Self-defense-products maker TASER International (NASDAQ:AAXN) is on a growth path, having reported double-digit-revenue increase for eight quarters in a row. The company claims to produce "the world's safest and most effective weapons" that are becoming popular with the U.S. police departments. TASER's stun guns practically have no serious competition. TASER has also launched a "breakthrough" video system that has been well received by members of law enforcement, which has opened up other opportunities.

But investors want to know if TASER will be able to maintain its current momentum. Let's zoom into the company's two businesses -- conducted electronic weapons, or CEW, and video -- to find the answer. But before that, a quick quarter recap.


Quarterly performance
Sales in the fourth quarter of 2013 hit a new high of $40 million, increasing 24% from the year-ago period, driven by upgrades of TASER stun guns by law enforcement agencies. Earnings per share also saw a handsome jump to $0.13 against forecasts of flat growth at $0.07 cents.

The weapons business garnered revenue of $37.6 million during the quarter, rising 24% compared to the year-ago quarter. Though North America was mainly behind the good performance, 26% of the total sales came from the international business, making up for more than $10 million in revenues. The X26P, X2, and X26 products were the primary growth drivers. The segment's operating margin stood at 41%, doubling from 21% in the fourth quarter of 2012, thanks to high product demand and lower costs.

The video segment, which includes the TASER camera, Axon video products, and digital evidence management service, saw revenue increase of 33.6% to $2.5 million year over year. Bookings for Axon and came in surplus of $5 million -- the second quarter in tandem to do so.

Axon and are TASER's budding businesses, and so the operating margins have been quite dismal. For the quarter, the margin stood at a whopping negative 159%, compared to negative 96% in the year-ago period, as research and development expenses shot up threefold to $2.3 million.

Business outlook: CEW segment
TASER's upgrades have had a history of taking sales forward, and U.S. police departments are lapping up the new TASER X26P, and TASER X2. As many as 17 police departments across the country booked orders for these products in the fourth quarter. The X26P, which was introduced in 2013, in particular has received an excellent response as the company sold 10,444 units in the fourth quarter alone. This is a quarterly sales record for any CEW product yet. The niche weapon maker is planning to phase out its X26, which was launched in 2003, by the end of 2014.

Product upgrades driving sales. Source: Slide 6 of TASER's Q4 2013 Investor Relations Presentation

TASER has predicted that even in the worst possible situation, the weapons business can generate $140 million in annual sales by 2017. This is nearly 10% more than the segment's 2013 sales. In base case scenario, the segment can generate $174 million or 36% more, and if TASER gets lucky, it's possible that revenue can go up by 57% to $200 million. The outcome matrix with different assumptions from the company's latest investor presentation is given below.

Source: Slide 18 of TASER's Q4 2013 Investor Relations Presentation

Business outlook: video segment
Axon offers wearable video devices to police and other law enforcement agencies. TASER launched its Axon on-body cameras in 2013 that helped police officers record events during all-day patrol. Axon Flex, which was launched in 2008, and Axon body cameras are in sync with as videos can be automatically uploaded to the site. is TASER's software-as-a-service offering that helps law enforcement agencies tackle case load as it automates evidence collection, review, and sharing within agencies or with overseas agencies. It works on the recurring revenue model.

Things are heating up in the wearable technology space with the entry of Google's Glass, a wearable eye gear with innumerable possibilities. There has been a lot of buzz surrounding Glass, and law enforcement agencies are looking at its viability in investigations and patrol usages.

TASER CEO and co-founder Rick Smith has made it clear that in order to stay competitive and provide cutting edge technology, R&D is crucial, and more investments will be put into it in the future. This is a step in the right direction if management has to achieve its goal to place its body worn products in the mainstream, and capture a big piece of the market by 2017.

Management expects this business to generate $26 million in the worst possible situation, $51 million in the base-case scenario, and $103 million if it gets lucky. This compares with segment revenue of $10 million in 2013. Here's the outcome matrix for the segment:

Source: Slide 19 of TASER's Q4 2013 Investor Relations Presentation

The takeaway
TASER has been consistently showing solid performance. Its smart weapons are unique and enjoy a monopolistic hold over the U.S. market -- one in every two officers  in the U.S. carries a TASER -- with immense overseas potential. is another emerging service and its recurring revenue model is definitely a big plus. TASER's future looks bright as the company gets into more and more innovative products, and its product upgrades keep getting a hungry response.