Axon Enterprise (AAXN) Misses Q2 EPS by 17c, Revs Beat

Axon Enterprise (NASDAQ: AAXN) reported Q2 EPS of ($0.01), $0.17 worse than the analyst estimate of $0.16. Revenue for the quarter came in at $141 million versus the consensus estimate of $133.36 million.

What we\'re seeing in the market:

We executed well through a challenging second quarter — while demand for our products remained robust, US domestic customers often lacked bandwidth to make purchasing decisions as they focused on personnel outages due to COVID-19, employee safety and caution about uncertain budgets. Even with these challenges, Q2 2020 revenue was generally in line with our pre-pandemic expectation.

Total company quarterly bookings in Q2 2020 on contracts of five years or fewer were flat year-over year, with domestic bookings down 6% and international bookings up 36%. Domestic body camera bookings grew 13% in the quarter, with domestic COVID-19-related purchasing delays largely affecting only the TASER segment.

Bookings in Q2 were strongest, on a year-over-year percentage growth basis, in international TASER and domestic Fleet, demonstrating our ability to diversify our exposure to new geographies and product segments. We are seeing the benefits of investing in geographic and customer diversity this year, especially as we realize increasing orders from corrections departments and international markets, including UK, Australia, Canada and new markets including Indonesia, Brazil, Panama, Thailand, India and Chile, to name a few.

In the first weeks of Q3 2020, TASER and body camera bookings are trending ahead of April. We have a loaded pipeline for our back half and we are expecting a strong Q3 2020 and even stronger Q4 2020 — tracking toward the range we gave at the start of the year.

We also have a strong pipeline of Officer Safety Plan 7+ opportunities that we expect to close in the next six months. As a reminder, OSP 7+ is our highest value bundle at $229 per officer per month for five years, and includes TASER 7, Axon Body 3 camera and a host of cloud software productivity and digital evidence management services, including Axon Records.

Update on formal guidance:

For the third quarter 2020, we are managing toward revenue growth of approximately 15% year over year, supporting an Adjusted EBITDA margin of approximately 12%. (Q3 2020 EBITDA margin will be affected by expected shipments of lower-margin body cameras to our largest customers.)

We expect our diluted share count in Q3 2020 to be approximately 64.5 million shares.

In light of macro uncertainties, we are maintaining the decision we made last quarter to refrain from providing formal full year guidance. The impact of COVID-19 remains fluid, and we are monitoring state and local mandates as we approach the fall. Shut-down activity could bring renewed caution from police departments on budgeting. Thus, while our bookings are trending in a positive direction, COVID-19 risk remains. We are not seeing changes in buying activity due to police defunding concerns. We have seen some anecdotal acceleration of body camera buying decisions due to agencies wishing to provide transparency to their communities.

Internal estimates & visibility:

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.

Axon remains confident in its long-term, multi-year outlook, and we firmly believe we will emerge from 2020 even stronger. Our confidence is supported by our strong first half 2020 performance and the state of our current pipeline, which remains robust and is more geographically diverse than ever.

While our contracts are subject to appropriations risk, at this point in time, the revenue realized in 1H 2020 plus the recurring revenue under contract for the remaining two quarters gives Axon visibility into approximately 65% of the midpoint of the previously issued full-year revenue guidance range of $615 million to $625 million.

Axon's mission to protect life and drive transparency and accountability in policing has motivated us for more than a decade. Whether these issues are in the foreground of national attention as they are today, or in the background, they've always been important to society, and to us. We\'re privileged to be working on solutions to some of society's most entrenched challenges.

Signed,Rick Smith, CEOLuke Larson, PresidentJawad Ahsan, CFO

For earnings history and earnings-related data on Axon Enterprise (AAXN) click here.

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