01—Abstract
Summary
Summary of the 10-K filed March 1, 2018. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. reported robust top-line growth in 2017, with net sales increasing by 28.2% to $343.8 milliona.
This growth was driven by both its established TASER Weapons segment, which saw a 15.7%b increase in net sales, and its rapidly expanding Software and Sensors segment, which experienced a significant 66.6% surge in net sales. The company's strategic focus on its integrated ecosystem of devices, apps, and cloud services for law enforcement and public safety appears to be paying off. The substantial investment in R&D, particularly in AI and new sensor technologies, positions Axon for future innovation.
However, investors should note the decline in net income and a decrease in gross margin percentage in 2017, primarily attributed to increased R&D spending and higher costs within the Software and Sensors segment, including data migration expenses and hardware discounting. Additionally, the company is addressing a material weakness in internal controls related to its UK subsidiary, which is being remediated.
02—Key points
Key Highlights
- Net sales grew by 28.2% to $343.8 million in 2017, driven by strong performance in both TASER Weapons and Software and Sensors segments.
- The Software and Sensors segment demonstrated impressive growth, with net sales increasing by 66.6% to $109.3 million, indicating strong market adoption of Axon's connected solutions.
- Investment in Research & Development significantly increased by 80.9% to $55.4 million, reflecting a strategic focus on innovation and new product development, particularly in AI.
- Gross margin as a percentage of net sales decreased to 60.2% in 2017 from 63.6% in 2016, primarily due to hardware discounting and increased costs in the Software and Sensors segment.
- Net income saw a significant decline, falling to $5.2 million in 2017 from $17.3 million in 2016, impacted by increased operating expenses, particularly R&D.
- The company reported a substantial increase in backlog to $582.7 million as of December 31, 2017, signaling strong future revenue potential, especially in the Software and Sensors segment.
- A material weakness in internal controls over financial reporting was identified concerning the UK subsidiary, Axon Public Safety U.K. Ltd., with remediation efforts underway.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2017, Axon Enterprise, Inc. kept $0.02.
- Revenue$343.8M100.0%
- Cost of revenue−$136.7M39.8%
- Gross profit$207.1M60.2%
- Operating costs−$194.1M56.4%
- Operating income$13.0M3.8%
- Interest, other & tax−$7.8M2.3%
- Net income$5.2M1.5%
Where FY2017 revenue went
$343.8M- SG&A: $138.7M, 40% of revenue
- Cost of revenue: $136.7M, 40% of revenue
- R&D: $55.4M, 16% of revenue
- Net income: $5.2M, 1.5% of revenue
- Interest, other & tax: $7.8M, 2.3% of revenue
Kept 1.5% as net incomeNet income $5.2M · 1.5%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2017filed March 1, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $343.80M$268.25M | +28.2% |
| Cost of Revenue | $136.71M$97.71M | +39.9% |
| Gross Profit | $207.09M$170.54M | +21.4% |
| R&D Expenses | $55.37M$30.61M | +80.9% |
| SG&A Expenses | $138.69M$108.08M | +28.3% |
| Operating Expenses | $194.06M$138.69M | +39.9% |
| Operating Income | $13.02M$31.85M | −59.1% |
| Net Income | $5.21M$17.30M | −69.9% |
| EPS (Basic) | $0.10$0.33 | −69.7% |
| EPS (Diluted) | $0.10$0.32 | −68.7% |
| Shares Outstanding (Basic) | 52.73M52.67M | +0.1% |
| Shares Outstanding (Diluted) | 53.90M53.54M | +0.7% |
05—Questions
Frequently Asked Questions
What were the main drivers of Axon's revenue growth in 2017?
Axon's revenue growth in 2017 was driven by strong performance across both its segments. The TASER Weapons segment saw an increase of 15.7% due to higher sales of TASER X2 and increased cartridge sales. The Software and Sensors segment experienced a more substantial growth of 66.6%, fueled by the increasing adoption of Axon body cameras, related technologies, and the Evidence.com platform.
What is the company's strategy for future growth?
Axon's growth strategy is built on three foundations: Devices (expanding TASER CEW adoption and developing new weapon technologies), Apps (enhancing the Evidence.com platform for evidence management), and People (leveraging its network and bringing modern IT capabilities to law enforcement). Key strategic areas include expanding CEW market share, increasing Evidence.com market share and ARPU, capturing in-car video market share with Axon Fleet, and expanding into records management and dispatch software.
What is the company's financial outlook and what are the key risks highlighted?
The company's financial outlook appears positive due to strong sales growth and a growing backlog. However, key risks identified include a decline in net income and gross margin percentage in 2017 due to increased R&D and operating expenses, a material weakness in internal controls, dependence on law enforcement market acceptance, rapid technological change, potential product defects, and cybersecurity risks related to its cloud services.
How is Axon investing in innovation?
Axon significantly increased its investment in Research and Development by 80.9% to $55.4 million in 2017. This investment is focused on developing next-generation technology across its product platforms, including a new AI group, advancements in smart cameras, and the expansion of its Software and Sensors offerings like records management systems and computer-aided dispatch software.
06—Continue