Market Overview

Axon Reports Record Revenue of $131 million; Axon Cloud Grows 42%; Raising Full-Year Revenue Outlook to $500-$510 million

Share:

SCOTTSDALE, Ariz., Nov. 7, 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,

Since our August update, we executed on a series of objectives across our product, people, and adjacent markets, and we feel as confident as ever in our strategy and trajectory. We set and delivered on several large goals thus far in 2019 — all with the purpose of driving adoption of our growing software platform, transforming Axon into the leading technology provider for public safety, and serving our ultimate goal of creating safer communities and protecting life.

Importantly, we continue to make substantial progress driving long-term subscriptions. Customers have been rapidly adopting our best-value plans to gain access to more of the Axon network, building upon our historical strength with TASER device and body camera solution subscriptions. Our highest value tiered integrated bundle, for example, of $199 per officer per month over five years, known as the Officer Safety Plan, includes access to a wide range of benefits including TASER 7, Axon Body 3, and a host of cloud services including Axon Records. In Q3 2019, about a third of our total quarterly bookings, which average about five years per contract, were tied to some version of the Officer Safety Plan.

We are thrilled to be approaching year end with a strong market position and powerful operating platform that will support the next several years of revenue and profit growth.

Product

We have a number of positive updates across our product portfolio.

After completing carrier certification with AT&T FirstNet Ready™ and Verizon Responder Private Core, we began shipping Axon Body 3, our latest generation camera, in September, as planned. Axon Body 3's cellular communication, wireless data, and geolocation capabilities are poised to revolutionize public safety workflows. And because the majority of our body camera customers are on a multi-year subscription, we expect the majority of our customer base to automatically upgrade to Axon Body 3 over the next three years as we build upon our unmatched, rapidly growing network of cloud-connected cameras and other devices. The portion of agencies choosing to activate the LTE connectivity built into every Axon Body 3 camera is exceeding our expectations and we continue to drive that forward in support of our future vision, where cameras use real-time signals and AI to automate transcription and automatically feed information into Axon Records.

Axon Records also achieved a critical milestone in September when the Fresno Police Department went live with a full agency-wide Records Management System (RMS) deployment using our cloud subscription service. Cincinnati Police Department has also started using Axon Records for several critical workloads, including use-of-force reporting, and will continue to deploy additional modules throughout 2020 and beyond as part of an agency-wide RMS upgrade to our service. Fresno and Cincinnati PDs are positive reference customers for Axon as we sign new customers and enhance Axon Records' capabilities over time. As a reminder, Axon Records intends to disrupt the law enforcement software category known as Records Management Systems, or RMS, which powers the workloads for writing, storing, managing and sharing official police incident reports. Axon's strategic advantages in this category include our growing network of cloud-connected sensors and our industry-leading cloud SaaS platform, Axon Evidence (Evidence.com), which today is one of the world's largest repositories of data of any type. Cincinnati PD Police Chief Eliot Isaac said, "We are seeing exceptional benefits with how body camera footage can be directly embedded in our use-of-force, officer accident, citizen complaint and other internal reports."

We are continuing to make progress against our TASER 7 gross margin road map. We are finalizing our new cartridge design that will significantly reduce our bill of materials on the TASER 7 cartridge and we are already seeing cost improvements.

And finally, we are especially proud of our corporate social responsibility and environmental, social and corporate governance (ESG)efforts regarding Axon Fleet 3, our next-generation in-car video system, and automated license plate recognition (ALPR) technology, which is still under development. ALPR is an important tool for keeping communities safe, as it can help apprehend criminals, find missing children, and recover stolen vehicles — but the existing state of the industry lacks privacy safeguards and thought leadership regarding data retention and data ownership. Axon is leveraging the power of AI to significantly reduce the cost of ALPR systems, making it affordable for every patrol. We are simultaneously addressing industry shortcomings to improve data security, transparency and privacy, and creating an ethical framework to help prevent misuse. Taking a thoughtful approach to issues around AI use in policing, and incorporating guidelines created by Axon's AI and Policing Technology Ethics Board, creates greater long-term value for all our stakeholders: our communities, our customers, and shareholders.

People

Among the most important elements of Axon's success is our people and culture. We have more than 1,500 dedicated employees, a deep management bench and a best-in-class Board of Directors who all bring passion to the business every day. In recent months we have further strengthened our team with additions to both management and the Board.

In August, Caitlin Kalinowski joined Axon's Board of Directors, expanding the total number of independent directors to seven. Caitlin is the Head of VR Hardware for the Augmented Reality/Virtual Reality division at Facebook and a recognized leader in virtual reality and product design. She is responsible for the product design and engineering of Oculus's award-winning VR devices, has led technical teams at Apple for the Mac Pro and MacBook Air, and was part of the original Unibody MacBook Pro team. She is already bringing her considerable hardware expertise to discussions with our product teams, and providing input on our VR-based officer training platform. We are thrilled to have her as a member of our Board.

In September, Jeff Kunins was appointed Chief Product Officer and Executive Vice President of Software, and is responsible for running our global software hub in Seattle. Jeff was most recently with Amazon, where he was Vice President of Alexa Entertainment and led Alexa's global experience, developer platform, and strategic partnerships for music, video, and podcasts across over 100 million Alexa-enabled devices. He has also served in diverse roles including VP of Kindle's global reading experience at Amazon, General Manager of Product and Design at Skype and General Manager of Windows Live Messenger at Microsoft. Jeff is leading Axon's effort to bring to public safety the product experience that consumers have come to expect, and to do so in a way that creates long-term value for our customers, the communities they protect, and Axon. We are thrilled to have him join our executive team.

Adjacent Markets

In Q3, the US Forest Service became the first federal agency to outfit all of its officers with TASER devices and body cameras, backed by Axon Evidence. This win was a direct result of Axon's decision a few years ago to make an investment to obtain FedRAMP certification, which would allow federal government customers to store data in our cloud. Since achieving certification in April, we began making more of a concerted effort to capture the federal law enforcement market, which employs more than 120,000 full-time civilian law enforcement officers across dozens of agencies, the largest of which are the Department of Homeland Security and the Department of Justice.

In October, Canada's York Regional Police, a major Canadian agency, joined the Axon network with the adoption of the Axon Fleet 2 in-car video system. The agency also purchased 6x more software licenses than camera hardware licenses, showcasing that customers see value in our standalone cloud services. The York Regional Police represent our second international Axon Fleet customer, after a UK agency adopted Axon Fleet in June.

Lastly, we are beginning to see positive momentum in the prisons and corrections market, with trials of Axon's body camera and TASER devices leading to significant reductions in staff assaults, use-of-force incidents, and excessive force complaints. The corrections market is adjacent to law enforcement and one that we believe Axon can capture with minimal additional R&D investment. In the US, there are about 430,000 correctional officers and about 92,000 probation and parole officers, and we estimate that TASER device penetration among these officers is minimal, while body camera penetration is nearly zero.

We have tended to be conservative in sizing and discussing our $8.4 billion total addressable market, which excludes opportunities in US federal law enforcement, international Axon Fleet, and prisons and corrections. These early proof points suggest that our annual total addressable market is likely much larger.

Summary of Q3 2019 Results

  • Revenue of $131 million represents 25% year-over-year growth, and reflects strength across both our TASER and Software and Sensors segments. Drivers of sequential revenue growth (up 16%) were primarily TASER 7 unit shipments, international demand for Axon Cloud services, increased demand for our legacy TASER devices, and growth of Axon Fleet in-car video systems.
  • Gross margin of 61.3% increased from 58.3% in Q2 2019, driven by strength across the business.
  • Operating expenses of $74 million include approximately $4.4 million of incremental "catch up" stock-based compensation expense and reflect ongoing cost discipline, which drove operating leverage in the quarter.
    • Specifically, SG&A included $4.0 million and R&D included $0.4 million of stock-based compensation expense for the third tranche of our CEO Performance Award and eXponential Stock Performance Plan ("XSPP") for which the third performance goal became probable of attainment during Q3 2019.
  • GAAP EPS was $0.10; Non-GAAP EPS of $0.28 excludes non-cash stock-based compensation expense and an impairment charge.
    • GAAP EPS includes the $4.4 million of "catch-up" stock-based compensation expense referred to above. For more details about Axon's innovative stock-based compensation plans, which were approved by shareholders and align the interests of management and employees with shareholders, please see our online FAQ.
  • Adjusted EBITDA was a record $24 million.
  • Cash and investments grew $16.5 million sequentially to approximately $353 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


September 30,
2019


June 30, 2019


September 30,
2018


QoQ


YoY


(in thousands)





Net sales

$

71,743



$

60,572



$

63,666



18.4

%


12.7

%

Gross margin

63.1

%


59.9

%


69.8

%


320bp


-670bp



















 

  • TASER revenue of $72 million reflected strong sales of the TASER 7, including the unmet demand at the end of the second quarter, as well as strength in our legacy product lines.
  • TASER gross margin of 63.1% increased sequentially from 59.9% in Q2 2019.
    • TASER segment sequential gross margin improvement was driven by higher fixed cost absorption due to increased unit shipment volumes, increased contribution from subscription revenue tied to TASER-related cloud software and subscription cartridges, lower build costs associated with the TASER 7 cartridge as well as an improvement in TASER 7 scrap costs. Gross margin strength was partially offset by hardware shipment mix.

Software and Sensors


Three Months Ended


Change


September 30,
2019


June 30, 2019


September 30,
2018


QoQ


YoY


(in thousands)





Axon Cloud net sales

$

34,021


View Comments and Join the Discussion!
 
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at vipaccounts@benzinga.com