Axon Enterprise (NASDAQ:AXON) reported another quarter of big growth this week, even though that growth didn't flow to the bottom line. Management continues to invest in new products that will show their impact in 2020 and beyond. But before those products arrive, thousands of customers are being added to subscription plans.

Here are the highlights from the second quarter. 

Axon Body 3 camera.

Image source: Axon.

Axon Enterprise: The raw numbers

Metric Q2 2019 Q2 2018 Change
Sales $112.4 million $99.2 million  13.2% 
Net income $738,000  $8.5 million  (91.3%) 
Diluted EPS $0.01  $0.15  (93.3%) 

Data source: Axon Enterprise Q2 2019 earnings release. EPS = earnings per share.

What happened with Axon Enterprise this quarter? 

Breaking the business down into Tasers and body cameras/cloud services is helpful to show where there's been real progress. 

  • Taser revenue was flat at $60.6 million, and gross margin was 59.9%, down from a 70.8% gross margin a year ago. The lower margin was blamed on supply disruptions and the ramp-up of Taser 7's supply chain. 
  • Taser 7 unit sales were 8,135; the model is beginning to replace Taser X26P and X2, which fell 49% and 37%, respectively, in unit sales in the quarter. 
  • Axon Cloud sales jumped 41% in the quarter to $31.8 million, and gross margin was 73%. 
  • Sensor segment sales, which include body camera hardware, were up 24% to $20 million, and gross margin was 30.1%. 
  • Total future contracted revenue jumped from $750 million a year ago to $1.05 billion. On an annualized basis, recurring revenue is $129.5 million. Seats booked are now 397,800, versus 305,200 a year ago. 

Axon Body 3 is expected to be launched later this year, and Axon Records is in the pipeline as well, so look to see them both have positive impacts on cloud and sensor sales in coming quarters. 

What management had to say

CEO Rick Smith has been pushing Axon to the point where it can now offer a bundle of services, including Tasers, body cameras, and software services. A plan called OSP 7+ is the most comprehensive plan offered, and Smith said during the conference call that the product is selling well. He added:

Looking to the future, I feel great about our ability to reaccelerate in sustaining growth. OSP 7+ is generating a lot of interest and it's exceeding our expectations. As we mentioned in our shareholder letter, major agency adoption of the OSP 7+ plan already includes Atlanta, Baltimore, and Minneapolis.

OSP 7+ is the highest-revenue and highest-margin subscription Axon sells, so it's critical for the company's future that it be successful. 

Looking forward

Management reiterated its full-year outlook of $485 million to $495 million in revenue and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $80 million to $85 million. That indicates that margin challenges that hit in the second quarter aren't expected to last, and Axon expects to ramp up the bottom line as the year goes on. 

There are ups and downs of this growth business quarter to quarter, but the rapid adoption of body cameras and of Axon's services model suggests a bright future. 

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