Axon Q2 2019: Record bookings of $142 million, up 60% on new product strength, adoption of Officer Safety Plan 7
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.
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 $
60,572 $
65,391 $
60,624 (7.4) (0.1)
sales % %
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 $
31,822 $
27,631 $
22,505 15.2 41.4
net sales % %
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 $20 million grew 24% year over year.
Revenue fell sequentially, as expected, ahead of initial shipments of
Axon Body 3.
-- Sensors and Other gross margin of 30.1% showed improvement as we exited
a period of negative contribution from the acquisition of Vievu.
Forward-Looking Performance Indicators
June 30, 2019 March 31, 2019 December 31, September 30, June 30, 2018
2018 2018
($ 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 Total TASER Software and Total TASER Software and Total
Sensors Sensors Sensors
---
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 Total TASER Software and Total
Sensors Sensors
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 Percent 2019 2018 Unit Percent
Change Change Change 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 0.7
net sales % 5.5
% 8.6
% 8.9
% 2.9
%
Adjusted EBITDA as a 10.3 12.0 13.8 11.2 17.5
percentage of net sales % % % % %
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
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SOURCE Axon
