Here's What Happened To TASER's Margins In Q4

TASER International, Inc. TASR reported its fourth-quarter 2016 revenue and EPS ahead of expectations. The company’s margins contracted due to a weak performance by the Axon Product segment, Imperial Capital’s Jeff Kessler said in a report. He maintains an In-Line rating on TASER, while reducing the price target from $27 to $25.

TASER reported its Q4 revenue at $82 million, representing 46.5 percent year-over-year growth and beating Imperial Capital’s estimate of $71 million. The Axon segment posted revenues of $24 million, up 154 percent year-over-year and ahead of Imperial Capital’s estimate of $15 million.

A Margin Story

Adjusted EPS came in at $0.12, marginally higher than the Imperial Capital’s estimate of $0.11. Although TASER’s headline metrics were mostly higher than expected, the company’s gross margin contracted to 60.6 percent, from 66.0 percent a year earlier.

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Margins at the Axon segment contracted to 39.4 percent, from 46.1 percent in the same quarter a year earlier. Although the Axon Service segment’s margin expanded significantly, the Axon Product segment’s margins contracted to 0.50 percent, from 25 percent in the year-ago quarter, Kessler noted.

Management noted that the Axon Product segment’s margins had contracted mainly due to nonrecurring items, including inventory write-downs related to the end of life of Flex 1 cameras. Margins could rebound to 25 percent going ahead.

“We believe that customer and geographic mix could create lumpiness for future quarters…We believe TASER could continue to give hardware discounts to customers or even sell products a t a loss in order to create a large ecosystem of recurring revenue,” the analyst wrote.