2016 was a remarkable year in a lot of ways for TASER International, Inc. (NASDAQ:AAXN), manufacturer of Tasers and body cameras for law enforcement. The company saw revenue and backlog surge as customers adopted less-lethal weapons and body cameras in response to public concerns about policing.
The company's strategy for a few years now has been to build out its capability in both product lines in the U.S., and then expand internationally with a known product line. Body cameras in particular need to be proven out before law enforcement agencies around the world will begin using them, as does TASER's cloud platform Evidence.com. But we're seeing a lot of evidence that body cameras and cloud services will be big growth drivers in the future, and one contract in particular showed the company's progress in 2016.
Australia goes all-in on body cameras
On July 20, 2016, TASER announced that the Queensland Police Service in Australia had agreed to buy 2,200 Axon Flex cameras (adding to 500 cameras purchased previously), plus a three-year subscription to Evidence.com. The order is notable for its size, outpacing a 1,015-unit order in Atlanta and a 2,031-unit order in Chicago, and for the fact that it gives TASER a foothold in a large international market. As I outlined above, international growth is really the key to making the business profitable and justifying investments made to build out the product line.
It's not surprising that Australian and New Zealand police agencies also ordered 2,585 Taser Smart Weapons, announced earlier this month, building on the momentum. Body cameras and Tasers have gone hand in hand as law enforcement agencies look for more accountability and less-lethal options for doing their jobs.
Orders in Australia may seem like business as usual, but they're an important expansion of the company's market potential -- and they're signs that years of investment are starting to pay off.
Revenue growth is a leading indicator
If you're looking at TASER International's long-term potential in the stock market, it's important to understand how to read its financial statements. Management has been increasing investment in operating expenses -- sales and R&D staff -- to grow out the product line and expand the customer base around the world. This investment will result in a decline in net income in the short term, but we can see that it's working by the growth in revenue over the long term.
Another sign the strategy is working is growth in future contracted revenue. This is mostly Evidence.com contracts that are as long as five years and bring extremely high margins to the business. At the end of the third quarter, future contracted revenue was $302.0 million, up 90% from $159.0 million at the end of 2015. It's hard to find fault in those kind of growth numbers.
A bright future is ahead
The long-term trends are working to help TASER International, and the company has shown plenty of evidence that it's leading with both its Taser and body camera product lines and that it's growing its market internationally. When combined with the growth that's just beginning to show from long-term Evidence.com contracts, the financial future of the company is bright. That's a great sign for long-term investors.