TASER International Inc. Reports Operating Results (10-Q)
Taser International Inc. has a market cap of $257.25 million; its shares were traded at around $4.11 with and P/S ratio of 2.47.
Highlight of Business Operations:Net sales decreased $2.2 million, or 10%, to $21.1 million for the third quarter of 2010 compared to $23.3 million for the third quarter of 2009. The decrease in sales versus the prior year quarter was primarily driven by fewer individually significant orders to international and Federal customers as sales in the third quarter of 2009 included sales to U.S. Customs and Border Patrol and a follow-on order to a customer in Australia. Domestically, sales to law enforcement customers improved over the prior year quarter driven by a sizeable sale to Texas DPS, however municipal spending in the U.S. generally still remains constrained, as agencies reassign budget dollars due to the ongoing challenging economic conditions. During the third quarter of 2009, $3.5 million of revenue was deferred related to our temporary trade-in program which enabled agencies who purchased a X26 ECD for deployment in the United States the opportunity to upgrade the product in exchange for a partial trade-in credit against the purchase of the newly announced X3 ECD. Sales of our X26 ECDs, before excluding the $3.5 million impact of the trade-in deferral, decreased $3.3 million, or 22%, while sales of single cartridges decreased $1.8 million, or 26%, compared to the prior year. Sales of new products, AXON / EVIDENCE.com, XREP, X3 and Shockwave, contributed $0.5 million in sales in the third quarter of 2010. Other sales include extended warranty revenue, out of warranty repairs, government research grants, training and shipping revenues.
Cost of products sold increased by $0.6 million, or 6%, to $10.7 million for the third quarter of 2010 compared to $10.0 million for the third quarter of 2009. As a percentage of net sales, cost of products sold increased to 50.6% in the third quarter of 2010 compared to 43.1% in the third quarter of 2009. The trade-in deferral which resulted in a $3.5 million reduction in net sales reduced gross margin by 560 basis points in the third quarter of 2009. The increase in costs as a percent of sales is driven by a combination of factors. Approximately $1.8 million, representing an 8.7% increase in cost as a percentage of sales, of EVIDENCE.com datacenter operating and software maintenance costs are included in costs of product sold in the third quarter following the commercial availability of the service. These costs were considered as part of research and development in the prior year. Our pool of indirect manufacturing expenses also increased in the third quarter of 2010 due to depreciation expense on our cartridge automation production equipment as well as some one-time charges for obsolete inventory and warranty reserves and some value engineering costs. These indirect manufacturing costs have also increased as a percentage of sales due to reduced leverage resulting from the decrease in sales. Partially offsetting these factors, our direct manufacturing costs improved as a percentage of sales on reduced production material costs and labor efficiencies resulting from cartridge automation.
Gross margin decreased $2.9 million, or 22%, to $10.4 million for the third quarter of 2010 compared to $13.3 million for the third quarter of 2009. As a percentage of net sales, gross margin decreased to 49.4% for the third quarter of 2010 compared to 56.9% for the third quarter of 2009, a result of the factors discussed above under cost of products sold.
Sales, general and administrative expenses were $9.5 million and $11.4 million in the third quarter of 2010 and 2009, respectively, a decrease of $2.0 million, or 17.2%. As a percentage of total net sales, SG&A expenses decreased to 44.8% for the third quarter of 2010 compared to 49.0% for the third quarter of 2009. The dollar decrease for the third quarter of 2010 compared to the same period in 2009 is attributable to a $0.8 million reduction in salaries, benefits, bonus and stock based compensation primarily driven by measures taken to reduce our salaried headcount and fixed cost infrastructure. A focus on rationalizing discretionary spending also resulted in reductions in travel expenses and sales and marketing related costs including advertising and tradeshows and consulting fees. In particular, sales and marketing costs in the prior year included elevated spending for efforts to support new product launches as well as the annual TASER Conference, which was held on a much reduced budget in the third quarter of 2010. These decreases in SG&A expense were partially offset by a $0.4 million increase in legal, professional and accounting fees driven by higher legal activity including a patent infringement claim.
Research and development expenses were $1.7 million and $6.7 million for the third quarter of 2010 and 2009, respectively, a decrease of $5.0 million, or 75%, compared to the prior period. The net decrease is a combination of a $2.5 million reduction in indirect supplies and tooling attributable to the intensive hardware development for X3 and AXON conducted in the third quarter of 2009 in order to expedite development for product demonstrations at the TASER Conference and the IACP trade shows. Approximately $1.8 million of EVIDENCE.Com data center and software maintenance related costs, including salary related costs, consulting, equipment leasing, rent and other overheads, were included in cost of products sold in the third quarter of 2010 following the commercial availability of the platform. These costs were included in research and development in the prior year while the platform was in the development phase. Salary and stock-based compensation expense have also generally been reduced following some headcount reductions while consulting and travel expenses have decreased in line with cost containment efforts.
Our net loss decreased to $2.3 million, or $0.04 per basic and diluted share, for the third quarter of 2010 compared to $3.2 million, or $0.05 per basic and diluted share, for the third quarter of 2009.
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