Why Is Axon (AXON) Up 1.2% Since Last Earnings Report?
It has been about a month since the last earnings report for Axon Enterprise (AXON). Shares have added about 1.2% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Axon due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Axon Q3 Earnings Increase Y/Y, 2023 Guidance Bullish
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.
Segmental Details
Software & Sensors: Within this segment, Axon’s Cloud and Services revenues surged 55% to $148 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 $87.6 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 $162.6 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 $406.0 million compared with $353.7 million at the end of December 2022. Long-term lease liabilities totaled $35.3 million compared with $37.1 million at 2022-end.
In the first nine months of 2023, AXON generated net cash of $49.2 million compared with $104.2 million cash generated in the year-ago period.
Free cash flow was $13 million in the first nine months of 2023 compared with $59.8 million in the year-ago period.
Outlook
For the fourth quarter of 2023, Axon expects revenues of $417-$420 million. Adjusted EBITDA margin is expected to be approximately 20% in the fourth quarter.
Axon raised/updated 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.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 11.57% due to these changes.
VGM Scores
At this time, Axon has a poor Growth Score of F, however its Momentum Score is doing a bit better with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Axon has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Axon belongs to the Zacks Security and Safety Services industry. Another stock from the same industry, Allegion (ALLE), has gained 3% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.
Allegion reported revenues of $917.9 million in the last reported quarter, representing a year-over-year change of +0.5%. EPS of $1.94 for the same period compares with $1.64 a year ago.
For the current quarter, Allegion is expected to post earnings of $1.57 per share, indicating a change of -1.9% from the year-ago quarter. The Zacks Consensus Estimate has changed -2.9% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Allegion. Also, the stock has a VGM Score of C.
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