Axon (AXON 0.64%) is still hitting on all cylinders with everything from tasers to body cameras. Revenue in the second quarter of 2022 was up 31% to $285.6 million, and adjusted earnings of $0.44 per share beat estimates.
The results were extremely strong, but what impressed me most was the company's ability to grow its sales base while also increasing revenue per customer. Let's dig into the results for this growth stock.
From tasers to body cameras
There wasn't much to fret about in Axon's product sales this quarter. Taser sales were up 20.5% from a year ago to $135.6 million, and the gross margin was a healthy 64.3%. Sensors and other sales, which include body cameras, were up 49.2% to $68.3 million, and the gross margin was 42.9%.
The hardware numbers can be a little misleading because Axon's products are often sold in packages on long-term contracts, so it's important to take the company as a whole. Management said that 108 customers signed contracts for longer than five years in the second quarter and one-third of the deals were for a decade or more.
Axon reports the percentage of taser devices sold on recurring payment plans, and in the second quarter, that jumped to 76% from 55% a year ago. But that's the plan for the business.
The cloud is the glue for Axon
Long-term contracts or payment plans are the core value driver for Axon. And cloud services are the glue for that business because customers store data like body camera videos and police reports on the cloud. So, net cloud sales of $81.7 million, up 35.1% from a year ago, and a 70.4% gross margin were solid results.
This should be a great growth business too. Annual recurring revenue is up to $368 million, up from $260 million a year ago, and there's $3.33 billion in the contracted backlog. The net revenue retention rate was 119%, meaning Axon is generating more revenue from each customer over time.
One of the beauties of Axon's business is the combination of software and hardware, which makes the business very sticky. That's what's driving growing revenue retention rates.
The growth ahead
It's tough to value Axon's business because the company is still investing in growing the product line and sales force, not necessarily monetizing it. But the company's high growth rate and impressive margins make the kind of business worth holding long-term.
A market cap of $7.9 billion is a lofty 40 times the top of the 2022 adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) guidance of $190 million to $200 million. But a few years of 30% growth will make that multiple seem more reasonable.
Given the momentum behind Axon's body cameras and cloud business, this is a stock I still think is a great buy today.