Q2 2021 Axon Enterprise Inc Earnings Call

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Thanks for tuning in checkout Investor day, Axon Dot com per our shareholder letter financial outlook in more see you in November.

Alright, great job on the video Andrea and folks on giving more Andrea on on a heart attack today I was supposed to be safely in my home office connected to the internet, but I've been out all day.

Some are doing customer demos.

3 demo vehicle.

And we had a bunch of great meetings today in fact.

We're going to do this live without a net.

Going to do a quick screen share and show you what we're seeing live from this fleet vehicles there.

It's just been great. We've also been encouraged to see this summer that the natural conversation around policing is evolving to reflect what we've known all along that as the police reform and progress requires investment and focused attention from our best and brightest minds.

We're obviously pumped about our quarterly performance and I couldn't be prouder of how our team is executing and it's translating into growth that we've sustained now over the last few years and we intend to keep doing it.

I'm also proud of our practice all on the team they have been working really hard as we've been best to build these transformative capabilities and the fleet 3 which I'm just doubled right here, we're able to bring artificial intelligence to bring a L. P. R to every car within 90 days of lunch, we've already begun deploying 550 vehicles economic growth.

Counting into my awareness.

As far as I know, that's the Lor just oh.

In the country and it's happening literally within weeks of our product launch and we're already in late stage negotiations with another major city to deploy over 1500 license plate readers more than doubling while we're doing right now.

<unk>.

So you all know you know you shouldn't text and drive.

Chairs are doing this all the time, they're typing in license plates, while they're driving or they've got to read it in over the radio <unk> does that for them at a dramatically lower price point, allowing them to deploy this to every car, making driving safer and reducing crime. We've already on customers. Just the first few weeks catching serious offenders and finding missing children on another front on.

Axon evidence software continues to grow well beyond simply being in the back in for our cameras, we want highly competitive digital average program in a meal with anemia government encompassing the management of all digital Evans independent body camera programs and this builds on similar success, we've had in Canada and paved the way for us to continue to leave but our software solutions, we feel really.

[noise] well positioned for the back half of the year and beyond as we see traction beyond core U S municipal law enforcement moving into counties and state patrols of federal government and private enterprises International revenue grew 60 per cent to to an international bookings, which are are forward looking indicator nearly tripled.

So in some from my part Axon, we're excited we're leading the way in creating a work environment, where employees can maximize our happiness from productivity. We offer remote hybrid option you can work from the office you can work from your home you can work from your car. So I'm showing you any day, even on the earnings call. So we're we're focused on doing whatever it takes to get the best talk to you.

<unk> keep them focused keep them rested keep them happy to keep them Energised keep them creative and that's how you get great products and breakout capabilities. So our leadership is now supported by an exceptional work force. It is almost 2000 people and that's what it's gonna help drive us to longterm profitable growth has continued build and maintain.

And groom, a fantastic team and with that let me turn it over to the President Company <unk>.

Thanks, Rick the business is firing on all cylinders and we're focused on sustaining momentum operationally, we're doing really well even in the face of global supply chain risk. The reality of the current macro situation as well documented from geopolitical factors semi conductor in resin shortages.

Is to logistics and pork sausages cause it continued impacted COVID-19, there's never been a more complex time make electronics, we have risen to the challenge we monitor conditions daily and have <unk> risk mitigation strategies in place that are supporting a rapid growth while these headwinds persists.

Our teams are definitely navigating and effectively positioning the business to continue to me are increasing demand pipeline. In fact, our teams are delivering Olympic level execution on behalf of all of our stakeholders, most notably our customers and our shareholders another area where you.

Let's see this is our teaser segment gross margin, which are up 500 basis points over last year as we sell on the strong demand we had engineered cop out of our bill of materials and the effects of that continued into this quarter. As you saw on our video and Redner letter we are ecstatic about the <unk> 3 launch and that its shipping.

And we're getting static reviews from early customers is brick mentioned earlier and we believe we're just getting started with virtual reality training with booking nearing $8 million from the first 6 months of less than a million in the first 6 months of last year, you've heard me talk about virtual reality on the last several earnings calls and we're.

Please have the demand that we're seeing and that validates our excitement we're looking forward to a strong back half of the year and continued momentum into 2022 and with that let me turn it over to our Chief financial Officer to order Sun.

Thanks for.

The results for sharing with you today reflect the straightforward and consistent nature of our strategy, which is 3 fold.

Execute in the near term and a focused and disciplined way identify and invest in future areas of growth and then finally reinvest the upside from our strong top line performance back into the business to accelerate that growth.

We believe that the Golden we're working towards our profession and that our success will be measured by metrics such as the number of lives saved and the level of transparency in the justice system.

This is why last quarter, we invited you to look at our business. The same way that we look at it with a long term view.

That's why we moved to giving to your annual guidance, because we're thinking about and building the business for the long term.

As you saw in our shareholder letter today, we are raising our outlook for both fiscal years, 2021, and 2022, which reflect our confidence growing global Smith.

We now expect to deliver between $825 million to 850 million in revenues in 2021, and 960 million in revenues in 2022.

We're also pleased with how our investments are seeing traction on 3 fronts and international sales channel with new products and a new non municipal law enforcement markets.

Rick highlighted the international strength now I'd like to touch upon the traction we're seeing in these latter 2 categories new products and new markets.

And real time operations.

Our strategic investments in companies such as block safety have done well and even more importantly, supported our fleet 3 go to market by allowing us to bundle and cross sell our solutions, which you can literally see on display today.

Our partnership with Sky makes their drones and autonomy software solutions available to agencies through axon.

It also paves the way for the integration of <unk> offerings with axon product suite, giving customers groundbreaking evidenced management real time, situational awareness and scene reconstruction capabilities.

We take our role as capital stewards, very seriously and I am thrilled to share. These exciting updates that demonstrate how our investments are creating real value for the company our customers and our shareholders.

And with that Andrea let's move to questions.

Thank you Joe on MTN moderated can we pull everybody into gallery you. Please.

Okay.

Okay, well on the gallery you great. So everyone is on camera member.

I remember that.

Okay, we'll take our first question from Jonathan Ho at William Blair Go ahead Jonathan.

Hi, good afternoon, and congratulations on the strong results.

I guess I wanted to start out with some of the comments around supply chain and whether youre seeing any specific impacts on product line and what some of the mitigation you mentioned or that you've put into place around supply chain.

Great question on <unk>.

Fly chain constraints are a reality for every manufacturer as we all know we're managing through it.

Lot of intention internally specifically from me and my team is that as we work to mitigate that risk some.

Some of the things that we've done to mitigate risks is we bought out.

That's been we bought in advance and kind of beefed up our supply chain.

And our guidance.

Alrighty, so you're good <unk>, we're just gonna assume you're gonna ask a question and if you're not that's fine Scott Bird from Needham. We'll have you up next go ahead Scott.

Great. Thanks for taking my questions and congrats on a fantastic quarter I guess lots of questions Uhm will settle on 1 here International you all highlighted international extensively on your prescription remarks, how should we think about that opportunity of holding maybe from a product perspective over the next.

1 to 2 years to the Taser sales look good cameras sales can really look good or all of the of Marcus <unk>.

Racing big massive opportunities or is it really going to be led maybe by 1 or the other or the maybe near or intermediate term. Thank you.

No I I think there's opportunity across the across the globe. Scott I think there's you know like 3 or 4 years ago on we started really.

Explaining how we're thinking of going to market, we focused on 3 individual markets. So you test failure in Canada and all of those continue to perform really well on what we're seeing in those markets says there's wider adoption of our product line. So body camps tasers, new developments and dams without body cams, meaning managing other types of digital evidence.

That are not generated by body cameras of course, a longer term, we're excited about things like sleep and interview room, and and records and so forth uhm. So in those tier 1 markets. They continue to lead the way as we expand our product portfolio and then there's growing opportunity and cheer to.

<unk> went to your free markets just on tasers in body cameras. The cloud is not a great fit everywhere you know across the world right now so in markets like that we're really focusing more on the taser side and building an installed base that we can go back to later and so you know body cameras on the cloud and it's working out we're seeing taser orders and very large.

<unk> volume, we expect that to continue it's not necessarily something that'll happen every quarter, but every year for sure and we're really encouraged by just the growth and in both <unk> and all a pack Amelia and in the Americas. So very excited to see international continuing to grow a lot of people put a heart <unk>.

Lot of hard work into it and we got plenty of runway left in front of us.

Awesome, if I might as as a quick follow up to that Josh is is you talked by the cameras, what's the reception been like for the L. T connectivity on the 83 is internationally obviously the reception I think it's been generally positive here quite positive. We we have the same opportunity to see sales. There just didn't know if their infrastructure set up the same way as her you'll safe now.

Et cetera is here so yeah.

Yeah, absolutely it's got better than expected is the short answer to that 1 we're seeing markets that we do not necessarily think about upfront is kind of our first candidates to deploy streaming technology and and and they're expressing a lot of desire to do so so are a product team is just doing a fantastic job trying to support as many vendor relation.

<unk> says, we can right now to make sure that we have a a viable kind of a L. T E partner and in each market, whether it's in Asia, Europe, or South America, and so we're seeing demand across all of those markets and we're very excited I'd like to call you know 1 customer in in the UK just signed our law.

Just international respond plus deal to date, which is R. Livestreaming package that happened and Q2 and we're very excited that you know there's a few more of those on the pipeline here.

Great I'll jumping on the cute congrats on a wonderful quarter again, thanks, a lot <unk> ex will take medium Marshall from Morgan Stanley they'll have an eating yeah.

Great Thank them and let me check on my congratulations.

Yeah. You noted that you were kind of doing your investments on that side are all sales team I just wanted to get a sense of you know have you started to see the opportunities out of the D. O. J is kind of mandating that the camera policy are those still things that will belt on the pipeline as we go along and then you know as do you focus on that side or on.

Market are there any unique kind of software capability is that.

That are you know that you could develop for that market. Thanks, Yeah, absolutely I. Appreciate the question I think if if this were a baseball game, we still feel like we're we're in the first inning here in federal So we have a lot of opportunity in front of US we've completed some large framework contracts and and we can.

<unk> customer sent out order against those frameworks, we're seeing the business throw across D O J and Uhm D. H S and other segments of federal we keep building the team to more specifically approached the different opportunities within the federal government. You know, there's just on the federal civilian market a lot of opportunity for.

<unk> body cameras, and tasers, and then longer term certainly building products, specifically 4 federal customers, including the military's on our radar. So a lot of growth ahead in federal and I really believe on the team to keep delivering in that regard.

Great. Thanks.

Okay, we'll take a question from willpower at <unk> Hotmail.

Alright, thanks for taking the question. So I I guess I've Gotta ask <unk> why then the car.

Would love to just to hear more about the early learnings on.

B O played 3 at a O L. P. R. What are you thinking that out here in the vehicles, though the early indications of comments from today.

You know from agencies, how do we think about the ramp of that product. This year in a couple of years.

Yeah. So first thing I would say is this is the first product that we've launched there was developed substantially through our new engineering leadership Johanns. My rents are ahead of engineering came on right before we launch day be 3 so that was he he kind of pick that up right at the end and he's really brought in some.

Very talented people on his team and they pushed pretty hard with me to get an additional 6 months before we took the product to market to really ring out any of the bugs. So we could go to mark that quality of its scale and you didn't want to jinx it by by Patting yourself on the back this early but much more on here from customer.

Is <unk>, you know that they're really happy with the design, but that the system does seem to be you know pretty wrung out in terms of you're pretty reliable on they're not seeing the types of bugs would be receiving some of our you know prior launches as we've.

You know, we we appointment on right balance between innovation and speed and and and quality and testing prelaunch, we as you've gotten bigger, especially on each new market.

Uhm.

You don't want and we're going to watch your new product on a new market you may decide to move a bit faster, but did you start to hit scale like in the Taser and now in the body Cameron sleep business, you've gotta be ready to launch at higher volumes and and really a higher quality. So 1 of these room about customers. It really like the fleet was designed clearly to be eating car vehicle alright.

Give me a car camera, whereas the previous 2 versions were really spin offs of our body camera hardware. The L. P. R is working much better than people expected on me I think we've had customers telling us they put some of the side by side with their more traditional and much more expensive license plate reader systems, and we're kicking their <unk> right now part of it's just the technology.

<unk>, having a color camera makes it we can do state recognition much easier a lotta the infrared systems struggle with that cause so you'll get a lotta misreads because you get the plate number right, but the state wrong or to be able to read things like temporary place, which are the pay per ones that are printed out on a laser printer.

We're really of the belief that.

We're able to prove that our products generate a real ROI for our customers and that they are costing themselves money by not deploying our products and so we're really confident that what we're building has real value and that will continue with or without federal supports and.

We're really focused on just continuing to build out those business cases.

Okay. Thank you.

Okay next to Keith <unk> with Northcoast go ahead Pete.

Thanks Christine.

Hi, Brian from operating maturation per quarter.

The quarter, a little bit on quarter was just after the quarter was there anything unusual or gotten margin a quarter ago.

Not be repeated for the rest of the year, we should be quick in consideration.

We had some large CW activity internationally, Keith, but I'd stop short of saying that it was so heavy in Q2 that wouldn't repeat itself in future quarters. We're very optimistic that the growth is going to continue in that.

We've got a very strong pipeline across both products.

Domestic and international on so.

We're really excited to get started in the second half year end.

Continuing to grow okay great.

Paragraph in the letter you talked about Mark hope on city and proper going on too.

Graeme partner.

As you can say that income setback in the loop on the dispatch or is this kind of planning on the evolution of the work that you guys would do on markdown price.

More complex there.

So I'll take that 1.

I would say organizationally to setback, we we never.

When our customers fail and in this case I think what we just learned together was we had both underestimated how much strain it was going to put on such a small agency.

We need hours per week from their dispatchers to be spending with our software developers and then just having it support to be able to.

Deploy and train people on software updates because it has been a moving moving.

Target and so this is 1 of those where I think we saw a great respect and great gratitude from Maricopa helped us learn a ton about dispatch and theyre going to continue to be a customer along much from a product line, we will see where it shakes out they have told us at this point they just need something that's more mature and stable. They just don't have the bandwidth to keep iterating with us.

In some ways that is a little bit of an accelerator for us.

We have a major city.

On a major county lined up behind them and we're also learning the needs of some of these big very high volume CAD.

Installations are just different than they are on the smaller agencies and we think that's where the volume of the market is and so on the bright side of this is allowing us to really focus in on refining.

Given the product for scale as these bigger customers.

It was a couple of your only city or you get several Gulf of partners there.

They were they were our first and our only.

They are still running on it they've just like I said, let us know they are fatigued and they've asked us to support them through the transition and we have it and then we're preparing we are moving towards deployment. We expect next year of a major city on a major county.

Thanks, Good luck.

Just to clarify there Keith we do have several cities under contract for dispatch.

We're just working with them 1 at a time here as we build the product and so <unk> is the only 1 line. There are certainly many behind that that are already signed up and contracted.

Thank you.

Okay next Mike Latimore from Northland Go ahead, Mike.

While 1 north and ex North I guess here.

You've talked on the past about growing cloud <unk> 15 million a quarter I guess is that still the goal.

So over the next couple of quarters will review the main driver of that growth.

Yeah.

Mike Great question.

Very much the plan, we're still anticipating about $50 million of growth per quarter. This year and when you look at the investments that we've been making in all the new products that are launching and the majority of them are SaaS centric software centric and Theyre getting traction that's what we tried to highlight in our prepared remarks on our shareholder letter, we're getting traction across the board, it's not any 1 product per se.

The strength across the you know.

The depth of products that breadth and depth of products that is going to keep driving that in the near term, it's going to be about $50 million per year, and we're hoping that's going to accelerate.

Great and then just on the supply chain shortages that are out there sort of absent those constraints, how much higher might the revenue to be in terms of the guidance is here.

So we've already factored in the supply chain constraints as we've talked about it we spent a lot of time internally trying to mitigate those risks and making sure that it's not going to disrupt operations in the guidance that we've given reflects any potential disruption we might see from supply chain.

I guess I was wondering if there is 1.

The supply chain, how much higher might've been.

Yes.

We've guided to is what we've guided to in net.

Yes, Mike I would just same day.

The guidance reflects a number of factors supply teams line, our demand pipeline and other line net.

Theres a number of factors that we take into account.

In the guidance.

Sure.

That's all.

Thank you.

We've got you, let's let's take our next is from Ryan Kimbrel from Craig Hallum, Sorry, Ryan as their first on second Yeah, Hi can you hear me, yes, Okay. Great. Just 1 from me I just wanted to touch on on <unk>.

Conversion rates I am not sure.

<unk> on track conversion, but I'm wondering how how.

Thats trended over the last say year and a half and if you want to be more general have you started to convert more of those quality lead says your customers budget situation has become a little bit healthier.

So thanks for the question Ryan I think we're not going to disclose too much on conversion rates other than to say.

Whenever there is an opportunity for body cams cloud tasers dams, Rms or can we expect to be competitive. It's a very very competitive market. There is a lot of vendors in it but we.

We do our best to position our products in a way that the customer will value the most and.

Certainly we expect to win we want to win we've got a competitive team and.

That's that's the tone we want.

Alright fair enough. Thanks, guys Congrats again.

Wondering if any of you guys have pumped back into the kiln.

It shows a simple ahead, neither Henry each share.

Yes.

Well, we can take out okay great.

We will have Rick close us out.

Alright.

Radio net.

Pretty fun doing this from the fleet vehicle that was not planned, but we're at a customer site and the customer wanted to keep going on.

I think it was the right call. So this was an unexpected benefit. We appreciate you know the new phases. We appreciate those you've been with us for a while obviously the business is really doing well and we're excited to see what happens in the back half of the year as Josh and his team continue to go out and bring in the revenue on our development teams keep watching.

Alex on the new products are scaling just a lot of great stuff going on a lot of positive energy and we look forward to seeing you all on our next quarterly Xu So everybody stay safe and let's get this delta very behind us to get back.

Back to normal and we can.

Thanks, everybody.