Sunday, March 27, 2016

Looking forward, dreaming big: Bodycams are TASER's loss leader

Taser International, the middling military and police contractor most famous for its eponymous product, has big dreams: to supply equipment and services to every single police officer in America and abroad. Beyond just stun-gun tech, they plan to hold and manage data from body cameras and charge cities for the service. Austin gave Taser a boost toward that goal last week with the announcement that Taser will supply APD officers with body cameras.

The company's 10-K report for 2015 filed with the Securities and Exchange Commission this month lays out their vision in some detail.

According to the company, "approximately one out of every fifty eligible law enforcement officers carries a TASER CEW [a Taser-brand stun gun]." However, they continued, "Our goal is to have our CEWs be standard issue equipment for all domestic and international law agencies."

Meanwhile, the company's fastest growing business is body cameras and camera data services. "We are building out our Axon platform with body cameras and video management, which are driving rapid growth and market penetration today. However, the real opportunity is to leverage this connected platform to enable a broad suite of mobile, wearable, and data management capabilities to bring modern information technology capabilities to every law enforcement officer." According to the financials, Taser's sales grew 12% last year, but their body camera and data segment grew by 88%.

In a footnote, the company frankly admits its data-business model: sell cameras cheap as a loss-leader and make their money long-term on the data contracts. (For background, Axon is Taser's body camera brand and is their back-end site managing data from the cameras.) As they explained, in the footnote:, Axon cameras and related accessories are sometimes sold separately, but in most instances are sold together. In these instances, customers typically purchase and pay for the equipment and one year of in advance. Additional years of service are generally billed annually over a specified service term, which has typically ranged from one to five years. Axon equipment represents a deliverable that is provided to the customer at the time of sale, while services are provided over the specified term of the contract. ... At times the Company subsidizes the cost of Axon devices provided to customers to secure long-term service contracts.
The Legislature authorized $10 million for matching grants to purchase body cameras, but I don't know if anybody considered whether or not that money is supposed to pay for back-end data storage as well. The state Department of Information resources is developing a service departments can use for a fee of around $50 per officer per month, their COO told a legislative committee last week.

At least for a while, Taser may be able to get around such problems where police agencies use asset forfeiture money to buy stun guns or body cameras. But critics from both sides of the aisle may be mucking up that revenue source, too. Taser admits in its 10-K that, "Changes in civil forfeiture laws may affect our customers’ ability to purchase our products."

Meanwhile, Grits thoroughly enjoyed TASER's remarkably long list of "forward looking statements," each of which is "qualified by important factors that could cause our actual results to differ materially from those reflected by the forward-looking statements." In other words, some or all of Taser's claims on the following topics about Tasers, body cams and data services may not be true -- the jury is still out:
  • the benefits of our CEW [stun guns] products compared to other lethal and less-lethal alternatives;
  • the benefits of our Axon products compared to our competitors';
  • our ability to maintain secure and consistent customer data access and storage, including the use of third party data storage providers, and the impact of a loss of customer data, a breach of security or an extended outage;
  • that the complaint filed by Digital Ally [related to unfair trade practices including bribing public officials] is frivolous;
  • that Axon Fleet will ship during fiscal 2016
So, just some small stuff they aren't quite as sure about as they would like! There's a lot more.

Finally, going through their 10-K, Grits noticed a few angles some intrepid reporter or activist may find useful as a followup. If you research them, let me know:

If anyone wanted to research TASER's foreign sales, the company "must obtain export licenses from the Department of Commerce for all shipments to foreign countries other than Canada." They mentioned that "Most of our requests for export licenses have been granted," but it'd be particularly interesting to examine the license requests that were denied.

There was also a reference to risks related to possible changes in regulations that probably few reformers have ever considered: "We rely on the opinions of the Bureau of Alcohol, Tobacco and Firearms, including the determination that a device that has projectiles propelled by the release of compressed gas in place of the expanding gases from ignited gunpowder, are not classified as firearms. Changes in statutes, regulations, and interpretation outside of our control may result in our products being classified or reclassified as firearms." The City of Austin recently, it should be noted, adopted "a new policy that would treat Taser stun guns as a more serious weapon capable of inflicting harm and subject its use by city police officers to greater scrutiny each time the guns are fired," so how to categorize Taser weapons remains an active, open issue on which departments differ.

In addition, the company's "consumer products are regulated by the U.S. Consumer Product Safety Commission." And their 10-K mentioned that "our private citizen market could be substantially reduced if consumers are required to obtain a registration to own a firearm prior to purchasing our products."

For more background on Taser and its eight board-of-directors members, which includes a former Governor of Montana and a young tech entrepreneur who founded, see the company's most recent proxy statement.

RELATEDTaser's business model on bodycams. ALSO: The federal 4th Circuit Court of Appeals recently found that police officers "could lose on-the-job immunity from civil lawsuits if they use a Taser to shock suspects in the face of nonviolent resistance," reported the Baltimore Sun (3/26). The suit alleges that "police are too often turning to Tasers before exhausting other options." WHILE I HAVE YOU: From today's McAllen Monitor: "Edinburg man says police used Taser on genitals." Ouch!

1 comment:

DebC said...

A little off-topic as to Taser International's "big dreams," but definitely a story that SHOULD become one of their -- AND legislators' biggest nightmares: