TASR

TASER International, Inc. (TASR)

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TASER International Inc. (TASR)

Q2 2011 Earnings Call

July 28, 2011 11:00 AM ET

Executives

Rick Smith – Chief Executive Officer

Dan Behrendt – Chief Financial Officer

Analysts

Eric Wold – Merriman Capital

Paul Coster – JPMorgan

Steve Dyer – Craig Hallum

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Second Quarter 2011 TASER International Earnings Conference Call. My name is [Natasha], and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

I’d now like to turn the call over to Mr. Rick Smith, CEO. Please proceed.

Rick Smith

Thank you. Okay. Welcome everybody. Before we get started, I’m going to pass to our CFO, Dan Behrendt for the Safe Harbor statement.

Dan Behrendt

Yeah. Good morning. Safe Harbor statement, certain statements contained in this presentation maybe deemed to be forward-looking statements as it 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, expansion of production capability, 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 the 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 accompanying demand for our products, potential delays in international and domestic orders, implementation risk of manufacturing automation, risks associated with rapid technological change, execution and implementation risks of new technology, new product introduction risk, ramping manufacturing production to meet demand, litigation resulting from alleged product related injuries and deaths, media publicity concerning product uses and allegations of injury and death and the negative impact this could have on sales, product quality risk, potential fluctuations in the quarterly operating results, competition, negative reports concerning TASER device uses, financial and budgetary constraints of prospects and customers, dependence upon sole and limited source suppliers, fluctuations in component pricing, risks of governmental investigations and regulations, TASER product test and 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’ll turn it back over to Rick Smith, our CEO.

Rick Smith

Thanks Dan. Okay. I think the interesting story this quarter particularly is about cash. We generated almost $5 million in cash and we’ve announced in addition to the $12.5 -- $12.5 million stock buy-back we just completed that we’re beginning another, up to $20 million cash buy-back.

Revenues for the quarter were $21.2 million, up 11% over last year and we saw our TASER X2 that we announced this quarter and we just began shipping in the last two weeks generated $1.4 million of sales in the quarter.

Gross margins improved to 57.7%, but the real impressive figure here in my line and a lot of credit goes to Doug Klint and his team that run our Hardware Operation. The margins in our core electronic control business were 63.8%, before you take on the data center operations and software maintenance. Operational costs to breakdown to 57.7%. So a lot of the operational focus on tuning our business unit-by-unit, I think is paying off as we seize operational efficiencies.

SG&A down about 10% over last year, again a lot of focus on the cost controls.

R&D down 8.6% over the same period last year and anytime, I talk about R&D, I also like to point out, we are getting more out of R&D now than we ever have even though our spend level is down. The TASER new development process has really been refined over the past 12 months.

The X2 was developed, frankly, for a fraction of the cost that it took us to develop the X3 a few years ago and the variable cost of goods of our product is dramatically lower than the X3. The quality is -- and reliability is higher than anything we have ever built.

The process changes we’ve made, I cannot overstate how important they are. I think really as we move from 2003 to the present, we went from a small company to a very small entrepreneurial engineering team. As we scaled, we had hiccups and some missteps along the way but I think we’ve now really hit our stride where I would say we’re getting world class engineering team and process that’s able to take the voice of the customer, ingest it, convert it into products, make sure we go through a world-class validation quality and testing and design verification program and bring those products to market. So that is going to be one of the key core competencies of this business allows us to create shareholder value over the long-term.

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