10-QPeriod: Q2 FY2020

AXON ENTERPRISE, INC. Quarterly Report for Q2 Ended Jun 30, 2020

Filed August 7, 2020For Securities:AXON

Summary

Axon Enterprise, Inc. reported its second-quarter 2020 financial results, showcasing robust revenue growth driven by strong performance in both its TASER and Software and Sensors segments. Net sales increased by 25.7% year-over-year to $141.3 million. However, the company reported a net loss of $30.8 million for the quarter, a significant shift from the $0.7 million net income in the prior year's quarter. This loss was largely influenced by a substantial increase in stock-based compensation expense, primarily related to performance awards, and increased legal expenses associated with the FTC litigation. Despite the net loss, the company highlighted a healthy increase in gross margin to 62.4% and a strong liquidity position with $319.3 million in cash and cash equivalents. The company's strategic shift towards a subscription-based model continues, with significant future contracted revenues totaling approximately $1.34 billion. Management expressed confidence in their ability to navigate the COVID-19 pandemic due to supply chain diversification and proactive measures. Key growth drivers include the new TASER 7 devices and cartridges, alongside continued expansion in cloud-based evidence management and body camera solutions.

Financial Highlights

49 data points
Beta

Revenue

$141.26M

62.4% Gross Margin

Net Income

-$30.76M

-21.8% Net Margin

EPS (Diluted)

$-0.51

Total Assets

$1.23B

Cash & Equivalents

$319.36M

Free Cash Flow

-$25.73M

Financial Statements
Beta
Revenue$141.26M
Cost of Revenue$53.08M
Gross Profit$88.18M
R&D Expenses$29.56M
SG&A Expenses$72.29M
Operating Expenses$101.85M
Operating Income-$13.68M
Net Income-$30.76M
EPS (Basic)$-0.51
EPS (Diluted)$-0.51
Shares Outstanding (Basic)60.35M
Shares Outstanding (Diluted)60.35M

Key Highlights

  • 1Net sales grew 25.7% year-over-year to $141.3 million, driven by both product and service revenue increases.
  • 2Gross margin improved significantly to 62.4% from 58.4% in the prior year's quarter, indicating better cost management and product mix.
  • 3The company reported a net loss of $30.8 million, a stark contrast to a net income of $0.7 million in Q2 2019, largely due to increased stock-based compensation and legal expenses.
  • 4Stock-based compensation expense surged by $21.8 million year-over-year, primarily due to the probable achievement of performance goals for CEO and XSPP awards.
  • 5Remaining performance obligations (future contracted revenue) stood at a substantial $1.34 billion as of June 30, 2020.
  • 6Cash and cash equivalents increased to $319.3 million, demonstrating a strong liquidity position.
  • 7The Software and Sensors segment continued its strong growth trajectory, with net sales up 36.6% year-over-year.

Frequently Asked Questions

The net loss of $30.8 million in Q2 2020, compared to a profit in the prior year, was primarily driven by a significant increase in stock-based compensation expense ($21.8 million higher year-over-year) due to the probable achievement of performance goals for executive awards. Additionally, increased legal expenses related to the FTC litigation also contributed to the loss.

Revenue growth was strong across both segments. The TASER segment saw a 16.4% increase in net sales, while the Software and Sensors segment experienced an even more substantial growth of 36.6% year-over-year, highlighting the accelerating adoption of their cloud-based solutions and body cameras.

The approximately $1.34 billion in remaining performance obligations represents future contracted revenue that Axon expects to recognize over the next several years. This provides good visibility into future revenue streams and demonstrates the continued demand for the company's products and services, particularly its cloud-based solutions.

Axon has implemented several measures to manage COVID-19 impacts, including providing free cloud software to customers, ensuring employee safety through remote work and facility protocols, and diversifying its supply chain to mitigate disruptions. The company reported that thus far, it has been able to produce and ship critical products with minimal interruption.