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TASER International, Inc. (NASDAQ:TASR)

Q3 2009 Earnings Call

October 22, 2009 11:00 AM ET

Executives

Patrick (Rick) W. Smith - Chief Executive Officer, Director and Co-Founder

Daniel M. Behrendt - Chief Financial Officer

Analysts

Paul Coster - JPMorgan

Steve Dyer - Craig Hallum

Gregory McKinley - Dougherty & Co.

Operator

Good day, ladies and gentlemen and welcome to the Third Quarter 2009 TASER International Earnings Conference Call.

My name is Jeff, and I will be your operator for today. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to our host for today, Mr. Rick Smith, Chief Executive Officer. Please proceed, sir.

Patrick (Rick) W. Smith

Good morning every one. Appreciate your spending time with us this morning. Before we get started, I'm going to have Dan read the Safe Harbor statements, and then we'll move forward.

Daniel M. Behrendt

Okay, thank you.

Safe Harbor statements, certain statements contained in this presentation may be deemed to be forward-looking statements as defined by the Securities and Litigation Reform Act of 1995. TASER International intends that such forward-looking statements be subject to the Safe Harbor created thereby.

Such forward-looking statements related to excepted revenue and earnings growth, estimations regarding the size of our target markets, successful penetration of law enforcement market, expansion of product sales to the Private securities, military and consumer market, growth expectations for new and existing crop, accounts expansion of production capabilities profit, new production introductions, price 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 here-in.

Such factors include, but are not limited to market acceptance of our products, establishment and expansion of our direct and indirect distribution channel, attracting, retaining the endorsement of key opinion leaders and law enforcement community, the level of product technology and price competition for our products, the degree and rate of growth of the markets, which we compete and accompanying demands for our products. Potential delays in international domestic orders, implementation risk of manufacturing automation, risk associated with rapid technological change, execution and implementation risk of new technology, new product introduction risk, ramping manufacturing production to meet demand, litigation resulting from alleged product related injuries and death, media publicity concerning product issues and allegations of injuries and deaths, and the negative impact this could have on sales, product quality risk, potential fluctuations in quarterly operating results, competition, negative reports concerning TASER device uses, financial and budgetary constraints of prospects and customers, dependent upon source suppliers, fluctuation in product pricing, risk of governments and governmental investigations and regulations, major product cancel reports dependant on key employees, employee capture risk, and other factors detailed in the company's filings with the Securities and Exchange Commission.

And with that, I would turn the call back over to Rick Smith, our CEO.

Patrick (Rick) W. Smith

Thanks Dan.

As we mentioned in our press release, I am just incredibly proud of the team here at TASER. We are obviously operating in a very difficult global environment and yet our sales team was able to turn in revenue growth of 17% over the same period last year and over 23% on a quarter-over-quarter basis. Now talking about our adjusted revenue growth what the sales people actually brought in, what we shipped and built to customers.

As we move through the conference call here, we're going to talk a little bit about our adjusted revenue versus our GAAP revenue and the reason is this. In the third quarter, we announced the new TASER X3, our first semi automatic TASER device. When we announced that, obviously there is always a risk of disruption in your current product flow when you announce something as revolutionary as the new X3.

So to mitigate that risk, what we did was redevelop the training program, so that people could continue to buy the X26 and look at the X3 and if they decided to purchase the X3, they could trade their X26s back in and upgrade to the X3, which by the way would be obviously a very good thing for a company. X3 represents a higher revenue opportunity for us and the program worked.

I think our revenue numbers reflect that, but there was no disruption in our core sales as we begin to spin up the X3 production lines. However, due to reasons that I could try to explain, but just suffice to say the accounting world, sometimes will take things in a way that may not appear logical to a layperson, we deferred a significant portion of our revenue.

Dan, how much was it per unit?

Daniel M. Behrendt

$250 per unit.

Patrick (Rick) W. Smith

On an X-26, now again to be clear, we're booking those units and billing those units at full value. We are just deferring so we will collect the cash, the business operates as normal. This is an accounting convention to account for the fact that the customers have purchased during the quarter at a right to trade in and upgrade those products to the new X3 and therefore, we’ve deferred a portion of the revenue associated with the X26 until this program ends, which is expected at the end of the fourth quarter.

So that deferred revenue, when the program ends will then be recognized the next quarter. So it does create a problem, our challenge at least for people that are modeling our business such as many of you on the call, so I'll frequently talk about what the business looked like without using the adjusted number, without the GAAP deferral or otherwise the numbers shift all over the place, and it's really hard for people to track.

Okay, so on that basis, adjusted revenues for the quarter before the deferral were 26.8 million, which is one of the best sales quarters in the company's history despite the economic environment. It's an increase of 4 million or 70% over the same quarter of the prior year.

And for the first nine months of this year, the adjusted revenues before deferral were 73.2 million, an increase of 6.8 million or 10% for the first nine months of 2008. Adjusted revenues exclude the impact of course of the GAAP adjustement we talked about. On a GAAP basis, if you look at the adjustment deferring 3.5 million of revenue with no cost of goods associated with it into the future quarter, net sales for the third quarter and the first nine months with the deferral in place would be 23.3 million and 69.7 million respectively.

If we look at gross margin, gross margin before the deferral was 62.5%. You know, last year we brought in Steve Mercier, our Executive Vice President of Operations, you all probably remember about 18, 24 months ago, we brought Steve in. We were really challenged in our gross margins space and I have to say, he's just done a fantastic job. And in fact, our automation project is coming online this quarter for the investment we talked about there, which should continue to help us perform well in the gross margin space.

Of course, on a GAAP basis, if you defer 3.5 million right off the top, the margin does drop to 56.9% compared to 60.8% in the third quarter of 2008. So, obviously on an adjusted basis, it's a significant improvement, 130 basis points.

Research and development expenses this quarter were 6.7 million, which increased by 3.3 million or doubled over the same quarter of last year. We view this as -- this should be the high watermark in our R&D spending with our major conference this summer, where people turned in from around the word are trainers to learn about our new products.

And at this year's conference, we introduced two major new platforms; one that we've been developing under raps that was the TASR X3, and then the AXON, which is now moving into the field pilot base, both of those are major product lines for us. They have significant revenue opportunities, the X3 gives us an opportunity to go back and upgrade on an entire installed base, which we estimate the revenue opportunity on that...

Daniel M. Behrendt

Roughly $600 million.

Patrick (Rick) W. Smith

...on the X3. So and that also allows -- we believe to open up foreign markets, where TASERs as a multi shot device become even more of a viable option as a primary force option for unarmed police forces that don't have firearms, the multiple shot capability is particularly important according to our market research.

So the X3, obviously the spin-up for production, all of the validation units got to be built and basically destroyed as part of the validation process; all that hits R&D, as well as the AXON that we've been investing in heavily for the past year. We are hitting the same point this quarter, where we're building validation units that are not for revenue, but they are being used for trading purposes and validating the design.

So we do expect to see our R&D return to more levels in the fourth quarter. And I think based on customer reaction, I just got back from the International Association of Chiefs of Police Conference, where I met with probably a hundred or so chiefs including many of chiefs in the largest police agencies across America and Canada and some international and both of those products were very well received as well as our EVIDENCE.COM service.

So we believe the investments were delivered, they were a little larger this quarter. I think than people were expecting, but the products that resulted from that are in my opinion spectacular, and present a real opportunity for the company to continue to grow in the future.

This quarter, our adjusted operating income again excluding the trade in and also excluding stock-based chargers, depreciation and amortization, litigation and judgment expense was 0.6 million, so we were profitable on an adjusted income basis compared to 2.8 million for the third quarter of 2008, the big difference there being the incremental R&D investments.

Now the GAAP loss from operations was 4.8 million for the third quarter, compared to income from operations from the same period of prior year, the big differences there being the deferral of revenue and the incremental R&D investments. So the net loss and diluted loss per share for the quarter were 3.2 million and $0.05 respectively.

Now the company, so far this year despite the investments that we have made have generated 5.5 million in cash from operating activities in the first nine months of 2009, ending with cash and equivalents of 45.4 million and no debt.

So again just to be clear, two years ago, we made the call to invest in transforming this business, with AXON and EVIDENCE.COM, and be more of a full solutions provider as compared to only being a hardware provider. We look at the companies in that space, full solution providers are valued very differently than companies that are pure hardware placed.

So we think it was the right investment for our shareholders, and we've been able to fund it from our cash from operations without significantly dipping into our cash reserves. Significant events for the quarter, international sales continue to be very strong representing 98% of net sales and 15% of the adjusted revenues for the quarter.

The most significant shipment in the international space for the quarter was follow on orders for almost 2000 TASR X 26s and TASR cams into Australia. We also had a very large, very significant order for the U.S. customs and border protection here in the U.S., which we view as a big win to see the federal agencies such as custom border now really beginning to move significantly towards TASER. I can't provide much more color than that due to our security concerns with the customers, we will not be providing specific dollar amounts or unit quantities shipped related to that order.

Also of course, we've talked about the X3 being unveiled at our conference this summer, which has several just revolutionary new technologies including the rotational pulse drive that makes it a semi automatic multi shot device and a built system.

Last quarters particularly up in Canada, there's been much discussion about brining TASER devices in to be tested periodically, fair electrical output. So giving another curb, we've now built an electrical calibration and test system into every X3. So that there's no longer any logistics involved, the device self calibrates every time it's used and that information can be downloaded and analyzed easily and conveniently very well received by customers, that features.

Also this quarter the EVIDENCE.COM datacenter and servers have gone live. We've not yet opened up a customer, we’re not live in terms of bringing revenue customers on to the system, but the servers are live. We're in test and validation mode, and we'll be transitioning into field pilots with non-revenue customers in the fourth quarter as we test out both the AXON hardware, the X3 and the EVIDENCE.COM service, and we expect those obviously to move into revenue contribution in 2010.

We won six more product liability suites; they were just dismissed during the quarter. So at the end of the quarter, we had a total of 96 wrong pulled out or injury suites that have been dismissed or judgment ended in favor of the company.

Seeking liability, there has been some discussion in the public media about a recent training bulletin that we've put out. As we frequently see, due to the sensational nature of police work of TASER devices and of the media, what we've seen in the media is not a very accurate representation of what our bulletin has achieved. So let me speak about that for a minute, and I'll hand it over to Dan.

In a recent training bulletin, we've lowered the point of aim, the intended point of aim from the center of mass, which could be interpreted as the chest to the abdomen area, four shots on the front of body. Now release of the training bulletin should not be interpreted as a significant change in how our products should be used. The recommendations should be viewed as best practices that mitigate risk issues resulting in more effective deployments, because we know if you shoot lower on the front of the body, you have bigger muscles in the abdomen and the pelvic region that are more incapacitating than shots up in the chest region.

But the other reason is to do from risk management. As we know, police confrontations are violent, they are risky. The TASER device has been proven to be the safest force option available. The only other force option is in the same sort of minimal risk flat category would be the pepper spray category, which is nowhere near as effective as TASER devices. So there's been a number of great studies this year, sponsored by the Department of Justice and others that are showing any injury rates it's a fraction of 1%.

However, the risks from the risk management perspective, sudden cardiac arrest is one of the leading causes of death in the United States, about 325,000 people die every year from sudden cardiac arrest; that's why they have defibrillators now in airports and golf courses and in gymnasiums. So, it's certainly possible that somebody struggling with police that the stress of that event could lead to an adverse outcome, they could have sudden cardiac arrest.

And the challenge for us and our customers is if the TASER is used, even if the TASER has nothing to do with the cardiac arrest event, if there is a shot to the chest, defending that case from risk management standpoint is much more challenging than if the electricity path is not in the chest.

So after consulting with our training board experts, with morning experts and our legal team, we felt that from a risk management standpoint, this greatly enhances the ability of the law enforcement agency customer and TASER to defend those cases more easily. We're training to avoid the situation, where we get in position of having the prove innocence or in this case prove it was not a factor, which is nearly impossible to do because you cannot replicate all of the different human conditions of a person, who might be 60 pounds, who's taken also different drugs. You can't replicate that sort of testing, which is one of the things our critics have pointed out and we've pointed out that it's true that kind of testing cannot be done. It would be highly unethical to do those things to people, it would not be admissible or legal anywhere in the world to do that sort of medical testing.

And therefore you cannot disprove those that the 1 in a million case can't occur. So, from an investor perspective. I think the right way to look at this is substantially every case against us, so maybe exception of one or two, are failure to warn cases.

So by adjusting our warnings accordingly to even things that are alleged, but are not proven enhances the defense ability for both TASER and our law enforcement customers by acknowledging that all risks cannot be disproven. Once those risks are acknowledged in warnings, the defense ability those cases goes up pretty significantly.

So if you need more information on ability, it is posted on the training portion of our website at taser.com. I'd invite folks to go and take a look at it. But one way to look at it is we do believe that this will significantly enhance our risk management on a going-forward basis.

And with that, I should also point out that the medical tests point to very low risks; again, we just can't -- you can't prove that the risk is zero, but we know from field data we're talking, we've had almost 2 million human exposures, and if you look at the number of cases that where cardiac arrest is even plausible it would be a handful at best meaning that the symptom pattern, so we don't have something that helps us specifically excluded.

So we're taking about risks less than one in a 100,000 in terms of the incident rate which is extremely remote; however, we cannot prove it to be zero. It's just not scientifically possible. So, we've adjusted our warnings, and we believe for the long-term, it will put out the law enforcement in a stronger position.

And with that, let me turn over to Dan to go into more financial detail about the quarter.

Daniel M. Behrendt

Okay. Thanks Rick.

So the first results for the quarter, again as we talked in our last call and Rick mentioned, we are deferring a portion of the X26 sales for the quarter, roughly $250 for every unit in the quarter and really what we have done from an accounting perspective is looked at what that trading right, the ability to buy an X26 and then get relatively full value towards the price of an X3. What that trading right worth, and we've kind of -- there is some accounting round that's used in the software space and other places that we have applied here to calculate that value, roughly $250 a unit.

So, the good news is that $3.5 million deferrals to the extent of those customers have not traded off in the quarter, that’ll reverse itself in Q4. And it does sound, but it does make for some challenges from comparability purposes, so that's why we are going to talk about the results both on a GAAP basis and a non-GAAP basis. So again as Rick said, the adjusted revenues for Q3 were $26.8 million. This is up 4 million or 17% from the prior year, again, also driven by the increases in our federal military segments led by the sale under the IDIQ contract with customs and border protection as well as higher sales for the company's international customers mostly driven by the large sales of TASERS and TASER cams to Australia in the quarter.

The net sales on a GAAP basis for the quarter are 23.3 million. Sequentially our adjusted revenues are up 4.9 million or 23% from Q2, again commonly caused by the increase in the federal military sales; that's good news. Seasonally, Q3 is not normally one of our better quarters. Usually Q2 and Q4 are better seasonal quarters. So, to have such a strong Q3 is really something we are encouraged by.

And the one thing I want to talk about as well as we haven’t see a lot of stimulus-related sales as far is really noticed in the last probably a month or so, a uptick in the amount of coding activity we were doing with departments that now learned that they have been awarded stimulus grants, so I think that's a good sign and we expect to see some benefit in Q4 and more in 2010. So I think that's also something we'd feel better good about it as we move forward.

The adjusted gross margins back half, the deferral were 16.7 million or 62.5%. These are up 1.7% as a percentage of adjusted sales from the prior year, and the increased margins really driven by the increased leverage in our indirect manufacturing costs.

The indirect manufacturing cost stayed relatively flat on an normal basis even at the higher sales levels. So we're able to get leverage out of those indirect costs, which is something we're -- we definitely want to drive towards as we grow the business. Our gross margins on a GAAP basis were 13.3 million or 56.9% of sales and then both GAAP sales and gross margins will both benefit in Q4, when the remainder of the 3.5 million deferrals reverse.

Our SG&A expenses were $11.4 million for the quarter versus $9.1 million in the prior year. The increase was driven by higher salaries and benefits of $703,000 with higher headcounts to support a management chain that we built out and new hires we've made to support the new product lines we are moving into. We also had an increase in our 123(NYSE:R) charges for stock compensation of $371,000 and consulting costs are up roughly $300,000 from the prior year level.

Sequentially, we saw SG&A expenses grow by $600,000 over Q2. As expected, SG&A was impacted by large comps associated with the AXON and EVIDENCE.COM and X3 product launches as well as the cost of the annual TASER conference. That's one of our bigger trade shows for the year we put on each year for our customers.

We also had higher salaries and benefits. In Q2, the hiring of new employee to support the sales of EVIDENCE.COM as well as some severance payments we made in the third quarter. Research and development expenses of $6.7 million in the quarter, which is an increase of 3.3 million over the prior year. The biggest driver here are indirect supplies, component costs, expediting fees and the like to build X3 and AXON units that we showed at our TASER conference and ICP trade shows.

That increase in those line items was roughly $1.8 million over the prior year. So that's the largest driver for the increase. We also had higher salaries benefits in 123(R) charges of 1.1 million for the hardware development and our new software development team headquartered in California. We also had increased tooling and scrap costs, again, this is really associated with new product builds of $443,000 partially offset by $851,000 of software development costs relating to EVIDENCE.COM which we would capitalize in Q3.

Sequentially R&D costs were up $2.3 million due to the significant increases in the direct supplies to tooling and scrap charges for the prototype builts. We also had -- as Rick said, the datacenter is up and running. We had approximately $500,000 of datacenter expenses in the quarter. This salaries for the people work in the datacenter, the NOC operators.

Also the equipment we purchased and with the depreciation, the rents for the datacenter, so that's about $0.05 million of expense in the quarter. Once we get to revenue on EVIDENCE,com those expenses will move up into cost of services to lever. But right now before we get to revenue, those costs are still sitting in the R&D line of the P&L.

We do feel good about the new products and again as Rick said we do expect the R&D spending to be back up to normal levels in Q4. Our heavy investment in R&D is driven by the strategy of product line expansion and diversification. We have introduced several new and differentiated products, which better position TASER to capture the market share and address new opportunities as the economy improves. We also feel the higher RD efforts and building our virtual systems business, which should turn should in turn really provide a more stable predictable revenue stream for the company in the long run. So, we're making strategic investments now and certainly it has had an impact on the near term profitability, but we do feel good about those as we forward.

Our non-GAAP adjusted sort of cash earnings, if you will, was $602,000 of income. As we ramp up our development teams that have the large increases we've seen in 123(R) comp as a result, we feel really makes that sense to look at our operating basis, operating both the non-GAAP cash basis as well as traditional GAAP basis. These cost for 123 (R) and other cash, non-cash charges are going to be pretty significant. So I want to show both ways.

On a GAAP basis, the company policy [ph] an operating and pretax loss of $4.8 million and a net of tax loss of 3.2 million or $0.05 loss per share in both basic and diluted basis. So, the other thing for analysts and others who look closely at the financials probably know that our effective tax rate decreased in the quarter from about 49% at 630 to 39% at 930, which reduced the tax benefit for both the third quarter and year-to-date.

The company will reduce its tax rate each quarter for reasonableness and because of variability in the annual affected tax rate caused by relatively small differences and projected fourth quarter results, we ended up calculating the year-to-date cash provision as if we're filing tax return on the year-to-date results and so projecting tax rate using the forecast of total year results.

There is likely to be some variability in the fourth quarter rate depending on fourth quarter results and a likelihood that the impact of nondeductible expenses for things like stock options, entertainment and lobbying will make the income for tax purposes significantly higher than both pretax income.

So, we did reduce it for the quarter, the fourth quarter, it's likely, we'll see some variability. It's really going to just depend on where the year ends up. But we'll continue to monitor that pretty closely. On a year-to-date basis, our adjusted revenues were 73.2 million, which is up 6.8 million or 10% on the prior year, again also driven by the increase in the company's international military and federal segments.

And our net sales were 69.7 million. Adjusted gross margins of 45.1 million or 61.6% of adjusted revenues were up 1% as a percentage of sales from the prior year. The 1.7 million increase in indirect manufacturing expenses versus the prior year were mostly driven by the lower absorption and capitalization plan overhead due to lower inventory levels partially upset by lower salaries benefits, scrap and warranty charges.

But overall obviously with the adjusted gross margin of 61.6% we have been happier with the performance in that area this year. R&D expense on a year-to-date basis are 15.2 million. This is up 6.8 million again driven by higher salaries, benefits and 123(R) charges at 3.7 million to headcount as for the hardware and software devolvement as well as significant higher indirect supply tooling department charges of $3 million, to build these initial prototypes, and units to showcase at the TASER conference and the ICP trade show.

Last year, we had a $5.2 million accrual on the books, for the punitive damages in the Heston case. As a recall, we did reverse that in Q4, 2008 when the judge on the case dropped punitive damages, but on a year-to-date basis in the 2008, you’ll see that$5.2 million reserve on the books. Adjusted operating income is $2.4 million of income, when the X26 trade-in credit, 123(R) charges and depreciation and amortization are added back and we had a booked loss from operations of $7.3 million. The net loss for the year is 4.4 million or $0.07 on a basic and diluted share basis and again we do expect to reverse the remainder of the X26 trade-in credit in Q4.

Moving on to the balance sheet. We finished the quarter with 45.4 million of cash and investments. This is a decrease of 4 million from the prior year end, mostly due to capital expenses. We had significant expenses for 2 million and 2.5 million to support the new products, we had equipment to outfit the first data center at 2.1 million. We had capitalization related to EVIDENCE.com development of 1.5 million and then costs associated with the automation equipment of 2.2 million.

So significant capital investment this year as well, but again this is partially offset by our cash flow from operations of $5.5 million. And due to the uncertainty in the market we have continued to keep investments very liquid, and certainly have plenty of liquidity to continue to operate the businesses and make those investments for the future.

Accounts receivable was $16.3 million were down half $0.5 million from the prior year about 68. Again, in the last year, we had a large UK order, if you recall, that shipped right at the end of 2008 reflected in the first quarter, to drive up our cash cash receivable balances. Our day sales outstanding is 54 days which is inline with where we were in Q2 and down to 5.3 days from where we were at 12/31, so continue to be pretty happy with our receivables and the levels and the days sales outstanding.

Our inventory balances of 13.2 million are down by $240,000 from the prior year balance. As expected our inventory balances did climb up a little bit from the Q2 levels due to the purchases to support X3 and AXON product lines. And our prepaid and other assets of 1.8 million are down, up $656,000 from the year-end balance. This is really due to the reductions in our prepaid insurance which we amortized over the year.

Our investment in property and equipment of 35.6 million is up 8.4 million from the prior year due to progress payments on the automated manufacturing equipment, the new IP equipment including the equipment to outfit our first EVIDENCE.com datacenter and then to support new product lines in EVIDENCE.com.

So, total assets at September 30th were 137.1 million and on the liability side of the balance sheet accounts payables 7.7 million is up 3.8 million for the prior year end balance. Again it’s due to some timing of check loans and than just the increased purchasing activity including purchases of the date center equipment.

Accrued liabilities of $3.8 million are down 428,000 from the prior-year end balance of 4.3 million mostly due to just lower accrued expenses for payroll and other type of employee expenses. Current deferred revenue is $6.3 million is up significantly for the prior year-end balance of 2.5 million. Again as we talked about, the biggest part of this would be deferral of the X26, sales that’s going into deferred revenue line of $3.5 million, and the remainder of that increase is just driven by continued sales extended warrantees in 2009.

We have total liabilities of 25.1 million, and we finished the quarter with 112 million of stockholders equity. We have no long-term debt and continue to have plenty of liquidity to fund RD efforts and operations as you move into the future.

Our cash flows, company had cash provided from operations of $5.5 million, for the nine months ended September 30. This compares to about 4.6 million cash provided for operations in the prior year. The increase is really mostly driven by a $2.4 million increase in 123(R) charges year-over-year. 123(R) charges at $3.8 million on a yearly basis and our depreciation and amortization for the nine months are 2.4 million. We did have cash used from investing activities of $7 million. This is really driven by the $9.5 million of CapEx, offset by $2.5 million that we realized from maturing cold investments.

And then we ended the period with 45.4 million cash and fund liquidity to continue to operate business. And with that I'd like to turn the call back over to Rick Smith, our CEO.

Patrick (Rick) W. Smith

Great. Thanks Dan. Okay, the couple of things I wanted to talk about from the sales accomplishments perspective is we added355 new agencies, up to a total of 14,853 agencies testing or deploying our products. So, we're approaching the 15000 mark. Let’s see, we added 88 new TASER Cam agencies including obviously one very big one in Australia for a total amount of 22033 agencies testing and deploying our TASER Cam. We added 12 agencies using the newly released X12 Shotgun from Mossberg and 17 agencies with the XRAP.

So the XRAP is now shipping. It is expanded rate, range impact munitions that is a smaller overall market than the patrol officer market that we see with our handheld devices but nonetheless it is a critical bond leadership market for us. Our international book sales were about $4.5 million and booked domestic sales were about $21.5 million and all booked sales in total in the quarter was about $26 million.

So again congratulations to our sales team, not many sales teams are turning in those kind of numbers in this economic environment. Couldn't be more proud of those guys. One other thing I wanted to comment about on the R&D front, we have been making heavy investments. I think we made that point several times throughout the call. I should also mention that we have taken some additional steps to streamline our R&D. Mainly we've brought in a new VP of Research and Development named Mark Phelps.

Mark comes out with very strong background from companies like Medtronic and others sorry -- John little bit a point here, Motorola elsewhere very strong background in terms of R&D management which we believe will help us to streamline our expenses and our management processes and R&D.

The another thing that it does is it frees up Max Nerheim is the company's first technical fellow which we're all very excited about. That allows Max now to really focus, many of you may know Max Nerheim is the inventor of the shaped pulse in the X26, holder of many of our patents and with this new management structure now frees up Max to be solving our most technical challenges in inventing our technologies for the future, rather than managing day-to-day managerial activity.

So, we think it really will help optimize the company to take it again to the next level, both technologically and in terms of our business processes.

Last thing I want to talk about again over the last years we've invested significantly in transforming our company with a couple of goals. One was to broaden our revenue base. So that we weren't as dependent on the TASER hardware product lines. And then the AXON on office or computer and video camera system which allows us to tap into the in-car video market space which we estimate to be a $350 million plus a year market here in North America as well as Evidence.com which is our video management system, we are providing a turn key solution end-to-end hardware in the video management software solution to really streamline our customer's operation, was extremely well received with police chiefs we talked to. They are interested running police departments not building massive complex data centers and the fact of providing this turn key is resonating very well.

In fact at the IACP conference, TASER International took the top awards in the innovation awards from Signature Publishing that runs the innovation awards of that conference. In the categories of computers and software, as you can imagine some people were scratching their heads, they didn't see this coming. TASER International taking top awards in computer and software, we beat out world class folks like Panasonic in the computing category.

So, those were to kind of look at technology and the future of law enforcement, have given us a pretty solid endorsement there. It’s up to us now to convert that into revenues in a sustainable business. But I'm very enthusiastic and excited about seeing Evidence.com and the AXON come online. It will take you to the next level for law enforcement of being able to defend their actions by having video from the officers’ perspective and with Evidence.com we're tying in world class analytics. So we're not just taking those videos and storing them away for use in court later, we're bringing those video to life with geospatial mapping with my partners at Microsoft. We've now actually CISCO who did a whole case study on the Evidence.com data centers. TASER International was one of the first in the world to deploy Cisco's new unified computing platform. So, we've used absolute best in class technology in building the evidence.com data centers, because we'll be managing potentially massive amounts of terra bytes and peta bytes of data. Cisco was so impressed with our operation interest. Bill and his team have done a TASER virtual systems that they launched their 2010 public safety campaign with a case study of Evidence.com that they've released at the IACP conference, was a major focus for Cisco.

So we of course are delighted to be getting awards from the industry, industry innovation awards, absolutely wonderful partners like Microsoft and Cisco and IBM supporting us, and IBM on the data and storage side. And hold on tight, we're getting close to market. Of course we still have a lot of work to do to deliver, but we expect 2010 to be a transforming year for us and much more to come.

So with that, we'll open it up and we'll take a few questions and then we'll wrap up the call.

Question-and-Answer Session

Operator

Ladies and gentlemen if you have a question please (Operator Instructions). Our first question comes from the line of Paul Coster with JPMorgan. Please proceed sir.

Paul Coster - JPMorgan

Yeah, thank you. Two questions really. Let me start with the first, which is regarding the decision to sort of amend your advice on how to use the tasers and avoid chest areas and so on. In the event there is a police officer tells you to -- and make contact with the chest area and you see some kind of issue rising, are you still going to be defending the police officers in the manner that you've done historically?

Patrick Smith

Absolutely and unequivocally, yes. The advice is designed to avoid potential controversy. For us, any officer, if that officer is able to aim lower, then A, is more effective and B, it makes the defense easier for all of us, but we've been in this business for 10 years. We've had hundreds of thousands of chest shots and it's proven to have an extraordinary safety record. So this is more about risk management and we are reassuring our customer base, they can count on our full support that in the event they do hit someone in the chest, we're not suggesting it is a significant medical risk, we are suggesting that this improves risk management by improving the defensibility, takes us out of the position of having to prove to a jury or that the Taser di not have an effect, which is sort of today there's the challenge that we've had and as we learned in the Heston case, you know, sometimes juries are not seared entirely by science, but sometimes they go more by other factors. And this is just one more risk management layer to protect us all. But, in no means will we be backing off from protecting officers and helping them go defend cases.

Paul Coster - JPMorgan

Got it, okay. Second thing is that you do seem like your threshold of sending into a different kind of company more diversified, more visibility owning to the AXON initiative and so on. With which, why don't you start to issue guidance, so I think it will be well received by a broader investor base?

Patrick Smith

We'll first take that on your guidance. As that business begins to stabilize and it becomes more practical, we at least might be able to look at providing some better modeling for people to look at our forward-looking business. So, we certainly understand that and then that's our goal is to make our business easier to model and to take out some of the volatility.

Paul Coster - JPMorgan

Thank you.

Operator

Okay. Our next question comes from the line of Steve Dyer with Craig Hallum. Please proceed.

Steve Dyer - Craig Hallum

Thanks, good morning. Yes, I'll just ask the predictable question first. What are you seeing on the municipal budget side of the world and maybe more importantly how has that trended or changed in the last six months going.

Daniel Behrendt

Yeah. Steve, this is Dan Behrendt, I think that still is a top national budget environment. I think the one thing we are encouraged by is that we're starting to see a little bit more supporting activity around the stimulus package. So really the thoughts and the hope we have as we finish this year and moving into next year is that large amount of 2.75 billion dollars of federal money flowing into law enforcement for equipment purchases helps offset some of those municipal budget weaknesses, but certainly as we looked at our business this year, we've seen a shift in our segments of our business from being really heavily dependent on U.S. law enforcement, and really having more of our sales come from the international part of our business, federal military part of our business.

I think in some respect, it's good, because we're not as dependent on a single segment. I think we purposely made investments in sales folks to focus on segments to the business. I think you're starting to see some of that impact with parts of business like federal part of our business become more significant. So, but the U.S. law enforcement which is still roughly half of our sales, it's a tough budget environment, but hopefully helped by the stimulus.

Patrick Smith

And I could add a littlie bit there. The answer to the 2.7 billion flowing into the law enforcement for equipment purchases that also is being used for keeping officers on the street and jobs as well. So just to be clear that's not all for purely equipment, but it is helping with budgets that the stimulus is starting to flow.

Steve Dyer - Craig Hallum

Okay. And I guess, can you give us any indication as to how much you think stimulus maybe helped the quarter or on a scale of one to ten or one innings to nine innings call it how far into this stimulus help our way do you think?

Daniel Behrendt

I think it's really early, I think it's sort of first standing kind of thing. We saw probably little bit in Q3. We're starting to see that hoarding activity start to increase. But I think there is still, I think the agencies are now starting to there is actually website that show a five stage, where this foreign like money is released in flow, so you can look at the say, the State of Texas, you click on Texas, you see each agency in Texas that got a stimulus grant. Obviously that gives us a good hunting list as far as who to go talk to and we know it's got the stimulus funding. And it's pretty early in the game at this point.

Patrick Smith

One thing I want to say, it's been a little bit challenging as we launched into, when the President announced stimulus, we obviously got very engaged and letting people know about products that were coming. The tenor in Washington has been very sort of negative to be blunt on corporate America, and there have been some pretty strong directives about how, they don't want corporations or corporate America over influencing, how grants are done et cetera.

And I think that's just the tone that many government agencies including law enforcement agencies, they're taking information and but I think they are being very careful and not -- we don't get a lot of visibility as to whether or not they are putting grants that may or may not apply to our equipment, at least not nears much visibility as I would have liked to have seen, but that’s just a function of the current political environment. So we do know that the money is finally starting to flow. How many people put in for grants that are specific to Taser, our devices, it's hard to get a good grip on, and then the second order effect is if agencies get grants for non-Taser equipment, does that free up other budget dollars that they would have had to spend on additional officers or on new cars or whatever it is they're buying with the grant money, can we then see that frees up other budget dollars and so there is a secondary effect that can increase Tasers. So again, we've spent a fare amount of time trying to get a grip on it, it's just those factors make it real difficult for us to get much insight into precisely how large the opportunity is and any timing must be associated with it.

Steve Dyer - Craig Hallum

Okay. AXON, it sounds like it slipped a little bit just in terms of when you expect it to be a revenue contributor, what are your thoughts as to next year, what's the pilot process going to look like from a timing perspective and when would you expect this to start generating revenue?

Patrick Smith

Firstly, let me take a hit on it, yes, we do slip over what we thought, we've set a pretty aggressive schedule. Looking back on it to develop a full robust Internet services group, the staffing up of that, the software development for QA and then the integration of the hardware both from the AXON sales to which every transfer machine, which is the local rack installed at the agency, we've got cashing and a lot of networks switching that happens there and then back to datacenter.

So, that integration process has been a heavy, heavy lift. Now good news is it's going to be big entry for anybody else, who wants to follow us. It's – the fact it's not been easy, and it won't be easy for others to do either and that improves our first mover advantage, but we did slip.

Now looking forward, we anticipate that we will be in field trails in the November and December timeframe with frankly, we have more agencies that want to field trial less than we have the logistics ability to score at least, we’re also trying to keep our eye on the cost, we can't go support a bunch of these things simultaneously.

So the field trials will probably go into January, February, In terms of when we’ll actually start to see revenue flow, let me pass it over to Dan here and get your thoughts Dan.

Daniel Behrendt

Yeah, and I think that to the extent that these trials are successful, some of the -- a lot of the criteria for these field trials are folks that do have some budget dollars. So, it’s going to be somewhat dependant on field trials and certainly our customers because this is a new concept that's certainly going to need to touch and feel to buy it. Certainly we're hopeful to see some revenue in the first half of the year and depending on how the field trials go and how it works for these customers, we may see something as early as the first quarter. But it’s tough to predict at this point with the field trials just starting up.

Steve Dyer - Craig Hallum

Okay, and then Dan in the past you've kind of gone through and given the unit numbers for each of the product areas, wondering if you could do that again and...

Daniel Behrendt

Yeah

Steve Dyer - Craig Hallum

And then specifically interested as to what the X3 contributed in the quarter?

Daniel Behrendt

Yes, certainly happy to do that. So, cartridges actually continued to be definitely a strong part of the business. As you remember, last year cartridges were pretty weak and we felt that, that was probably more just driven by economic climate. As people sort of used up the current inventory and would be back to us this year and we've certainly seen that. The cartridges for the quarter were 394,417 cartridges.

So that's again one of the larger quarters in the company's history from a cartridge perspective. We sold 18,121 X26’s. I think we're very happy at legacy product continues to hold up well. I think the trade-in credit helped to make sure that happened. So that’s again to have 18,000 or X26 we are certainly encouraged by that. We saw M26s about 692 units including a new consumer M26c, which we kind of reintroduced in the quarter based on some feedback from our sales group, we actually sold almost 500 of those in the first quarter, which was good and we sold 5,253 C2s in the quarter.

Shock waves just sold about a 190 of those, that's still new, a new product where we're starting to really see some trials and some customers take that. We've actually had a field use of that already so that's encouraging. And we sold 1061 XRAP rounds which again that's a product slowly gaining momentum. On the X3, it really wasn't contributing in the quarter. We shipped a handful of units to our first customer. We had encountered some challenges from a shipping perspective with the cartridges which impacted our ability to sell the X3, we had to get the new cartridge because it’s significantly different for the current cartridge. We had to go and get foreign transportation approval, to ship that part with common carriers. That approval didn't come until late in the quarter which really impacted our ability to actually get the units to customers. But certainly we'll see...

Patrick Smith

The approval didn’t will come until after the quarter.

Daniel Behrendt

Yeah, actually we tried actually, they kind of talked over.

Patrick Smith

So, we delivered one or two orders but they were literally hand delivered to some customers we had good relationships with for just a small number of units that they wanted to get in before the end of the quarter from a budget deadline, but for all intents and purposes, we weren’t shipping in the quarter. We now have the DOC approval and so that's in place and we'll start shipping the testing, you know test and evaluation units are really where these things start people generally have to see them and play with them first, and those will start going out in the next week or so here.

Daniel Behrendt

Yeah, that's right. And then we had 2389 Taser cams. So again the Australia order is a big part of that. But it's been interesting that product has continued to hold up pretty well for us so. That's it that covered all the units you listed.

Steve Dyer - Craig Hallum

Yeah that's helpful. So I guess the X3 question that I have then is, with only one quarter really remaining for departments to take advantage of that rebate program, do you expect it to be relevant, is it possible or we could extend it or is it just is the delay kind of hurt that I guess hurt that momentum?

Daniel Behrendt

Yeah I think it's a good question, and we clearly want to create sort of a sense of urgency with our customers to have that trade-in. Certainly I guess we deserve the right to extended program expectation at this point as we probably want at least for the current purchases I think want that X3 out in market. I think it's tough to continue to indefinitely allow our customers to continue to buy the X26 at that point they're starting to kind of make their choices for which platform they want to be on. But, we'll conveniently evaluate it. Certainly, we've actually been showcasing the X3 and training, that's where it will happen. First we are ensuring training and hopefully as we move into the quarter we'll get more and more used to the customer's demand.

Steve Dyer - Craig Hallum

Okay. I'll hop back in the queue, thanks.

Patrick Smith

I think here we shall, I think we're pretty intent at the right to trade-in will sunset on 12:31. Yes, from a marketing perspective, we would like to look at other types of upgrade programs next year. We'll certainly be flexible about that. But we wouldn't even indefinitely extend the trade-in right just because it for all the reason and it creates some really bizarre accounting that we think it’s in the best interest of the company to get that cleaned up.

Operator

Our next question comes from the line of Gregory McKinley with Dougherty. Please proceed.

Gregory McKinley - Dougherty & Co.

Hey, guys can you hear me?

Patrick Smith

Yes.

Daniel Behrendt

We can.

Gregory McKinley - Dougherty & Co.

Hey just a couple of house keeping questions, say you talked about your R&D costs returning to a more normalized level in Q4. Where do you guys do see that, what level are you kind of referring to? Are you talking more of the $4 million level that we've been dealing with over the last couple of quarters or are you talking more 3.5 million which is more early 2008 level?

Daniel Behrendt

Yeah, that's a good question. It's really more sort of that 4.5 million level that we saw in the first half of the year that's kind of our goal for Q4. We're certainly going to work hard to get that down at that level. We're going to have to sort of finish up getting the -- these pilot programs for AXON, but we do feel that certainly especially the indirect supplies to build these pre production and units to showcase at these tradeshows, that was the biggest driver for the quarter, those expenses are behind us, so we definitely expect to see a pretty significant drop in R&D expenses in Q4.

Gregory McKinley - Dougherty & Co.

Sure.

Patrick Smith

Now if I could linger in on that as well, we effectively have built much of the infrastructure to run a software to service business with Evidence.com and obviously Web 3.0 software of the service business is a very hot space. We have seen salesforce.com and other companies what they have been able to do in that space. We believe we will be the first major software to service vendor in the law enforcement sector and probably to talk about, we're pretty tight about that.

But from a short-term perspective, what was happening is we have got the business infrastructure to run that business and yet we are still [inaudible] revenue. And so part of that what's sitting in R&D is what I typically think of as your research and development functions, at least used really for the hardware, some of the infrastructure that will transition into our software to service business as we enter revenue.

Gregory McKinley - Dougherty & Co.

Sounds good, so kind of on that same note, as these programs get rolled out in early 2010, for example the Evidence.com and AXON kind of start to gain traction, do you see that level even going down further in 2010?

Patrick Smith

That's really hard press to predict and the reason is this, as we start to enter into that space. As we are finding success, there are a number of adjacent spaces that could tie into Evidence.com that are very interesting and I don't think we are ready to really talk about those yet. But, I wouldn't want to commit that we are going to start really scaling back the R&D, because what could well happen is that as Evidence.com scales, we find adjacent markets that are or adjacent applications or other uses of the platform that we've build that would have very high ROIs that would make us continue to make new types of investment in R&D. The best now I could tell is that we'll continue to look at R&D on an ROI basis. The existing programs are getting to a maturity and we're now in the process of making those judgment clauses to what are the very high ROI next generation products and when do we kick those off, and how far we ratchet R&D back down, versus making some next generation investment place. Dan you have any further comments?

Daniel Behrendt

No I think that's fair. I mean certainly we are going to look at that carefully, what opportunity we'd like to see, some leverage in that part of the business as well. But I think Rick is right. We're going to have to continue to look at where the ROI is and if we think that's a really high ROI product, then we can turnout relatively quickly given the current infrastructure. I think it's going to make sense to continue to invest there.

Gregory McKinley - Dougherty & Co.

Sure that make sense, it's helpful. Just a couple of other questions; looking at your gross margin, you had a really nice quarter at 62.5% on excluding the trade-in programs. Where do you guys see that over the next couple of quarters, especially as you roll out these new products and they kind of gain that traction we've been talking about?

Daniel Behrendt

Certainly, we're going to continue to target that to be 60% or above; part is going to depend a little bit on the mix of the new products versus the existing products and part is going to depend on the overall sales level. As you saw this quarter, having those higher sales certainly helped the margin, because we get the leverage out of the indirect cost which are pretty significant, a couple of million dollars a quarter of indirect manufacturing expenses.

So having those higher sales levels, certainly helps us to maintain those higher margins. Now I'll tell you that, Mark Phelps, a lot of things that we've done from an organizational standpoint is that we just want to have two teams. We had our R&D team and then we had a planned engineering team and at this point, it's just one team.

It's just going to be TASER engineering. So, engineers will follow products from the research and development phase into production, which is these guys will help us to manufacturability and make sure we do some of that initial value engineering that really will drive the margin in new products. And we do think that certainly we are targeting the market to stay about 60%, and I think we've restructured it, we've given ourselves the best opportunity to do that.

Gregory McKinley - Dougherty & Co.

Great, that's helpful; thanks. Just one last question, real quick. You mentioned your tax situation, 34% this quarter big improvement over the last couple, where do you kind of see that shaking out for 2010? Is that going to return to that more 40 to 45% range?

Daniel Behrendt

Yes, that my expectation, I think this year, it's really been -- it's very strange and it's just -- it's a tough concept to sometimes explain. The company had roughly about $4.5 million of non-deductible expenses for things like stock options, meals, entertainment, logging. We just get that into book income before you calculate the tax expense. So, when you have a year like we had this year, where you're closer to breakeven, other things end up having just an outside impact, potential impact under rate. I think as we grow the business, those things go back to have a more of a smaller impact on rate. Certainly I think as we move into 2010, if we’re successful to see the rate back in that 40 to 45% range again.

Gregory McKinley - Dougherty & Co.

Okay, great, thanks a lot guys.

Daniel Behrendt

Thank you.

Operator

Our next question comes from the line of Eric Wold with MSFCO. Please proceed.

Eric Wold - MCFCO

Hey, good morning, guys.

Daniel Behrendt

Good morning.

Patrick Smith

Good morning.

Eric Wold - MCFCO

Quick follow up on the kind of the stimulus plan in place, can you give us a sense of when you are talking to the police departments once they've gotten indication they've been awarded funds under the stimulus, what's kind of a size of the incoming quotes are doing on average, what's kind of the product mix of what they are looking at?

Patrick Smith

I think it's actually kind of a classic mix, both from a size perspective and also what they are looking at. We've got customers, who are, say, partially deployed an X26 is looking at what it's going to take to get the full deployment. We've got some profits from customers definitely looking at the new products, which is encouraging that there is some of these stimulus dollars to either fund the trials in the new products or actually making a conversion to new product. So it kind of runs with 18,000 potential customers in the US, it’s just sort of -- each one is going to sort of operate independently. So we've seen a lot of variability there, but definitely we're starting to see more quoting activity which encourages us that money is finally starting to flow.

Eric Wold - MCFCO

Can you help me understand the process? I was under the impression that when they put in their budget request or their request for funds into Government, they actually have to kind of say what they wanted to spend the money on. Did you now, just kind of get a blanket announcement from the government, I've been coming to you and kind of spend it on completely different things than they requested?

Patrick Smith

There's two kind of tranches to these. The one is as you described, which is where people put in individual grant request based on needs they have in their agencies, that necessary criteria that governments set up. And there is also another set that it's just really more formula based where a state gets so much and then the states on a formal basis allocate it to their local agencies. And that's really more -- looking at restrictions as far as where you can spend the money on, but that's really more in order what [inaudible] agencies didn’t apply for it, now they themselves with some extra budget dollars for equipment and new officers.

Eric Wold - MCFCO

Are both tranches restricted from spending those funds on something that was already in the budget or is the second tranche able to spend on that?

Patrick Smith

The second tranche as far as reimbursing yourself I think that still as you can reimburse yourself for product purchases. But certainly if they have something that budgeted and now they find there's also some extra stimulus dollar that certainly they can use that to buy something positive at the purchase that before they get awarded the money.

Eric Wold - MCFCO

Okay. And then on the X3, now you have been out there for a little while marketing it what's been the feedback from the agencies on their ability to forward product, obviously more expensive than the original one. Does it impact the number of Tasers that are willing to deploy to their offices, the kind of mix, some get a 26 some get an X3 what have you kind of heard that right away.

Patrick Smith

We got very positive feedback from the chiefs at the IACP conference, that saw it from a features perspective and the benefits perspective and the documentation of the device of course, electrical characteristics that really helps from a risk management perspective to be able to defend cases and know how the device was used in much greater detail.

Frankly, at least one or two of this stimulus things have come in. We've had some smaller agencies request flows that look like they are getting ready to buy the X3s even though they haven’t had a chance to trial them yet, just based on what they've seen. Some of the chiefs I talked to are now talking about mixing X3s with their X26s, rather than buying all X26s and upgrading some of the X3s. Certainly the price is a bit of a discriminator, but frankly it should be the X26 is a great weapon and for agencies, who want to spend $800, we've got a great weapon in that price category.

The X3 has significantly greater capabilities, it is about twice the price, but if you actually look at what's on a police officer's belt, from the gun it's a 5 to $600 price point up to the radio. Their communications gear, those handsets will run 3 to $5,000 in some cases. So, we're certainly not the highest priced thing on the belt and part of it is giving them to understand that the X3 is a lot more than just a weapon. As the weapon with class built-in electronic communication capabilities, onboard computers, oscilloscope that records all the different characteristics, so it's getting them to start wrapping their minds around this being sort of a hybrid between the weapon and the communication gear. So, overall is it going to replace the X26? No. But the premium end of the market, we do see upgrading to the X3.

And the real market mover is probably going to be the small agencies as it has always been in our history with new products with smaller agencies moving in mass tend to do a lot more. And also from the stimulus perspective, those smaller agencies that are not on our radar getting stimulus funds and they meaningfully use those for X3s, again that’s where some of the early ones we've had folks that have gained some stimulus funds, they just want to go ahead and get a quote for the X3, even only have had a chance to field trial here.

And if you have any additional...

Eric Wold - MCFCO

Okay, appreciated. And then the last question: assuming hope we see a good quarter. These orders coming in and the quotes coming from the stimulus, where are you in terms of capacity to kind of fulfill the orders coming, what’s kind of the, I think maybe national level you could ship out right now in a quarter and how quickly could you ramp it up if you get a big level of orders from them.

Patrick Smith

On the X3, you're saying?

Eric Wold - MCFCO

Yeah, I'm focusing on the X3 and X26.

Patrick Smith

Really what we've done as far as the how we’ve laid out our plan, is really the capability to shift our production very quickly from one part to another. And instead of having monitor just dedicate it to one product, we've have got [inaudible] that can really have a flexibility, which is just swapping out the fixtures, and things that relatively quick and are talking about an hour or something, switch the line over, they can make either the X3 or the X26. We've got the ability to make over 200 a day either or any combination and certainly that's with one shift. So, we have the capability to bring in a second shift and ramp up accordingly.

Daniel Behrendt

And I don't think we're really capacity constrainted; it's the short answer. On some of the newer products, we may elect to move more slowly, just as we're really keeping a tight eye on quality and our value engineering is actually. So, the X3, we had a bunch of huge orders this quarter, we might run into some capacity constraints, so this we're playing in place just from a controlled run up sort of perspective. But other than that I don't think capacity constraints are really much of an issue for us in the business delay, again unless we get a huge order on the December 30th, we didn't see coming.

Eric Wold - MCFCO

Perfect, thank you guys.

Operator

Okay. We have a follow up question from the line of Steve Dyer from Craig Hallum. Please proceed sir.

Steve Dyer - Craig Hallum

Thanks. Dan can you give me the CapEx for the quarter?

Daniel Behrendt

Yeah, we had CapEx of about $9.5 million, you need for the quarter?

Steve Dyer - Craig Hallum

Yes.

Daniel Behrendt

For the quarter we had CapEx of, I'll have to get that, I don’t have a breakup of that?

Steve Dyer - Craig Hallum

Actually what's the nine month number that I can back into the..?

Daniel Behrendt

Nine months is at 9.5 million on a cash basis.

Steve Dyer - Craig Hallum

Okay.

Daniel Behrendt

And in purchases, but some of those in payables so about 9.5 on a cash basis.

Steve Dyer - Craig Hallum

Okay and then given the strength of your balance sheet and the fact that the stock is actually down this year when most of the market is up pretty significantly. Would you consider using some of that cash to buy back stock, is that in the thought process at all?

Daniel Behrendt

Yeah, it’s on the radar. To think about it, we did a pretty significant buyback last year, $12.5 million worth of stock repurchase. And certainly something we will continue to look at. Certainly this year we've made a pretty heavy investment in R&D both on a capital perspective and the P&L perspective. In fact as we looked at, as we look at, when you count the tooling and the data centre and other computer charges and everything else, it’s about $24 million year-to-date on a cash basis what we've invested in R&D. So it's been a really significant investment and I think -- not to keep a powder dry we'll continue to look at that. I think we're really excited about the long term prospects of the business and internally want to make sure hopefully the market is giving us credit for what we see as a really exciting future.

Steve Dyer - Craig Hallum

Okay, thanks.

Daniel Behrendt

Thank you.

Patrick Smith

All right with that we will wrap up the call. We'll be back in January to talk to you all. And by that time we should have some good news to report from our field pilot trials. Again I wanted to just run down on one other thought on the X3. This really kind of rounds out our product line now where we've got the industry price leader with the M26 at a $400 price point. We've got the X26 at the $800 price point and now with the X3 at a $1600 price point; that gives us the ability to effectively price segment according to the relative wants and needs in the marketplace which of course overall is better for business and better for our customers.

So we think that this really rounds out our product offering and we do see the opportunity that many of our customers will upgrade because the Taser device has become the most used, most relied upon force option in law enforcement. US Department of Justice did a study funded out of Florida where they found Tasers are used five times more often than anything else on the police officer's belt. And part of what we're pointing out to them is it is a great weapon but it’s single shot. Your primary weapon should probably have a multiple shot capability.

And that is really resonating that part of the base is resonating with the X3 that they got it. But when they rely on the Taser, it is the safest most effective tool under their belt. But if they miss, right now they might have to transition to something else and the X3 solves that problem. So pretty tremendous value and we look forward to seeing how it performs on the field, and reporting back here after the first of the year. So, thank you all and have a great day.

Operator

Ladies and gentleman that includes today's conference. Thank you for your participation. You may now disconnect. Have a great day.

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Source: TASER International Q3 2009 Earnings Transcript
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