01—Abstract
Summary
Summary of the 10-Q filed August 9, 2019. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. reported $112.4 milliona in net sales for the second quarter of 2019, a 13.2% increase year-over-year.
Despite revenue growth, the company experienced a net loss of $1.3 millionb from operations, compared to an income of $5.3 million in the prior year's comparable period. This decline in operational profitability was attributed to increased cost of sales and investments in research and development and sales, general, and administrative functions to support growth. Significant R&D investment is ongoing, particularly in the Software and Sensors segment, indicating a strategic focus on expanding its cloud-connected device platform.
The company's balance sheet shows total assets of $746.4 millionc as of June 30, 2019, with a notable increase in contract assets and inventory. Cash reserves decreased by $129.7 million, largely due to net purchases of investments.
The company is strategically shifting towards a subscription-based model for its products, aiming to align with municipal budgeting cycles and enhance recurring revenue streams. This transition, along with the rollout of new products like the TASER 7, impacted short-term margins but is expected to drive long-term revenue growth.
02—Key points
Key Highlights
- Net sales increased by 13.2% to $112.4 million for the three months ended June 30, 2019, compared to $99.2 million in the prior year.
- The Software and Sensors segment showed robust growth, with net sales up 34.2% to $51.8 million, driven by increased Axon Evidence and extended warranty revenues.
- Gross margin decreased to 58.4% from 63.6% in the prior year's comparable quarter, primarily due to increased cost of sales and product mix shifts in the TASER segment.
- Operating expenses increased due to investments in headcount for R&D and SG&A, leading to a loss from operations of $1.3 million, compared to a $5.3 million income in Q2 2018.
- Cash, cash equivalents, and restricted cash decreased by $129.7 million to $221.3 million, mainly due to net purchases of investments totaling $116.7 million.
- The company is strategically shifting towards a subscription-based revenue model, with bookings for the Software and Sensors segment increasing by 59.8% to $142.0 million.
- Remaining performance obligations totaled approximately $1.05 billion as of June 30, 2019, indicating significant future revenue potential.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2019, Axon Enterprise, Inc. kept $0.01.
- Revenue$112.4M100.0%
- Cost of revenue−$46.8M41.7%
- Gross profit$65.6M58.3%
- Operating costs−$66.9M59.5%
- Operating income−$1.3M1.2%
- Interest, other & tax$2.0M1.8%
- Net income$738,0000.7%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2019filed August 9, 2019Financial Statements
Q2 FY2019 against Q2 FY2018
| Line item | Q2 FY2019Q2 FY2018 | Change |
|---|---|---|
| Revenue | $112.36M$99.23M | +13.2% |
| Cost of Revenue | $46.80M$36.08M | +29.7% |
| Gross Profit | $65.56M$63.14M | +3.8% |
| R&D Expenses | $23.49M$18.50M | +27.0% |
| SG&A Expenses | $43.36M$39.34M | +10.2% |
| Operating Expenses | $66.86M$57.84M | +15.6% |
| Operating Income | -$1.29M$5.30M | −124.4% |
| Net Income | $738K$8.48M | −91.3% |
| EPS (Basic) | $0.01$0.15 | −93.3% |
| EPS (Diluted) | $0.01$0.15 | −93.3% |
| Shares Outstanding (Basic) | 59.19M55.53M | +6.6% |
| Shares Outstanding (Diluted) | 60.00M57.05M | +5.2% |
05—Questions
Frequently Asked Questions
What is the primary driver of Axon's revenue growth in Q2 2019?
Axon's revenue growth in Q2 2019 was primarily driven by its Software and Sensors segment, which saw a 34.2% increase in net sales. This growth was fueled by higher revenues from Axon Evidence (cloud services) and extended warranties, reflecting the company's expanding cloud-connected device platform and its shift towards recurring revenue models.
Why did the company experience a loss from operations despite revenue growth?
Despite revenue growth, Axon experienced a loss from operations due to a significant increase in the cost of sales and higher operating expenses. Investments in research and development (R&D) and sales, general, and administrative (SG&A) functions, along with margin compression from the rollout of new TASER devices and associated ramp-up costs, contributed to the reduced profitability.
What is Axon's strategy regarding its revenue model, and how is it impacting its financials?
Axon is strategically transitioning towards a subscription-based revenue model. This shift aims to align with municipal budgeting cycles and create more predictable, recurring revenue streams. While this transition, along with the introduction of new products like the TASER 7, has impacted short-term gross margins and cash flows (due to upfront hardware costs before recurring payments), it is expected to drive long-term revenue growth and improve overall profitability as the company scales its cloud services.
How has the company's cash position changed, and what are its primary uses of cash?
Axon's cash, cash equivalents, and restricted cash decreased by $129.7 million to $221.3 million as of June 30, 2019. The primary driver for this decrease was the net purchase of investments totaling $116.7 million. Other significant uses of cash included investing in property and equipment and intangible assets, and managing operating working capital. The company has a $50 million revolving credit facility available for additional liquidity needs.
06—Continue