Axon Reports Strong Second Quarter Revenue up 26%; International Revenue up 80%, Annual Recurring Revenue up 42%
SCOTTSDALE, Ariz., Aug. 6, 2020 /PRNewswire/ --
Dear Shareholders,
When we began investing in body cameras in 2008, we faced numerous skeptics. But, we knew that body cameras -- and the accountability and transparency they bring -- were the future. And we were confident in our institutional knowledge about policing, due to our close connection to our customers through the success of our TASER devices.
Body cameras started to gain traction after a wave of protests began in Ferguson, Mo., in 2014, which was also the birth of the Black Lives Matter movement. Axon was delivering the right products at the right time and our investments in cloud software made body camera programs feasible and affordable for all agencies.
In 2020, we are humbled to be developing solutions that once again find themselves relevant to a national conversation about policing. The pandemic has amplified the deep inequities in our society, with disproportionate burdens of unemployment, illness and death among Black and Brown people and historically marginalized populations. We understand and see the pain and nuance behind the demands to defund the police, which is really about reforming and reshaping the justice system. We also know that public safety is a fundamental right of all communities, and our pipeline continues to strengthen as communities see the power of our platform to drive positive change. We believe we will look back on 2020 as a time that set in motion the next wave of policing reform.
Technology is not a panacea but it can have an outsized impact on creating a world where everyone feels safer in their neighborhoods, and gets home safely at the end of the day. We have the privilege to imagine how the world can and should be different and we have the capability to create and drive that change.
After the killing of George Floyd in Minneapolis in May, Axon employees began to brainstorm ways to leverage our expertise to do even more in service of our mission to protect human life. We expanded our existing vision to also center on racial equity, diversity and inclusion in the justice system, and created a new position within our sales team to put a greater focus on incorporating community input into our product development process. Axon engineers are developing software that addresses the need for better data collection, accountability, investigation and compliance for force events, and helps agencies to better document, analyze and report on force incidents. We are eager to build upon our existing leadership in driving down injury rates and providing use-of-force accountability. TASER devices have the lowest likelihood of death or serious injury compared with other use-of-force options and provide the best combination of stopping power while also keeping both officers and the public safe. TASER devices also document the duration of an energy discharge, the quality of the connection and the type of deployment, and when armed, are able to trigger body-worn cameras to begin recording.
This is also a year where we have walked beside our customers in one of the most challenging environments they have ever faced -- whether through our personal protective equipment charitable campaign for first responders, or through helping agencies respond to and comply with demands for more transparency and source technology amid greater public budget scrutiny, we aspire to be a true partner. We are emboldened by the opportunity to continue to re-imagine public safety and support our customers and communities.
Key business highlights:
-- Adriane Brown joined Axon's board:
-- After an extensive search, we welcomed Adriane Brown to our board of
directors in May. Adriane brings a wealth of experience and global
business leadership to Axon. She sits on the board of directors for
eBay and the Washington Research Foundation, and is the Board Chair
at Seattle's Pacific Science Center. She has served on boards for
Raytheon, Allergan and Harman. In 2018, Adriane was appointed as a
venture partner at Flying Fish Partners, a firm that invests capital
and expertise in startups focused on machine learning and artificial
intelligence. Prior to that, Adriane served as president and COO at
Intellectual Ventures, as president and CEO of Honeywell
Transportation Systems, and rose from shift supervisor to vice
president and general manager of the Environmental Products Division
during her 19-year tenure at Corning. Adriane's appointment expands
the total number of independent directors on Axon's board to eight.
-- New international markets unlocked:
-- International revenue was 24% of the total in Q2 2020, and grew 80%
year over year. Three new countries topped $1 million in revenue for
the first time in the quarter: Indonesia, Panama, and Thailand.
-- The Gujarat State Police became the first major police agency in
India to deploy TASER devices when it purchased the X2. Axon began
investing in the sales channel in India in late 2018 and we are
committed to expanding our presence in the world's most populous
democracy.
-- Chile's National Police Force, Carabineros de Chile, is equipping
more than 600 officers with Axon body-worn cameras and Axon
Evidence, positioning Chile as one of the most significant adopters
of advanced policing technology in the world, alongside the US, UK,
and Australia. Chile has the largest number of Axon body-worn
cameras in Latin America.
-- Baltimore Police Department to deploy Axon Records:
-- We are thrilled to welcome Baltimore as a major city Axon Records
customer. Baltimore's Axon Records capability is included in their
subscription to Officer Safety Plan 7+, our highest value bundle. We
first announced that Baltimore adopted OSP 7+ in August 2019, and
their decision to adopt the Axon Records benefit of the plan
showcases the plan's value to customers.
-- Axon's cloud-based records management solution, which we first
brought to market September 2019, integrates police reports with
body-worn video footage, promotes transparency and accountability
and saves officers time. It includes the Axon Standards use-of-force
reporting module, which helps agencies mitigate risk and understand
performance at the officer and agency-wide levels. This product is
relevant to the national discussion about use-of-force tracking and
reporting and is an easy way for agencies to begin using Axon
Records, even before they are ready to fully replace their legacy
records management system.
-- Axon Records falls within our "Productivity" suite of products. This
suite also includes Axon Performance, which allows supervisors to
ensure that cameras are recording when they're supposed to be and
access key body-worn camera metrics in near real time.
-- Real-time situational awareness use grows:
-- We are advancing communications beyond the radio, providing more and
better real-time situational awareness to central command, and
supporting our go-to-market strategy for our cloud-based 911
Dispatch product.
-- These tools in our "Communications" suite have proven useful for
major city agencies in managing resources during civil unrest. We've
seen increased adoption and engagement with Axon Aware location,
alerts, and live-streaming. Without this technology, staff would
have had to keep relying heavily on officers' ongoing verbal
description of their location and the situation on the ground.
-- We've also seen significant interest in this platform from
international agencies exploring ways to bring supplemental
resources, such as mental health and social services, to support
unfolding incidents.
-- Finally, in the quarter we launched the Axon Aware mobile app, with
real-time alerts, officer location, and live-streamed video built
in. This new feature is included in OSP 7+. Here is a 20 second
video on how it works: https://player.vimeo.com/video/443194883
-- Axon Body 3 is in Europe, solid feedback from customers:
-- We began delivering Axon Body 3 to European customers in Q2 2020 and
we expect to expand Axon Body 3 to Australia, New Zealand and the
rest of the Asia-Pacific region in the back half. Axon Body 3 first
began shipping September 2019, and represents our first camera that
supports GPS-enabled location services and LTE-communications
capability.
-- Buying trends indicate that customers buying Axon Body 3 are doing
so because of the value-added features such as LTE and GPS, which we
believe indicates solid product-market fit with our latest
generation camera. We expect location-based services, enabled by the
body camera, to become standard across a number of major cities over
the next 18 to 24 months, seeding the market for greater use of our
real-time operations platform and communications suite of tools.
-- Axon Fleet 3 with ALPR trending toward successful launch:
-- We remain confident that our next-generation in-car video system
will be a disruptive game-changer. In recent weeks, we have
installed Axon Fleet 3 engineering validation test systems to begin
field testing and we expect Fleet 3 sales to start contributing to
growth next year.
-- We intend to make it easier and more cost effective for police
departments to deploy a network of fixed and mobile automated
license plate reader (ALPR) sensors by integrating and bundling
Flock Safety's solution alongside our upcoming Axon Fleet 3 in-car
solution. Axon is re-inventing the traditional ALPR model by
leveraging AI to reduce cost, making it affordable for police
departments to deploy ALPR in every vehicle. And unlike traditional
systems, Axon is ethically designing its ALPR solution from the
ground up to improve data security, transparency and privacy
relative to historical legacy solutions.
-- Successful follow-on offering completed:
-- We want to thank our new and existing shareholders who participated
in our recent follow-on offering. In mid-June, Axon raised just over
$300 million at $92 per share, which enabled us to fortify our
balance sheet, strengthen our relationships with existing
shareholders and provide an opportunity for new investors to join us
on the next leg of our growth journey. We finished Q2 2020 with more
than $675 million in cash and investments, and zero debt.
Summary of Q2 2020 results:
-- Revenue of $141 million grew 26% year over year, with strength being
driven by our body camera and cloud software solutions (Software and
Sensors segment revenue grew 37%) and increased momentum outside of the
US (international revenue grew 80% year over year to a quarterly record
of $34 million)
-- Gross margin of 62.4% was the highest it has been since Q3 2018, driven
by improved yields on TASER 7 and our highest-ever mix of high-margin
cloud software revenue, which was 30% of the total in the quarter. We
expect gross margin in Q3 2020 to be approximately 700 basis points
lower on a sequential basis, as we fulfill several large shipments of
lower-margin body camera hardware to large major city customers.
-- Operating expenses of $102 million included $34 million in stock-based
compensation expense and $4 million in costs related to FTC litigation.
(An update on the FTC litigation is below, under "Update on Legal
Matters.")
-- SG&A included $27 million in stock-based compensation expense,
including nearly $11 million in "catch up" expense. R&D included $6
million in stock-based compensation expense, including $1 million in
"catch up" expense. Excluding stock-based compensation expense,
operating expenses declined 1% sequentially.
-- The "catch up" expense is tied to Axon's CEO Performance Award and
eXponential Stock Performance Plan ("XSPP"), for which two
additional operational goals became probable of attainment during Q2
2020 due to our strengthened outlook, bringing the total number of
operational goals that are statistically probable to eleven.
-- 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 at investor.axon.com.
-- GAAP EPS was ($0.51); and Non-GAAP EPS was ($0.01).
-- GAAP EPS includes the "catch-up" stock-based compensation expense
referred to above.
-- Both GAAP EPS of ($0.51) and Non-GAAP EPS of ($0.01) include $19
million, or $0.31 per share, of income tax expense.
-- Our income or loss before taxes has diverged widely from our taxable
income, largely due to differences between GAAP accounting and tax
treatment for stock-based compensation expense, the most significant
of which is driven by the large stock-based compensation expense
associated with the CEO Performance Award. When those options vest
and are subsequently exercised in future periods, IRS limitations
will prevent us from deducting large portions of today's stock-based
compensation expense on those future tax returns. This difference
between GAAP and IRS treatment of stock-based compensation expense
is the primary factor driving our large effective tax rate for
year-to-date 2020.
-- Quarterly Adjusted EBITDA grew 142% year over year. Adjusted EBITDA of
$28 million represented a 20% margin on revenue, and delivered a 57%
incremental contribution margin on revenue when compared with Q2 2019.
-- Cash and cash equivalents and investments totaled $687 million at June
30, 2020, or $676 million after adjusting for an investment payable of
$20 million, which net of receivables was $10 million.
-- Uses of cash in the second quarter included $35 million tied to
building up hardware inventory, which helped us respond to strong
product demand while preparing us to stagger factory work schedules
due to COVID-19, and $7 million tied to selling long-term hardware
subscriptions, which results in recognizing revenue when we deliver
hardware to our customers ahead of invoicing for the full value of
that hardware.
-- As we indicated in May, our elevated inventory build over the
course of 2020 is a proactive approach to building safety stock
in an effort to minimize shipping disruptions. We are committed
to working through COVID-19 supply chain challenges as they
arise to support our customers and deliver mission critical
equipment.
-- Finished goods inventory totaled $45 million at second quarter
end, including $9 million of Axon Body 3 cameras and associated
hardware due for customer shipments in the back half.
-- Accounts payable of $40 million included the above mentioned $20
million payable, which settled in early July.
-- Axon has zero debt.
Financial commentary by segment:
TASER:
THREE MONTHS ENDED CHANGE
30 JUN 2020 31 MAR 2020 30 JUN 2019 QoQ YoY
(in thousands)
Net $
70,490 $
75,895 $
60,572 (7.1) 16.4
sales % %
Gross 61.4 60.1 59.9
margin % % % 130
bp 150
bp
-- TASER segment revenue of $70 million grew 16% year-over-year due to
strength in TASER 7 units and international demand for our legacy,
two-shot weapon.
-- Gross margin increased to 61.4% due to improvements to the production
process and our ability to drive better yields. Gross margin improvement
was offset by about $760,000, or about 100 basis points, of COVID-19
related manufacturing overhead and other precautionary measures to keep
our workers safe. These measures included staggered shifts, an on-site
nurse, hazard pay, extra cleaning and paying manufacturing employees who
did not work, either due to belonging to a high risk group or to reduce
the number of people in our production facility to ensure adequate
spacing and physical distancing.
Software & Sensors:
THREE MONTHS ENDED CHANGE
30 JUN 2020 31 MAR 2020 30 JUN 2019 QoQ YoY
(in thousands)
Axon
Cloud % %
net
sales $
41,891 $
39,154 $
31,822 7.0 31.6
Axon
Cloud % % %
gross
margin 77.9 75.3 73.0 260 bp 490 bp
Sensors
and % %
Other
net
sales $
28,878 $
32,113 $
19,968 (10.1) 44.6
Sensors
and % % %
Other
gross
margin 42.6 42.0 30.1 60 bp 1,250 bp
-- Axon Cloud revenue grew 32% year over year, and for the first time,
represented 30% of total company revenue.
-- Axon Cloud gross margin of 77.9% includes some low-to-no margin
professional services that support new installations for SaaS customers.
The software-only revenue in this segment, which includes cloud storage
and compute costs, has consistently carried a gross margin above 80%. We
expect a slightly higher mix of lower margin professional services in Q3
2020.
-- Sensors & Other revenue grew 45% in the quarter on strong demand for
Axon Body 3 cameras. Revenue declined sequentially, which we anticipated
following stronger-than-expected performance in Q1 2020.
-- Sensors & Other gross margin was 42.6%. As a reminder, we manage toward
a 25% gross margin for camera and sensors hardware, and the gross margin
will fluctuate quarter to quarter depending on the customer mix. In Q3
2020, we expect gross margin on devices to be about 15%, due to Axon
Body 3 shipments to our largest customers.
Forward-looking performance indicators:
<hr/>
30 JUN 2020 31 MAR 2020 31 DEC 2019 30 SEP 2019 30 JUN 2019
($ in thousands)
Annual
recurring
revenue (1) $
183,498 $
173,919 $
161,277 $
141,540 $
129,452
Net revenue 119 119 121
retention (2) % % %
*
*
Total company
future
contracted
revenue $
1,340,000 $
1,274,000 $
1,230,000 $
1,130,000 $
1,050,000
Percentage of
TASER devices % % % % %
sold on a
recurring
payment plan 46 43 58 55 60
Monthly
recurring
license,
integration,
warranty, and
storage
revenue
(1) annualized.
(2) Refer to
"statistical
definitions"
below.
* Not disclosed.
-- Annual Recurring Revenue grew 42% year over year to $183 million.
-- Net revenue retention was 119% in the quarter. We drive adoption of our
cloud software solutions through integrated bundling. We are seeing
major cities upgrading their subscriptions at individual net dollar
retention rates of 150% to 300% to take advantage of our growing suite
of productivity and digital evidence management tools. Because our
agency customers often sign up for five to ten-year subscriptions, we
experience low annual churn. This SaaS metric purposely excludes the
hardware portion of customer subscriptions. We further define this
metric under "Statistical Definitions."
-- Total company future contracted revenue grew to $1.34 billion. This
amount is limited to revenue from arrangements that meet the definition
of a contract under Topic 606 as of June 30, 2020. We expect to
recognize between 20% to 25% 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.
-- The percentage of TASER devices sold on a subscription rose to 46% in
the quarter, with a domestic attach rate to subscriptions of 59%.
Current market trends and outlook:
The following forward-looking statements reflect Axon's expectations as of August 6, 2020, and are subject to substantial uncertainty due to the COVID-19 pandemic.
What we're seeing in the market:
We executed well through a challenging second quarter -- while demand for our products remained robust, US domestic customers often lacked bandwidth to make purchasing decisions as they focused on personnel outages due to COVID-19, employee safety and caution about uncertain budgets. Even with these challenges, Q2 2020 revenue was generally in line with our pre-pandemic expectation.
Total company quarterly bookings in Q2 2020 on contracts of five years or fewer were flat year-over year, with domestic bookings down 6% and international bookings up 36%. Domestic body camera bookings grew 13% in the quarter, with domestic COVID-19-related purchasing delays largely affecting only the TASER segment.
Bookings in Q2 were strongest, on a year-over-year percentage growth basis, in international TASER and domestic Fleet, demonstrating our ability to diversify our exposure to new geographies and product segments. We are seeing the benefits of investing in geographic and customer diversity this year, especially as we realize increasing orders from corrections departments and international markets, including UK, Australia, Canada and new markets including Indonesia, Brazil, Panama, Thailand, India and Chile, to name a few.
In the first weeks of Q3 2020, TASER and body camera bookings are trending ahead of April. We have a loaded pipeline for our back half and we are expecting a strong Q3 2020 and even stronger Q4 2020 -- tracking toward the range we gave at the start of the year.
We also have a strong pipeline of Officer Safety Plan 7+ opportunities that we expect to close in the next six months. As a reminder, OSP 7+ is our highest value bundle at $229 per officer per month for five years, and includes TASER 7, Axon Body 3 camera and a host of cloud software productivity and digital evidence management services, including Axon Records.
Update on formal guidance:
For the third quarter 2020, we are managing toward revenue growth of approximately 15% year over year, supporting an Adjusted EBITDA margin of approximately 12%. (Q3 2020 EBITDA margin will be affected by expected shipments of lower-margin body cameras to our largest customers.)
We expect our diluted share count in Q3 2020 to be approximately 64.5 million shares.
In light of macro uncertainties, we are maintaining the decision we made last quarter to refrain from providing formal full year guidance. The impact of COVID-19 remains fluid, and we are monitoring state and local mandates as we approach the fall. Shut-down activity could bring renewed caution from police departments on budgeting. Thus, while our bookings are trending in a positive direction, COVID-19 risk remains. We are not seeing changes in buying activity due to police defunding concerns. We have seen some anecdotal acceleration of body camera buying decisions due to agencies wishing to provide transparency to their communities.
Internal estimates & visibility:
At this time, our best estimate for our 2020 performance remains in line with our previously issued guidance, but there is enough uncertainty in how the current crisis will affect our customers that we don't feel that our internal estimates should be considered formal guidance.
Axon remains confident in its long-term, multi-year outlook, and we firmly believe we will emerge from 2020 even stronger. Our confidence is supported by our strong first half 2020 performance and the state of our current pipeline, which remains robust and is more geographically diverse than ever.
While our contracts are subject to appropriations risk, at this point in time, the revenue realized in 1H 2020 plus the recurring revenue under contract for the remaining two quarters gives Axon visibility into approximately 65% of the midpoint of the previously issued full-year revenue guidance range of $615 million to $625 million.
Axon's mission to protect life and drive transparency and accountability in policing has motivated us for more than a decade. Whether these issues are in the foreground of national attention as they are today, or in the background, they've always been important to society, and to us. We're privileged to be working on solutions to some of society's most entrenched challenges.
Signed,
Rick Smith, CEO
Luke Larson, President
Jawad Ahsan, CFO
Quarterly conference call and webcast
We will host our Q2 2020 earnings conference call on Thursday, August 6 at 2 p.m. PT / 5 p.m. ET.
The webcast will be available via a link on Axon's investor relations website at https://investor.axon.com (https://investor.axon.com/), or can be accessed directly via https://axon.zoom.us/j/92337281166.
Statistical Definitions
Dollar-based net revenue retention is an important metric to measure our ability to retain and expand our relationships with existing customers. We calculate it as the software and camera warranty subscription and support revenue from a base set of agency customers from which we generated Axon Cloud subscription revenue in the last month of a quarter divided by the software and camera warranty subscription and support revenue from the year-ago month of that same customer base. This calculation includes high-margin warranty but purposely excludes the lower-margin hardware subscription contingent of the customer contracts, as it is meant to be a SaaS metric that we use to monitor the health of the recurring revenue business we are building. This calculation also excludes the implied monthly revenue contribution of customers that were added since the year-ago quarter, and therefore excludes the benefit of new customer acquisition. The metric includes customers, if any, that terminated during the annual period, and therefore, this metric is inclusive of customer churn. This metric is downwardly adjusted to account for the effect of phased deployments -- meaning that for the year-ago period, we consider the total contractually obligated implied monthly revenue amount, rather than monthly revenue amounts that might have been in actuality smaller on a GAAP basis due to the customer not having yet fully deployed their Axon solution.
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 and other equity investments.
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 the global leader in connected public safety technologies. We are a mission-driven company whose overarching goal is to protect life. Our vision is a world where bullets are obsolete, where social conflict is dramatically reduced, where everyone has access to a fair and effective justice system and where racial equity, diversity and inclusion is centered in all of our work. Axon is also a leading provider of body cameras for US law enforcement, providing more transparency and accountability to communities than ever before.
You may learn about our Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) efforts by reading our ESG disclosure at investor.axon.com.
We work hard for those who put themselves in harm's way for all of us. More than 236,000 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. Axon is a global company with headquarters in Scottsdale, Ariz. and global software engineering hub in Seattle, Wash., as well as additional offices in Australia, Canada, Finland, Vietnam, the UK and the Netherlands.
Allergan is a trademark of Allergan, Inc.; eBay is a trademark of eBay, Inc.; Facebook is a trademark of Facebook, Inc.; Harman is a trademark of Harman International Industries, Inc.; Honeywell is a trademark of Honeywell International, Inc.; Intellectual Ventures is a service mark of Penky LLC, LTE is a trademark of the European Telecommunications Standards Institute; Raytheon is a trademark of Raytheon Company; Twitter is a trademark of Twitter, Inc. and Zoom is a trademark of Zoom Video Communications, Inc. Axon, Axon Aware, Axon Evidence, Axon Records, Axon Standards, Axon Fleet, TASER, TASER 7, X2, 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. © 2020 Axon Enterprise, Inc. 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: the impact of the COVID-19 pandemic; proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; the impact of pending litigation; our outlook for 2020 with respect to revenue, legal expenses relating to the FTC litigation, stock compensation expense, and income tax rate; trends relating to subscription plan programs and revenues; our anticipation that contracts with governmental customers will be fulfilled; expected trends, including the benefits of, research and development investments; the sufficiency of our liquidity and financial resources; that we may repurchase our common stock; expectations about customer behavior; the impact on our investment portfolio of changes in interest rates; trends in the percentage of our revenues denominated in foreign currencies; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; 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, 2019. 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: the potential global impacts of the COVID-19 pandemic; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; 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 ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; the impact of stock compensation expense, impairment expense, and income tax expense on our financial results; customer purchase behavior, including adoption of our software as a service delivery model; negative media publicity regarding our products; the impact of product mix on projected gross margins; defects in our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including our reliance on third party cloud-based storage providers; exposure to international operational risks; delayed cash collections and possible credit losses due to our subscription model; 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. 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 and our Quarterly Report on Form 10-Q list 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.
Update on Legal Matters:
Axon v. FTC
Axon continues to both vigorously prosecute its Federal court case against the FTC and defend the FTC's separate administrative action against the company. The FTC's administrative action had been stayed until July 7, 2020, due to the COVID-19 pandemic, but discovery has resumed and the administrative hearing is scheduled to begin on October 13, 2020. Separately, Axon's case against the FTC was dismissed on April 8, 2020, without prejudice, for lack of jurisdiction, holding that Axon must first bring its constitutional claims through the FTC's administrative process. Axon appealed that ruling to the Ninth Circuit Court of Appeals (No. 20-15662), which granted expedited consideration and held oral argument on July 17, 2020. Copies of Axon's Federal Court filings, including its most recent appellate brief, can be found on Axon's FTC Investor Briefing page at https://www.axon.com/ftc. In parallel to these matters, Axon is evaluating strategic alternatives to litigation, which Axon might pursue if determined to be in the best interests of shareholders and customers. This could include a divestiture of the Vievu entity and/or related assets. While Axon continues to believe the acquisition of Vievu in 2018 was lawful and a benefit to Vievu's customers, the cost, risk and distraction of protracted litigation merit consideration of settlement if achievable on terms agreeable to the FTC and Axon. As of Q2 2020, Vievu software licenses represented approximately 4% of Axon's annual recurring revenue of $183 million.
For investor relations information please contact Andrea James via email at IR@axon.com.
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per share data)
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020 31 MAR 2020 30 JUN 2019 30 JUN 2020 30 JUN 2019
Net sales from products $
98,755 $
107,288 $
80,391 $
206,043 $
168,480
Net sales from services 42,504 39,874 31,971 82,378 59,692
Net sales 141,259 147,162 112,362 288,421 228,172
Cost of product sales 43,825 48,884 38,220 92,709 77,820
Cost of service sales 9,257 9,670 8,582 18,927 15,875
Cost of sales 53,082 58,554 46,802 111,636 93,695
Gross margin 88,177 88,608 65,560 176,785 134,477
Operating expenses:
Sales, general and
administrative 72,293 63,027 43,362 135,320 86,254
Research and development 29,560 26,381 23,493 55,941 46,847
Total operating expenses 101,853 89,408 66,855 191,261 133,101
Income (loss) from operations (13,676) (800) (1,295) (14,476) 1,376
Interest and other income, net 1,613 941 1,845 2,554 4,158
Income (loss) before provision
for income taxes (12,063) 141 550 (11,922) 5,534
Provision for (benefit from)
income taxes 18,696 (3,933) (188) 14,763 (1,623)
Net income (loss) $
(30,759) $
4,074 $
738 $
(26,685) $
7,157
Net income (loss) per common and
common equivalent shares:
Basic $
(0.51) $
0.07 $
0.01 $
(0.44) $
0.12
Diluted $
(0.51) $
0.07 $
0.01 $
(0.44) $
0.12
Weighted average number of
common and common equivalent
shares outstanding:
Basic 60,346 59,609 59,187 59,977 59,051
Diluted 60,346 60,394 60,000 59,977 59,876
AXON ENTERPRISE, INC.
SEGMENT REPORTING
(Unaudited)
(dollars in thousands)
THREE MONTHS ENDED THREE MONTHS ENDED THREE MONTHS ENDED
30 JUN 2020
31 MAR 2020
30 JUN 2019
Software Software Software
and and and
TASER Sensors Total TASER Sensors Total TASER Sensors Total
Net sales from products
(1) $
69,877 $
28,878 $
98,755 $
75,175 $
32,113 $
107,288 $
60,423 $
19,968 $
80,391
Net sales from services
(2) 613 41,891 42,504 720 39,154 39,874 149 31,822 31,971
Net sales 70,490 70,769 141,259 75,895 71,267 147,162 60,572 51,790 112,362
Cost of product sales 27,242 16,583 43,825 30,248 18,636 48,884 24,262 13,958 38,220
Cost of service sales 9,257 9,257 9,670 9,670 8,582 8,582
Cost of sales 27,242 25,840 53,082 30,248 28,306 58,554 24,262 22,540 46,802
Gross margin 43,248 44,929 88,177 45,647 42,961 88,608 36,310 29,250 65,560
Gross margin % 61.4 63.5 62.4 60.1 60.3 60.2 59.9 56.5 58.3
% % % % % % % % %
Research and development 3,762 25,798 29,560 3,032 23,349 26,381 3,087 20,406 23,493
SIX MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020
30 JUN 2019
Software Software
and and
TASER Sensors Total TASER Sensors Total
Net sales from
products (1) $
145,052 $
60,991 $
206,043 $
125,724 $
42,756 $
168,480
Net sales from
services (2) 1,333 81,045 82,378 239 59,453 59,692
Net sales 146,385 142,036 288,421 125,963 102,209 228,172
Cost of product
sales 57,490 35,219 92,709 47,540 30,280 77,820
Cost of service
sales 18,927 18,927 15,875 15,875
Cost of sales 57,490 54,146 111,636 47,540 46,155 93,695
Gross margin 88,895 87,890 176,785 78,423 56,054 134,477
Gross margin % 60.7 61.9 61.3 62.3 54.8 58.9
% % % % % %
Research and
development 6,794 49,147 55,941 6,799 40,048 46,847
(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.
AXON ENTERPRISE, INC.
UNIT SALES STATISTICS
(Unaudited)
Units in whole numbers
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 30 JUN Unit Percent 30 JUN 30 JUN Unit Percent
2020 2019 Change Change 2020 2019 Change Change
TASER 7 9,014 8,135 879 10.8 20,444 16,970 3,474 20.5
% %
TASER X26P 7,658 9,493 (1,835) (19.3) 18,661 24,478 (5,817) (23.8)
TASER X2 13,100 9,759 3,341 34.2 23,578 19,620 3,958 20.2
TASER Pulse 5,429 3,631 1,798 49.5 8,690 4,884 3,806 77.9
Cartridges 715,268 606,220 109,048 18.0 1,588,632 1,222,737 365,895 29.9
Axon Body 35,066 20,346 14,720 72.3 74,930 46,194 28,736 62.2
Axon Flex 1,964 3,508 (1,544) (44.0) 5,038 7,099 (2,061) (29.0)
Axon Fleet 2,327 2,441 (114) (4.7) 5,003 4,176 827 19.8
Axon Dock 4,634 3,408 1,226 36.0 9,931 8,402 1,529 18.2
TASER Cam 794 1,716 (922) (53.7) 2,308 3,457 (1,149) (33.2)
AXON ENTERPRISE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(Unaudited)
Dollars in thousands
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020 31 MAR 2020 30 JUN 2019 30 JUN 2020 30 JUN 2019
EBITDA and Adjusted EBITDA:
---
Net income (loss) $
(30,759) $
4,074 $
738 $
(26,685) $
7,157
Depreciation and amortization 2,930 2,881 2,687 5,811 5,487
Interest expense 5 7 17 12 23
Investment interest income (1,499) (693) (1,630) (2,192) (3,633)
Provision for (benefit from) income
taxes 18,696 (3,933) (188) 14,763 (1,623)
EBITDA $
(10,627) $
2,336 $
1,624 $
(8,291) $
7,411
Adjustments:
Stock-based compensation expense $
33,835 $
20,195 $
8,627 $
54,030 $
16,532
Transaction costs related to
investment in unconsolidated
affiliate 90 833 923
Loss on disposal and abandonment of
intangible assets 100 13 113 18
Loss on disposal and impairment of
property and equipment, net 788 517 1,321 1,305 1,563
Costs related to FTC litigation 3,834 6,135 9,969
Adjusted EBITDA $
28,020 $
30,029 $
11,572 $
58,049 $
25,524
Net income (loss) as a percentage of (21.8) 2.8 0.7 (9.3) 8.9
net sales % % % % %
Adjusted EBITDA as a percentage of net 19.8 20.4 10.3 20.1 11.2
sales % % % % %
Stock-based compensation expense:
Cost of product and service sales $
836 $
590 $
237 $
1,426 $
463
Sales, general and administrative 26,766 14,970 4,941 41,736 9,622
Research and development 6,233 4,635 3,449 10,868 6,447
Total $
33,835 $
20,195 $
8,627 $
54,030 $
16,532
AXON ENTERPRISE, INC.
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - continued
(Unaudited)
Dollars in thousands
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020 31 MAR 2020 30 JUN 2019 30 JUN 2020 30 JUN 2019
Non-GAAP net income:
---
GAAP net income (loss) $
(30,759) $
4,074 $
738 $
(26,685) $
7,157
Non-GAAP adjustments:
Stock-based compensation expense 33,835 20,195 8,627 54,030 16,532
Loss on disposal and abandonment of
intangible assets 100 13 113 18
Loss on disposal and impairment of
property and equipment, net 788 517 1,321 1,305 1,563
Transaction costs related to
investment in unconsolidated
affiliate 90 833 923
Costs related to FTC litigation 3,834 6,135 9,969
Income tax effects (8,530) (7,837) (2,517) (16,367) (4,583)
Non-GAAP net income $
(642) $
23,930 $
8,169 $
23,288 $
20,687
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020 31 MAR 2020 30 JUN 2019 30 JUN 2020 30 JUN 2019
Non-GAAP diluted earnings
per share:
---
GAAP diluted earnings per
share $
(0.51) $
0.07 $
0.01 $
(0.44) $
0.12
Non-GAAP adjustments:
Stock-based compensation
expense 0.56 0.33 0.14 0.89 0.28
Loss on disposal and
abandonment of intangible
assets 0.00 0.00 0.00 0.00
Loss on disposal and
impairment of property and
equipment, net 0.01 0.01 0.02 0.02 0.03
Transaction costs related to
investment in unconsolidated
affiliate 0.00 0.01 0.02
Costs related to FTC
litigation 0.06 0.10 0.16
Income tax effects (0.14) (0.13) (0.04) (0.27) (0.08)
Non-GAAP diluted earnings
per share (1) $
(0.01) $
0.40 $
0.14 $
0.38 $
0.35
Weighted average number of
diluted common and common
equivalent shares
outstanding (in thousands) 60,346 60,394 60,000 60,671 59,876
(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.
CONSOLIDATED BALANCE SHEETS
(in thousands)
30 JUN 2020 31 DEC 2019
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $
319,253 $
172,250
Short-term investments 237,980 178,534
Accounts and notes receivable, net 154,253 146,878
Contract assets, net 50,799 38,102
Inventory, net 81,010 38,845
Prepaid expenses and other current
assets 42,429 34,866
Total current assets 885,724 609,475
Property and equipment, net 45,386 43,770
Deferred tax assets, net 34,142 27,688
Intangible assets, net 11,146 12,771
Goodwill 24,905 25,013
Long-term investments 129,580 45,499
Long-term notes receivable, net of
current portion 26,115 31,598
Long-term contract assets, net 12,108 9,644
Other assets 63,806 40,181
Total assets $
1,232,912 $
845,639
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 40,105 25,874
Accrued liabilities 64,467 45,001
Current portion of deferred revenue 129,518 117,864
Customer deposits 3,858 2,974
Other current liabilities 4,882 3,853
Total current liabilities 242,830 195,566
Deferred revenue, net of current
portion 83,150 87,936
Liability for unrecognized tax
benefits 4,445 3,832
Long-term deferred compensation 3,990 3,936
Deferred tax liability 447 354
Other long-term liabilities 28,237 10,520
Total liabilities 363,099 302,144
Stockholders' Equity:
Preferred stock
Common stock 1 1
Additional paid-in capital 883,609 528,272
Treasury stock (155,947) (155,947)
Retained earnings 144,940 172,265
Accumulated other comprehensive loss (2,790) (1,096)
Total stockholders' equity 869,813 543,495
Total liabilities and stockholders'
equity $
1,232,912 $
845,639
AXON ENTERPRISE, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020 31 MAR 2020 30 JUN 2019 30 JUN 2020 30 JUN 2019
Cash flows from operating
activities:
Net income (loss) $
(30,759) $
4,074 $
738 $
(26,685) $
7,157
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization 2,930 2,881 2,687 5,811 5,487
Loss on disposal and abandonment
of intangible assets 100 13 113 18
Loss on disposal and impairment
of property and equipment, net 788 517 1,321 1,305 1,563
Stock-based compensation 33,835 20,195 8,627 54,030 16,532
Deferred income taxes (4,604) (1,548) (1,888) (6,152) (1,311)
Unrecognized tax benefits 271 341 306 612 613
Other noncash, net 1,440 1,156 926 2,596 1,822
Provision for expected credit
losses (244) 902 658
Change in assets and liabilities:
Accounts and notes receivable and
contract assets 325 (9,700) 10,988 (9,375) (11,006)
Inventory (34,641) (8,630) (3,579) (43,271) (7,515)
Prepaid expenses and other assets (10,828) 2,277 (2,609) (8,551) (5,761)
Accounts payable, accrued
liabilities and other
liabilities 20,270 (3,562) (9,468) 16,708 (16,752)
Deferred revenue 725 4,499 3,345 5,224 6,577
Net cash provided by (used in)
operating activities (20,392) 13,415 11,394 (6,977) (2,576)
Cash flows from investing
activities:
Purchases of investments (193,085) (99,512) (36,670) (292,597) (141,992)
Proceeds from call /maturity of
investments 74,355 84,315 25,319 158,670 25,319
Purchases of property and
equipment (5,342) (2,209) (2,590) (7,551) (7,861)
Purchases of intangible assets (66) (45) (182) (111) (344)
Proceeds of disposal from
property and equipment 78 78
Investment in unconsolidated
affiliate (4,700) (4,700)
Net cash used in investing
activities (124,138) (22,073) (14,123) (146,211) (124,878)
Cash flows from financing
activities:
Net proceeds from equity offering 306,779 306,779
Proceeds from options exercised 267 28 4 295 104
Income and payroll tax payments
for net-settled stock awards (577) (5,190) (873) (5,767) (2,132)
Net cash provided by (used in)
financing activities 306,469 (5,162) (869) 301,307 (2,028)
Effect of exchange rate changes
on cash and cash equivalents 775 (1,890) (319) (1,115) (252)
Net increase (decrease) in cash
and cash equivalents and
restricted cash 162,714 (15,710) (3,917) 147,004 (129,734)
Cash and cash equivalents,
beginning of period 156,645 172,355 225,210 172,355 351,027
Cash and cash equivalents, end of
period $
319,359 $
156,645 $
221,293 $
319,359 $
221,293
AXON ENTERPRISE, INC.
SELECTED CASH FLOW INFORMATION
(Unaudited)
(in thousands)
THREE MONTHS ENDED SIX MONTHS ENDED
30 JUN 2020 31 MAR 2020 30 JUN 2019 30 JUN 2020 30 JUN 2019
Net cash provided by (used in)
operating activities $
(20,392) $
13,415 $
11,394 $
(6,977) $
(2,576)
Purchases of property and
equipment (5,342) (2,209) (2,590) (7,551) (7,861)
Purchases of intangible assets (66) (45) (182) (111) (344)
Investment in unconsolidated
affiliate (4,700) (4,700)
Free cash flow, a non-GAAP
measure $
(25,800) $
6,461 $
8,622 $
(19,339) $
(10,781)
AXON ENTERPRISE, INC.
SUPPLEMENTAL TABLES
(in thousands)
30 JUN 2020 31 DEC 2019
(Unaudited)
Cash and cash equivalents $
319,253 $
172,250
Short-term investments 237,980 178,534
Long-term investments 129,580 45,499
Investment payable, net of
receivable (10,400)
Total cash and cash equivalents
and investments, net $
676,413 $
396,283
CONTACT:
Investor Relations
Axon Enterprise, Inc.
IR@axon.com
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SOURCE Axon
