SEC Form 10-Q Summary
Registrant: TASER International, Inc. (the filing predates the company’s later AXON Enterprise name). Reporting period: quarter and six months ended June 30, 2011; filed August 8, 2011. The company develops and sells electronic control devices, accessories, training and evidence-management products and services, including AXON and EVIDENCE.com.
Financial Performance and Position
| Metric | Q2 2011 | Q2 2010 | Six months 2011 | Six months 2010 |
|---|---|---|---|---|
| Net sales | $21.2 million | $19.1 million | $44.3 million | $43.0 million |
| Gross margin | $12.2 million; 57.7% | $9.6 million; 50.4% | $24.4 million; 55.2% | $23.1 million; 53.8% |
| Loss from operations | $(5.0) million | $(3.4) million | $(4.9) million | $(4.4) million |
| Net loss | $(2.3) million | $(1.4) million | $(2.3) million | $(1.9) million |
| Loss per diluted share | $(0.04) | $(0.02) | $(0.04) | $(0.03) |
| Operating cash flow | Not separately provided | Not separately provided | $9.2 million | $(2.4) million |
- Q2 sales increased 10.9%; first-half sales increased 3.1%. International sales were 23% of Q2 and first-half sales in 2011, versus 16% and 21%, respectively, in the comparable periods.
- Gross margin improved primarily from product and geographic mix, production efficiencies, lower temporary labor and overtime, and reduced rework and warranty costs. EVIDENCE.com datacenter and software-maintenance costs increased cost of products sold by approximately $1.3 million in Q2 and $2.5 million year to date.
- As of June 30, cash and cash equivalents were $27.7 million, with $10.8 million of short-term investments, for total cash, cash equivalents and investments of $38.5 million, down from $42.7 million at December 31, 2010.
- Total assets were $125.6 million and total liabilities were $20.9 million. The company had no borrowings under its $10.0 million revolving credit facility, which matures June 30, 2013.
Material Changes Versus the Prior Comparable Period
- The TASER X2 launched during the quarter and generated $1.4 million of Q2 sales, or 6.7% of quarterly revenue. Single-cartridge sales increased 12% in Q2 and 16% year to date.
- Q2 SG&A declined 9% to $9.1 million, and first-half SG&A declined 9% to $18.4 million, reflecting prior headcount and infrastructure reductions. Q2 R&D declined 9%; first-half R&D declined 23%.
- Q2 and first-half results included a $3.3 million litigation judgment expense related to the Turner case, a $1.35 million impairment charge after abandoning the Protector product line, and $0.75 million of property and equipment write-down and disposal losses.
- Interest and other income included approximately $1.3 million of proceeds from a settlement involving claims concerning alleged naked short selling of the company’s stock.
- Operating cash flow improved from a $2.4 million use in the first half of 2010 to $9.2 million provided in the first half of 2011, helped by collections, lower inventory and noncash charges. Investing cash use increased to $11.6 million, principally from purchases of short-term investments.
- The company repurchased approximately 2.9 million shares for $12.5 million through June 30, 2011. In July 2011, the board authorized an additional repurchase program of up to $20 million.
Guidance, Outlook, Risks and Unusual Items
- Management stated that expected operating cash generation and available cash were sufficient to fund 2011 operations and strategic initiatives, including the additional repurchase authorization; it also cautioned that future cash generation and borrowing availability are not assured.
- Management estimated a full-year 2011 effective tax rate of approximately 48% before discrete items. Net deferred tax assets totaled approximately $21.9 million, and management determined that no valuation allowance was necessary based on projected future taxable income.
- The Turner case produced a $10 million jury verdict. The court had not entered judgment at the filing date, and the company pursued post-trial relief and potential appeal. The company recorded approximately $3.3 million for its estimated uninsured exposure. It disclosed 52 pending product-related lawsuits and warned that insurance coverage could be exhausted for certain claims if the Turner verdict stands.
- The company identified risks relating to product liability, litigation and adverse publicity; dependence on TASER X26 sales; government budgets and regulation; product acceptance and development; EVIDENCE.com service adoption, security and outages; intellectual property; suppliers and component availability; foreign currency; and customer concentration.
- Two distributors represented approximately 15% and 11% of Q2 sales. Two distributors represented 19% and 14% of accounts receivable at June 30, 2011.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Investor Verification Checklist
- Verify the subsequent legal outcome and ultimate cash exposure of the Turner litigation and the status of other product-liability claims.
- Assess whether the X2 launch, international orders, recurring EVIDENCE.com revenue and other new products can offset declining or uneven sales of legacy products.
- Monitor cash consumption from share repurchases, operating losses and EVIDENCE.com investment, including the planned additional $20 million repurchase.
- Evaluate the recoverability of the $21.9 million deferred tax asset and the $2.3 million liability for unrecognized tax benefits.
- Review customer and distributor concentration, international demand, insurance coverage and the company’s ability to maintain credit-facility covenants.