Axon Releases Quarterly Financial Update
Monday, May 11, 2020 | Comments

Axon released a quarterly update letter to shareholders. Axon announced its quarter one financial results, with revenue up 27% year over year. The company saw international revenue growth of 38%, driven by strong sales in the U.K., Australia and Canada and sales to new, untapped international markets in Asia and Latin America.

The company’s revenue was $147 million, driven by the software and sensors product segment, which increased 41% year over year because of demand for Axon Cloud software offerings and Axon Body 3, the latest generation camera that features LTE-connectivity and location-based services. International revenue was a record $30 million.

Gross margin increased both sequentially and year over year to 60.2%. Operating expenses of $89 million included $20 million in stock-based compensation expense and $6 million in costs related to the Federal Trade Commission (FTC) litigation.

Cash and cash equivalents and investments totaled $395 million, including an investment payable of $13.5 million at March 31. Uses of cash in the first quarter included $8.5 million tied to selling long-term hardware subscriptions, which results in recognizing revenue ahead of invoicing, $8.6 million tied to building up hardware inventory, which helped respond to strong product demand while preparing to stagger factory work schedules due to COVID-19, and $4.7 million related to a strategic investment in Flock Safety.

Accounts payable of $32 million included the above mentioned $13.5 million payable, which settled in early April. Axon has zero debt.

The company said its strategic priorities in 2020 are to continue to execute in its core market, while accelerating our path-to-market in new product categories such as productivity (records) and communications (dispatch), and expanding to new customer categories, such as corrections, U.S. federal agencies and new international markets.

The Axon Accelerate user conference in Nashville in early August is going virtual. Axon's annual user conference has grown to be the largest technology-focused conference in law enforcement, the statement said.

In April, Arizona's city of Maricopa Police Department moved from a competitor and went live on Axon's cloud-based CAD solution to power its 9-1-1 incident response. Axon said its software as a service (SaaS) strategy is driving a net revenue retention of 120%.

“We are seeing major cities upgrading their subscriptions at individual net dollar retention rates of 150% to 300% to take advantage of our growing suite of productivity and digital evidence management tools,” the company said. “And, because our agency customers sign up for five- to 10-year subscriptions, we continue to experience low annual churn. These factors have combined to sustain a dollar-based net revenue retention of about 120% across our entire SaaS customer base over the past two quarters.”

Axon is engaged with more than 10 state departments of corrections, including the five most populous states in the country — California, Texas, Florida, New York and Pennsylvania — which are either purchasing our products, undergoing trials at scale, or seeking to have budget discussions and command demonstrations of TASER devices, Axon body cameras and Axon Cloud software.

As of May 7, Axon said it is seeing mixed changes to buying habits among major U.S. city police departments — some departments are continuing to place large orders for Axon products and some agencies are moving to standard issue on Axon devices to reduce sharing among officers, which has boosted orders.

A small number of agency customers delayed their body camera programs or postponed their subscription upgrades until unspecified later dates. Thus far, the impact of these COVID-19-related order delays to full-year projections have been more than offset by a stronger-than-expected first quarter, better-than-expected international TASER orders realized through May 2020 and a strengthening federal pipeline.

Through May, Axon has been executing upon orders from countries with which Axon has not historically done business, and this widening customer base is providing new revenue opportunities. So far in 2020, Axon received body camera and TASER orders from Latin America, Asia, Southeast Asia, and South Asia — all representing new country markets — and the company said it is seeing stronger-than-average order activity in the U.K.

Axon’s Shenzhen office was authorized to reopen Feb. 24. From late February onwards, the company’s manufacturing and supply chain partners in China gradually reopened production facilities, and it was generally able to mitigate the impact of the manufacturing and supply chain disruption with only a small impact on the ability to fulfill customer demand in the first quarter.

Axon said it is encouraged by the speed with which the federal government has provided financial support to public safety. It is still early in the federal response, and the 2020 CARES Act contains $850 million in grants to state and local law enforcement, through the Edward Byrne Memorial Justice Assistance Grant (JAG). In addition, the early phase COVID-19 stimulus packages included $150 million for federal law enforcement.

Given the number of factors outside of Axon's control, the company withdrew its previously provided formal full-year guidance of revenue of $615 million to $625 million. While municipal government budget appropriations have not been a historical challenge for Axon, the severity of the economic slowdown related to COVID-19 increases appropriations risk.

“At this time, our best estimate for our 2020 performance remains in line with our previously issued guidance, but there is enough uncertainty in how the current crisis will affect our customers that we don't feel that our internal estimates should be considered formal guidance,” the company said.

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