Axon Enterprise, Inc. AXON reported fourth-quarter 2023 adjusted earnings of $1.12 per share, surpassing the Zacks Consensus Estimate of 86 cents. The bottom line increased 60% year over year despite a significant rise in cost of sales.

Total revenues of $432.1 million outperformed the Zacks Consensus Estimate of $419 million and increased 28.6% year over year. The top line benefited from strength in Axon Cloud software, demand for Axon Fleet systems, and the ramp-up of TASER 10 and Axon Body 4. In 2023, the company shipped more than 50,000 units of TASER 10 and the product became the highest selling TASER device in the fourth quarter.

Annual recurring revenues ascended 47.4% year over year to $697 million in the fourth quarter. The upside was due to strong sales of premium software bundles and connected devices. Net revenue retention was 122% in the period.

Total operating expenses climbed 20.8% year over year to $221.1 million in the quarter. Gross margin declined to 61.1% from 61.2% in the year-ago period.

For 2023, AXON's adjusted earnings came in at $4.14, up 89% year over year. The company generated revenues of $1.56 billion, marking an increase of 31% year over year.

Axon Enterprise, Inc Price, Consensus and EPS Surprise

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Segmental Details in Q4

Software & Sensors: Within this segment, Axon's Cloud and Services revenues rose 44.1% to $163.6 million. The uptick was driven by strong demand for premium add-on features related to Axon Evidence, Axon Fleet Systems, and real-time operations and productivity software. Axon Cloud's gross margin deteriorated to 74.6% from 75.5% in the year-ago period due to an increase in professional services costs related to Axon Fleet Systems' installations.

Sensors & Other revenues climbed 24.8% to $107.2 million driven by strong demand for Axon body cameras and accessories, primarily due to growing popularity of Axon Body 4. Gross margin improved to 46.3% from 41.5% in the year-ago period supported by scale efficiencies on fixed costs and mix toward premium products.

TASER: The segment's revenues jumped 18% year over year to $161.3 million, given continued ramp-up of the TASER 10 platform. Demand for TASER 7 declined in the quarter, partly affecting the segment's performance.

Balance Sheet & Cash Flow

At the end of the fourth quarter, Axon had cash and cash equivalents of $598.5 million compared with $353.7 million at December 2022-end. Long-term lease liabilities totaled $33.6 million compared with $37.1 million at 2022-end.

In 2023, AXON generated net cash of $189.3 million from operating activities compared with $235.4 million a year ago.

Adjusted free cash flow was $148.1 million in 2023 compared with $197 million in the prior year.