01—Abstract
Summary
Summary of the 10-Q filed May 10, 2019. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. (AXON) reported its first-quarter 2019 results, showcasing strong revenue growth driven by its Software and Sensors segment, which increased by 33.8%a year-over-year.
This segment's performance was bolstered by significant growth in Axon Evidence and cloud services, along with extended warranties. While overall net sales grew 14.4% to $115.8 millionb, the company experienced a notable decrease in income from operations, falling to $2.7 million from $13.6 million in the prior year's quarter. This decline is attributed to increased cost of sales and higher operating expenses, particularly in research and development and sales, general, and administrative functions, as the company invests in future growth.
The introduction of the new TASER 7 device also contributed to higher initial production costs. Despite the reduction in operating income, Axon's balance sheet remains robust, with cash and cash equivalents standing at $223.6 millionc.
The company has strategically shifted towards a subscription model for its products, which is expected to improve recurring revenue and customer engagement over the long term, although it impacts near-term liquidity. Management remains optimistic about the full-year outlook, projecting revenues between $485 milliond and $495 million, signaling continued expansion despite the short-term margin pressures.
02—Key points
Key Highlights
- Total net sales increased by 14.4% to $115.8 million in Q1 2019, compared to $101.2 million in Q1 2018.
- The Software and Sensors segment experienced substantial growth, with net sales up 33.8% to $50.4 million, driven by Axon Evidence and cloud services, and extended warranties.
- Income from operations decreased significantly to $2.7 million from $13.6 million in the prior year, primarily due to increased investments in R&D and SG&A, and higher cost of sales.
- Net income was $6.4 million ($0.11 per diluted share), down from $12.9 million ($0.24 per diluted share) in the prior year's quarter.
- Cash and cash equivalents stood at $223.6 million as of March 31, 2019, though overall cash, cash equivalents, and restricted cash decreased due to investment purchases.
- The company is actively transitioning to a subscription-based model for its products, aiming for long-term recurring revenue growth.
- The TASER segment saw a modest 2.9% increase in net sales, influenced by the transition to the new TASER 7 device and associated initial production costs.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2019, Axon Enterprise, Inc. kept $0.06.
- Revenue$115.8M100.0%
- Cost of revenue−$46.9M40.5%
- Gross profit$68.9M59.5%
- Operating costs−$66.2M57.2%
- Operating income$2.7M2.3%
- Interest, other & tax$3.7M3.2%
- Net income$6.4M5.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2019filed May 10, 2019Financial Statements
Q1 FY2019 against Q1 FY2018
| Line item | Q1 FY2019Q1 FY2018 | Change |
|---|---|---|
| Revenue | $115.81M$101.22M | +14.4% |
| Cost of Revenue | $46.89M$36.75M | +27.6% |
| Gross Profit | $68.92M$64.46M | +6.9% |
| R&D Expenses | $23.35M$15.12M | +54.5% |
| SG&A Expenses | $42.89M$35.76M | +19.9% |
| Operating Expenses | $66.25M$50.88M | +30.2% |
| Operating Income | $2.67M$13.58M | −80.3% |
| Net Income | $6.42M$12.93M | −50.3% |
| EPS (Basic) | $0.11$0.24 | −54.2% |
| EPS (Diluted) | $0.11$0.24 | −54.2% |
| Shares Outstanding (Basic) | 58.91M53.12M | +10.9% |
| Shares Outstanding (Diluted) | 59.75M54.53M | +9.6% |
05—Questions
Frequently Asked Questions
What is the primary driver of Axon's revenue growth in this quarter?
The primary driver of Axon's revenue growth is its Software and Sensors segment, which saw a significant increase of 33.8% year-over-year. This growth is fueled by strong performance in Axon Evidence and cloud services, as well as increased sales of extended warranties and hardware such as Axon Body cameras and Axon Fleet systems.
Why did Axon's income from operations decrease despite revenue growth?
The decrease in income from operations is due to increased investments in research and development (R&D) and sales, general, and administrative (SG&A) expenses, which are necessary to support future growth. Additionally, the cost of sales increased, partly due to initial production costs for the new TASER 7 device, and higher freight and customs expenses impacted margins.
What is the company's outlook for the full year 2019?
For the full year 2019, Axon expects revenues to be in the range of $485 million to $495 million. The company also anticipates stock-based compensation expenses of approximately $35 million and a normalized income tax rate between 20% and 25%.
How is Axon's transition to a subscription model impacting its financials?
The strategic shift to a subscription model, while beneficial for long-term recurring revenue and customer engagement, impacts near-term liquidity. This model involves receiving cash over time rather than upfront for hardware sales, as seen with the TASER 60 installment purchase arrangements and the new TASER 7 subscriptions. The company is managing these cash flow impacts by forecasting and ensuring adequate liquidity.
06—Continue