Axon Enterprise Inc (NASDAQ:AAXN) continued to grow both its Taser and body camera businesses in the fourth quarter of 2017, continuing a year of momentum. As we head into 2018, new products like a camera for vehicles, a records management system, and a smart holster for weapons could drive even more growth

Here's a look at the high-level numbers from Axon and some details on how each segment of the business is performing. 

Law enforcement officer at a computer station.

Image source: Axon Enterprise.

Axon Enterprise Inc: The raw numbers

Metric Q4 2017 Q4 2016 Year-Over-Year Change
Sales $94.7 million $82.1 million  15.3% 
Net income ($2.1 million)  $6.3 million  N/A
Diluted EPS ($0.04)  $0.12  N/A

Data source: Axon Enterprise Inc Q4 2017 earnings release. 

What happened with Axon Enterprise Inc this quarter? 

Growth was strong once again, but the net loss was a surprise given management's focus on improving the bottom line. As we've seen all earnings season from other companies, one-time charges from the tax cuts passed in December had an adverse impact on the bottom line. Here's a more detailed breakdown of how the business did:

  • Non-GAAP net income -- which pulls out an $8.0 million charge for the Tax Act passed in December and the writedown of $1.1 million on intangible assets -- was $7.1 million, or $0.13 per share. 
  • Gross margin improved from 60.6% in Q4 2016 to 66.6% in Q4 2017, helped by product mix and fewer discounted products. Of this improvement, 300 to 400 basis points is expected to be one-time in nature because of the unusual mix of lower hardware sales and higher Taser and services revenue in the quarter. For example, low-margin Axon Body camera hardware shipments fell 44.6% in the quarter to 13,944 units, but body camera service revenue, which had a gross margin of 68%, was up 52.4% in the quarter. 
  • Operating expenses increased from $40.4 million a year ago to $55.4 million. Management expects this growth to slow, which will help profitability in 2018. 
  • Taser weapon sales increased 10% to $64.4 million, and gross margin improved 160 basis points to 70.9%. 
  • Axon body camera hardware sales rose 4.8% to $13.1 million, and gross margin was 43%. 
  • Axon service revenue jumped 53% to $17.1 million, and gross margin was 68.2%. 
  • Bookings were $71.2 million in the quarter, and total future contracted revenue at the end of 2017 was $536.0 million. 
  • The outlook for 2018 is for 16% to 18% revenue growth, operating margin expansion of 300 to 400 basis points (from a 3.8% operating margin in 2017), and capital expenditures of $12 million to $16 million. 

What management had to say

Growth has been the focus of Axon Enterprise's management for a few years now, but in 2018, we'll see a turn toward more of a bottom-line focus. And new products could help improve the bottom line, with management saying in the earnings release: 

This year, we plan to introduce several new products and services and improve upon our existing suite of offerings -- which we believe will grow recurring cash flows and increase average revenue per user. We're also scaling up our offices across the world and cross-pollinating our internal groups to ensure we execute against one vision for Axon. In short, we are focused on disciplined execution and preparing for significant growth across the globe.

Finally, we are driving toward profitability in the Software & Sensors segment and remain committed to expanding total company operating margins.

If new products are successful, they could drive add-on sales as well as new customer sales, so investors should watch how quickly these products gain traction in the market. 

Looking forward

Law enforcement continues to demand more less-lethal weapons, and Axon is filling the market need. But in the long term, it's body cameras that are going to drive the business, and the growing backlog combined with new products coming in 2018 should drive growth for the foreseeable future. 

Travis Hoium owns shares of Axon Enterprise. The Motley Fool owns shares of and recommends Axon Enterprise. The Motley Fool has a disclosure policy.