Aerospace and defense company AXON (NASDAQGS:AXON) reported Q2 CY2024 results exceeding Wall Street analysts' expectations, with revenue up 34.6% year on year to $504.1 million. The company's full-year revenue guidance of $2.03 billion at the midpoint also came in 2.2% above analysts' estimates. It made a non-GAAP profit of $1.20 per share, improving from its profit of $1.10 per share in the same quarter last year.
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Axon (AXON) Q2 CY2024 Highlights:
- Revenue: $504.1 million vs analyst estimates of $478.4 million (5.4% beat)
- EPS (non-GAAP): $1.20 vs analyst estimates of $0.98 (22.7% beat)
- The company lifted its revenue guidance for the full year from $1.97 billion to $2.03 billion at the midpoint, a 3.1% increase
- EBITDA guidance for the full year is $467.5 million at the midpoint, above analyst estimates of $441.3 million
- Gross Margin (GAAP): 60.3%, down from 62% in the same quarter last year
- Adjusted EBITDA Margin: 24.5%, up from 22% in the same quarter last year
- Free Cash Flow of $71.45 million is up from -$26.11 million in the previous quarter
- Market Capitalization: $21.6 billion
Providing body cameras and tasers for first responders, AXON (NASDAQGS:AXON) develops technology solutions and weapons products for military, law enforcement, and civilians.
Law Enforcement Suppliers
Many law enforcement suppliers companies require licensing and clearance to manufacture products such as firearms. These companies can enjoy long-term contracts with law enforcement and corrections bodies, leading to more predictable revenue. It is still unclear how the recent focus on excessive force and police accountability will impact longer-term demand. On the one hand, lethal force products could become less popular. On the other hand, products such as body cams that aid in the transparency of policing could become standard. Generally, the sector’s fate will also ebb and flow with state or local budgets, and there is high reputational risk, as one mishap or bad headline can change a company’s fortunes.
Sales Growth
A company’s long-term performance can give signals about its business quality. Even a bad business can shine for one or two quarters, but a top-tier one tends to grow for years. Luckily, Axon's sales grew at an incredible 32.2% compounded annual growth rate over the last five years. This is a great starting point for our analysis because it shows Axon's offerings resonate with customers. 
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Axon's annualized revenue growth of 35.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.
This quarter, Axon reported wonderful year-on-year revenue growth of 34.6%, and its $504.1 million of revenue exceeded Wall Street's estimates by 5.4%. Looking ahead, Wall Street expects sales to grow 21.1% over the next 12 months, a deceleration from this quarter.
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Operating Margin
Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling them, and, most importantly, keeping them relevant through research and development.
Axon was profitable over the last five years but held back by its large expense base. It demonstrated lousy profitability for an industrials business, producing an average operating margin of 1.9%.
On the bright side, Axon's annual operating margin rose by 11.9 percentage points over the last five years, as its sales growth gave it immense operating leverage
This quarter, Axon generated an operating profit margin of 6.5%, down 4.2 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.
EPS
Analyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
Axon's EPS grew at an astounding 48.3% compounded annual growth rate over the last five years, higher than its 32.2% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into Axon's quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Axon's operating margin declined this quarter but expanded by 11.9 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its higher earnings; taxes and interest expenses can also affect EPS but don't tell us as much about a company's fundamentals.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For Axon, its two-year annual EPS growth of 32.8% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q2, Axon reported EPS at $1.20, up from $1.10 in the same quarter last year. This print easily cleared analysts' estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Axon to grow its earnings. Analysts are projecting its EPS of $4.49 in the last year to climb by 4.8% to $4.71.
Key Takeaways from Axon's Q2 Results
We were impressed by how significantly Axon blew past analysts' revenue and EPS expectations this quarter. We were also excited it raised its full-year revenue and EBITDA guidance, which exceeded Wall Street's estimates. Zooming out, we think this was a great quarter that shareholders will appreciate. The stock traded up 4.4% to $308 immediately following the results.
Axon may have had a good quarter, but does that mean you should invest right now? When making that decision, it's important to consider its valuation, business qualities, as well as what has happened in the latest quarter. We cover that in our actionable full research report which you can read here, it's free.