Axon Enterprise Continues to Focus on Growth
Axon Enterprise (NASDAQ: AAXN) reported fourth-quarter 2018 results after the market closed on Tuesday, and once again it reported strong growth. Customers are rapidly adopting its body camera and cloud services model and now pairing the newly launched Taser 7 to go with it.
As usual, there was a balancing act between investment in new products and sales staff with growing the bottom line. Axon continues to give up near term profitability for long-term growth, but that should pay off for investors as it cements its market leadership position. Here's what the results looked like and what management sees for the future.
Image source: Axon Enterprise.
Axon Enterprise results: The raw numbers
Metric | Q4 2018 | Q4 2017 | Year-Over-Year Change |
|---|---|---|---|
Sales | $114.8 million | $94.7 million | 21.3% |
Net income | $2.1 million | ($2.1 million) | N/A |
Diluted EPS | $0.03 | ($0.04) | N/A |
Data source: Axon Enterprise Q4 2018 earnings release.
What happened with Axon Enterprise this quarter?
Profitability may not have been what investors expected, but digging into the numbers shows there's good reason management is giving up profit today for growth tomorrow.
Taser sales rose 1.3% to $65.3 million and gross margin slipped from 70.9% to 65%. Management said it's allowing customers to upgrade Tasers on long-term contracts early, which is hurting margins. Their view is that keeping customers engaged and using the best products available will be good for the business in the long term.
Axon Cloud sales rose 50.3% from a year ago to $25.8 million and sensor (body camera) sales were up 81.1% to $23.7 million. Growth in these two segments is really what investors should be watching right now.
As Axon shifts to a subscription-based business model, investors should watch bookings for signs of continued growth. In the fourth quarter, the company ended with $347.2 million in bookings for software and sensors, up from $201.5 million a year ago and $325.2 million last quarter.
Taser 7 began shipping in December and helped contribute some revenue to the quarter. Shipments will pick up in 2019, and in the second half of the year Axon Body 3 will ship, which should really drive new device sales.
The balance sheet made a huge transformation this year with a $246 million stock offering. Cash on hand stands at $349.5 million with no debt. That's a great position to be in given the company's investment in future growth by foregoing profits today.
Management also introduced full-year 2019 guidance, which includes expected revenue of $480 million to $490 million and adjusted EBITDA of $80 million to $85 million. This compares to revenue of $420.1 million and adjusted EBITDA of $61.4 million in 2018.
What management had to say
CEO Rick Smith had a lot of great comments about Axon's progress in 2018. He mentioned just a few of the highlights during the conference call: "We raised $234 million in follow-on offering, turned our balance sheet into a fortress, we acquired VIEVU, and as a result accelerated the largest police department in the United States on the Axon Network."
The importance of the acquisition of VIEVU can't be overstated. It basically leaves Axon as the only major law enforcement supplier of body cameras and sun guns, an extremely valuable position given the growth in the body camera market. In the long term, this will help the company push margins higher and increases its market potential.
Looking forward
Axon's stock is trading lower on Wednesday, but that doesn't mean the company isn't making the right moves. It's bundling Tasers and body cameras together and increasing its subscription business rapidly. That will bring more visibility to results and improve long-term cash flow. Bottom-line results may be up and down in any given quarter, but Axon is still the only game in town for body cameras and Tasers.
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Travis Hoium owns shares of Axon Enterprise. The Motley Fool owns shares of and recommends Axon Enterprise. The Motley Fool has a disclosure policy.
