The company recently known as TASER International is now Axon Enterprise Inc. (NASDAQ:AAXN), and the name change is indicative of how management sees its business going forward. The company built on selling stun guns to law enforcement agencies isn't giving up on its Taser business, but it sees body cameras and related services powering its growth going forward, and for good reason. 

First-quarter 2017 results, released after the market closed on Tuesday, show a company with strong growth across the board, but body cameras are providing the most rapid increases. And investments in improving the product line could make this a hugely profitable business for decades to come. 

The outside of Axon's headquarters, which feature a mural on the side showing law enforcement officers next to the words "Saving lives every day."

Axon's headquarters. Image source: Axon.

Axon Enterprise results: The raw numbers

Metric Q1 2017 Q1 2016 Year-Over-Year Change
Net sales $79.2 million $55.5 million 42.7% 
Net income $4.6 million $3.5 million 32.3% 
EPS $0.09 $0.06 50% 

Data source: Axon Enterprise Inc.

What happened this quarter?

Growth on the top line continues to be strong, and Axon has been far more profitable than expected given its investment in growing the body camera business. Here are some highlights from its business segments: 

  • Weapon segment sales were up 26% to $57.7 million, with a gross margin of 69%. Taser sales are still the dominant financial driver for Axon, but that's changing as the body camera business grows. 
  • Software and sensor revenue, which includes body cameras and associated services, was up 122% to $21.6 million, with a 42% gross margin overall. The gross margin on hardware was 8%, down from 30% a year ago, as management has been promoting camera adoption and shifting its profit-making focus in the body camera business to the services side. 
  • Axon services revenue jumped 142% from a year ago to $11.8 million, with a gross margin of 70.2%. 
  • Contracted future revenue increased from $350.8 million at the end of 2016 to $390.0 million, driven by $60.1 million in bookings. 
  • R&D spending was up 80% to $12.5 million and SG&A expenses rose 24% to $30.9 million. These investments are holding Axon back from even higher profitability today, but should help drive growth in the future. 

What management had to say

The company recently launched a free trial offering of body cameras to law enforcement agencies, and intends to expand body camera adoption beyond the 36 major city police departments that have already purchased the devices and their associated services.

New products like smart weapons should also help provide value-added sales beyond body cameras and the traditional weapons business. 

Looking forward

There was a slowdown in bookings in the quarter, which could be partly attributed to the free trial offer for body cameras. In the short term, it's the kind of marketing move that could be a drag on both revenue and costs, but in the long term, it could be a huge growth driver. 

Travis Hoium has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Axon Enterprise. The Motley Fool has a disclosure policy.