Axon Reports 2017 Second Quarter Results

SCOTTSDALE, Ariz., Aug. 8, 2017 /PRNewswire/ -- Axon Enterprise, Inc. (Nasdaq: AAXN), today reported financial results for the second quarter ended June 30, 2017.

"We posted another strong quarter highlighted by record Axon bookings that were nearly $10 million above our previous high," commented Rick Smith, CEO and co-founder of Axon. "We're excited to achieve this record level of bookings based on a healthy mix of customers that speaks to growing order volumes and the established momentum in our business. Our platform approach to technology solutions for law enforcement continues to resonate with our customers, and we are extending our leadership position through innovation which includes a robust product pipeline. During the quarter, we began shipping our Axon Fleet in-car camera solution which is fully integrated into our digital evidence management platform and represents an expansion of our ecosystem."

Second Quarter 2017 Financial Highlights:

• Net sales increased 36% to $79.6 million in the second quarter of 2017 compared to $58.8 million in the second quarter of 2016. International sales were $13.4 million in the second quarter of 2017.
• TASER Weapons segment revenues increased 16% to $53.0 million in the second quarter of 2017 compared to $45.5 million in the second quarter of 2016.
• Software and Sensors segment revenues increased 101% to $26.6 million in the second quarter of 2017 compared to $13.2 million in the second quarter of 2016.
• Consolidated gross margin was 57% in the second quarter of 2017 compared to 63% in the second quarter of 2016.
• TASER Weapons segment gross margin increased to 70% in the second quarter 2017 compared to 68% in 2016.
• Software and Sensors segment gross margin was 33% in the second quarter of 2017 compared to 47% in the second quarter of 2016. Service margin was 70% in the second quarter of 2017, including $0.6 million of non-recurring data migration expense, compared to 71% in the second quarter of 2016. Hardware product margin (excluding services) was negative 2% in the second quarter 2017 compared to 33% in the second quarter of 2016 attributable to discounting of upfront hardware on multi-year contracts which results in a portion of the allocated value of the hardware to be recognized ratably over the contractual term.
• Income from operations was $0.8 million in the second quarter of 2017 compared to $6.2 million in the second quarter of 2016.
• Net income for the second quarter of 2017 was $2.3 million, or $0.04 per diluted share, compared to $3.7 million, or $0.07 per diluted share, in the second quarter of 2016.
• Adjusted EBITDA for the second quarter of 2017 was $8.3 million compared to $9.4 million in the second quarter of 2016.
• In the second quarter of 2017, the Company used $5.8 million in cash in operating activities. Cash, cash equivalents and investments were $61.8 million at June 30, 2017, compared to $89.3 million at December 31, 2016.

Business Highlights:

• As of the end of the second quarter of 2017, 38 of the 68 major city law enforcement agencies have purchased Axon body-worn cameras and/or its digital evidence management solution: Albuquerque, Atlanta, Austin, Baltimore, Baltimore County, Charlotte-Mecklenburg, Chicago, Cincinnati, Cleveland, Dallas, Denver, Fort Worth, Fresno, Las Vegas, Los Angeles, Louisville, Memphis, Mesa, Miami, Milwaukee, Minneapolis, Montgomery County, New Orleans, Omaha, Philadelphia, Pittsburgh, Sacramento, Salt Lake City, San Antonio, San Diego, San Francisco, San Jose, Seattle, Tampa, Toronto, Tucson, Washington DC, and Wichita.
• Axon's Evidence.com platform user count continued to grow, extending the Company's market leadership. During the three months ended June 30, 2017, the Company booked approximately 20,600 seats on its digital evidence management platform, Evidence.com, net of renewals. Since inception, the Company has booked cumulative Evidence.com licenses of approximately 169,000.

Quarterly Conference Call:

The Company will host its second quarter 2017 earnings conference call on Tuesday, August 8, 2017 at 4:30 p.m. ET. To join the live audio presentation, please dial toll free 877-303-9126, or for international callers, please dial +1-253-237-1156.

The Company has posted supplemental materials including its key operating metrics on its website to provide additional information about our second quarter financial results.

The Company plans to update and post its investor relations presentation with the second quarter results to http://investor.axon.com within the next two weeks. Archived presentations from previous quarters can also be found on the website.

Statistical Definitions:

• Axon cameras and Evidence.com bookings represent a statistical measure defined as the sales price of orders placed in the relevant time period. Bookings are an indication of the activity the Company is seeing relative to Axon cameras and Evidence.com. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales) placed in the relevant fiscal period, net of cancellations, regardless of when the products or services ultimately will be provided. Some bookings might be invoiced in subsequent years. 
  
  
  Due to municipal government funding rules, certain of the future year amounts included in bookings are subject to budget appropriation or other contract cancellation clauses. Although the Company has entered into contracts for the delivery of products and services in the future and anticipates the contracts will be completed, if agencies invoke a cancellation clause or do not appropriate funds in future year budgets, revenue associated with these bookings will ultimately not be recognized, resulting in a future reduction to bookings. In the second quarter of 2017, the Company did not record any reversals related to prior period bookings due to non-appropriation or other cancellation reasons.
  
  
  For more information relative to our revenue recognition policies, please reference our SEC filings.

Non-GAAP Measures:

To supplement the Company's financial results presented in accordance with GAAP, we present the non-GAAP financial measures of EBITDA, Adjusted EBITDA and Free Cash Flow. Our management uses these non-GAAP financial measures in evaluating the Company's performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented at the end of the release.

EBITDA is defined as consolidated net income before interest expense, income taxes and depreciation and amortization. Adjusted EBITDA, as presented herein, is defined as EBITDA before certain other items, including: stock-based compensation; net gain/loss on write-down/disposal of property, equipment and intangible assets; and loss on impairment.

Free Cash Flow is defined as cash flows provided by operating activities minus purchases of property, plant and equipment, and intangible assets.

Caution on Use of Non-GAAP Measures

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing the Company's operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

• these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to the Company's GAAP financial measures;
• these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company's GAAP financial measures;
• these non-GAAP financial measures should not be considered to be superior to the Company's GAAP financial measures; and
• these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this earnings release were prepared under a comprehensive set of rules or principles.

Further, these non-GAAP financial measures may be unique to the Company, as they may be different from similarly titled non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies.

About Axon

The Axon network is a network of devices, apps and people that helps law enforcement become smarter and safer. Our mission is to protect life. Our technologies give law enforcement the confidence, focus, and time they need to keep their communities safe. Our products impact every aspect of an officer's day-to-day experience:

• In the field - Our Smart Weapons offer a less-lethal intermediate use of force response and our body-worn and in-car cameras collect video evidence to capture the truth of an incident; and our mobile applications enable simple evidence collection.
• At the station - Our secure, cloud-based digital evidence management solution allows officers and command staff to manage, review, share and process digital evidence using forensic, redaction, transcription and other tools.
• In the courtroom - Our solutions for prosecutors make collaborating across jurisdictions and agencies easy so that cases can be resolved quickly.

We work hard for those who put themselves in harm's way for all of us. To date, there are more than 100,000 licensed users from around the world and more than 187,000 lives and countless dollars have been saved with the Axon network of devices, apps and people. Learn more at www.axon.com or by calling (800) 978-2737.

Axon, the "Axon Delta" logo, Axon network, Evidence.com, "Protect Life," TASER, Smart Weapons, X2, and X26P are trademarks of Axon Enterprise, Inc., some of which are registered in the U.S. and other countries. For more information, visit www.axon.com/legal. All rights reserved.

Note to Investors

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), including statements regarding our expectations, beliefs, intentions or strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. The forward-looking information is based upon current information and expectations regarding Axon Enterprise, Inc. These estimates and statements speak only as of the date on which they are made, are not guarantees of future performance, and involve certain risks, uncertainties and assumptions that are difficult to predict. Axon Enterprise, Inc. assumes no obligation to update the information contained in this press release, except as required by law.

We caution that these statements are qualified by important factors that could cause actual results to differ materially from those reflected by the forward looking statements herein. Such factors include, but are not limited to: market acceptance of our products; our dependence on sales of our TASER X26P and X2 CEWs; acceptance of our Evidence.com software as a service delivery model by our law enforcement customers; our ability to design, introduce and sell new products; delays in development schedules; rapid technological change and competition; product defects; breach of our security measures resulting in unauthorized access to customer data; outages and disruptions relating to our Evidence.com service; budgetary and political constraints of prospects and customers; the length of our sales cycle and our ability to realize benefits from our marketing and selling efforts; our exposure to cancellations of government contracts due to appropriation clauses; changes in civil forfeiture laws; the long-term revenue recognition cycle for our SaaS Evidence.com product; our reliance on third party cloud-based storage providers; litigation risks resulting from alleged product-related injuries and media publicity concerning allegations of deaths occurring after use of the TASER device and the negative impact this publicity could have on sales; the outcome of pending or future litigation; our ability to protect our intellectual property as well as intellectual property infringement claims and relating litigation costs; challenges obtaining and enforcing our patent rights in foreign countries; risks of governmental regulations, including regulations of our products by the United States Consumer Product Safety Commission, regulation of our products as a "crime control" product by the Federal government, state and local government regulation and foreign regulation and the adverse effects that could result from our products being classified as firearms by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives; regulatory and political challenges presented by international markets; the possibility that the United States may withdraw from or materially modify the North American Free Trade Agreement; the adverse effect of the United Kingdom's exit from the European Union; our compliance with regulations governing the environment, including but not limited to, regulations within the European Union; regulations relating to voice, data and communications services; regulations relating to conflict minerals; our dependence on third party suppliers for key components of our products; component shortages; rising costs of raw materials and transportation relating to petroleum prices; that we may experience declines in gross margins due to a shift in product sales from CEWs to Axon devices; our ability to manage our growth and increase manufacturing production to meet demand; establishment and expansion of our direct and indirect distribution channels; our ability to pursue sales directly with customers; risks relating to acquisitions and joint ventures; goodwill impairment; catastrophic events; the adverse effects on our operations and financial results from foreign currency fluctuations; fluctuations in our effective tax rate; counter-party risks relating to cash balances held in excess of FDIC insurance limits; employee retention risks; volatility in our stock price; quarterly fluctuations in our operating results; and other factors identified in documents filed by us with the Securities and Exchange Commission, including those set forth in our Form 10-K for the year ended December 31, 2016.

Please visit http://investor.axon.com, www.twitter.com/axon_us, and www.facebook.com/Axon.ProtectLife/ where Axon discloses information from time to time about the company, its financial information, and its business.

For investor relations information please contact Arvind Bobra via email at [email protected].

Future contracted revenue for the Software and Sensors segment represents a statistical measure defined as cumulative bookings minus cumulative recognized revenue related solely to that segment. Future contracted revenues are an indication of momentum of longer-term contracts being signed and the expectations of future revenues in the Software and Sensors segment. These financial metrics are exclusive of TASER Cam recorder revenues.

CONTACT: Arvind Bobra
Investor Relations
Axon Enterprise, Inc.
[email protected]

SOURCE Axon