Q3 2020 Axon Enterprise Inc Earnings Call
So we're going to Andrea I know everybody's really busy.
Hurting season, and you may have a lot of calls to go through so I thought about.
Actually it's a quarter.
Out of a thousand people busting their selves, working so hard and the hardest environment I've ever seen and man that gave me.
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Second we site first indefinite delivery and definitely quantity or how do I keep contract with a federal agency directly to.
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And in doing so protecting long Catherine Street and accelerating job.
For the federal the furniture and.
All the communities can sir so if that expert.
Awesome.
Thank you Richard.
Demand for case or in the U S. Internationally, we're still getting started and so while subscription levels are lower than in the U S. You're confident we can also drive subscriptions abroad.
It's early.
Million dollars.
In 2021, we expect to continue to build on our strong momentum.
All right can you hear me now.
Sorry about that guys.
Well I'll take on a little more detail I remind us about the investments or we may have a channel the product in the infrastructure I guess, particularly I'm interested in some of the investments you're making to grow the international business.
Yeah, absolutely. So we made investments this year in new geography that we have never been in before and it was really on the heels of investments we made in previous years in new markets like India in the Ukraine. We have seen very early like great results early on him and let Josh talk a little bit more about that when we put boots on the ground there was no substitute for that.
Humorous overtime.
So language will not be a barrier country you can go.
No great. Thanks, guys Greg.
Great quarter.
You think T I understand we're gonna take our next question from Willpower at dared go ahead well.
Great Yeah, no. Thanks for first of all the questions I guess I'll try to slip into maybe the first for furniture to perhaps red whoever wants to take it really encouraging to see the progress et cetera, like I said, just love to get a little more color and what the sales cycles with like generally is your target federal particularly should look at that homeland security contract.
The largest change your deal.
Companies history, and I guess I'd be curious.
So how much more run that might be to go with something.
Somebody like Homeland Security's, it's just a starting point of their things you to build off from here.
Once you take down one Richard absolutely yeah, absolutely the the lead times for federal contracts can bird.
Typically there's a two year budgeting cycle, but that said every single year federal customers are evaluating with the gaps or what the needs are in the requirements and so everything a year customer has the opportunity to leverage their funding for technology and our capabilities relevant and so we're seeing uhm lead times as well.
Usage, there isn't going up pretty in line with what you would have expected is it maybe improving better or worse.
Yes, absolutely I think we're very very excited about where we're at right now with the interest in live streaming and other connected features to baby three without going too deep into the Oh the numbers I would say like we feel really good about the amount of adoption we've seen through.
True.
You know 10 or 11 months here and certainly going into next year have a very strong pipeline of connected services whenever you launch a new product and you know.
It really at any point in the year customers need some time to build in that ask into their budget and so while this year a lot of our new camera Roes that were first time purchases included a lot of the connected services going into next year I think a big point of focus for us in kind of your two of those budget cycles are now.
To be able to get all those upgraded cameras on those same connected plans and our customers have been working with US and of course with their city council pools, and so forth to identify funding to add those feature sets on and so we're really excited about kind of the runway we have to get hopefully one day every single AB three on too.
Our response to respond plus platforms.
Got it thank you.
Just one quick addition of as we've talked about it.
Shareholder letter both from a sales perspective, but also just usage engagement, while it's still early days over 200 agencies use were actively in the last 30 days with more than two dozen.
They are using it every single week now.
And we've seen just tremendous growth and the adoption of live streaming as it begins to roll outs, even grow over six backs over the past six months.
Got it that's awesome. Thanks, and then maybe just one other one I'm kind of the the percentage of Taser sold on a subset.
Subscription going up.
Is that starting to become more I guess being the highest rate you've seen it was that some of that a factor of maybe a large order to being sold on subscription or like is that pacing to even the rate that you would expect kind of moving forward.
Ultimately the majority of cases sevens are on subscription plans the vast majority and so the essentially the way I think about it is over time as the mix piece seven keeps going up relative to our other taser is the more that number will be driven up as well. So I certainly would expect sales.
Nothing's guaranteed that.
We would look for that number to keep growing and unless there is like an outsized international order.
As a one time purchase or an outsized quarter on X two or Xtwenty sixp as a onetime purchase we certainly would expect that number to keep trending up.
Got it thank you.
Hmm flood in recent weeks, we've had some folks like enough, let's take our next question from Jonathan Ho at William Blair Go ahead Jonathan.
Hi, good afternoon, and congrats on the strong quarter I just wanted to start out by circling back to the fed opportunities. It does the I.Q. contract potentially give you a hunting license to go and you know maybe chase other agencies or sub agencies down and just wanted to get your thoughts around yeah, the GSK schedule as well.
Yeah go ahead, Richard absolutely yeah, so so and I've got a few contract. It is kind of a hunting license you can think of it as a contract vehicle that allows.
The customer the federal customer to buy off of a.
Pre agreed I think catalog from excellent and so in particular you know this I'd I'd Q has multiple is at the departmental level and there's multiple agencies within that department that can then follow on in purchase off about against you.
Great and then yeah, we're definitely seeing some interest here in terms of the de escalation products can you maybe talk a little bit about you know whether that can potentially drive some additional bundling and just sort of the reception that you're seeing for from the escalation just given you know.
The current political environment. Thanks.
Yeah sure. So so in Q2, obviously with the Lockdowns and so forth there was domestically probably the low point of the year and Taser sales in Q3, we really roared back and I'm. So proud of all of our entire global team, especially in this case, our state and local team and I think there is certainly.
A you know record interest in tasers, we see that quarter over quarter here and we expect that to continue to grow both in state and local where we see it more incrementally and then federal and international where our hope is we see it more ex financially and so across the board I think there there is very strong.
Demand for Taser is I think you'll continue to see that throughout the year here and we're very excited at the opportunity to continue to be able to to package our de escalation devices with our software and sensors our packages on all on the body can cloud side and on the record side and so forth.
Hey, Thanks, guys well take our next question from Jeremy Hamblin at Craig Hallum Go ahead Jeremy.
You're on mute.
Hear me now sorry about that.
So I wanted to just congratulations on the fantastic results.
I wanted to get into the record the business a little bit and.
Just get a sense of you know, there's there's a little bit no more embedded competition in that particular side of your business and I wanted to get a sense for you know if you're getting any initial ramp.
You know the time frames to win meaningful share in that portion of your business you have a fantastic relationships now that had been built over a couple of decades that may make you know the sell easier, but I wanted to get a sense.
Of how you're thinking about that business and whether or not the ramp that we saw that was kind of a long slog in cameras. You know do you think that this you can potentially gain share and adoption faster and record simply because of the extensive relationships you have today.
Absolutely Jeremy I think we've seen over the last 10 years, certainly body cameras were a little slower out of the gate to be adopted but you know now we put our sales and in a market leadership position there and certainly part of our strategy as we've talked about is you know around O.S.P. seven plus packaging our record sales.
Lesions with our body camera solutions I'd say this about the competition like we have a lot of respect for all the different companies in the market there, they're all great companies and well run and so forth, but at the same time like Weve built our team in our channel and our product team and our company for moments like this where we can enter new markets and we can win in them.
And so this year, we've seen very promising results and I certainly believe in our team and I think we're going to you know a end up in a spot where we are the more market leaders not only in records, but also in the dispatch in everyday we're waking up I'm getting one step closer to that.
And if I could I wanted to ask one other question directed towards Jawad in thinking about you know 2021 in terms of you've seen pretty exceptional growth and steady growth now in the weapon weapon side of the business and I wanted to get a sense as we look forward into next year, where.
You you've continued to have.
Know mid teens growth in that weapons segment, I think a lot of people with expected that a two to a temper its.
Going to be neck, and neck, or even outperforming a nine millimeter and stopping power and I think we've got the opportunity to become the primary weapon of law enforcement officers around the world.
And that message as moving really positively received by law enforcement when I believe my book last year, we were nervous as how that message to resonate, but I can tell you, especially in the environment. We're in right now no officer, what skews legal for US and we just we've got a really good Leslie to weapon system today.
But we.
We still have room to improve and I'm really excited about the things that are coming down the road.
The upturn even with Taser seven just got approved in UK I mean, we're getting approved in new markets, where our existing upgrades are going to be really opening a lot of revenue opportunity and I don't see that coming out his team right now Steve anytime soon.
Actually I wanted to jump back in one thing you haven't heard us talk a lot about that.
Excited as recognized by phase about Taser.
One area, we haven't talked a lot about in the past, but I think you're going to start hearing more from us Jeremy as the consumer business. So.
And just so part of our consumer team, we had a plan for the year for the full year revenue and they hit that plan in the first seven months of the year, So having a banner year.
We're expecting big things from that business, you've got a couple of.
Product launches on the horizon in the next year or two so that's another area that we expected to see some growth.
Fantastic I love the goal thanks, guys. Good luck.
Thank you next question from cash flow Riley at Needham go ahead, Josh.
Hey, there thanks for taking my questions.
So you just had your customer conference in August what did you see in terms of demand and pipeline generation out of that event from being fully virtual.
Persons historical in person events, and then how does that compare to the increased customer interest generated from the social unrest over the summer.
So let me start Meenal Passover gosh is there I would say overall.
These virtual the level of attendance I think we had something like 10000 people sign up which is.
Something like Fourx or Fivex and last year now not all of them showed up and the level of engagement probably wasn't decides we didn't have the undivided attention, but the feedback. We got was people really enjoy it we sent out VR headsets loaded with some of the content.
Well at least a subset of the attendees. So I think given the challenges of people really responded well now we're reducing the value of information in the future, but this year I think actually in terms of quantity of touch it was actually broader than it's been before just maybe not as deep in terms of giving their time to three full days Josh.
Non.
Just just to the questions about social unrest look like I want to be really con CIS of how we talk about this it's not a victory. When there is the type of social unrest that there is today and so.
Certainly like.
Our team I think we think about our sales process. The exact same way every day like we are going to cover the market well, we're going to talk about the value that our products.
Provide across the board and we really really believe in that value and sometimes it takes and external factor for a customer to maybe be more motivated to buy it or whatever the case may be but we really believe like hey, we're just going to keep focusing on the things we can control and we believe we're going to end up in a really positive.
Place not only as a business, but in terms of fulfilling our goals and missions in society I think we're going to feel really good about that.
And I want to kick it over to Luke maybe just to talk a little more about accelerate as well I think it says well. Thanks, Yes accelerate was it was a huge success in terms of being able to connect with the customers digitally which I think a year ago. It would have been very tough to get the key decision makers from majors.
Cities to invest in time be assumed color another format and so that's been one of the silver lining of this pandemic is us being able to rapidly push people to these virtual type engagements.
So we walked away being very very please to rick's point of being able to hit a larger number of customers and showcasing all of the tools writing Escalations transparency and then just finally said Josh is point on the social unrest.
Social unrest, we really are trying to solve and be part of the solution. These really difficult complex situations and so our customers are looking to us as somebody that's coming to them out of the blue we.
Invested in decades of relationships, where they know the tools that we're creating are going to help them resolve these really difficult issues in the best possible outcome.
Okay, Great and then just one follow up question.
Net revenue retention increased one point sequentially on the quarter does that imply that you are having ongoing success from upside the RSP bundles I know thats, probably the case, but just maybe some color on that and then how should we think about the relative penetration for OLED TV at this point with them the body Cam customer base.
I'll take the first part of that question on net retention, that's exactly right, our strategies and gear towards selling more.
Higher value added bundles like RFP, seven seven plus and add more customers adopt that than we should expect you will expect to see our net retention increase and then the second part of your question I'm going to kick it over to Josh.
So.
On the net revenue retention I also just want to give a big shout out to our customer success or this is a north we invest that in substantially this year to build this out and make sure our customers continue to have a great experience and Lisa Krolikowski and her team just on an awesome job ensuring that.
And and I think thats reflected in net revenue retention do remind do you mind just reminding me of the second part of that question.
I'll just talk about the relative.
Hi, Steve.
And.
Sorry did I, just put out there relative penetration per Boe.
Plans within the body camera customer base, yeah. So I think for us like with lowest Pete right. Now I think we're seeing a lot of midsize and larger agencies start to show a lot of interest in it and I think thats, where we're having the most success as we kind of took a holistic look at our pricing and packaging strategy going into next.
Next year, I think you'll start to see us test over speed like offerings that are a little more tailored to specific segments. So in corrections I think we're very excited.
Offer an OSP package there that's that's more tailored the corrections I think with inside sales that the handle our smaller customers, we're going to be experimenting there as well with the same type of package, that's a little more tailored for smaller agencies. So our goal is to have every customer by a camera software.
License a record license and.
In sort of curious what's happening there is that more push to them or Paul.
Because it has been we have the same product right im sort of curious too if it's if it's a sustainable trend what that means to Taser gross margin and then also the cartridge business for Taser and I've got a follow up yes.
Great question, Charlie it's a little bit about earlier in the year, we saw increased sales from the.
As a side effect of both stay home and wanting more self defense options.
As you know like gun sales were up and Taser sales were up for similar reasons as both look for self defense options for home, we hired a new general manager for the consumer business. He started earlier this year, he's got a fantastic marketing background and he's been completely up leveling our game as you pointed out the same products, but were really stepping up our game from a marketing standpoint, and we've been.
Making a run in not only increasing sales as distributors, especially with direct to consumer.
And those results have yielded some.
Okay. Great returns early on next year as I mentioned, we're looking at a couple of product launches that I think are going to get even more of a push and we're focusing not only on the taser form factor, but there are some other form factors that we think are very appealing to folks that are no don't necessarily want to fire a.
A weapon per se, but more of a taser that's got a different form factor like we've had in the past that we've discontinued. So those types of things. We think are going to be opening up new markets for us and then from a margin standpoint, they are actually going to be very helpful. The consumer business is at we haven't actually discloses publicly but it's up it's a very attractive margins.
Is accretive to our law enforcement margins and Thats true the cartridges as well.
Okay, Great and then for my follow up you know, we have a chance that at some pretty significant police reform bills coming out of.
Government. This year didn't happen I'm, just sort of curious where you see attitudes trending as far as that's concerned the terms reform both at the federal and the state level.
In terms of potential tailwinds to the business and neighbors was obviously helpful on opening up opportunities.
And record sort of curious if there's anything else like that out there in terms of.
Regulatory they could provide a tailwind for you guys over the next year or so thanks.
Let me take that one.
So I had gotten.
Email from a Republican U.S Congressman good informed me that part of their platform as we perform was to promote body cameras for every officer in America and that's the Republicans I think you would also see on the Democratic side of the aisle, where theres a lot of support we're pleased with.
Typically around body cameras, but I'll tell you, what's what we really get into the conversation people also very quickly understand the value of Taser weapon. When we saw the tragedy in Philadelphia few weeks ago and the community there is really not including the family.
A bid season.
Really pushing the agency why Didnt every office are there how diseases I know again, we obviously.
I don't like to see those strategies happening.
Or try to leverage them, but we do have solutions that really matter, we think bipartisan and I would tell you I just on a personal note I've been pretty worn out by all the devices. This is a good grief.
But the last 48 hours I was expecting a lot more of it and I'm feeling a lot more.
You know a lot less division right now I think we may see a more productive coming together as we move into next year. After the exhaustive 2020, and I think both sides of the aisle.
We have a positive solution oriented.
Technology broke free and that can be part of a police reform Bill that police want that communities work and I think legislators that see the value in so I'm I'm optimistic.
Yes, I would just add I would echo Rick's comments I think this is really we're seeing now bipartisan support for.
Before that would include technology for.
Products like body cameras as well as increased training in June.
Joe Biden called for $300 million to reinvigorate community policing and so we've.
Regardless of the outcome I think this is an area where kind of the pragmatic.
Voice is going to win in terms of sales, we actually need more training to reform fleece more funds going in there than to actually cut funds from there.
Thanks.
Okay, guys all of my questions I, just want to give a quick second to make sure I see if we have any follow up.
If anybody has a follow up.
Your hand.
Oh good okay.
Okay.
A couple of the company introduced the chat real quick I don't know if you want to just touch on those sales of Vidacare, We expect Correctional guards and police officers.
Sure.
Go ahead go ahead.
Yep.
I think we're seeing some major correctional agencies and sheriffs offices.
We're now starting to deploy these are in fact, Josh you talked about you stood up a team to go after these adjacent markets and I think we're seeing.
Real reception right.
Yeah, absolutely Rick I think this is a place where historically there there hasn't necessarily been a lot of our focus on it in terms of like individuals that that's that's really all they do day in and day out and over the last two years, we've built that team and I think it's it's already presenting pretty incredible returns and I.
I think once you know these are.
These representatives go out and talk to customers I think that really parlaying the success to the similar use cases around.
The country within corrections and.
We expect that to continue I think between corrections and some of our other adjacent markets and private security and essentially fire and the M.S. and so forth will we'll continue to see more and more momentum both on the taser side and on the body Cam side.
All right and I think we are any question that was in there. Yeah. There was another question the chat about two weeks, but I feel like we really covered that both in our shareholder letter in our prepared remarks and in the Q1 and the transcript will be posted on line into that Miss something Okay. So now let me turn it over to rectify.
Let us now and just wanted to say one of the things that's really the heart warming is.
You've heard from some of you on the buy side that.
You are watching our earning calls that your kids and their learning about what you do managing assets for a living so in that spirit of camaraderie, Rick prepared a little something for the family about there.
Turning tuning into earnings calls.
So I'd say you guys are in fact, we've already had three people respond which I appreciate I'm.
I'm going to leave it open up the call is basically over but if we get a chance going to slide only check it out it's been an invaluable tool that I gave a lot of feedback from customers. This way ramps and find out where you can guess the majority of our backgrounds, whether they are real or not when office. It's from we're going to finish line.
So.
Give us your shirt size remained and thanks and also give us your feedback we want to know are you enjoying the format. You know sometimes you get a little more informal I figure you are probably going stir crazy like we are so we're listening it up trying to make it kind of fun, knowing you've got a lot of work you're going to mitigate as you're working late into the night. We hope you and look forward to earnings call not just for the great results.
Because ramp up time together so it's it's good to see the country I feel coming together.
I've been optimism looking to the future in general it's been a rough year and thanks for sticking with us and again to every axon employee I couldn't be more proud to be part of this team.
Love working with you all and look forward to reporting our next results in the new year.
So thanks everybody.
Thank you hi.