SCOTTSDALE, Ariz., May 6, 2021
We are pleased with our robust start to 2021. Revenue growth of 33% in the quarter exceeded our expectations and drove increased profitability, as we executed upon growing demand for TASER devices and software-heavy body camera bundles. Solid Q1 gross margin reflects a combination of strong TASER demand and fixed-cost leverage on higher-than-expected revenue, which also flowed through to the bottom line.
We are seeing healthy demand for new products, with new products bookings up 130% year over year, driven by productivity and real-time operations software solutions, VR training and transcription services. We are also successfully expanding into new markets, with new market bookings up 35% year over year.
Customers — and increasingly, communities, too — see us as a leader and key partner in the global drive to transform public safety. We hear stories daily about customers using our products to save lives and protect communities. Our software usage metrics are hitting new highs, and customers are enthusiastically supporting our mission to protect life and make the bullet obsolete.
As communities call for more public safety transparency, not only to record all interactions with the public but also to make reporting more transparent, we are helping agencies meet the critical needs of their communities. Our software products such as Axon Performance help agencies manage compliance with body-camera usage policies and foster greater transparency. In fact, data shows that Axon Performance is driving body-camera usage. For example, we’ve documented customers who have improved from recording only about half of their interactions with the public, to recording nearly four out of every five interactions, after implementing Axon Performance software.
“We deployed body-worn cameras to promote transparency and legitimacy in our community and we are committed to being accountable to the community we serve. Axon Performance is a key part of making sure the officers’ cameras are on and recording when they should be. The Performance metrics have allowed officers and supervisors to monitor camera activations, and over the last nine months our activation rates have increased from 54% to 78%.” –Kristofer Jenny, Police Sergeant at Napa Police Department, April 2021
Select Q1 2021 highlights
Our teams are executing on our 2021 strategic priorities of growing our core, scaling new products, unlocking new markets and driving efficiency to fuel growth.
Scaling new products:
Axon Fleet 3 beta trial underway, ALPR demand exceeding expectations: In April, we began beta testing our new AI-powered Automatic License Plate Recognition (ALPR) technology at four agencies. We expect to launch Fleet 3 later this year featuring ALPR notifications and Respond for Devices with location updates and livestreaming. Our Fleet 3 backlog of orders has grown to more than 60 agencies and more than 2,500 vehicles, representing $25 million in bookings and higher-than-expected demand for our premium Fleet 3 bundle that includes subscriptions to both ALPR and Respond live streaming from the Fleet cameras.
Axon Fleet 3 with Advanced License Plate Reading (ALPR)
Axon Fleet 3’s AI-powered camera system for ALPR makes it disruptively affordable enough for agencies to equip every patrol car. ALPR is a software subscription add-on that helps to reduce officer distraction and is useful for finding missing children and recovering stolen vehicles. Axon Fleet 3 will integrate ALPR capability in the dashboard camera of every patrol vehicle, allowing agencies to deploy more coverage at a fraction of the cost. Fleet 3 will also enable real-time telemetry and video streaming capabilities and will be compatible with 5G to leverage low-latency connectivity for enhanced real-time services and direct video offload to the cloud. We are simultaneously addressing industry shortcomings to improve data security, transparency and privacy as declining costs enable more widespread use of the technology.
Baltimore PD on track to become the largest agency to deploy Axon Records: Axon has conducted comprehensive in-person acceptance testing with users representing a diverse range of agency roles. Customer feedback is positive about the product’s ease of use and the increased efficiency that the agency will gain. Training for officers on how to use the new system is underway and we are preparing for launch in the coming weeks.
Respond for Devices momentum continues to grow: Hundreds of agencies representing more than 60,000 sworn officers are now using Respond for Devices each month, including our newest feature, Priority Evidence Upload. This allows officers to immediately upload critical evidence over LTE right from their camera rather than waiting to get back to the station to dock their camera or separately connect to an app on their PC or phone. Moreover, our beta of the AutoTranscribe Digital Notepad lets Respond for Devices customers automatically upload all of the audio from their recordings over LTE. As a result, transcriptions are available immediately, enabling officers to expedite report writing rather than waiting until the end of their shift.
Unlocking new markets:
Growing international pipeline: Our deal pipeline in international markets is robust, with the largest new deal activity in Q1 2021 coming from Canada, the UK, Hungary, Brazil and New Zealand. We achieved exciting milestones in Italy with the municipal police departments of the cities of Venice and Udine becoming the first agencies to equip officers with TASER devices and Axon software licenses, and the local police in Latisana, Riviera Friulana becoming the first city to adopt Axon Fleet 2 along with our Interview solution. Meanwhile, the government of Ontario, Canada became the first province to deploy Axon Evidence across public safety agencies, highlighting the growing utility of our cloud software platform. Additionally, Axon completed a cyber security review from the Australian government, fulfilling a requirement from the country’s federal and defense customers to provide an added level of security and assurances and enabling broader adoption of Axon’s cloud solutions in Australia.
Investments drive TASER device capacity, gross margin improvements: We are building additional manufacturing capacity to support our TASER device and cartridge manufacturing lines, in response to growing International and Federal demand and an increased install base. Investments so far in 2021 have resulted in an approximately 40% capacity increase in TASER 7 propulsion module and cartridge line production capacity, combined with greater per-person efficiency that will generate $1 million in gross cost annual run rate savings on the TASER 7. Thus far in 2021, TASER segment manufacturing and supply chain improvements are on track to result in more than $4 million in gross costs savings this year. Segment gross margins may continue to fluctuate based on customer and product mix.
Leveraging the Axon platform: An update on strategic partnerships and investments
To build the public safety ecosystem of the future, Axon is aligning with other innovators and technology disrupters. Our recently announced strategic partnership with Skydio, for instance, makes Skydio drones and autonomy software solutions available to agencies through Axon. This relationship paves the way for the integration of Skydio’s offerings with Axon’s product suite, which will drive ground-breaking evidence management, real-time situational awareness and scene reconstruction capabilities for agencies.
Axon’s recent partnerships and investments are reflective of our vision to become synonymous with public safety — and equally important, allow us to leverage and expand our platform in a transformative manner. Our expanding ecosystem relationships are driven by our focus on customers and their growing needs for digital evidence management and real-time operations.
- RapidSOS: In Q1, Axon invested $20 million in RapidSOS and recently completed a strategic partnership that will for the first time unify life-saving data from both Axon and RapidSOS on a single screen – delivering it to 911 telecommunicators and first responders in real-time. This data includes accurate location, medical and other incident-related information from over 350 million connected devices recognized as RapidSOS Ready, such as smart phones, as well as live footage from Axon Body 3 cameras, Axon Fleet cameras and Axon Air Drones. RapidSOS supports more than 4,800 emergency communications centers.
- Cellebrite: Cellebrite completed a demo integration with Axon Evidence in April. Upon complete integration, Cellebrite’s Pathfinder software will have the option to save device extraction data, such as from a mobile device, laptop, or drone, and the accompanying analytics directly to Axon Evidence. Separately, Axon also has agreed to invest $90 million in Cellebrite via an oversubscribed PIPE transaction in connection with Cellebrite’s business combination with TWC Tech Holdings II Corp., a publicly-traded SPAC sponsored by True Wind Capital. Cellebrite is the market leader in digital intelligence — allowing agencies to collect, review, analyze, and manage investigative data from a broad range of digital sources such as mobile devices and PCs — and its solutions have been purchased by 6,700 public safety agencies and private sector enterprises in over 140 countries, helping millions of investigations globally. Cellebrite’s solutions are complementary with Axon’s and empower investigators to accelerate justice in legally sanctioned investigations.
Summary of Q1 2021 results:
- Revenue of $195 million grew 33% year over year, on top of 27% growth in Q1 2020, reflecting strengthened demand across our product lines. Domestic revenue grew 37% in the quarter and international revenue grew 17%.
- Gross margin of 63.3% improved 310 basis points year over year, and was its highest in 10 quarters, reflecting strong demand for our premium TASER offerings, engineered lower build costs in our TASER segment and fixed-cost leverage.
- Although we have experienced port constraints and some increases in raw materials costs, we have remained focused on closely monitoring our supply chain, and mitigating impacts to keep our gross margins predictable and our inventory steady. For instance, during the recent global slowdown in manufacturing affected by the blockage in the Suez Canal, we duplicated orders by ocean and air, and worked with suppliers to hold higher buffers for Axon on their shelves. We have also worked to mitigate raw materials cost increases through supplier negotiations and purchasing added non-expiring raw materials. We continue to bolster our strategic relationships in our supply chain, work to identify secondary sourcing, and build in shipping and inventory buffers, which has kept our supply chain execution solid.
- Operating expenses of $174 million included $88.1 million in stock-based compensation expense.
- SG&A of $127 million included $71.0 million in stock-based compensation expense.
- R&D of $47 million included $17.1 million in stock-based compensation expense.
- We recognized $75 million in expenses related to our eXponential Stock Performance Plan (“XSPP”) and CEO Performance Award in the first quarter. As of Q1 2021, all 12 operational goals are considered probable.
- In Q1 2021, $9.8 million of stock-based compensation expense was tied to “catch up” expenses due to a 12th tranche being considered probable of attainment, $41.6 million was tied to acceleration in expected attainment dates, which means the time over which we record expense is shortened, and $6.5 million was tied to achieving a tranche in Q4 2020 that was certified as achieved during Q1 2021.
- Since the CEO Performance Award was adopted in 2018, we have expensed $132.4 million of total potential expense of $246.0 million under the plan. Since the XSPP plan was adopted in 2019, we have expensed $94.8 million of total potential expense of $191.5 million currently projected under the plan for XSPP grants issued to date.
- For more details about these 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.
- GAAP diluted EPS was ($0.75) based on GAAP net loss of $48 million. GAAP EPS was lower by approximately $1.33 due to expenses related to stock-based compensation. Non-GAAP EPS was $0.31.
- Quarterly Adjusted EBITDA grew 53% year over year to $45.8 million, representing a 23.5% margin on revenue.
- Cash and cash equivalents and investments totaled $674 million at March 31, 2021. Operating cash flow of $61 million was offset by a $20 million investment in RapidSOS (see strategic partnership update, above) and $10.5 million in capital expenditures.
- Axon has no debt.
Read More: https://investor.axon.com/press-releases/press-release-details/2021/Axon-Q1-2021-Revenue-Up-33-on-Strong-Product-Demand-International-Expansion-Raising-Full-Year-Outlook/default.aspx