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Axon Reports Strong Second Quarter Revenue up 26%; International Revenue up 80%, Annual Recurring Revenue up 42%
SCOTTSDALE, Ariz., Aug. 6, 2020 —
When we began investing in body cameras in 2008, we faced numerous skeptics. But, we knew that body cameras — and the accountability and transparency they bring — were the future. And we were confident in our institutional knowledge about policing, due to our close connection to our customers through the success of our TASER devices.
Body cameras started to gain traction after a wave of protests began in Ferguson, Mo., in 2014, which was also the birth of the Black Lives Matter movement. Axon was delivering the right products at the right time and our investments in cloud software made body camera programs feasible and affordable for all agencies.
In 2020, we are humbled to be developing solutions that once again find themselves relevant to a national conversation about policing. The pandemic has amplified the deep inequities in our society, with disproportionate burdens of unemployment, illness and death among Black and Brown people and historically marginalized populations. We understand and see the pain and nuance behind the demands to defund the police, which is really about reforming and reshaping the justice system. We also know that public safety is a fundamental right of all communities, and our pipeline continues to strengthen as communities see the power of our platform to drive positive change. We believe we will look back on 2020 as a time that set in motion the next wave of policing reform.
Technology is not a panacea but it can have an outsized impact on creating a world where everyone feels safer in their neighborhoods, and gets home safely at the end of the day. We have the privilege to imagine how the world can and should be different and we have the capability to create and drive that change.
After the killing of George Floyd in Minneapolis in May, Axon employees began to brainstorm ways to leverage our expertise to do even more in service of our mission to protect human life. We expanded our existing vision to also center on racial equity, diversity and inclusion in the justice system, and created a new position within our sales team to put a greater focus on incorporating community input into our product development process. Axon engineers are developing software that addresses the need for better data collection, accountability, investigation and compliance for force events, and helps agencies to better document, analyze and report on force incidents. We are eager to build upon our existing leadership in driving down injury rates and providing use-of-force accountability. TASER devices have the lowest likelihood of death or serious injury compared with other use-of-force options and provide the best combination of stopping power while also keeping both officers and the public safe. TASER devices also document the duration of an energy discharge, the quality of the connection and the type of deployment, and when armed, are able to trigger body-worn cameras to begin recording.
This is also a year where we have walked beside our customers in one of the most challenging environments they have ever faced — whether through our personal protective equipment charitable campaign for first responders, or through helping agencies respond to and comply with demands for more transparency and source technology amid greater public budget scrutiny, we aspire to be a true partner. We are emboldened by the opportunity to continue to re-imagine public safety and support our customers and communities.
Key business highlights:
- Adriane Brown joined Axon’s board:
- After an extensive search, we welcomed Adriane Brown to our board of directors in May. Adriane brings a wealth of experience and global business leadership to Axon. She sits on the board of directors for eBay and the Washington Research Foundation, and is the Board Chair at Seattle’s Pacific Science Center. She has served on boards for Raytheon, Allergan and Harman. In 2018, Adriane was appointed as a venture partner at Flying Fish Partners, a firm that invests capital and expertise in startups focused on machine learning and artificial intelligence. Prior to that, Adriane served as president and COO at Intellectual Ventures, as president and CEO of Honeywell Transportation Systems, and rose from shift supervisor to vice president and general manager of the Environmental Products Division during her 19-year tenure at Corning. Adriane’s appointment expands the total number of independent directors on Axon’s board to eight.
- New international markets unlocked:
- International revenue was 24% of the total in Q2 2020, and grew 80% year over year. Three new countries topped $1 million in revenue for the first time in the quarter: Indonesia, Panama, and Thailand.
- The Gujarat State Police became the first major police agency in India to deploy TASER devices when it purchased the X2. Axon began investing in the sales channel in India in late 2018 and we are committed to expanding our presence in the world’s most populous democracy.
- Chile’s National Police Force, Carabineros de Chile, is equipping more than 600 officers with Axon body-worn cameras and Axon Evidence, positioning Chile as one of the most significant adopters of advanced policing technology in the world, alongside the US, UK, and Australia. Chile has the largest number of Axon body-worn cameras in Latin America.
- Baltimore Police Department to deploy Axon Records:
- We are thrilled to welcome Baltimore as a major city Axon Records customer. Baltimore’s Axon Records capability is included in their subscription to Officer Safety Plan 7+, our highest value bundle. We first announced that Baltimore adopted OSP 7+ in August 2019, and their decision to adopt the Axon Records benefit of the plan showcases the plan’s value to customers.
- Axon’s cloud-based records management solution, which we first brought to market September 2019, integrates police reports with body-worn video footage, promotes transparency and accountability and saves officers time. It includes the Axon Standards use-of-force reporting module, which helps agencies mitigate risk and understand performance at the officer and agency-wide levels. This product is relevant to the national discussion about use-of-force tracking and reporting and is an easy way for agencies to begin using Axon Records, even before they are ready to fully replace their legacy records management system.
- Axon Records falls within our “Productivity” suite of products. This suite also includes Axon Performance, which allows supervisors to ensure that cameras are recording when they’re supposed to be and access key body-worn camera metrics in near real time.
- Real-time situational awareness use grows:
- We are advancing communications beyond the radio, providing more and better real-time situational awareness to central command, and supporting our go-to-market strategy for our cloud-based 911 Dispatch product.
- These tools in our “Communications” suite have proven useful for major city agencies in managing resources during civil unrest. We’ve seen increased adoption and engagement with Axon Aware location, alerts, and live-streaming. Without this technology, staff would have had to keep relying heavily on officers’ ongoing verbal description of their location and the situation on the ground.
- We’ve also seen significant interest in this platform from international agencies exploring ways to bring supplemental resources, such as mental health and social services, to support unfolding incidents.
- Finally, in the quarter we launched the Axon Aware mobile app, with real-time alerts, officer location, and live-streamed video built in. This new feature is included in OSP 7+. Here is a 20 second video on how it works: https://player.vimeo.com/video/443194883
- Axon Body 3 is in Europe, solid feedback from customers:
- We began delivering Axon Body 3 to European customers in Q2 2020 and we expect to expand Axon Body 3 to Australia, New Zealand and the rest of the Asia-Pacific region in the back half. Axon Body 3 first began shipping September 2019, and represents our first camera that supports GPS-enabled location services and LTE-communications capability.
- Buying trends indicate that customers buying Axon Body 3 are doing so because of the value-added features such as LTE and GPS, which we believe indicates solid product-market fit with our latest generation camera. We expect location-based services, enabled by the body camera, to become standard across a number of major cities over the next 18 to 24 months, seeding the market for greater use of our real-time operations platform and communications suite of tools.
- Axon Fleet 3 with ALPR trending toward successful launch:
- We remain confident that our next-generation in-car video system will be a disruptive game-changer. In recent weeks, we have installed Axon Fleet 3 engineering validation test systems to begin field testing and we expect Fleet 3 sales to start contributing to growth next year.
- We intend to make it easier and more cost effective for police departments to deploy a network of fixed and mobile automated license plate reader (ALPR) sensors by integrating and bundling Flock Safety’s solution alongside our upcoming Axon Fleet 3 in-car solution. Axon is re-inventing the traditional ALPR model by leveraging AI to reduce cost, making it affordable for police departments to deploy ALPR in every vehicle. And unlike traditional systems, Axon is ethically designing its ALPR solution from the ground up to improve data security, transparency and privacy relative to historical legacy solutions.
- Successful follow-on offering completed:
- We want to thank our new and existing shareholders who participated in our recent follow-on offering. In mid-June, Axon raised just over $300 million at $92 per share, which enabled us to fortify our balance sheet, strengthen our relationships with existing shareholders and provide an opportunity for new investors to join us on the next leg of our growth journey. We finished Q2 2020 with more than $675 million in cash and investments, and zero debt.
Summary of Q2 2020 results:
- Revenue of $141 million grew 26% year over year, with strength being driven by our body camera and cloud software solutions (Software and Sensors segment revenue grew 37%) and increased momentum outside of the US (international revenue grew 80% year over year to a quarterly record of $34 million)
- Gross margin of 62.4% was the highest it has been since Q3 2018, driven by improved yields on TASER 7 and our highest-ever mix of high-margin cloud software revenue, which was 30% of the total in the quarter. We expect gross margin in Q3 2020 to be approximately 700 basis points lower on a sequential basis, as we fulfill several large shipments of lower-margin body camera hardware to large major city customers.
- Operating expenses of $102 million included $34 million in stock-based compensation expense and $4 million in costs related to FTC litigation. (An update on the FTC litigation is below, under “Update on Legal Matters.”)
- SG&A included $27 million in stock-based compensation expense, including nearly $11 million in “catch up” expense. R&D included $6 million in stock-based compensation expense, including $1 million in “catch up” expense. Excluding stock-based compensation expense, operating expenses declined 1% sequentially.
- The “catch up” expense is tied to Axon’s CEO Performance Award and eXponential Stock Performance Plan (“XSPP”), for which two additional operational goals became probable of attainment during Q2 2020 due to our strengthened outlook, bringing the total number of operational goals that are statistically probable to eleven.
- For more details about Axon’s innovative stock-based compensation plans, which were approved by shareholders and align the interests of management and employees with shareholders, please see our online FAQ at investor.axon.com.
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