01—Abstract
Summary
Summary of the 10-Q filed November 8, 2019. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. reported strong revenue growth in the third quarter of 2019, with net sales increasing by 24.8% year-over-year to $130.8 milliona.
This growth was primarily driven by the Software and Sensors segment, which saw a 43.5% increase in net sales, fueled by higher adoption of cloud services and devices like Axon Body and Axon Fleet. The TASER segment also contributed positively with a 12.7% increase, though gross margins were compressed due to the rollout of the new TASER 7 device and associated trade-in credits. While the company reported an increase in net income to $6.1 millionb for the quarter, year-to-date net income saw a significant decrease to $13.3 million compared to $27.1 million in the same period last year, largely due to increased operating expenses, including substantial investments in R&D and SG&A to support future growth.
The company ended the quarter with a healthy liquidity position, holding $204.1 millionc in cash, cash equivalents, and restricted cash. Despite the increase in operating expenses and a strategic shift towards subscription models, Axon maintains a positive outlook, projecting full-year 2019 revenue between $500 million and $510 million. Investors should monitor the impact of new product introductions on gross margins and the continued growth trajectory of the Software and Sensors segment, as well as the effective management of operating expenses.
02—Key points
Key Highlights
- Net sales increased by 24.8% to $130.8 million in Q3 2019, driven by strong performance in the Software and Sensors segment (+43.5%).
- The TASER segment revenue grew by 12.7% primarily due to increased cartridge and warranty revenue, with a notable shift towards the new TASER 7 device.
- Gross margins experienced compression, particularly in the TASER segment, due to the introduction of the TASER 7, higher unit costs, and trade-in credits.
- Operating expenses, including SG&A and R&D, increased significantly year-over-year, reflecting investments in headcount and product development to support growth.
- Net income for Q3 2019 was $6.1 million, a slight increase from $5.7 million in Q3 2018, but year-to-date net income decreased substantially.
- The company ended the period with $204.1 million in cash, cash equivalents, and restricted cash, indicating a strong liquidity position.
- Remaining performance obligations totaled approximately $1.13 billion as of September 30, 2019, providing visibility into future revenue.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q3 FY2019, Axon Enterprise, Inc. kept $0.05.
- Revenue$130.8M100.0%
- Cost of revenue−$50.7M38.7%
- Gross profit$80.2M61.3%
- Operating costs−$73.6M56.2%
- Operating income$6.6M5.1%
- Interest, other & tax−$512,0000.4%
- Net income$6.1M4.7%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2019filed November 8, 2019Financial Statements
Q3 FY2019 against Q3 FY2018
| Line item | Q3 FY2019Q3 FY2018 | Change |
|---|---|---|
| Revenue | $130.84M$104.84M | +24.8% |
| Cost of Revenue | $50.67M$39.20M | +29.2% |
| Gross Profit | $80.17M$65.63M | +22.1% |
| R&D Expenses | $25.13M$21.98M | +14.3% |
| SG&A Expenses | $48.42M$39.69M | +22.0% |
| Operating Expenses | $73.55M$61.67M | +19.3% |
| Operating Income | $6.62M$3.97M | +66.8% |
| Net Income | $6.10M$5.71M | +6.9% |
| EPS (Basic) | $0.10$0.10 | 0.0% |
| EPS (Diluted) | $0.10$0.10 | 0.0% |
| Shares Outstanding (Basic) | 59.28M58.34M | +1.6% |
| Shares Outstanding (Diluted) | 60.06M59.80M | +0.4% |
05—Questions
Frequently Asked Questions
What is the primary driver of Axon's revenue growth?
Axon's primary revenue growth driver is its Software and Sensors segment, which saw a significant increase of 43.5% in the third quarter of 2019. This growth is fueled by increased adoption of its Axon Cloud services, evidence management software, and connected devices like body cameras and vehicle cameras.
Why are gross margins being compressed, especially in the TASER segment?
Gross margins are being compressed due to the introduction of the new TASER 7 device, which has a higher cost per unit and a lower average selling price per unit due to bundled products and services. Additionally, trade-in credits offered to customers purchasing the TASER 7 also impact gross margins.
How is the company managing its increased operating expenses?
Axon is strategically increasing operating expenses, particularly in Sales, General & Administrative (SG&A) and Research & Development (R&D), to invest in headcount and product development necessary for future growth, especially within the Software and Sensors segment. While this impacts short-term profitability, the company believes these investments will drive future revenue growth and economies of scale.
What is the outlook for full-year 2019 revenue?
Axon expects full-year 2019 revenue to be in the range of $500 million to $510 million. The company anticipates continued margin compression in the fourth quarter due to the anticipated product mix, but expects higher-margin revenue from cloud services over time.
06—Continue