10-QPeriod: Q3 FY2018

AXON ENTERPRISE, INC. Quarterly Report for Q3 Ended Sep 30, 2018

Filed November 7, 2018For Securities:AXON

Summary

Axon Enterprise, Inc. (AXON) demonstrated significant financial strength in the third quarter of 2018, with total net sales reaching $104.8 million, a 16.1% increase year-over-year. This growth was largely driven by a substantial 33.5% surge in the Software and Sensors segment, particularly in Axon Evidence and cloud services, alongside a more modest 7.2% increase in the TASER Weapons segment. The company's strategic shift towards recurring revenue models is evident, with 53% of consolidated revenues coming from multi-element, multi-year contracts. This indicates a successful transition towards a more predictable revenue stream. Financially, Axon reported a net income of $5.7 million for the quarter, a significant improvement from $0.4 million in the prior year, leading to diluted EPS of $0.10. The balance sheet shows a robust increase in cash and cash equivalents to $324.4 million, largely due to a successful follow-on equity offering that raised $234.0 million in net proceeds. This strong liquidity position, coupled with strategic investments in R&D and a growing recurring revenue base, positions Axon for continued growth and market leadership in public safety technology.

Financial Highlights

50 data points
Beta

Revenue

$104.84M

62.6% Gross Margin

Net Income

$5.71M

5.4% Net Margin

EPS (Diluted)

$0.10

Total Assets

$681.70M

Cash & Equivalents

$326.85M

Free Cash Flow

$14.31M

Financial Statements
Beta
Revenue$104.84M
Cost of Revenue$39.20M
Gross Profit$65.63M
R&D Expenses$21.98M
SG&A Expenses$39.69M
Operating Expenses$61.67M
Operating Income$3.97M
Net Income$5.71M
EPS (Basic)$0.10
EPS (Diluted)$0.10
Shares Outstanding (Basic)58.34M
Shares Outstanding (Diluted)59.80M

Key Highlights

  • 1Total net sales increased by 16.1% year-over-year to $104.8 million in Q3 2018.
  • 2Software and Sensors segment sales grew by a strong 33.5%, driven by Axon Evidence and cloud services.
  • 3Net income rose significantly to $5.7 million from $0.4 million in the prior year's comparable quarter.
  • 4Cash and cash equivalents increased substantially to $324.4 million, bolstered by a $234.0 million equity offering.
  • 5Research and development expenses increased by 55.2% to $22.0 million, indicating continued investment in future products and services.
  • 6The company continues to focus on shifting revenue to multi-year, recurring payment plans, with 53% of Q3 revenue from such contracts.
  • 7Gross margin improved significantly to 62.6% from 55.1% in the prior year, largely due to improved service margins and accounting standard changes.

Frequently Asked Questions

Axon's recent revenue growth is primarily driven by its Software and Sensors segment, which saw a 33.5% increase in net sales year-over-year. This growth is largely attributed to strong performance in Axon Evidence and other cloud-based services, reflecting the company's successful transition towards recurring revenue models.

Axon's cash and cash equivalents significantly increased to $324.4 million as of September 30, 2018, up from $75.1 million at the end of 2017. This increase is largely due to the net proceeds of $234.0 million from a follow-on equity offering completed in May 2018, providing substantial liquidity.

Axon is strategically shifting its business model from traditional hardware sales to multi-year, subscription-based contracts, emphasizing recurring revenue. This is reflected in 53% of consolidated revenues in Q3 2018 coming from contracts with multiple performance obligations, indicating a move towards more predictable and sustainable revenue streams.

The company is significantly increasing its investment in Research and Development (R&D), with R&D expenses up 55.2% year-over-year to $22.0 million. This investment is focused on developing new TASER technologies and expanding its Software and Sensors segment, aiming to drive future subscription revenue growth.