TASER International's CEO Discusses Q2 2012 Results - Earnings Call Transcript

TASER International, Inc. (TASR)

Q2 2012 Earnings Call

July 26, 2012 11:00 AM ET

Executives

Rick Smith – CEO

Dan Marc Behrendt – CFO

Analysts

Steve Dyer – Craig Hallum

Greg Mckinley – Dougherty

Presentation

Operator

Welcome to the Q2 2010 TASER International Incorporated Earnings Conference Call. My name is Don and I will be your operator for today's call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session. Please note that the conference is being recorded. I will now turn the call over to Rick Smith. Mr. Smith, you may begin.

Rick Smith

Thank you. Welcome everyone. Appreciate you joining us this morning. Before we get started I'm going to ask Dan to read the Safe Harbor Statement.

Dan Marc 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 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 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 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 in 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 risk 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 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 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.

Rick Smith

Thanks Dan. Okay, so I'm sure everybody has seen by now this morning we reported Q2 sales were up $7 million or 33% year-over-year coming into $28.2 million. Perhaps even more importantly, if you look at the cash generation of the business we generated $9.7 million in cash from operations. Of course if you do the math on that we were generating cash at an annualized rate in the second quarter of $0.73 per share. Operating income came in at $6.1 million. To go back and touch on the cash as well, we can point out the obvious, that was inclusive across the entire business, if you look at the core ECD business, which has been funding our investments in the new video business, obviously that number is significantly higher in the core business if look at on a standalone basis.

Margins improved year-over-year although they declined slightly sequentially, came in at 58.5% compared to 57.8% last year and course if you look in our ECD business 63.7% gross margin, a number we're very proud of. Again we break this out so that it helps us as a management team to use investors to monitor how well we're managing our core business so (inaudible) by the investments that we're making in the new business.

Revenues in the ECD business increased 8% sequentially from $24.8 million to $26.9 million and in the core ECD business operating income was $8.6 million. So we're running at 32% operating income in the core ECD business. Revenues in the video business increased 47% sequentially albeit from a small base of $884,000 in the first quarter to $1.3 million in the second quarter. That growth is really driven primarily by TASER CAM and the new TASER CAM HD as the AXON Flex didn’t ship until late in the quarter.

If we look at the SG&A expenses coming down, the result of a continuous focus on efficiency and cost control, research and development also decreased by $800,000 to $2.0 million. I'm sure people are wondering is TASER investing sufficiently in research and development and as I always tell you the decreases are really about this continued streamlining of our research and development efforts. We are more efficient than we have ever been. This is largely attributable to reduction in professional consulting fees, basically some of the bulk resources when you've got to go out and bring an external consultant's when you are finishing up a major project. So I say at this point we are innovating at a much more efficient and better pace and we've also moved to an OEM model looking to insource technology from other providers rather than building it ourselves. For example if you look at the AXON Flex, in our partnership with Looksie [ph] we were able to buy the major components of the AXON Flex and then only focus on engineering that is required to customize for our marketplace is a far more efficient and faster way to get to market than if you look at the previous AXON Pro product we've developed where we develop the computer, the communications hub and the camera all from the ground up in house. That's a longer slower more extensively developed product. So I'm very proud of what we've accomplished in our R&D segment. Again I'd say we're getting better, we're doing more with less and we believe that we are right sized in terms of how we're approaching R&D.

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