Axon Q2 2019: Record bookings of $142 million, up 60% on new product strength, adoption of Officer Safety Plan 7

Date : 08/08/2019 @ 8:01PM
Source : PR Newswire (US)
Stock : Axon Enterprise Inc (AAXN)
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Axon Q2 2019: Record bookings of $142 million, up 60% on new product strength, adoption of Officer Safety Plan 7

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SCOTTSDALE, Ariz., Aug. 8, 2019 /PRNewswire/ -- Axon (Nasdaq: AAXN), the global leader in connected public safety technologies, today released the following quarterly update letter to shareholders.

TASER's Axon brand includes a growing suite of connected products and services from body cameras and digital evidence management tools to mobiles apps.

Dear Shareholders,

In Q2, we delivered excellent progress on our long-term strategic goals while also working through some operational challenges in our TASER segment that resulted in revenue and EBITDA below our expectations.

Unexpected short-term pressure on the TASER segment at quarter-end was tied to an inventory shortfall relating to a battery component supplier issue, as well as engineering actions we took to improve the long-term cost structure of our TASER 7 cartridges. We discuss these below in more detail.

Key highlights since our last update include:

  • Our three largest deals feature monthly software ARPUs at more than double historic levels on our new Officer Safety Plan 7+ (OSP 7+), which is clearly resonating with customers.
  • Axon Records passed acceptance testing with two major city law enforcement agencies, which is a critical milestone where the agency verifies that Axon Records is functional and meets the agency's needs.
  • Future contracted revenue surpassed $1 billion for the first time.
  • Axon Cloud revenue grew 41% annually and 15% sequentially; and annual recurring revenue grew 40% annually to $129 million.
  • Bookings in our Software & Sensors segment set a new record at $142 million, up 60% over last year and 86% sequentially. Bookings were driven by strong customer reception for the Officer Safety Plan (both OSP 7 and OSP 7+), our new bundle composed of the TASER 7 platform, Axon Body 3, and several software features including digital evidence management and Axon Records, at a price of $149 to $199 per officer per month over 60 months. We are thrilled to welcome Atlanta, Minneapolis and Baltimore City police departments onto OSP 7+, and are in the process of signing several more major agencies.
  • Software and Sensors segment gross profit grew 45% year over year, aided by steady user additions and sound execution, allowing our body-worn camera and digital evidence management business to become self-supporting.

Product launch updates

As you know, 2019 is a pivotal product launch year for Axon as we ramp TASER 7, begin shipping Axon Body 3, and roll out Axon Records to our launch customers.

TASER 7

TASER 7 is an important platform for us that introduces not only a new weapon, but a new cartridge business model, a new training program, and a new cloud-connected software model sold on a subscription-only basis, providing a recurring cash flow stream. Year over year, we have doubled the percentage of TASER device orders tied to a subscription from 30% to 60% of total orders.

We continue to see strong customer interest in TASER 7 and expect to begin selling in international markets next year.

Axon Body 3

We are thrilled to be pioneering a new category with Axon Body 3, our first body camera with real-time streaming directly over LTE networks. Our current in-market camera, Axon Body 2, established us as the market leader. And the beta version of Axon Body 3 is already the best camera we have ever built.

In February, we began Axon Body 3 alpha testing with customers, and in early June, customers began beta testing the device. Axon Body 3 features better video, audio, usability, and durability than Axon Body 2, and is receiving great customer feedback.

We have two key objectives in rolling out the next generation of body cameras, which we believe will fundamentally improve policing.

To start, we must ensure that our customers' current experience remains as good, or better, even with a more advanced device, not compromising any of the features that made Axon Body 2 the market leader. In addition to designing highly capable imaging and audio modules, we have ensured that the robust Axon Body 3 still has full-shift-ready battery life and retains the simplicity of the user interface.

Power management is one of the biggest engineering challenges that we addressed in the device, which has more power-hungry modules than ever before, including a full wireless suite with LTE, Wi-Fi, and Bluetooth; our most advanced processor ever; a GPS chip; an upgraded imaging module and multiple microphones. We were able to add these capabilities while retaining up to 12 hours of battery life under predicted usage patterns.

Second, we seek to drive new functionality that expands body cameras into true smart sensors that can ultimately make policing more efficient and effective. Axon Body 3 has been in research and development for three years as our engineers have continuously solved challenges in bringing the first product of its kind to market.

We have successfully demonstrated improved core user functionality, including improved evidence capture and offloading, and have established a supply chain that achieves manufacturing scalability. Physical integrity engineering is complete, meaning that Axon Body 3 is waterproof and ruggedized for tactical environments. In April, we achieved an important milestone when we successfully demonstrated live-streaming of video.

The camera is passing our internal lab and field tests and we are working closely with FirstNet, Built with AT&T, and Verizon, who have been supportive as we bring a new connected device category to market. We expect to begin shipping Axon Body 3 in Q3 2019 after the camera passes certifications from our wireless carrier partners.

Axon Records

Axon Records is our groundbreaking new cloud-hosted incident reporting system, which will revolutionize the way law enforcement officers capture and document the details of any incident. Officers can spend up to two-thirds of their shift writing reports, and the records system software is the primary means through which information is captured and disseminated to all the places it needs to go, including the justice system and government agencies. Our leadership in body cameras allows us to make body camera video the heart of the incident record. Over the coming years, we intend to leverage our network of smart sensors together with artificial intelligence to automate the entire reporting process.

Axon Records has passed acceptance testing at two major city police departments, both of which are in the process of end user training and operational deployment. We have received positive user feedback, with one early user rating Axon Records as "seven stars on a scale of one to five." One agency is replacing their entire records management system (RMS), and the other is replacing several critical modules with Axon Records and has indicated that they intend to migrate other modules over time.

Summary of Q2 2019 Results

  • Revenue of $112 million represents 13% year over year growth.
    • Strong Software and Sensors segment revenue growth of 34% was offset by TASER segment revenue that was flat year over year. We discuss both in more detail below.
  • Gross margin of 58.3% declined from 59.5% in Q1 2019, driven by a decrease in TASER segment gross margins, also discussed below.
  • Operating expenses of $66.9 million reflect strong cost discipline.
    • SG&A of $43.4 million and R&D of $23.5 million each grew approximately 1% sequentially.
    • Operating expenses included a $1.3 million impairment charge that affected SG&A. Excluding that charge, operating expenses declined sequentially.
  • GAAP EPS was $0.01; Non-GAAP EPS of $0.14 excludes non-cash stock-based compensation expenses and an impairment charge.
  • Adjusted EBITDA was $11.6 million.
  • Cash and short term investments grew $7.4 million sequentially to $336 million. Axon's strong balance sheet, with zero debt, provides us with the latitude to continue growing our subscription contracts as a percentage of revenue.

Financial commentary by segment

TASER


Three Months Ended


Change


June 30, 2019


March 31, 2019


June 30, 2018


QoQ


YoY

TASER

(in thousands)





Net sales

$

60,572



$

65,391



$

60,624



(7.4)

%


(0.1)

%

Gross margin

59.9

%


64.4

%


70.8

%


-450bp



-1090bp



 

  • TASER revenue of $60.6 million came in below our expectation.
    • While we have made significant progress toward improving long-term production yields and gross margins on our TASER 7 program, two factors caused us to be unable to meet demand for approximately $6 million worth of TASER 7 conducted energy weapons (CEWs) and cartridges at quarter-end.
      • We experienced a disruption in our supply chain when our battery component supplier on the TASER 7 was unable to meet our stringent quality standards as it scaled. We have since worked closely with the supplier to help it scale its manufacturing process and it is now producing at production volumes. As a result of the supplier not being able to timely fulfill our production needs, approximately $3 million of forecasted TASER 7 sales shifted from Q2 2019 into Q3 2019.
      • A design change involving a TASER 7 cartridge component led to a shortage of cartridges and therefore lower-than-expected revenue of approximately $3 million in the quarter. This design change is part of a cost optimization program that we expect will ultimately reduce per-cartridge material costs by around 33% around the end of this year. We expect to fulfill this cartridge demand over the remainder of 2019.
  • TASER gross margin of 59.9% decreased sequentially from 64.4% in Q1 2019. Segment gross margins reflect a strong mix of TASER 7 units, which is not yet a mature hardware program and therefore carries higher gross costs.
    • Gross margin reflects approximately $1.6 million in TASER 7 ramp-up and optimization costs related to scrap, obsolete inventory, and temporarily higher gross labor costs. The obsolete inventory charge was tied to the cartridge design change described above.
    • The incremental contribution margin on the TASER 7 program, excluding fixed costs, was approximately 62% in the quarter.
    • The sequential gross margin decline was generally not influenced by pricing or trade-in credits, as CEW pricing remained relatively flat compared with Q1 2019.
  • Approximately 60% of all weapons sold in Q2 were on a recurring payment plan. In the United States, recurring payment plans accounted for 62% of new TASER contracts, with TASER 7 contracts driving subscriptions. This represents substantial progress on transitioning the TASER business to a subscription model. One year ago, 30% of new TASER orders were on a subscription.

Software & Sensors


Three Months Ended


Change


June 30, 2019


March 31, 2019


June 30, 2018


QoQ


YoY

Software and Sensors

(in thousands)





Axon Cloud net sales

$

31,822



$

27,631



$

22,505



15.2

%


41.4

%

Axon Cloud gross margin

73.0

%


73.6

%


77.8

%


-60bp



-480bp












Sensors and Other net sales

$

19,968



$

22,788



$

16,097



(12.4)

%


24.0

%

Sensors and Other gross margin

30.1

%


28.4

%


16.7

%


170bp



1340bp


 

  • Axon Cloud revenue of $31.8 million grew 41% year over year and 15% sequentially, driven by customer additions in body-worn cameras and digital evidence management, growth in Axon Fleet 2 users, and revenue contribution from deployments on legacy Vievu contracts.
  • Axon Cloud gross margin of 73.0% declined year over year and sequentially due to added installation costs associated with Axon Fleet 2, which is booked as a service cost. The software-only revenue in this segment, which includes cloud storage, has consistently carried a gross margin above 80%. Low-to-negative margin on professional services for bringing customers online causes fluctuations in the overall Axon Cloud gross margin. Professional services revenue and costs negatively affected Axon Cloud gross margin by roughly 800 basis points in the quarter.
  • Sensors and Other revenue of $20 million grew 24% year over year. Revenue fell sequentially, as expected, ahead of initial shipments of Axon Body 3.
  • Sensors and Other gross margin of 30.1% showed improvement as we exited a period of negative contribution from the acquisition of Vievu.

Forward-Looking Performance Indicators


June 30, 2019


March 31, 2019


December 31,
2018


September 30,
2018


June 30, 2018


($ in thousands)

Annual recurring revenue (1)

$

129,452



$

122,276



$

108,496



$

101,618



$

92,711


Cumulative Axon software seats booked

397,800



371,100



347,200



325,200



305,200


Software and Sensors bookings

$

142,004



$

76,391



$

109,779



$

92,895



$

88,860


Total company future contracted revenue

$

1,050,000



$

930,000



$

900,000



$

820,000



$

750,000



(1) Monthly recurring license, integration, warranty, and storage revenue annualized.

 

  • Annual recurring revenue grew 40% year over year to $129 million, and reflects only that portion of Axon's 397,800 cumulative booked seats that are online and contributing to revenue.
  • Record Software and Sensors bookings of $142 million reflect strong major agency adoption for our highest revenue bundles.
  • Total company future contracted revenue crossed $1 billion for the first time. The $1.05 billion shown is limited to revenue from arrangements that meet the definition of a contract under Topic 606 as of June 30, 2019. We expect to recognize between 15% to 20% of this balance over the next 12 months and generally expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Outlook

We remain constructive in our outlook and are reiterating our full year 2019 guidance.

  • We are reiterating our annual revenue outlook of $485 million to $495 million;
    • We expect Q3 2019 revenue of $120 million to $125 million;
  • We are reiterating annual Adjusted EBITDA guidance of $80 million to $85 million, which represents 34% year-over-year growth at the midpoint;
  • We expect stock-based compensation expenses to be approximately $35 million for the full year, which is subject to change depending on our assessment of the probability of attaining operational metrics for the CEO Performance Award and XSU awards, and the expected timing of such attainment; and
  • We expect a normalized tax rate of 20% to 25%, which can fluctuate depending on geography of income and the effects of discrete items, including changes in our stock price.

We are developing products that serve law enforcement, who are present in some of the most significant moments in people's lives. This means that ultimately our products serve the communities and people whom police protect. We take our public mission seriously and believe the business is well positioned to continue serving our customers and communities, while creating value for our shareholders over the long term.

Signed,

Rick Smith, CEO
Luke Larson, President
Jawad Ahsan, CFO

Quarterly conference call and Webcast

We will host our Q2 2019 earnings conference call on August 8 at 2 p.m. PT / 5 p.m. ET.

The call will be available via live audio webcast and archived replay on Axon's investor relations website at https://investor.axon.com.

Statistical Definitions

Software & Sensors bookings are an indication of the activity the Company is seeing relative to Software & Sensors hardware, software and Axon Evidence. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales), including contractual optional periods we expect to be exercised, net of cancellations, inclusive of renewals, placed in the relevant fiscal period, regardless of when the products or services ultimately will be provided. Most bookings will be invoiced in subsequent periods.

Due to municipal government funding rules, in some cases certain of the future period amounts included in bookings are subject to budget appropriation or other contract cancellation clauses. Although Axon has entered into contracts for the delivery of products and services in the future and anticipates the contracts will be fulfilled, if agencies do not exercise contractual options, do not appropriate money in future year budgets or do enact a cancellation clause, revenue associated with these bookings may not ultimately be recognized, resulting in a future reduction to bookings.

For more information relative to our revenue recognition policies, please reference our SEC filings.

Non-GAAP Measures

To supplement the Company's financial results presented in accordance with GAAP, we present the non-GAAP financial measures of EBITDA, Adjusted EBITDA, Non-GAAP Net Income, Non-GAAP Diluted Earnings Per Share and Free Cash Flow. The Company's management uses these non-GAAP financial measures in evaluating the Company's performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing its performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented herein.

  • EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation and amortization.
  • Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation, amortization, non-cash stock-based compensation expense and pre-tax certain other items (described below).
  • Non-GAAP Net Income (Most comparable GAAP Measure: Net income) - Net income excluding the costs of non-cash stock-based compensation and excluding pre-tax certain other items, including, but not limited to, net gain/loss/write-down/disposal/abandonment of property, equipment and intangible assets; loss on impairment; and costs related to business acquisitions. The Company tax-effects non-GAAP adjustments using the blended statutory federal and state tax rates for each period presented.
  • Non-GAAP Diluted Earnings Per Share (Most comparable GAAP Measure: Earnings Per share) - Measure of Company's Non-GAAP Net Income divided by the weighted average number of diluted common shares outstanding during the period presented.
  • Free Cash Flow (Most comparable GAAP Measure: Cash flow from operating activities) - cash flows provided by operating activities minus purchases of property and equipment, intangible assets and cash flows related to business acquisitions.

Caution on Use of Non-GAAP Measures

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing the Company's operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

  • these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to the Company's GAAP financial measures;
  • these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company's GAAP financial measures;
  • these non-GAAP financial measures should not be considered to be superior to the Company's GAAP financial measures; and
  • these non-GAAP financial measures were not prepared in accordance with GAAP or under a comprehensive set of rules or principles.

Further, these non-GAAP financial measures may be unique to the Company, as they may be different from similarly titled non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies.

About Axon

Axon is a network of devices, apps, and people that helps public safety personnel become smarter and safer. With a mission of protecting life, our technologies give customers the confidence, focus and time they need to keep their communities safe. Our products impact every aspect of a public safety officer's day-to-day experience.

We work hard for those who put themselves in harm's way for all of us. To date, there are more than 397,800 software seats booked on the Axon network around the world and more than 220,000 lives and countless dollars have been saved with the Axon network of devices, apps and people. Learn more at www.axon.com or by calling (800) 978-2737.

AT&T is a trademark of AT&T Intellectual Property, Bluetooth is a trademark of the Bluetooth SIG, Inc., Facebook is a trademark of Facebook, Inc., FirstNet is a trademark of the US Department of Commerce, LTE is a trademark of the European Telecommunications Standards Institute, Twitter is a trademark of Twitter, Inc., Verizon is a trademark of Verizon Trademark Services LLC, and Wi-Fi is a trademark of the Wi-Fi Alliance.

Axon, Axon Body 2, Axon Body 3, Axon Evidence, Axon Fleet, TASER, TASER 7, Vievu, Protect Life and the Delta Logo are trademarks of Axon Enterprise, Inc., some of which are registered in the US and other countries. For more information, visit www.axon.com/legal. All rights reserved.

Follow Axon here:

  • Axon on Twitter: https://twitter.com/axon_us
  • Axon on Facebook: https://www.facebook.com/Axon.ProtectLife/

Forward-looking statements

These forward-looking statements include, without limitation, statements regarding: proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; expectations about customer behavior; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and statements of management's strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Form 10-K for the year ended December 31, 2018. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as "may," "will," "should," "could," "would," "predict," "potential," "continue," "expect," "anticipate," "future," "intend," "plan," "believe," "estimate," and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The following important factors could cause actual results to differ materially from those in the forward-looking statements: customer purchase behavior, including adoption of our software as a service delivery model; the impact of product mix on projected gross margins; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; changes in the costs of product components and labor; defects in our products; delayed cash collections and possible credit losses due to our subscription model; exposure to international operational risks; our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; loss of customer data, a breach of security or an extended outage, including our reliance on third party cloud-based storage providers; negative media publicity regarding our products; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our product by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and to evolving regulations surrounding privacy and data protection; our ability to integrate acquired businesses; our ability to attract and retain key personnel; and counter-party risks relating to cash balances held in excess of FDIC insurance limits. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. Our Annual Report on Form 10-K lists various important factors that could cause actual results to differ materially from expected and historical results. These factors are intended as cautionary statements for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Readers can find them under the heading "Risk Factors" in the Annual Report on Form 10-K and in the Quarterly Report on Form 10-Q, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the SEC.

Please visit https://investor.axon.com, https://www.axon.com/press, www.twitter.com/axon_us and https://www.facebook.com/Axon.ProtectLife/ where Axon discloses information about the company, its financial information, and its business.

For investor relations information please contact Andrea James via email at IR@axon.com.

CONTACT:
Investor Relations
Axon Enterprise, Inc.
IR@axon.com

 

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)



Three Months Ended


Six Months Ended June 30,


June 30, 2019


March 31, 2019


June 30, 2018


2019


2018

Net sales from products

$

80,391



$

88,089



$

76,721



$

168,480



$

157,695


Net sales from services

31,971



27,721



22,505



59,692



42,746


Net sales

112,362



115,810



99,226



228,172



200,441


Cost of product sales

38,220



39,600



31,087



77,820



63,521


Cost of service sales

8,582



7,293



4,996



15,875



9,316


Cost of sales

46,802



46,893



36,083



93,695



72,837


Gross margin

65,560



68,917



63,143



134,477



127,604


Operating expenses:










Sales, general and administrative

43,362



42,892



39,343



86,254



75,102


Research and development

23,493



23,354



18,501



46,847



33,620


Total operating expenses

66,855



66,246



57,844



133,101



108,722


Income (loss) from operations

(1,295)



2,671



5,299



1,376



18,882


Interest and other income (expense), net

1,845



2,313



(295)



4,158



968


Income before provision for income taxes

550



4,984



5,004



5,534



19,850


Provision for (benefit from) income taxes

(188)



(1,435)



(3,481)



(1,623)



(1,561)


Net income

$

738



$

6,419



$

8,485



$

7,157



$

21,411


Net income per common and common equivalent shares:










Basic

$

0.01



$

0.11



$

0.15



$

0.12



$

0.39


Diluted

$

0.01



$

0.11



$

0.15



$

0.12



$

0.38


Weighted average number of common and common equivalent shares outstanding:










Basic

59,187



58,914



55,527



59,051



54,330


Diluted

60,000



59,751



57,054



59,876



55,892


 

AXON ENTERPRISE, INC.

SEGMENT REPORTING

(Unaudited)

(dollars in thousands)



Three Months Ended June 30, 2019


Three Months Ended March 31, 2019


Three Months Ended June 30, 2018


TASER


Software and
Sensors


Total


TASER


Software and
Sensors


Total


TASER


Software and
Sensors


Total

Net sales from products (1)

$

60,423



$

19,968



$

80,391



$

65,301



$

22,788



$

88,089



$

60,624



$

16,097



$

76,721


Net sales from services (2)

149



31,822



31,971



90



27,631



27,721





22,505



22,505


Net sales

60,572



51,790



112,362



65,391



50,419



115,810



60,624



38,602



99,226


Cost of product sales

24,262



13,958



38,220



23,278



16,322



39,600



17,681



13,406



31,087


Cost of service sales



8,582



8,582





7,293



7,293





4,996



4,996


Cost of sales

24,262



22,540



46,802



23,278



23,615



46,893



17,681



18,402



36,083


Gross margin

36,310



29,250



65,560



42,113



26,804



68,917



42,943



20,200



63,143


Gross margin %

59.9

%


56.5

%


58.3

%


64.4

%


53.2

%


59.5

%


70.8

%


52.3

%


63.6

%



















Research and development

3,087



20,406



23,493



3,712



19,642



23,354



4,019



14,482



18,501


 


Six Months Ended June 30, 2019


Six Months Ended June 30, 2018


TASER


Software and
Sensors


Total


TASER


Software and
Sensors


Total

Net sales from products (1)

$

125,724



$

42,756



$

168,480



$

124,148



$

33,547



$

157,695


Net sales from services (2)

239



59,453



59,692





42,746



42,746


Net sales

125,963



102,209



228,172



124,148



76,293



200,441


Cost of product sales

47,540



30,280



77,820



38,224



25,297



63,521


Cost of service sales



15,875



15,875





9,316



9,316


Cost of sales

47,540



46,155



93,695



38,224



34,613



72,837


Gross margin

78,423



56,054



134,477



85,924



41,680



127,604


Gross margin %

62.3

%


54.8

%


58.9

%


69.2

%


54.6

%


63.7

%













Research and development

6,799



40,048



46,847



6,979



26,641



33,620



(1) Software and Sensors "products" revenue consists of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as Sensors and Other revenue.


(2) Software and Sensors "services" revenue comprises sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as Axon Cloud revenue. TASER "services" revenue similarly includes amounts for Axon Evidence and related professional services.

 

AXON ENTERPRISE, INC.

UNIT SALES STATISTICS

(Unaudited)

Units in whole numbers



Three Months Ended June 30,


Six Months Ended June 30,


2019


2018


Unit
Change


Percent
Change


2019


2018


Unit
Change


Percent
Change

















TASER 7

8,135





8,135



*



16,970





16,970



*


TASER X26P

9,493



18,664



(9,171)



(49.1)



24,478



34,384



(9,906)



(28.8)


TASER X2

9,759



15,537



(5,778)



(37.2)



19,620



36,038



(16,418)



(45.6)


TASER Pulse and Bolt

3,631



3,158



473



15.0



4,884



7,158



(2,274)



(31.8)


Cartridges

606,220



611,136



(4,916)



(0.8)



1,222,737



1,144,088



78,649



6.9


Axon Body

20,346



20,407



(61)



(0.3)



46,194



42,176



4,018



9.5


Axon Flex

3,508



3,281



227



6.9



7,099



6,974



125



1.8


Axon Fleet

2,441



2,079



362



17.4



4,176



3,936



240



6.1


Axon Dock

3,408



4,534



(1,126)



(24.8)



8,402



10,378



(1,976)



(19.0)


TASER Cam

1,716



1,491



225



15.1



3,457



5,019



(1,562)



(31.1)



     * Not meaningful

 

AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

Dollars in thousands



Three Months Ended


Six Months Ended


June 30, 2019


March 31, 2019


June 30, 2018


June 30, 2019


June 30, 2018

EBITDA and Adjusted EBITDA:










Net income

$

738



$

6,419



$

8,485



$

7,157



$

21,411


Depreciation and amortization

2,687



2,800



2,750



5,487



5,161


Interest expense

17



6



17



23



37


Investment interest income

(1,630)



(2,003)



(595)



(3,633)



(670)


Provision for (benefit from) income taxes

(188)



(1,435)



(3,481)



(1,623)



(1,561)


EBITDA

$

1,624



$

5,787



$

7,176



$

7,411



$

24,378












Adjustments:










Stock-based compensation expense

$

8,627



$

7,905



$

4,954



$

16,532



$

9,047


Transaction costs and adjustments related to business acquisition





1,382





1,382


Loss on disposal and abandonment of intangible assets



18



54



18



54


Loss on disposal and impairment of property and equipment, net

1,321



242



119



1,563



153


Adjusted EBITDA

$

11,572



$

13,952



$

13,685



$

25,524



$

35,014


Net income as a percentage of net sales

0.7

%


5.5

%


8.6

%


8.9

%


2.9

%

Adjusted EBITDA as a percentage of net sales

10.3

%


12.0

%


13.8

%


11.2

%


17.5

%





















Stock-based compensation expense:









Cost of product and service sales

$

237



$

226



$

125



$

463



$

266


Sales, general and administrative

4,941



4,681



2,731



9,622



5,035


Research and development

3,449



2,998



2,098



6,447



3,746


Total

$

8,627



$

7,905



$

4,954



$

16,532



$

9,047


 

AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - continued

(Unaudited)

Dollars in thousands, except per-share amounts



Three Months Ended


Six Months Ended June 30,


June 30, 2019


March 31, 2019


June 30, 2018


2019


2018

Non-GAAP net income:










GAAP net income

$

738



$

6,419



$

8,485



$

7,157



$

21,411


Non-GAAP adjustments:










Stock-based compensation expense

8,627



7,905



4,954



16,532



9,047


Loss on disposal and abandonment of intangible assets



18



54



18



54


Loss on disposal and impairment of property and equipment, net

1,321



242



119



1,563



153


Transaction costs and adjustments related to business acquisition





1,382





1,382


Income tax effects

(2,517)



(2,016)



(1,580)



(4,583)



(2,581)


Income tax benefit of CEO stock option exercise





(3,362)





(3,362)


Non-GAAP net income

$

8,169



$

12,568



$

10,052



$

20,687



$

26,104





Three Months Ended


Six Months Ended June 30,


June 30, 2019


March 31, 2019


June 30, 2018


2019


2018

Non-GAAP diluted earnings per share:










GAAP diluted earnings per share

$

0.01



$

0.11



$

0.15



$

0.12



$

0.38


Non-GAAP adjustments:










Stock-based compensation expense

0.14



0.13



0.09



0.28



0.16


Loss on disposal and abandonment of intangible assets










Loss on disposal and impairment of property and equipment, net

0.02







0.03




Transaction costs and adjustments related to business acquisition





0.02





0.02


Income tax effects

(0.04)



(0.03)



(0.03)



(0.08)



(0.05)


Income tax benefit of CEO stock option exercise





(0.06)





(0.06)


Non-GAAP diluted earnings per share (1)

$

0.14



$

0.21



$

0.18



$

0.35



$

0.47












Weighted average number of diluted common and common equivalent shares outstanding (in thousands)

60,000



59,751



57,054



59,876



55,892



(1)  The per share calculations for GAAP net income, Non-GAAP adjustments and Non-GAAP diluted earnings per share are each computed independently. Per share amounts may not sum due to rounding.

 

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)



June 30, 2019


December 31, 2018


(Unaudited)



ASSETS

Current Assets:




Cash and cash equivalents

$

219,720



$

349,462


Short-term investments

116,629




Accounts and notes receivable, net

134,630



130,579


Contract assets, net

26,648



13,960


Inventory

40,999



33,763


Prepaid expenses and other current assets

36,429



30,391


Total current assets

575,055



558,155






Property and equipment, net

40,500



37,893


Deferred income tax assets, net

20,658



19,347


Intangible assets, net

14,424



15,935


Goodwill

24,969



24,981


Long-term notes receivable, net of current portion

35,170



40,230


Other assets

35,594



22,999


Total assets

$

746,370



$

719,540






LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:




Accounts payable

$

9,064



$

15,164


Accrued liabilities

34,011



41,092


Current portion of deferred revenue

113,351



107,016


Customer deposits

3,395



2,702


Other current liabilities

3,852



37


Total current liabilities

163,673



166,011






Deferred revenue, net of current portion

74,586



74,417


Liability for unrecognized tax benefits

3,462



2,849


Long-term deferred compensation

3,755



3,235


Other long-term liabilities

11,967



5,704


Total liabilities

257,443



252,216






Stockholders' Equity:




Preferred stock




Common stock

1



1


Additional paid-in capital

467,904



453,400


Treasury stock

(155,947)



(155,947)


Retained earnings

178,540



171,383


Accumulated other comprehensive loss

(1,571)



(1,513)


Total stockholders' equity

488,927



467,324


Total liabilities and stockholders' equity

$

746,370



$

719,540



 

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)



Three Months Ended


Six Months Ended June 30,


June 30, 2019


March 31, 2019


June 30, 2018


2019


2018

Cash flows from operating activities:










Net income

$

738



$

6,419



$

8,485



$

7,157



$

21,411


Adjustments to reconcile net income to net cash provided by operating activities:










Depreciation and amortization

2,687



2,800



2,750



5,487



5,161


Loss on disposal and abandonment of intangible assets



18



54



18



54


Loss (gain) on disposal and impairment of property and equipment, net

1,321



242



119



1,563



153


Stock-based compensation

8,627



7,905



4,954



16,532



9,047


Deferred income taxes

(1,888)



577



(1,572)



(1,311)



(58)


Unrecognized tax benefits

306



307



108



613



212


Other noncash, net

926



896



17



1,822



30


Change in assets and liabilities:










Accounts and notes receivable and contract assets

10,988



(21,994)



(7,731)



(11,006)



(24,791)


Inventory

(3,579)



(3,936)



2,100



(7,515)



4,508


Prepaid expenses and other assets

(2,609)



(3,152)



(5,727)



(5,761)



(7,429)


Accounts payable, accrued liabilities and other liabilities

(9,468)



(7,284)



(9,437)



(16,752)



(2,688)


Deferred revenue

3,345



3,232



3,942



6,577



10,496


Net cash provided by (used in) operating activities

11,394



(13,970)



(1,938)



(2,576)



16,106


Cash flows from investing activities:










Purchases of investments

(36,670)



(105,322)



(3,529)



(141,992)



(4,331)


Proceeds from call / maturity of investments

25,319





3,871



25,319



7,038


Purchases of property and equipment

(2,590)



(5,271)



(3,602)



(7,861)



(4,665)


Purchases of intangible assets

(182)



(162)



(220)



(344)



(254)


Business acquisitions, net of cash acquired





(5,014)





(5,014)


Net cash used in investing activities

(14,123)



(110,755)



(8,494)



(124,878)



(7,226)


Cash flows from financing activities:










Net proceeds from equity offering





233,993





233,993


Proceeds from options exercised

4



100



230



104



586


Income and payroll tax payments for net-settled stock awards

(873)



(1,259)



(7,030)



(2,132)



(10,807)


Payment of contingent consideration for business acquisitions





(575)





(575)


Net cash provided by (used in) financing activities

(869)



(1,159)



226,618



(2,028)



223,197


Effect of exchange rate changes on cash and cash equivalents

(319)



67



(1,007)



(252)



(538)


Net increase (decrease) in cash and cash equivalents and restricted cash

(3,917)



(125,817)



215,179



(129,734)



231,539


Cash and cash equivalents, beginning of period

225,210



351,027



94,798



351,027



78,438


Cash and cash equivalents, end of period

$

221,293



$

225,210



$

309,977



$

221,293



$

309,977


 

AXON ENTERPRISE, INC.

SUPPLEMENTAL CASH FLOW INFORMATION

(Unaudited)

(in thousands)



Three Months Ended


Six Months Ended June 30,


June 30, 2019


March 31, 2019


June 30, 2018


2019


2018











Cash and cash equivalents

$

219,720



$

223,642



$

307,507



$

219,720



$

307,507


Restricted cash

1,573



1,568



2,470



1,573



2,470


Cash, cash equivalents and restricted cash, end of period

$

221,292



$

225,210



$

309,977



$

221,292



$

309,977





Three Months Ended


Six Months Ended June 30,


June 30, 2019


March 31, 2019


June 30, 2018


2019


2018











Net cash provided by (used in) operating activities

$

11,394



$

(13,970)



$

(1,938)



$

(2,576)



$

16,106


Purchases of property and equipment

(2,590)



(5,271)



(3,602)



(7,861)



(4,665)


Purchases of intangible assets

(182)



(162)



(220)



(344)



(254)


Cash flows related to business acquisitions





(5,014)





(5,014)


Free cash flow (deficit), a non-GAAP measure

$

8,622



$

(19,403)



$

(10,774)



$

(10,781)



$

6,173


 

Cision View original content to download multimedia:http://www.prnewswire.com/news-releases/axon-q2-2019-record-bookings-of-142-million-up-60-on-new-product-strength-adoption-of-officer-safety-plan-7-300898963.html

SOURCE Axon

Copyright 2019 PR Newswire

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