TASER International, Inc. (TASR)

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TASER International, Inc. (TASR)

Q3 2009 Earnings Call

October 22, 2009 11:00 AM ET


Patrick (Rick) W. Smith - Chief Executive Officer, Director and Co-Founder

Daniel M. Behrendt - Chief Financial Officer


Paul Coster - JPMorgan

Steve Dyer - Craig Hallum

Gregory McKinley - Dougherty & Co.



Good day, ladies and gentlemen and welcome to the Third Quarter 2009 TASER International Earnings Conference Call.

My name is Jeff, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to our host for today, Mr. Rick Smith, Chief Executive Officer. Please proceed, sir.

Patrick (Rick) W. Smith

Good morning every one. Appreciate your spending time with us this morning. Before we get started, I'm going to have Dan read the Safe Harbor statements, and then we'll move forward.

Daniel M. Behrendt

Okay, thank you.

Safe Harbor statements, certain statements contained in this presentation may be deemed to be forward-looking statements as defined by the Securities and Litigation Reform Act of 1995. TASER International intends that such forward-looking statements be subject to the Safe Harbor created thereby.

Such forward-looking statements related to excepted revenue and earnings growth, estimations regarding the size of our target markets, successful penetration of law enforcement market, expansion of product sales to the Private securities, military and consumer market, growth expectations for new and existing crop, accounts expansion of production capabilities profit, new production introductions, price safety and our business model, we caution these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward-looking statements here-in.

Such factors include, but are not limited to market acceptance of our products, establishment and expansion of our direct and indirect distribution channel, attracting, retaining the endorsement of key opinion leaders and law enforcement community, the level of product technology and price competition for our products, the degree and rate of growth of the markets, which we compete and accompanying demands for our products. Potential delays in international domestic orders, implementation risk of manufacturing automation, risk associated with rapid technological change, execution and implementation risk of new technology, new product introduction risk, ramping manufacturing production to meet demand, litigation resulting from alleged product related injuries and death, media publicity concerning product issues and allegations of injuries and deaths, and the negative impact this could have on sales, product quality risk, potential fluctuations in quarterly operating results, competition, negative reports concerning TASER device uses, financial and budgetary constraints of prospects and customers, dependent upon source suppliers, fluctuation in product pricing, risk of governments and governmental investigations and regulations, major product cancel reports dependant on key employees, employee capture risk, and other factors detailed in the company's filings with the Securities and Exchange Commission.

And with that, I would turn the call back over to Rick Smith, our CEO.

Patrick (Rick) W. Smith

Thanks Dan.

As we mentioned in our press release, I am just incredibly proud of the team here at TASER. We are obviously operating in a very difficult global environment and yet our sales team was able to turn in revenue growth of 17% over the same period last year and over 23% on a quarter-over-quarter basis. Now talking about our adjusted revenue growth what the sales people actually brought in, what we shipped and built to customers.

As we move through the conference call here, we're going to talk a little bit about our adjusted revenue versus our GAAP revenue and the reason is this. In the third quarter, we announced the new TASER X3, our first semi automatic TASER device. When we announced that, obviously there is always a risk of disruption in your current product flow when you announce something as revolutionary as the new X3.

So to mitigate that risk, what we did was redevelop the training program, so that people could continue to buy the X26 and look at the X3 and if they decided to purchase the X3, they could trade their X26s back in and upgrade to the X3, which by the way would be obviously a very good thing for a company. X3 represents a higher revenue opportunity for us and the program worked.

I think our revenue numbers reflect that, but there was no disruption in our core sales as we begin to spin up the X3 production lines. However, due to reasons that I could try to explain, but just suffice to say the accounting world, sometimes will take things in a way that may not appear logical to a layperson, we deferred a significant portion of our revenue.

Dan, how much was it per unit?

Daniel M. Behrendt

$250 per unit.

Patrick (Rick) W. Smith

On an X-26, now again to be clear, we're booking those units and billing those units at full value. We are just deferring so we will collect the cash, the business operates as normal. This is an accounting convention to account for the fact that the customers have purchased during the quarter at a right to trade in and upgrade those products to the new X3 and therefore, we’ve deferred a portion of the revenue associated with the X26 until this program ends, which is expected at the end of the fourth quarter.

So that deferred revenue, when the program ends will then be recognized the next quarter. So it does create a problem, our challenge at least for people that are modeling our business such as many of you on the call, so I'll frequently talk about what the business looked like without using the adjusted number, without the GAAP deferral or otherwise the numbers shift all over the place, and it's really hard for people to track.

Okay, so on that basis, adjusted revenues for the quarter before the deferral were 26.8 million, which is one of the best sales quarters in the company's history despite the economic environment. It's an increase of 4 million or 70% over the same quarter of the prior year.

And for the first nine months of this year, the adjusted revenues before deferral were 73.2 million, an increase of 6.8 million or 10% for the first nine months of 2008. Adjusted revenues exclude the impact of course of the GAAP adjustement we talked about. On a GAAP basis, if you look at the adjustment deferring 3.5 million of revenue with no cost of goods associated with it into the future quarter, net sales for the third quarter and the first nine months with the deferral in place would be 23.3 million and 69.7 million respectively.

If we look at gross margin, gross margin before the deferral was 62.5%. You know, last year we brought in Steve Mercier, our Executive Vice President of Operations, you all probably remember about 18, 24 months ago, we brought Steve in. We were really challenged in our gross margins space and I have to say, he's just done a fantastic job. And in fact, our automation project is coming online this quarter for the investment we talked about there, which should continue to help us perform well in the gross margin space.

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