10-QPeriod: Q2 FY2016

AXON ENTERPRISE, INC. Quarterly Report for Q2 Ended Jun 30, 2016

Filed August 10, 2016For Securities:AXON

Summary

TASER International, Inc. (now Axon Enterprise, Inc.) reported solid top-line growth in the second quarter of 2016, with net sales increasing by 25.8% year-over-year to $58.8 million. This growth was primarily driven by a significant 48.7% increase in the Axon segment's net sales, signaling strong market adoption of their integrated hardware and software solutions, including on-officer cameras and Evidence.com. While the TASER Weapons segment also saw a 20.4% increase in sales, the Axon segment's rapid expansion suggests a successful strategic pivot towards broader law enforcement technology solutions. Despite revenue growth, profitability metrics show a mixed picture. Gross margin decreased slightly year-over-year, influenced by increased discounting in the TASER Weapons segment and a slight rise in cost of sales in the Axon segment. Furthermore, Sales, General, and Administrative (SG&A) expenses increased substantially, particularly within the Axon segment, due to investments in sales and marketing to support expansion. Consequently, net income for the quarter declined by approximately 40% to $3.7 million, or $0.07 per diluted share, compared to $6.1 million, or $0.11 per diluted share, in the prior year period. Investors should monitor the increasing SG&A as a percentage of sales and the continued growth trajectory of the Axon segment as key indicators for future profitability.

Financial Highlights

50 data points
Beta

Revenue

$58.76M

63.5% Gross Margin

Net Income

$3.65M

6.2% Net Margin

EPS (Diluted)

$0.07

Total Assets

$228.69M

Cash & Equivalents

$37.31M

Free Cash Flow

$2.56M

Financial Statements
Beta
Revenue$58.76M
Cost of Revenue$21.46M
Gross Profit$37.30M
R&D Expenses$6.71M
SG&A Expenses$24.38M
Operating Expenses$31.09M
Operating Income$6.21M
Net Income$3.65M
EPS (Basic)$0.07
EPS (Diluted)$0.07
Shares Outstanding (Basic)52.48M
Shares Outstanding (Diluted)53.29M

Key Highlights

  • 1Net sales increased by 25.8% to $58.8 million in Q2 2016 compared to Q2 2015.
  • 2The Axon segment experienced robust growth with net sales up 48.7% year-over-year, driven by on-officer cameras and Evidence.com.
  • 3TASER Weapons segment net sales grew by 20.4% year-over-year.
  • 4Gross margin decreased from 65.8% to 63.5% year-over-year due to increased discounting and higher cost of sales.
  • 5SG&A expenses increased significantly by 57.9% year-over-year, primarily due to investments in sales and marketing for the Axon segment.
  • 6Net income decreased by 40% to $3.7 million ($0.07/share) from $6.1 million ($0.11/share) in the prior year period.
  • 7Bookings for the Axon segment saw substantial growth, increasing by 135.2% to $72.0 million in Q2 2016.

Frequently Asked Questions

The Axon segment's growth is driven by the increasing adoption of on-officer cameras (like Axon Body and Axon Flex) and the Evidence.com cloud-based digital evidence management software. This integrated approach to evidence capture, storage, and management is resonating well with law enforcement agencies.

The decrease in net income was primarily due to a substantial increase in Sales, General, and Administrative (SG&A) expenses, which rose by 57.9%. This increase was largely driven by investments in expanding the sales and marketing teams, particularly for the growing Axon segment, and increased lobbying efforts. Additionally, a slight decrease in gross margin due to increased discounting in the TASER Weapons segment also contributed.

The company announced a stock repurchase program in February 2016, authorizing up to $50 million in repurchases. During the second quarter of 2016, the company repurchased approximately 1.3 million shares for $24.8 million. As of June 30, 2016, $16.2 million remained available under this program, indicating a commitment to returning capital to shareholders while managing its cash.

TASER International has faced product litigation, primarily related to CEW use. The company has implemented new risk management strategies since 2009, which have effectively reduced the number of active cases. While they generally have a policy against settling suspect injury or death cases, exceptions are made for strategic benefits. They are also involved in other litigation, including patent and contract disputes, and are vigorously defending themselves. The company believes that outstanding litigation will not materially affect its financial condition, though outcomes are uncertain.