David Gardner: You mentioned earlier the consumer market and how it is a big question mark and potentially a great avenue for growth. If I have done my research right, Tom Smith, your Taser
Tom Smith: Well, we are putting controls in place to try and ensure that we don't get these sold to the wrong people, and what I mean by that is we have got a background check in place through one of the largest companies in the world that does that for us so we make sure we are not selling it to known felons. We get driver's license and Social Security number information so that we try to keep it out of the hands of anybody that is underneath the age of 18.
So we are doing everything that we can to try and ensure that; in-home training I think is a world-class solution to being able to hire a law enforcement officer who uses this for his day job to come and spend an hour and train you in the use of this device so that you are aware of what it is and what it does.
I think we have taken extraordinary steps to try and ensure that it is used safely, and what really makes me sleep well at night too is that if somebody does have that unfortunate situation where the kid picks it up and shoots his friend, you are not going to read about it in the newspapers because it is not going to kill him. It is going to be an unpleasant experience, but it is not going to be a life-ending experience.
David Gardner: Tom, how do you plan to market the Taser X26C, your personal defense systems, so that you maximize sales? Do you have plans under way to get the seven states that presently outlaw Tasers, and I think those include New York, New Jersey, Michigan, and Massachusetts? Some states with some pretty big electoral counts actually. Can you get them to remove those bans?
Tom Smith: To be honest, we are not really focused on that right now. With 43 states having this technology available we are doing more of test marketing in those states to find the right message. We did kind of a soft launch, and we only did really one press release and virtually no advertising so we are going to spend the next several months trying some different test market advertising to see what is the right message point that will help increase those sales.
I think the changing of those state laws will happen naturally in the end. What I mean by that is if I look at the law enforcement market, as of several years ago we had four states that outlawed even police to have this technology. Today we are down to one, and that is the State of New Jersey.
Earlier this summer we had the State of Massachusetts pass it and make it legal for law enforcement, and they are just getting started now with this technology, so I think after we have proven some success in the consumer market in these other states, there is plenty of opportunity there for us to focus on. Then we can start looking at those seven states where there are currently restrictions and look at it at that time, but right now we need to focus on establishing the market and the message point to go where we have the 43 states with no restrictions.
David Gardner: Tom, what has it been about New Jersey, for the fun of it? Is it a single gadfly there that is counseling all the police departments not to use Taser? Why New Jersey?
Tom Smith: Well, actually back in the 1980s when stun guns came into the market really out of China and Korea, they passed laws at that time that outlawed electronic weapons and New Jersey happened to be one of the states where they didn't specify that police could have it. They just flat-out outlawed them and passed a law against them where some of the other states said, "Well, it is not going to be available for citizens, but police can have whatever they want."
So it is nothing specific that any of these states came out and did against Taser or Taser International, the company. These are laws that were on the books since the 1980s that we just happened to fall under because of the way they described the device.
David Gardner: I am going to pause it here. Outstanding, Tom. All of the answers. I am really enjoying this. I need to fact-check one thing with you, if you would be so kind, sir. I have not looked over your third-quarter numbers so I have a question written for me coming from one of our writers who has, but I lack the info so help me out here. Twenty-seven-percent profit margins, I read. Is that net? Are you all paying taxes on profits right now? I am going to ask you about those next but I want to make sure I have it right. Net profit margins? Is this operating margin 27%?
Tom Smith: Yes. Actually I believe it was 31% during the third quarter here because we do take taxes out, and you will even look on our balance sheet here. We have income before taxes was $10.1, and then we took out $3.9, almost $4 million in tax, so our net income was $6.1 million, and I believe that was a 32% profit margin after tax.
David Gardner: Thank you. I am going to; I accept that as our official fact check. You are on the record much more than I am for putting out your numbers accurately so pick it up right there. I appreciate the information. I will ask the next question.
Tom Smith: Sure.
David Gardner: 3-2-1, go. Tom Smith, your company in its third quarter reported net profit margins of about 32%, and for listeners still learning terms like this, what this means is after taxes, the profit your company is taking home on every dollar of sales, 32 cents of profit. Very impressive number. Do you think you can maintain that level of profitability over the next couple of years?
Tom Smith: I do. We are certainly focused on running a tight ship, and one of the things in our manufacturing space is that we really do have a high gross-margin product after we get through our fixed costs. It is something that we are focused on. We want to keep the costs under control. Whether we are going to be right at 32%, I think we are enjoying very good margins there, but I do think we can stay in that 30% after-tax profit margin in the foreseeable future.
I don't see anything at this point in time to my knowledge that is going to affect that or drive it down. In general terms I think we can sustain this in the foreseeable future.
Tomorrow: Where does Taser go from here?
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