TASER International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

TASER International, Inc. (TASR)

Q1 2012 Earnings Call

April 26, 2012 11:00 am ET

Executives

Patrick W. Smith – Chief Executive Officer and Director

Daniel Marc Behrendt – Chief Financial Officer and Investor Relations Contact

Presentation

Operator

Good day, ladies and gentlemen, and welcome to Q1 2012 TASER International, Inc., earnings conference call. My name is Sandra and I will be your operator for today.

At the time all participants will be on a listen-only mode. We will conduct a question-and-answer session towards the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to hand the call over to Mr. Rick Smith, CEO. Please go ahead, sir.

Patrick W. Smith

Great. Thank you. Welcome, everyone. Thank you for spending part of your morning with us. Before we get started I’m going to have Dan Behrendt, our CFO, read the Safe Harbor.

Daniel Marc Behrendt

Thank you, Rick. Our Safe Harbor statement. 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 such forward-looking statements to 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 markets, expansion of product sales through 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 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 in the markets for 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 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 concerns, potential fluctuations in quarterly operating results, competition, negative reports concerning TASER device uses, financial and budgetary constraints in 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.

Patrick W. Smith

Thanks, Dan. I think we’re all proud to be having a call like one we’re having today. I think the results reflect a lot of hard work by a lot of great people. As you all are probably aware, first quarter revenues came in at $25.6 million, an increase of $2.5 million or 10.9% over the first quarter a year ago.

Sequentially revenues grew by about 20%. This increase was driven primarily by our third consecutive quarter of growth in North American law enforcement, which grew by over 25% as well as by a large order from the United States Army. These increases were partially offset by a 51% decrease in international sales from a year ago period, although we did see a slight sequential increase over the fourth quarter.

There were two particularly bright spots, I’d like to highlight in first quarter revenues, and then I will hand you over to Dan to go through the details. Gross margin across the business grew from 52.8% from a year ago period to 59.4%. Even more impressive, if you look at gross margin in our core ECD business, they were at 65.2%.

Operating income of $6.4 million, $6.456 million, I guess round up to $6.5 million, came in over 25% of revenues, driven by a combination of strong operating results and a partial reversal of the Turner verdict, which caused us to reduce our litigation reserve by $2.2 million.

And with that, I will hand over to Dan to go into more detail through the results.

Daniel Marc Behrendt

Thanks, Rick. So as Rick said, revenue for Q1 was $25.6 million, which is up approximately $2.5 million or 10.9% from the prior year first quarter amount. The increase in sales versus prior year were driven by the continued adoption of the X2 electronic control device as well as a significant order from the United States Army for 3500 X26 ECDs, following the DOD's Type Classification of the X26.

Gross margin for the first quarter was $15.2 million or 59.4% of revenue which is 6.6% as a percent of sales better than the 52.8% in the prior year. The improvements in margins were mostly driven by the increased leverage of indirect manufacturing cost due to the higher sales and a favorable product mix.

When we look at the ECD segment gross margin, it was 65.2% in Q1 of 2012 versus 59.3% in Q1 of 2011. We’re encouraged by the gross margin performance. We’ll likely see a slight degradation in gross margin as we increase the sale of video products, as these carry lower gross margin than the ECD products. But that should be partially offset over time with profitable recurring revenue from EVIDENCE.com as the video business scales up.

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