November 9, 2022 | 11:58 AM by Jay Kunstman | jkunstman@jaguaranalytics.com

Behind The Numbers – Axon Enterprise (AXON)

On October 18th in Webinar, a bullish outlook was presented for Axon Enterprise (AXON). Clients, if they were interested, could buy the November 135 Calls for $6.00 or less. See the Webinar snapshot below:

This wound up being a phenomenal call as the stock is now trading above $170 following their Q3 earnings report after the close yesterday:

-EPS of $0.60 vs $0.49 estimate – Beat
-Revenue of $311.8M vs $279.9M estimate – Beat
-FY Revenue Guidance of $1.15B – $1.16B vs $1.11B estimate – Beat
-FY EBITDA Guidance of $215M – $220M vs $201.2M estimate – Beat

The company’s domestic business, which currently makes up more than 80% of total revenue, grew 37% Y/Y. Growth came across the board, with TASER segment growth at 19% along with Software and Sensors segment growth at 51%. Breaking S&S down further, Sensors were up 51% and Axon Cloud was also up 51%. Meanwhile, the company’s international business delivered 20% growth in the quarter. Additionally, management called out strong Q3 gross margins of 62%, which represented more than 100 basis points of sequential improvement. This increase was primarily due to the strength of Axon Cloud as it benefited from its new long-term contract with Microsoft Azure.

Long-Term Prospects

During his prepared remarks, CEO Rick Smith would highlight what he believes are some of the top long-term growth prospects for this company:

“We believe the majority of TASER adoption remains in front of us. We’re still under 10% penetrated in terms of our global TAM for TASER. And we’re working on some really exciting technology over the next 10 years to help hit our goal.”

“Number two, virtual reality. We’re seeing a lot of interest in our VR training, which we sell on a subscription to customers.

“Number three, cameras and sensors that never miss a moment. Over the next few years, you’re going to see us introduce next-generation body cameras, and we’ll keep them a tie between our real-time operations and our devices.”

“Which brings me to #4, real-time and remote response. Our thinking is that we’re moving the officer from harm’s way leads to safer outcomes for everyone. And this is why we’re investing in Axon Air. Our drone solutions as a first responder as well as counter drone technology.

Separately, COO Josh Isner would discuss the company’s progress with the U.S. federal government noting that in the first 3 quarters of 2022, the federal government has booked contracts exceeding $200M, up from an approximate $15M – $20M run rate just a few years ago. They are also focusing on helping European customers overcome their historical resistance to cloud solutions. This is the playbook the company ran in the U.S. starting around 2012. “We are starting to chip away at cloud acceptance in the EU, and we see European governments starting to adopt other commercial services for cloud, and we believe that this bodes well for our international SaaS business.”

Q&A Tidbits

Needham analyst Andrea James: How much of a tailwind are you seeing now from stimulus government funds from programs like the ARPA beginning to hit budgets? Or is that something that you see more of an impact in 2023?

Josh Isner: I don’t necessarily think there’s a ton of correlation between our momentum and results in any one-time or kind of recurring government subsidy for products.

Personally, I was happy to hear this statement from management. There are times in this market when individual stocks get attached to certain government projects, ultimately creating volatility when that project is brought to the forefront.

Northcoast analyst Keith Housum: As we look at some of the individual results, Axon Fleet sales were down 15% from the prior year Acanos down as well. Could the core even better?

Josh Isner: We did run into 1 or 2 minor items with the hubs that power our fleet unit from our supplier, but the good news is in Q4, you’ll see that demand rebound substantially, and we expect to see our best ever quarter of shipments for fleet specifically in Q4.

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