Good day, ladies and gentlemen, and welcome to the TASER International Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time. If anyone should require assistance during the program, please press star, then zero, on your touch-tone telephone. As a reminder, today's program is being recorded. I would now like to introduce your host for today's program, Rick Smith, Chief Executive Officer. Please go ahead.
Thank you, and good morning, everyone. Welcome to TASER International's conference call. We'll discuss the MediaSolv acquisition. Now, before we get started, I'm going to ask Dan Barrett, our CFO, to read the Safe Harbor Statement.
Yeah, thank you, Rick. So the statements made on today's call will include forward-looking statements, including statements regarding our expectations, beliefs, intentions, or strategies regarding the future, including statements around projected spending. We intend that such forward-looking statements be subject to the Safe Harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based on current information and expectations regarding TASER International Incorporated. These estimates and statements speak only as of the date in which they are made, are not guarantees of future performance, and involve certain risks, uncertainties, and assumptions that are difficult to predict. All forward-looking statements that are made on today's call are subject to risks and uncertainties that could cause our actual results to differ materially.
These risks are discussed in our press release issued today and in greater detail in our annual report on Form 10-K for the year ended December 31st, 2014, under the caption of risk factors. You may find both of these filings, as well as our other SEC filings, at our website at TASER.com. With that, I'll turn it back over to Rick Smith.
Thanks, Dan. This week has been very exciting with the announcement of TASER's acquisition of MediaSolv Solutions Corporation, so soon after our earnings we released just last week. We wanted to take some time today to discuss the benefits of this acquisition, our plans going forward, and the financial impact of the acquisition for the remainder of the year. For those of you who are not familiar with MediaSolv, I'd like to introduce MediaSolv CEO Jim Weaver, now the Senior Vice President of Professional Services at TASER. Over to you, Jim.
Thanks, Rick. Since 2009, MediaSolv products have positioned us as a leading digital evidence management solution focusing primarily on interview room, CCTV surveillance data, and car video, including support for Panasonic's Arbitrator in-car video, as well as on-premise digital evidence management. The capabilities of MediaSolv are largely complementary to TASER's Evidence.com. Combining Evidence.com's leadership, the ody-worn video , mobile apps, and evidence sharing with MediaSolv's interview rooms, CCTV, and in-car integration will bring a combined suite of capabilities unparalleled in the public safety space. Further, MediaSolv will enable Evidence.com to integrate with a variety of systems that were previously not streamlined. There is some engineering work to be done. Ultimately, we expect to roll these additional capabilities out over the next six months. And again, those capabilities will include interview rooms, CCTV integration, integration with Panasonic Arbitrator's in-car video solution, and additional features in the photo management.
Also, our engineering teams are already working together on a disruptive new in-car video system that we will unveil at the IACP conference in October. We are very excited to be joining the TASER family this week. In looking at TASER as a potential acquirer of MediaSolv, we were really moved by the power of not only your cloud strategy, but the strength and depth of your relationships within law enforcement. We quickly realized our visions for digital evidence management were very complementary and are pleased to announce the closing of this deal. Key members of our staff will be joining TASER in both Seattle and Scottsdale, and we're looking forward to working to continue to bring revolutionary technology to law enforcement. Rick?
Thanks, Jim. We are excited to have the experienced MediaSolv team join us. As mentioned, key members of the 11 MediaSolv employees will relocate from Washington, D.C., to either our engineering office in Seattle or the sales folks to our Scottsdale office over the course of the next few months. As with any acquisition, there will be financial impacts to bringing on additional team members and capabilities. During last Thursday's earnings call, we indicated that both SG&A and R&D would be increasing by $1 million sequentially. This was without the impact from this acquisition. After laying in the personnel costs that will be going through the operating expenses, we expect SG&A to increase an additional $300,000 and R&D to increase an additional $300,000 sequentially in the second quarter.
This transaction will include $8 million of cash at close, with up to $5 million in earnouts for shareholders and employees, employee retention, and relocation payments for a total potential price of $13 million. Our new business combination is a win-win for our companies and for our collective customers. We will offer MediaSolv's existing customers enhanced capabilities of management, storage, and sharing through Evidence.com Cloud Platform, while simultaneously enhancing and expanding Evidence.com's existing portfolio of products and services. We're confident that by integrating MediaSolv's portfolio into our existing lineup of world-class products, we can further solidify our position as the industry leader while advancing our goal of providing law enforcement with the best possible tools for managing all of their digital evidence.
Over the last six months, we've gotten to work with the MediaSolv team, and we recognize that, frankly, they were our number one competitor as the incumbent in some of the largest deals. Today, we're excited to get started together on deeper product integration. One of the first benefits of this acquisition is that we'll be integrating Evidence.com's sharing capabilities with MediaSolv so existing customers can integrate their on-premise systems seamlessly to the cloud. MediaSolv has been a strong competitor in digital evidence management space, and they will be an even better partner as we offer a larger suite of products to our current and future customers. MediaSolv brings key customers, including Chicago PD, Philadelphia, Toronto, Washington, D.C., Milwaukee, Long Beach, and Kansas City.
As you can see, this acquisition brings an additional seven major cities into our evidence management ecosystem, bringing our collective total to 23 major cities in active deployment. We're excited to provide law enforcement officials a comprehensive suite of tools and resources for managing all their digital evidence in a cost-efficient and effective manner. We'll now take questions from the conference call queue, and we'll be limiting questions to two per person for the first round.
Certainly. Ladies and gentlemen, if you have a question at this time, please press star, then one on your touch-tone telephone. If your question has been answered and you'd like to remove yourself from the queue, please press the pound key. Our first question comes from the line of Steve Dyer from Craig-Hallum. Your question, please.
Thank you. Good morning. You gave the cost impact, I think, in the near term for the acquisition. How should we think about the revenue impact in the near term?
Yeah, so this is Dan.
Oh, go ahead, Rick.
No, go ahead, Dan. Happy to punt to you .
Okay. Yeah. So, yeah, I mean, so we expect that for the sort of the second half of this year, there'll be an incremental $1.5 million-$2.5 million of revenue that'll come in through sort of existing deals that MediaSolv has in place. I think the key for us is we're really not buying MediaSolv for the impact in 2015. We see a much bigger long-term impact with having sort of the combined companies and relationships and sales staffs. We think that'll be much more significant as we go into 2016 and beyond.
Okay. And I noticed that one of the key differentiators is MediaSolv seems to be much more premise-based or premise-focused. Are you seeing sort of a greater push as people become more resigned to the fact that body cams are inevitable and there's going to be a huge amount of data? Are you seeing more of a push or a demand for premise-based versus cloud-based solutions?
I'll take that one. No, in general, I mean, we're seeing the vast majority of agencies moving to the cloud, wanting to sort of offload all that logistics cost. However, there are some agencies that have made significant investments in on-premise systems. And for those, particularly, we've noted that most of those are using MediaSolv if they've got those investments today. So this acquisition gives us the opportunity to support those customers. Some of them are going to want to, frankly, keep using those investments they've made. We think over time, even those folks will come to the cloud. But this was a really interesting partnership in that the customers came to us, and that's how we met Jim in the first place. Our customers were using MediaSolv's interview room and in-car systems, and they asked us to start integrating.
And then the more we started talking to each other, we said, "Huh, this feels pretty magical. What if we could scale this across all of our unified customers?
This is Tim. I would add to that. On the MediaSolv side, interestingly, we were preparing for and starting to develop our own cloud strategy because we've also recognized that there were plenty of clients out there that really did want to go to the cloud. So that just further solidified the fit between our two companies.
All right. I'll hop back in the queue.
Thanks.
Thank you. Our next question comes from the line of Glenn Mattson from Ladenburg. Your question, please.
Yeah. Hi. Good morning, gentlemen. The question I have, I guess, if you layer in the in-car video management and things like that, is the idea to increase the average selling price of what you could charge for Evidence.com over time, or does this increase the addressable market as far as number of users or in terms of price per user?
Yes to all of the above. The in-car market today, we'd estimate is probably around $100 million or north of $100 million a year marketplace. This will give us an opportunity to enter into that space by integrating with third-party systems our customers already have. The most challenging of which would be Panasonic because Panasonic does some rather proprietary stuff in their Arbitrator system. It turns out that the MediaSolv team had actually acquired the team that had built Panasonic's backend. In fact, I believe they're already running that at certain agencies. MediaSolv is actively running the backend for all the Panasonic hardware in the cars. So we can both start to integrate with third parties today, and there will be, of course, incremental revenue opportunities there, as well as setting the stage for us to make some more announcements later this year on our own in-car strategy.
I think the other benefit that we both saw in this process is that as we add additional asset types into our backend management, an asset type being an in-car video or a body-worn video or an interview room video, as we add in those additional asset types, it becomes very difficult to get unseated with that client. The barriers to exit become much higher. We see that as an important part of our long-term strategy.
Yeah. I would add as well, and one thing we were really impressed with MediaSolv is they've done a particularly adept job at doing lots of integrations with third-party hardware. At TASER, our engineering team has really been pretty focused on scaling the end-to-end of the TASER hardware software ecosystem. And we see MediaSolv as being sort of an important last mile that can connect to all the other things that are sitting on the agency's network and integrating that into the MediaSolv product, which will then integrate into the cloud.
Okay. That $100 million marketplace, is that hardware and video management combined, or is that just the backend? And of the $1.5 million-$2.5 million you see from MediaSolv this year, is that all backend video management, or is there hardware involved in that too?
Yeah. I'll take the second part of the question first. So in the $1.5 million-$2.5 million, it's a combination of hardware, software, and services. And it's across all those product types, so it includes in-car, interview room, and body-worn.
Yes. And your first question, in terms of the size of the market, we'd say it's north of $100 million. That would include hardware and software. Although the majority of the in-car market today, I would say most of the vendors in that space are primarily making money off of the hardware. So if we actually were to include the total cost of ownership, so when an agency buys a bunch of $5,000 in-car video systems, typically we see they're also spending at least another $5,000 on the hardware, networking, and staffing resources to run it locally. So our estimate there, again, is a very rough estimate. Most of these companies are private. There's not a ton of great data to get out, but it's at least around $100 million in the hardware piece.
Then we believe where we can make the biggest difference is by going after the backend and taking those costs out of the agency, which obviously becomes revenue to Evidence.com.
Okay. Great. Thanks. Good luck, guys.
Thanks.
Thank you. Our next question is a follow-up from the line of Steve Dyer from Craig-Hallum. Your question, please.
Thanks. Wondering how you'd say that sort of the backend digital evidence management solution compares to each other? What are pluses and minuses of each, and what are sort of the main differences?
I guess I'll start with that and then let Jim talk. So I think the Evidence.com piece is particularly some of the advantages are that the amount of lift at the agency is really minimized in that we're executing all the IT infrastructure for the agency and doing it from the cloud. And then, of course, being able to do sharing from the cloud is a real advantage in that we don't have to have the agency administering every new connection to another agency with which they're going to share. In terms of the MediaSolv advantages, when I let Jim talk, you see those too.
Yeah. I think on the MediaSolv side, the advantages typically are more around maybe the ease of doing some of the integration, which isn't to say that we can't do similar integrations and then still move that data to the cloud. So I think in terms of the storage aspects of it, we can still do the processing locally on the backend side of the management application. And then where that data gets stored has really become the decision of the client, whether it's stored locally on-prem or which, what we think makes more sense going forward is to store it in the cloud for a lot of the reasons that Rick just mentioned.
That's, by the way, the reason why Jim's role at TASER is going to be not only sort of overseeing the MediaSolv product, but taking on our professional services group and building that up. Because what MediaSolv has really excelled at is getting into the agency and then figuring out how to tie in all the other local systems. Jim's done a great job too of business development partnerships. Do you want to talk about some of the partnerships you've pushed for over the years?
Sure. Sure. Yeah. So we've had a number of integrations with records management systems for a number of different clients. We've integrated with Versaterm as an example for one of the very large clients. And we've had similar integrations with a company like Amped that does heavy-duty forensic analysis on video. All of that can get launched from the Commander application or backend management application. So as Rick says, we see a lot of opportunity to continue to connect other existing systems within the police departments to our evidence management backend and then ultimately move the results of that data to the cloud.
Let's talk a little bit about the CCTV systems you've integrated with as well.
Sure. Thanks. So for a number of clients, you can imagine the number of CCTVs or surveillance cameras that might be deployed throughout a city can measure in the thousands. And to manage the output of all of that video becomes very difficult. So a typical CCTV system has some parameters to overwrite the video. It could be 7 days. It could be 30 days. But if something happens that becomes evidentiary in nature, then they need to be able to have the ability to pull that chunk of video from the CCTV system and manage it as a long-term asset. So what we've done is we've written integrations where from within our Commander asset management system, we can go out and look at any of those cameras that are online within a city and pull off a segment of video.
So for example, if something happened the night before between 1:00 A.M. and 2:00 A.M., we can go out to that specific camera or cameras and say, "Give me that one-hour chunk of video or videos extracted from the VMS, the surveillance system, ingested into Commander or backend management system." And then we manage that as an evidentiary asset with all the attributes associated with evidence in the Commander application.
That's very helpful. Thanks. You talked a little bit about the fact that you guys have been, Jim, hardware agnostic, I guess, is one way of putting it. Is that something, Rick, that you intend to continue to do, or do you use this as an opportunity to corral more people into the hardware, or what's the strategy there?
We remain somewhat agnostic about the hardware. We will obviously continue to make our own body cameras, and we'll continue to make hardware where we think it's going to add value to the overall ecosystem. As you know, we do not make significant margins in the hardware part of the business. So we'll do hardware where it makes sense that we can provide a better overall customer experience. But given the explosion in the numbers and types of sensors and data and cameras that are out there, if we're going to be the sort of the entire backend, we've got to have a strategy to be able to easily integrate with all the different types of sensors and cameras that will be out there.
So I just want to add to that. If we go back to one of the comments that Rick mentioned earlier in terms of how we sort of got together as two companies being driven by some of the needs and desires of our clients, it's interesting that in a lot of these procurements, what we were finding was that the client liked the MediaSolv backend, but they wanted the Axon TASER cameras. So I would say from that standpoint, we sort of view the Axon camera as the best in the market. So I think we'll continue to look to try and sell the Axon camera in whatever that solution is that we're going forward with.
Got it. Okay. One more, if I may. MediaSolv, it seems like, has had a little bit of a wider purview maybe than Rick, which you guys have at least talked about in the sense that there's some public transportation and corrections and things like that. Was that a meaningful part of revenue, and is that going to be sort of part of the focus going forward, or was that more sort of on the edge?
Not sure I understand the question.
Well, historically, I don't know that you guys have spent at least publicly or what you've talked about a lot of focus on things like managing data for public transportation, for corrections, things like that, whereas sort of MediaSolv, at least from what I can tell, has, or that's at least sort of listed on the website as an area of focus. Are you guys going to pursue that? Do you think there's an addressable market there? How big a part of the MediaSolv business was that?
Yeah. So let me start. I'll take that. So I think the transportation space is one that's particularly interesting as we go forward. I think we haven't done a significant portion of our revenue from the transportation space, but quite frankly, that was more of just a matter of focus and resource to go after. But I do think there are a lot of opportunities there. And while it's early in terms of some of the discussions we're having about where we're going to take the technology, Rick alluded to an announcement that we'll have at IACP relative to in-cars. I think once we make that announcement and we deliver that technology, that also opens up some other opportunities for us in the transportation space that I think would put us in a pretty good position to be effective.
Yeah. I would say for the next 12 months, you're going to see our primary focus remain on consolidating the largest public safety agencies. That is a market that's happening right now. And frankly, that was one of the driving factors as well with MediaSolv, as we saw an opportunity. We're getting pretty close to critical mass with 23 out of 65 major cities now as customers, where between the two of us, we're the primary, well, I should say the one of us now. We're now the primary digital evidence management resource. So we want to make sure that we get the integrations right, that we get these customers scaling, that we obviously have a lot more customers in the pipeline. And I would say as that consolidation happens, then we'll sort of earn the right to fan out and put our sales resources on the adjacent transportation space.
But in a lot of cases, right, when those public transportation cameras, the reason they're there is typically for a public safety rationale. And so the ability to move that video over to police investigators is very high value. We just want to make sure that we need to first have a very dominant position that we own those public safety agencies first. And then from that, we think that's a great position to extend out into the other public transport markets.
Yeah. And just to follow up on that, one of the things that I was really excited about in terms of this opportunity to join the TASER family is if you think about all of the existing client base that TASER has, for us to be able to come in and to talk to those clients now about the added products that we bring, the in-cars, the interview room, I mean, that's a phenomenal opportunity for us as a company, I think. So we can go in there with credibility, with relationships already built, and have a conversation about other things, other products, and services we can provide for those existing clients.
Great. Thanks a lot for your time.
Thank you. Our next question is a follow-up from the line of Glenn Mattson from Ladenburg Thalmann. Your question, please.
Yeah. Hi. So certainly, I appreciate what was just said about the idea that you can now offer the MediaSolv solutions to the TASER existing base. I'm wondering, I think Rick said that MediaSolv was the primary video solutions provider to some of these bigger cities like Chicago and Philadelphia and Washington, D.C. Yet the revenue seems rather small compared to the size of some of those agencies. Can you kind of just explain what the disconnect is? And do you think this gives you the final piece or the final kind of leg up to close some of those bigger cities? Thanks.
Yeah. So I would take that. Our assessment has been that really with the on-premise approach, the majority of the cost ends up being people and machinery on sort of on-premise. And so the net software sale ends up being somewhat lower. And I think that's an area where by working together as we begin to transition, ultimately, those agencies may have spent $a few hundred thousand on software, but they've spent $millions on staff and networking gear and all that and storage infrastructure. And so part of the play here is we believe we can obviously jointly increase. We can take the expertise of Jim's team, take their software, and connect it into Evidence.com. The agency will save $millions by reducing their internal spend. And of course, we're able to monetize some of that through increased revenue in the subscription service.
Okay. Great. And then just the idea of does this give you the final piece to perhaps the final piece that you need to close some of these few remaining cities that you mentioned?
Yeah. We think it's going to be very helpful in those cities.
Okay. Great. Thanks.
Thank you. This does conclude the question and answer session of today's program. I'd like to hand the program back to management for any further remarks.
Great. Well, thank you all for tuning in for this discussion. Obviously, we're pretty excited about where this puts us. I would say up until now, MediaSolv and TASER were number one and number two in the big cities. And together, I think that leaves a pretty wide gulf in the competitive space, especially when you look at the fact that this is really great that we didn't just buy another body camera manufacturer with redundant capabilities, but really super complementary capabilities. And overall, we think this gives us an opportunity to continue to accelerate market adoption. So look forward to seeing you all. We've got our shareholder meeting in Seattle coming up this month. And I think that's about it for today. So feel free to reach out to us. You've all probably got our IR address, ir@taser.com. And have a great week.
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect.