TASER International, Inc. ( TASR)

Q3 2011 Earnings Conference Call

October 31, 2011 11:00 AM EST


Rick Smith – CEO

Dan Behrendt – CFO


Steve Dyer – Craig Hallum

Greg McKinley – Dougherty



Good day, ladies and gentlemen, and welcome to the third quarter 2011 TASER International earnings conference call.

My name is Jennifer, and I will be your operator for today.

At this time, all participants are in listen-only mode. And, 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 your host for today, Mr. Rick Smith, CEO of TASER International. Please proceed.

Rick Smith

Thank you and good morning. Before we get started, I’m going to have our CFO, Dan Behrendt, read the Safe Harbor statement.

Dan Behrendt

Good morning. Safe Harbor statement, certain statements contained in this presentation maybe deemed to be forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. And 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 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 capabilities, new product introductions, product safety and our business model.

We caution that 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 client 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 for manufacturing automation, risks 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 deaths, media publicity concerning product uses and allegations of injury and death and the 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, dependence upon sole and limited source suppliers, fluctuations in component pricing, risks of governmental investigations and regulations, TASER product tests and 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’ll turn it back over to Rick Smith.

Rick Smith

Thanks Dan. Okay, so I’m sure everyone has seen the release this morning. Pretty happy with the results; up 16% over the same quarter last year, with $24.4 million in revenue and the business generating $5.3 million in cash from operations, or that’s 22% of revenue in cash generation.

One of the key drivers there was the introduction of the X2 from the second quarter. So this was the first full quarter that the X2 was available to our customers that accounted for about 15% of revenue, which is close to 20% of bookings. And the disparity there is we had a very high attachment rate of extended warranties and training services that are deferred and recognized over time. As we look into next year, we see a run of $300 million upgrade opportunity if we’re successful in helping our customers to upgrade X26 units that are more than five years old.

One other point about the X2 is, in our surveys with instructors who teach electronic control devices, we’ve seen 96% of them select the X2 as their preferred full-time carry weapon even over the X26 which was a huge number, a huge achievement actually, because the X26 was such a hit in law enforcement. But the rigorous voice of the customer development process where we put hundreds and hundreds of officers through surveys and focus groups to identify the right feature matrix for the X2 really seems to be paying off. It looks like we do have the next-generation ECD, which should be able to drive growth in the future.

This quarter, we also saw international sales continue to grow. It was up over the prior year by $4.4 million year-to-date, up $2.3 million in the third quarter, with large portion of that coming from strong cartridge sales to our install base overseas.

And, finally, before I turn over to Dan to go through the numbers in detail, we’ve continued to return cash to shareholders. As of the end of the quarter, we had executed a total of $12.4 million out of our $20 million buyback. But let me give you more current numbers. Through last Friday, we have completed $17.77 million of the buyback, leaving $2.3 million left to go. Those are in dollar terms. If we add that up, this year-to-date, we have returned $30.27 million to shareholders. And just to put that in perspective, the company we took public in 2001 had a pre-money market capitalization of right around $10 million. So we’ve returned multiples of the value we took public a decade ago just this year in cash to our shareholders. Something we’re pretty proud of that.

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