Since it’s been making a big move lately, we wanted to provide
some color on Axon (AAXN). The company is a supplier of public safety products
and body-worn cameras for police and military personnel. Axon was created when
TASER Intl acquired Dextro and then renamed the combined company Axon.
TASERs are one of the few weapons that can incapacitate a person
while drastically limiting risk of death or serious injury. Over the past two
decades, the TASER CEW has become one of the most frequently used weapons in
the North American law enforcement market, with use-of-force injuries/deaths
dropping dramatically as a result.
Axon believes CEWs and Axon cameras should be standard-issue
equipment for all patrol officers. Axon also operates a platform called
Evidence.com, which helps agencies store, manage, and share all digital
evidence which is captured on Axon devices. Axon typically bundles its TASERs,
cameras, and Evidence.com subscriptions when it sells to police agencies.
Axon's goal is to bring modern IT capabilities to every law
enforcement officer. Some customers report that police officers are spending
over 60% of their time on paperwork, rather than on public safety work. Axon
sees a large opportunity to leverage its connected platform to enable a broad
suite of mobile, wearable, and data management capabilities.
Axon is seeing sustained demand for TASER weapons driven by three
primary factors: First, Axon is seeing a trend toward full deployments with US
law enforcement agencies. Customers are shortening their upgrade cycles to 5
years from 8 years, encouraged by its TASER 60 five-year payment plan and its
Officer Safety Plan, which combines body cameras and cloud software with a
TASER handle. In Q1 2018, about 40% of TASER unit orders were on a service
plan. Second, Axon is seeing strong international demand, including encouraging
developments in several European markets. Third, Axon is expanding its customer
base into adjacent markets, including international law enforcement, US federal
agencies, university public safety, departments of corrections and private
security.
Axon has also been very active in its Software & Sensors
segment. Recent highlights include the purchase of VIEVU; the commencement of
camera shipments to the Victoria Police in Australia, which represents Axon's
second largest body camera unit deployment after the London Metropolitan
Police; significant orders from the UK's Kent and Essex police forces; and
reaching full deployment in the Chicago Police Department with around 7,000
body-worn cameras. Software & Sensors segment revenue in Q1 jumped 75% Year/year
to $37.7 mln. Axon Cloud revenue rose 72% to $20.2 mln. Sensors and Other
revenue rose 78% to $17.5 mln.
Axon is also improving workflows throughout the public safety
chain, from on the scene to the court room. With its software, police officers
can share evidence with prosecutors during discovery while maintaining a secure
and encrypted chain of custody. The Axon network is used by more than half of
the nation's major city police agencies.
Looking ahead, Axon is developing Axon AI, which uses artificial
intelligence. Axon believes this will have a big impact on Axon
products by making workflows smarter including deep data analysis on the 5.2
petabytes of customer data hosted across the Axon Network. The benefits of this
groundbreaking technology will lead to a future of hands-free reporting and
real time intel in the field.
Axon is seeing a lot of interest in its products. For example,
last week, Axon hosted Axon Accelerate, its third-annual user conference that
is quickly becoming the premier law enforcement tech trade show. Axon said
recently that it expected attendance would triple over last year.
The stock was trading in the high $20 range as recently as late
February 2018. It's now in the $65 area. So why has the stock been moving so
much? The stock has been ramping on back-to-back very strong results in Q4 and
Q1. In Q1, revenue rose 28% Year/year to $101.2 mln while non-GAAP EPS jumped
129% Year/year to $0.32.
In sum, Axon is seeing very strong demand for its products. With
police actions being so high profile now, more police departments are starting
to use body cameras and they are also replacing Tasers more quickly now. The
stock looks overstretched up here, but Axon is seeing a very strong market
right now.