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Axon Q3 Results: Record Revenue of $105 million; Software Annual Recurring Revenue Exceeds $100 million

SCOTTSDALE, Ariz., Nov. 6, 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 $104.8 million, up 16% year-over-year
  • Axon Cloud revenue of $23.9 million, up 47% year-over-year
  • Software & Sensors annual recurring revenue of $101.6 million, up 60% year-over-year
  • All-new TASER 7 conducted energy weapon in active field trials, shipping soon
  • Introduced Axon Body 3, with LTE live-streaming capability

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

Dear shareholders,

Axon's third quarter was highlighted by both innovation and execution. For the 25th anniversary of the company's founding, we were delighted to introduce the TASER 7 at the International Association of Chiefs of Police Conference in early October.

TASER 7 is the first ground-up redesign of the TASER handheld weapon since the founding of the company in 1993. TASER 7 improves performance across all key metrics, increasing effectiveness, reducing size and improving ease of use. TASER 7 delivers a more compact multi-shot weapon, faster reloads, more stable darts with greater kinetic energy, and increased effectiveness yielding faster, more reliable threat stoppage. New adaptive cross connect technology actively measures and optimizes the flow of charge across up to four probes deployed on the target.

TASER 7 is the most effective TASER weapon ever developed and represents a new premium tier in our weapons category that creates a compelling upgrade opportunity for our entire installed base. It also represents an important step toward our mission of making the bullet obsolete.

Also, for the first time, the TASER 7 integrates seamlessly with our cloud-based software solution for Axon on-officer cameras without requiring a manual connection through a PC. Each TASER 7 is sold with a dock and subscription on Axon Evidence (Evidence.com). Law enforcement customers across the board tell us that TASER 7 is a game changer. It has already been ordered for full deployment by the Fort Worth Police Department and the Nevada State Highway Patrol and is in field trials with several other major agencies. We expect to begin meaningful shipments in December and will continue to sell prior models.

In early October, we also introduced the Axon Body 3 camera, Axon's first LTE-connected device. Axon will procure embedded LTE services directly from FirstNet, built with AT&T, and Verizon's dedicated Public Safety Private Core, eliminating the need for agencies to handle the logistics of a separate LTE bill.

Axon Body 3 retains all the features that made Axon Body 2 the market leader, including full-shift battery life, ruggedness, simplicity, and ease of use. Improvements include better low-light capture, higher image clarity, GPS functionality, and audio that allows for ambient noise reduction. Axon Body 3 also offers live-streaming video and the ability to react to active intelligence, with a processor that can handle edge-AI capabilities such as gunshot detection.

Live streaming offers command staff real-time insight into what is happening during a major incident. In incidents such as mass shootings, bomb scares or SWAT team entries, command staff can see what the officers on the ground are seeing and can more expeditiously allocate the appropriate resources and inform the public. Also, we believe that arriving officers can perform better if they have enhanced situational awareness in advance.

The timing of Axon Body 3's introduction was optimized for 2019 procurement cycles and to leverage the inflection point in adoption of FirstNet's and Verizon's mission-critical LTE services. Some agencies will receive test units in early 2019 and we expect shipments to begin ramping in mid-2019.

In conjunction with revealing two new compelling hardware products — TASER 7 and Axon Body 3 — we also unveiled our go-to-market strategy for Axon Records, our new law enforcement records management system currently under development. In short, Axon is disrupting how agency records management systems are packaged and sold. Agencies that procure the TASER 7 and Axon Body 3 via our Officer Safety Plan package will receive Axon Records' core functionality at no incremental cost for five years. Because records management systems represent one of the largest technology costs for agencies, we believe this offering provides us with a significant competitive advantage.

Axon Records remains on track to be commercially available in Q3 2019, with deployments beginning to scale at that time. We are building a foundational product, upon which we will incorporate additional modules and apps over time, including transcription and automatic report writing. Axon Records will support the key functions that agencies require, including incident report writing, case management, routing and task management, and Axon Evidence integration.

Making Axon Records available for free as part of our popular Officer Safety Plan is a strategy designed to rapidly drive mass adoption. Combining agencies' text records with on-officer camera data puts video at the heart of the record and creates the ecosystem for us to develop breakthrough premium services, leveraging our industry-leading AI team. Axon Records creates the training data set to enable us to develop AI models that extract the records meta data from the audio-video data. The value created by automating the incident report creation process will be far greater than the value of any records system currently in existence.

Summary of Q3 2018 Results (1)

  • Revenue of $104.8 million grew 16% year-over-year, with strength driven by domestic weapons demand and Axon Fleet.
  • Gross margin of 62.6% was up 750 basis points from gross margin of 55.1% in Q3 2017.
    • Much of the improvement in gross margin was driven by an improved mix of body-camera shipments, better margins associated with Axon Fleet, which were negative one year ago as Axon deployed leader pricing to early adopters, and the elimination of duplicate data storage costs, which were incurred one year ago as we transitioned from Amazon Web Services to Microsoft Azure.
  • Operating expenses of $61.7 million grew 7% sequentially.
    • The increase in operating expenses was driven by a 19% increase in research and development spending as we added engineering talent to support Axon Records and incurred incremental costs in our final push to bring the TASER 7 to market.
    • SG&A spending grew 0.9% sequentially, reflecting additional payroll to support our growth, offset by ongoing cost control measures and lower professional and consulting fees. Q3 2018 SG&A expenses include a non-cash intangible asset abandonment charge of $2.0 million.
  • GAAP EPS was $0.10. Non-GAAP EPS of $0.20, which excludes $0.10 related to stock-based compensation expense, was up substantially versus non-GAAP EPS of $0.05 a year ago.
  • Adjusted EBITDA of $15.5 million grew 129% year over year and represents an Adjusted EBITDA margin of 14.8%.

 

(1) Amounts for Q3 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 Q3 2018 would have been $102.6 million under ASC 605.

 

Financial commentary by segment





TASER Weapons






Three Months Ended


Change


September 30,
2018


June 30,

2018


9/30/2017


QoQ


YoY

TASER Weapons










Net sales

$

63,666



$

60,624



$

59,416



5.0

%


7.2

%

Gross margin

69.8

%


70.8

%


67.6

%


-100bp


220bp




















(1) Amounts for the three months ended September 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 grew 7% year over year and 5% sequentially as Q3 2018 benefited from higher handle volumes tied to shipments to domestic customers and an increase in cartridge revenue.
  • Weapons gross margin was up 220 basis points year over year and was higher than the average of the prior six quarters on customer mix.
  • About 33% of TASER weapons sales in Q3 2018 were sold on a recurring payment plan such as TASER 60 or Officer Safety Plan. We expect recurring payment plan subscriptions to increase substantially in 2019 as we drive sales of TASER 7, which includes a software subscription with Axon Evidence.

 

Software & Sensors






Three Months Ended


Change


September 30, 2018


June 30,

2018


September 30,
2017 (1)


QoQ


YoY

Software and Sensors










Axon Cloud net sales

$

23,913



$

22,505



$

16,277



6.3

%


46.9

%

Axon Cloud gross margin

73.9

%


77.8

%


63.6

%


-390bp


1030bp











Sensors and Other net sales

$

17,257



$

16,097



$

14,569



7.2

%


18.5

%

Sensors and Other gross margin

20.6

%


16.7

%


(5.3)

%


390bp


2,590bp


(1) Amounts for the three months ended September 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 Cloud sales grew 47% year over year to $23.9 million.
  • Axon Cloud gross margin gained year over year largely due to the elimination of data migration costs that we incurred a year ago, and was down sequentially because of professional services fees, which vary by quarter.
  • Sensors and Other sales, which primarily consist of hardware sensors, totaled $17.3 million and were boosted by installations of the new Axon Fleet 2, which began shipping in September. We believe our progress and success with Axon Fleet, which began shipping in Q2 2017, demonstrates our ability to identify a market adjacency and expand into a compelling new product category.
  • Sensors and Other gross margin was adversely affected by delivering upon VIEVU contracts we acquired in May.

 


September 30, 2018


June 30,

2018


March 31,

2018


December 31, 2017


September 30,
2017











Software and Sensors Bookings

$

92,895



$

88,860



$

97,528



$

71,154



$

77,976


Software and Sensors Annual Recurring Revenue (1)

$

101,618



$

92,711



$

83,310



$

69,960



$

63,694


Cumulative Axon Cloud seats booked

325,200



305,200



226,900



201,500



187,400



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

 

  • Software & Sensors bookings of $92.9 million grew 5% sequentially and 19% year over year, and represented strength across categories, including domestic bookings of Axon Fleet and new international markets adopting Axon solutions.
  • Software & Sensors annual recurring revenue (software & warranty) was $101.6 million, surpassing $100 million for the first time, and reflecting growth of 60% year over year.
  • As of September 30, 2018, we had 325,200 booked seats on the Axon network, representing an increase of 20,000 seats from June 30, 2018.
  • As of September 30, 2018, Software & Sensors backlog increased to approximately $700 million, which is a subset of Axon's total remaining performance obligations of approximately $820 million.

Outlook

We are providing the following updated guidance for the full year ending December 31, 2018:

  • Maintaining revenue growth guidance of 18% to 20%.
    • Based on current Q4 business trends, we are tracking to achieve the midpoint of our full year guidance range.
    • We expect TASER 7 to contribute modestly to Q4 2018 and to be a significant growth driver beginning in 2019.
  • Reiterating Adjusted EBITDA margin guidance of 14% to 16%, which compares to Adjusted EBITDA margin of 11.6% in 2017.
    • The Adjusted EBITDA margin guidance range includes the impact of cost absorption related to a large domestic customer transitioning from VIEVU cameras to Axon Body 2 cameras, beginning in Q4 2018.
  • 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 $10 million to $12 million.

Looking ahead, you can expect to see us continue to deliver product innovation and a superior customer experience, stay scrappy and remain focused on driving strong top-line growth and profitability. We look forward to updating you again in 2019.

Signed,

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

Quarterly conference call and Webcast

We will host our Q3 2018 earnings conference call on Tuesday, November 6, 2018 at 2 p.m. PT / 3 p.m. AZT / 5 p.m. ET.

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 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, 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 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.

We work hard for those who put themselves in harm's way for all of us. To date, there are more than 325,200 software seats booked on the Axon network around the world and more than 207,000 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.

Amazon is a trademark of Amazon, AT&T is a trademark of AT&T Intellectual Property II, L.P. AT&T Intellectual Property, Inc., Azure is a trademark of the Microsoft Corporation, 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., and Verizon is a trademark of Verizon Trademark Services, LLC.

Axon, Axon Body 3, Axon Fleet, Axon Fleet 2, Axon Network, Axon Evidence (Evidence.com), the Delta Logo, Protect Life, Smart Weapons, TASER, and TASER 7 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, 2017. 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; 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 manage our supply chain and avoid production delays or shortages; changes in the costs of product components and labor; defects in our products; the impact of product mix on projected gross margins; 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; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; 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; counter-party risks relating to cash balances held in excess of FDIC insurance limits; our ability to integrate acquired businesses; and our ability to attract and retain key personnel. 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. The Annual Report on Form 10-K that we filed with the SEC on March 1, 2018 listed 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 Report on Form 10-K and in the 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 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.

For investor relations information please contact Andrea James via email at [email protected].

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(in thousands, except per share data)






Three Months Ended


Nine Months Ended September 30,


September 30, 2018


June 30,

2018


September 30,
2017 (1)


2018


2017 (1)

Net sales from products

$

80,923



$

76,721



$

73,985



$

238,618



$

208,351


Net sales from services

23,913



22,505



16,277



66,659



40,796


Net sales

104,836



99,226



90,262



305,277



249,147


Cost of product sales

32,953



31,087



34,573



96,474



91,817


Cost of service sales

6,250



4,996



5,924



15,566



13,258


Cost of sales

39,203



36,083



40,497



112,040



105,075


Gross margin

65,633



63,143



49,765



193,237



144,072


Operating expenses:










Sales, general and administrative

39,685



39,343



36,398



114,787



99,079


Research and development

21,982



18,501



14,166



55,602



39,618


Total operating expenses

61,667



57,844



50,564



170,389



138,697


Income (loss) from operations

3,966



5,299



(799)



22,848



5,375


Interest and other income, net

1,274



(295)



1,430



2,242



3,320


Income before provision for income taxes

5,240



5,004



631



25,090



8,695


Provision for (benefit from) income taxes

(471)



(3,481)



209



(2,032)



1,417


Net income

$

5,711



$

8,485



$

422



$

27,122



$

7,278


Net income per common and common equivalent shares:










Basic

$

0.10



$

0.15



$

0.01



$

0.49



$

0.14


Diluted

$

0.10



$

0.15



$

0.01



$

0.47



$

0.14


Weighted average number of common and common equivalent shares outstanding:










Basic

58,340



55,527



52,831



55,681



52,663


Diluted

59,805



57,054



53,843



57,254



53,762



(1) Amounts for the three and nine months ended September 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 September 30, 2018


Three Months Ended June 30, 2018


Three Months Ended September 30, 2017 (1)


TASER

Weapons


Software
and Sensors


Total


TASER

Weapons


Software
and Sensors


Total


TASER

Weapons


Software
and Sensors


Total

Net sales from products (2)

$

63,666



$

17,257



$

80,923



$

60,624



$

16,097



$

76,721



$

59,416



$

14,569



$

73,985


Net sales from services (3)



23,913



23,913





22,505



22,505





16,277



16,277


Net sales

63,666



41,170



104,836



60,624



38,602



99,226



59,416



30,846



90,262


Cost of product sales

19,256



13,697



32,953



17,681



13,406



31,087



19,237



15,336



34,573


Cost of service sales



6,250



6,250





4,996



4,996





5,924



5,924


Cost of sales

19,256



19,947



39,203



17,681



18,402



36,083



19,237



21,260



40,497


Gross margin

44,410



21,223



65,633



42,943



20,200



63,143



40,179



9,586



49,765


Sales, general and administrative

22,574



17,111



39,685



21,920



17,423



39,343



20,575



15,823



36,398


Research and development

4,837



17,145



21,982



4,019



14,482



18,501



1,856



12,310



14,166


Income (loss) from operations

$

16,999



$

(13,033)



$

3,966



$

17,004



$

(11,705)



$

5,299



$

17,748



$

(18,547)



$

(799)




















Gross margin %

69.8

%


51.5

%


62.6

%


70.8

%


52.3

%


63.6

%


67.6

%


31.1

%


55.1

%

Operating margin %

26.7

%


(31.7)

%


3.8

%


28.0

%


(30.3)

%


5.3

%


29.9

%


(60.1)

%


(0.9)

%

 


Nine Months Ended September 30, 2018


Nine Months Ended September 30, 2017 (1)


TASER

Weapons


Software
and Sensors


Total


TASER

Weapons


Software
and Sensors


Total

Net sales from products (2)

$

187,814



$

50,804



$

238,618



$

170,103



$

38,248



$

208,351


Net sales from services (3)



66,659



66,659





40,796



40,796


Net sales

187,814



117,463



305,277



170,103



79,044



249,147


Cost of product sales

57,480



38,994



96,474



53,341



38,476



91,817


Cost of service sales



15,566



15,566





13,258



13,258


Cost of sales

57,480



54,560



112,040



53,341



51,734



105,075


Gross margin

130,334



62,903



193,237



116,762



27,310



144,072


Sales, general and administrative

65,759



49,028



114,787



55,283



43,796



99,079


Research and development

11,816



43,786



55,602



5,931



33,687



39,618


Income (loss) from operations

$

52,759



$

(29,911)



$

22,848



$

55,548



$

(50,173)



$

5,375














Gross margin %

69.4

%


53.6

%


63.3

%


68.6

%


34.6

%


57.8

%

Operating margin %

28.1

%


(25.5)

%


7.5

%


32.7

%


(63.5)

%


2.2

%


(1) Amounts for the three and nine months ended September 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 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 September 30,


Nine Months Ended September 30,


2018


2017


Unit Change


Percent Change


2018


2017


Unit Change


Percent Change

















TASER X26P

18,842



13,472



5,370



39.9

%


53,226



47,031



6,195



13.2

%

TASER X2

16,729



21,896



(5,167)



(23.6)



52,767



54,423



(1,656)



(3.0)


TASER Pulse and Bolt

3,750



2,944



806



27.4



10,908



8,863



2,045



23.1


Cartridges

598,119



643,077



(44,958)



(7.0)



1,742,207



1,818,345



(76,138)



(4.2)


Axon Body

17,622



28,669



(11,047)



(38.5)



59,798



75,864



(16,066)



(21.2)


Axon Flex

3,487



8,298



(4,811)



(58.0)



10,461



20,772



(10,311)



(49.6)


Axon Fleet

1,601



1,598



3



0.2



5,537



1,598



3,939



246.5


Axon Dock

3,525



6,440



(2,915)



(45.3)



13,903



19,584



(5,681)



(29.0)


TASER Cam

1,339



1,512



(173)



(11.4)



6,358



4,187



2,171



51.9


 

AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(Unaudited)

Dollars in thousands






Three Months Ended


Nine Months Ended September 30,


September 30, 2018


June 30, 2018


September 30,
2017 (1)


2018


2017 (1)

EBITDA and Adjusted EBITDA:










Net income

$

5,711



$

8,485



$

422



$

27,122



$

7,278


Depreciation and amortization

3,065



2,750



2,277



8,226



5,677


Interest expense

16



17



49



53



132


Investment interest income

(1,256)



(595)



(189)



(1,926)



(677)


Provision for (benefit from) income taxes

(471)



(3,481)



209



(2,032)



1,417


EBITDA

$

7,065



$

7,176



$

2,768



$

31,443



$

13,827












Adjustments:










Stock-based compensation expense

$

6,255



$

4,954



$

4,000



$

15,302



$

11,423


Transaction costs and adjustments related to business acquisition



1,382





1,382




Loss on disposal and abandonment of intangible assets

2,049



54





2,103




Loss on disposal and impairment of property and equipment, net

137



119





290




Adjusted EBITDA

$

15,506



$

13,685



$

6,768



$

50,520



$

25,250


Net income as a percentage of net sales

5.4

%


8.6

%


0.5

%


8.9

%


2.9

%

Adjusted EBITDA as a percentage of net sales

14.8

%


13.8

%


7.5

%


16.5

%


10.1

%


(1) Amounts for the three and nine months ended September 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


Nine Months Ended September 30,


September 30, 2018


June 30,

2018


September 30, 

2017 (1)


2018


2017 (1)

Non-GAAP net income:










GAAP net income

$

5,711



$

8,485



$

422



$

27,122



$

7,278


Non-GAAP adjustments:










Stock-based compensation expense

6,255



4,954



4,000



15,302



11,423


Loss on disposal and abandonment of intangible assets

2,049



54





2,103




Loss on disposal and impairment of property and equipment, net

137



119





290




Transaction costs and adjustments related to business acquisition



1,382





1,382




Income tax effects

(2,048)



(1,580)



(1,515)



(4,629)



(4,298)


Income tax benefit of CEO stock option exercise



(3,362)





(3,362)




Non-GAAP net income

$

12,104



$

10,052



$

2,907



$

38,208



$

14,403











Three Months Ended


Nine Months Ended September 30,


September 30, 2018


June 30,

2018


September 30, 

2017 (1)


2018


2017 (1)

Non-GAAP diluted earnings per share:










GAAP diluted earnings per share

$

0.10



$

0.15



$

0.01



$

0.47



$

0.14


Non-GAAP adjustments:










Stock-based compensation expense

0.10



0.09



0.07



0.27



0.21


Loss on disposal and abandonment of intangible assets

0.03







0.04




Loss on disposal and impairment of property and equipment, net

0.00



0.00





0.01




Transaction costs and adjustments related to business acquisition



0.02





0.02




Income tax effects

(0.03)



(0.03)



(0.03)



(0.08)



(0.08)


Income tax benefit of CEO stock option exercise



(0.06)





(0.06)




Non-GAAP diluted earnings per share (2)

$

0.20



$

0.18



$

0.05



$

0.67



$

0.27












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

59,805



57,054



53,843



57,254



53,762



(1) Amounts for the three and nine months ended September 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)



September 30, 2018


December 31, 2017


(Unaudited)



ASSETS








Current Assets:




Cash and cash equivalents

$

324,371



$

75,105


Short-term investments

500



6,862


Accounts and notes receivable, net

116,518



56,064


Contract assets, net

13,263




Inventory

39,221



45,465


Prepaid expenses and other current assets

30,514



21,696


Total current assets

524,387



205,192






Property and equipment, net

35,613



31,172


Deferred income tax assets, net

18,080



15,755


Intangible assets, net

16,956



18,823


Goodwill

25,043



14,927


Long-term notes receivable, net of current portion

38,220



36,877


Other assets

23,396



15,366


Total assets

$

681,695



$

338,112






LIABILITIES AND STOCKHOLDERS' EQUITY








Current Liabilities:




Accounts payable

$

8,998



$

8,592


Accrued liabilities

36,908



23,502


Current portion of deferred revenue

89,637



70,401


Customer deposits

4,111



3,673


Current portion of business acquisition contingent consideration

1,736



1,693


Other current liabilities

115



89


Total current liabilities

141,505



107,950






Deferred revenue, net of current portion

69,382



54,881


Liability for unrecognized tax benefits

1,805



1,706


Long-term deferred compensation

3,590



3,859


Business acquisition contingent consideration, net of current portion



1,048


Other long-term liabilities

5,751



1,224


Total liabilities

222,033



170,668






Stockholders' Equity:




Preferred stock




Common stock

1



1


Additional paid-in capital

447,933



201,672


Treasury stock

(155,947)



(155,947)


Retained earnings

169,301



123,185


Accumulated other comprehensive income

(1,626)



(1,467)


Total stockholders' equity

459,662



167,444


Total liabilities and stockholders' equity

$

681,695



$

338,112


 

 AXON ENTERPRISE, INC.

SELECTED CASH FLOW INFORMATION

(Unaudited)

(in thousands)






Three Months Ended


Nine Months Ended September 30,


September 30, 2018


June 30,

2018


September 30,
2017 (1)


2018


2017 (1)











Net income

$

5,711



$

8,485



$

422



$

27,122



$

7,278


Depreciation and amortization

3,065



2,750



2,277



8,226



5,677


Stock-based compensation

6,255



4,954



4,000



15,302



11,423


Net cash provided by (used in) operating activities

16,530



(1,947)



6,607



32,636



(5,851)


Net cash provided by (used in) investing activities

1,223



(8,494)



7,514



(6,003)



9,551


Net cash provided by (used in) financing activities

(1,039)



226,667



(244)



222,158



(1,575)












Cash and cash equivalents

324,371



307,507



43,471



324,371



43,471


Restricted cash

2,477



2,470



3,326



2,477



3,326


Cash, cash equivalents and restricted cash, end of period

326,848



309,977



46,797



326,848



46,797











Three Months Ended


Nine Months Ended September 30,


September 30, 2018


June 30,

2018


September 30, 2017 (1)


2018


2017 (1)











Net cash provided by (used in) operating activities

$

16,530



$

(1,947)



$

6,607



$

32,636



$

(5,851)


Purchases of property and equipment

(2,215)



(3,602)



(3,331)



(6,880)



(9,072)


Purchases of intangible assets

(206)



(220)



(261)



(460)



(431)


Cash flows related to business acquisitions

24



(5,014)



(4,150)



(4,990)



(10,629)


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

$

14,133



$

(10,783)



$

(1,135)



$

20,306



$

(25,983)



(1) Amounts for the three and nine months ended September 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.
[email protected]

 

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