10-QPeriod: Q2 FY2013

AXON ENTERPRISE, INC. Quarterly Report for Q2 Ended Jun 30, 2013

Filed August 7, 2013For Securities:AXON

Summary

TASER International, Inc. (now Axon Enterprise, Inc.) reported a solid increase in net sales for the second quarter of 2013, driven by the successful adoption of its new TASER X26P conducted electrical weapon (CEW) and growth in its Video segment, which includes AXON products and EVIDENCE.com. The company demonstrated improved gross margins and operational efficiency, despite an increase in sales, general, and administrative (SG&A) expenses primarily due to strategic hires and litigation costs. While cash and cash equivalents decreased due to a significant stock repurchase program and investment activities, operating cash flow remained healthy, and the company maintained a strong liquidity position with ample available borrowing under its credit facility. Overall, the report indicates positive sales momentum and improving operational performance, though investors should monitor the impact of rising SG&A expenses and ongoing litigation. The company's strategic focus on new product adoption and its expanding Video segment are key drivers for future growth.

Financial Highlights

47 data points
Beta

Revenue

$32.17M

61.4% Gross Margin

Net Income

$4.46M

13.9% Net Margin

EPS (Diluted)

$0.08

Total Assets

$113.01M

Cash & Equivalents

$19.08M

Free Cash Flow

$7.25M

Financial Statements
Beta
Revenue$32.17M
Cost of Revenue$12.43M
Gross Profit$19.74M
R&D Expenses$1.99M
SG&A Expenses$10.94M
Operating Income$6.81M
Net Income$4.46M
EPS (Basic)$0.09
EPS (Diluted)$0.08
Shares Outstanding (Basic)51.11M
Shares Outstanding (Diluted)52.85M

Key Highlights

  • 1Net sales increased by 14.0% to $32.2 million for the three months ended June 30, 2013, compared to $28.2 million in the prior year period.
  • 2The introduction of the TASER X26P contributed significantly to sales, generating $4.6 million in the second quarter of 2013.
  • 3The Video segment revenue grew by 47.5% to $1.9 million, indicating strong traction for AXON products and EVIDENCE.com.
  • 4Gross margin improved to 61.4% from 58.5% year-over-year, reflecting improved operational efficiencies and product mix.
  • 5Sales, General, and Administrative (SG&A) expenses increased by 30.2% to $10.9 million, driven by strategic hires and litigation costs.
  • 6Net income rose by 29.5% to $4.5 million ($0.08 per diluted share) for the quarter.
  • 7Cash and cash equivalents decreased by $17.0 million to $19.1 million, primarily due to a $25.0 million stock repurchase program and investments.

Frequently Asked Questions

The primary driver for the increase in net sales was the successful adoption of the new TASER X26P conducted electrical weapon (CEW) and higher cartridge sales. The Video segment, including AXON products and EVIDENCE.com, also showed substantial growth.

SG&A expenses increased primarily due to strategic hires in customer-facing roles and administrative functions, as well as increased legal, accounting, and professional fees related to the defense of product and commercial litigation. Sales and marketing expenses also contributed to the increase.

As of June 30, 2013, the company had $19.1 million in cash and cash equivalents, a decrease of $17.0 million from the end of 2012. This decrease was largely due to a $25.0 million stock repurchase program and increased investment purchases, which were partially offset by cash generated from operating activities.

The company is involved in multiple lawsuits, primarily product liability claims related to the use of its CEWs. While the company is defending these vigorously and does not expect them to materially affect its business, a significant product liability judgment in the Turner case is on appeal. Insurance coverage for the 2008 policy year may be exhausted if the appeal is unsuccessful.