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Axon Reports Record Revenue of $131 million; Axon Cloud Grows 42%; Raising Full-Year Revenue Outlook to $500-$510 million

07 Nov 2019

SCOTTSDALE, Ariz., Nov. 7, 2019 /PRNewswire/ -- Axon (Nasdaq: AAXN), the global leader in connected public safety technologies, today released the following quarterly update letter to shareholders.

TASER's Axon brand includes a growing suite of connected products and services from body cameras and digital evidence management tools to mobiles apps.

Dear Shareholders,

Since our August update, we executed on a series of objectives across our product, people, and adjacent markets, and we feel as confident as ever in our strategy and trajectory. We set and delivered on several large goals thus far in 2019 — all with the purpose of driving adoption of our growing software platform, transforming Axon into the leading technology provider for public safety, and serving our ultimate goal of creating safer communities and protecting life.

Importantly, we continue to make substantial progress driving long-term subscriptions. Customers have been rapidly adopting our best-value plans to gain access to more of the Axon network, building upon our historical strength with TASER device and body camera solution subscriptions. Our highest value tiered integrated bundle, for example, of $199 per officer per month over five years, known as the Officer Safety Plan, includes access to a wide range of benefits including TASER 7, Axon Body 3, and a host of cloud services including Axon Records. In Q3 2019, about a third of our total quarterly bookings, which average about five years per contract, were tied to some version of the Officer Safety Plan.

We are thrilled to be approaching year end with a strong market position and powerful operating platform that will support the next several years of revenue and profit growth.

Product

We have a number of positive updates across our product portfolio.

After completing carrier certification with AT&T FirstNet Ready™ and Verizon Responder Private Core, we began shipping Axon Body 3, our latest generation camera, in September, as planned. Axon Body 3's cellular communication, wireless data, and geolocation capabilities are poised to revolutionize public safety workflows. And because the majority of our body camera customers are on a multi-year subscription, we expect the majority of our customer base to automatically upgrade to Axon Body 3 over the next three years as we build upon our unmatched, rapidly growing network of cloud-connected cameras and other devices. The portion of agencies choosing to activate the LTE connectivity built into every Axon Body 3 camera is exceeding our expectations and we continue to drive that forward in support of our future vision, where cameras use real-time signals and AI to automate transcription and automatically feed information into Axon Records.

Axon Records also achieved a critical milestone in September when the Fresno Police Department went live with a full agency-wide Records Management System (RMS) deployment using our cloud subscription service. Cincinnati Police Department has also started using Axon Records for several critical workloads, including use-of-force reporting, and will continue to deploy additional modules throughout 2020 and beyond as part of an agency-wide RMS upgrade to our service. Fresno and Cincinnati PDs are positive reference customers for Axon as we sign new customers and enhance Axon Records' capabilities over time. As a reminder, Axon Records intends to disrupt the law enforcement software category known as Records Management Systems, or RMS, which powers the workloads for writing, storing, managing and sharing official police incident reports. Axon's strategic advantages in this category include our growing network of cloud-connected sensors and our industry-leading cloud SaaS platform, Axon Evidence (Evidence.com), which today is one of the world's largest repositories of data of any type. Cincinnati PD Police Chief Eliot Isaac said, "We are seeing exceptional benefits with how body camera footage can be directly embedded in our use-of-force, officer accident, citizen complaint and other internal reports."

We are continuing to make progress against our TASER 7 gross margin road map. We are finalizing our new cartridge design that will significantly reduce our bill of materials on the TASER 7 cartridge and we are already seeing cost improvements.

And finally, we are especially proud of our corporate social responsibility and environmental, social and corporate governance (ESG)efforts regarding Axon Fleet 3, our next-generation in-car video system, and automated license plate recognition (ALPR) technology, which is still under development. ALPR is an important tool for keeping communities safe, as it can help apprehend criminals, find missing children, and recover stolen vehicles — but the existing state of the industry lacks privacy safeguards and thought leadership regarding data retention and data ownership. Axon is leveraging the power of AI to significantly reduce the cost of ALPR systems, making it affordable for every patrol. We are simultaneously addressing industry shortcomings to improve data security, transparency and privacy, and creating an ethical framework to help prevent misuse. Taking a thoughtful approach to issues around AI use in policing, and incorporating guidelines created by Axon's AI and Policing Technology Ethics Board, creates greater long-term value for all our stakeholders: our communities, our customers, and shareholders.

People

Among the most important elements of Axon's success is our people and culture. We have more than 1,500 dedicated employees, a deep management bench and a best-in-class Board of Directors who all bring passion to the business every day. In recent months we have further strengthened our team with additions to both management and the Board.

In August, Caitlin Kalinowski joined Axon's Board of Directors, expanding the total number of independent directors to seven. Caitlin is the Head of VR Hardware for the Augmented Reality/Virtual Reality division at Facebook and a recognized leader in virtual reality and product design. She is responsible for the product design and engineering of Oculus's award-winning VR devices, has led technical teams at Apple for the Mac Pro and MacBook Air, and was part of the original Unibody MacBook Pro team. She is already bringing her considerable hardware expertise to discussions with our product teams, and providing input on our VR-based officer training platform. We are thrilled to have her as a member of our Board.

In September, Jeff Kunins was appointed Chief Product Officer and Executive Vice President of Software, and is responsible for running our global software hub in Seattle. Jeff was most recently with Amazon, where he was Vice President of Alexa Entertainment and led Alexa's global experience, developer platform, and strategic partnerships for music, video, and podcasts across over 100 million Alexa-enabled devices. He has also served in diverse roles including VP of Kindle's global reading experience at Amazon, General Manager of Product and Design at Skype and General Manager of Windows Live Messenger at Microsoft. Jeff is leading Axon's effort to bring to public safety the product experience that consumers have come to expect, and to do so in a way that creates long-term value for our customers, the communities they protect, and Axon. We are thrilled to have him join our executive team.

Adjacent Markets

In Q3, the US Forest Service became the first federal agency to outfit all of its officers with TASER devices and body cameras, backed by Axon Evidence. This win was a direct result of Axon's decision a few years ago to make an investment to obtain FedRAMP certification, which would allow federal government customers to store data in our cloud. Since achieving certification in April, we began making more of a concerted effort to capture the federal law enforcement market, which employs more than 120,000 full-time civilian law enforcement officers across dozens of agencies, the largest of which are the Department of Homeland Security and the Department of Justice.

In October, Canada's York Regional Police, a major Canadian agency, joined the Axon network with the adoption of the Axon Fleet 2 in-car video system. The agency also purchased 6x more software licenses than camera hardware licenses, showcasing that customers see value in our standalone cloud services. The York Regional Police represent our second international Axon Fleet customer, after a UK agency adopted Axon Fleet in June.

Lastly, we are beginning to see positive momentum in the prisons and corrections market, with trials of Axon's body camera and TASER devices leading to significant reductions in staff assaults, use-of-force incidents, and excessive force complaints. The corrections market is adjacent to law enforcement and one that we believe Axon can capture with minimal additional R&D investment. In the US, there are about 430,000 correctional officers and about 92,000 probation and parole officers, and we estimate that TASER device penetration among these officers is minimal, while body camera penetration is nearly zero.

We have tended to be conservative in sizing and discussing our $8.4 billion total addressable market, which excludes opportunities in US federal law enforcement, international Axon Fleet, and prisons and corrections. These early proof points suggest that our annual total addressable market is likely much larger.

Summary of Q3 2019 Results

  • Revenue of $131 million represents 25% year-over-year growth, and reflects strength across both our TASER and Software and Sensors segments. Drivers of sequential revenue growth (up 16%) were primarily TASER 7 unit shipments, international demand for Axon Cloud services, increased demand for our legacy TASER devices, and growth of Axon Fleet in-car video systems.
  • Gross margin of 61.3% increased from 58.3% in Q2 2019, driven by strength across the business.
  • Operating expenses of $74 million include approximately $4.4 million of incremental "catch up" stock-based compensation expense and reflect ongoing cost discipline, which drove operating leverage in the quarter.
    • Specifically, SG&A included $4.0 million and R&D included $0.4 million of stock-based compensation expense for the third tranche of our CEO Performance Award and eXponential Stock Performance Plan ("XSPP") for which the third performance goal became probable of attainment during Q3 2019.
  • GAAP EPS was $0.10; Non-GAAP EPS of $0.28 excludes non-cash stock-based compensation expense and an impairment charge.
    • GAAP EPS includes the $4.4 million of "catch-up" stock-based compensation expense referred to above. For more details about Axon's innovative stock-based compensation plans, which were approved by shareholders and align the interests of management and employees with shareholders, please see our online FAQ.
  • Adjusted EBITDA was a record $24 million.
  • Cash and investments grew $16.5 million sequentially to approximately $353 million. Axon's strong balance sheet, with zero debt, provides us with the latitude to continue growing our subscription contracts as a percentage of revenue.

Financial commentary by segment

TASER


Three Months Ended


Change


September 30,
2019


June 30, 2019


September 30,
2018


QoQ


YoY


(in thousands)





Net sales

$

71,743



$

60,572



$

63,666



18.4

%


12.7

%

Gross margin

63.1

%


59.9

%


69.8

%


320bp


-670bp



















 

  • TASER revenue of $72 million reflected strong sales of the TASER 7, including the unmet demand at the end of the second quarter, as well as strength in our legacy product lines.
  • TASER gross margin of 63.1% increased sequentially from 59.9% in Q2 2019.
    • TASER segment sequential gross margin improvement was driven by higher fixed cost absorption due to increased unit shipment volumes, increased contribution from subscription revenue tied to TASER-related cloud software and subscription cartridges, lower build costs associated with the TASER 7 cartridge as well as an improvement in TASER 7 scrap costs. Gross margin strength was partially offset by hardware shipment mix.

Software and Sensors


Three Months Ended


Change


September 30,
2019


June 30, 2019


September 30,
2018


QoQ


YoY


(in thousands)





Axon Cloud net sales

$

34,021



$

31,822



$

23,913



6.9

%


42.3

%

Axon Cloud gross margin

75.8

%


73.0

%


73.9

%


280bp


190bp











Sensors and Other net sales

$

25,073



$

19,968



$

17,257



25.6

%


45.3

%

Sensors and Other gross margin

36.4

%


30.1

%


20.6

%


630bp


1580bp

 

  • Continued demand for our software offerings drove 42% year-over-year growth in Axon Cloud revenue to $34 million.
  • Axon Cloud gross margin of 75.8% increased year over year and sequentially due to a lower mix of professional services costs and optimized cloud costs. The software-only revenue in this segment, which includes cloud storage and compute costs, has consistently carried a gross margin above 80%.
  • Sensors and Other revenue, which largely consists of product hardware, grew 45% year over year to $25 million, with strength driven by initial Axon Body 3 hardware shipments, favorable pricing on Axon Body 2 hardware, and strength in Axon Fleet in-car video system.
  • Sensors and Other gross margin of 36.4% was strong due to mix. As a reminder, we manage toward a 25% gross margin for camera and sensors hardware.

Forward-Looking Performance Indicators:


September 30,
2019


June 30, 2019


March 31, 2019


December 31,
2018


September 30,
2018


($ in thousands)

Annual recurring revenue (1)

$

141,540



$

129,452



$

122,276



$

108,496



$

101,618


Cumulative Axon software seats booked

428,600



397,800



371,100



347,200



325,200


Percentage of TASER devices sold on a recurring payment plan

55

%


60

%


42

%


35

%


33

%

Software and Sensors bookings

$

128,208



$

142,004



$

76,391



$

109,779



$

92,895


Total company future contracted revenue

$

1,130,000



$

1,050,000



$

930,000



$

900,000



$

820,000


(1) Monthly recurring license, integration, warranty, and storage revenue annualized.

 

  • Annual recurring revenue grew 39% year over year to approximately $142 million and reflects only that portion of 428,600 booked seats that is already online and contributing to revenue.
  • Software and Sensors bookings of $128 million reflects strong demand for our Officer Safety Plan integrated bundled offerings, which represented about 38% of Software and Sensors bookings in the quarter.
  • We have substantially moved the needle on driving TASER subscription bundles in the past year. Approximately 55% of all weapons sold in Q3 were on a recurring payment plan, compared with 33% a year ago. In the United States, recurring payment plans accounted for 64% of new TASER contracts, with TASER 7 contracts driving subscriptions. This represents significant progress on transitioning the TASER business to a subscription model.
  • Total company future contracted revenue was $1.13 billion. The $1.13 billion shown is limited to revenue from arrangements that meet the definition of a contract under Topic 606 as of September 30, 2019. We expect to recognize between 15% to 20% of this balance over the next 12 months and generally expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Outlook

Axon Body 3's successful manufacturing ramp and on-plan Q3 ship date supports our upwardly revised full year revenue guidance.

  • We are raising our annual revenue outlook range to $500 million-$510 million, from $485 million-$495 million;
  • We are reiterating our expectations for annual Adjusted EBITDA of $80 million-$85 million;
    • We expect Adjusted EBITDA margin to improve sequentially in Q4 2019 driven by leverage on operating expenses, partially offset by gross margin pressure due to increased hardware mix.
    • The expected strength of Axon Body 3 and TASER 7 cartridge shipments will result in an increased mix of lower margin hardware revenue in Q4 2019. We expect to continue driving opportunities to layer in more cloud services, which will increase our mix of higher margin software revenue over time.
  • We expect stock-based compensation expenses to be approximately $41 million for the full year, which is subject to change depending on our assessment of the probability of attaining operational metrics for the CEO Performance Award and XSPP awards, and the expected timing of such attainment; and
  • We expect 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.

Axon is developing products that serve law enforcement and public safety professionals, who are present in some of the most significant moments in people's lives. This means that ultimately our products serve the communities and people whom our customers protect. We take our public mission seriously and believe our business is well-positioned to continue serving our customers and communities while creating long-term value for our shareholders.

Signed,

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

Quarterly conference call and Webcast

We will host our Q3 2019 earnings conference call on November 7 at 2 p.m. PT / 5 p.m. ET.

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

Statistical Definitions

Software and Sensors bookings are an indication of the activity the Company is seeing relative to Software and Sensors hardware, software and Axon Evidence. 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, inclusive of renewals, 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 EBITDA, Adjusted EBITDA, Non-GAAP Net Income, Non-GAAP Diluted Earnings Per Share and Free Cash Flow. The Company's 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 its performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented herein.

  • EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation and amortization.
  • Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation, amortization, non-cash stock-based compensation expense and pre-tax certain other items (described below).
  • Non-GAAP Net Income (Most comparable GAAP Measure: Net income) - Net income excluding the costs of non-cash stock-based compensation and excluding pre-tax certain other items, including, but not limited to, net gain/loss/write-down/disposal/abandonment of property, equipment and intangible assets; loss on impairment; and costs related to business acquisitions. The Company tax-effects non-GAAP adjustments using the blended statutory federal and state tax rates for each period presented.
  • Non-GAAP Diluted Earnings Per Share (Most comparable GAAP Measure: Earnings Per share) - Measure of Company's Non-GAAP Net Income divided by the weighted average number of diluted common shares outstanding during the period presented.
  • Free Cash Flow (Most comparable GAAP Measure: Cash flow from operating activities) - cash flows provided by operating activities minus purchases of property and equipment, intangible assets and cash flows related to business acquisitions.

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 or 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

Axon is a network of devices, apps and people that helps public safety personnel become smarter and safer. With a mission of protecting life, our technologies give customers the confidence, focus and time they need to keep their communities safe. Our products impact every aspect of a public safety officer's day-to-day experience.

We work hard for those who put themselves in harm's way for all of us. More than 224,000 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.

Alexa is a trademark of Amazon; AT&T is a trademark of AT&T Intellectual Property; Facebook is a trademark of Facebook, Inc.; FirstNet Ready is a trademark of the US Department of Commerce; MacBook Air and MacBook Pro are trademarks of Apple Inc.; Oculus Pro and Oculus Rift are trademarks of Facebook Technologies, LLC; Skype and Windows are trademarks of Microsoft Corporation; Twitter is a trademark of Twitter, Inc.; and Verizon is a trademark of Verizon Trademark Services LLC.

Axon, Axon Records, Evidence.com, Fleet, TASER, TASER 7 and the Delta Logo 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:

Forward-looking statements

These forward-looking statements include, without limitation, statements regarding: proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; expectations about customer behavior; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management's strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Form 10-K for the year ended December 31, 2018. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as "may," "will," "should," "could," "would," "predict," "potential," "continue," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate," and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The following important factors could cause actual results to differ materially from those in the forward-looking statements: customer purchase behavior, including adoption of our software as a service delivery model; the impact of product mix on projected gross margins; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; changes in the costs of product components and labor; defects in our products; delayed cash collections and possible credit losses due to our subscription model; exposure to international operational risks; our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; loss of customer data, a breach of security or an extended outage, including our reliance on third party cloud-based storage providers; negative media publicity regarding our products; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our product by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and to evolving regulations surrounding privacy and data protection; our ability to integrate acquired businesses; our ability to attract and retain key personnel; and counter-party risks relating to cash balances held in excess of FDIC insurance limits. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. Our Annual Report on Form 10-K lists various important factors that could cause actual results to differ materially from expected and historical results. These factors are intended as cautionary statements for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Readers can find them under the heading "Risk Factors" in the Annual Report on Form 10-K and in the Quarterly Report on Form 10-Q, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the SEC.

Please visit https://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.

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

CONTACT:
Investor Relations
Axon Enterprise, Inc.
IR@axon.com

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



Three Months Ended


Nine Months Ended September 30,


September 30,
2019


June 30, 2019


September 30,
2018


2019


2018

Net sales from products

$

96,497



$

80,391



$

80,923



$

264,977



$

238,618


Net sales from services

34,340



31,971



23,913



94,032



66,659


Net sales

130,837



112,362



104,836



359,009



305,277


Cost of product sales

42,445



38,220



32,953



120,265



96,474


Cost of service sales

8,223



8,582



6,250



24,098



15,566


Cost of sales

50,668



46,802



39,203



144,363



112,040


Gross margin

80,169



65,560



65,633



214,646



193,237


Operating expenses:










Sales, general and administrative

48,424



43,362



39,685



134,678



114,787


Research and development

25,129



23,493



21,982



71,976



55,602


Total operating expenses

73,553



66,855



61,667



206,654



170,389


Income from operations

6,616



(1,295)



3,966



7,992



22,848


Interest and other income (expense), net

1,820



1,845



1,274



5,978



2,242


Income before provision for income taxes

8,436



550



5,240



13,970



25,090


Provision for (benefit from) income taxes

2,332



(188)



(471)



709



(2,032)


Net income

$

6,104



$

738



$

5,711



$

13,261



$

27,122


Net income per common and common equivalent shares:










Basic

$

0.10



$

0.01



$

0.10



$

0.22



$

0.49


Diluted

$

0.10



$

0.01



$

0.10



$

0.22



$

0.47


Weighted average number of common and common equivalent shares outstanding:










Basic

59,278



59,187



58,340



59,128



55,681


Diluted

60,059



60,000



59,805



59,938



57,254


 


AXON ENTERPRISE, INC.

SEGMENT REPORTING

(Unaudited)

(dollars in thousands)



Three Months Ended September 30, 2019


Three Months Ended June 30, 2019


Three Months Ended September 30, 2018


TASER


Software
and Sensors


Total


TASER


Software
and Sensors


Total


TASER


Software
and Sensors


Total

Net sales from products (1)

$

71,424



$

25,073



$

96,497



$

60,423



$

19,968



$

80,391



$

63,666



$

17,257



$

80,923


Net sales from services (2)

319



34,021



34,340



149



31,822



31,971





23,913



23,913


Net sales

71,743



59,094



130,837



60,572



51,790



112,362



63,666



41,170



104,836


Cost of product sales

26,504



15,941



42,445



24,262



13,958



38,220



19,256



13,697



32,953


Cost of service sales



8,223



8,223





8,582



8,582





6,250



6,250


Cost of sales

26,504



24,164



50,668



24,262



22,540



46,802



19,256



19,947



39,203


Gross margin

45,239



34,930



80,169



36,310



29,250



65,560



44,410



21,223



65,633


Gross margin %

63.1

%


59.1

%


61.3

%


59.9

%


56.5

%


58.3

%


69.8

%


51.5

%


62.6

%



















Research and development

3,485



21,644



25,129



3,087



20,406



23,493



4,837



17,145



21,982


 

 


Nine Months Ended September 30, 2019


Nine Months Ended September 30, 2018


TASER


Software and
Sensors


Total


TASER


Software and
Sensors


Total

Net sales from products (1)

$

197,148



$

67,829



$

264,977



$

187,814



$

50,804



$

238,618


Net sales from services (2)

558



93,474



94,032





66,659



66,659


Net sales

197,706



161,303



359,009



187,814



117,463



305,277


Cost of product sales

74,044



46,221



120,265



57,480



38,994



96,474


Cost of service sales



24,098



24,098





15,566



15,566


Cost of sales

74,044



70,319



144,363



57,480



54,560



112,040


Gross margin

123,662



90,984



214,646



130,334



62,903



193,237


Gross margin %

62.5

%


56.4

%


59.8

%


69.4

%


53.6

%


63.3

%













Research and development

10,284



61,692



71,976



11,816



43,786



55,602



(1) 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.


(2) Software and Sensors "services" revenue comprises sales related to the Axon Cloud, which includes Axon Evidence, 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. TASER "services" revenue similarly includes amounts for Axon Evidence and related professional services.

 


AXON ENTERPRISE, INC.

UNIT SALES STATISTICS

(Unaudited)

Units in whole numbers



Three Months Ended September 30,


Nine Months Ended September 30,


2019


2018


Unit
Change


Percent
Change


2019


2018


Unit
Change


Percent
Change

















TASER 7

17,674





17,674



*



34,644





34,644



*


TASER X26P

10,766



18,842



(8,076)



(42.9)



35,244



53,226



(17,982)



(33.8)


TASER X2

9,819



16,729



(6,910)



(41.3)



29,439



52,767



(23,328)



(44.2)


TASER Pulse and Bolt

3,923



3,750



173



4.6



8,807



10,908



(2,101)



(19.3)


Cartridges

566,347



598,119



(31,772)



(5.3)



1,789,084



1,742,207



46,877



2.7


Axon Body

22,037



17,622



4,415



25.1



68,231



59,798



8,433



14.1


Axon Flex

5,409



3,487



1,922



55.1



12,508



10,461



2,047



19.6


Axon Fleet

2,967



1,601



1,366



85.3



7,143



5,537



1,606



29.0


Axon Dock

3,724



3,525



199



5.6



12,126



13,903



(1,777)



(12.8)


TASER Cam

899



1,339



(440)



(32.9)



4,356



6,358



(2,002)



(31.5)



* Not meaningful

 


AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

Dollars in thousands



Three Months Ended


Nine Months Ended


September 30,
2019


June 30, 2019


September 30,
2018


September 30,
2019


September 30,
2018

EBITDA and Adjusted EBITDA:










Net income

$

6,104



$

738



$

5,711



$

13,261



$

27,122


Depreciation and amortization

2,709



2,687



3,065



8,196



8,226


Interest expense

4



17



16



27



53


Investment interest income

(1,647)



(1,630)



(1,256)



(5,280)



(1,926)


Provision for (benefit from) income taxes

2,332



(188)



(471)



709



(2,032)


EBITDA

$

9,502



$

1,624



$

7,065



$

16,913



$

31,443












Adjustments:










Stock-based compensation expense

$

13,663



$

8,627



$

6,255



$

30,195



$

15,302


Transaction costs and adjustments related to business acquisition









1,382


Loss on disposal and abandonment of intangible assets

33





2,049



51



2,103


Loss on disposal, abandonment, and impairment of property and equipment, net

845



1,321



137



2,408



290


Adjusted EBITDA

$

24,043



$

11,572



$

15,506



$

49,567



$

50,520


Net income as a percentage of net sales

4.7

%


0.7

%


5.4

%


3.7

%


8.9

%

Adjusted EBITDA as a percentage of net sales

18.4

%


10.3

%


14.8

%


13.8

%


16.5

%





















Stock-based compensation expense:









Cost of product and service sales

$

312



$

237



$

93



$

775



$

359


Sales, general and administrative

9,508



4,941



3,748



19,130



8,783


Research and development

3,843



3,449



2,414



10,290



6,160


Total

$

13,663



$

8,627



$

6,255



$

30,195



$

15,302


 

AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - continued

(Unaudited)

Dollars in thousands, except per-share amounts



Three Months Ended


Nine Months Ended September 30,


September 30,
2019


June 30, 2019


September 30,
2018


2019


2018

Non-GAAP net income:










GAAP net income

$

6,104



$

738



$

5,711



$

13,261



$

27,122


Non-GAAP adjustments:










Stock-based compensation expense

13,663



8,627



6,255



30,195



15,302


Loss on disposal and abandonment of intangible assets

33





2,049



51



2,103


Loss on disposal, abandonment, and impairment of property and equipment, net

845



1,321



137



2,408



290


Transaction costs and adjustments related to business acquisition









1,382


Income tax effects

(3,654)



(2,517)



(2,048)



(8,205)



(4,629)


Income tax benefit of CEO stock option exercise









(3,362)


Non-GAAP net income

$

16,991



$

8,169



$

12,104



$

37,710



$

38,208


 


Three Months Ended


Nine Months Ended September 30,


September 30,
2019


June 30, 2019


September 30,
2018


2019


2018

Non-GAAP diluted earnings per share:










GAAP diluted earnings per share

$

0.10



$

0.01



$

0.10



$

0.22



$

0.47


Non-GAAP adjustments:










Stock-based compensation expense

0.23



0.14



0.10



0.50



0.27


Loss on disposal and abandonment of intangible assets





0.03





0.04


Loss on disposal, abandonment, and impairment of property and equipment, net

0.01



0.02





0.04



0.01


Transaction costs and adjustments related to business acquisition









0.02


Income tax effects

(0.06)



(0.04)



(0.03)



(0.14)



(0.08)


Income tax benefit of CEO stock option exercise









(0.06)


Non-GAAP diluted earnings per share (1)

$

0.28



$

0.14



$

0.20



$

0.63



$

0.67












Weighted average number of diluted common and common equivalent shares outstanding (in thousands)

60,059



60,000



59,805



59,938



57,254



(1)  The per share calculations for GAAP net income, Non-GAAP adjustments and Non-GAAP diluted earnings per share are each computed independently. Per share amounts may not sum due to rounding.

 


AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



September 30, 2019


December 31, 2018


(Unaudited)



ASSETS

Current Assets:




Cash and cash equivalents

$

202,551



$

349,462


Short-term investments

108,913




Accounts and notes receivable, net

149,013



130,579


Contract assets, net

33,602



13,960


Inventory

40,666



33,763


Prepaid expenses and other current assets

41,277



30,391


Total current assets

576,022



558,155






Property and equipment, net

42,592



37,893


Deferred income tax assets, net

23,290



19,347


Intangible assets, net

13,528



15,935


Goodwill

24,876



24,981


Long-term investments

41,391




Long-term notes receivable, net of current portion

33,463



40,230


Other assets

37,142



22,999


Total assets

$

792,304



$

719,540






LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:




Accounts payable

$

14,638



$

15,164


Accrued liabilities

35,745



41,092


Current portion of deferred revenue

127,160



107,016


Customer deposits

2,294



2,702


Other current liabilities

3,997



37


Total current liabilities

183,834



166,011






Deferred revenue, net of current portion

82,149



74,417


Liability for unrecognized tax benefits

3,443



2,849


Long-term deferred compensation

3,694



3,235


Other long-term liabilities

11,537



5,704


Total liabilities

284,657



252,216






Stockholders' Equity:




Preferred stock




Common stock

1



1


Additional paid-in capital

480,747



453,400


Treasury stock

(155,947)



(155,947)


Retained earnings

184,644



171,383


Accumulated other comprehensive loss

(1,798)



(1,513)


Total stockholders' equity

507,647



467,324


Total liabilities and stockholders' equity

$

792,304



$

719,540



 

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



Three Months Ended


Nine Months Ended September 30,


September 30,
2019


June 30, 2019


September 30,
2018


2019


2018

Cash flows from operating activities:










Net income

$

6,104



$

738



$

5,711



$

13,261



$

27,122


Adjustments to reconcile net income to net cash provided by operating activities:










Depreciation and amortization

2,709



2,687



3,065



8,196



8,226


Loss on disposal and abandonment of intangible assets

33





2,049



51



2,103


Loss (gain) on disposal and impairment of property and equipment, net

845



1,321



137



2,408



290


Stock-based compensation

13,663



8,627



6,255



30,195



15,302


Deferred income taxes

(2,635)



(1,888)



(2,268)



(3,946)



(2,326)


Unrecognized tax benefits

(19)



306



(113)



594



99


Other noncash, net

1,101



926



4



2,923



34


Change in assets and liabilities:










Accounts and notes receivable and contract assets

(19,491)



10,988



(26,381)



(30,497)



(51,172)


Inventory

1,213



(3,579)



4,525



(6,302)



9,033


Prepaid expenses and other assets

(6,206)



(2,609)



(4,652)



(11,967)



(12,081)


Accounts payable, accrued liabilities and other liabilities

3,224



(9,468)



6,994



(13,528)



4,306


Deferred revenue

21,899



3,345



21,204



28,476



31,700


Net cash provided by operating activities

22,440



11,394



16,530



19,864



32,636


Cash flows from investing activities:










Purchases of investments

(100,701)



(36,670)





(242,693)



(4,331)


Proceeds from call / maturity of investments

66,888



25,319



3,620



92,207



10,658


Purchases of property and equipment

(4,250)



(2,590)



(2,215)



(12,111)



(6,880)


Purchases of intangible assets

16



(182)



(206)



(328)



(460)


Business acquisitions, net of cash acquired





24





(4,990)


Net cash provided by (used in) investing activities

(38,047)



(14,123)



1,223



(162,925)



(6,003)


Cash flows from financing activities:










Net proceeds from equity offering









233,993


Proceeds from options exercised

2



4



127



106



713


Income and payroll tax payments for net-settled stock awards

(1,136)



(873)



(1,166)



(3,268)



(11,973)


Payment of contingent consideration for business acquisitions









(575)


Net cash provided by (used in) financing activities

(1,134)



(869)



(1,039)



(3,162)



222,158


Effect of exchange rate changes on cash and cash equivalents

(426)



(319)



157



(678)



(381)


Net increase (decrease) in cash and cash equivalents and restricted cash

(17,167)



(3,917)



16,871



(146,901)



248,410


Cash and cash equivalents, beginning of period

221,293



225,210



309,977



351,027



78,438


Cash and cash equivalents, end of period

$

204,126



$

221,293



$

326,848



$

204,126



$

326,848


 

 AXON ENTERPRISE, INC.

SUPPLEMENTAL CASH FLOW INFORMATION

(Unaudited)

(in thousands)



September 30,
2019


June 30, 2019


September 30,
2018


September 30,
2019


September 30,
2018











Cash and cash equivalents

$

202,551



$

219,720



$

324,371



$

202,551



$

324,371


Restricted cash

1,575



1,573



2,477



1,575



2,477


Cash, cash equivalents and restricted cash, end of period

$

204,126



$

221,293



$

326,848



$

204,126



$

326,848


 


Three Months Ended


Nine Months Ended September 30,


September 30,
2019


June 30, 2019


September 30,
2018


2019


2018











Net cash provided by operating activities

$

22,440



$

11,394



$

16,530



$

19,864



$

32,636


Purchases of property and equipment

(4,250)



(2,590)



(2,215)



(12,111)



(6,880)


Purchases of intangible assets

16



(182)



(206)



(328)



(460)


Cash flows related to business acquisitions





24





(4,990)


Free cash flow, a non-GAAP measure

$

18,206



$

8,622



$

14,133



$

7,425



$

20,306


 

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SOURCE Axon

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