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TASER International Inc. Reports Operating Results (10-Q)

November 09, 2011 | About:

TASER International Inc. (TASR) filed Quarterly Report for the period ended 2011-09-30.

Taser International Inc. has a market cap of $333.2 million; its shares were traded at around $5.6 with a P/E ratio of 140.1 and P/S ratio of 3.9.

Highlight of Business Operations:

Net sales increased $3.3 million, or 16%, to $24.4 million for the third quarter of 2011 compared to $21.1 million for the third quarter of 2010. The increase in sales versus the prior year quarter was primarily driven by stronger domestic law enforcement sales as the TASER X2 comprised 15% of total net sales in its first full quarter of production. Additionally, international sales improved with an increase in follow on cartridge orders placed by several international customers. Sales of our X26 ECDs declined as customers are upgrading to the X2, while cartridge sales increased $2.5 million or 48% due to international shipments in the quarter. Sales of other ECD products and accessories including TASER Cam, TASER C2, ADVANCED TASER, TASER X3 and XREP increased by $0.2 million and on a combined basis represented 9% of total net sales in both the third quarters of 2011 and 2010. Other sales, which include extended warranty revenue, out of warranty repairs, government research grants, training and shipping revenues, decreased $0.2 million driven by training revenue from our annual TASER Master Instructor Conference which took place in the third quarter of the prior year compared to the second quarter of 2011.

Net sales increased $4.6 million, or 7%, to $68.7 million for the first nine months of 2011 compared to $64.0 million for the first nine months of 2010. The increase in sales versus the prior year is driven by some larger individually significant orders in both the international and Federal markets while domestically, the launch of the TASER X2 helped offset weaker demand for other products. The net result compared to the prior year, is that sales of single cartridges increased $4.1 million, or 26%, and ADVANCED TASER Sales increased $2.0 million, or 249%, while X2 sales contributed $5.1 million to total sales. TASER Cam sales declined $1.5 million, or 45%, reflecting a large international order in 2010 that did not recur in 2011, while sales of our X26, X3, XREP and C2 ECD products declined by a combined $5.1 million, or 14%.

Cost of products sold increased to $31.1 million for the first nine months of 2011 compared to $30.5 million for the first nine months of 2010. As a percentage of net sales, cost of products sold decreased to 45.3% in the first nine months of 2011 compared to 47.7% in the first nine months of 2010. The net decrease in costs as a percent of sales is driven by a combination of offsetting factors. Manufacturing costs decreased 3.5% as a percentage of sales, attributable to a more favorable market segment mix with higher margin international sales; a more favorable product sales mix with a larger contribution to net sales from higher margin products, including the newly launched X2, replacing products such as X3 and XREP, which had lower margins and initial production yields; production efficiency was improved with reductions in temporary labor and overtime as well as a reduction in rework effort; leverage on indirect manufacturing costs was improved following the 7% increase in sales, while indirect salary costs have been reduced following headcount reductions and severance charges in the prior year; and obsolete inventory and scrap charges have also been reduced as have warranty provision charges resulting from increased focus on quality initiatives, which reduced product returns. Offsetting the reduction in manufacturing costs as a percentage of net sales, approximately $3.5 million of EVIDENCE.com datacenter operating and software maintenance costs are included in costs of products sold in the first nine months of 2011 compared to $2.1 million in the prior year following the commercial availability of the service, representing a 2% increase in costs as a percentage of sales. A significant portion of these costs were included as part of research and development in the prior year. In addition, the Company offered an upgrade program which provides customers purchasing a new TASER X2 kit with a $300 trade-in credit to replace any existing ECD. This offer generated approximately $1.1 million of trade-in credits during the second and third quarters of 2011 which reduced the average selling price on X2 sales and consequently reduced gross margin.

Sales, general and administrative expenses were $27.9 million and $29.7 million in the first nine months of 2011 and 2010, respectively, a decrease of $1.8 million, or 6%. As a percentage of total net sales, sales, general and administrative expenses decreased to 40.6% for the first nine months of 2011 compared to 46.4% for the first nine months of 2010. The dollar decrease for the first nine months of 2011 compared to the same period in 2010 is attributable to a $0.9 million reduction in salaries, benefits, bonus and stock-based compensation primarily driven by measures taken to reduce our salaried headcount and fixed cost infrastructure in 2010, including some one-time severance charges. Sales and marketing and travel-related costs including advertising, tradeshows and outside commissions have been reduced overall by $0.5 million as we continue to focus on reducing discretionary spending, despite having X2 product launch costs. In addition, $1.0 million relating to a litigation settlement for an officer injury during arrest claim was included in other expense in the prior year which is driving the decrease in other expenses. Offsetting these reductions, legal, professional and accounting fees increased driven by the timing and volume of pending litigation while directors and officers insurance and product liability insurance premiums have increased.

Net cash provided by operating activities in the first nine months of 2011 of $14.6 million was primarily driven by pre-tax loss for the period adjusted for the add-back of non-cash expenses including stock-based compensation expense of $2.5 million, depreciation and amortization expense of $6.1 million, asset impairment charges of $1.4 million, a loss on write down / disposal of fixed assets of $0.8 million, and a $3.3 million litigation judgment accrual. Additionally, changes in working capital included a $1.0 million reduction in accounts receivable due to timing of collections, a $1.2 million reduction in inventory as we have actively worked to reduce the levels of raw material and finished goods on hand and a $1.0 million increase in accounts payables and accruals. These changes were partially offset by an increase in prepaid assets driven by payment of our annual liability insurance premium, while deferred revenue decreased by $0.3 million as the rate of extended warranty purchases has decreased.

Read the The complete Report

About the author:

Charlie Tian, Ph.D., is the founder of GuruFocus. You can now order his book Invest Like a Guru on Amazon.

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