Q3 2021 Axon Enterprise Inc Earnings Call
Makes total sense there are so many types of customers in the early days of axon product adoption U S. Federal law enforcement corrections buyer in E&S enterprise security and consumers.
But what does that mean, the Cuba still missing some squares for instance, we sold body cameras and law enforcement in Latin America, but we arent selling to commercial enterprises, there yet so what you're picking up on Angel is that we have optionality to grow our Tam as we invest in new markets unveil new products four expand either of these axes into certain geographies for instance are.
<unk> $27 billion Tam considered fleet to be a product sold only into English speaking markets, but we're actually shipping more broadly now. Okay. Then also justice as new we've never told investors about that one before should we talk more about that good catch. So justice is a software category that we're bringing out of sculpt mode axon CEO and founder of <unk>.
Smith can explain.
When we say justice, we mean software to help court system, such as prosecutors and defense attorneys. We believe we can streamline the discovery process and we're joining forces with the justice system to make it more effective fare and deficient not only is our goal to save attorneys time, we will also shorten the time that people sit in jail waiting for.
Trial this fits right in with our mission Exxon's mission is to protect life.
Her through and accelerate justice to do this we must optimize discovery.
Probably noticing the line between the virtual world and the physical World continues to blur as people increasingly live and online realm more digital evidence is creative people are even committing crimes and the metaphors like fraud, and theft, where does axon coming in more than a decade ago. We entered the digital evidence management CAD.
To make body cameras affordable and feasible for all agencies.
Each body camera generate hours of police videos every day.
If you think about it and agency with 10000 officers can easily generate 40000 hours of video. After just 124 hour period, we needed to help agencies manage all of that video developing a cloud hosted solution with step one step two unfolded as we grew to help agencies manage more types of digital evidence such as documents.
T V video and mobile phone footage, we've invested heavily to make axon evidence a category leader.
Public safety agencies need all this evidence into the Justice system step three is to help the justice system deal, but mountains of digital evidence, which has created mountains of work for attorneys a typical case used to be a police report maybe a few photos and some physical evidence like bullet casings or bloody clothing.
Today. The case will include dozens if not hundreds of cell phone photos hours of body cameras in car footage all of which must be cataloged and reviewed.
Highly trained attorneys are telling us theyre spending a third of their day on clerical work, we're enthusiastic to share more about this software category in the coming months.
Tuned for a product launch and customer announcements.
Loved the product use rec, okay. So let's go back to Tim for a moment this bigger Tam with new product categories, and new markets, all sounds very exciting, but it also sounds like a lot of investment Rick how should investors think about leverage.
Financial discipline remains Paramount.
Turn to our Chief Financial Officer, Gelato side, he has been driving capital allocation disciplined since joining Exxon in 2017.
Axon has a strong sense of accountability.
Our customers are counting on us to deliver lifesaving products and our credibility with shareholders is vitally important in.
In 2017, we charted a new financial course with strong topline growth combined with margin expansion.
We surpassed our own expectations in delivering on that vision.
Estimate to the stellar execution across all markets.
Going forward, we're targeting revenue growth CAGR of 20% plus while our underlying business line deliver adjusted EBITDA margins of 30%.
The way axon and invest in future growth, while also demonstrating leverage is to target the rule of 40, where the some of our topline growth percentage plus our adjusted EBITDA margin percentage equals or surpasses 40. This metric is typically used to evaluate pure SaaS companies and has set a high bar for our entire business.
Which also includes hardware.
It's a bar that we continuously beef.
Businesses, we're building are highly cash flow generative.
Underlying software gross margins have never fallen below 80% of our SaaS business is high growth high margin high retention and delivers annual recurring revenue at scale.
Customers can expect us to continue to make disciplined investments for growth and unlock more of our ever expanding Tam.
We will finish up by showcasing our growth runway.
One thing I've noticed is that our investors frequently ask us about Tam penetration how should we think about it it's totally a fair question and its best answered with data. So when you think about our $52 billion Tam we're less than 2% penetrated globally. This is simple imperfect, we're approaching 1 billion in annual revenue and our Tam has more than 52.
On slide here, if we do a deeper analysis, breaking it down by product and by region and consider the potential user base you can see how we think about the opportunity.
Product growth driver number one is taser, we believe the rest of the World is 10 to 20 years behind the U S. In terms of Taser device adoption and you see that in the penetration rates here, okay, but why is taser penetration under 25% in the U S. Taser is an iconic brand it feels like our devices are everywhere, yes, you're totally right. The taser is highly.
<unk> penetrated among municipal bond Fortunately in the U S. But the rest of the domestic market for professional users is largely untapped Brendan federal law enforcement and corrections are still in the early stages of adoption and we're also seeing opportunity in enterprise level private security globally. We believe we have room to more than.
Quintuple the professional Taser installed base and we believe that future devices will kick off new waves of adoption, let's hear again from Rick who founded teaser in his garage in 1993.
In my 2019 book at the end of killing I laid out our moonshot before this decade is out we will deliver a non lethal weapon that will outperform a traditional handgun in terms of reliable stopping power in 2020, we accelerated development of the next taser device to deliver on that vision sooner every week I engage with our customers.
On the front lines of public safety. They tell me that they desperately need better tools. We're proud of how we've made nonlethal taser technology mainstream but our customers are still forced to rely on their firearms, all too often with tragic consequences, we knew we needed to move faster.
I can tell you, we're making exciting progress.
I believe that our next generation device makes a giant leap toward our moonshot and I see a path to taser devices, becoming an officers primary defensive weapon, especially in international markets, where firearms are not readily available to the general public. Our mission was born of an all too common tragedy. After two of my friends, who shot and killed.
Their lives permanently ended and the person who pulled the trigger.
Now spending his life in prison.
Well its ruin lives and we aim to obsolete.
In order to truly obsolete the bullet we must also offer solutions to private individuals. This is a growing area of investment when we say taser is less than 25% penetrated in the U S and even lower globally, we need among professional users at the same time, one of our largest areas of Tam growth is income.
And sooner the penetration in consumer is nearly nil today historically, our law enforcement and consumer devices have been completely separate the next generation devices move to one platform. So that the same technology that underpins. Our next generation professional devices will also power consumer devices. We also intend to offer personal say.
P solutions, including mobile applications stay tuned for more we're super excited about our prospects in the consumer market.
That's so exciting we are all about were effective and reliable personal protection, let's get back to our runway.
Sensors includes our body cameras, which offer GPS and live streaming you can see we've been strongest in the U S and English speaking Commonwealth, where theres, yet still opportunity to grow not to mention the rest of the world.
<unk> revenue officer puts it there is more ground to be one that has already been won and body camera. Our latest fleet in car camera with live streaming of automatic license plate recognition, which began shipping. This year also drive sensors growth that captures our hardware penetration rate now investors know that our SaaS business has grown over the past five years from nearly.
Nonexistent to now approaching $300 million in annual recurring revenue you might wonder if there is still room to grow let's take a look.
Oh wait a second southern penetration seems low given our growing user base yeah. It's a good callout angel so before on hardware. The data presented showed user penetration what percentage of potential users have our products for that.
That software and what we're showing you here is dollar penetration what percentage of potential dollars we are capturing.
Because new users tend to grow their annual dollar stand with us overtime as we grow the platform and deliver more value.
Frequently see our customers double triple quadruple and even quintuple their annual software contracts upgrades new features.
There's room for us to continue moving our customers up the value chain.
And the investors can see an effect of this and our strong net revenue retention rates on the SaaS business.
You can think of our SaaS software is built on three categories today digital evidence management productivity and real time operations and Theres more to CAD two aren't any final thoughts.
As you can see we're in the early innings of global scale, which we believe we can capture it with disciplined investments.
We're introducing new products, while unlocking new customer market and establishing footholds in new geographies.
We have a proven track record you know we're very excited about our trajectory. Thank you for joining us on our growth journey and investing in our mission to protect life.
Make sure you check out our shareholder letter and tuned into our earnings call for more on the quarter and our outlook for next year.
Okay.
Okay.
Okay, Alright, great job Angel and Andrea and her whole IR team you guys. Just really did a nice job on that video hope our investors enjoyed it. So as you can see from our results. Our teams are continuing to execute at the highest level.
That's the strongest growth indicator is record bookings of half a billion dollars in a single quarter as book things eventually flow through to revenue, we're on pace to become a substantially larger business in the coming years and the momentum is really strong with sales contracts booked up 70% year to date compared to last year and we expect another record bookings.
Quarter in Q4.
I'm proud of the results we're delivering in 'twenty.
Our 2021, and even more energized by the opportunity in front of US we've demonstrated our ability to scale the business and drive leverage in our model now we're expanding our growth story as we continue to introduce new products sell into new customer market segments and add sales channels across geographies today, we're addressing an even larger tam.
As you saw on the video our current estimates point to a total addressable market of $52 billion with our topline projected to reach at least $1 billion next year, you can see theres enormous white space ahead.
By way of example in early October Exxon had its largest ever presence at the association of the United States Army Annual conference in Washington D. C. This provided us with an opportunity to showcase our Atkins transformative solutions for law enforcement position us to disrupt the U S defense market, giving us a seat at the table to begin influencing.
The military response towards of the future.
As I watched the helicopters evacuate our embassy in Kabul. It struck me that the United States has effectively not achieved durable strategic success in our last three wars and it's not for lack of sufficient with validate our military is the greatest fighting machine in the history of the world with the most lethal and precise weapons.
Yet the more we killed in Vietnam. The more we lost the hearts and minds of the very people, we needed to win over and the same phenomenon played out Iraq and Afghanistan, we can no longer kill our way to success and modern conflicts and I believe the ability to capture bad actors will become ever more strategically valuable and we intend to lead the way.
As the world moves at a faster pace axon is remaining at the forefront of bringing transformative technologies to market, where innovators that are core.
You can see that when you look at our history, we signed the incorporation papers for Taser at my dining room table 28 years ago and since that time. Our mission has remained unchanged, but our organization has significantly evolved and today, we have a broad ecosystem of public safety products.
We have continually found new ways to serve our customers through disruptive technologies and software even when they met with initial resistance.
We've always said extremely high bars for ourselves at axon, but we've found that great challenges make us rise to meet them.
Earlier this month, we held our sixth annual axon accelerate conference right here in Phoenix.
And it sure felt great to be back in person with all our customers and colleagues. The theme of this year's conference. The topic. My opening keynote was that change is inevitable and today technology is moving at an exponential pace.
From virtual reality training to our drone program axon air to automatic license plate reader technology transcription or unlocking the power of technology to reach our north star of Obsoleting, the bullet and outperforming the nine millimeter pistol and stopping power by 2030.
Did it accelerate we introduced our next moonshot together with our customers and public safety within the 10. The next 10 years, we aim to cut officer involves shooting by half we.
We believe we can accomplish this with new technologies, new training procedures, new policies and even new regulations to guide the way.
In fact, I used to accelerate as an opportunity to introduce a regulatory framework. The three laws of first responder robotics to begin a critically important discussion of how we use robotics not to kill each other but specifically to avoid harming each other with new ways to capture dangerous subjects.
Any decision that impacts the human subjects robot must be made by an authenticated human operator, accepting legal and moral responsibility. That's our first proposal.
<unk>.
There should be no lethal force.
The escalation should be the primary goal and the minimal use of force to stop a threat.
And then the third is that any incident of force deployed by a robotic system should be reported and full audio video and all user data and reviewed by an independent oversight Committee.
I'll be hosting a read at HMA in December to gather public input on these guidelines.
We're proud of our history of introducing mechanisms of control and accountability to ensure that powerful new technologies are used for good from the data logs and the taser to the very existence of body cameras and or ethical product framework that we use to guide our LPR development and now we're leading the way to set the regulatory framework years ahead of advanced non lethal robotics.
Technology, we're excited to continue to blaze, new trails in our mission and killing.
We were fortunate to close out three days, a robust interactive dialogue at accelerate with a keynote.
Where I got to interview former President George W. Bush he delivered an incredibly inspiring talking expressing gratitude to public safety officers and calling for civility to all citizens, which is squarely aligned with our mission to protect life captured truth and accelerate justice.
And at the end of today's call, we're going to play for you a very powerful moment from accelerate so please stay tuned after the Q&A and with that I'm going to hand over to Luke Larson our president.
Thanks, Rick let me start by echoing your sentiment around accelerate we believe it all starts with creating a great experience for the customer which means more than just listening it's anticipating their needs by mapping technologies two insightful opportunities the level of customer engagement. We saw this year is a testament to the transformative power.
The public safety platform, we've built we're obsessed with creating value in a unique way that no one else can buy solving real problems with solutions people are willing to use it was a phenomenal week learning from customers from all over the world I could not be more excited for the road ahead huge shout out to our marketing sales product teams and really all the employee.
He is at Exxon and made such an impactful experience.
The business continues to grow at a fast pace, which means recruiting and fostering the best and most diverse talent is critical to our success our ability to retain top talent not only allows axon to move increasingly closer to accomplishing our mission, but also allows us to establish new goals along the way to do this we need to.
Creating an organization that is future proof resilient to disruption at the forefront of innovation. We are currently hiring over 300 roles and we haven't embraced remote work as an opportunity to expand our talent pool pulling from the best in class resources around the globe, how our employees spend their lives matter, which is.
Why we put a great deal of consideration is the culture, we are trading and the values, we want to embody as we build the future. This means we're doubling down on our Jedi in learning development initiatives. The teams we built our unparalleled in its incredible watching the collective hard work and dedication to our mission. We're laser focused on how do we attract roots.
<unk> and develop the best talent, you know someone great that wants to make a great impact send them our way as we round out the year, we feel great about our product pipeline, we're finishing 2021 with exceptional bookings, which includes $30 million of Taser seven revenue that we expected to deliver in Q4, but is now shifting.
Into the first half of 2022. This is the result of an industry wide chip shortage that impacted our taser seven platform the supply chain conversation, it's universal right now and while we are not immune our teams are definitely navigating the situation, we have incredibly strong relationships and a long history with our <unk>.
Supply chain partners, who are invested in Ashland's mission and are aligned and helping us meet our pipeline teamwork is harder than it seems on the surface and as our company scaled globally. It requires a consistent commitment to operate as one team. We're proud of our supply chain teams, who have done tremendous job, helping us manage through the global supply chain prices.
While we experienced some delays and the potential for interruption remains we have line of sight to clearance in the first half of 2022 and continue to be confident in our ability to meet the needs of our customers and deliver on our annual revenue guidance. In spite of these challenges I want to reiterate we have a line of sight clearing the backlog.
In the first half of the year, we feel great about our pipeline and bookings and what continues to be a dynamic environment now.
Now I'll turn the call over to Axon, Chief Financial Officer Jawad.
Thanks Luke.
Also want to start by echoing the excitement over our accelerate conference meeting with our customers partners and employees from around the world with Super Energizing. It reinforced for me that axon sits squarely at the intersection of social Justice and advanced technology with the mission that Galvanizes all of our stakeholders.
These stakeholders include you our investors, while we werent able to offer an investor track at accelerated this year, you've been top of mind for us in light of feedback we received at our last proxy we've been conducting a listening champagne together more specific feedback from our investors on our approach to governance and ESG.
The input we've received has been invaluable and we look forward to sharing the outcome of these discussions in the coming months.
Now over the past several years, you've seen us invest aggressively in R&D and channel expansion, we've deployed capital to strategic partnerships, putting it early is taken the ground on and meet emerging technologies and trends. These actions have enabled us to unlock transformative new products like VR and respond new customer market segments like federal and Justice.
And new geographic regions worldwide.
Today, we're excited to share that as a result of our strategic planning and continued investments we're projecting substantial runway for growth with a new and updated total addressable market or Tam or new Tam is almost double the last one that we shared with you while our penetration in this new Tam is still relatively low it's absolutely our intention to serve these markets with the investments we have.
In flight, which will see us bring exciting new products to market over the next 18 to 24 months.
There are two areas in particular I want to highlight.
Federal we hired Richard Coleman to run our federal business in 2018, and he has since built a stellar team whose performance has exceeded our expectations.
We now view the federal Tam for axon is a $9 billion opportunity across taser devices body worn cameras terms and other software.
We count among our customers today several of the branches of the federal government, including the Department of Justice The Department of Homeland Security Customs and border protection and the drug enforcement agency.
We've also been driving adoption of our new multi jurisdictional sharing feature which is enabling state and local agencies to seamlessly share evidenced with U S attorneys to.
To better serve federal customers, who are sensitive law enforcement information, we've made an investment to ensure our software complies with the civilian fed ramp high and the defense impact level five security standards.
These security levels, we anticipate being able to offer a dems solution to all 90, plus federal law enforcement organizations across civilian and defense agencies.
After a strong third quarter in which we added $35 million in new deals. We are on track to have another record year for federal bookings.
Next I want to briefly Doubleclick on consumer axon has since its inception always had a consumer business, but it has historically not been one that we've devoted meaningful R&D too.
With the ongoing development of our exciting new Taser device technology, we've committed to releasing a host of new personal safety devices over the next few years that will help advance our mission to truly obsolete the bullet.
We also intend to begin offering personal safety solutions to mobile applications over this timeframe.
In our shareholder letter, we highlighted a taser device penetration is less than 25% in the U S and even lower globally, but that represents the professional user penetration in consumer is virtually zero and an $11 billion market, which means we have tremendous runway ahead and justice segment alone.
To be clear, we're still very early innings in consumer, but we have the alignment the technology the strategy and most importantly, the mission to drive this growth.
Now before we open up the call to questions I want to highlight three themes that we'd like you to take away this quarter.
One we're significantly underpenetrated on our growing global team.
Two we are delivering against the rule of 40 investing for growth while achieving leverage.
And three our year to date results and outlook for 2022 or a waypoint towards building a much larger company that is synonymous with public safety and protecting lives.
As we look ahead to 2022, we're carrying a ton of momentum into the new year.
Our 2022 revenue projection has strengthened to at least $1 billion on top of what we expect will be at least 25% year over year growth in 2021.
We added a record $28 million in Aero or this past quarter to bring our total to $288 million.
We have an exciting runway ahead of us and we look forward to sharing updates on our progress in the coming quarters.
And with that Angel lets move to questions.
Okay. Thanks, Jordan team and as Rick noted as we move into Q&A I would encourage you all to stay tuned in half the time, we have a special surprises.
For you at the end of today's call.
Moderators can you bring everyone up into gallery view.
Yeah.
Okay, Great Alright.
Our first question comes from John Josh Reilly at Needham Go ahead, Josh.
Alright, Thanks, guys nice job on the quarter here.
Maybe we'll just start with the $30 million shift in Q <unk> revenue.
When do you expect all of that.
Hit here in Q1 or will be more evenly spread out through the first half and then what are the puts and takes on the timing of that revenue.
Yeah. Thanks, a lot for the question Josh I think at this point, we do see it.
Hitting in both Q1 and Q2 and certainly.
It's a challenging supply chain environment across the world right now and the team's doing a great job navigating through that and so.
We're hoping we can fulfill as much of that in Q1, as we can but realistically it will be close to our atg.
Okay, Great and then maybe just a follow up on fleet three.
Launching here is there can be any impact to that production ramp.
So that their supply chain challenges and then is there going to be any initial impacts gross margin.
As a result of this ramp.
Next coming in as well so I'll, let Joanne answer the second part of that question, but unclear three the demand has been very very high higher than we've ever seen for our in car video products before and so we are shipping a record numbers of fleet three.
As compared to fleet, one and fleet two and we expect that to continue throughout next year.
We are oversubscribed for the product right now and I think that speaks more towards the demand than anything else, but we do expect to ship a large.
Quantities relative to previous versions in Q1, and moving forward I'm sorry in Q4 of this year and moving forward in Q1.
And then Josh your question on gross margins, we are not expecting at this point any impact from fleet on gross margins.
Yeah.
Awesome, Thanks, guys I'll move on here.
Okay. Next question comes from analysts Jonathan Ho of William Blair Go ahead Jonathan.
Hi, good afternoon, and congratulations on another quarter of strong results.
If we look at your revised Tam estimates can you talk about maybe why the decision now to sort of update the Tam and maybe what underpins. Some of these assumptions since it seems like the markets appear to be a lot larger than you previously thought.
Yeah, I'll start with that one Jonathan Thanks for the question. So we've been as you know we've talked about for the past few years investing for growth beyond the taser devices and body cameras and we've given you flavors here and there of the markets that we're aiming towards the new products and segments and but we wanted to do is reflect accurately how the business the business is ori.
Wanted today, our Tam has been expanding in the past few years, but that's also because the lens that we're looking at our business through has been widening as well and things like VR a bigger presence in federal more of a focus on consumer. These investments are in flight now as I had mentioned there is still very very early innings, but the team really speak.
More to our ambition we wanted to align.
We're thinking about our Tam opportunity with how we're investing for growth today, and we wanted to make sure that you.
You guys are thinking about it the same way that we are.
Got it got it and then when we look at sort of this revised Tam opportunity.
Are the investments that you need to make to sort of unlock.
These additional market what are the most impactful ones as you can just highlight that for us. Thank you.
Yeah. The great thing about it is it's not a lot of incremental investment the beauty of excellence business. Today is that the technology. We have for Taser for example rates we've been investing in Taser for quite some time, we've talked a lot about the next generation Taser technology, we're very excited about and that technology is going to be able to serve our domestic and international law enforcement market.
It's going to be able to serve our federal market correction enterprise security, it's going to.
In a large way be able to translate to consumer as well and so what we're really looking to do is gain leverage on the investments that we're already making the same thing holds true with body camera and Dan as you look at the body camera and dense product Thats really an enterprise solution that happens to be oriented towards law enforcement today and is geared towards law enforcement and we think that there are other use cases for that technology and.
There are new areas like VR training that we are making a new incremental investment in that content there.
There the demand is extremely strong and in drones here, we're looking to partner in a little bit more and.
Find the right partners to help us get into those markets, but what you should read into this is that we're not looking to really expand our to get too far ahead of our skis as far as investments into new technologies, it's really driving leveraged from the ones that we have.
Fantastic. Thank you.
Okay. Next next question comes from analysts, Brian just ball at Raymond James Go ahead, Brian.
Okay.
We also have asked it on the call. So after they still have to sort of ask the question go ahead and do that as well.
Alright, maybe we'll give you both the second and we will go to Paul Chung from Jpmorgan.
Okay.
Hi, Thanks for taking my question. So just on your <unk>.
Annual software contracts.
What the customers want more of how are you thinking about the dynamic between.
The new seats and increasing wallet share.
And what are some of the upcoming features we should expect to conduct further trying about wallet share.
So Paul Thanks for the question I think the good news here is that the.
The product team has done a fantastic job of delivering several value added feature sets over the last couple of years and we're now seeing the market really starts to value. Those one of those is performance which measures.
Now officers are complying with their agency policy, there's updated redaction controls there is a product called standards.
Which is kind of our first module of our record product and ultimately.
As we bundle these solutions together in our officer safety plan offerings, we're seeing more and more customers are by those offerings. In fact, you've seen about double the number of licenses purchased this year. So far on that plan as last year, all the Q3 year through three quarters I'd say so.
There is a lot of runway ahead for customers to continue to adopt a lot of these feature sets that have been released and our focus is really through customer success as well as sales, making sure that we do a really good job.
Showing per train the value that these new features out so that that'll be kind of our biggest.
Focal point for our software sales team over the next year is moving more and more customers into those offered and said that we're certainly confident in our ability to do so.
Okay, Great and then on the International front, you saw very strong growth there, particularly in Europe.
Are you seeing pockets of strength, there in Europe, and where you're seeing the muscle minimum and then how is the traction been in Asia, you called out that contract there in India any any comments there. Thank you yeah, absolutely. Thanks for the question so.
Those who have been with us a while will recall for a long time, we're really disciplined about proving our international strategy and what we call our tier one markets the UK, Canada and Australia, we feel like we've earned the right to expand beyond those markets now and we've hired out really talented teams.
In several markets around the world and EMEA, specifically, we're seeing exciting growth.
The Netherlands, Italy, and Spain, and Germany and France.
In addition to India where were we.
When you look at this first contract with Gujarat.
Kind of the first indicator that our strategy is working and we're going to continue to build out a team there across one of the largest police in markets in the world. Another place, we're really seeing a lot of successes, Brazil, which three or four years ago, we were barred from selling into it now.
They are again buying Holt CWC and our video devices. So we've gotten to the point now where both our sales team has localized into some of these markets and our product team is doing a fantastic job supporting our customers in those markets.
To round out the edges and achieve that last mile of product market fit and it's really coming together nicely for our international business.
Okay, we're going to go back to as Brian just Huawei from Raymond James Go ahead, Brian.
Yes, thanks very much.
You've had several really large wins here over the course of the year and some big deployments coming up with body cameras as well as a lot of investments to make to continue to support that Tam market opportunity out. There can you maybe talk about how we might see the margins ebb and flow over the next couple of quarters as you start to bring those.
Customers live and continue to invest in the business.
Yes, Brian Thanks for the question I'll take that so over the long term want to reiterate that we're driving the business towards 30%.
EBITDA margin, 70% gross margins over the next couple of quarters I guess, the best way to think about it.
When we start off a year, we have a comprehensive list of investments that we want to make in product and channel operational excellence et cetera, and we set our revenue targets and then determine which of these investments that we're going to fund as you might imagine not everything gets above the line not everything gets a green light as we over deliver on revenue throughout the year we.
Unlocked funding for those items that were below the line because we do believe that we want to reinvest back in the business. We've got a tremendous opportunity to get after these new product segments and channels and so forth.
Had we not had $30 million of revenue pushed into 2022, our adjusted EBITDA margin in Q4 would've stayed roughly flat to where they were at the end of Q3, but because we've been unlocking funding throughout the year for these new initiatives. We're now expecting to finish the year at the EBITA levels, we've guided to which translates to roughly a 20% adjusted EBITDA.
For the full year.
And then for next year, we're going to reset now in two things to note here. The first one is that the new initiatives that we're funding things like VR training and federal next generation Taser body camera Records and dispatch fleet. We're super excited about for all of these areas demand is very strong and just like you saw in <unk> 2021.
Youre going to see any over delivery fall right to the bottom line, you'll see our margin tend to tick up and the second thing note is that we're in the budget process right now we're going to treat 2022, just like we've been treating prior year's which is we're going to make sure. There are going to be things that are below the line. So the Q4 margin.
Right, even though it's going to be slightly lower we're going to do that as an anomaly.
Great I appreciate that and then the IRR that you booked in the quarter I think sequentially. It's about as strong as I can remember any specific shout outs. Two particular lines of software I know the VR stuff has been had a lot of momentum over the course of the last couple of quarters.
We think about some of that strength and what it might look like as we carry that momentum into 'twenty two.
Yeah, let me take that one at least to begin with so we're seeing.
Improving attach rates on our premium services like response on which is the live streaming of body cameras. You know on our last call. We talked about out Charlottesville use that capability as they were taking down the controversial statues to be able to seaworld officers weren't be able to tap into live video stream.
Theres also a LPR of course fleet and.
And respond as part of our new OSP seven plus premium.
Excuse me, which is.
The plan that includes VR in prescription and so I think we're also seeing an improvement in attach rates in our highest premium plan. In addition to those individual elements.
Yes, that's right it actually is.
Brian just a form of life. It is a record for us it's the largest single quarter increase we've ever seen and there are.
I thought so congratulations I'll jump back into queue guys.
Yeah.
Okay. Our next question comes from keeps estimate Northcoast go ahead Keith.
Hey, good afternoon, guys and congratulations on the quarter. Once again appreciate all the color on the.
The Tam and the penetration as we look at your change of weapons. They had a phenomenal quarter. This quarter can you provide a little color or context in terms of the percentage of weapons are being sold as replacement a refreshed for instance, really into new users.
Yes, Thanks, a lot for the question Keith Nice to hear again ultimately for US I think.
Three or four markets right now that are that are adopting taser and.
The answer to your question is really dependent on the market for U S state and local ultimately our motion. There is more of an upgrade motion where folks are now the majority of the market is upgrading from.
Our legacy Taser to the new Taser seven now.
Because we sell cameras in phases and the same bundles now we are seeing an uptick in that market in terms of first time standard issue users which is promising.
You can see continue to see that be.
Well into the future and then in other markets like international and Federal and Enterprise Security, we're seeing more and more first time Taser users users. So on international for example, we have a taser first strategy, where we really want to bet on ourselves to deliver a really fantastic customer experience to a customer we've never worked.
Before.
Adopt our catering and then.
There are two later once we put some equity bank with those customers and go back and sell them additional products from our portfolio and I think federal is a little bit of that as well and then same with our with our private securities channel So little bit of a mixed bag, depending on the market but.
When we see high demand across all of those markets. So you have to aggregate all the numbers would it be 70% is going to be refreshed groups at new or vice versa can you ballpark that for me.
I don't have it off the top of my head Keystone project.
One of them avoid.
Any estimate until I got the data in front of me. So we can come back with something like that.
Quarter fair enough I appreciate that.
Just as a follow up on the supply chain.
Any chance on supply chain issues will expand beyond just the teams your weapon this quarter into the body worn cameras.
So I'll take that one key we feel really good about our pipeline we've been working closely with all of our suppliers who've got signed contracts and committed deliverables into Q1 and Q2 and so at this time in the first half of the year, we feel really confident we're going to.
We're going to get rid of the backlog on tasers and keep the momentum going with our full product portfolio now I would add the caveat. We are in the middle of a global supply chain crisis. Our team has done a phenomenal job navigating that and I think our supply chain strategy has proven that out over the last two years and we.
Feel really really good about it okay, great. Thanks I appreciate it thank you.
Yeah.
Thank you Keith Okay. Our next question comes from Jeremy Hamblin with Craig Hallum Go ahead Jeremy.
Thanks, I'll add my congratulations.
One of the.
First start with <unk>.
Question, I think probably for Rick.
<unk> development team.
So with this ambitious target to make the bullet obsolete by 2030.
Right. It's been a it's been a few years now since Taser seven.
How many iterations of the team.
Laser product do you expect to rollout between now and then and that eight year period.
In getting to.
That capability, we're stopping power can match or exceed.
Traditional handgun.
So I would say two or three product revs between now and 2030.
Would you go to sell them and I don't know if we would do.
Just to be really specific I think by 2030, our goal is to outperform the nine millimeter.
And I think that's two or three product gens out.
Okay and in terms of the <unk>.
Investment in your R&D.
That needs to be made to achieve a goal like that is that something that you feel is going to accelerate from what we.
It had been growing at over the last let's say four or five years.
No not necessarily you'll be taser developments or.
Continuing to move along in that business as it grows as funding the R&D.
Also you know would accelerate and start to talk about robotics.
And part of this as well as being able to remove operators from harm's way and some of the most high risk scenarios.
And to be able to in past data target.
So in addition to the handheld Taser devices, we know our customers also like if you have a guy in a barricade situation who is armed or.
I was just talking with a major police chief earlier about incidents like.
Somebody would have gone standing on his porch, you don't Wanna get within 25 feet of EM.
Those cases being able to deploy a long range system.
Ultimately I've come to believe that doing that through some sort of robotic is better than trying to develop some long range rifle.
We'll be part of the net solution that it will take for us to cut police shootings in how we think part of that better weapons that are up.
The human can operate themselves Taser eight 910.
And then also new capabilities, where they might be able to engage particularly dangerous subjects from further distances or even outside of the building.
Alright, that's a that's actually a good segue into my follow up question, which is.
Personnel costs are typically the highest expense or most police departments.
This has been an incredibly dynamic two year period in.
In law enforcement.
Vaccine mandates civil unrest that we've been going through.
Just wanted to get a sense for the insight that you're hearing from them as to what.
One staffing.
New patrol officers, whether theyre getting the personnel.
They need to.
The evolution with Exxon as a partner in how to potentially.
Stretched the police force.
That's deployed.
In public domains.
A little bit better or more efficiently so that they can maintain their budgets.
What is can you just enlighten us a little bit more about what youre hearing.
Police chiefs.
Yeah, well I think one of the things we can do to best help them stretch their budget is to free officers from.
From having these fairly expensive professionals spending.
Spending a lot of time on data entry jobs and a lot of the work that we're doing.
For example in records may not read as to directly on Obsoleting, the bullet, but it can read very directly on helping agencies leveraged their staff I mean, effectively we could double their productivity if officers didnt have to spin out their day sitting at a laptop typing up records.
And so we're doing a lot of a lot of work there on the back office to connect all these centers we have in the field.
All the way through not just instead of reporting system in an agency, but now moving over into the Justice system, where you started to talk about how where we're finding there's new efficiency needs for.
For prosecutors in courts that are receiving.
A deluge of digital evidence that we're producing there are customers are not producing and handing off and thats, creating new and other interesting areas, where we can solve a lot of these efficiency problems that they translate very directly into <unk>.
Budgetary gains.
Are they getting adequate staffing or are they having to rely on even more as a partner.
Because in some cases it does sound like staffing has been a challenge to get.
I think there's a lot of people who feel like they can.
Attack, maybe isn't appropriate word.
Publicly and Theyre not working to sign up for the job anymore.
But maybe.
It may be an opportunity for axon to again stretch those resources. It. We certainly are hearing that recruiting is particularly challenging in this environment.
I do think we're also seeing a shift in public sentiment in Minneapolis.
The bill to replace the police Department did not pass I think we're starting to see a shift in our customers are starting to feel it as well where.
People are just realizing that law enforcement is a really a critical function and we need to.
Have real solutions and that requires thoughtful investment not not defunding, but ultimately as it is more challenging for them to hire than productivity tools do become even more important.
Thanks for the color WILDBERRY best with your question. Thank you.
Yeah.
Okay. The next question comes from Eric Lapinski at Morgan Stanley from it Eric.
Hi team. Thanks, maybe if we could go back to the adoption, you're seeing with records and respond I guess, just curious our customers generally upgrading to those solutions as they are.
Moving to higher value bundles with body camera contracts do you see that some customers actually have room in the budget to do that ahead of their existing contracts.
On kind of the cadence of adoption understand it's still early for most customers.
Yes, absolutely Eric Thanks for the question and.
Similarly, we believe our products work best together right and we believe that digital evidence will be at the heart of every policemen for certain where are you seeing that trend and we expect that total only continue.
So over the next five to 10 years and so right now most of our customers are buying our records and the same.
Offering.
Similarly, our safety plan offering.
That strategy is serving us well right now.
We're doing our best to balance more and more customers signing up for the record product with nailing the experience for our first adopters.
We're hearing more and more positive sentiment from our early customers and record. It's a tribute to the hard work our product team is doing to deliver that experience and we.
We really believe that stacking one customer.
Onto the next and just doing that enough times that really positive early experience and records is what's going to lead to that.
Significant adoption across the market leader and so that's kind of the most push and we're focused on for now.
Thank you and then as we think about consumer and just as you're building out prospects for channels there.
Do you expect most of that to be kind of in a direct model or are there opportunities to expand into storefronts. So I guess, just then and how we think of the differences of sales model is kind of the consumer opportunity really starts to ramp.
Yeah, Thanks, Eric I'll take that and maybe turn it over to Rick for some additional color to today, it's both today, we sell through distributors.
And direct to consumers and we certainly plan in the near term to leverage both of those models going forward. We do think theres an opportunity for us to increase direct to consumer with some of the products that we're developing it's not only next generation tangible. We're also in the process of developing mobile applications for personal safety and those were going to be going direct.
Thank you.
Just kind of leave it at that I don't want to telegraph too much what we're doing.
We have announced in terms of products, yet, but we're excited about what's coming.
Very excited.
Yeah.
Alright. Our next question comes from will power out there go ahead well.
Okay great.
Congratulations on the strong results.
Will it come back right.
To your record whoever wants to take it I know you've made a comment on the record bookings up 70% I just wanted to get a little more.
Color on the key drivers.
Minutes of that strength is it is it dominated by any particular product geography do you think about fleet.
Taser International.
It's pretty broad based any further back.
Drop on the drivers of would be great.
Yeah, Let me handover to Josh He is just a little closer to the customer in terms of the actual order flow I'm feeling broad general.
The support from our customers and one thing we're hearing is the the fact, all this stuff works very well together they see as really being quite valuable historically. Please tech systems are sort of infamous for not playing well with other systems.
Both Allen Josh how would you answer that question yes.
Ultimately our bookings are a combination of several factors I think in our core segments.
More and more officer safety plan adoption that we that will see drivers bookings up because it is so those are our highest ASP offerings now.
Now in addition to that we're seeing international grow very quickly and we're really really excited about that we've got we're on track for a record year in international by.
Mid double digit percentages.
That's very encouraging to see we're also seeing that same growth in some of our newer segments.
Such as Justice segment had a record quarter, our enterprise segment had a record quarter private securities sales growing and then of course, new products are also contributing bolt on axon air expert grown offering a VR.
<unk> is our fastest adopted product ever including the Taser X 2006, and so we're seeing just across the <unk> is the first quarter, we've ever had where every single one of our sales teams exceeded their goal in Q3, and we're expecting that type of momentum that contribute to continue across all segments and all products. So.
Very encouraging stuff.
I think that.
In his comments to start we expect to even posted better results next quarter in terms of total bookings.
Okay, that's great and then maybe.
Just a question for Jawad I know you all provided the revenue.
Our revenue guidance or target for next year, maybe I missed this but any framework.
Our EBITDA margins for next year I know you have longer term, 30% target I think this year, you're largely outperformed where you intended to be you've got investments planned I mean, what are some of the puts and takes we should think about as we kind of put up miles together for next year will be in the right Zip code.
Yeah I appreciate the question will certainly nailed the party line, we are driving towards 30% margin long term.
And we're going to remain opportunistic about where to invest we are in the process of setting our budget for 2022, we have not formally guided to EBITDA dollars or margin for next year.
The way that we're thinking about it is as I had mentioned we have a host of investments that we'd like to find not everything is going to get funded and as we go throughout the year and hopefully surpass our revenue targets, we can unlock more funding and the reason we're doing that if there's just there's so much opportunity in front of us and it's across a variety of categories, it's across multiple products.
Multiple.
Channels multiple geographies.
And I want to make sure that we're keeping our topline growing and the way we do that is by investing and not focusing on EBITDA. So what you can count on from US is we're going to stay disciplined that's something that Rick and I and the rest of the executive team are very much aligned on that we want to drive leverage in the business over time, but.
But we also are going to prioritize investing in getting after this tam that we shared with you today.
Okay. Thank you.
Okay, and I think that's everybody unless there are any follow up questions.
No.
All right.
Rick over to you to close the phone.
So I'm, okay, well again, thanks, everybody for joining us we look forward to updating you as we bring the year to a close next quarter and I do want to close out by sharing a powerful model that we shared with our customers should accelerate where we missed having our investors this year.
We celebrated their sacrifice these past few years through the pandemic and widespread social challenges so with that let's share at the moment.
And please stay on life insurer folks don't run your next call.
Take a moment to share this with us.
And your investments to make this possible.
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