Axon Reports Record Q1 2019 Revenue; Raises Full Year Revenue Guidance; Reiterates Timeline for New Product Launches
SCOTTSDALE, Ariz., May 9, 2019 — Axon (Nasdaq: AAXN), the global leader in public safety technology, today released the following quarterly update letter to shareholders.
- Record quarterly revenue of $116 million, up 14% year over year
- GAAP EPS of $0.11 and Non-GAAP EPS of $0.21
- Adjusted EBITDA of $14 million
- $329 million of cash and investments, and no debt at quarter end
- Raising full year revenue guidance to $485 million to $495 million
We view 2019 as pivotal for Axon and we are pleased to begin the year with strong momentum. This year, we bring to market Axon Body 3, our first camera with LTE live streaming, and launch Axon Records, our first stand-alone software product. It is also the year that we ramp production and sales of the TASER 7, which represents a complete product redesign, the result of seven years of research and development, and connects for the first time to our secure cloud via a dock, just like our body cameras.
We have substantial progress to report on our execution against these initiatives.
Axon Body 3 remains on track to begin shipping in Q3 2019. In April, we achieved a significant milestone — we successfully demonstrated live-streaming on both of our carrier partners, FirstNet, built with AT&T, and Verizon, and began the carrier certification process.
Axon Records is expected to go live with our launch customer, a major city(1) police department, later this year. We have successfully demonstrated that officers can write and review a variety of reports in our system, allowing us to finalize our statement of work with the agency. We are also starting a software pilot with a second major police department. Axon’s entry into the records management software market will be groundbreaking because our leadership in body cameras allows us to make body camera video the heart of the incident record.
Finally, we have made steady improvements in our TASER 7 production yields. Q1 2019 TASER segment gross margins do not reflect the yield improvements because of our strategic decision to offer pro-rated trade-in credits based on the remaining useful life of customers’ existing devices. We have been pleasantly surprised to see the level of interest in TASER 7 from customers with legacy weapons that are still relatively new. Migrating these customers to the TASER 7 program sooner allows us to capture a higher customer lifetime value, though it does cause ASP compression in the short term.
Total company gross margin is expected to expand throughout 2019 as we continue to improve TASER 7 yields and realize cost improvements on TASER 7 cartridge parts. Gross margin is also expected to benefit from natural trends in our business, including our growing software revenue mix, the amortization of TASER 7 live cartridge revenue, and the phasing out of TASER trade-in credits. We have conviction that TASER 7 is a game changer for law enforcement, and as we look ahead, we believe the gross profit profile on this program will be significant over the next several years.
Customer demand for our products and software continues to be robust. Last week, we hosted our fourth annual Accelerate conference, which has grown from 200 attendees to more than 1,800, becoming the leading technology conference for public safety professionals. The strength of our customer relationships and their excitement about new technologies under development was palpable.
We are building a pipeline of dozens of multi-million dollar, multi-year contracts comprised of our highest value bundles. Importantly, we are seeing increased demand for our highest value TASER 7 contract bundle, which includes user training and unlimited duty cartridges. (See image: Revenue and gross margin by bundle.)
April was an important month for software development that supports our highest value bundles. Two product launches in particular should drive demand for OSP 7+ packages, and will allow us to recognize high margin software revenue.
First, we launched Axon Performance, analytical software that solves the need to ensure that body camera usage consistently complies with agency policy. Today, supervising officers undergo the arduous task of manually reviewing service call logs and comparing them to camera recording logs. Axon Performance automates this process in real time and reports metrics such as officers’ body-worn camera activation rates and video categorization rates. Axon Performance also allows supervising officers to review random videos and provide documented feedback to ensure a robust oversight of their program.
Another product launch, Redaction Assistant, is our first advanced AI-powered tool. Solving the redaction challenges of body camera video is important for helping agencies comply with public disclosure laws while also respecting individuals’ right to privacy. Compared with manual redaction, Redaction Assistant helps public information officers redact video in less than half the time – using AI assistance in blurring faces, license plates and screens – allowing footage to be shared with the public more quickly and with dramatically lower costs due to task automation.
Also in April, Axon achieved FedRAMP JAB authorization, clearing the way for federal government customers to use Axon Evidence (Evidence.com). Clearing this hurdle involved three years of site reliability engineering, architecture design and information security efforts. Axon Evidence is the first cloud-based digital evidence management system to achieve federal authorization, supporting our efforts to capture this expansive opportunity.
(1) The Major Cities Chiefs Association includes 69 of the largest urban areas in the United States and the 10 largest cities in Canada.
Summary of Q1 2019 Results
- Revenue of $116 million represents 14% year over year growth.
- Gross margin of 59.5% represents 260 basis points of sequential improvement, driven by strength in software and sensors, partially offset by TASER 7 program startup costs, including customer trade-in credits.
- Operating expenses of $66.2 million reflect continued R&D investment and SG&A expense discipline.
- SG&A of $42.9 million grew 2% sequentially.
- R&D of $23.4 million grew 10% sequentially on increases in headcount to support software product development.
- GAAP EPS of $0.11 includes a tax benefit related to the vesting of employee stock grants; Non-GAAP EPS of $0.21 excludes non-cash stock-based compensation expenses and also reflects the benefit of a favorable tax rate.
- Adjusted EBITDA of $14 million grew 27% or $3 million sequentially, primarily due to the rationalization of non-recurring expenses associated with Vievu, which we acquired in May 2018.
- Axon’s strong balance sheet, which includes $329 million in cash and investments, and zero debt, provides us with the latitude to continue growing our subscription contracts as a percentage of revenue.
Read More: https://investor.axon.com/press-releases/press-release-details/2019/Axon-Reports-Record-Q1-2019-Revenue-Raises-Full-Year-Revenue-Guidance-Reiterates-Timeline-for-New-Product-Launches/default.aspx