01—Abstract
Summary
Summary of the 10-Q filed November 6, 2020. Cited figures are marked; the original filing is the authoritative source.
Axon Enterprise, Inc. reported significant revenue growth for the nine months ended September 30, 2020, up 26.7% year-over-year to $454.9 milliona.
This growth was primarily driven by its Software and Sensors segment, which saw a 38.9% increase in net sales, highlighting the continued adoption of cloud-based solutions and new hardware like the Axon Body 3. Despite revenue expansion, the company experienced a net loss of $27.6 millionb for the nine-month period, a notable decrease from the $13.3 million net income in the prior year. This was largely influenced by a substantial increase in operating expenses, particularly stock-based compensation related to executive performance awards and increased legal expenses associated with FTC litigation.
The balance sheet shows robust growth in current assets, including a significant increase in short-term investments and inventory. The company ended the period with $176 millionc in cash and cash equivalents, and a strong liquidity position. The balance of future contracted revenues remains substantial at $1.51 billion, providing a degree of revenue visibility, with expected recognition over the next 5-7 years.
Investors should note the ongoing investments in research and development and the strategic shift towards subscription-based models. Key areas of focus for investors include the substantial increase in stock-based compensation, the material impact of the FTC litigation, and the ongoing investment in growth initiatives.
While the revenue trajectory is positive, the profitability is being impacted by these significant expense items. The company's substantial future contracted revenue provides a positive outlook, but close monitoring of expense management and litigation outcomes will be crucial.
02—Key points
Key Highlights
- Revenue increased by 26.7% to $454.9 million for the nine months ended September 30, 2020, compared to the same period in 2019.
- The Software and Sensors segment showed strong growth with net sales up 38.9% for the nine months ended September 30, 2020.
- Net loss for the nine months ended September 30, 2020, was $27.6 million, compared to a net income of $13.3 million in the prior year.
- Operating expenses significantly increased, driven by a $44.8 million rise in stock-based compensation expense and increased legal costs related to FTC litigation.
- The company maintained a strong liquidity position, with $176.0 million in cash and cash equivalents as of September 30, 2020.
- Future contracted revenues stood at approximately $1.51 billion as of September 30, 2020, indicating significant revenue visibility.
- Significant investments are being made in research and development, particularly within the Software and Sensors segment.
03—One dollar
Follow one dollar
For each $1.00 of revenue in Q3 FY2020, Axon Enterprise, Inc. lost $0.01.
- Revenue$166.4M100.0%
- Cost of revenue−$68.2M41.0%
- Gross profit$98.2M59.0%
- Operating costs−$103.7M62.3%
- Operating income−$5.4M3.3%
- Interest, other & tax$4.6M2.7%
- Net income−$873,0000.5%
04—Financials
Financial Highlights
Figures from 10-QQ3 FY2020filed November 6, 2020Financial Statements
Q3 FY2020 against Q3 FY2019
| Line item | Q3 FY2020Q3 FY2019 | Change |
|---|---|---|
| Revenue | $166.44M$130.84M | +27.2% |
| Cost of Revenue | $68.20M$50.67M | +34.6% |
| Gross Profit | $98.24M$80.17M | +22.5% |
| R&D Expenses | $29.25M$25.13M | +16.4% |
| SG&A Expenses | $74.44M$48.42M | +53.7% |
| Operating Expenses | $103.69M$73.55M | +41.0% |
| Operating Income | -$5.45M$6.62M | −182.4% |
| Net Income | -$873K$6.10M | −114.3% |
| EPS (Basic) | $-0.01$0.10 | −110.0% |
| EPS (Diluted) | $-0.01$0.10 | −110.0% |
| Shares Outstanding (Basic) | 63.50M59.28M | +7.1% |
| Shares Outstanding (Diluted) | 63.50M60.06M | +5.7% |
05—Questions
Frequently Asked Questions
What is driving the significant increase in operating expenses, particularly stock-based compensation?
The substantial increase in stock-based compensation expense, which rose by $44.8 million for the nine months ended September 30, 2020, is primarily attributed to the CEO Performance Award and the eXponential Stock Performance Plan (XSPP). Eleven operational goals for these plans are now considered probable of attainment, compared to three in the prior year, leading to increased expense recognition. Additionally, headcount growth also contributed to higher compensation costs.
How is the FTC litigation impacting the company financially, and what is the outlook?
The FTC litigation regarding the Vievu LLC acquisition has resulted in increased professional, consulting, and lobbying expenses, totaling $19.5 million more for the nine months ended September 30, 2020. The company anticipates these litigation expenses to be in the range of $19.0 million to $21.0 million for the full year. The FTC could require divestiture of assets or other remedial measures, which could be material. Axon is vigorously defending itself and is also evaluating strategic alternatives. No liability has been recorded as the outcome is unpredictable.
What is the significance of the company's substantial future contracted revenue?
The approximately $1.51 billion in future contracted revenue as of September 30, 2020, represents a strong indicator of future revenue streams. This includes recognized contract liabilities and amounts to be invoiced. The company expects to recognize 20%-25% of this balance in the next twelve months, with the remainder spread over the subsequent five to seven years. This provides significant revenue visibility, although it is subject to risks like delayed deployments and budget appropriations.
How is the company managing its liquidity and capital resources amidst these investments and legal challenges?
Axon maintains a strong liquidity position, with $176.0 million in cash and cash equivalents and $627.5 million in total cash and investments as of September 30, 2020. The company also has an available $50.0 million unsecured revolving line of credit. While investing heavily in R&D and facing litigation costs, the substantial revenue growth and future contracted revenue provide a solid foundation. Management believes its current liquidity and potential financing sources are sufficient to meet anticipated cash requirements for at least the next 12 months.
06—Continue