Axon and are the Keys for TASER International's Quarter

By Travis

When TASER International, Inc. (NASDAQ: TASR) reports earnings next Tuesday it'll put the final touches on a transformational year for the company. Sure weapon sales were strong, but the company's Axon body cameras and cloud platform became the de facto standard for law enforcement around the world, and will transform the company long-term.

Continue Reading Below

From an investment perspective, investors will want to keep an eye on how quickly the company is growing on the top and bottom line compared to the investments it's making in growth. If the company can increase revenue growth and contracted backlog and can begin to leverage its investments in R&D and sales it could be a great year for the stock. Here's what to watch for.

Image source: TASER International.

Axon is the key for TASER International

More From

TASER International's results are still driven by tasers, which accounted for 74% of net sales last quarter. But Axon is really where the action is.

Axon revenues jumped 75% in the third quarter to $18.9 million, and the company booked $57.5 million in new business for body cameras and cloud services. Axon Body and E-Dock unit sales were up 425% and 210% respectively last quarter as adoption for body cameras soared.

We know from press releases that there were a number of big wins for TASER International in the body camera space, but when quarterly results are released we'll see how much that installed base grew. Getting Axon body cameras on the market is key, because is where the real money is made.

Bookings will drive future value creation

When TASER International sells a body camera to a law enforcement agency, it usually includes a contract for that lasts up to 5 years. This cloud storage database is really where the company makes its money, so we need to see bookings improve each quarter.

Most of the $57.5 million in bookings in Axon and last quarter were actually for the cloud service, and at the end of last quarter future contracted revenue stood at $302 million. Investors will want to see that grow to ensure profits start rolling in this year and beyond.

With each customer that signs up for, TASER International creates a little cash flow machine with very little cost. Last quarter, Axon service margins were a whopping 81%, which shows why the new customer acquisitions are so important.

This also gets at the company's investments in sales and R&D over the past few years. These are upfront operating costs that are being spent with the expectation that high margin Axon service revenues in the future will more than make up for that investment. If Axon camera installs and backlog grow we'll have increased evidence the strategy is working.

Keep an eye on the long-term prize

The top and bottom line numbers for TASER International are often driven by weapon sales quarter to quarter. But keep in mind that body cameras are really the company's long-term growth driver, so it's arguably more important to see a boost in demand for body cameras in the fourth quarter.

Investors should also be on the lookout for comments about how the company is planning to add value to body camera and users in the future. It just bought an AI company and has been working on wireless connectivity for body cameras as well. If it can garner momentum today and improve products for the future, it could set the company up for long-term profitability in body camera sales. Management may give a sneak peek into what they're thinking for the future next week.

10 stocks we like better than Taser InternationalWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Taser International wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of February 6, 2017

Travis Hoium owns shares of Taser International. The Motley Fool recommends Taser International. The Motley Fool has a disclosure policy.