Sign in

    Axon Enterprise Inc (AXON)

    Q1 2024 Summary

    Published Jan 10, 2025, 5:10 PM UTC
    Initial Price$254.47January 1, 2024
    Final Price$311.37April 1, 2024
    Price Change$56.90
    % Change+22.36%

    What went well

    • Axon's new AI-driven product, Draft 1, is receiving unprecedented enthusiasm from customers and is expected to contribute meaningfully to revenue starting in the second half of the year, with low adoption friction and high margins. 
    • The TASER 10 is experiencing extraordinary demand, with sales outpacing the TASER 7 by double, indicating strong product acceptance and significant contribution to revenue growth. Axon is accelerating investments in capacity to meet this demand.  , 
    • Axon has the strongest sales pipeline it has ever had and, despite seasonally lower bookings in Q1, expects strong bookings growth in the remainder of the year, driven by continued strength in federal and international markets and new product offerings.  ,  , 

    What went wrong

    • The company's guidance implies revenue growth deceleration despite strong Q1 results, raising concerns about sustaining growth momentum.
    • Bookings declined sequentially in Q1, and the company acknowledges that Q1 is seasonally low, which may indicate challenges in maintaining booking momentum.
    • New products like Draft One and recent acquisitions may face lengthy approval processes and integration challenges, potentially delaying revenue contributions and return on investment.

    Q&A Summary

    1. TASER 10 Demand and Capacity Investments
      Q: How is TASER 10 demand affecting capacity and margins?
      A: Management reports that TASER 10 demand is outpacing expectations, doubling the demand of TASER 7 and making it their most popular device ever. To meet this demand, they are investing in ramping up capacity, purchasing specialized equipment with long lead times. This increased investment is causing near-term pressure on gross margins as they balance ramping capacity with cost reductions. They anticipate gradually increasing capacity to avoid backlogs in 2025.

    2. Revenue Growth and Outlook
      Q: Why does the full-year guidance imply deceleration despite strong Q1 growth?
      A: While Q1 showed strong mid-30% revenue growth, management prefers to see more of the year materialize before adjusting full-year guidance. They note that Q1 is the easiest comp of the year, and they are lapping a very strong prior year. The pipeline remains very strong, and they are optimistic about continued growth.

    3. Impact of Acquisitions (Dedrone, Fusus)
      Q: How do the acquisitions of Dedrone and Fusus impact revenue and EBITDA?
      A: Both Dedrone and Fusus are small and growing fast, but currently immaterial to the top line and overall growth rate. Their impact is included in the guidance, with more noticeable effects on EBITDA due to integration costs. Management expects Dedrone to become a significant contributor in the long term as they invest heavily in robotic security.

    4. Bookings Decline and Seasonality
      Q: Why did bookings decline in Q1, and what's the outlook?
      A: Q1 bookings are seasonally the lowest, similar to the prior year. This is due to adding salespeople, region changes, and lack of urgency from customers, as major fiscal budgets don't end in Q1. Management sees no red flags and reports the best pipeline they've ever had, expecting strong bookings for the rest of the year.

    5. Federal Business Outlook
      Q: How is the federal business contributing to revenue growth?
      A: Large federal bookings are phased over multiple years, with revenue recognized upon deployment or shipment. Despite timing variability, management feels great about the federal business, with a healthy pipeline and large opportunities in upcoming quarters, expecting another strong year.

    6. Draft One Product and Competitive Edge
      Q: How is Draft One adoption progressing, and what's your competitive advantage?
      A: Draft One is receiving unprecedented enthusiasm, with low friction to adoption and positive feedback from officers and district attorneys. The ecosystem provides a natural fit, combining video evidence and written records, offering a competitive edge. They've invested in responsible AI to deliver high payoff with minimal risk.

    7. Gross Margins and Mix Shift
      Q: What's impacting gross margins, and how will they evolve?
      A: Gross margins are affected by the balance between ramping TASER 10 capacity and cost reductions. In Q1, devices were lighter while software was strong; they expect device revenue to increase, balancing gross margins. They anticipate that gross margins for the rest of the year will not surpass Q1 levels due to these factors.

    8. CapEx Increase and Timing
      Q: What drives the confidence to accelerate capacity investments now?
      A: Confidence stems from the best pipeline they've ever had exiting Q1, with strong TASER 10 demand. Investments are made now to meet future demand and avoid backlogs in 2025, given long equipment lead times. Delaying would push back capacity increases, so they are acting proactively.

    9. Cloud Services Growth and Recognition
      Q: How should we think about sequential growth in Axon Cloud Services?
      A: The quarter-over-quarter increase was almost $13 million, considered a healthy step. Growth is somewhat lumpy due to revenue recognition from records coming online. A large Q4 led to a smaller sequential step-up in Q1, but the underlying growth remains strong.

    10. International Wins and Competitive Positioning
      Q: What's driving international wins, and how do you compete on product versus cost?
      A: The company focuses on the value of their products, not aiming to be the low-cost vendor. Customers initially attracted to lower-priced options often recognize the higher ROI of Axon's offerings after testing. This approach is leading to increased success in international markets, as demonstrated by recent wins.

    Related Publications