01—Abstract
Summary
Summary of the 10-Q filed May 10, 2017. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. (AXON) reported a strong first quarter for 2017, with net sales increasing by 42.7% year-over-year to $79.2 milliona.
This growth was primarily driven by a significant surge in the Software and Sensors segment, which saw sales jump by 122.5% to $21.6 millionb, fueled by the increasing adoption of on-officer cameras and the Evidence.com platform. The TASER Weapons segment also showed robust growth, up 25.8% to $57.7 million, supported by strong cartridge sales and the positive impact of Smart Weapons approval in the UK. Despite the impressive top-line growth, the cost of products sold and services delivered increased at a faster rate (64.1%) than net sales, leading to a decrease in gross margin percentage from 66.5% to 61.4%.
This was particularly noticeable in the Software and Sensors segment, where hardware gross margins declined due to higher discounting and service margins were impacted by data migration costs. However, the company managed operating expenses effectively, with Sales, General & Administrative expenses growing slower than revenue, resulting in a slight increase in Net Income to $4.6 millionc, or $0.09 per share.
02—Key points
Key Highlights
- Net sales increased by 42.7% to $79.2 million compared to the prior year's quarter.
- The Software and Sensors segment experienced exceptional growth of 122.5%, reaching $21.6 million in net sales.
- TASER Weapons segment sales grew by 25.8% to $57.7 million, boosted by cartridge sales and UK Smart Weapons approval.
- Gross margin decreased to 61.4% from 66.5% due to a faster rise in cost of goods sold and services delivered, impacting both segments.
- Operating expenses grew at a slower pace than revenue, with SG&A decreasing as a percentage of net sales.
- Net income increased to $4.6 million ($0.09 EPS) from $3.5 million ($0.06 EPS) in the prior year's quarter.
- The company acquired certain intellectual property for its Axon AI team for approximately $6.8 million, further investing in its technology platform.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2017, Axon Enterprise, Inc. kept $0.06.
- Revenue$79.2M100.0%
- Cost of revenue−$30.6M38.6%
- Gross profit$48.7M61.4%
- Operating costs−$43.3M54.7%
- Operating income$5.3M6.8%
- Interest, other & tax−$770,0001.0%
- Net income$4.6M5.8%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2017filed May 10, 2017Financial Statements
Q1 FY2017 against Q1 FY2016
| Line item | Q1 FY2017Q1 FY2016 | Change |
|---|---|---|
| Revenue | $79.24M$55.53M | +42.7% |
| Cost of Revenue | $30.57M$18.63M | +64.1% |
| Gross Profit | $48.67M$36.90M | +31.9% |
| R&D Expenses | $12.46M$6.93M | +79.9% |
| SG&A Expenses | $30.86M$24.83M | +24.3% |
| Operating Expenses | $43.32M$31.76M | +36.4% |
| Operating Income | $5.35M$5.14M | +4.0% |
| Net Income | $4.58M$3.46M | +32.3% |
| EPS (Basic) | $0.09$0.06 | +50.0% |
| EPS (Diluted) | $0.09$0.06 | +50.0% |
| Shares Outstanding (Basic) | 52.42M53.69M | −2.4% |
| Shares Outstanding (Diluted) | 53.68M54.79M | −2.0% |
05—Questions
Frequently Asked Questions
What drove the significant increase in net sales?
The substantial increase in net sales was primarily driven by the strong performance of the Software and Sensors segment, which saw a 122.5% rise due to increased adoption of on-officer cameras and the Evidence.com platform. The TASER Weapons segment also contributed with a 25.8% increase, supported by cartridge sales and new product approvals.
Why did the gross margin percentage decrease despite higher sales?
The gross margin percentage decreased from 66.5% to 61.4% because the cost of products sold and services delivered grew at a faster rate (64.1%) than net sales. This was particularly influenced by higher discounting in the Software and Sensors segment's hardware business and data migration expenses impacting service margins.
What is the company's outlook regarding its legal proceedings?
The company is involved in several product liability lawsuits, primarily concerning the use of TASER CEWs. While actively defending these cases, management believes that pre-2009 cases have a different risk profile. They are strategically settling some older cases to reduce caseload and exposure. For all pending lawsuits as of March 31, 2017, the company does not believe they will individually or in aggregate materially affect financial results, but acknowledges the inherent uncertainty of litigation outcomes.
How is the company managing its liquidity and capital resources?
As of March 31, 2017, Axon had $71.6 million in cash, cash equivalents, and investments. The company also has a $10.0 million revolving credit facility available. Management believes that funds generated from operations, along with existing cash and investments, will be sufficient to finance operations and strategic initiatives for the foreseeable future. The company notes a waiver was received for a leverage ratio covenant violation as of March 31, 2017.
06—Continue