01—Abstract
Summary
Summary of the 10-Q filed May 8, 2020. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. (AXON) reported a solid increase in net sales for the first quarter of 2020, reaching $147.2 milliona, a 27.1% increase year-over-year, driven by strong performance in both the TASER and Software & Sensors segments.
Despite this top-line growth, the company experienced a net loss from operations of $0.8 millionb, a shift from income in the prior year, attributed to increased operating expenses, particularly in sales, general, and administrative (SG&A) functions, including a significant rise in stock-based compensation expense and litigation costs. Net income for the quarter was $4.1 million. The company highlighted its proactive measures and strong liquidity position in response to the COVID-19 pandemic, including operational adjustments and supply chain resilience, while noting potential impacts on customer budgets and collections.
The company continues its strategic shift towards a subscription-based model, which is reflected in the growth of recurring Axon Cloud revenue and the increasing backlog of future contracted revenue ($1.27 billionc). While inventory levels increased, reflecting preparation for demand, the company maintained a strong cash position of $156.5 million at the end of the quarter. Investors should monitor the impact of increased operating expenses and the ongoing FTC investigation.
02—Key points
Key Highlights
- Net sales increased by 27.1% to $147.2 million in Q1 2020, driven by growth in both TASER and Software & Sensors segments.
- The Software & Sensors segment showed robust growth, with net sales up 41.3%, largely due to increased Axon Evidence and cloud services revenue and new body camera sales.
- Gross margin improved to 60.2% from 59.5% in the prior year's quarter, with the Software & Sensors segment gross margin increasing significantly to 60.3% from 53.2%.
- Operating expenses rose significantly, particularly SG&A, up 46.9% year-over-year, driven by higher stock-based compensation, increased litigation costs related to the FTC matter, and expanded headcount.
- The company reported a net loss from operations of $0.8 million, compared to an income of $2.7 million in the prior year quarter, primarily due to increased operating expenses.
- Net income for the quarter was $4.1 million ($0.07 per diluted share), a decrease from $6.4 million ($0.11 per diluted share) in Q1 2019, impacted by higher expenses and an income tax benefit.
- Remaining performance obligations totaled approximately $1.27 billion as of March 31, 2020, indicating substantial future contracted revenue, with an expectation to recognize 20-25% within the next twelve months.
- Axon is actively managing the impact of COVID-19, implementing safety protocols, ensuring supply chain continuity, and offering support to customers, while noting potential impacts on municipal budgets and cash collections.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2020, Axon Enterprise, Inc. kept $0.03.
- Revenue$147.2M100.0%
- Cost of revenue−$58.6M39.8%
- Gross profit$88.6M60.2%
- Operating costs−$89.4M60.8%
- Operating income−$800,0000.5%
- Interest, other & tax$4.9M3.3%
- Net income$4.1M2.8%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2020filed May 8, 2020Financial Statements
Q1 FY2020 against Q1 FY2019
| Line item | Q1 FY2020Q1 FY2019 | Change |
|---|---|---|
| Revenue | $147.16M$115.81M | +27.1% |
| Cost of Revenue | $58.55M$46.89M | +24.9% |
| Gross Profit | $88.61M$68.92M | +28.6% |
| R&D Expenses | $26.38M$23.35M | +13.0% |
| SG&A Expenses | $63.03M$42.89M | +46.9% |
| Operating Expenses | $89.41M$66.25M | +35.0% |
| Operating Income | -$800K$2.67M | −130.0% |
| Net Income | $4.07M$6.42M | −36.5% |
| EPS (Basic) | $0.07$0.11 | −36.4% |
| EPS (Diluted) | $0.07$0.11 | −36.4% |
| Shares Outstanding (Basic) | 59.61M58.91M | +1.2% |
| Shares Outstanding (Diluted) | 60.39M59.75M | +1.1% |
05—Questions
Frequently Asked Questions
What is the overall financial performance of Axon Enterprise, Inc. for the first quarter of 2020?
Axon Enterprise, Inc. reported a net sales increase of 27.1% to $147.2 million for the first quarter of 2020 compared to the same period in 2019. However, the company experienced a net loss from operations of $0.8 million, a shift from income in the prior year, largely due to increased operating expenses. Net income for the quarter was $4.1 million, or $0.07 per diluted share, down from $6.4 million, or $0.11 per diluted share, in the prior year.
How is the company managing the impact of the COVID-19 pandemic?
Axon has implemented several measures to manage the COVID-19 pandemic, including ensuring employee safety, maintaining supply chain continuity, and providing support to customers such as free access to Axon Citizen software and PPE for first responders. The company has a strong liquidity position and believes its current resources are sufficient to meet anticipated cash requirements for at least the next 12 months. However, it acknowledges potential risks related to municipal budget constraints and customer payment capabilities.
What is the significance of the "Remaining Performance Obligations" and the shift towards a subscription model?
The company reported approximately $1.27 billion in remaining performance obligations as of March 31, 2020, representing future contracted revenue. This figure highlights the company's growing recurring revenue base, driven by its strategic shift towards subscription-based models for its products and services, particularly in the Software & Sensors segment and for newer TASER products like the TASER 7.
What are the main drivers of the increase in operating expenses, particularly SG&A?
The significant increase in Sales, General, and Administrative (SG&A) expenses, up 46.9% year-over-year, is primarily attributed to a substantial rise in stock-based compensation expense, an increase in legal expenses related to the ongoing FTC litigation, and higher headcount to support growth. Research and Development expenses also increased, mainly in the Software & Sensors segment for new product development.
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