Earnings reports are the time investors get to check up on their companies, but it's the conference call that gives the most insight into a business. Management often gives a much deeper look at the business than an earnings report can.
For Axon Enterprise (NASDAQ: AAXN), the conference call is when management gives investors an update on what's going right and wrong with the rapidly growing business and when we can expect new products to start driving more growth. Here are my five biggest takeaways from last week's call.
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The elevator pitch
CEO Rick Smith started the conference call with a line I think all investors should know and understand. Here's his elevator pitch for Axon investors:
Axon isn't just a product company, it's a technology platform that law enforcement agencies will use for years to come, making their jobs easier and the public safer. That's the vision, and every new sale or new product offering should emanate from that central vision.
Show me the money
The challenge Axon has had recently is turning its growth into profitability. Smith thinks that will change soon, saying:
Axon is past discounting body cameras in most markets, which should allow it to expand margins on the growing base of users in the next few years.
Why margins were low in Q3
The transition to higher profits will take time, partly because management has been discounting products to grow in international markets. Smith put it this way:
This is a good strategy long term because it builds the relationships Axon can profit from over the next 10 or 20 years, but it's a short-term hit to the income statement. Investors have to balance the near-term cost with the long-term upside for Axon's business.
Building in an upgrade cycle
One way to expand margins and increase sales is to have your product be a regular line item in a law enforcement agency's budget. Axon thinks that will improve the upgrade cycle and keep the company's products locked into agencies. Smith said:
Look for long-term financing plans to be a growing part of Axon's weapon sales, which should drive more consistent revenue and margins for the company.
Growth will continue
I think product launches in 2018 will be when Axon's business takes a major step forward, particularly with a records management system that will be an integral part of law enforcement's day-to-day operations. Smith gave the bullish case for the business:
Records management and artificial intelligence offerings will be services that can be layered on top of weapon and body camera sales. When Axon talks about building a platform and using that platform to grow sales and profits, this is a key point of leverage. I wouldn't be surprised if 2018 ends up being a highly profitable year for the company.
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