TASER International, Inc. Q2 2010 Earnings Call Transcript

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TASER International, Inc. (TASR)

Q2 2010 Earnings Call Transcript

July 27, 2010 11:00 am ET

Executives

Rick Smith – CEO

Dan Behrendt – CFO

Analysts

Mark Strouse – J.P. Morgan

Steve Dyer – Craig-Hallum

Eric Wold – Merriman

Peter Mahoney [ph]

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the second quarter 2010 TASER International earnings conference call. My name is Chandelle, and I will be your facilitator for today's call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today’s conference. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Rick Smith, CEO of TASER International. Please proceed.

Rick Smith

Great. Thank you. Before we get started, I'm going to have our Chief Financial Officer, Dan Behrendt, go ahead and read the Safe Harbor statement, and then we’ll get into the content.

Dan Behrendt

Thank you. Good morning. Certain statements contained in this presentation may be deemed to be forward-looking statements as defined by the Private Securities 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 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 accounts; expansions of production capabilities; new product introductions; product 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 herein.

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

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

Rick Smith

Thank you. Okay. So for the quarter, net sales were $19.1 million, which was a decrease of about 12%, compared to second quarter of last year. The decrease was primarily driven by fewer significant international orders.

We have been looking after a number, we got a number of very significant international orders we've been working. We’re not able to get them disburse in the quarter. We do believe that we’ll get at least one or two of those significant orders in the back half of the year, which could have a significant impact on the business. But as we talked about historically, these large orders typically have longer sales cycles, just there's a lot of political things happening over to get them closed. We remain positive on those, just, unfortunately couldn't bring them in this quarter.

With lower sales level, of course, our margins declined, with less leverage on the lower sales and also some inventory obsolescence. You all recall in the fourth quarter we brought the new automated assembly line, we’ve continued to run some of our manual lines in parallel as we converted over, built up inventory and made sure that we had stability in automation line. So this last quarter we completed, that changeover and there were some inventories and safety stocks that became obsolete that are not compatible with the new automated equipment.

So long-term we believe, obviously this will improve margins, efficiencies and our cost structure, but the changeover, I see, there’s some cost involved in new inventory obsolescence.

SG&A is down 80% year-over-year even with the restructuring charges. We did, in the last quarter, use some downsizing within the company. We executed reduction reports across our various locations.

At this point, we reduced – if you look at salary and benefits versus the high watermark in Q3 of last year, our annual run rate is down by about $5 million, just in salary and benefits and of course, we're looking at other places in SG&A as where we're doing some belt tightening to make sure that we can return the company to profitability as soon as possible.

Our R&D expenses are down about 30% over the prior year, as we're streamlining our efficiencies and some of the major projects are winding down due to completion. We're now into Alpha [ph] for early market launch, so lot of the heavy expense associated with the development of those projects is behind us.

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