Turnaround at Taser follows 2 tough years
Defending its reputation: Taser was hit by product-liability suits but is undefeated in court. Turning company around
Scott Cendrowski
The Arizona Republic
Jul. 10, 2007 12:00 AM
After scanning his eye for security clearance, Tom Smith walks through the glass door onto Taser's assembly floor.
There, rows of blue-coated workers are making the stun guns that in the past two years have brought Taser both lucrative sales and costly lawsuits.
Dressed in a crisp red Taser polo shirt, the company's 40-year-old co-founder and chairman points to Taser's latest offering: the C2, a consumer model of the stun gun that's used by 275,000 officers in more than half of the country's law enforcement agencies.
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"We wouldn't be coming out with these new products today if we had stopped working on these (in 2005)," Smith later says. "We stayed true to what we were doing, we stayed the course."
Two years ago, Wall Street appeared ready to give up on Taser International Inc.
The Scottsdale-based company's share price had plummeted 70 percent in just three months amid negative publicity and an increasing number of lawsuits alleging safety problems with its stun guns.
The company reported a $3 million net loss between the start of 2005 and the end of 2006.
But now, company executives and analysts are expecting a turnaround year.
So far, Taser is undefeated in court, shares are up more than 100 percent in the past year, analysts are predicting double-digit annual profits for the first time since 2004, and administration changes in France and Great Britain could be a boon for international sales.
On Monday, the company's shares closed up 18 percent, at $16.62, after Taser announced an extended-range military device that deploys cartridges across a wide arc, similar to a mine blast.
"Taser is where it is today due to good management, plain and simple," said Matthew McKay, an analyst at Jefferies & Co. who told investors in June that the stun-gun maker's stock could reach $20 a share. McKay doesn't own shares in the company.
Three analysts polled by Bloomberg LP are predicting $13 million in 2007 profits, up from $1 million in 2005 and a loss of $4 million in 2006.
From darling to 'sell'
Taser's stay-the-course strategy has combined new product development, maintaining its relationships with U.S. law enforcement agencies and international buyers, and strongly defending its name in court.
Brothers Tom and Rick Smith founded Taser in 1993 and sold its product to police departments as a non-lethal weapon of force. A Taser stun gun shoots two wires that deliver up to 50,000 volts of electricity, impairing suspects' muscular systems.
The company went public in 2001 and quickly became a Wall Street darling. Its stocks reached an all-time high of $31.65 three years later. But then, everything changed.
In January 2005, the Securities and Exchange Commission began investigating Taser's product safety claims; lawsuits soon followed. The SEC probe ended 18-months later with no action being taken against the company.
Still, Taser had become a risky investment. Its shares plummeted.
Meanwhile, the American Civil Liberties Union and Amnesty International Medical criticized the company for not warning police about the dangers of its stun guns.
Amnesty said in an interview last week that more than 250 deaths have been associated with Taser use.
On Monday, Taser spokesman Steve Tuttle said that the stun guns "are not risk-free," but he called them "a safer alternative-use-of-force compliance tool."
"If Amnesty International wants to go back to using batons and beanbag rounds, then they've clearly missed the boat," he said.
In an interview last month, Tom Smith also addressed product safety, saying that "was a big concern for investors."
"There was a lot of fear, quite frankly, with our investor base, with our shareholders. . . . Were we going to be a WorldCom or an Enron and just implode?"
Legal strategy
Taser defended its product by adding to its legal staff and working for court victories.
Doug Klint is the man responsible for leading what Taser management calls an "aggressive" legal strategy.
Klint, general counsel for Taser since 2002, has followed the Smiths' directives to work for court wins or dismissals, not settlements.
Taser still has at least 45 individual lawsuits pending against it.
But at least 52 liability suits have either been dismissed outright or won by the company since 2003.
The only case Taser settled out of court was an investor class-action suit for $20 million. In that case, the company admitted no fault.
Analysts say Taser's court record has made it attractive again.
Four of five Wall Street analysts covering the firm now rate it a "buy."
"Many of the factors that have negatively impacted sales during 2005 are now in the past - presenting an opportunity for continued penetration of the law enforcement and consumer market," Eric Wold, who tracks Taser for Merriman Curhan Ford in New York, wrote in a June report.
McKay said Taser's focus on product development, defending itself in court and "aggressively educating the media and state officials (was) positive for the long-term health of the business."
Lawsuit victories aside, Taser still has its detractors.
Dalia Hashad, director of Amnesty's USA Program in Washington, said Taser-financed studies aren't enough to alleviate concerns that the stun guns are directly tied to deaths or serious injury in certain people.
"We need to figure out, 'OK, how does this impact someone who might be mentally ill? Or people who appear to be under the influence of narcotics?' " Hashad said.
Despite the criticism, Taser is confident that it has a product that will sell - particularly in countries such as France, where orders are booming.
As long as foreign countries "start to make big orders, . . . the business should get better on the international side," McKay said.
Analysts and Tom Smith also said the consumer-oriented C2 could bring in lucrative sales when it's released July 23. The company would not release specific sales estimates, but Smith said that he believes the firm has regained the momentum it lost.
We "started coming back in '06, and now this year, the orders are coming in," he said. "It's a pretty exciting time."
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