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Axon (AAXN) Gains 13% on Q3 Earnings Beat & Upbeat View

Zacks Equity Research
·5 min read

Axon Enterprise Inc. AAXN reported third-quarter 2020 adjusted earnings per share of 40 cents, which surpassed the Zacks Consensus Estimate of 20 cents by margin of 100%. The bottom line also improved 43% year over year driven by strong demand for almost all product lines. The company has raised revenues and adjusted EBITDA guidance for 2020 anticipating the momentum to sustain for the rest of the year. Thus, the company’s shares have gained 13% since the third-quarter earnings release on Nov 5, 2020.

Including one-time items, the company reported a loss per share of 1 cent in the quarter under review compared to a loss of 51 cents in the year-ago quarter.

Revenues

Axon reported revenues of $166 million in the quarter, up 18% from the year-ago quarter’s figure of $141 million as a result of strong demand for almost all product lines. The top line surpassed the Zacks Consensus Estimate of $150 million. International revenues grew 15% year over year to $23 million in the quarter.

Axon Enterprise, Inc Price, Consensus and EPS Surprise

Axon Enterprise, Inc Price, Consensus and EPS Surprise
Axon Enterprise, Inc Price, Consensus and EPS Surprise

Axon Enterprise, Inc price-consensus-eps-surprise-chart | Axon Enterprise, Inc Quote

The company witnessed year-over-year improvement of 56% in bookings in the reported quarter aided by robust North American demand for body cameras and cloud software, and a recovery in TASER demand driven by the US federal and corrections markets. Notably, U.S. federal customers contributed a record $38 million in bookings, up 400% year ove year as a result of the company’s targeted investments in building direct relationships with federal customers.

Axon’s Annual Recurring Revenue ("ARR") grew 44% year over year to $204 million, reflecting demand for its growing suite of software tools. With this performance, the company has doubled its ARR since third-quarter 2018.

Operating Performance

Cost of sales increased 29% year over year to $68 million. Gross profit was $98 million, up 11% from the year-ago quarter figure of $88 million. Gross margin contracted 340 basis points year over year to 59% in the reported quarter. Shipments of low-to-no margin body camera hardware impacted gross margins in the quarter.

Selling, general, administrative and engineering (SG&A) increased 3% year over year to $74 million. Research & development expenses decreased 1% year over year to $29 million.
 
Adjusted EBITDA was $33.7 million in the reported quarter, up 40% from the year-ago quarter. Adjusted EBITDA margin was 20.3%, reflecting an expansion of 300 basis points from the prior-year quarter.

Segment Performance

Revenues for the Taser segment increased 17.7% to $84 million from the year-ago quarter aided by strong demand for devices, cartridges, and officer training. The segment’s gross margin was 62.9%, indicating a 20 basis point contraction year over year.

In the Software & Sensors segment, Axon Cloud revenues grew 34% year over year to $45 million, while Sensors & Other’s revenues increased 46% year over year $37 million. Axon Cloud’s gross margin of 77% in the quarter marked a 130 basis point expansion from the prior-year quarter. Sensors & Other’s gross margin was 27.5%, a 890 basis point contraction from the year-ago quarter.

Financial Position

Axon’s cash and cash equivalents were around $176 million as of Sep 30, 2020, up from $172 million as of Dec 31, 2019. The company has no debt. Cash flow from operating activities were $11 million in the quarter compared with $22 million in third-quarter 2019.

FY’20 Guidance Raised

Axon expects revenues in the fourth quarter between $175 million and $185 million. Gross margins in the fourth quarter are expected to come in-line with the third quarter. Adjusted EBITDA in the ongoing quarter is expected to be in the range of $30 million to $35 million.

Full-year 2020 revenue guidance is now expected between $630 million and $640 million, higher than its previous revenue guidance of $615 million to $625 million. This reflects ongoing strength across the business and growing customer diversification, particularly in the US federal and international markets. Adjusted EBITDA for the year is projected to be $122-$127 million, up from the previous $100-$105 million, reflecting improved revenues and related expense leverage and other cost savings.

Share Price Performance

Axon’s shares have surged 47.5% in the past three months, compared with the industry‘s growth of 2.7%.

Zacks Rank & Stocks to Consider

Axon currently carries a Zacks Rank #3 (Hold).

Some better ranked stocks in the Industrial Products sector are Crown Holdings, Inc. CCK, iRobot Corporation IRBT and SiteOne Landscape Supply, Inc. SITE. All of these stocks flaunt a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Crown Holdings has a projected earnings growth rate of 11.7% for fiscal 2020. Over the past year, the company’s shares have appreciated 29% over the past three months.

iRobot has an estimated earnings growth rate of 18.8% for the ongoing year. The company’s shares have gained 21% in the past three months.

SiteOne Landscape has an expected earnings growth rate of 28.6% for 2020. Over the past three months, the stock has climbed 15%.

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