Axon (AXON) Q3 Earnings Increase Y/Y, 2023 Guidance Bullish
Axon Enterprise, Inc. AXON reported third-quarter 2023 earnings (excluding 7 cents from non-recurring items) of 71 cents per share. The bottom line increased significantly year over year despite a 33.6% jump in the cost of sales.
Total revenues of $413.6 million outperformed the Zacks Consensus Estimate of $393.8 million and augmented 32.7% year over year. The top line benefited from strength in Axon Cloud software, demand for Axon Fleet systems and the ramp-up of TASER 10 and Axon Body 4.
Annual Recurring Revenue ascended 54% year over year to $619 million in the third quarter. The upside was due to strong sales of premium bundles. Net revenue retention was 122% in the period.
Total operating expenses climbed 24.2% year over year to $200.16 million. Gross margin deteriorated to 61.7% from 62% in the year-ago period.
Axon Enterprise, Inc Price, Consensus and EPS Surprise
Axon Enterprise, Inc price-consensus-eps-surprise-chart | Axon Enterprise, Inc Quote
Segmental Details
Software & Sensors: Within this segment, Axon’s Cloud and Services revenues surged 55% to $147.96 million owing to strong demand for premium Officer Safety Plan integrated bundles and associated deployments of premium software offerings. Axon Cloud’s gross margin deteriorated to 72.4% from 74.1% in the year-ago period due to an increased mix toward professional services associated with growth in the Fleet systems business.
Sensors & Other revenues climbed 45% to $87.56 million due to strength in demand for Axon Fleet systems and the initial ramp of Axon Body 4. Gross margin improved to 45.2% compared with 43.3% in the year-ago period due to higher fleet shipments and growth in Axon Body 4.
TASER: The segment’s revenues jumped 12% year over year to $162.57 million, driven by the continued ramp-up of the TASER 10 platform and increased cartridge revenues. TASER 10’s revenue contribution increased roughly 50% sequentially in the third quarter. It is expected to account for majority of the TASER segment’s revenues in the fourth quarter. Demand for TASER 7 declined in the quarter, partly affecting the segment’s performance.
Balance Sheet/Cash Flow
At the end of the third quarter, Axon had cash and cash equivalents of $406.04 million compared with $353.68 million at the end of December 2022. Long-term lease liabilities totaled $35.33 million compared with $37.14 million at 2022-end.
In the first nine months of 2023, AXON generated net cash of $49.23 million compared with $104.24 million cash generated in the year-ago period.
Free cash flow was $13 million in the first nine months of 2023 compared with $59.83 million in the year-ago period.
Outlook
For the fourth quarter of 2023, Axon expects revenues of $417-$420 million. The Zacks Consensus Estimate for fourth-quarter revenues is pegged at $411.89 million. Adjusted EBITDA margin is expected to be approximately 20% in the fourth quarter.
Axon improved its 2023 revenue guidance. The company now expects revenues of approximately $1.55 billion, indicating a 30% increase on a year-over-year basis. Previously, the company expected revenues of $1.51-$1.53 billion. For 2023, the company anticipates an adjusted EBITDA margin of 20.8% (previous expectation: 20%). Adjusted EBITDA is expected to be approximately $322 million in 2023.
For 2023, the company expects capital expenditures of $50 million to $65 million. This includes investments in TASER 10 automation and capacity expansion.
Zacks Rank & Key Picks
Axon carries a Zacks Rank #3 (Hold).
Some better-ranked stocks within the broader Industrial Products sector are as follows:
Applied Industrial Technologies AIT presently carries a Zacks Rank #2 (Buy). The company pulled off a trailing four-quarter earnings surprise of 13.8%, on average. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Applied Industrial has an estimated earnings growth rate of 5.8% for the current fiscal year. Shares of the company have rallied 25.4% in the year-to-date period.
A. O. Smith Corporation AOS presently carries a Zacks Rank #2. The company delivered a trailing four-quarter earnings surprise of 14%, on average.
A. O. Smith has an estimated earnings growth rate of 19.4% for the current year. Shares of the company have gained 23.4% in the year-to-date period.
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