01—Abstract
Summary
Summary of the 10-Q filed May 10, 2018. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. reported strong performance in its first quarter of 2018, with net sales increasing by 27.7% to $101.2 milliona year-over-year.
This growth was primarily driven by a significant 74.7%b increase in the Software and Sensors segment, largely due to the widespread adoption of its Evidence.com cloud-based evidence management system and on-officer camera solutions. The TASER Weapons segment also showed steady growth of 10.1%. The company's strategic shift towards recurring revenue models is evident, with a substantial portion of revenue now coming from multi-year contracts.
Profitability improved significantly, with net income rising to $12.9 millionc, or $0.24 per diluted share, compared to $4.6 million, or $0.09 per diluted share, in the prior year's quarter. This expansion in earnings was supported by an increase in gross margin to 63.7% and a reduction in operating expenses as a percentage of net sales.
The company also benefited from adopting new accounting standards (Topic 606), which positively impacted its reported revenue and equity. Axon ended the quarter with a healthy cash position, indicating solid financial footing for future growth.
02—Key points
Key Highlights
- Net sales grew by 27.7% to $101.2 million compared to the prior year's quarter.
- Software and Sensors segment revenue surged by 74.7%, highlighting strong demand for cloud and sensor solutions.
- Evidence.com revenue increased by 72.4% year-over-year, driven by user growth.
- Gross margin improved to 63.7% from 61.4% in the prior year, driven by increased leveraging of fixed costs in cloud storage and accounting standard changes.
- Net income more than doubled to $12.9 million, with diluted EPS increasing to $0.24 from $0.09.
- Bookings for the Software and Sensors segment increased by 62.3% to $97.5 million, indicating strong future revenue potential.
- The company ended the quarter with $94.8 million in cash, cash equivalents, and restricted cash, demonstrating healthy liquidity.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2018, Axon Enterprise, Inc. kept $0.13.
- Revenue$101.2M100.0%
- Cost of revenue−$36.8M36.3%
- Gross profit$64.5M63.7%
- Operating costs−$50.9M50.3%
- Operating income$13.6M13.4%
- Interest, other & tax−$657,0000.6%
- Net income$12.9M12.8%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2018filed May 10, 2018Financial Statements
Q1 FY2018 against Q1 FY2017
| Line item | Q1 FY2018Q1 FY2017 | Change |
|---|---|---|
| Revenue | $101.22M$79.24M | +27.7% |
| Cost of Revenue | $36.75M$30.57M | +20.2% |
| Gross Profit | $64.46M$48.67M | +32.4% |
| R&D Expenses | $15.12M$12.46M | +21.3% |
| SG&A Expenses | $35.76M$30.86M | +15.9% |
| Operating Expenses | $50.88M$43.32M | +17.4% |
| Operating Income | $13.58M$5.35M | +153.9% |
| Net Income | $12.93M$4.58M | +182.2% |
| EPS (Basic) | $0.24$0.09 | +166.7% |
| EPS (Diluted) | $0.24$0.09 | +166.7% |
| Shares Outstanding (Basic) | 53.12M52.42M | +1.3% |
| Shares Outstanding (Diluted) | 54.53M53.68M | +1.6% |
05—Questions
Frequently Asked Questions
What is the primary driver of Axon's revenue growth in the first quarter of 2018?
The primary driver of Axon's revenue growth is the Software and Sensors segment, which saw a 74.7% increase year-over-year. This growth is largely attributed to the increasing adoption of their Evidence.com cloud-based evidence management system and on-officer camera solutions (like Axon Body and Axon Flex) by law enforcement agencies.
How has the adoption of new accounting standards affected Axon's financial reporting?
Axon adopted ASC Topic 606, 'Revenue from Contracts with Customers,' on January 1, 2018. This adoption, using a modified retrospective method, resulted in a net increase in stockholders' equity (retained earnings) of $19.0 million. It also impacted revenue recognition, particularly for bundled hardware and service contracts, and costs of obtaining contracts, leading to a net increase in revenue and a decrease in SG&A expenses for the period compared to what would have been recognized under the old standard.
What is the company's outlook on future revenue and profitability?
Axon is strategically shifting towards a recurring revenue model with multi-year, subscription-based contracts. The company expects this transition to drive operating leverage and profitability over the long term. They anticipate continued growth in both the TASER Weapons and Software & Sensors segments, with significant investment in R&D and sales to support new product development and market expansion.
Are there any significant legal or financial risks disclosed in this filing?
Axon is involved in ongoing product litigation, primarily related to its TASER CEW products, with seven active lawsuits as of the filing date. While management believes these cases have a different risk profile than older ones and are manageable, litigation outcomes are inherently uncertain. The company also has ongoing patent litigation with Phazzer Electronics and Digital Ally, with mixed results reported. Financially, the company noted a material weakness in internal control over financial reporting related to its UK subsidiary, which is being remediated.
06—Continue