Lots of technology companies are reporting earnings this month. But even though my own portfolio is almost exclusively tech-focused, there’s one earnings date I have circled: Thursday, Feb. 27, after the market close.
That’s when Axon Enterprises (NASDAQ:AAXN) reports. Here’s why the date is so important to me — and probably should be to you, too.
What excites me about Axon is the fact that it’s a software-as-a-service (SaaS)company with two virtual monopolies.
The first is its line of TASER stun guns for use by police forces — the legacy business. But the real coup comes from the company’s domination over body cameras and — more importantly — the Evidence.com cloud platform that stores and analyzes all that footage.
The stock is very important to my family: Shares make up over 7% of my family’s real-life holdings. Here are three things I’ll be focused on come the 27th.
How many seats were booked?
When a police department signs on to use Axon body cameras, it also agrees to pay a subscription to Evidence.com. The platform stores, analyzes, and can even search for footage.
As you might imagine, once a department starts storing footage on the platform, it is locked in for the long haul. Not only is there no other player to rival Axon’s scope, but switching would be costly, a logistical nightmare of retraining entire police forces, and dangerous in terms of the potential to lose vital legal evidence.
That’s why each additional seat booked (read: officer with permission to use Evidence.com) is so important. Here are the trends over the past few years.
DATA SOURCE: AXON ENTERPRISES SEC FILINGS. CHART BY AUTHOR.
As the company has been growing seats booked at about 7% sequentially over the past year, I would expect — at the very least — to see a 5% bump to over 450,000.
Comments on records management system
Axon has figured out a way to make life easier for police officers once they’re in the Evidence.com ecosystem. Axon Records Management Systems (RMS) was only rolled out very recently. The idea is intriguing: By using AI and applying it to the police footage, much of the paperwork that keeps officers stuck at their desk can be auto-filled by Evidence.com.
The Fresno police department has been a test case. Success there convinced management it was time to offer the service up across the board.
But don’t expect to see revenue from the project anytime soon. Police departments that sign on get to test it for free. Over the long run, that makes a lot of sense, as RMS is also protected by high switching costs.
That’s why I’ll be paying more attention to management comments about adoption of RMS than any specific numbers. This could be the next major growth driver for the company.
Uses outside of police forces
As if all this weren’t enough, organizations outside of law enforcement have also begun to kick the tires on Axon’s products.
In 2018, the Charlotte fire department became the first major city fire department to adopt Axon’s platform. And early last year, Cypress Creek Emergency Medical Services in Texas became the first EMS provider to adopt Axon.
While I won’t be disappointed or surprised if there aren’t further updates on this front, it remains a free lottery ticket for investors: There’s very little downside to no progress, but enormous upside if adoption picks up in these adjacent groups.
Takeaway for investors
There’s one final sticky issue to deal with: the battle between Axon and the FTC. It turns out the FTC saw these monopolies and decided to act. The regulatory action the FTC is seeking to impose appears steep, though the market is clearly not too upset, as shares have continued riding higher.
Keep an open ear: There’s a lot of potential (and with the FTC, peril) that could come to light during the company’s conference call. I’m certain I’ll be listening. You should, too.
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