Axon Enterprise, the Scottsdale, Arizona-based maker of TASER energy weapons and a provider of body-worn cameras, drones and real-time surveillance systems for law enforcement, said its second-quarter gross margins declined as a result of a higher mix of professional services and investments to scale newer product lines.
The company reported that its adjusted gross margin in the combined software and services segment decreased by 3.8 percentage points year-over-year to 75.1% in the quarter. Company disclosures attribute that decline to the impacts of the services business, where Axon provides implementation, configuration and ongoing workflow integration for customers.
Axon separately noted that its software-only offerings maintained a gross margin above 80%. At the company level, gross margin moved down 40 basis points to 62.9% in the quarter. Management said the margin headwind from services and product scaling was partially offset by stronger results in the connected devices segment.
On the bottom line, Axon reported adjusted earnings per share of $1.88 for the quarter ended June 30, narrowly topping analysts' average estimate of $1.85, based on data compiled by LSEG. Quarterly revenue came in at $904 million, above consensus estimates of $877 million.
Market reaction was negative in after-hours trading, with shares of the company falling more than 6% following the disclosure of results.
Context on business lines
Axon is primarily known for TASER devices and supplies police body cameras in the United States. Its commercial model includes software subscriptions, professional services to support deployment and integration, and connected hardware products. The company’s reporting clarifies that professional services encompass implementation, configuration and ongoing workflow integration tasks for customers, and that increased weighting of this services business contributed to the decline in segment-level margins.
Financial highlights
- Adjusted gross margin for software and services: down 3.8 percentage points to 75.1% year-over-year.
- Software-only gross margin: above 80%.
- Company gross margin: down 40 basis points to 62.9%.
- Adjusted EPS: $1.88 for the quarter ended June 30 versus LSEG analyst estimate of $1.85.
- Quarterly revenue: $904 million versus estimates of $877 million.
The report highlights a mixed set of results: top-line and adjusted-earnings beats alongside margin pressure due to business mix and investment activity.