Taser International Inc. develops assembles and markets less-lethal conducted energy weapons primarily for use in the law enforcement and corrections market. Its advanced Taser weapon offers improved performance over other less-lethal force options used by law enforcement agencies. It can temporarily incapacitate virtually any individual regardless of pain tolerance drug use or body size - factors that cause other less-lethal options to have decreased effectiveness. The advanced Taser also has a comparable or lower injury rate than other less-lethal weapons. Taser International Inc. has a market cap of $251.4 million; its shares were traded at around $4.06 with and P/S ratio of 2.7. Highlight of Business Operations:Net sales increased $0.5 million, or 2.0%, to $23.3 million for the third quarter of 2009 compared to $22.9 million for the third quarter of 2008. The increase in sales versus the prior year quarter was primarily driven by growth in our Federal business including an order from the U.S. Customs and Border Patrol as well as solid international sales during the quarter including follow-on orders to customers in Australia. The growth in international business offset a decline in domestic sales, which we believe reflects lower municipal spending in the U.S., as agencies have reassigned or reduced budget dollars due to ongoing economic constraints. During the third quarter of 2009, $3.5 million of revenue was deferred related to our temporary trade-in program which enables agencies who purchase 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, increased $1.7 million, or 12.9%, while sales of single cartridges increased $1.9 million, or 36.8%, compared to the prior year. Sales of the TASER C2 consumer product increased by $95,000, or 9.4%. Other sales include extended warranty revenue, out of warranty repairs, government grants, training and shipping revenues.
Cost of products sold increased by $1.1 million, or 12.1%, to $10 million for the third quarter of 2009 compared to $9.0 million for the third quarter of 2008. As a percentage of net sales, cost of products sold increased to 43.1% in the third quarter of 2009 compared to 39.2% in the third quarter of 2008. 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, which was partially offset by improved leverage on indirect manufacturing expenses as a relatively fixed pool of indirect manufacturing costs remained flat while sales increased.
Gross margin decreased $630,000, or 4.5%, to $13.3 million for the third quarter of 2009 compared to $13.9 million for the third quarter of 2008. As a percentage of net sales, gross margin decreased to 56.9% for the third quarter of 2009 compared to 60.8% for the third quarter of 2008. The 390 basis point decline in gross margin as a percentage of net sales for the third quarter of 2009 reflects the impact of the trade in deferral, offset by decreased indirect manufacturing costs.
Sales, general and administrative expenses were $11.4 million and $9.1 million in the third quarter of 2009 and 2008, respectively, an increase of $2.4 million, or 26.1%. As a percentage of total net sales, sales, general and administrative expenses increased to 49.0% for the third quarter of 2009 compared to 39.6% for the third quarter of 2008, partially due to a reduction of leverage resulting from the $3.5 million trade-in deferral which had a 6.3% impact. The dollar increase for the third quarter of 2009 over the same period in 2008 is attributable to a $703,000 growth in salaries, benefits and bonuses primarily related to an increase in personnel to support the expansion of our business infrastructure as we introduce new products and enter new markets. Stock based-compensation expense increased $371,000 which is attributed to the increased employee headcount in the fourth quarter of 2008 and the first half of 2009. Sales and marketing increased $549,000 and travel and meals increased $259,000 in the third quarter of 2009, due to increased efforts to support new product launches as well as the annual TASER Conference, which was held in the third quarter of 2009 (compared to being held in the second quarter of 2008). These increases were partially offset by a $294,000 decrease in legal, professional and accounting fees.
Research and development expenses were $6.7 million for the third quarter, which is an increase of $3.3 million over the prior year mostly driven by a $1.8 million increase in indirect supplies, component costs and expediting fees associated with the development of the TASER X3 and AXON (Autonomous eXtended on-Officer Network) units shown at our TASER Conference and the IACP trade shows. Tooling and scrap costs increased by $443,000, also related to the development of the TASER X3 and AXON. Salaries, benefits, and stock options expenses increased by $1.1 million to support both hardware development and our new software development team headquartered in California. These increases were partially offset by $852,000 of capitalized internal salary and external consulting costs specifically related to the development of EVIDENCE.com in the third quarter of 2009. We expect this level of research and development spending will decrease during the fourth quarter of 2009 as TASER X3 and AXON are launched into the market.
Our net income declined by $3.8 million to a net loss of $3.2 million for the third quarter of 2009 compared to net income of $650,000 for the third quarter of 2008. Net loss per basic and diluted share was $0.05 for the third quarter of 2009 compared to net income per basic and diluted share of $0.01 for the third quarter of 2008.
Read the The complete Report