10-QPeriod: Q3 FY2021

AXON ENTERPRISE, INC. Quarterly Report for Q3 Ended Sep 30, 2021

Filed November 15, 2021For Securities:AXON

Summary

Axon Enterprise, Inc. reported strong top-line growth for the third quarter and first nine months of 2021, with net sales increasing by 39.4% and 42.0%, respectively, compared to the prior year periods. This growth was driven by robust demand across both the TASER and Software and Sensors segments, with particular strength in the new TASER 7 devices and cloud-based Axon Evidence services. The company's strategic shift towards a subscription model is progressing, indicated by a significant increase in future contracted revenues to $2.39 billion. Financially, the company reported a significant swing to net income of $48.5 million for the third quarter of 2021, a substantial improvement from a net loss of $0.9 million in the prior year period. This turnaround was partly due to a substantial income tax benefit of $51.2 million. However, the nine-month period still resulted in a net loss of $46.5 million, influenced by a significant increase in operating expenses, particularly stock-based compensation related to performance awards. The company maintained a strong liquidity position with $281.7 million in cash and cash equivalents.

Financial Highlights

50 data points
Beta

Revenue

$231.99M

62.3% Gross Margin

Net Income

$48.52M

20.9% Net Margin

EPS (Diluted)

$0.67

Total Assets

$1.65B

Cash & Equivalents

$281.80M

Free Cash Flow

$3.98M

Financial Statements
Beta
Revenue$231.99M
Cost of Revenue$87.42M
Gross Profit$144.57M
R&D Expenses$42.38M
SG&A Expenses$99.30M
Operating Expenses$141.68M
Operating Income$2.89M
Net Income$48.52M
EPS (Basic)$0.73
EPS (Diluted)$0.67
Shares Outstanding (Basic)66.19M
Shares Outstanding (Diluted)72.44M

Key Highlights

  • 1Net sales increased by 39.4% to $232.0 million in Q3 2021 and by 42.0% to $645.8 million in the first nine months of 2021, demonstrating strong revenue growth.
  • 2The company swung to a net income of $48.5 million in Q3 2021 from a net loss of $0.9 million in Q3 2020, driven by revenue growth and a significant income tax benefit.
  • 3Future contracted revenues reached $2.39 billion as of September 30, 2021, indicating strong future revenue visibility, with 15-20% expected to be recognized in the next 12 months.
  • 4Gross margin improved year-over-year for both segments, reaching 62.4% in Q3 2021 (up from 59.0%) and 62.9% for the nine-month period (up from 60.5%), reflecting operational efficiencies and favorable product mix.
  • 5Operating expenses significantly increased, particularly stock-based compensation ($170.1M in nine months vs. $80.1M prior year) related to performance awards, contributing to a net loss for the nine-month period.
  • 6Cash and cash equivalents stood at a healthy $281.7 million as of September 30, 2021, providing ample liquidity.
  • 7The company raised its total addressable market (TAM) projections to $51.6 billion, driven by new product introductions and expansion into justice software and consumer safety markets.

Frequently Asked Questions

Axon's revenue growth is primarily driven by strong demand for its products and services across both the TASER and Software and Sensors segments. Key contributors include increasing sales of newer generation TASER devices like the TASER 7, higher cartridge sales, and the expansion of cloud-based services such as Axon Evidence, supported by a growing user and device network.

For the third quarter of 2021, Axon returned to profitability with a net income of $48.5 million, a significant improvement from a net loss in the prior year period. This was aided by revenue growth and a substantial income tax benefit. However, for the first nine months of 2021, the company reported a net loss of $46.5 million, largely due to a significant increase in operating expenses, particularly stock-based compensation.

Axon has substantial future revenue visibility, with approximately $2.39 billion in total company future contracted revenues as of September 30, 2021. The company expects to recognize between 15% and 20% of this amount over the next twelve months, with the remainder anticipated to be recognized over the following five to seven years, subject to risks like delayed deployments or contract cancellations.

Key risks and challenges include potential supply chain disruptions for key manufacturing components (as seen with TASER 7), the impact of economic slowdowns on municipal budgets affecting customer purchasing power, ongoing litigation (such as the FTC action), and the increasing operational costs, especially stock-based compensation expenses. The company also faces risks related to catastrophic events and the ongoing impact of the COVID-19 pandemic on operations and supply chains.