When TASER International, Inc. (NASDAQ:AXON) reports earnings next Tuesday it'll put the final touches on a transformational year for the company. Sure weapon sales were strong, but the company's Axon body cameras and Evidence.com cloud platform became the de facto standard for law enforcement around the world, and will transform the company long-term. 

From an investment perspective, investors will want to keep an eye on how quickly the company is growing on the top and bottom line compared to the investments it's making in growth. If the company can increase revenue growth and contracted backlog and can begin to leverage its investments in R&D and sales it could be a great year for the stock. Here's what to watch for. 

Image of a Taser Pulse weapon.

Image source: TASER International.

Axon is the key for TASER International

TASER International's results are still driven by tasers, which accounted for 74% of net sales last quarter. But Axon is really where the action is.

Axon revenues jumped 75% in the third quarter to $18.9 million, and the company booked $57.5 million in new business for body cameras and Evidence.com cloud services. Axon Body and E-Dock unit sales were up 425% and 210% respectively last quarter as adoption for body cameras soared. 

We know from press releases that there were a number of big wins for TASER International in the body camera space, but when quarterly results are released we'll see how much that installed base grew. Getting Axon body cameras on the market is key, because Evidence.com is where the real money is made. 

Bookings will drive future value creation

When TASER International sells a body camera to a law enforcement agency, it usually includes a contract for Evidence.com that lasts up to 5 years. This cloud storage database is really where the company makes its money, so we need to see bookings improve each quarter. 

Most of the $57.5 million in bookings in Axon and Evidence.com last quarter were actually for the cloud service, and at the end of last quarter future contracted revenue stood at $302 million. Investors will want to see that grow to ensure profits start rolling in this year and beyond. 

With each customer that signs up for Evidence.com, TASER International creates a little cash flow machine with very little cost. Last quarter, Axon service margins were a whopping 81%, which shows why the new customer acquisitions are so important. 

This also gets at the company's investments in sales and R&D over the past few years. These are upfront operating costs that are being spent with the expectation that high margin Axon service revenues in the future will more than make up for that investment. If Axon camera installs and backlog grow we'll have increased evidence the strategy is working. 

Keep an eye on the long-term prize

The top and bottom line numbers for TASER International are often driven by weapon sales quarter to quarter. But keep in mind that body cameras are really the company's long-term growth driver, so it's arguably more important to see a boost in demand for body cameras in the fourth quarter. 

Investors should also be on the lookout for comments about how the company is planning to add value to body camera and Evidence.com users in the future. It just bought an AI company and has been working on wireless connectivity for body cameras as well. If it can garner momentum today and improve products for the future, it could set the company up for long-term profitability in body camera sales. Management may give a sneak peek into what they're thinking for the future next week. 

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