Axon Reports Second Quarter Results; Software Annual Recurring Revenue of $93 Million
SCOTTSDALE, Ariz., Aug. 7, 2018 /PRNewswire/ -- Axon (Nasdaq: AAXN), the global leader in public safety technology, today released the following quarterly update letter to shareholders. Results included:
-- Total quarterly revenue of $99 million, up 25% year-over-year
-- Axon Cloud revenue of $23 million, up 76% year-over-year
-- Software & Sensors annual recurring revenue of $92.7 million, up 70%
year-over-year
-- Completed a successful $246 million public offering of common stock
-- Began field testing of Axon Records with a partner agency
-- Maintaining full year revenue guidance; reiterating full year operating
margin outlook and introducing full year adjusted EBITDA margin guidance
of 14% to 16%
Dear shareholders,
We made significant progress this past quarter in building out the Axon network. We added key capabilities through new partnerships with DJI and Milestone Systems, bringing drone and CCTV compatibility to our network. We also announced Axon Fleet 2, our second generation in-car video system, which builds upon the momentum of Axon Fleet. By Q4 of last year, Axon Fleet became the number one in-car video system in the U.S. by order volume according to our win-loss analysis, and we continue to vie for the top spot each quarter. Axon Fleet demonstrates the power of the Axon network to drive success in new segments where the network effects of seamless integration create highly valuable and unique differentiation. We hope to see similar results with Axon Records, our next major initiative, which has begun field testing with a partner agency. We have also staffed a team and begun development of Axon Dispatch, the next major cloud software system that will follow Records. Finally, we expanded our user base with the acquisition of VIEVU, and ended the quarter with over 300,000 booked seats.
Our product pipeline is key to delivering upon our long-term growth objectives. We continue to scale our research and development organization, with significant progress building out our engineering team year-to-date. We discuss more product development milestones, and what our teams are working on, below.
The market appears to be validating our approach. In July, Honolulu became the 45th major city to join the Axon network with the order of 1,200 body cameras and unlimited storage on Evidence.com. And our international customer momentum continues. In July, Alberta's Calgary Police Service became the first major city in Canada to join the Axon network, and in June, the Cumbria Constabulary became the first UK law enforcement agency to roll out Axon Citizen, our public evidence submission tool.
In June, we hosted our annual Axon Accelerate user conference in Scottsdale. In three years, we've built the largest technology conference in policing, which immerses chiefs, public information officers, prosecutors, officers and media in the Axon network for 48 hours. More than 1,100 law enforcement personnel attended the conference, representing significant growth compared with 400 attendees last year. We also attracted several large sponsors, including Microsoft. More importantly, so far we've seen Axon Accelerate customer leads become nearly as large as those that we generate at The International Association of Chiefs of Police annual conference. As we continue to build Axon Accelerate, we expect it to become the preeminent tech conference in public safety.
Planning also continues for our next generation manufacturing facility in Scottsdale, which would consolidate four office locations into one building and bring more automation to future generations of product hardware. Production of our current hardware product suite is highly manual -- less than 50% of part manufacturing is automated. We have plans to automate more than 75% of future hardware production.
Finally, in the second quarter we completed a successful follow-on offering of common shares, raising gross proceeds of $246 million. The offering strengthened Axon's financial position, providing us with enhanced flexibility as we transition more of our product sales to subscription pricing models, while also enabling us to continue investing for growth.
For those shareholders new to Axon, we are investing in four strategic growth areas, which we believe represent the future of critical public safety technology:
1. TASER less-lethal weapons,
2. Sensors hardware including on-officer body cameras and Axon Fleet in-car
video systems,
3. The Evidence.com connected SAAS network, and
4. Axon Records and Computer Aided Dispatch software.
These value streams exist within an estimated $7.7 billion total addressable market, comprising TASER weapons ($1.5 billion), hardware sensors ($0.7 billion), and cloud-based public safety software ($5.5 billion.)
We are focused on building highly defensible subscription revenue models that are expected to provide stable and consistent recurring revenue, and developing software that generates network effects that will add to the stability of our recurring revenue streams.
Summary of Q2 2018 Results ((1))
-- Revenue of $99 million grew 25% year-over-year.
-- International revenue grew 52% year-over-year to $20 million, driven
by strength in Australia, Canada, France, and the UK.
-- Gross margin of 63.6% reflects a strong product mix in weapons and
continued Axon Cloud growth, partially offset by low gross margin VIEVU
contracts.
-- Operating expenses of $57.8 million were up 14% sequentially. Excluding
one-time acquisition and integration costs of $1.4 million associated
with the purchase of VIEVU, operating expenses were $56.4 million, up
11% sequentially, driven by continued hiring in R&D (up 22%
sequentially) and investments in SG&A (up 6% sequentially excluding
one-time acquisition and integration costs) as we scale.
-- GAAP EPS of $0.15 was favorably impacted by $0.06 of discrete tax
benefits related to CEO stock option exercises in the quarter. Non-GAAP
EPS of $0.18, which excludes $0.06 of discrete tax benefits, grew 100%
year-over-year.
-- Adjusted EBITDA of $13.7 million, up 69% year-over-year, and Adjusted
EBITDA margin of 13.8%.
(1) Amounts for Q2 2017 have not
been adjusted under the
modified retrospective method
of adoption of Topic 606, and
are presented consistent with
the prior period amounts
reported under ASC 605. Revenue
for Q2 2018 would have been
$98.6 million under ASC 605.
Financial Commentary by Segment
TASER Weapons
Three Months Ended Change
June 30, March 31, June 30, QoQ YoY
2018 2018 2017 (1)
---- ---- -------
TASER Weapons
-------------
Net sales $60,624 $63,524 $53,016 (4.6)% 14.4%
Gross margin 70.8% 67.7% 69.7% 310bp 110bp
(1) Amounts for the three months
ended June 30, 2017 have not
been adjusted under the
modified retrospective method
of adoption of Topic 606, and
are presented consistent with
the prior period amounts
reported under ASC 605.
-- TASER Weapons sales in Q2 reflect typical weapons seasonality.
-- Strong gross margins were driven by product mix.
-- In the quarter, 30% of TASER orders were on a service plan, compared
with 40% in Q1 2018. The sequential decrease reflects seasonality and a
mix that included large orders from distributors and international
customers.
-- The following chart illustrates the expected revenue recognition and
cash flow per officer on a regularly priced standard Officer Safety
Plan, which is our $109 per month plan that includes a TASER weapon,
cartridges, an Axon body camera, camera hardware refreshes, and an
Evidence.com seat license with data storage.
Software & Sensors
Three Months Ended Change
June 30, March 31, June 30, QoQ YoY
2018 2018 2017 (1)
---- ---- -------
Software
and
Sensors
--------
Axon Cloud
net sales $22,505 $20,241 $12,768 11.2% 76.3%
Axon Cloud
gross
margin 77.8% 78.7% 70.0% -90bp 780bp
Sensors
and Other
net sales $16,097 $17,450 $13,859 (7.8)% 16.1%
Sensors
and Other
gross
margin 16.7% 31.9% (1.7)% -1,520bp 1,840bp
(1) Amounts for the three months
ended June 30, 2017 have not
been adjusted under the
modified retrospective method
of adoption of Topic 606, and
are presented consistent with
the prior period amounts
reported under ASC 605.
-- Continued adoption of Axon Cloud, which includes software-as-a-service
subscriptions to Evidence.com, drove 76% revenue growth year-over-year.
-- Sensors and Other sales, which have historically fluctuated, were driven
by record Axon Fleet unit shipments in the second quarter. As expected,
Sensors and Other gross margins were unfavorably affected by the
integration of VIEVU's contracts as well as hardware mix, including the
first generation of Axon Fleet.
-- Software & Sensors bookings were $89 million in the quarter.
-- Software & Sensors annual recurring revenue (software & warranty) grew
to $92.7 million, representing a 70% gain year-over-year and a 11% gain
sequentially.
-- As of June 30, 2018, Software & Sensors backlog was approximately $650
million, which is a subset of Axon's total remaining performance
obligations of approximately $750 million.
-- As of June 30, 2018, we had 305,200 booked seats on the Axon network,
representing an increase of 78,300 seats from March 31, 2018. We had a
mix of organic user growth as well as seats added from the VIEVU
acquisition. We also reclassified some camera seats that were originally
booked on-premise but were migrated into the cloud.
-- We've identified a glide path to winding down operating expenses
associated with VIEVU driven by our transitioning of customers onto the
Axon network. In the meantime, we continue to incur integration costs
largely associated with user migration. We have established competency
with large scale and complex data projects, having moved the entire
instance of Evidence.com off of the Amazon Web Services cloud and onto
the Microsoft Azure cloud in late 2017. The VIEVU user migration is
substantially smaller, but has unique components because the data was
not captured by our hardware or stored in software that we designed. We
expect to continue to incur integration costs throughout the remainder
of the year.
Updates on our Product Pipeline:
Axon Fleet - This summer, we launched Axon Fleet 2, which offers substantial hardware improvements over Axon Fleet, including high-definition video with a wide field of view, zoom capability, infrared for the back seat camera, and wireless microphone integration so that no important sounds are lost. We expect the first Axon Fleet 2 units to begin shipping soon.
Evidence.com - We are driving higher average revenue per user for new Evidence.com sign-ups as our cloud-based software continues to add capability. What was once simply a tool for storing and managing body camera video has now expanded to store multiple types of evidence data, including body camera footage, CCTV footage, drone footage, and citizen-submitted photo and video evidence. In Q2, we strategically partnered with Milestone Systems, a world-leading open platform IP video management software provider. The partnership with Milestone brings data from more than 6,000 models of cameras from 150 manufacturers, including CCTV footage, into Evidence.com. Data that is stored in Evidence.com is secure, trackable, easily shareable, and redactable.
Axon is also making it easier than ever for law enforcement agencies to ingest CCTV camera footage. The old method included burning video to a DVD and physically handing the disc to detectives. With our technology, footage can get pushed to Evidence.com via our new integration with Milestone, or collected from just about anywhere via the Axon Citizen mobile upload tool.
Average revenue per user dipped slightly in Q2 on a sequential basis due to the integration of VIEVU's customers and contracts. That said, in Q2 2018, we saw new customer sign ups at higher ARPUs than Q2 2017 and we feel confident in our ability to grow ARPU over the long-term as Evidence.com's value proposition expands with added features.
Axon Records - Axon Records remains in its pre-revenue investment phase, although it is now transitioning into field testing. We are working toward refining a best-in-class officer interface, and ensuring that our reporting function is scalable and customizable. Beyond incident reporting capability, we are also building out crime analysis, records review capability, and investigations and case tracking.
As noted earlier, we are field testing the first iteration of Axon Records with a partner law enforcement agency. The Axon Records pilot ties into the agency's existing records management system, providing a seamless experience for this first partner agency and allowing us to build capability incrementally, and iterate and test quickly. The pilot's capability suite is a subset of the more robust system we are building, which in the future will include body camera transcription and automated report writing assisted by artificial intelligence and machine learning.
Initial feedback from officers using our product has been positive -- we are already helping save time writing incident reports. We hope to go live with two more development partners by the end of 2018. These development partners would serve as our initial reference accounts once the product goes to market.
We are aiming for a generally available product in mid-2019 that would fulfill the needs of most US law enforcement agencies, and offer a far superior user experience. We have identified a pipeline of agencies that are interested in becoming customers. Hiring engineering talent remains a key area of focus and execution. Given the amount of customer research and feedback we have undertaken, we feel confident about the specific feature sets we are choosing to develop.
To recap, Axon Records is our technology solution that will reduce the time officers spend writing reports so they can spend more time policing. Modern police record-keeping is fundamentally about gathering the evidence associated with an event and transferring it to a prosecutor to use in the court system. Axon's market-leading body camera data management solution, Evidence.com, is highly valuable because digital video evidence is often critically important to the larger incident record. Axon Records will build out our existing software ecosystem by integrating body camera video with other incident data, streamlining and using the body camera to assist in reporting, and allow records to be securely stored in our cloud, shared and redacted.
Artificial Intelligence (AI) & Machine Learning (ML) - Deploying AI and ML tools to the public safety sector requires areas of investment that are often not required in the civilian or consumer sectors, which is why we are seeing the benefits of specializing on the public safety vertical. In Q2, Axon opened the industry's first center for AI training on public safety data, which we designed in compliance with the FBI's Criminal Justice Information Services (CJIS) Security Policy. Customer agencies must opt-in to share data with our center, which has a heightened level of security. Our AI solutions include developing software to automate redaction, to enable vehicle, speech and critical event recognition, speech transcription, automatic license plate recognition, and automated data analysis. For critical event recognition, we are developing an AI solution to detect officers' actions, such as foot chases, which could help notify other officers that a critical event is unfolding. Axon formed its AI research team in February 2017 after acquiring two AI research and engineering teams, Dextro and Misfit (previously part of Fossil Group, Inc.).
Axon Air - We launched Axon Air in June at our annual user conference, Axon Accelerate. Under an exclusive partnership, within the digital evidence management industry, with DJI, the world's leader in civilian drones and aerial imaging technology, we can sell DJI drones directly to public safety and law enforcement agencies worldwide. More than 900 public safety agencies use drones to support tactical actions, reconstruct traffic collisions, observe large events, and perform search and rescue. Through Axon Air, law enforcement agencies can purchase DJI drone technology directly from Axon, which has strong customer relationships in law enforcement and expertise in agency contracting. Camera footage from the drones can be safely stored and managed in Axon's cloud, Evidence.com. Axon's software and sales teams are also supporting law enforcement agencies in managing their drone programs. We are developing a long-term software roadmap to add drone specific advanced features that will create unique capabilities for our customers.
Outlook:
We are providing the following updated guidance for the full year ending December 31, 2018:
-- Maintaining revenue growth guidance of 18%-20%;
-- Adjusted EBITDA margins of 14% to 16%, which compares with Adjusted
EBITDA margin of 11.6% in 2017;
-- This guidance aligns with our previously communicated outlook to
achieve 300 to 400 basis points of operating margin expansion in
2018, excluding integration costs related to the VIEVU acquisition
and the non-cash stock-based compensation expense associated with
CEO Rick Smith's 10-year compensation plan. Going forward, we will
be moving from operating margin to Adjusted EBITDA margin guidance,
which provides a simpler and more relevant period-over-period
comparison;
-- 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; and
-- Capital expenditures in the range of $12 million to $16 million.
We believe we have the right vision for the future of law enforcement, and we are committed to superior execution against our plans.
Signed,
Rick Smith, CEO
Luke Larson, President
Jawad Ahsan, CFO
QUARTERLY CONFERENCE CALL & WEBCAST:
We will host our Q2 2018 earnings conference call on Tuesday, August 7, 2018 at 2 p.m. PT / 5 p.m. ET.
To join the live audio call, please dial 877-303-9126 (domestic) or +1-253-237-1156 (international) and use conference ID number 9995809.
The call will be available via live audio webcast and archived replay on Axon's investor relations website at http://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 Evidence.com. 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, 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 and Non-GAAP Diluted Earnings Per Share. 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, taxes, depreciation and
amortization.
-- Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings
before interest expense, investment interest 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; and loss on impairment. The Company tax-effects
non-GAAP adjustments using the blended statutory federal and state tax
rates for each period presented.
-- Free Cash Flow (Most comparable GAAP Measure: Cash flow from operating
activities) - cash flows provided by operating activities minus
purchases of property, plant and equipment, intangible assets and cash
flows related to business acquisitions.
-- 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.
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 and investors should not assume that the non-GAAP financial
measures presented in this earnings release were prepared 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 law enforcement become smarter and safer. Our mission is to Protect Life. Our technologies give law enforcement and public safety personnel the confidence, focus and time they need to keep their communities safe. Our products impact every aspect of an officer's day-to-day experience:
In the field- Our Smart Weapons offer a less-lethal intermediate use of force response and our body-worn and in-car cameras collect video evidence to capture the truth of an incident; and our mobile applications enable simple evidence collection.
At the station- Our secure, cloud-based digital evidence management solution allows officers and command staff to manage, review, share, and process digital evidence using forensic, redaction, transcription, and other tools.
In the courtroom- Our solutions for prosecutors make collaborating across jurisdictions and agencies easy so that cases can be resolved quickly.
We work hard for those who put themselves in harm's way for all of us. To date, there are more than 305,200 software seats booked on the Axon network around the world and more than 200,000 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.
Facebook is a trademark of Facebook, Inc. Twitter is a trademark of Twitter, Inc.
Axon, Axon Fleet, Axon Network, Axon Records, Evidence.com, the "Axon Delta" logo, "Protect Life," Smart Weapons, TASER, X2, and X26P 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
Certain statements contained in this press release that are not historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding our expectations, beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. Axon Enterprise, Inc. assumes no obligation to update the information contained in this press release, except as required by law. We caution that these statements are qualified by important risk factors that could cause actual results to differ materially from those reflected by the forward looking statements herein. These factors can be found in our Form 10-K for the year ended December 31, 2017, under the heading, "Risk Factors."
Such forward-looking statements relate to, among other things: our intentions and beliefs about future development efforts and activities, including our intentions to invest in R&D as well as the development of new product and service lines and enhanced features for our existing product and service lines; intentions to shift an increasing amount of business to a subscription model; our need that customers upgrade and replace existing conducted electrical weapons ("CEW") units and the willingness of customers to do so; that we may have more sales denominated in foreign currencies in 2018; our intention to increase our investment in the development of sales in the international, military and law enforcement market; our plans to expand our sales force; that cloud and mobile technologies are fundamentally changing the police environment; our plan to invest in web activities and law enforcement trade shows in 2018; our intention to not pay dividends; that increases in marketing and sales activities will lead to an increase in sales; our belief that the video evidence capture and management market will grow significantly in the near future and the reasons for that belief; our intention to continue to pursue the personal security market; our intention to grow direct sales; the sufficiency of our facilities and our strategy to expand manufacturing capacity if needed; that we may lease facilities from parties that specialize in handling and manufacturing of firearm materials; that we expect to continue to depend on sales of our X2 and X26P CEW devices; our intention to apply for and prosecute our patents; that selling, general and administrative expense will increase in 2018; that research and development expenses will increase in 2018; the timing of the resolution of uncertain tax positions; our intention to hold investments to maturity; the effect of interest rate changes on our annual interest income; that we may engage in currency hedging activities; our intentions concerning, and the effectiveness of, our ongoing marketing efforts through web activities, trial programs, tech summits and law enforcement trade shows; our belief that customers will honor multi-year contracts despite the existence of appropriations, termination for convenience. or similar clauses; our belief that customers will renew their Evidence.com service subscriptions at the end of the contractual term; estimates regarding the size of our target markets and our competitive position in existing markets; the availability of alternative materials and components suppliers; the benefits of the continued automation of our production process; the sufficiency and availability of our liquid assets and capital resources; our financing and growth strategies, including: potential joint ventures, mergers and acquisitions, stock repurchases and hedging activities; the safety of our products; our litigation strategy, including the outcome of legal proceedings in which we are currently involved; expectations regarding increased operating leverage; the impact of a loss of customer data, a breach of security or an extended outage; the effect of current and future tax strategies; the fluctuations in our effective tax rate; the impact of the U.S. Tax Cuts and Jobs Act (the "Tax Act"); the impact of recently adopted and future accounting standards; the impact of Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers ("ASU 2014-09") and ASC Subtopic 340-40, Other Assets and Deferred Costs - Contracts with Customers ("ASC 340-40") (collectively, "Topic 606"); and 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, 2017.
Please visit http://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.
Visit our Investor Relations Safe Harbor Statement at:http://investor.axon.com/safeHarbor.cfm
For investor relations information please contact Andrea James via email at IR@axon.com.
AXON ENTERPRISE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
Three Months Ended Six Months Ended June 30,
June 30, March 31, June 30, 2018 2017 (1)
2018 2018 2017 (1)
---- ---- -------
Net sales from products $76,721 $80,974 $66,875 $157,695 $134,366
Net sales from services 22,505 20,241 12,768 42,746 24,519
Net sales 99,226 101,215 79,643 200,441 158,885
------ ------- ------ ------- -------
Cost of product sales 31,087 32,434 30,172 63,521 57,244
Cost of service sales 4,996 4,320 3,834 9,316 7,334
----- ----- ----- ----- -----
Cost of sales 36,083 36,754 34,006 72,837 64,578
------ ------ ------ ------ ------
Gross margin 63,143 64,461 45,637 127,604 94,307
------ ------ ------ ------- ------
Operating expenses:
Sales, general and
administrative 39,343 35,759 31,824 75,102 62,681
Research and development 18,501 15,119 12,989 33,620 25,452
Total operating expenses 57,844 50,878 44,813 108,722 88,133
------ ------ ------ ------- ------
Income from operations 5,299 13,583 824 18,882 6,174
Interest and other income
(expense), net (295) 1,263 1,684 968 1,890
---- ----- ----- --- -----
Income before provision for
income taxes 5,004 14,846 2,508 19,850 8,064
Provision for (benefit from)
income taxes (3,481) 1,920 232 (1,561) 1,208
------ ----- --- ------ -----
Net income $8,485 $12,926 $2,276 $21,411 $6,856
====== ======= ====== ======= ======
Net income per common and common equivalent
shares:
Basic $0.15 $0.24 $0.04 $0.39 $0.13
Diluted $0.15 $0.24 $0.04 $0.38 $0.13
Weighted average number of common and common
equivalent shares outstanding:
Basic 55,527 53,119 52,736 54,330 52,578
Diluted 57,054 54,532 53,770 55,892 53,723
(1) Amounts for the three and
six months ended June 30, 2017
have not been adjusted under
the modified retrospective
method of adoption of Topic
606, and are presented
consistent with the prior
period amounts reported under
ASC 605.
AXON ENTERPRISE, INC.
SEGMENT REPORTING
(Unaudited)
(dollars in thousands)
Three Months Ended June 30, 2018 Three Months Ended March 31, 2018 Three Months Ended June 30, 2017 (1)
TASER Software and Total TASER Software and
Sensors Sensors Total TASER Software and Sensors Total
Weapons Weapons Weapons
------- ------- -------
Net sales from
products (2) $60,624 $16,097 $76,721 $63,524 $17,450 $80,974 $53,016 $13,859 $66,875
Net sales from
services (3) - 22,505 22,505 - 20,241 20,241 - 12,768 12,768
--- ------ ------ --- ------ ------ --- ------ ------
Net sales 60,624 38,602 99,226 63,524 37,691 101,215 53,016 26,627 79,643
------ ------ ------ ------ ------ ------- ------ ------ ------
Cost of product
sales 17,681 13,406 31,087 20,543 11,891 32,434 16,078 14,094 30,172
Cost of service
sales - 4,996 4,996 - 4,320 4,320 - 3,834 3,834
Cost of sales 17,681 18,402 36,083 20,543 16,211 36,754 16,078 17,928 34,006
------ ------ ------ ------ ------ ------ ------ ------ ------
Gross margin 42,943 20,200 63,143 42,981 21,480 64,461 36,938 8,699 45,637
------ ------ ------ ------ ------ ------ ------ ----- ------
Sales, general and
administrative 21,920 17,423 39,343 21,265 14,494 35,759 17,492 14,332 31,824
Research and
development 4,019 14,482 18,501 2,960 12,159 15,119 1,863 11,126 12,989
Income (loss) from
operations $17,004 $(11,705) $5,299 $18,756 $(5,173) $13,583 $17,583 $(16,759) $824
======= ======== ====== ======= ======= ======= ======= ======== ====
Gross margin % 70.8% 52.3% 63.6% 67.7% 57.0% 63.7% 69.7% 32.7% 57.3%
Operating margin % 28.0% (30.3)% 5.3% 29.5% (13.7)% 13.4% 33.2% (62.9)% 1.0%
Six Months Ended June 30, 2018 Six Months Ended June 30, 2017 (1)
TASER Software and Total TASER Software and
Sensors Sensors Total
Weapons Weapons
------- -------
Net sales from
products (2) $124,148 $33,547 $157,695 $110,687 $23,679 $134,366
Net sales from
services (3) - 42,746 42,746 - 24,519 24,519
--- ------ ------ --- ------ ------
Net sales 124,148 76,293 200,441 110,687 48,198 158,885
------- ------ ------- ------- ------ -------
Cost of product
sales 38,224 25,297 63,521 34,104 23,140 57,244
Cost of service
sales - 9,316 9,316 - 7,334 7,334
--- ----- ----- --- ----- -----
Cost of sales 38,224 34,613 72,837 34,104 30,474 64,578
------ ------ ------ ------ ------ ------
Gross margin 85,924 41,680 127,604 76,583 17,724 94,307
------ ------ ------- ------ ------ ------
Sales, general and
administrative 43,185 31,917 75,102 34,708 27,973 62,681
Research and
development 6,979 26,641 33,620 4,075 21,377 25,452
Income (loss) from
operations $35,760 $(16,878) $18,882 $37,800 $(31,626) $6,174
======= ======== ======= ======= ======== ======
Gross margin % 69.2% 54.6% 63.7% 69.2% 36.8% 59.4%
Operating margin % 28.8% (22.1)% 9.4% 34.2% (65.6)% 3.9%
(1) Amounts for the three and six
months ended June 30, 2017 have not
been adjusted under the modified
retrospective method of adoption of
Topic 606, and are presented
consistent with the prior period
amounts reported under ASC 605.
(2) 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.
(3) Software and Sensors "services"
revenue comprises sales related to
the Axon Cloud, which includes
Evidence.com, 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.
AXON ENTERPRISE, INC.
Software and Sensors Key Metrics by Quarter
(Unaudited)
(dollars in thousands)
June 30, March 31, December 31, September 30, June 30,
2018 2018 2017 2017 2017
---- ---- ---- ---- ----
Bookings $88,860 $97,528 $71,154 $77,976 $81,942
Software and
Sensors
Annual
Recurring
Revenue (1) $92,711 $83,310 $69,960 $63,694 $54,683
Cumulative
Axon Cloud
seats booked 305,200 226,900 201,500 187,400 169,000
(1) Monthly recurring license,
integration, warranty, and
storage revenue annualized.
AXON ENTERPRISE, INC.
UNIT SALES STATISTICS
(Unaudited)
Units in whole numbers
Three Months Ended June 30, Six Months Ended June 30,
2018 2017 Unit Change Percent 2018 2017 Unit Change Percent
Change Change
---- ---- ----------- -------- ---- ---- ----------- --------
TASER X26P 18,664 18,198 466 2.6% 34,384 33,559 825 2.5%
TASER X2 15,537 15,390 147 1.0 36,038 32,527 3,511 10.8
TASER Pulse
and Bolt 3,158 2,347 811 34.6 7,158 5,919 1,239 20.9
Cartridges 611,136 579,282 31,854 5.5 1,144,088 1,175,268 (31,180) (2.7)
Axon Body 20,407 26,882 (6,475) (24.1) 42,176 47,195 (5,019) (10.6)
Axon Flex 3,281 9,373 (6,092) (65.0) 6,974 12,474 (5,500) (44.1)
Axon Fleet 2,079 - 2,079 * 3,936 - 3,936 *
Axon Dock 4,534 8,269 (3,735) (45.2) 10,378 13,144 (2,766) (21.0)
TASER Cam 1,491 1,336 155 11.6 5,019 2,675 2,344 87.6
* 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,
June 30, 2018 March 31, 2018 June 30, 2018 2017 (1)
2017 (1)
---
EBITDA and adjusted EBITDA:
---------------------------
Net income $8,485 $12,926 $2,276 $21,411 $6,856
Depreciation and
amortization 2,750 2,411 1,796 5,161 3,400
Interest expense 17 20 45 37 83
Investment interest income (595) (75) (221) (670) (488)
Provision for (benefit from)
income taxes (3,481) 1,920 232 (1,561) 1,208
EBITDA $7,176 $17,202 $4,128 $24,378 $11,059
====== ======= ====== ======= =======
Adjustments:
Stock-based compensation
expense $4,954 $4,093 $3,976 $9,047 $7,423
Non-recurring transaction
costs and adjustments
related to business
acquisition 1,382 - - 1,382 -
Loss on disposal and
abandonment of intangible
assets 54 - - 54 -
Loss on disposal and
impairment of property and
equipment, net 119 34 - 153 -
--- --- --- --- ---
Adjusted EBITDA $13,685 $21,329 $8,104 $35,014 $18,482
======= ======= ====== ======= =======
Net income as a percentage of
net sales 8.6% 12.8% 2.9% 10.7% 4.3%
Adjusted EBITDA as a
percentage of net sales 13.8% 21.1% 10.2% 17.5% 11.6%
(1) Amounts for the three and
six months ended June 30, 2017
have not been adjusted under
the modified retrospective
method of adoption of Topic
606, and are presented
consistent with the prior
period amounts reported under
ASC 605.
AXON ENTERPRISE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - continued
(Unaudited)
Dollars in thousands
Three Months Ended Six Months Ended June 30,
June 30, 2018 March 31, 2018 June 30, 2018 2017 (1)
2017 (1)
---
Non-GAAP net income:
--------------------
GAAP net income $8,485 $12,926 $2,276 $21,411 $6,856
Non-GAAP adjustments:
Stock-based compensation
expense 4,954 4,093 3,976 9,047 7,423
Loss on disposal and
abandonment of intangible
assets 54 - - 54 -
Loss on disposal and
impairment of property and
equipment, net 119 34 - 153 -
Non-recurring transaction
costs and adjustments
related to business
acquisition 1,382 - - 1,382 -
Income tax effects (1,580) (1,002) (1,492) (2,581) (2,785)
Income tax benefit of CEO
stock option exercise (3,362) - - (3,362) -
------ --- --- ------ ---
Non-GAAP net income $10,052 $16,051 $4,760 $26,104 $11,494
======= ======= ====== ======= =======
Three Months Ended Six Months Ended June 30,
June 30, 2018 March 31, 2018 June 30, 2018 2017 (1)
2017 (1)
-------
Non-GAAP diluted earnings
per share:
-------------------------
GAAP diluted earnings per
share $0.15 $0.24 $0.04 $0.38 $0.13
Non-GAAP adjustments:
Stock-based compensation
expense 0.09 0.08 0.07 0.16 0.14
Loss on disposal and
abandonment of intangible
assets 0.00 - - 0.00 -
Loss on disposal and
impairment of property and
equipment, net 0.00 0.00 - 0.00 -
Non-recurring transaction
costs and adjustments
related to business
acquisition 0.02 - - 0.02 -
Income tax effects (0.03) (0.02) (0.03) (0.05) (0.05)
Income tax benefit of CEO
stock option exercise (0.06) - - (0.06) -
----- --- --- ----- ---
Non-GAAP diluted earnings
per share (2) $0.18 $0.29 $0.09 $0.47 $0.21
===== ===== ===== ===== =====
Weighted average number of
diluted common and common
equivalent shares
outstanding (in thousands) 57,054 54,532 53,770 55,892 53,723
(1) Amounts for the three and six
months ended June 30, 2017 have not
been adjusted under the modified
retrospective method of adoption of
Topic 606, and are presented
consistent with the prior period
amounts reported under ASC 605.
(2) 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, 2018 December 31, 2017
------------- -----------------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $307,507 $75,105
Short-term investments 4,124 6,862
Accounts and notes receivable,
net 94,296 56,064
Contract assets, net 10,468 -
Inventory 43,967 45,465
Prepaid expenses and other
current assets 26,604 21,696
------ ------
Total current assets 486,966 205,192
Property and equipment, net 34,503 31,172
Deferred income tax assets, net 15,813 15,755
Intangible assets, net 20,442 18,823
Goodwill 24,684 14,927
Long-term notes receivable, net
of current portion 37,158 36,877
Other assets 22,831 15,366
------ ------
Total assets $642,397 $338,112
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $9,213 $8,592
Accrued liabilities 29,995 23,502
Current portion of deferred
revenue 76,583 70,401
Customer deposits 2,970 3,673
Current portion of business
acquisition contingent
consideration 1,946 1,693
Other current liabilities 191 89
--- ---
Total current liabilities 120,898 107,950
Deferred revenue, net of current
portion 61,456 54,881
Liability for unrecognized tax
benefits 1,918 1,706
Long-term deferred compensation 3,560 3,859
Business acquisition contingent
consideration, net of current
portion 203 1,048
Other long-term liabilities 5,520 1,224
----- -----
Total liabilities 193,555 170,668
------- -------
Stockholders' Equity:
Preferred stock - -
Common stock 1 1
Additional paid-in capital 442,717 201,672
Treasury stock (155,947) (155,947)
Retained earnings 163,590 123,185
Accumulated other comprehensive
income (1,519) (1,467)
------ ------
Total stockholders' equity 448,842 167,444
------- -------
Total liabilities and
stockholders' equity $642,397 $338,112
======== ========
AXON ENTERPRISE, INC.
SELECTED CASH FLOW INFORMATION
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended June 30,
June 30, 2018 March 31, 2018 June 30, 2018 2017 (1)
2017 (1)
---
Net income $8,485 $12,926 $2,276 $21,411 $6,856
Depreciation and
amortization 2,750 2,411 1,796 5,161 3,400
Stock-based
compensation 4,954 4,093 3,976 9,047 7,423
Net cash provided by
(used in) operating
activities (1,947) 18,053 (5,849) 16,106 (12,458)
Net cash provided by
(used in) investing
activities (8,494) 1,268 (7,847) (7,226) 2,037
Net cash provided by
(used in) financing
activities 226,627 (3,430) 546 223,197 (1,331)
Cash, cash
equivalents and
restricted cash,
end of period 309,977 94,798 31,360 309,977 31,360
Three Months Ended Six Months Ended June 30,
June 30, 2018 March 31, 2018 June 30, 2018 2017 (1)
2017 (1)
-------
Net cash
provided by
(used in)
operating
activities $(1,947) $18,053 $(5,849) $16,106 $(12,458)
Purchases of
property and
equipment (3,602) (1,063) (3,398) (4,665) (5,741)
Purchases of
intangible
assets (220) (34) (75) (254) (170)
Cash flows
related to
business
acquisitions (5,014) - - (5,014) (6,479)
------ --- --- ------ ------
Free cash flow
(deficit), a
non-GAAP
measure $(10,783) $16,956 $(9,322) $6,173 $(24,848)
======== ======= ======= ====== ========
(1) Amounts for the three and
six months ended June 30, 2017
have not been adjusted under
the modified retrospective
method of adoption of Topic
606, and are presented
consistent with the prior
period amounts reported under
ASC 605.
CONTACT:
Investor Relations
Axon Enterprise, Inc.
IR@axon.com
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SOURCE Axon
