounts to become a funded priority? So if you look at our market, just about any market you can divide into segments. And the way our sales teams view their markets is really across three different segments. In the mid-market, our distributors have helped us build a great business with average deal sizes around $20,000.
At the top end of the market, Rick talked about the relationship, the special and privileged relationship we have with law enforcement. We have direct access to chiefs. We have direct access to training. We have direct access to people who are on the front lines every day. So not only large agencies, but even agencies of moderate size can drive larger deals. And then finally, we had a hypothesis that all the agencies that make up the smaller part of the market, large in size, the total number of agencies that are actually small are the majority of the market. We felt that that was underserved, so we started a telesales function. So the results, and what I'll cover in the next couple of slides, have been every single quarter, for the last six quarters, we've improved our large deal execution simply with this focus.
With distribution, we have distributors that make us a priority, help us become a funded priority with our customers, and we have at least half of them that are growing along with us. Some of our distribution is flat, so we're working with them to improve their skills. Some of them just aren't making the cut. They have other priorities where they just don't have the skills to help us grow our company. Then finally, telesales, in Q3 and Q4, we added substantially to that team. It's really become our second best source of distribution. As we look at the headcount increases and the cost increases, the return has been significant even in the short term.
Visually, just taking a look at that over the prior bunch of quarters, you can see prior to basically Q2 of 2011, where we started making these changes, if you were to draw this chart out left for a bunch of prior quarters, you would see $1 million-$3 million being the average number of deals that would have deal sizes over $250,000. If you look right of Q2 of 2011, you can see that that's jumped substantially with this focus. And then on the right-hand side, you can see the significant growth in our telesales function addressing the smaller agencies and the smaller deals in the market. Doug's already covered most of the strategies that we've employed to drive growth in our primary segments. So these blue bars basically represent our weapons revenue over the past bunch of quarters.
And the green bars represent the quarter-over-quarter growth, excuse me, from the prior year. So Doug already covered the benefits, which primarily are the driver for growth, the benefits of our smart weapons platforms. I think other things that we've done in the sales process, along with the right economic incentives, trade-ins, financing, other things that our customers need to get value out of what they've already purchased, are also driving our weapons sales to be a funded priority with law enforcement. Basically, what we've done is we do declining value trade-ins from the launch of a product over a certain number of quarters. So last year, when we launched the X2, we started with a $300 trade-in credit against a package, which included the X2, cartridges, a holster, a warranty, basically everything that they needed to get started. And those trade-in credits declined quarter-over-quarter.
We're doing the same thing in 2013 with the launch of the X26P, but we're including those trade-in credits against the X26P or the X2. And they declined quarter-over-quarter. Does that answer your question? Okay. On the Axon and Evidence.com side of the business, the video side of the business, our strategy is really simple. About 65%-70% of the North American law enforcement market has in-car cameras. 90% of what happens in law enforcement does not happen in front of the vehicle. So our customers can have a disruptive technology at, quite frankly, a disruptive price, 90% more utility at less than half the total cost of ownership over a three- or four-year period of time by moving from in-car systems to on-officer systems. So the budget line items are there. Our sales teams are out there chasing those budget line items.
Going further, their back-end systems, what we hear from our customers is that they're awful. They're separate. They're standalone. They're not connected to their RMS systems. They don't manage their other sources of digital evidence. So we have this huge opportunity not only in disrupting this in-car market, but also the back-end systems to make those workflows work better within law enforcement. This is $300 million-$400 million a year in annual spend in North America alone for the in-car segment. This is basically another chart showing the bookings only for the Axon and Evidence.com product as of the Flex launch, the Flex product. So it takes out our prior generation Axon Pro units. And these are the numbers that we had reported on the recent call. Some of you may ask, in this strategy, is this strategy repeatable?
What I would answer is, with the rigor that we've put into the process, we do regular sales forecasting calls and pipeline reviews. Two-thirds of our pipeline today are deals greater than $250,000, the balance also being some of those smaller deals from the telesales team. We've also had more rigor in getting visibility into what distribution is selling and forecasting. So part of bringing up the game of all of our people in the field is working with distribution as well and having them forecast along with us. So we believe the model is repeatable. Moving on to our international strategy, I apologize. This slide is a bit busy, but let's focus on the center of the screen to begin with. Our international strategy is quite simple.
We in North America, Rick had talked a little bit about the TASER experience and the special relationship we have with law enforcement in North America. I would say that that's true everywhere around the world, but it's especially true in North America because we have so many people that are so engaged with our customers in the market. Every day, we have people in the market with our customers listening to how we can improve the solutions based upon their needs. We've developed an incredible master instructor network. That's a great customer-facing educational channel for us. Jason played a video from a recent thought leadership event we did. We did over 12 or 13 thought leadership events last year where we bring in the senior-most officials from agencies all across the U.S. We talk about their issues. We talk about safety. We talk about effectiveness.
We talk about what they need going forward. All of these things together in the center are what we call the TASER experience. And what we're going to do internationally, quite simply, is just invest in creating the TASER experience in countries where we see the greatest economic opportunity right now. So in 2012, we went from one website in the English language to six. Why is that? Because people need to learn in their own language. So we went from English to French, Portuguese, German, U.K. English, and Spanish. Each of those websites are seeing increased traffic. And part of our process is, as people come to the website and get educated, they actually raise their hand and fill out a form and say, "I want follow-up. I'd like somebody to contact me about one of your solutions on your website." This builds a pipeline.
It gets people in the customer-facing group engaged. That's how we forecast. That's how we're providing results today in the domestic market and how we're going to grow the international markets. Our first focus areas are Brazil and Europe. In Europe, we'll talk about it primarily being there's opportunity across Europe, but we have a big opportunity in France and French-speaking countries. And then we also have a strategy for basically the next tier. And then for the rest of the world, we have distributors in place to service those.
As we look at why we selected Brazil and why we selected Europe as the two places we're going to implement the TASER experience, you just look at the left-hand side here of addressable market, and you just add up Brazil, U.K., and France, and you have a market size, the total available market in those three countries alone, that is equivalent to the same market we have here in North America. Our hypothesis, which is already showing some results, is that the TASER experience will help us grow those markets. If you go to the right-hand side of the chart, each of those markets already have devices, many of which are already at or exceeding their recommended five-year usable life. The upgrade cycle applies there as well.
Going 5% deeper with 5% additional penetration in these markets creates a real business in each of these countries for us. So by investing today, we believe we're going to see results tomorrow. As a proof point, we started investing in our own people in the French market a couple of years ago. And from 2006 to 2011, I believe France produced about $6 million in revenue for us. Last year, in 2012, it was $2.4 million alone in that market and there are additional opportunities there. By having people in country, we're learning. So in Brazil, for example, we learned that approximately 5% of their officers are in court defending themselves every single year, which doesn't sound uncommon. But we heard that their defense is so poor that they have to pay up to a year's salary defending themselves against frivolous and sustained complaints.
So as we put people in market, we have those firsthand opportunities to learn from those customers in that market and better address those opportunities and thus sell through. With that, I'd like to hand off to Dan Behrendt. All of our approach, I think you've seen some of the investments. Hopefully, you've seen how they're paying off and can see how our hypothesis can also prove true for these additional international markets.
Thanks, Jeff. I'm Dan Behrendt. I'm the CFO of TASER International. Maybe just start with a little bit of my background. Got an accounting degree from Mount Union College and an MBA from Case Western Reserve in Cleveland. I started my career at Arthur Andersen in commercial audit. I am a CPA. After my years at Andersen, I went to the power generation group of Babcock & Wilcox's billion-dollar division of McDermott. After that, I took a number of financial management roles in sort of industrial companies in Northeast Ohio, Precision Castparts Corporation, Teledyne, and then a Blackstone Group portfolio company called Imperial Home Decor. It's an $800 million company. It was the world's largest wallpaper company at the time. I started there as director of planning, became the Treasurer, then Corporate Controller, and eventually became CFO, where I successfully sold the company and joined TASER in 2004.
So before I share with you sort of the long-term model, I wanted to talk about some of just the underlying assumptions that went into the long-term projections for the company. We're showing sort of the 2017 projections, and these are sort of the underlying assumptions we have. We assume that the upgrade continues and actually accelerates in North America. We continue to have the TPP, which is our municipal leasing program, as well as the TAP, which allows agencies to actually prepay for their TASER in order to make the TASER more of an operating line item for their budget versus a capital line item, which is difficult for them sometimes in this budget climate. The international efforts that Jeff talked about, we expect that those to succeed at a reasonable level, but really no home-run markets.
Sort of that sort of steady increase in sales, sort of that 5% penetration additionally in each of those markets, but nothing as dramatic as what we've seen in the U.S. in order to be sort of conservative on the international side of the business. We assume that the Flex product, the Axon on-officer video product, continues to gain adoption in North America and also has some adoption internationally as well. We assume that the pricing for the Flex has sort of a slow decay of 5% a year, but we assume because of the value add and some of the new features that Jason and his team are adding on Evidence.com side, that pricing for Evidence.com remains consistent over time. We assume that 60% of the users on Axon Flex become Evidence.com customers.
Right now, we're giving away a free year of Evidence.com with every camera purchase, but we're assuming 60% of those customers will come to us and buy that solution for us when that one year of free trial is up. We assume a 10% annual churn in those customers. We're going to lose sort of 10% of those paid customers a year, which we think is a reasonable assumption. Then we also feel that the target investments we're making in SG&A and R and D will actually grow at a rate slower than sales. We do expect operating income improvements as a result of these investments. Looking at the sort of kind of present a range of outcomes for each of the segments of the business. I'm going to start with the range of outcomes for the weapons segment.
So the weapons segment includes the TASER conducted energy weapons. It also includes cartridges, warranties, batteries, any accessories that go in sort of the TASER devices. In basically our base case, we're assuming that in 2017, our forecasted sales were for $174 million of sales with $59 million of operating income or 33.6% of sales. There's a number of sort of assumptions that we make specifically in that base case model. We assume that the budget climate that we have in North America and around the world improves slightly from what we have today. We assume that the TASER kind of maintains its current competitive position that we have. We assume that the upgrade actually continues to scale up. Last year, we saw 7% of the installed base upgrade in 2012. We assume that that grows to 12% by 2017.
We also assume that the investments we're making in international, though individually, we're not assuming any sort of home-run markets. We're assuming that that international business actually doubles from the 2012 levels because of the investments we're making. And from all that, we get an EPS contribution just in the weapons business of $0.62 a share in 2017. Sort of the underlying assumptions for the EPS numbers I'll present as we go forward here. We're assuming a 40% effective tax rate, and we're assuming 57 million diluted shares outstanding under all the scenarios here. That leads to a compound annual growth rate of 9.8% on sales and 14.3% on operating income. Looking at sort of the pessimistic scenario, we're assuming $140 million of sales in 2017, $41 million of operating income or 29.6% of sales.
Again, some of the underlying assumptions that go into that pessimistic scenario, we assume the budget climate actually worsens from today, that we actually have new entrants into the market, which creates some moderate pricing pressure and also drives our ability to upgrade because there's alternative technologies out there. On the international side, we sort of assume that sort of stays at the current level, so roughly $25 million-$30 million a year. So no real significant growth in the international part of the business in a pessimistic case. But even that case yields EPS of $0.44 a share with CAGRs of 5.1% of sales and 6.6% on operating income. Moving on to the optimistic case. So in the optimistic scenario, we assume actually $200 million of sales in 2017 out of the weapons segment with $70 million of operating income or 35.1% operating income as percent of sales.
So kind of the key assumptions that go into that, we assume that the budget climate actually improves from today, that we have a better budget climate both in the U.S. and internationally. We assume that we maintain the competitive position that we have today, that the upgrade actually continues to accelerate and gets to 15% of the installed base over five years each year by 2017. And then the international efforts that Jeff talked about, those investments actually yield greater results where the international business actually gets close to tripling in 2017 from the 2012 levels to the point where it's about 35% of revenues. In 2012, reporting records is about 18%. So significant improvement in the international part of the business because of those investments. That yields EPS of $0.74 a share with CAGRs on sales of 12.9% and CAGRs on operating income of 18.5%.
So one of the challenges we've had, I think, for investors is really as they look at the Video business, we've been making significant investments in that business, as Jason talked about. And really, I think the challenge is, what's that business look like at scale? So basically, put the sort of the same five-year projections in place for the video business. Again, the video business includes both the Axon Flex and sort of on-officer video products. It also includes TASER CAM as well as our cloud solutions. So in the video business, we think that that business by 2017 can grow to be a $51 million a year business, generating $14 million of operating income or 26.6% operating income as a percent of sales.
Some of the key assumptions we have there is that TASER captures sort of a reasonable share of the market, 15%-20% of the U.S. market, and it has some international success, but nothing significant on the international side of the market, although we do see really the same opportunities for the TASER product internationally as we do in the U.S. We see that the market acceptance for on-officer video goes mainstream, but the market remains fragmented. There's lots of entrants in the market. We don't see ourselves having a significant market share where we see ourselves sharing that sort of market share with other companies in our base case. We still expect to see that 60% adoption rate of Evidence.com, so it's sort of the conversion from sort of the free one-year to the paid subscription, and then a 10% a year churn.
That leads to a contribution EPS-wise of $0.14 a share, and that has sales CAGRs of 55.3%. Under the pessimistic scenario, we assume that we get to actually just grow the business from today's rate to get to $26 million in sales and $5 million of operating income, and operating income of 19.8% as a percentage of sales. Now, in this case, we do assume that we do some reductions from the spending on SG&A and R and D in order to match the levels of sales. Right now, we're investing because we think this business can be significantly bigger than it is today. If we see that's not the case, we'll scale back some of those investments and make sure they match the revenues closer, which is why even under the pessimistic scenario, we see that it's accretive to earnings.
Some of the key sort of assumptions we make is that TASER doesn't take a significant share of the market, that really we don't have really any international adoption or very little international adoption. Market acceptance on-officer video doesn't go mainstream because it's still sort of a niche product. We assume prices actually decay 10% a year because it's more of a crowded market, so we see reduced prices over time. We only expect to have a 40% adoption rate in our backend solution and still have that 10% churn. That actually yields, even under the conservative scenario here, a $0.05 per share EPS on a diluted basis in 2017, and it has CAGRs of 35% on sales. Now, we also looked at it from sort of an optimistic perspective. We think that business really has the ability to scale significantly.
We see that on the optimistic side that that business could be an over $100 million a year business. So we're looking at an optimistic scenario here of $103 million in sales, $34 million of operating income or 33.5% of sales. Again, when we look at sort of what we think is going to be sort of the differences and the assumptions to get there, we look at the network effects. It's something that Jason alluded to. We think that our system, because of the network effects, every new customer, because of the ability to easily and seamlessly share information within customer to customer, each new customer makes the overall solution more valuable for the rest of the customers.
If that network effect takes place, we think we've got the ability to take a more significant share of the market because people want to be on our platform in order to have those efficiencies. We assume some successes internationally in one or two of the targeted markets, but not widespread adoption under this scenario. We look at on-officer videos going mainstream with TASER capturing a significant market share in North America. Basically, we assume that because of our strong market position, the prices actually remain constant in the scenario and that the Evidence.com also has constant pricing. We assume a 70% adoption rate for the backend solution after the free year with a 5% churn, instead of 10% churn. Those are sort of the key differences and assumptions.
EPS contribution under our optimistic case here is $0.36 per share, and that assumes 78% a year compound annual growth. So as you can see, sort of just the range of outcomes, just more of a graphic representation of the different scenarios on the video and cloud segment of the business. So in all cases, we see that business is accretive in 2017, growing from today's sort of $5.7 million in operating loss in 2012, $9.7 million, to $26 million in the pessimistic case and $5 million of operating income, the base case of $51 million of sales, $14 million of operating income, and then the optimistic case, $103 million of sales and $34 million of income. We do expect sort of the cloud business to sort of continue to accelerate over time because of that backend solution.
As we look at sort of the outlook for the weapons part of the business, our 2027 forecast, again, in 2012, we had a $109 million business generating $30 million of operating income. That was actually a record year for TASER from operating income for the weapons part of the business. So we set new records both on the overall sales and also the operating income out of the weapons business. But we think we've got the ability to grow both sales and profits under all our scenarios here. Again, this shows sort of the base case of $174 million and $59 million of operating income. Then on a consolidated basis, again, in 2012, the company had record sales of $114.8 million, just a little over $20 million of operating income. We see that in all scenarios, we see the company growing significantly from today's base.
Again, having the video product become accretive has a dramatic improvement on the operating results of the company. So even in the pessimistic case, we see a company with $46 million of operating income. And just looking at EPS again, I thought this might be useful. So looking again, in 2012, the company had EPS of $0.27 a share. That actually included some one-time benefits in 2012 for things like we had a deferred tax asset that we had a reserve against that we took back to income in the fourth quarter worth a couple of cents a share and a couple of other one-timers. But even with those one-timers included, we had $0.27 of EPS in 2017.
Because of the contribution of video and cloud and the fact that that now becomes accretive to earnings versus today it's a drag on earnings, you see sort of dramatic improvements in EPS under all scenarios here, going to $0.49 EPS under the pessimistic scenario, the base case of $0.76 a share, and the optimistic case actually yielding $1.10 per share in EPS in 2017 on a forecast basis. We talked about sort of the three growth strategies for the company and sort of the investments we're making to grow the company. So this is sort of a graphical representation of what those growth strategies look like. We expect that because of the upgrade cycle in North America, we expect the domestic weapons business to grow $31 million from the 2012 rate to 2017.
We expect the international weapons part of the business to grow by $34.8 million due to the investments that Jeff has talked about making in these targeted markets and with the ability to actually invest in more markets if we see success. Then the video and cloud, dramatic increase from sort of the low base of $44 million a year increase in sales in 2017 to get to a total sales of $225 million in 2017. Now, we had a fair amount of feedback from analysts and investors after the fourth quarter earnings call when we talked about the investments we're making in SG&A and the fact that we expect those investments to actually increase by roughly 10% in 2013. This is really kind of a waterfall chart to really show you where those investments are being made. They're really the vast, vast majority in our customer-facing roles.
So we're increasing our international sales efforts and marketing efforts by $1.8 million over the 2012 base. We're seeing account management. It's a brand new function. A year ago, we didn't have account managers, but we've really come to the conclusion that we need those initial customers to be successful with our product. We want them to be referenceable in order to grow that business. Our customers very much talk to each other. They want to make sure that the people who bought early have really the greatest success possible in order to make sure they become referenceable for us. Video sales team, the video sales is really more of a direct sales effort. We use distribution for lead generation, but really, our team is really the one doing sort of the demonstrations and really rolling out that product.
So we do have to make investments in those direct sales people for video. And as Jeff talked about, telesales has been a huge success. I mean, it's roughly 10% of our sales yet. It's high-margin business. We're really servicing those smaller customers much better than they got through distribution. We're going to continue to make that investment because it's a high ROI for us. And then just sort of the total SG&A is sort of $43 million. I think at TASER, we're really excited about sort of the future of the company and our ability to grow, but we've also concluded that we can't really grow without making these investments in SG&A. We can't sit back and rely on our distribution to sort of take the ball for us.
We need to really make those investments ourselves to grow the video business, make sure those customers are happy, grow the international part of the business, that we can sort of sit back and wait for the growth, or we can sort of take a more direct approach. And that's what we've chosen to do. We're going to make these investments. We're basically very confident these are going to be high ROI investments for the company. So we plan to carefully monitor and evaluate these investments. We're not going to just sort of make these investments and continue to grow SG&A without seeing some results. So these are some of the ways we're going to be really measuring the success and really the decision catalysts to make deeper investments in the future.
We're going to evaluate the incremental sales and ROI from the investments we're making in international sales before we really expand much beyond the investments we're making in Europe and Brazil. If those investments have high ROIs, we'll be looking for other markets that have similar characteristics where they're sort of in that adoption phase of the market, sort of out of the evaluation phase where targeted investments for us have the ability to grow other markets as well. We're going to wait for traction in the video business. Again, we show significant growth from the 2012 levels, but we're really going to make sure that we're seeing that traction before we make a deeper investment in SG&A and R&D. And then we're going to continue to drive for sales to grow faster than our operating expenses in order to get operating leverage in the business.
So we see operating income growing faster than sales by sort of monitoring these investments and making sure we're seeing that ROI. So our last slide here before we go back to Rick is that we've really enjoyed strong operating cash flow in the business. In 2011 and 2012, we executed stock buybacks because we had more cash on the balance sheet we needed. We bought back $32.5 million with our stock in 2011, another $20 million in 2012, for almost 19% of our shares outstanding on January 1st of 2011 were bought back by the company in 2011, 2012. We just announced another $25 million buyback about a week and a half ago. Again, even with those buybacks we did, we finished 2012 with $37.8 million with the cash investments on the balance sheet.
Because we don't have any debt and we generate lots of operating cash flow, there's really not a need to hoard that cash. We see that we're in a good position from a cash generation perspective. We have a revolver that's largely untapped. We have the ability to increase the revolver over time if we need to. So we feel very confident returning this excess cash to investors in the form of the buyback. So with that, I'd like to turn it back over to Rick Smith, our CEO.
Great. Thank you, Dan. At this point, I want to talk a little bit about how we see this all coming together and where does the company evolve as we move towards 2017 and beyond. So we're adopting what we call a public safety platform strategy.
Before I get into that, though, let me just again sort of touch base on what we've talked about so far. We see these three major opportunities to drive growth with our existing business. This doesn't require sort of any additional new products and services outside of what we've already developed in the pipeline, obviously continuing to invest. Software is always being updated, et cetera. But with just our current smart weapons, the video and cloud services, international growth, we believe we can drive significant growth in both revenue and profits for the business. But if we take a step back and we say, "Okay, what is the real problem we're solving for our customers?" So our customers are typically in the United States, our average customer is a 50-person police department.
They either have no IT staff, or if they do, it might be over at the city, or they might have a police officer that rotates in to handle their IT. So the ability for them to be able to handle implementing complex new technology is very challenging. So our customers struggle with technology. And then they're further hampered by these government procurement processes. We had dinner with 11 local police chiefs last night, and it was universal. They all said, "We are so far behind in technology, and we're falling farther and farther behind every day." Because just for us to make a decision to deploy technology takes 18-36 months to go through the procurement process, and we've got to buy it and build it.
Thomas Streicher, one of our chiefs who's retired out of Cincinnati, talks openly about a system they spent $15 million on and over a decade, and it never made it live. In fact, it's only partially operational today, and it's already 10 years out of date. So it's into that environment where the industry is rife with those stories where there may be big investments with big execution risk in technology. And as a result, this traditional sort of IT deployment model leads to very expensive systems with low customer satisfaction and a low success rate. So we look at this and say, "Okay, what can we do to help our customers?" We've got a great brand. We've got a great relationship. And our customers look at us as a technology innovator. So the things that TASER does very well: designing and building electronic devices.
We make all our stuff right in Scottsdale. I'd encourage you all to come out and take a tour of the factory. We've got a fully automated cartridge production line. I'd say we're best in class in the industry in electronic devices. In software applications, you know what? When we started this journey five years ago, this was a new space for us. It's been expensive to build the right team. We made some missed hires. But I think we've got it dialed in. We've got a great team. We've got an office in California so we can access that tech community in Santa Barbara. We just opened an office in Bellevue, Washington, with our first two employees up there so we can access Washington State, which is a little more of a stable tech community. It's not quite as hyperactive as the Bay Area.
But I'd say our team, and when it comes to hosted applications, I'd say that we're best in class in our industry. Obviously, cloud services. With Evidence.com, we've got over 1,000 agencies using Evidence.com today. About 330 of those are paid customers who are using Evidence.com with our cameras. We also have a free version of Evidence.com that enables agencies to manage all the data that comes off our weapons. Because every weapon we make is a handheld computing device. They've got onboard oscilloscopes now. They're recording a lot of data. And we've got to be able to push firmware updates out to those devices as we learn things about different use cases in the field. We can improve the weapon's performance. We have over 1,000 agencies total now managing their weapons and/or their video on Evidence.com. It's a big first-mover advantage. Then training and support.
Because of what we do with TASER devices, we have over 30,000 certified instructors around the world. We certify 10,000 instructors every year. We've got a very robust training infrastructure. One thing we've learned from our customers is their technology providers, one of their weakest points is training. They roll out new IT systems, and nobody gets trained in it, and nobody knows how to use it very well. That plays right into our strengths. We know how to develop training organizations. Then value-added services. Things like Doug talked about our TASER Assurance Plan, our TASER Protection Plan, these new financing services that grew from zero in the middle of last year to 10% of sales in the fourth quarter. Always finding ways to add more value for our customers.
We even provide legal advice about how to optimize their use of force policies and how to defend their TASER cases. That just builds a closer relationship between all the things we do from a customer support perspective. So now, with shareholders, how do we take advantage of these core competencies to build sustainable, defendable, long-term value? And we see we can combine these services to create a platform for our customers. What do our customers want? If they want video, they want to be able to buy a camera from us. This is our Axon Flex. By the way, we didn't want to use up all our time today with product demos, but we'll have people afterwards. You can all go take a look at it.
So instead of taking your patrol cars out of service and putting a $5,000 camera in there and installing it anytime there's a maintenance issue, the car is out of service, an officer throws this in his pocket, mounts this magnet to a pair of belts or a collar mount or an epaulette mount or a helmet or a hat or any of about a dozen different mounting options, they're good to go. They can take this. They can pair it with any Android or iOS device. So I mean, we're on the Motorola Watch, which gets a lot of yucks from our customers. I hear Dick Tracy a lot when we show them this. I can pair this right with my Motorola Watch. I can pair it with my smartphone. So they don't have to go out and make a lot of investment in the technology that becomes obsolete.
In fact, many agencies are allowing their officers to use their own personal smart devices because officers already have Android devices and iPhones, just like every other consumer. But our customers don't want to have to go buy and build a bunch of technology that becomes outdated or has technical risk. What they want is a capability. They want to take something and be in the field. With these cameras, you don't have to go build a data center. You can plug it in, and we have you live today with the best digital evidence management system in the industry. And it's evolving faster than the competition because of this cloud-hosted model. We're not out there spending all the resources to try and deploy at hundreds of sites and all the customer support issues that go with it.
So the idea of this public safety platform strategy is to take the things we do really well and be a technology partner for our customers so they don't have to worry about technology issues. They can focus on being police departments, going out, protect and serve the public. They do that really well. Let us take more and more of this technology lift and bring you finished solutions with training and support services that will be best in the industry. And as a result, we see an opportunity for us to leverage all these disruptive trends that are hitting industries around the world, position that to our strengths to enable our customers to have technology breakthroughs, really capability breakthroughs without technology headaches. And with that, I will open it up, and I'll have the rest of the staff come up here.
Aaron's going to wander around for those people who are online so they can hear the questions. If you raise your hand, Aaron will come have you with the question, and then we'll have the appropriate member of management give you an answer.
Hi. Quick question, I guess, first on the X26P. I was wondering how big the clamoring was from customers that made you want to go out and develop that product. And also, on the Q4 conference call, you mentioned that there might be some hesitation by customers as they evaluate whether to go to the X2 or the X26P. So I was wondering if that was kind of a theory. Is that what you've seen been playing out over the first quarter, or?
Sure. I'll take the question on the X26P sort of rationale and then have Jeff answer on the second part. So we've seen about half our customers, about half of our sales are now the X2 versus the X26. So in fact, last quarter, X2 was a little bit higher. But with half our market 18 months into it, still buying the legacy device. When we went from the M26 back in the day to the X26, we saw a fairly rapid market shift over. And so we went out and we talked to a bunch of customers, and what we heard was the number one reason that the agencies that were staying with the X26 were staying with it was just they had the logistics, the supply chain, they have cartridges in stock, and they didn't want to have to retrain their officers.
So we heard that, and we said, "Okay, got it." We had some agencies that were even buying new X26s to replace old X26s. Well, that's a little bit of a tough sell to buy the exact same thing, just a newer serial number. So in talking to our customers, we had a number of them say, "Hey, look, we want to stay on this platform, but we understand we've got to evolve. We want the safety update features. We want the weatherproofing. We want some of the features of the X2, but we don't want to have to retrain our officers." And again, I'd say that's probably about half the market, which we believe now will help us accelerate. We've only upgraded about 9% of our installed base. It's over five years old. 91% to go. Now we're giving all of them a reason to upgrade.
Hey, you want two shots and more capability? Great. We've got the X2. Oh, you want to stay on what you've got, but get updated technology? We've got the X26P." So regardless, I think all of those people would now become viable targets. And let me have Jeff talk about what we were seeing in sales.
Sure. So Rick explained some of the underlying reasons why people stay with the TASER X26 versus the TASER X2. Now that we have a new improved TASER X26 with the P, a smart weapon, yeah, we are seeing customers now have the ability, they have the ability to evaluate two new smart weapons instead of one. So we do see agencies looking at both. That does take a little bit longer against all the considerations that Rick had mentioned.
Hi. Question on the five-year upgrade cycle. What were some of the testing that you did to indicate that it was, in fact, a five-year cycle and not a seven-year or a three-year cycle? And then if you look at you've upgraded maybe 10% or so of the outstanding upgradable weapons, what are the 90% saying to you coming back and extending that cycle on their own to a six-year or a seven-year? What are you hearing back from them? Thanks.
Doug, do you want to take the question on the testing around the five-year life?
Sure. We've actually had quite a bit of success getting that message out. And as I said, it resonates with customers because they are already replacing body armor that reaches a useful life as well, as well as their radios and their squad cars. So we are making quite a bit of effort in getting that message out. We get it through training. We get it through customer visits. We send out training bulletins and customer bulletins reminding them of this. And we are starting to see that that is taking effect in the field.
What are some of the testing that indicates it's a five-year cycle? I can understand you can get the message out. I'm just trying to understand how did you come up with the five-year number? Was it something?
Yeah. There was some. This actually started with some independent tests that were done up in Canada for the Royal Canadian Mounted Police and others that went to some independent testing labs. They started to see that weapons that were beyond 5 years old, there was an uptick in devices that would test below the output specifications. We also, for example, in the old X26, there's that analog gas tube that was talked about in the video. That will wear out over time. Now, it should last longer than the typical five-year use, but if it's under a heavy usage cycle, we can start to see, again, the pitting that happens with all the electric sparks that occur. And then we also just put that with looking at other things like laptops, cell phones, radios, et cetera, electronic devices. Three years would probably be too aggressive.
We had an independent study that saw a shift starting at the five-year mark. So that correlated with some of our estimates about heavy usage on things that would wear out at about that five- to seven-year use. But typically, you don't want to wait until-you don't want to drive the car until the wheels fall off, right? I mean, we're using a TASER. It's probably in a potentially a life-or-death situation, which is, again, why you don't want to just keep taking these things until they just don't work one day.
What are the people who haven't upgraded? What are they saying to you?
The folks that aren't updating, do you want to take that one, Jeff?
Yeah. The folks, again, these are, at a high level, the worst economic times for government organizations in the last 40 years. So what they're saying is, "We understand we need to move. We understand that there may be increased risk of failure." But those conversations do get us into budget cycles with those agencies and do build forecasts and do build subsequent quarter and subsequent year sales.
Yeah. I would actually add on to that as well. Look, 2000, let me get the years right, in the height of the crisis over the last two or three years, like 2010 and 2011, were really pretty brutal. And what was happening there is these, in 2009, you had the stimulus dollars that came out. So that was a record year for us. And a lot of agencies were able to postpone making workforce changes. Well, when it became clear in 2010, "Hey, guess what? There's no more stimulus dollars coming from the federal government down," a lot of agencies looked back and said, "You know what? We're going to have to lay people off." Now, remember, these are paramilitary organizations. These guys put their lives on the line together. There's a very tight sense of camaraderie.
Back in 2010, I remember we had one major agency in California we were working a big deal with. One of the guys from the union pinned our quote in the locker room. He said, "Hey, they're about to lay off 10% of the force, and they're out spending money on new gear." Well, needless to say, we didn't get that order. With these agencies, they were doing everything they could to avoid going through the reductions in force, which meant over the past couple of years, they've not bought new cars. They've not bought their new radios. Now, the good news to this is we're now seeing stabilization. Most agencies are now saying that they're not going through forced layoffs anymore. They might have some natural attrition occurring. By and large, most agencies are at least in a stable financial condition.
But they all realize now that they've gone two or three years without a significant capital spending. We believe there's an opportunity for some pent-up budget dollars because they've got to come back and start refreshing equipment. Any other questions?
Yeah. I wonder if you could talk a little bit more about international. You identified France and Brazil as big markets largely because of the size of the officer force. Can you talk a little bit about what are you seeing in those markets, your dialogue with prospective customers? What are some of the demand drivers? What are the hurdles you're having to overcome to push some people over the line? Thanks.
Sure. So let me just—I'll cover a couple, and if you want to go deeper, we can. In places like the U.K., for example, roughly about 15,000 devices sold against a total sworn of about 150,000, maybe a little bit larger. We've got commissioners like Bernard Hogan-Howe from the London Metropolitan Police that wants to do even more deployment. He wants to go beyond firearms-certified officers to non-firearms-certified officers. And in some of the other constabularies around the U.K., we have a mix where some of the firearms carry TASER, not all, and some that have non-firearms-certified people carrying TASERs. So even as they consolidate, there's now the chance of getting more penetration in that market. So the law enforcement leaders want to move in that direction. And some of the forces are setting precedents with these non-firearms-certified guys carrying weapons, CEWs.
In the French market, you have two very large national police forces, the Police Nationale and the Gendarmerie. They're moving more towards municipal policing services. So we've seen the municipal market start to grow, where budget dollars are now flowing to the municipalities. And I believe that municipal police force represents a total available market of 70,000 or 80,000 officers, and it's growing. So putting people in country, having a French-language website, doing the TASER experience in that country is already bringing those municipalities to the website. They're raising their hand. They're going through sales cycles. And we believe we'll see growth in that market. Brazil. Brazil, in and of itself, very large market. A number of events coming to Brazil with a lot of government funding to make sure the world knows it's safe to visit for these events.
They have the same use of force issues that you see in other countries. Very large opportunity, but that market comes with some challenges as well. So I mentioned earlier the liability of the individual officer. Many of these guys are putting up to a year's salary out of their own pockets to defend themselves. What we're hearing from that market is those officers are buying their own video equipment today. So just being present in market with a solution like Axon Flex and Evidence.com, we think will be a game changer in that market. So we're learning these kinds of things in our primary markets, and then there are also some secondary markets that countries like Germany today, the special forces in Germany, the SWAT teams essentially are equipped with TASERs. We think that that will eventually move to patrol.
We had in Switzerland, we had the approval of all officers in all the municipalities to carry by name a TASER X3 or a TASER X2. So just with that law changing, that opens up, albeit a smaller market, but a market opportunity in that country. So we're seeing these kinds of drivers in markets all around the world, with the emphasis being in the primary markets we mentioned, Brazil and then Europe.
Yeah. I would add a couple others. Colombia, just this past year, passed a policy that recommended widespread deployment in the Colombian National Police. So we're working there. In India, we had our first major orders or first significant orders. It's in the hundreds of thousands, not millions. But so things are getting started in India. We have a salesperson in India. Enormous market potential in terms of number of people, obviously.
In South Africa, there was a violent clash between police and miners that were striking that ended up, I think there were 30-some people lost their lives in those confrontations. So we're now having discussions there about how could this be deployed to save lives in South Africa or the Middle East. If you look at what happened with the Arab Spring, a lot of the public unrest in the Middle East, we've had some significant inquiries. And we've got a decent deal pipeline coming out of the Middle East as well. So it's not just the primary markets that we're in, but we think those give us the highest probability of success that we can make the greatest impact by having people in market. But then we also have traveling salespeople that service these other sort of second-tier markets.
Thanks. Of the customers that signed up for the free year, Evidence.com, what is the retention rate of those that after the year is up are signing up to be paying customers?
Dan, you want to take that one or?
I mean, at this point, we really just started selling that Flex solution at the beginning or really kind of the midpoint of 2012. So it's really too early to really say. I mean, I think the one thing we're encouraged by is we've had a number of customers actually buy three- and five-year Evidence.com back-end solutions with the sell-in because they don't need that free year to be convinced of the value. So we are seeing that. Obviously, that's one of our metrics we're going to be watching internally is to see how many of those customers buy right out of the gate. But I think we're encouraged by that, but it's really too early to see how many of those folks who get the free year come back and buy it for the year.
We'll certainly know a lot better by the end of 2013 because we'll have the 2012 sales to sort of see that repeatability.
We've had some, if you look at Lake Havasu, for example. Lake Havasu started with like a dozen units a year, 18 months ago with our original sort of much bulkier camera system. They just went full deployment, and they signed a five-year deal. And they signed up for our TASER Protection Plan and the TASER Assurance Plan. So in those payments over the five years, they're paying for the service. They're paying for the products they just bought. And they're basically getting a free upgrade included or a prepaid upgrade at the end of year five. And we have a number of deals in the pipeline currently. You'll be hearing more announcements of renewals of people that bought a year ago coming back and renewing. But it's too early for us to put a number on it.
I can just say qualitatively, if we get them on the system and they're using it, we're hearing feedback from agencies saying, "You heard Baird on there. This is Godsend. We don't have to mess around with it." We have 99.96% or 99.98% uptime, which is unheard of for a lot of these legacy systems. So we're getting great qualitative feedback. And again, of the agencies we're announcing a year ago, I'd say most of them are in some sort of—they've either signed an extended contract or bought more cameras or we're in discussions with them to do that.
Your IP portfolio has been, I think, a key competitive advantage over the years, just especially on the ECD set I'm talking about with a lot of the kind of the competitors that have come and gone. Could you talk a little bit about sort of where the key patents there, the NMI patent in particular, or series of patents in the Shaped Pulse technology and sort of when those sunset and if you have enough ability to kind of tweak those enough to kind of start the clock over again?
Go take that, Doug.
Sure. That's actually a good question. When we came out with the Shaped Pulse technology, probably about 10 years ago, we filed a couple of patents right away. Since that time, we have filed four additional patents on that technology that include improvements to it. And we currently have a patent litigation lawsuit filed against Karbon Arms, one of our competitors in Delaware. And it's notable to really note that in that case, we not only sued on the two original patents we have, but we also have three additional patents we're suing on, which represented those successor patents for improvements. And we also have other patents that are pending and also inventions that we will be filing patents for that, again, address improvements in that, especially around our smart weapon technology.
We feel that we're in a very good position from a patent protection standpoint to continue to defend our dominant position and conducted electrical devices.
On the dates on the Shaped Pulse, which is probably the biggest one that reads right on all these medical studies, I think that's a 2023 or 2024 date. Then some of these improvements roll out all the way through 2030-ish.
Two unrelated questions. First of all, I think you sold about 17 cartridges for every device you sold in 2012. Can you talk a little bit about cartridge consumption and how many cartridges get used given that they're only fired a couple of times? And then the unrelated question, on the video side, how do you help the police departments, given that they have these IP problems and these long deployment cycles? How do you overcome that and not just basically be something that they can't deploy because they can't do IP?
Yeah. On the cartridge side, I think the 17 per new handle sold. I think it's because you've got this large installed base at this point. So we've got close to 600,000 weapons in the field. We expect that in training, each one of those will use two cartridges a year just in training. They'll use one every other year in the field. But we have some customers actually train a little deeper on it because maybe they're less familiar with the technology, so they may use more cartridges. Military tends to use a lot of cartridges because they'll train lots of people across the platform. They may not issue them to each person, but they want to be familiar with the technology. So that sort of drives that overall adoption.
We've seen pretty consistent to see sort of the two per year in training and then one every other year in the field. That's been pretty consistent over time.
We have some international customers that'll do 15 or as many as 20 cartridges at their initial certification.
So on the question about rolling out our solutions with agencies, given how long it takes them to roll out, 10 years to roll out a system. So our customers roll out really as quickly as they want. For a bigger deployment, we'll actually put two or three people on site, and they'll be rolled out at the end of it. So with our service and with our cameras, it rolls out in days. And that includes all the training of all the officers and the training of how to use the system, et cetera. On the issues around integrating with other systems, that's going to be a longer time to implement because we're dependent upon the other systems that are out there. But our system rolls out in days.
Can you just outline kind of the competitive environment, particularly on Axon relative to Digital Ally and maybe some of the other products that are out there in terms of how you feel your position relative?
Yeah. So I think this might be kind of weird. I think whenever you look at the market, there's sort of in-car vendors that are trying to go on officer, which is an example like Digital Ally, if they have cameras. The issue from a hardware standpoint is that whenever you put something on someone's body, it's a very sensitive discussion because it's got to be light. It's got to be small. Wires are of concern. They're only okay in certain situations. And our competitors, we just haven't seen them actually develop products that solve that problem. The competitors that are selling against us usually have a very simple body camera kind of thing that you clip on. The issue there is that they don't have. They're creating a back-end problem for them. So when we're going in and selling, we do a T&E.
And during that T&E, the officers choose, "Hey, we like this camera better than that camera. And we've been successful thus far." And then the administrators start looking at all the data that's generated. And when it goes into Evidence.com, the administrators have no concerns at the end of 30 or 45 days because they didn't have to do anything. With competitors' cameras, it's just spewing data onto their existing systems, and it creates a whole IT project. Does that answer your question? Okay. So yeah, we do have when you asked about specific competitors, so we've mentioned some of the in-car guys. And then there's a small startup called Vievu out of Washington State that sells a body cam. And then we've seen some out of Australia. What's the name of that firm again?
E-Witness out of Australia.
And then I think there's a couple of small firms in the U.K.
I have a question or two. Are there any states in the United States that you're not allowed to sell in either law enforcement or all other being security guards, companies, individuals?
Well, when we started out, there were seven states that were illegal for both police and for consumers. We have now rolled that back where it's now legal in every state for law enforcement, the last one being New Jersey. Now, we still have some technical implementation issues the way the law is written in New Jersey. The training is quite cumbersome. So we're working with various regulators to try to streamline that because there's a lot of interest in New Jersey. And then in consumer, we started with seven states where it was illegal. And I believe we've rolled back Wisconsin and Michigan to where now we have five states that are illegal, which are New York and New Jersey because there's no crime here. And then Massachusetts, Rhode Island, and Hawaii are the five that consumers can't have it.
So I guess the closest state around here is Connecticut if you want to buy one. But you have to be a resident of that state, right, to do a mail order purchase of an item?
Yeah. We don't ship to any of the restricted states. You'd have to have a residence or an address in a legal state.
Going to the international side with Brazil, I believe I saw on one of the slides that manufacturing is required there. Does that mean you're an assembler? You import parts and put it together. Do you actually manufacture the parts? The workforce, is it U.S.-run? How do you maintain quality control? How much of an investment have you made? Questions like that. Could you address that?
Yeah. Do you want to take that one, Doug?
Sure. We have looked into the issues down in Brazil. And what our plan we have a phased plan for nationalization of our product in Brazil. The most critical component that we have is our high-voltage section. And we pot that in an epoxy. So it's sealed. We are not going to take that operation down to Brazil anytime soon. That's probably the most critical component we have. The contract manufacturer that we're going to be using in Brazil actually manufactures some of our boards, printed circuit boards. So they're an ideal partner for us. We're also going to be sending down engineers to assist with that process until we get people sufficiently trained up.
With the phased plan where we're going to be starting with very few of the critical components being actually made in Brazil to a point where we will be making those over time, we feel that we can minimize the risk of doing that.
There's not a lot of capital investment upfront, again, because we're using one of our trusted suppliers that makes, frankly, some of the most intricate parts today, which are the electronics. We just need to collaborate with them on the mechanical assembly. We're not putting a TASER building down in Brazil with a bunch of TASER people. We're using Parkers to accomplish this.
Are there any countries throughout the world that you're not permitted by the U.S. government to sell out? I'm thinking of a Cuba or Venezuela, North Korea, Iran, companies, countries like that.
Yeah. We can't sell in any of those. And then there's another little country called China that we currently cannot sell the TAS`ERs into.
How do you control that with distributors, though? If you use foreign distributors, I don't know if you do or not, but.
We do. We're very careful about making sure that we and our distributors are compliant with any of the U.S. export controls. So while philosophically, we actually think we could save a lot of lives in China, we can have disagreements philosophically, but we're going to follow the law very carefully. And so with all of our customers, we get export licenses. We get they sign statements as to where those devices are going. And we're typically also working with the end customers as well. We're involved in training them, etc. So we can monitor for if we get a suspicious order, which I don't know that we've ever had one come in where it's out of the blue, somebody's trying to buy something that we haven't been working with the end law enforcement community there. It's something we keep an eye on.
We really haven't seen anybody trying to do anything with it.
All right. Finally, is Maricopa County a customer of yours?
Yes.
Great Joe Arpaio?
Yes.
Thank you.
Yeah. Sheriff Joe is pretty well fully deployed with TASERs. They've got TASER CAMs. They were one of the early testers that helped us develop the Axon Flex.
I would think that TASER would be the very, very favorite company of the bad guys in the world. Whether you're a terrorist or whether you're trafficking kids, wouldn't you love to have a TASER? Because you want things to happen that don't necessarily or even someone who's legally savvy, if somebody commits a crime with a TASER, you cannot be accused of attempted murder because by definition, it's non-lethal. So I know you've done interesting things to prevent this technology falling in the hands of users, identifying munition streams, purchasing. Can you elaborate how this isn't being used by criminals more opportunistically and what you're doing to prevent that?
Yeah. Certainly, as you mentioned, we do serialization of our cartridges with confetti tags that fire out anytime you fire a TASER device. The fact of the matter though is we just haven't seen that much interest from criminals. Apparently, they're just not very concerned about the health and safety of their victims. We find that a gun is a really intimidating, scary thing. It's highly available, all sorts of black markets where you can go get a firearm. And so luckily, knock on wood, whether it's the preventative measures we take or just the dynamics of bad people, that they don't seem to want to save other people's lives or risk of injury.
So I've actually had some state legislators tell me they wish that they could get all the bad guys to convert to using TASERs because we sure get a lot of people lose their lives in violent confrontations. But we want to do everything we can to avoid any misuse of our product. That's why even the TASER devices for police, we record the time and date of every discharge so we can go back and audit is it being overused or misused. We put video cameras on it so we can see what's happening. I mean, I'm pretty proud. I think we try to be responsive to the public concern and concerns of our customers. That's the whole reason we're in this video business now is we want to solve this problem of distrust. Hey, people, our experience with law enforcement is they're 99% great people.
They get verbally abused. They get accused of everything under the sun. And it's very stressful for them. So we got in this really to protect them. But we also think, you know what? This is going to help improve relationships with the community because some people just have a negative perception of police. And they believe all the negative things that are said. And then occasionally, you get a bad cop who loses it, like the Rodney King incident. They spin out of control. We believe that that's going to happen a lot less. If a cop's wearing a camera, you don't get Rodney King incidents when they know it's being recorded. Those things happen when people lose it. And they think, you know what? Nobody's looking. Well, somebody's always going to be looking in the future. And we think that's going to take up everybody's behavior.
I'm just going to pursue the question a minute just to understand the technology of it a little better. This is exaggerated facetiously to make the point. But if somewhere in the trafficking kids business, and there are a lot of people in the world, you don't want to damage those kids because they're actually physically valuable property. But just taking that ridiculous example, you talk about serialization of cartridges. If someone steals a TASER from a cop, is it usable? Is there fingerprint ID? Is there any kind of—what are the systems that protect it from being abused by unauthorized users?
Good question. I mean, like a gun or a stun gun, I mean, if it gets stolen, it could be misused. But they'd have to come back at some point and buy cartridges. And what we find is so we do get this argument, for example, from some of the human rights organizations, some of which are very favorable to us. And then we have some that have been critical and say, "Well, we're concerned that TASER might be used for torture." Well, by definition, if you're torturing somebody, they're probably already restrained. You can buy a little handheld stun gun for $10-$20 that's perfectly adept for that. The customers that are paying $750-$1,000 for our solutions are doing it because they want to be able to engage moving targets in situations of uncertainty.
They put a high premium on the medical safety testing and things that we do. So we just really haven't seen certainly, something could be misused. But there's much cheaper, better tools, frankly, for misuse than ours.
That helps. Thank you. There's a big silence on International about Mexico. Here we are right next to them. They got a lot of situations where they got a lot of bad guys in mixed communities where lethal weapons, which would normally be needed, can't be used. What is your prospects in your business in Mexico?
Thanks. We actually see Mexico as one of the up-and-coming target markets. Right now, from what I understand, there's a lot of distrust of municipal police in Mexico. There's a lot of investment at the federal and state level. A lot of the investment is going into more highly trained, educated law enforcement professionals at the state and federal level in Mexico. Some of them are even moving to what they're calling Comando Únicos, where they're consolidating away from the distrusted municipalities to the more trusted and educated services at the state and federal level. We do see it as a market that will be a good market for us coming.
The last question is military applications. I was intrigued by work you've done, for example, in mines. The job that is required for mines is deterrence and detection, among other things. It's non-lethal. If a kid or a dog steps on it, you don't have a death. That's one example. What are your military potentials?
So right now, most of our military programs are for military police. And they're using TASERs very similar to municipal police. We do have some ongoing R and D. I think we've talked about that we're developing a long-range TASER projectile for a 40 mm launcher platform for the military. And we do have the area denial device. Unfortunately, that has not yet been approved for use. There's a very long lead time for getting new technologies in the military. And the other thing that we've learned along the way we have an advisory board of generals that advises us on how to approach the military. And around 2006, we had a meeting where they said, "You know what we really need is an area coverage weapon for these checkpoints." And we decided to go ahead and say, "You know what? Let's bypass the normal military development program.
Let's go build this. And we'll take it to the military as a finished item because we can do that much faster than if we tried to get DOD funds to develop it. What we learned in that process, frankly, was the military has a set way that they develop and buy things. And if you don't go through a military development cycle, you don't build the advocates that are there to then help create you have to get requirements written. And there's a whole bunch of bureaucratic things that have to happen to get approvals for weapons from the military. So we now take the position that we're going to follow a more traditional, like we're doing with this 40mm program, working with the Joint Non-Lethal Weapons Directorate . And even though we move at a slower pace, we believe long-term, that's how the military acquires things.
We've got to play within those rules and not try to shortcut it. I think we had a couple of other questions. Then we'll break for demonstrations.
A quick question on Evidence.com. Is it an internally hosted solution? Or is it an externally hosted solution for you guys? Is it out at the data center? Or is it inside your office? And what's the CapEx requirement with that going forward? Thanks.
So we leverage Amazon Web Services. So there's no CapEx. Just want to make sure I understood. So it's just a monthly fee. So we're eating our own dog food. We're not experts at building out data centers and having redundant cooling systems and five backups for power. We're experts at deploying applications into law enforcement. Yeah. Good point. So when we chose a provider to help host Evidence.com, we looked at their international locations. So we said, "Okay. What's important in a provider?" And one of those things was allows us to deploy internationally easily and cheaply. So Amazon has locations in Dublin and São Paulo and Singapore and Sydney and Japan and a bunch of others. And they're constantly investing and rolling out every day. And because they make their system so easy to deploy on, it's also fairly straightforward to roll out internationally quickly.
We get computing on demand too. The cost is very low to even test the country.
Just a quick question on the legacy X26. When and how often does that have to be recalibrated? And then I have a follow-up question.
There's no technical reason for the device to be "recalibrated" because you can't really adjust the device. Now, following that test I mentioned up in Canada, some of the Canadian agencies are now recommending, I think, annual testing of the device where they'll just basically take it and test it, plug it into an oscilloscope. One of the interesting things is a TASER can't really fail high. Imagine you're driving a Ferrari at 200 mi an hour. When something goes wrong, it doesn't go 300 mi an hour. It breaks down. Similarly, a TASER is operating at about its maximum output, an X26 in this case. So if we do see components start to break down, it'll fail low. So the result is not sort of the spectacular safety issues that you might have heard in the media.
The result is actually more of an officer safety issue. If it fails, it's going to either stop working or be under-effective. But it was based on so I would say from a scientific perspective, this is really more of a public relations issue than there's a scientific need to test the devices. But that's why we've built calibration into all of our new smart weapons. So now you can just plug it in and download a report off of the device where it's measuring and calibrating itself and reporting those logs. Because we've heard in some of these places, they might spend $500 to have a weapon tested. That's half the cost of acquisition. So we see a significant benefit for those agencies that are, particularly again in Canada, that are requiring regular calibration to just build it into the device.
And then the follow-up question is, what's the main reasons for failure of an X26 Legacy? Is it the number of firings? Is it?
There's a couple of things. There's obviously physical damage. If it gets broken, dropped, etc., it might crack a unit. We do a spark test on a daily basis as a recommendation. So basically, when you take it out on patrol, you arc the weapon before you get out into patrol. And that means if there's something that's gone wrong, like humidity in certain areas, if you have really high humidity inside the device. Again, that's not an issue with the newer devices because we've now weatherproofed them. Rain or submersion can get in. Or just extended use where over time, you might see the spark gap internally start to wear out. Or you might get breakage in the high-voltage circuit. There's a high-voltage transformer.
We actually have an improved design in both the X2 and the X26P where we've dramatically decreased the chances of those breaking because it's a physical molded part. Whereas the previous one was more sort of a wound assembly. So it was not quite as robust as what we're doing in some of the new devices.
Yeah. So you mentioned France a couple of times and also that there were two large agencies that accounted for 80% of officers, I believe, in France. Not that you're expecting it. But if you ever got one of those agencies, would that almost be a game changer internationally? And in light of that, you're increasing SG&A $1.8 million internationally. Is any of that a large bet on some sort of large international deal like that?
So in the model that Dan presented, in the base case, we don't assume that there would be some game changers. But to answer your question, yes. If we were just to go 5% or 10% additional penetration in some of those large agencies or even get them up to the deployment that we see here in North America, those would be game changers internationally. And then the second part of your question was?
The investment internationally is primarily in two regions. Brazil being about 80% of the market below the border in sales, marketing, services people. Same in France. Probably a little bit it's not 100%. It's basically evenly split between those two geographies with sales, marketing, and services people.
I would say we do have some other game changers from other parts of the world.
But we haven't invested in putting teams there because those we've assessed are less likely and/or we're less likely to change the outcome because it might be just a country with a small number of decision-makers and one large agency. So those we might still handle direct from the U.S. Whereas Brazil and France and India, there's enough agencies that we can be very successful there by just blocking and tackling with proven customers we've had and grow them in a fairly predictable way. Now, there could be a game changer out of there. But I wouldn't characterize any investments we've made as a bet on a very large low-probability event.
That's right. Just to go one step further, Dan kind of outlined some of the criteria for where there might be additional investment. If we were to have, for example, a large agency in one of these countries want to deploy lots of cameras, do full implementations, that would typically be the point at which we may invest more to get not only that agency up and running successfully but to leverage that to create the market.
It's actually an interesting thing for international. The camera and Evidence.com technology, we believe, actually has an opportunity to succeed in countries where TASERs might be more controversial. Right? And that's one of the challenges we face when you deal with a national-level police force. We're dealing with national politicians. Here in the U.S., the chief police was a cop a few years ago in most places. So very connected to what the job the cops do on the street. Understands what this device does. Understands the safety implications. Frankly, even in the U.S., we're less penetrated in the largest agencies, the two LAPD, L.A. Sheriffs New York and Chicago. We have a much lower penetration than we do everybody below that level. And part of it is those are just very big agencies. They're more prone to city politics, frankly. Well, internationally, you take that up a notch.
You're dealing with the Minister of the Interior. But in those scenarios, number one, when they go, it could be much larger. But there, the camera opportunity, we don't have the controversy around that. So we actually think that that could have a very different and potentially more favorable international dynamic.
You had a slide that showed that the new Telesalesforce sort of addresses the fat part of the market. How large is that opportunity? And then the sales you've seen to date, do they tend to expand the installed base or have they been upgraded?
The total available market is at least probably 14,000 or 15,000 agencies, less than 100. And as Rick mentioned, the average agency is 50 or less. Right? So there's this steep decline in the number of officers in some of these smallest agencies. What was the second part of your question?
Yeah. It's kind of a combination of both. So while we did see some small orders, the volume of our small orders, the average deal size for that segment of the market for us is about $3,000. And the multitude of those deals has gone up exponentially. So it's white space. It's also upgrades as well. So it's both of those.
All right. We'll take maybe one more question and cut it off. Or Erin, do you want to come up and explain where we go from here if they want to see a product demo, etc.?
Thank you, everyone, for sticking around. We do have presentations, the hard copy in the back for you to take on your way out. On that side of the room, we have lunch set up for those of you that want to stay. Then we'll all be available in the room as well. If you pass the lunch area, we will have demos of our video products as well as the weapons. For those of you on the webcast, the slides will be posted momentarily if you want to download your own copy as well. Thank you, everybody.
Great. Again, I'd just say thanks. We appreciate you coming. We'll all be here. Please help yourself to some lunch. Our product manager.