10-KPeriod: FY2016

AXON ENTERPRISE, INC. Annual Report, Year Ended Dec 31, 2016

Filed March 6, 2017For Securities:AXON

Summary

Axon Enterprise, Inc. (formerly TASER International, Inc.) reported significant growth in its 2016 fiscal year, with net sales increasing by 35.6% to $268.2 million. This growth was driven by strong performance in both its TASER Weapons segment (up 24.8%) and its rapidly expanding Axon segment (up 84.7%). The company highlighted the increasing adoption of its Axon on-officer cameras and Evidence.com platform as key drivers for the Axon segment's success. Despite robust revenue growth, net income saw a slight decrease to $17.3 million from $19.9 million in the prior year, partly due to increased operating expenses, particularly in Sales, General & Administrative (SG&A) and Research & Development (R&D) to support future growth and new product development. The company also reported a significant increase in its backlog to $384.2 million, indicating strong future revenue potential. Financially, Axon ended the year with $40.7 million in cash and cash equivalents. The company's strategic focus remains on expanding its connected platform, aiming for every officer to carry a TASER device, deploy an Axon camera, and be connected to the Axon network. Investments in AI capabilities through acquisitions signal a commitment to innovation and future growth. Investors should note the company's stated intention not to pay dividends and its ongoing investment in growth initiatives, which will likely continue to drive SG&A and R&D expenses.

Financial Highlights

52 data points
Beta

Revenue

$268.25M

63.6% Gross Margin

Net Income

$17.30M

6.4% Net Margin

EPS (Diluted)

$0.32

Total Assets

$278.16M

Cash & Equivalents

$40.65M

Free Cash Flow

$16.18M

Financial Statements
Beta
Revenue$268.25M
Cost of Revenue$97.71M
Gross Profit$170.54M
R&D Expenses$30.61M
SG&A Expenses$108.08M
Operating Expenses$138.69M
Operating Income$31.85M
Net Income$17.30M
EPS (Basic)$0.33
EPS (Diluted)$0.32
Shares Outstanding (Basic)52.67M
Shares Outstanding (Diluted)53.54M

Key Highlights

  • 1Net sales increased by 35.6% to $268.2 million in 2016, driven by strong performance in both TASER Weapons and the rapidly growing Axon segment.
  • 2The Axon segment experienced significant growth of 84.7%, fueled by the adoption of on-officer cameras and the Evidence.com platform.
  • 3Backlog increased substantially to $384.2 million, signaling strong future revenue potential.
  • 4Operating expenses, particularly SG&A and R&D, increased significantly to support growth initiatives and new product development, impacting net income.
  • 5The company is investing in Artificial Intelligence (AI) capabilities through acquisitions to enhance its Axon platform.
  • 6Axon Enterprise does not currently pay dividends and has no intention to do so in the foreseeable future.
  • 7Despite revenue growth, net income decreased slightly to $17.3 million from $19.9 million in the prior year.

Frequently Asked Questions

Axon Enterprise's core business is the development, manufacture, and sale of conducted electrical weapons (CEWs) under the TASER brand and connected wearable on-officer cameras and digital evidence management solutions under the Axon brand. The company's growth strategy is focused on expanding its connected ecosystem, aiming for every law enforcement officer to use its TASER devices, Axon cameras, and be connected to the Axon network. Key initiatives include launching innovative new products, scaling existing offerings, and driving network adoption globally.

In fiscal year 2016, Axon Enterprise reported a significant increase in net sales, reaching $268.2 million, a 35.6% rise from the previous year. This growth was robust across both segments, with the TASER Weapons segment up 24.8% and the Axon segment showing exceptional growth of 84.7%. However, net income slightly decreased to $17.3 million from $19.9 million in 2015, largely due to increased operating expenses in sales, general, and administrative (SG&A) functions, as well as research and development (R&D) investments to support future growth and product innovation.

Key risks identified include significant dependence on law enforcement market acceptance of its products, the potential for delays or slow adoption of its Evidence.com SaaS model, risks associated with rapid technological change and competition, and the potential for product defects. The company also faces risks related to data security breaches, interruptions in cloud storage services, government budgetary constraints, lengthy sales cycles, and potential liability from product use. Management also noted material weaknesses in internal controls over financial reporting, primarily related to revenue recognition and deferred revenue reporting, which they are actively working to remediate.

Axon Enterprise emphasizes R&D as a foundation for long-term growth, with a significant portion of its operating expenses dedicated to this area. In 2016, R&D expenses increased by 29.6% to $30.6 million. The company is actively investing in next-generation technology, including the formation of an 'Axon AI' group through acquisitions of proprietary technology and teams focused on computer vision and deep learning. This strategic focus on AI aims to improve the analysis of video and audio data, making it more searchable and insightful for public safety customers.