Q1 2022 Axon Enterprise Inc Earnings Call
Commercial enterprises are turning to axon to help with retail loss prevention. Many types of investigations and onsite securities. Our recent wins include network hospital system convenient stores and big box retail the Arizona Diamondbacks are the first major league baseball team to adopt axon body cameras with real time live streaming for stadium security and there'll be.
Renting at our annual user conference Axon accelerate this may as you can see we are executing against the 52 billion dollar global market opportunity and we've guided to a 20% plus topline revenue growth target to scale. We must also attract the best talent in the World you may have heard about a phenomenon in the labor market called the great Resignee.
The pandemic and social unrest in 2020 gateway to more people thinking deeply about what they want out of life and why they work, let's hear from Q key stakeholders focused on leading globally, while creating a dynamic culture look let's start with you. When you joined the company in 2008. The body camera Division was mostly a concept yeah angel we'd been in rapid growth mode.
For most of our existence.
<unk> thousand eight the company, which pulp Taser international.
Few hundred employees and our revenue was around $93 million yeah in body cameras on officers wasn't really a thing yet was it no people thought we were crazy when we envisioned every officer wearing a body camera. Since then we've made body camera programs feasible and affordable and widely adopted.
We have become the global leader in public safety technology, our revenue has scaled more than 10 X. As you can see we're guiding above $1 billion in revenue this year and about that 2300 people, including manufacturing employees, who assembled the taser devices right here in Arizona are powering this growth.
We trade talent with the top tech companies in the world retaining talent, it's all about creating a positive culture, where people feel appreciated Mister.
Five to create a culture, where people can look back on their careers and say they did their best and most meaningful work at axon.
Thanks for that Luke.
With now over to you what does it take to lead our company through rapid hiring growth what makes us different truly is our mission people want more than just a good paying job. These days. They wanted to work for a place where they know that they can grow to be challenged and have a big impact.
I've done our teams are solving some of the.
Biggest challenges here.
We hire people who are at the top of their field. This includes hardware engineers software engineers designers global sales professionals and operations, Josh Thanks, Luc and Elizabeth It's always so great hearing from you and we now have four R&D hubs, one in Scottsdale, Arizona, one in Seattle, Washington, Ho Chi Minh City, Vietnam and in lung.
And we have been leaders in promoting a remote hybrid work environment, our public safety customers also face tight labor market dynamic major cities are finding it hard to attract and retain police officers. We are proud to join forces on at all.
Our products turned heroes into superheroes, our technology acts as a force multiplier and we're spending millions on R&D to develop their technology and Dr training to make it so officers don't have to shoot anyone to protect their own life.
Now some exciting customer updates from our core.
It sounds hollow state military police are expanding with Exxon in June 2021. This agency became the first in Brazil to deploy axon body cameras with geolocation and live streaming.
The agencies subsequently saw an 85% decrease in police intervention deaths.
This translates to an average of five lives saved per month.
Thanks to the success the agency's becoming the largest in Latin America to deploy our body cameras.
When we say we are expanding globally, we really do mean, so many countries big and small if you're planning a vacation to the Maldives for example be on the lookout for axon body cameras. The Maldives Police service is now deploying axon body three.
Well can you run Investor Relations me there.
P. J. They are nine hours ahead of NASDAQ market hours, that's a wrap for this quarter drill down into our financials and outlook and check out our strong quarterly cash flow generation in our shareholder letter at Investor Axon Dot Com, let's turn back over to Andrea to close us out. Thank you for watching we envision a future where exxon is synonymous with public.
Safety and we are investing today to make that vision a reality, we stand for transparency truth and protecting lives because you've invested in axon. We know you do too.
Your support matters, no matter, how big or how small we see you.
Thank you for being a part of our mission to protect life.
Yes.
Yeah.
Great job on that video Andrea and Angel.
Hello, everybody. Thanks for joining us today for our quarterly conference call.
As we look at what's happening in the World never has it been more important to emphasize our values our mission to protect life and protect truth.
Especially when life in truth, our being a rigorously flouted with one tenant reckless modality with a real disregard for lives lost and where the truth is being distorted disregarded by Russia and its invasion of Ukraine.
As the scaled leader in our category.
We are digging into our mission stronger than ever.
We are energized about all the great things, we're doing and the way our business is scaling.
One of the things we highlighted in our shareholder letter is our moonshot goal.
Which is to cut officer fatal officer involved shootings in the United States by 50% over the next decade.
We do not have to accept killing effector part of human existence, not in war not enough leasing not in our homes and we look forward to sharing more with you as this year unfolds.
I can tell you I've been sharing with our customers about this goal brainstorming, how together can we combine product design policies and training.
Just like the energy in the room, when we talk with our customers about this everyone is excited to join forces and reduce killing.
Last week in conjunction with our CFO transition announcement, we raised our full year revenue and just adjusted EBITDA guidance, we're now expecting revenue to grow 25% at the midpoint and this is on top of 27% revenue growth last year and 28% the year before that.
What our growth is demonstrating is what happens when a company builds disruptive products that solve real world problems and invest in R&D to stay in front as the innovation leader.
We're seeing a lot of product successes and not just in Taser and body cameras, but in fleet in car cameras with automatic license plate reading and of course with a growing suite of cloud software tools and features.
We will be investing some of our expected revenue outperformance this year into new initiatives that will start driving revenue in 2023.
One area, where we're adding investment this year is international VR training Theres, a broad global market for virtual reality training and it's our fastest growing new category in the U S and we want to stay in front globally by adding languages and scenarios to accommodate international public safety customers.
On a final note we are welcoming my friend, Jim Zito to the call as our interim CFO .
As you May have seen this morning, there was a press release announcing <unk> new role as president of IRA and exciting New Tech company here in Arizona.
Jawad remains committed to a smooth transition of the CFO role on behalf of the board and the management team I want to thank jawad for his dedication and all the work over the last five years, helping axon innovate and grow and we wish him the best.
We couldnt be more excited about Jim and our future.
Jim has played a key role in building a world class accounting the controller ship organization enhancing our internal controls over financial reporting and overseeing the implementation of stronger processes to drive operational rigor to improve exxon's financial results.
As we embark on our CFO search I'd like to share with you my philosophy on leadership transitions.
Our next CFO inherits a culture of operational rigor.
Strong bench.
I'm looking for a CFO , who is energized about capital allocation discipline and they can marry with that and understanding how to combine our societal value creation with shareholder value creation.
Now I'd like to hand, absolute who will take you through some of our operational highlights Luke.
Thanks, Rick you saw in the video we played at the start of the call that we are highly focused on attracting world class talent and we feel great about our ability to do so and in the future. We expect to continue to do this with our mission driven focus there is lots of these world class axon teammates on this call today, many are called in and I.
Want to give them a huge shout out and thanks for all the work that they've done to help us build a great company. Another key execution item for us has been on ensuring that our supply chain meets our ability to satisfy customer demand. The team has executed well on this front, we have a solid plan in place that has enabled us to meet goals.
And production has increased in several areas in the first quarter. While we are cautiously monitoring China's latest COVID-19 shutdown, we had visibility into supply chain supporting our revenue guidance at the midpoint throughout the full year and the issues. We flagged the past two quarters that lead to an outsized backlog are now begin.
To return to more normalized levels.
So I encourage you to check out some of our key product updates in the shareholder letter our R&D team is truly staying at the forefront of innovation in the public safety space Axon fleet three is proving to be a game changer for in car cameras to date, we have installed over 6000 cameras three three transfer.
<unk> traditional dash camera is one and automatically scan played across multiple lanes of traffic are closing speeds of up to 140 mph, making it disruptive Lee affordable for agencies to deploy our automatic license plate reading in their vehicle fleet and we believe our ethical design framework to <unk>.
Protect citizen privacy and data misuse as not only the right thing to do it's also a huge strategic advantage.
They have also seen our momentum with records is starting to accelerate we just had a major city launch in the Tucson region that brings us to more than 25 agencies of nearly 11000 sworn officers live on axon records, including nine that are already using it to fully replace their legacy Records management systems. We.
Excited and confident in our long term trajectory. Our short term focus is on driving customer success, one deployment at a time.
Speaking more broadly we recognize that there is a growing sense of macroeconomic uncertainty as we execute against our robust pipeline and look further into the future. We remain incredibly confident in <unk> long term positioning we have stellar teams across the organization, we are a product and category leaders are.
<unk> relationships are strong and unrivaled. This is all underpinned by our enduring mission to protect life, while continuing to accelerate the axon growth flywheel across devices workflow and intelligence and always with a long term mindset I'm proud that over the last five years, we've had a real focus on scaling.
Great business with operational rigor and financial discipline. These are areas, where Jim <unk> has been an instrumental leader and as we build the future. We will maintain that rigor now I'm Super excited to turn it over to Jim for his first earnings call. Thanks.
Thanks, Luc Hello, everyone. It's great to be joining you today, especially at a time when the business is demonstrating tremendous momentum so I'd like to share some of my background neuro I've played over the past nearly five years at <unk> Bill.
Building, a strong culture of financial rigor and discipline that Rick spoke to.
The company in 2017 after previously serving as our global controller of GE healthcare digital and nearly $2 billion Global software company in selling general electric.
I spent the first eight years of my career as an auditor at Pwc seeing the insides of Fortune 500 companies and how they operate at scale.
These experience has prepared me to have an impact that axon from the moment I arrived that.
That helped to build out our accounting and controller ship organization, enhancing our internal controls and overseeing the implementation of stronger processes to drive operating rigor to improve our financial results are partnered with our SVP of SG&A Arvin Bora and other cross functional leaders across every part of our company to lead the creation of the internal plumbing necessary.
To enable our culture of rigor and discipline to succeed.
You've seen that translate to our results. We've established an impressive track record of execution and scale, coupled with cost discipline and strategic capital allocation.
We remain confident in our ability to continue to deliver accelerating growth profitability and cash flow.
Im energized by this opportunity to support the company as interim CFO . This is a natural transition given my role over the past five years.
I'm honored to lead our World class finance team and I've already hit the ground running.
To touch upon a few themes related to the quarter in February we added adjusted free cash flow targets to how we talk about our financial strategy and we started to deliver already in Q1, our operating cash flow of $44 million supported $32 million and adjusted free cash flow.
Raised our full year revenue outlook to a range of one five to $1 1 billion.
Reflecting 25% annual growth at the midpoint.
And our upwardly revised adjusted EBITDA outlook reflects improved bottomline expectations as well as the opportunity to invest some of our revenue outperformance into new initiatives that can start contributing revenue quickly.
And with that we look forward to taking your questions.
Thank you Jim and team can you bring everybody up into gallery view.
Okay.
Yeah.
And thanks, and thanks analysts I have you on the Q I see you put your hands up we'll get to it and you will get to it.
We'll take our first question from Jonathan Ho at William Blair.
Hi, good afternoon, and congrats on the strong results I just wanted to start out.
The guidance range.
To better understand whats, giving you that confidence.
What is it that youre seeing in the demand environment to raise in the revenue guidance. So much early in the year.
Yes, thanks for the question Jonathan.
Ultimately its a few things. The first is we've got a really really strong team that's doing great work around the globe.
Across a lot of different products, a lot of different markets and.
This diversified kind of revenue.
Strategy gives us a lot of different ways to achieve our goals now.
Now when we combine that with bookings from last year and years prior which is a really good forward indicator of revenue and just the strong pipeline that we built up through this year that we see a.
A high probability of closing I think it just gives us a lot of confidence across the board. So certainly proud of the way. The team came out of the gate in Q1, and we hope that as the low point of the year moving forward.
Excellent and then just in terms of some of your commentary around the supply chain can you talk a little bit about what youre seeing how <unk> been able to navigate the challenges and well just given the uncertainty around China.
And again, it sort of underpins your confidence that the supply chain issue for process. Thank you.
Yes, thanks, Jonathan.
Just reiterate we're monitoring that situation and we also have line of sight to the guidance that we provided.
Been able to bring down the backlog and we've got a diversified product portfolio. So if we do see a single issue.
Can actively manage that and derisk. It one key highlight I would give our supply chain chain team a huge shout out and that when they go out and Theyre talking with our suppliers are.
Our strategic plan and mission aligns with a lot of the type of orders that they want to fulfill so what we're hearing is that they will prioritize axon because of our life saving products over other companies that might not have is critical.
The impact in the World and we've just got a ton of confidence in the team and the results that we've delivered the last six months and the outlook for the next 12 months.
Thank you.
Thanks, Jonathan we'll take our next question from Sami Badri at Credit Suisse go ahead alright.
Alright. Thank you very much also for.
Conference call. So I appreciate the time.
My first question is you've raised adjusted EBITDA for the year, but you did not increase free cash flow. So that kind of wanted to just get a little bit of an explanation around that given profitability stepping up and the other pieces. It sounds like you guys are working on a lot of products with a good bit of demand and this demand backdrop environment is there a reason why you would.
Reinvest a lot of the incremental cash flows and to even more capex and build out an even bigger platform to service public safety.
Yeah. Thanks, Jeremy I can take the first one so.
This is the first year, we've added free cash flow guidance and you've got a fairly wide range I think the main driver of why we didn't update the free cash flow guidance is largely the revenue over performance is going to be spread over most of the rest of the year and there is typically a lag between that revenue over delivery and sort of that translate into cash. So we could see some of that cash flow over delivery slip into Q1 of next year.
Sure.
Got it and then just the.
Okay that explains that part the other part I have on supply chain constraints is there a specific amount of maybe a charge you have to take to expedite specific components and parts to make sure that you can make your deliveries or generally speaking you have been getting prioritization from your suppliers given the importance of the products that you guys are shipping.
Two public safety individuals', yes, great question CME. So we actually have been paying some expedited fees to get our components in but our business again is firing on all pistons, where we've been able to expand some of our product gross margins that have offset those increases and this is just an and.
Example, where we feel really good about the overall mix of our business and the strength of our operations.
Got it thank you.
And welcome Jamie.
Thank you.
Okay, we'll take our next question from Erik <unk> JMP go ahead Eric.
Alright, a couple of things first off.
Can you expand a little bit on the on the question earlier about the supply chain constraints have you done anything differently in terms of your inventory management or your purchase commitments.
Been able to lock in the agreements are better than what you had had before.
Yes, Great question, Eric most companies' pre.
Pre COVID-19 had a just in time manufacturing methodology, and Exxon really never had that methodology because our products.
We have five year life on the teasers and two and a half year life on the cameras and so we managed more to our business, where oftentimes we would have up to a quarter or six months of inventory based on demand and forecast and actually gave us a good buffer going into that down into that downturn.
Throughout the last 18 to 24 months, we've been proactively working with our suppliers to ensure that we can meet delivery for our customers. In some cases, we have bought us at risk components to further that as well as looked at.
Different supply supply chain strategies to make sure we can deliver for our customers.
Okay and then.
In terms of the.
Supply constraints.
Are you are you seeing different.
Are you getting better.
Deliveries at this point compared to where you were 90 days ago.
Actually let me rephrase, let me.
You add 50, you had a $50 million.
<unk> business, how much of that fell in the quarter and what is your confidence that falls in the first half.
Our confidence is high it falls in the first half.
We did ship some of it in Q1, but we also couple that with really strong demand out of the gate as well and so we'll continue to.
Ship into Q2 here.
Certainly.
To answer your question the outlook from suppliers is getting in terms of the commit into Q2 is getting more promising so.
Certainly on track to to.
To clear the remainder of the backlog in the first half of the year, while delivering another really strong revenue quarter in Q2.
Yes, David that Q4, if there was sort of a bit of anomaly like higher than normal backlog.
That slipped into the first half of this year I think we'll get back to more normalized levels of backlog sort of from here going forward.
Yes, just to add some more color to your specific question around is our service from suppliers better today than it was 90 days ago.
We would see Q3, probably the middle to end of Q3 last year of some real low watermark in terms of just not being able to get commitments and happy to kind of manage that hand amount in the last six months, we've really worked with our suppliers to ensure we can get those commitments and we feel just reiterating really good.
Good about the year outlook.
Okay. Then one last quick one Jim Jim are you one of the candidates for the CFO position or what is your status.
<unk> been heads down for the last week, focusing on executing for the quarter and for US It's business as usual we close the books every three months. So we've got a great team focused on that I think as the process plays out it's a certainly a very attractive position. The company is clicking on all cylinders. It's got a great mission in the world and I am confident that Rick and the board and the team will consider.
Internal and external candidates and it side.
And place to be.
Alright. Thank you, let me add some color there too yeah, Jim and I have talked about this.
Any senior position like this we want to make sure we run a really rigorous process and so we're going to want to make sure that we do.
Get a full raft of qualified external candidates as well as internal candidates and then this gives us an opportunity for Jim to try to roll on as well in CRE enjoys it compared to us.
Our role here is to controller I would tell you with very high confidence.
Rover for Jim on the team going forward.
It may be the CFO role at maybe.
Returning to controller and.
We're just going to make sure that we've we've done a process that gets us to a level, where we're really confident that we've got the right team and the right positions for the next decades.
Thank you.
Thank you. So much you can take our next question from Scott Berg with Needham go ahead Scott.
Hi, everyone. Thanks for taking my questions got a couple here why does it start with the cloud revenue growth in the quarter up 47%.
Clearly.
Seeing a lot of momentum over the last year.
Area, that's been growing in the we'll call it low to mid thirties for an extended period, but 47 is a nice movement upward how should we think about the acceleration in the revenues in that business is it more driven by evidenced dot com or the layering in of some of the customers that went live on records or some of them are trading my guess is that's a component of that.
But I didn't know how you might break that up between those different product areas.
Yes, I think ultimately, we're adding a lot of new users every quarter onto our platform and a lot of that is within just new body camera users that were in agency might've bought enough body counts to get started but is now kind of go into full deployment and so as we deploy more and more of those users are certainly adds to service revenue.
With the same dynamic with fleet right now really feel great about the trajectory of our in car video business and certainly that's helping as well and then some of our kind of up and coming offerings like some of the software add ons.
As a result of selling more and more of our officer safety plan bundle combined with VR licenses.
Theres a lot of.
Factors that are all contributing to the growing service revenue.
I think the topline those deploying more and more devices around the world that come with those licenses.
Yes, that's right and just to add on there and as Rick talked about earlier.
We're incredibly gratified to be able to just keep building out our ecosystem and expanding on all of those vectors right. So it's the combination of existing customer's upping into our higher value bundles in plans and it's about customers even outside of those adding Ala carte add ons for our diverse range of new products both pre.
<unk> features on top of our cost of products like evidenced by com as well as new things like VR and across the board and then doubling down on that the expansion into new market segments like federal.
And justice and the others.
Global expansion into other geographies so across all three of those vectors just seeing both new logos and existing ones are growing their bet on the axon ecosystem with our products.
Great helpful. And then from a follow up perspective, a question I have actually received multiple times recently is.
Product penetration or how to think about penetration rates on.
A couple of areas I think we all understand is or at least domestically with the.
What the police workforce in the United States, probably has a higher penetration rate, but how to think about caesars.
Body cameras on a more global basis, where you are in the penetration rates.
Feel like that was set up on this question because the headline of my local newspaper Raspberry top right now is all Minnesota troopers now wearing body cameras, they're obviously excellent devices given other tightened with tasers, but.
Hi.
But how should we think about penetration rates.
Specially on the body camera side, given all the things that are happening around us in other areas.
Yes, I think we have a very intentional strategy there and we've had that same strategy for some time now which is really fortify what we would call the tier one markets, the UK, Canada, and Australia and try to become the market leader across both.
Less lethal and body cameras.
Think.
The teams executed really well in that regard over the last few years, such that we're able to expand our focus beyond that now into several other large markets around the world and so now we're really focused on repeating that same mechanism in those markets building up.
Sales force, that's capable of selling both products working with early customers and then kind of using that same land and expand.
The approach to growing and becoming the market leader in those categories and so I think we're doing this in a very.
And a very.
Calculated way to make sure that we can really be successful in every market. We enter and include the federal government in the United States as part of that as well and we continue to scale up teams that are capable of delivering those kind of outcomes. So.
We feel like there's plenty of room to grow outside of the United States and in the federal government and we will continue to execute to.
To fulfill that Tam as we go here.
Building on that I mean, even in our classic categories like Taser and body cameras as we've shared before the bottom line is our penetration.
It's still pretty modest I mean, there is a tremendous amount of white space to keep growing and then as another example of where we can even where we have penetration of a category like body cameras by adding on new products on top of that would expand the overall opportunity sort of one of the fastest growing products. We have is respond which is our livestream.
<unk> and other connected camera features on top of a body camera and so as customers who may have already bought a body camera.
Up into that either through a bundle or a la carte as an example of just continuing to grow the category, even if that overall socket has already been filled with the basic camera.
Congrats on a great quarter, thanks for taking my questions.
Thanks, guys next question from will power at Baird go ahead.
Okay, great. Thanks for taking the question.
I guess a couple of questions maybe first just to follow up on cloud revenue into strength there.
It sounds like some notable acceleration in our records business.
Five agencies using it nine with at least close.
Close the full replacement so I just wanted to understand what's helping accelerate the adoption there and new features added how do we think about the trend lines from here and your bank.
Expectation every couple of quarters, you're going to see more key records customers what that keeps the momentum going there.
So for those that have covered axon for a little while now I remember a couple of years ago. When we launched the officer safety plan that that part of the strategy there was to.
Introduce records as part of that bundle and now several major cities and counties and state police agencies have all adopted that plan and they have the built in option to activate axon records as part of that some might start with the first module of records, which is standards.
And some are going all in like Tucson on the records product.
And getting deployed quickly and so we have a very very healthy.
Queue of customers waiting to deploy records now we continue to invest in the Cogs resources necessary being professional services and deployment personnel to accelerate how fast we adopt records in all day is really.
Fund feeling that we went live with Tucson.
And we just kind of it was up and running and we moved on to the next customer after that without.
Without any real challenges as we got going in we expect to see more and more of that in the records product and we're really confident in the team across product and services that is deploying this product and are really really excited about what the future holds for records.
Okay great.
Justin.
Maybe just switching gears a big focus frankly, everybody of course has been Europe love to get your perspective on any kind of Ukraine restaurant exposure I think you have a small customer in the UK, but I think it's.
Pretty small but more broadly.
How have you seen that conflict impact sales trends appetite.
The broader suite of products kind of across the continent.
Yes, I think.
In the Ukraine, we do have a small teaser business they're in.
<unk>.
We'll see what the future holds certainly.
Obviously, a very tragic development over there over the last couple of months here.
I would say across Europe at this point the nice thing about our products as they have applicability everyday regardless of kind of the state of current affairs and so we continue to see strong demand both in terms of.
The desire for more transparency across public safety and also.
An alternative to the board and so really believe that we're seeing a lot of really exciting growth indicators and some major European markets.
I'm sure we'll talk more about those as time goes on here, but.
Europe and.
And kind of the demand in Europe continues to grow in both product lines.
Great. Thank you.
Thanks, guys. Okay. We will take our next question from Keith <unk>.
Go ahead Keith.
Thanks, Mark and congratulations on a good quarter.
That's how they get too far into the details here, but I kind of noticed the teams do an export duty.
For Dallas Nip Kill me I guess year over year, obviously, theyre very volatile, but I know you guys have next generation the taser devices as well so perhaps.
A little bit color in terms of the payoff for the.
Taser portfolio and where it's heading.
Was it concentrated focus drawdown on the older products now or whatnot.
Seeing as is.
Largely just a shift in demand.
The Taser seven is really.
So to hit its stride.
Now, we do still have customers, particularly those that have really long approval timelines in international and federal spaces that might still be on some of our more legacy.
Devices, but I am pleased to see that.
I think we got it right with Taser seven.
It's really hitting the mark and of course, our goal with next generation systems has continued to move the ball downfield towards making the bullet obsolete.
Great.
I'll, let you go with that.
So that's on that obviously, we saw the recurring payment basis with Taser weapons drop on a 45% from 64% last year.
International sales this quarter or perhaps other arm that drops Congress trumbo upward on that one.
That metric is largely dependent on the mix. So when we have kind of a number of international shipments.
Can bring that down I would say there is no.
Change at all in terms of the momentum in our service plans in the United States or in our tier one markets. In fact, I believe every taser that has been sold into the U K that is deployed right now is on a payment plan and.
We are.
Looking to repeat that in Canada, and Australia, as well and so when we get some of these onetime large orders from markets outside of our tier one markets. They are generally not on plans. Some of that's due to the risk of Collectability. If we're working with a first time distributor of first time customers. So there's a lot that goes into that but I wouldn't say there was any.
That would give us less confidence in that metric over time.
Great appreciate it thank you.
Okay next step Eric Lapinski at Morgan Stanley Go ahead, Eric.
Thanks for taking my question, maybe if we could just talk about fleet for a second I know you guys talked a lot about the early traction you're seeing there I guess I'm curious is that mostly coming from maybe customers that weren't already on body cameras.
We have had in car cameras.
Are you seeing kind of across of using and deploying both I tend to think like state police maybe haven't gone that far on body cameras. So just wondering if the early interest in fleet is more from that angle.
On body camera customers already.
Yes, we're very very excited about fleet in general I think it's a great.
Case study in how the first product kind of demonstrated the use case and then the subsequent couple of versions of the product.
Held us into a place where.
We're among the market leaders, if not the market leader in that space and.
<unk>.
Customers in the state police use case, often are doing most of their patrolling on highways. So fleet is a very natural product line for them to adopt but we were seeing it across cities and counties as well as kind of a supplemental.
<unk> for the body camera. So that's been nice to see and I think one of the exciting things about fleet long term is the adoption of additional software within the fleet offerings. So LPR license plate recognition has become one of our fastest selling add ons because customers are really valuing that addition.
Capability at a far lower cost and they are used to.
And being able to deploy it in every car, which they're not used to.
Historically, so certainly excited for what the future.
Future holds in fleet and excited about the additional revenue opportunities that come along with just the core system. There Yeah. Let me let me take this one as well fleet, one and <unk> two.
There we won deals because people are on our body cameras and they loved the software.
And they bought our body or I'm, sorry, they bought our fleet cameras largely for the first reason because they wanted them to work with their body cameras with fleet three we're going toe to toe. It is the best in car video system in the market full stop we've got customers buying at who've never had body cameras with us and it's winning head to head against the other systems the Mark.
In particular, our LPR performance.
I, just really can't complement Jeff and his team enough on the great work they did there.
<unk> imaging design of those systems have one image are really optimized to be able to do three lanes in poor light conditions at high speeds and still be able to get a L. P. R and I have a second imager, that's really focused on getting.
The right level of resolution balancing video size and video performance.
So it's a pretty killer combination now that we've got.
The best body cameras, and the best week cameras and hands down the strongest software ecosystem and that's why we're really seeing the demand for fleet three outpace our expectations.
The attach rate on <unk> is also above expectations as well.
Okay, I can't resist one really small build on that as well. Thank you for that great information on both I think one of the thing.
It speaks to why something like LPR built into every single vehicle at a disruptive we affordable price is a game changer for the mission impact too because if an agency only has a few cars with an old school expensive LPR unit then when.
They are going to get hit on something is going to be piecemeal few and far between where those vehicles happen to be any moment, but the immediacy of every vehicle. They are just driving down the road going to wherever they're going and instantly have a car stolen car whatever it is just happens to pass them three lanes over.
Boom and alerts and they can action on that immediately because they are physically present right there and that match of having every single vehicle have that capability because it's become disruptive we affordable and effective is a perfect example of technology, enabling the mission combined with the right business model for us.
Thanks, I appreciate all the info and then just on kind of the contract cycles for fleet or even the replacement cycle for that product versus body cameras can you is it more kind of typically five year contract and ship once or twice within that if you could just kind of help us better.
But the difference in the actual hardware cycle.
Sure thing so for body cameras are historically kind of normal.
Contract length was five years, we're actually seeing that expand out to 10 years in some cases with some of our largest customers, which is really exciting now what that contemplates as the customer receives their first cameras upfront and then every two and a half years they receive a camera refresh.
With fleet, it's a five year lifecycle, so theyre kind of maintain and that is also a good thing for agencies because.
Reinstalling camera systems in cars is much more involved in kind of swapping our body cameras. So I wouldnt say theres much demand to accelerate that cycle and so for body cameras were at two and a half years and for fleet, it's more like five years.
Got it. Thank you congrats on the quarter guys. Thanks, Thanks, and others one of the thing I feel compelled to add it's not just the hardware are real secret sauce is the mission mindset of the people and I know that can sounds cliche, but I can tell you we had a major state patrol recently deployed from a competitor they moved over to fleet.
And they asked me to come up because they wanted to.
Wanted to award a trooper add to their program manager, who had led the installation.
And in that case I think it was gen issue that you just did a fantastic job and you can't overstate how important that is when people are just passionate or.
Jeff and his team I got just tremendous kudos, we had a recent big software go lives, where the chief called me and said Hey, we feel like you guys. We can rely on your you're in the trenches with US nobody is saying, it's not my job nobody is leaving at five o'clock, we had people there past midnight helped.
Helping bring that agency lives that is the intangible being you'll never see on our financial statements. There is no way to represent it there but that is probably our greatest single competitive advantage is the the passionate people that we have rallied around our mission.
Alright.
Last but certainly not least Paul Chung of Jpmorgan go ahead Paul.
Alright, Thanks, guys for taking my question so.
Just on the commercial sector can you kind of expand on.
And then momentum there youre seeing across verticals you mentioned.
Some key wins there.
Seeing some of that momentum in.
How is that market evolving.
Materials from the speed.
Uh huh.
Let me make an intro and then ill hand to Josh can give some more detail I think what we're seeing is we've solved a very difficult used case.
These super critical interactions between police and the public that handle that happened in very.
Difficult environments.
Sort of out in the wild if there is zero room for failure and then this.
Videos that come off. This this is stuff that has to be protected to meet the federal rules of evidence and state rules of evidence so that the level of security and reliability, we built in to handle this very difficult and demanding consumer area.
Really starting to port nicely into other let's say less mission critical.
Areas, but as you can imagine the ability to record every enterprise on are probably are some variable where they are recording interactions incidents, whether it's a customer a delivery person delivering something or.
Paramedic interacting with the patients on down the line and in all of these business use cases, most of that documentation happens today with people filling out forms with pen and paper or typing. It on a computer and we believe the sort of video business record that we've created and law enforcement can now begin to port to these other areas, where theres great efficiency gains.
And ultimately you are getting a more fulsome record of what actually happened by recording that human interaction and because we're building the tools to extract transcripts and be able to get smarter about how to extract metadata.
Alerts and things from these cameras.
To be able to then populate that into more structured data.
So I think just creates virtually I don't want to get too excited here, but almost.
Almost any enterprise could have a need to use this type of weighted document what's happening in their interactions whatever they may be with that let me hand over to Josh to give maybe a little more specific.
Yes, I agree with everything <unk> said in our small kind of scrapping team working on this but make sure they're doing a really good job kind of finding our early customers and just like in the public safety space getting those early customers happily deployed.
Leads to kind of more and more opportunity and we're in that phase now and we have already signed contracts with some really big names that is.
That are household names in terms of.
Other vendors in the commercial space that are deploying our products and we really believe this is a big part of our future I think we're at this point not making many product investments and seeing kind of still.
These companies adopt.
Body cameras, and the <unk> management software and I think going into kind of our next round of planning, we will make some more investments to make this even more attractive.
The future customers outside of public safety, and we're really excited about where that road leads.
I know you just started with Arizona Diamondbacks can you can you kind of work that's kind of your hometown.
Can you work on a league level.
And across the whole country with different sport leagues did that your sales strategy as well.
We can and we will but that's still represents a pretty small tam in the in the Grand scheme of things I think we're focused on deploying with like Fortune 500 companies that see a need for this whether it's last mile delivery services or retail or other risk management opportunities whether it's in hospitality.
There are some really kind of clear use cases, where we're getting a lot of positive feedback on the use of cameras and I think we're seeing it kind of a macro level as well.
In the U K there was some coverage.
The deployment of body cameras in retail and we're seeing the same thing in the U S. So.
I did.
This fully.
Then lastly, the consumer segment, so what's been the reception.
The strike right.
Is it kind of tracking your expectations.
Are you seeing some momentum in consumer when would that kind of takes some time production here. Thank you.
I can touch on that a little.
We saw.
Given some of the.
<unk> focused around our core business, we were really ramping up to deliver that our consumer business is still relatively small part of our business business I would say the demand for the strike like too has been high and I think I might be the highest purchaser I was giving it to a lot of friends and family.
And hearing good response from them, but I think it's a little too early too early to tell.
Yes, I would say.
We're proud of those products that are nice refreshes that will but they're not going to lead to explosive exponential growth.
They are leading to a continued nice growth in the consumer segment.
As we look to next generation.
Laser technology, I think thats, where we might start to see things.
Things that breakout of the.
Kind of historical demand curves that we've been in so stay tuned I think youll see innovations come to our core market.
First as we look to obsolete the bullet.
And then from there we will leverage some of the newer stuff that I think could really begin to expand consumer adoption.
Great. Thanks.
Thank you and Jeremy Hamblin from Craig Hamblin, Craig Hallum has joined the call note. Okay. Good I didn't mean to put you on the spot to me okay.
Okay is there anyone who has follow up do you want to put a hand that.
And here.
Okay, we don't have anyone else in the queue. Thank you so much for joining us Rick is going to close this out.
Awesome.
We know it's been a rough environment out there.
For all of our investors.
I tell my team, we try not to focus too at all really on things that are outside of our control I'm really proud of the results. The team has continued to turn in despite all the challenges the world is thrown at us.
And we see obviously for us to raise guidance in this environment took a fair amount of confidence for us to look across the business and.
The confidence to come forth and share and increasing outlook. When most of the world is pulling back so I couldnt be prouder of the team more thankful of our investors and we're excited for the future. So we look forward to seeing some of you at accelerate later this month and back on our earnings call.
A few months from now and the shareholder meeting of course, we got busy times coming up so thanks, everybody and thanks again to our fantastic team for continuing to deliver.