10-QPeriod: Q3 FY2013

AXON ENTERPRISE, INC. Quarterly Report for Q3 Ended Sep 30, 2013

Filed November 5, 2013For Securities:AXON

Summary

TASER International, Inc. (now Axon Enterprise, Inc.) reported a strong increase in net sales for the third quarter and the first nine months of 2013, driven by the successful adoption of its newer TASER X26P and X2 conducted electrical weapons (CEWs) and growth in its EVIDENCE.com & Video segment. The company saw a significant rise in gross margin due to increased sales volume and improved pricing, while managing cost of goods sold effectively. Despite increased sales, general, and administrative expenses, largely attributed to investments in sales and marketing and higher litigation defense costs, the company achieved substantial net income growth. Operating cash flow remained robust, though slightly decreased year-over-year due to increased investment in short-term investments and a significant stock repurchase program. The company ended the period with a healthy cash balance and no outstanding borrowings on its line of credit, indicating a solid liquidity position.

Financial Highlights

47 data points
Beta

Revenue

$35.20M

62.8% Gross Margin

Net Income

$5.11M

14.5% Net Margin

EPS (Diluted)

$0.10

Total Assets

$128.49M

Cash & Equivalents

$35.01M

Free Cash Flow

$10.53M

Financial Statements
Beta
Revenue$35.20M
Cost of Revenue$13.10M
Gross Profit$22.10M
R&D Expenses$2.44M
SG&A Expenses$12.78M
Operating Income$6.88M
Net Income$5.11M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)51.34M
Shares Outstanding (Diluted)53.32M

Key Highlights

  • 1Net sales increased by 22.3% to $35.2 million for the three months ended September 30, 2013, compared to the prior year, and by 18.4% to $97.8 million for the nine months ended September 30, 2013.
  • 2Gross margin improved significantly, rising to 62.8% of net sales for the third quarter of 2013 from 58.4% in the same period last year, driven by higher sales volumes and improved pricing.
  • 3The EVIDENCE.com & Video segment experienced substantial growth, with net sales increasing by 111.5% to $3.6 million for the third quarter and by 104.7% to $7.9 million for the nine months, indicating strong market traction.
  • 4Net income increased by 39.1% to $5.1 million for the third quarter and by 17.8% to $12.9 million for the nine months, demonstrating improved profitability.
  • 5Despite increased investments and a stock repurchase program, the company maintained strong operating cash flow of $23.1 million for the nine months ended September 30, 2013.
  • 6The company's cash position remained strong at $35.0 million as of September 30, 2013, with no borrowings outstanding on its $10 million line of credit, indicating good liquidity.

Frequently Asked Questions

Revenue growth was primarily driven by the strong adoption of new TASER CEW models like the X26P and X2, and significant expansion in the EVIDENCE.com & Video segment. Improved average selling prices and lower trade-in credit values also contributed to higher revenue.

The company saw an improvement in its gross margin percentage. While the cost of goods sold increased in absolute terms with higher sales, it decreased as a percentage of net sales. For the EVIDENCE.com & Video segment, cost savings were achieved through efficiencies in cloud storage and depreciation of software development costs.

The company noted an increase in sales, general, and administrative expenses due to litigation defense costs. However, it expects these expenses related to product and commercial litigation defense to trend downward in the second half of 2014.

The company maintained a strong liquidity position with $35.0 million in cash and cash equivalents as of September 30, 2013. It had no outstanding borrowings under its $10 million revolving line of credit, which had $9.4 million available for borrowing. The company believes its operating cash flow and existing cash reserves are sufficient to fund its operations and strategic initiatives.