TASR

TASER International, Inc. (TASR)

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TASER International, Inc. (TASR)

Q3 2010 Earnings Call

October 27, 2010 11:00 am ET

Executives

Rick Smith - CEO

Dan Behrendt - CFO

Analysts

Steven Gregory -Mandalay Research

Greg McKinley - Dougherty

Eric Wold - Merriman

Presentation

Operator

Welcome to the Third Quarter 2010 TASER International Incorporated Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions).

As a reminder, today’s 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. You may begin, sir.

Rick Smith

Thank you. We’ll start with, I'm going to turn over to Dan for the Safe Harbor statements, and then we'll come back for the content of all.

Dan Behrendt

Thanks Rick. 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 these 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.

With that, I turn it back over to Rick Smith.

Rick Smith

Thanks Dan. Okay, for the quarter, net sales were $21.1 million, which was a decrease in $2.2 million or 10%, compared to last year. In fact there is a greater decline in that if you look at last year third quarters sales were reduced by $3.5 million of deferred revenue are related to a trading program that we had in place.

There is surely two reasons compared to last year that we have seen in some softness in the business; one was we did see delay in our last conference call we talked about the fact we have several very large international orders. We had hoped to be able to close them in the third quarter at least one of them. That did not happen. However, we have got high degree of confidence that we’ll close at least one of these orders in the fourth quarter, so we should hit the metric we put out about closing at least one of big ones by the end of the year.

The other thing we saw was a real softening this year in the domestic law enforcement marketplace. In 2009, we had a record year despite the weak economic environment now it’s largely because of the stimulus funds from federal government that allowed the law enforcement to continue to operating at their current levels.

Unfortunately, the lot sales that many were hoping for stimulus funds didn’t really develop as what ended up, we believe that unrelated cost for agencies to avoid the restructuring. Well that is happening this year; now that the stimulus funds have clearly run out and it’s clear that they are not going to be any stimulus round two, there is nothing in the bank compared to last year. So particularly this past summer many of our larger customers have gone through, anywhere from 10% to 20% restructuring.

We do believe that it should clear itself by the end of the year as those agencies have even taken those steps or in the process of taking those steps, so we believe we do see the light at the end of the tunnel and some of the improving economic indicators as well, which we believe that it puts us in a very strong position going forward.

If you look back to 2007, we had quite a profitable year; we made a determination at that point to invest heavily in R&D to create some new business opportunities particularly AXON and EVIDENCE.COM over the last several years. We are now pulling out that heavy investment cycle. You can see our costs structure. We have taken some significant costs cutting measures as well as coming again to the end of heavy R&D cycle.

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