Document


 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
Form 8-K
 
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

May 8, 2018
Date of Report (Date of earliest event reported)
 
Axon Enterprise, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 (State or other jurisdiction of
 incorporation)
 
001-16391
 (Commission File Number)
 
86-0741227
 (IRS Employer
 Identification No.)

17800 N. 85th St.
Scottsdale, Arizona 85255
(Address of principal executive offices, including zip code)

(480) 991-0797
(Registrant’s telephone number, including area code)

Not Applicable
(Former name or former address, if changed since last report)


Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o
 
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
 
o
 
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
 
o
 
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
 
o
 
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§ 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§ 240.12b-2 of this chapter).  Emerging growth company o
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 





TABLE OF CONTENTS

Item 2.02 Results of Operations and Financial Condition
Item 9.01 Financial Statements and Exhibits
SIGNATURE


Item 2.02 Results of Operations and Financial Condition

On May 8, 2018 Axon Enterprise, Inc. (the "Company" or "Axon"), issued a shareholder letter regarding the Company’s financial results for its first quarter of 2018. The full text of the letter, together with the unaudited condensed consolidated statements of operations, segment reporting, balance sheets, selected cash flow information, statistical measures and reconciliations of GAAP to non-GAAP financial measures are attached hereto as Exhibit 99.1. The Company has also provided additional unaudited statistical data for its first quarter of 2018 as attached hereto as Exhibit 99.2.

The information pursuant to Item 2.02 in this report on Form 8-K is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section.

Item 9.01 Financial Statements and Exhibits

(d)        Exhibits
Exhibit
Number
 
Exhibit Description
99.1
 
99.2
 





 






SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
 
 
 
Dated: May 8, 2018
Axon Enterprise, Inc.
 
 
By:  
 /s/ JAWAD A. AHSAN
 
 
 
Jawad A. Ahsan
 
 
 
Chief Financial Officer 
 













Exhibit


Axon Reports Record Revenue of $101 million, GAAP EPS of $0.24

Scottsdale, Ariz., May 8, 2018— Axon (Nasdaq: AAXN), the global leader in public safety technology, today released the following quarterly update letter to shareholders.

Record quarterly revenue of $101 million, up 28% year-over-year
Record Software & Sensors quarterly bookings of $98 million
Operating margin of 13%; GAAP EPS of $0.24; Adjusted EPS of $0.32
Acquisition of VIEVU adds five new major city customers to Software & Sensors segment
Full year revenue guidance raised to 18%-20% growth and operating margin guidance reaffirmed at 300-400 basis points of expansion

Dear shareholders,

Axon is executing upon its mission of saving lives and enabling fair and effective public safety and we continue to grow in relevance to the police agency customers we serve. Our strong Q1 2018 revenue and profit reflect our laser focus on execution across all aspects of our business.

Last week, we announced the strategic acquisition of VIEVU from The Safariland Group. The purchase price consisted of $4.6 million in cash and $2.5 million in common stock issued to Safariland at closing. Deal terms also include consideration of up to approximately 141,000 shares of common stock, contingent upon achieving certain milestones over the next two years, as well as minimum holster purchases. The transaction adds five major city customers and hundreds of smaller agencies to Axon's customer base. The majority of VIEVU's employees are based in Seattle and are expected to be integrated into Axon's Seattle office.

To recap, our strategic growth areas are TASER weapons, Sensors hardware including on-officer body cameras and Axon Fleet in-car video systems, our Evidence.com connected software network and Axon Records and Computer Aided Dispatch software. On the bottom line, we are right-sizing our investments to match the opportunity set and continuing to work toward delivering break-even operating margins in our Software & Sensors segment by the end of 2020.

In June, we will host Axon Accelerate, our third-annual user conference that is quickly becoming the premier law enforcement technology conference. We're very pleased with our progress and the interest we see from our customers in adopting our new products. We expect Axon Accelerate attendance to triple over last year as public safety's best and brightest engage in a symposium of thought-leadership blended with hands-on training.

Summary of Q1 2018 Results(1):

Net sales increased 28% to $101.2 million in Q1 2018 compared to $79.2 million in Q1 2017.
Consolidated gross margin was 63.7% in Q1 2018 compared to 61.4% in Q1 2017.
Total operating expenses in Q1 2018 were $50.9 million, compared to $43.3 million in Q1 2017.
Income from operations was $13.6 million in Q1 2018 compared to $5.4 million in Q1 2017. Operating margin in Q1 2018 was 13.4% compared to 6.8% in Q1 2017.
GAAP net income for Q1 2018 was $12.9 million, or $0.24 per diluted share, compared to net income of $4.6 million, or $0.09 per diluted share, in Q1 2017.

(1) Amounts for Q1 2017 have not been adjusted under the modified retrospective method of adoption of Topic 606, and are presented consistent with the prior period amounts reported under ASC 605. Revenue for Q1 2018 would have been $99.5 million under ASC 605.





Non-GAAP net income for Q1 2018 was $17.1 million, or $0.32 per share, and excludes $4.1 million in stock-based compensation expense.
Adjusted EBITDA for Q1 2018 was $21.3 million compared to $10.4 million in Q1 2017. This represents 106% growth year-over-year. We calculate adjusted EBITDA by adding back to EBITDA the following:
$4.1 million in stock-based compensation expense for Q1 2018 and $3.4 million for Q1 2017.
Cash flows from operations totaled $18.8 million in Q1 2018. Cash, cash equivalents, and short-term investments were $96.8 million at March 31, 2018, compared with $82.0 million at December 31, 2017.

TASER Weapons:
TASER Weapons segment revenue increased 10% to $63.5 million in Q1 2018 compared to $57.7 million in Q1 2017 as we executed upon our mission to make a TASER CEW (conducted electrical weapon) available to every officer.
TASER Weapons segment gross margin was 67.7% in Q1 2018 compared to 68.7% in Q1 2017.

We are seeing sustained demand for TASER weapons driven by three primary factors.

First, we are seeing a trend toward full deployments with US law enforcement agencies. Customers are shortening their upgrade cycles to five years from eight years, encouraged by our TASER 60 five-year payment plan and our Officer Safety Plan, which combines our body cameras and cloud software with a TASER handle. In Q1 2018, about 40% of TASER unit orders were on a service plan.

Second, we are seeing strong international demand, including encouraging developments in several European markets. The Italian government, for instance, is in the process of legalizing the TASER weapon for widespread use and Axon expects TASER X2 trials to begin soon in Milan, Brindisi, Caserta, Catania, Padua, and Reggio Emilia. Additionally, we are starting TASER trials in Germany and see a strong pipeline in the UK.

Lastly, we are expanding our customer base into adjacent markets. In 2017, for example, domestic law enforcement represented about 74% of TASER weapons sales, by handle unit volume (excluding cartridges). Other segments included international law enforcement (13%), US federal agencies (6%), university offices of public safety (2%), departments of corrections (1%) and private security and other non-law enforcement agencies (4%).

We continue to vigorously defend our intellectual property. In April, a Florida federal district court ruled in favor of Axon against PhaZZer Electronics, Inc. for its willful infringement of Axon's patent and trademark rights concerning its sale of the PhaZZer Enforcer CEW and probe cartridges. We previously obtained CEW patent infringement injunctions against Stinger Systems in 2010 and Karbon Arms in 2014.

Software & Sensors:

We've been very active in our Software & Sensors segment and we're pleased with our Q1 results.

Operational highlights since our last quarterly update include the purchase of VIEVU; the commencement of camera shipments to the Victoria Police in Australia, which represents our second largest body camera unit deployment after the London Metropolitan Police; significant orders from the UK's Kent and Essex police forces; and reaching full deployment in the Chicago Police Department with around 7,000 body-worn cameras.
Software & Sensors segment revenue grew 75% year-over-year to $37.7 million in Q1 2018 compared to $21.6 million in Q1 2017.
Axon Cloud revenue (previously referred to as Service revenue) was $20.2 million in Q1 2018 compared to $11.8 million in Q1 2017, representing 72% year-over-year growth.





Sensors and Other revenue (previously referred to as Product revenue) was $17.5 million in Q1 2018 compared to $9.8 million in Q1 2017, representing 78% year-over-year growth.
Software & Sensors segment gross margin was 57.0% in Q1 2018 compared to 41.8% in Q1 2017.
Axon Cloud gross margin was 78.7% in Q1 2018, compared to 70.2% in Q1 2017, the strength driven by higher revenue and completion of our data migration to Microsoft Azure.
Sensors and Other gross margin was 31.9% in Q1 2018 compared to 7.9% in Q1 2017. We benefited from higher pricing in Q1 2018 and we continue to target 25% gross margins in this part of the business.
Software & Sensors annual recurring revenue grew 80% year-over-year to $83.3 million in Q1 2018 compared to $46.2 million in Q1 2017.
Q1 2018 Software & Sensors bookings were a record $97.5 million, including about $38 million in international bookings. The average life of our bookings is about 4.5 years.
As of March 31, 2018, in the Software & Sensors segment, we had approximately $570 million of backlog, which is disclosed as remaining performance obligations. This metric replaces our previous disclosure of Future Contracted Revenue.
As of March 31, 2018, 38 of the 69 U.S. major city law enforcement agencies had purchased Axon body-worn cameras or our digital evidence management solution: Albuquerque, Atlanta, Austin, Baltimore, Baltimore County, Charlotte-Mecklenburg, Chicago, Cincinnati, Cleveland, Dallas, Denver, Fort Worth, Fresno, Las Vegas, Los Angeles, Louisville, Memphis, Mesa, Miami, Milwaukee, Minneapolis, Montgomery County, New Orleans, Omaha, Philadelphia, Pittsburgh, Sacramento, Salt Lake City, San Antonio, San Diego, San Francisco, San Jose, Seattle, Tampa, Tucson, Virginia Beach, Washington DC, and Wichita.
Axon's acquisition of VIEVU, which we announced last week, adds five new major city agencies to our body camera customer base.
Axon's Evidence.com platform user count continued to grow, extending our market leadership. During the three months ended March 31, 2018, we booked approximately 25,400 seats on our digital evidence management platform, Evidence.com, net of renewals. Since inception, we have booked cumulative Evidence.com licenses of approximately 226,900.

Product Pipeline:

Evidence.com - In February, we successfully rolled out Redaction Studio to Evidence.com customers in the US, Australia, Canada and the UK. The software capability helps users to more easily redact video, solving a giant pain point for our customers. Redaction Studio has already been a determining factor in competitive RFPs, helping agencies to select Axon as their body camera provider. It is included within our Pro software licensing tier.

Artificial Intelligence & Machine Learning - We are taking a smart and strategic approach to the use of AI and ML in policing technology. We are cognizant of the concerns around privacy rights and the risks associated with the use of AI technology. Accordingly, we recently announced the formation of a transparent AI Ethics Board to help ensure we balance both the risks and benefits of deploying this technology.

Axon Records - Our Axon Records engineering and design teams in Seattle are making progress against 2018 product milestones, including introducing report writing capability to our development partner agencies.

To recap, Axon Records is our technology solution that will reduce the time officers spend writing reports so they can spend more time policing. Modern police record-keeping is fundamentally about gathering the evidence associated with an event and transferring it to a prosecutor to use in the court system. Axon's market-leading body camera data management solution, Evidence.com, is highly valuable because digital video evidence is often critically important to the larger incident record. Axon Records builds out our existing software ecosystem by marrying body camera video with other incident data, streamlining and using the body camera to assist in reporting, and allowing records to be securely stored and shared beyond the agency.






Axon Records remains in its pre-revenue investment phase. We have a robust team of developers in our Seattle office who have deployed the solution with several police agency development partners, which are running early iterations of the product. We believe Axon Records expands our total addressable market by more than $2 billion.

Outlook:

We are providing the following updated guidance for the full year ending December 31, 2018:

Raising revenue growth guidance from 16%-18% to 18%-20%;
Operating margin expansion of 300 basis points to 400 basis points over 2017;
Operating margin guidance excludes non-recurring transaction and integration costs related to the VIEVU acquisition, and non-cash stock-based compensation expense associated with CEO Rick Smith's 10-year compensation plan, which is subject to shareholder vote at our May 24 annual meeting;
A normalized tax rate of 20% to 25%, which can fluctuate depending on geography of income and the effects of discrete items, including changes in our stock price; and
Capital expenditures in the range of $12 million to $16 million.

We look forward to providing more details on our quarterly earnings call this afternoon and updating you on our progress throughout the year.

Signed,
Rick Smith, CEO
Luke Larson, President
Jawad Ahsan, CFO


QUARTERLY CONFERENCE CALL & WEBCAST:

We will host our Q1 2018 earnings conference call on Tuesday, May 8, 2018 at 2 p.m. PT / 5 p.m. ET.

To join the live audio call, please dial 877-303-9126 (domestic) or +1-253-237-1156 (international) and use conference ID number 2962109.

The call will be available via live audio webcast and archived replay on Axon's investor relations website at http://investor.axon.com.

We have posted to our website supplemental materials including key operating metrics and additional information at http://investor.axon.com/events-and-presentations.

Statistical Definitions:

Software & Sensors bookings are an indication of the activity the Company is seeing relative to Software & Sensors hardware, software and Evidence.com. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales), including contractual optional periods we expect to be exercised, net of cancellations, placed in the relevant fiscal period, regardless of when the products or services ultimately will be provided. Most bookings will be invoiced in subsequent periods.

Due to municipal government funding rules, in some cases certain of the future period amounts included in bookings are subject to budget appropriation or other contract cancellation clauses. Although Axon has entered into contracts for the delivery of products and services in the future and anticipates the contracts will be fulfilled, if agencies do not





exercise contractual options, do not appropriate money in future year budgets or do enact a cancellation clause, revenue associated with these bookings may not ultimately be recognized, resulting in a future reduction to bookings.

For more information relative to our revenue recognition policies, please reference our SEC filings.

Non-GAAP Measures:

To supplement the Company’s financial results presented in accordance with GAAP, we present the non-GAAP financial measures of Adjusted EPS, EBITDA, Adjusted EBITDA and Free Cash Flow. Our management uses these non-GAAP financial measures in evaluating the Company’s performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented at the end of the release.

Adjusted EPS is defined as the tax-adjusted earnings per share excluding the costs of non-cash stock-based compensation and excluding certain other items, including net gain/loss on write-down/disposal/abandonment of property, equipment and intangible assets; and loss on impairment.

EBITDA is defined as consolidated net income before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA, as presented herein, is defined as EBITDA before certain other items, including: stock-based compensation; net gain/loss on write-down/disposal/abandonment of property, equipment and intangible assets; and loss on impairment.

Free Cash Flow is defined as cash flows provided by operating activities minus purchases of property, plant and equipment, and intangible assets.

Caution on Use of Non-GAAP Measures

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing the Company’s operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to the Company’s GAAP financial measures;
these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company’s GAAP financial measures;
these non-GAAP financial measures should not be considered to be superior to the Company’s GAAP financial measures; and
these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this earnings release were prepared under a comprehensive set of rules or principles.

Further, these non-GAAP financial measures may be unique to the Company, as they may be different from similarly titled non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company’s results to the results of other companies.

About Axon

The Axon network is a network of devices, apps and people that helps law enforcement become smarter and safer. Our mission is to protect life. Our technologies give law enforcement the confidence, focus and time they need to keep their communities safe. Our products impact every aspect of an officer's day-to-day experience:






In the field- Our Smart Weapons offer a less-lethal intermediate use of force response and our body-worn and in-car cameras collect video evidence to capture the truth of an incident; and our mobile applications enable simple evidence collection.
At the station- Our secure, cloud-based digital evidence management solution allows officers and command staff to manage, review, share and process digital evidence using forensic, redaction, transcription, and other tools.
In the courtroom- Our solutions for prosecutors make collaborating across jurisdictions and agencies easy so that cases can be resolved quickly.

We work hard for those who put themselves in harm's way for all of us. To date, there are more than 226,900 software seats booked on the Axon network around the world and about 200,000 lives and countless dollars have been saved with the Axon network of devices, apps and people. Learn more at www.axon.com or by calling (800) 978-2737.

Facebook is a trademark of Facebook, Inc., PhaZZer is a trademark of PhaZZer Electronics, Inc., Safariland is a trademark of Safariland, and Twitter is a trademark of Twitter, Inc.

Axon, Axon Fleet, Axon Network, Evidence.com, the “Axon Delta” logo, “Protect Life,” Smart Weapons, TASER, X2, and X26P are trademarks of Axon Enterprise, Inc., some of which are registered in the US and other countries. For more information, visit www.axon.com/legal. All rights reserved.

Follow Axon here:

Axon on Twitter: https://twitter.com/axon_us

Axon on Facebook: https://www.facebook.com/Axon.ProtectLife/

Note to Investors

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding our expectations, beliefs, intentions or strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based upon current information and expectations regarding Axon Enterprise, Inc. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. Axon Enterprise, Inc. assumes no obligation to update the information contained in this press release, except as required by law.

We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward looking statements herein. Such factors include, but are not limited to: market acceptance of our products; our dependence on sales of our TASER X26P and X2 CEWs; acceptance of our Evidence.com software as a service delivery model by our law enforcement customers; our ability to design, introduce and sell new products; delays in development schedules; rapid technological change and competition; product defects; breach of our security measures resulting in unauthorized access to customer data; outages and disruptions relating to our Evidence.com service; budgetary and political constraints of prospects and customers; the length of our sales cycle and our ability to realize benefits from our marketing and selling efforts; our exposure to cancellations of government contracts due to appropriation clauses or non-exercise of contractually optional periods; changes in civil forfeiture laws; the long-term revenue recognition cycle for our SaaS Evidence.com product; our reliance on third party cloud-based storage providers; litigation risks resulting from alleged product-related injuries and media publicity concerning allegations of deaths occurring after use of the TASER device and the negative impact this publicity could have on sales; the outcome of pending or future litigation; our ability to protect our intellectual property as well as intellectual property infringement claims and relating litigation costs; challenges obtaining and enforcing our patent rights in foreign countries; risks of governmental regulations, including regulations of our products by the United States Consumer Product Safety Commission, regulation of our products as a "crime control" product by the Federal government, state





and local government regulation and foreign regulation and the adverse effects that could result from our products being classified as firearms by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives; regulatory and political challenges presented by international markets; the possibility that the United States may withdraw from or materially modify the North American Free Trade Agreement; the adverse effect of the United Kingdom’s exit from the European Union; our compliance with regulations governing the environment, including but not limited to, regulations within the European Union; regulations relating to voice, data and communications services; regulations relating to conflict minerals; our dependence on third party suppliers for key components of our products; component shortages; rising costs of raw materials and transportation relating to petroleum prices; that we may experience declines in gross margins due to a shift in product sales from CEWs to sensor devices; our ability to manage our growth and increase manufacturing production to meet demand; establishment and expansion of our direct and indirect distribution channels; our ability to pursue sales directly with customers; risks relating to acquisitions and joint ventures; goodwill impairment; catastrophic events; the adverse effects on our operations and financial results from foreign currency fluctuations; fluctuations in our effective tax rate; counter-party risks relating to cash balances held in excess of FDIC insurance limits; employee retention risks; volatility in our stock price; quarterly fluctuations in our operating results; and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2017.

Please visit http://investor.axon.com, https://www.axon.com/press,www.twitter.com/axon_us and https://www.facebook.com/Axon.ProtectLife/ where Axon discloses information about the company, its financial information, and its business.

Visit our Investor Relations Safe Harbor Statement at: http://investor.axon.com/safeHarbor.cfm

For investor relations information please contact Andrea James via email at IR@axon.com.

# # #









AXON ENTERPRISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)

 
Three Months Ended March 31,
 
2018
 
2017 (1)
Net sales from products
$
80,974

 
$
67,491

Net sales from services
20,241

 
11,751

Net sales
101,215

 
79,242

Cost of product sales
32,434

 
27,072

Cost of service sales
4,320

 
3,500

Cost of sales
36,754

 
30,572

Gross margin
64,461

 
48,670

Operating expenses:
 
 
 
Sales, general and administrative
35,759

 
30,857

Research and development
15,119

 
12,463

Total operating expenses
50,878

 
43,320

Income from operations
13,583

 
5,350

Interest and other income, net
1,263

 
206

Income before provision for income taxes
14,846

 
5,556

Provision for income taxes
1,920

 
976

Net income
$
12,926

 
$
4,580

Net income per common and common equivalent shares:
 
 
 
Basic
$
0.24

 
$
0.09

Diluted
$
0.24

 
$
0.09

Weighted average number of common and common equivalent shares outstanding:
 
 
 
Basic
53,119

 
52,418

Diluted
54,532

 
53,677

(1) Amounts for the three months ended March 31, 2017 have not been adjusted under the modified retrospective method of adoption of Topic 606, and are presented consistent with the prior period amounts reported under ASC 605.






AXON ENTERPRISE, INC.
SEGMENT REPORTING
(Unaudited)
(dollars in thousands)

 
Three Months Ended March 31, 2018
 
Three Months Ended March 31, 2017 (1)
 
TASER
Weapons
 
Software and Sensors
 
Total
 
TASER
Weapons
 
Software and Sensors
 
Total
 
 
 
 
 
 
 
 
 
 
 
 
Net sales from products (2)
$
63,524

 
$
17,450

 
$
80,974

 
$
57,671

 
$
9,820

 
$
67,491

Net sales from services (3)

 
20,241

 
20,241

 

 
11,751

 
11,751

Net sales
63,524

 
37,691

 
101,215

 
57,671

 
21,571

 
79,242

Cost of product sales
20,543

 
11,891

 
32,434

 
18,026

 
9,046

 
27,072

Cost of service sales

 
4,320

 
4,320

 

 
3,500

 
3,500

Cost of sales
20,543

 
16,211

 
36,754

 
18,026

 
12,546

 
30,572

Gross margin
42,981

 
21,480

 
64,461

 
39,645

 
9,025

 
48,670

Sales, general and administrative
21,265

 
14,494

 
35,759

 
17,216

 
13,641

 
30,857

Research and development
2,960

 
12,159

 
15,119

 
2,212

 
10,251

 
12,463

Income (loss) from operations
$
18,756

 
$
(5,173
)
 
$
13,583

 
$
20,217

 
$
(14,867
)
 
$
5,350

 
 
 
 
 
 
 
 
 
 
 
 
Gross margin %
67.7
%
 
57.0
 %
 
63.7
%
 
68.7
%
 
41.8
 %
 
61.4
%
Operating margin %
29.5
%
 
(13.7
)%
 
13.4
%
 
35.1
%
 
(68.9
)%
 
6.8
%

(1) Amounts for the three months ended March 31, 2017 have not been adjusted under the modified retrospective method of adoption of Topic 606, and are presented consistent with the prior period amounts reported under ASC 605.

(2) Software and Sensors “products” revenue consists of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as Sensors and Other revenue.

(3) Software and Sensors “services” revenue comprises sales related to the Axon Cloud, which includes Evidence.com, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as Axon Cloud revenue.







AXON ENTERPRISE, INC.
Software and Sensors Bookings by Quarter
(Unaudited)
(in thousands)

 
March 31, 2018
 
December 31, 2017
 
September 30, 2017
 
June 30, 2017
 
March 31, 2017
 
 
 
 
 
 
 
 
 
 
Bookings
$
97,528

 
$
71,154

 
$
77,976

 
$
81,942

 
$
60,080











AXON ENTERPRISE, INC.
UNIT SALES STATISTICS
(Unaudited)
Units in whole numbers

 
Three Months Ended March 31,
 
2018
 
2017
 
Unit Change
 
Percent Change
 
 
 
 
 
 
 
 
TASER X26P
15,720

 
15,361

 
359

 
2.3
 %
TASER X2
20,501

 
17,137

 
3,364

 
19.6

TASER Pulse and Bolt
4,000

 
3,572

 
428

 
12.0

Cartridges
532,952

 
595,986

 
(63,034
)
 
(10.6
)
Axon Body
21,874

 
20,313

 
1,561

 
7.7

Axon Flex
3,693

 
3,101

 
592

 
19.1

Axon Fleet
1,857

 

 
1,857

 
*

Axon Dock
5,844

 
4,875

 
969

 
19.9

TASER Cam
3,528

 
1,339

 
2,189

 
163.5


* Not meaningful







AXON ENTERPRISE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
Dollars in thousands
 
Three Months Ended March 31,
 
2018
 
2017 (1)
EBITDA and adjusted EBITDA:
 
 
 
Net income
$
12,926

 
$
4,580

   Depreciation and amortization
2,411

 
1,604

   Interest expense
20

 
38

   Investment interest income
(75
)
 
(267
)
   Provision for income taxes
1,920

 
976

EBITDA
$
17,202

 
$
6,931

 
 
 
 
Adjustments:
 
 
 
Stock-based compensation expense
$
4,093

 
$
3,447

Net loss on disposal of property and equipment
34

 

Adjusted EBITDA
$
21,329

 
$
10,378

Adjusted EBITDA as a percentage of net sales
21.1
%
 
13.1
%
Net income as a percentage of net sales
12.8
%
 
5.8
%


 
Three Months Ended March 31,
 
2018
 
2017 (1)
Non-GAAP net income:
 
 
 
GAAP net income
$
12,926

 
$
4,580

Plus non-recurring items:
 
 
 
Loss on disposal of property and equipment
34

 

Non-GAAP net income excluding non-recurring items
12,960

 
4,580

Stock-based compensation expense
4,093

 
3,447

Non-GAAP net income
$
17,053

 
$
8,027



 
Three Months Ended March 31,
 
2018
 
2017 (1)
Non-GAAP diluted earnings per share:
 
 
 
GAAP net income
$
0.24

 
$
0.09

Plus non-recurring items:
 
 
 
Loss on disposal of property and equipment

 

Non-GAAP net income excluding non-recurring items
0.24

 
0.09

Stock-based compensation expense
0.08

 
0.05

Non-GAAP diluted earnings per share
$
0.32

 
$
0.14

 
 
 
 
Weighted average number of diluted common and common equivalent shares outstanding
54,069

 
53,173

(1) Amounts for the three months ended March 31, 2017 have not been adjusted under the modified retrospective method of adoption of Topic 606, and are presented consistent with the prior period amounts reported under ASC 605.





AXON ENTERPRISE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
March 31, 2018
 
December 31, 2017
 
(Unaudited)
 
 
ASSETS
Current Assets:
 
 
 
Cash and cash equivalents
$
92,330

 
$
75,105

Short-term investments
4,475

 
6,862

Accounts and notes receivable, net
87,849

 
56,064

Contract assets, net
9,278

 

Inventory
43,104

 
45,465

Prepaid expenses and other current assets
21,934

 
21,696

Total current assets
258,970

 
205,192

 
 
 
 
Property and equipment, net
31,175

 
31,172

Deferred income tax assets, net
14,200

 
15,755

Intangible assets, net
17,496

 
18,823

Goodwill
14,947

 
14,927

Long-term notes receivable, net of current portion
34,624

 
36,877

Other assets
21,573

 
15,366

Total assets
$
392,985

 
$
338,112

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
 
 
 
Accounts payable
$
11,692

 
$
8,592

Accrued liabilities
34,869

 
23,502

Current portion of deferred revenue
76,141

 
70,401

Customer deposits
3,155

 
3,673

Current portion of business acquisition contingent consideration
2,505

 
1,693

Other current liabilities
348

 
89

Total current liabilities
128,710

 
107,950

 
 
 
 
Deferred revenue, net of current portion
58,003

 
54,881

Liability for unrecognized tax benefits
1,810

 
1,706

Long-term deferred compensation
3,804

 
3,859

Business acquisition contingent consideration, net of current portion
201

 
1,048

Other long-term liabilities
934

 
1,224

Total liabilities
193,656

 
170,668

 
 
 
 
Stockholders’ Equity:
 
 
 
Preferred stock

 

Common stock
1

 
1

Additional paid-in capital
202,344

 
201,672

Treasury stock
(155,947
)
 
(155,947
)
Retained earnings
155,105

 
123,185

Accumulated other comprehensive income
(2,174
)
 
(1,467
)
Total stockholders’ equity
199,329

 
167,444

Total liabilities and stockholders’ equity
$
392,985

 
$
338,112







AXON ENTERPRISE, INC.
SELECTED CASH FLOW INFORMATION
(Unaudited)
(in thousands)

 
Three Months Ended March 31,
 
2018
 
2017 (1)
 
 
 
 
Net income
$
12,926

 
$
4,580

Depreciation and amortization
2,411

 
1,604

Stock-based compensation
4,093

 
3,447

Net cash provided by (used in) operating activities
18,770

 
(6,609
)
Net cash provided by investing activities
1,268

 
9,884

Net cash used in financing activities
(3,484
)
 
(1,877
)
Cash, cash equivalents and restricted cash, end of period
94,798

 
41,974

(1) Amounts for the three months ended March 31, 2017 have not been adjusted under the modified retrospective method of adoption of Topic 606, and are presented consistent with the prior period amounts reported under ASC 605.

 
Three Months Ended March 31,
 
2018
 
2017 (1)
 
 
 
 
Net cash provided by (used in) operating activities
$
18,770

 
$
(6,609
)
Purchases of property and equipment
(1,063
)
 
(2,343
)
Purchases of intangible assets
(34
)
 
(95
)
Purchase of property and equipment and intangible assets, including goodwill, in connection with business acquisitions

 
(8,549
)
Free cash flow (deficit), a non-GAAP measure
$
17,673

 
$
(17,596
)


# # #



Exhibit


http://api.tenkwizard.com/cgi/image?quest=1&rid=23&ipage=12237910&doc=4
Operating Metrics (Unaudited)
 
2018
 
2017
 
2016
 
Q1
 
Q4
Q3
Q2
Q1
 
Q4
Q3
Q2
Q1
 
 
 
 
 
 
 
 
 
 
 
 
Axon & Evidence.com Bookings (millions)
$
97.5

 
$
71.2

$
78.0

$
81.9

$
60.1

 
$
72.5

$
57.5

$
72.0

$
52.1

Sequential % Change
37
%
 
-9
 %
-5
 %
36
%
-17
 %
 
26
%
-20
 %
38
%
17
%
 
 
 
 
 
 
 
 
 
 
 
 
Software & Sensors Annual recurring Revenue (millions) (1)
$
83.3

 
$
70.0

$
63.7

$
54.7

$
46.2

 
$
40.2

$
32.0

$
21.1

$
18.1

 
 
 
 
 
 
 
 
 
 
 
 
Future Contracted Revenue (millions) (2)
 
 
$
536.0

$
494.2

$
446.4

$
390.0

 
$
350.8

$
302.0

$
262.8

$
202.3

Sequential % Change
n/a

 
8
 %
11
 %
14
%
11
 %
 
16
%
15
 %
30
%
27
%
 
 
 
 
 
 
 
 
 
 
 
 
Software & Sensors Backlog (3)
$
570.0

 
 
 
 
 
 
 
 
 
 
Sequential % Change
n/a

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Multiple Year Contract % (4)
93
%
 
97
 %
98
 %
97
%
94
 %
 
88
%
89
 %
95
%
95
%
 
 
 
 
 
 
 
 
 
 
 
 
Weapons Op Inc %
30
%
 
32
 %
30
 %
33
%
35
 %
 
36
%
38
 %
33
%
34
%
 
 
 
 
 
 
 
 
 
 
 
 
Evidence.com new seats booked
25,400

 
14,100

18,400

20,600

16,400

 
21,400

15,600

20,200

15,800

 
 
 
 
 
 
 
 
 
 
 
 
Evidence.com cumulative seats booked
226,900

 
201,500

187,400

169,000

148,400

 
132,000

110,600

95,000

74,800

 
 
 
 
 
 
 
 
 
 
 
 
(1) Monthly recurring license, integration, warranty and storage revenue annualized.
 
 
 
 
 
 
 
 
 
 
 
 
(2) Cumulative bookings for Axon and Evidence.com minus cumulative recognized revenue related solely to Axon and Evidence.com
 
(3) This metric replaces our previous disclosure of Future Contracted Revenue and represents recognized contract liabilities as well as amounts that will be invoiced and recognized in future
periods. Backlog is limited only to arrangements that meet definition of a contract under Topic 606 as of March 31, 2018.
 
 
 
 
 
 
 
 
 
 
 
 
(4) For orders booked with Evidence.com seats, the % that signed multiple year contracts.