Q2 2022 Axon Enterprise Inc Earnings Call
Reporting in progress.
Okay. Thanks.
Hello, everyone. Thank you for joining us and welcome to our Q2 2022 earnings update I hope you've all had a chance to read our shareholder letter, we posted that to investor axon Dot com after the market closed and the remarks that we make on today's call are meant to build upon the information that is already in that letter.
During this call, we will discuss our business outlook and make forward looking statements.
Any forward looking statements made today are pursuant to and within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of $19 95.
These comments are based on our predictions and expectations as of today and are not guarantees of future performance.
All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. These risks are discussed in our SEC filings.
Where we go to rent, we will opening with our video.
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Hi, everyone. It's great to be here again, we are excited to report excellent momentum in May we hosted axon accelerate and you could really get a sense of the excitement throughout our business.
This was our seventh annual user conference and it continues to be the largest technology conference for public safety. It was awesome, we hosted training and hands on demos of our technology. There were also amazing keynotes miniature golf and arcade robot dogs and you know what tell you what it's probably better if we just showed you.
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Naturally migrate part was the ice cream parlor freight to get it.
You could almost think of this accelerate as the unveiling party for the power of the axon ecosystem. The reality of our partnership and integrated products was truly on display the.
The axon ecosystem is no longer just an idea axon devices and software alongside partnerships with cutting edge companies is already delivering tangible customer value.
Our customers are the key drivers of our ecosystem strategy, we partner and integrate with other innovative companies to meet customer needs.
Also at accelerate we unveiled a new streaming service called the first responder networks. This brand new platform showcases real life stories, it's a unique inside perspective of those who protect and serve we created this is a testament to axon is customers who are out there saving lives every day.
How valuable they are and this new service provides a way for others to see and experience their value.
I downloaded the F. R. N out myself. These stories are incredible I actually just watched a video about our sergeant saved an infant life and then became a godparent to the child.
Our truly everyday heroes and model our 2020 to rise awards recognized officers, who have saved her life are shown exemplary performance in the field.
Okay. So Andrea this is all a lot of fun, but theres a question, we're getting increasingly from investors they want to get a better sense of our investment priorities.
It makes sense I know right every quarter or we talk about all these exciting new products and categories and how we are investing for growth.
Are we actually investing amongst this calls for a pie chart.
For 2022, the majority of our R&D investments fall into our core SaaS offerings, and our core hardware products and now we have put incremental R&D towards unlocking the federal and justice sectors.
Also about these new investments is that the build upon the core public safety investments that we have spent years perfecting with modest modifications, we unlock access to giant new markets and finally, we have dedicated incremental R&D to the drone and VR categories.
I can see that the core hardware in poor software is receiving the majority of our investment can you get a little more granular than that sure thing Angel our course as investments break roughly equally into three areas digital evidence management real time operations and productivity software.
It is these investments that drive annual recurring revenue and our high net revenue retention and their hardware investments split roughly into 65% going towards body cameras and fleet in car cameras, and 35% entertainer platform engineering.
And please note that we are showing directional investment percentages here, some R&D investments don't fit neatly into their own category. For example, our investments in core platform infrastructure makes every software product faster safer and better.
Another key example is artificial intelligence R&D, which is shared across product categories.
Our AI team has a big impact even though these investments represent generally less than 10% of our total R&D budget and also to be clear all of this is a financial view of the business.
Our customer are simply the best in class products, where the hardware software and AI all work together flawlessly check this out.
Sure.
Thank you.
Yeah.
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I'm only book Im the senior director of fleet products here.
And I'm blanking gala senior graphic designer here at axon. We're here today at the apex Motor club in Arizona, and we're going to test the fleet three system with license plate reading technology with some of the fastest cars in the world.
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Alrighty.
Returning as axon is latest in car camera system that can replace in place across related to traffic.
Up to 140 miles an hour.
There is no running this thing.
Or is there.
Great.
[music] revenues.
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There is a place that one was going 120 miles an hour and we seem to make model and color of the vehicle instantaneously.
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125 miles an hour.
[music] Dominion retreat, just captured a license plate at 135 miles an hour keep that in mind next time, you're driving around town, whether or not you're in a Ferrari.
Okay.
No.
Axons R&D investment to fuel our flywheel.
We build products and bundles that give our customers superpowers to ensure everyone gets home safe.
This creates more users AK people and nodes AK devices on the axon network that creates more data, allowing us to unlock more value through machine learning and AI.
We use that to create even more great products and bundles.
Okay, our update wouldnt be complete without sharing some exciting customer news in Canada. They found that simply presenting a taser device de escalate the situation between 70% to 90% of the time without having to deploy a cartridge. We are seeing exciting taser seven device adoption across Canada, and our products just made major news in the U.
They were the West Midlands police officers and staff became the first entire agency in the country to live stream their body cameras back to Central command. The West Midlands is the second most populous county in England. After a greater London, that's a wrap for this quarter drill down into our financials in our shareholder letter at Investor Axon Dot Com, we'll see you in November .
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Oh.
Okay.
Awesome all right.
Thank you Andrea and Angel great job as always.
Quarterly video, that's fantastic great way to share all the exciting stuff with our shareholders.
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<unk> on what is shaping up to be a really excellent year and our confidence in our growth extends well beyond 2022.
We emerge from the pandemic and civil unrest in 2020 in our strongest position ever.
And now we're fortunate to be able to leverage that position of strength, while many parts of the economy are experiencing uncertainty.
We're seeing broad based strength across our product lines.
We're really energized by the growing number of agencies that are buying everything we offer is signing up for 10 year contracts, sometimes even 12 years.
Exciting to see and agency go all in with Exxon.
We set a vision several years ago that an agency wouldn't you say, while we have a taser device or maybe a body cam we can evidence dot com, but would instead simply describe axon as their technology partner.
And thats starting to happen now when agencies sign up for all of our software solutions plus our body camera dash Cam reputation seven that we are training our drone solution and so on.
Customers are increasingly demonstrating their confidence that a year ago.
<unk> technology partner for them.
Decades.
Make it easy for our customers that honest because our team delivers.
Honest some other hours.
We expect profitability to improve in the back half of this year, we expect to drive increased leverage coming out of Q2, what are we had some expenses that won't repeat.
For me for Jim in a model also we recently launched an internal campaign Paul.
Like it's yours to clamp down on some low hanging fruit such as travel expense and swaps that we created a new position appointing a swag Saar must approve all purchases.
Scrap is not due to Exxon when we're just taking it to another level.
I was recently quoted in the Wall Street Journal.
Last week.
It's good to go on a swag detox not every event this T shirt.
Balance the need to drive against what we can do in Brazil, such as maybe setting one or two key representatives to be in the room and having others join online.
We're continuing to hire and invest in this environment and we're disciplined about it our barcode talent continues to move higher where we have seen other technology companies slow down their hiring that presents us with opportunity.
You'll see some of that in our increased head count extending into the second quarter.
Switching back to 2008 and that downturn, we invested in creating a cloud and body camera business. While our competitors were pulling back. The result of that decision are measured in billions of market cap.
I'd say just favorably adaptable and we see times like this.
When the war for talent pools, as an opportunity to advance our mission. So we will come out of it.
Our stronger and more competitive.
Our commitment to generating strong cash flow and operational discipline is shared among the entire leadership team you'll see in our shareholder letter that we've revised our expected capital expenditures this year to reflect slower pacing on our Nash campus investments, we're adjusting our patient to reflect a world that is still in flux as we determine the best and highest use of the campus.
Optimizing for the new World of hybrid work as well as the best and highest uses for our capital. It's more important segregate. It right then we get effects and we are preserving optionality.
Finally, I feel great about the trajectory of our system since our last call Josh Isner was appointed CFO and <unk> and 11 year got answer that John was promoted to our chief legal officer.
Also we've made a lot of progress, let our CFO search, which Josh will highlight it a little bit more detail in the meantime, interim CFO , Jim hasn't missed a beat.
Before I turn it over to Coty, Josh Let me take a moment.
Sure My thoughts about Josh is leadership skills.
First Josh his promotion to CFO was really a natural progression for him and for axon Josh.
Josh has been a rockstar since the day he got here and he could use share confidence he built a revenue stream and embodies our core value to owners for.
For the past seven years, Josh was our quarterly revenue delivery, where he has helped us establish an excellent track record.
She is highly focused on delivering results and executing an exhibit excellent disorder.
I am thrilled with our partnership and our working dynamic we have a rigorous and healthy back and forth.
We're very confident in his leadership during the next phase of rapid growth and with that.
Now, let me turn it over to John Chisholm.
Thanks, a lot Rick I appreciate that and it's good to see everybody in my new role I'm humbled by the trust our team our customers and our shareholders have placed in me. We're working hard every day to deliver on our mission and drive exciting growth in tandem with margin expansion, here's what that looks like.
In terms of where I'm investing my time and focus first I'm working on building a world class team from top to bottom.
As opposed to focusing on simply filling the needs of today and working with our leadership team to build the team we need for the next five to 10 years, we will focus on our next play mindset versatility mental toughness and the capability to deliver outsized outcomes as the core characteristics of our team.
That starts with the search for our new CFO , we have made a lot of progress in this area and we are very excited about the candidates that we have attractive we hope to have someone to announce shortly that I am personally thrilled about.
As Rick said I couldnt be happier about the partnership we've had with Jim his steady leadership has allowed us to take our time with the search for a permanent CFO . He has been the consummate teammate and done whatever the team has asked I sincerely appreciate Jim's leadership.
Second I'll be driving discipline and prioritization across the business. The one thing each of us truly controls is where we focus our attention.
We have a lot of exciting opportunities to go after and as you. All know we will unlock maximal value by focusing our efforts only in the areas, where we can have the most impact and deliver the most value for our customers that is the optimal path for shareholder value creation as well.
For every opportunity, we say, yes to we will say no to dozens and when we do say, yes, we will win.
From there our job is to block out the noise and execute.
Third I will be ensuring that we are aggressively pursuing our total addressable market opportunity, we valued added $52 billion.
And it continues to grow as axon unveiled new products and unlocks new markets.
We view our channel is one of <unk> core Differentiators, and we will continue to invest into new geographies and customer segments, such as commercial enterprises federal and adjacent markets.
We will also be scaling our VR drones records and dispatch businesses.
For every single one of our product lines, our best days are ahead.
That includes the Taser business, which is changing the world for the better is just getting started internationally I think there is going to be very pleased with what you see unfold here over the next couple of years and finally, the entire management team is looking forward to turning on the free cash flow spigot over the next several quarters, which open.
This is up a lot of options for us as a company.
This is totally within our control and we are implementing a plan to optimize the level of execution. In this area. We can do a lot better here with that I'll hand, the call over to Jim.
Thanks, Rick and Josh Hello, everyone. It's great to see you again, we had an excellent quarter as you can see in our shareholder letter.
Let me put some context around the results and how we're thinking about our outlook.
Top line momentum continued with growth of over 30% and gross margin improved sequentially.
We delivered second quarter, adjusted EBITDA of $50 million a margin of about 17, 5% largely reflecting some expenses that were unique to this quarter.
Let me unpack that for you.
During the second quarter, we spent about $1 million on axon accelerate our annual user conference, which has become strategically important to our sales pipeline technology leadership and ecosystem expansion.
Additionally, we made more than $3 million in incremental midyear bonuses to employees at the senior director level and below.
This was an intentional decision given the team for delivering on results in an environment, where inflation was impacting their lives we do.
Did so precisely because we have line of sight to stronger than expected revenue both in the quarter and in the back half of the year, which is reflected in our updated outlook.
We're especially pleased that we could issue this bonus without affecting our projected adjusted EBITDA margin percentage for the year.
The fundamental strength of our business allowed us to demonstrate our commitment both to our shareholders and to the team members who worked so hard for our customers.
With that context on the quarter, we're already focusing on the moderate operating expense growth going forward to help drive adjusted EBITDA margin expansion.
Our working capital needs were $23 million in the quarter and we have already started to see some of that reversed in July which is driving us to maintain our full.
Full year adjusted free cash flow outlook.
Finally, I'd really like to highlight our commentary in the shareholder letter about our technology partner ecosystem, which.
Which was exciting to see an action this past may accelerate.
In June we renewed our strategic technology partnership with Microsoft Azure, who will continue to be the primary host of our software platform and cloud.
This is a great partnership for us in many ways.
Microsoft is a global leader in cloud technology of course, they need no introduction, our customers trust, Microsoft and thereby feel secure putting their data into our cloud.
As part of the renewal we extended our contract term for another six years, which gives us long term pricing certainty and cost visibility for our axon cloud business.
The renewable supports our software gross margin target of more than 80% and also paves the way for faster international cloud expansion without diluting this target.
And what's also excellent about this partnership is the ability of affords us to offer pricing predictability.
To our own customers.
So it's just a win all around.
We also highlighted several of our ecosystem partners and strategic investments during our accelerate conference and in today's letter.
The investments we make are driven by our long term product strategy to set under the leadership of Rick Chief product Officer, Jeff Condoms and Josh.
Our corporate development team led by Andrea has been a key thought partner and enabling axon to grow into its role as the definitive technology for public safety.
Take pride in our approach to identifying emerging market leaders in the high value sectors that we know well.
Integrating their solutions with ours and combining them with the power of our direct sales channel and deep customer relationships.
Importantly, the structures our corporate development team has negotiated on behalf of axon provide us with significant flexibility and optionality on the investments we make.
The ability to obtain customer feedback experiment with product integrations and see how our teams work together allows us to preserve optionality for our business delight, our customers and expand our technology ecosystem and a highly efficient way.
With that Andrea let's take questions.
Alright. Thanks here all are in gallery, you, we'll take our first question from will power at Baird go ahead William.
Yes.
Alright.
Okay.
Andrew.
Yes.
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Sure.
And the next.
Yes.
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Yes.
Okay.
Yes. Thanks for the question will and nice to see you again I'd say for US we've talked about this a lot in the video mentioned our flywheel for US. The biggest thing we can be doing quarter to quarter is driving the number of officer safety plan subscriptions up that bundle is essentially all of our products outside of dispatch that we sell.
Well.
Sorry, dispatch and fleet and.
It provides optionality for customers to opt into records, but.
It provides a nice base for IRR between the license all the software add ons that taser virtual reality and so for US that's really the major focus in our state and local businesses to drive as many.
Yes.
Renewals and purchases of that plan as we can in addition to that I think we are seeing exciting growth in some of our newer segments. One of which is federal another is international and then even in newer ones like Justice and corrections were seeing an uptick and so I'd say all of those are combining.
To just provide a lot of wind at our back as we go on here and we certainly still feel like our best days are in front of us.
That's great just maybe just one more.
For you as you look at the Internet.
Rich.
Charity and earn a view.
Any.
Perspective on how the macro climate is.
In sales cycle submit.
Right.
Okay.
Yes.
Hi, Dan.
It sounds like Youre, feeling better and better about the taser opportunity.
Just any other color perspective, what's driving that optimism, yes, absolutely. So internationally in general to answer. Your first question I don't I don't think we're seeing any kind of macro impacts at this point in terms of.
Adoption interest buying cycles and so forth.
We've strongly performed.
In the Taser segment, we are seeing national police forces by larger order quantities of tasers than we've seen in the past, which is really exciting because when we're talking about.
National Police Force 567 times, the size of NYPD and they're starting their purchases.
In the thousands.
The high four digits.
In the five digit thousands of units of orders like it's very exciting because we know that we're very good at kind of the land and expand.
Type of playbook and so we look at these as really good indicators for the future of our Taser business. When we do we are working with more and more national police forces across the world.
I'd say on top of that our execution in our tier one markets. The UK, Canada, and Australia has been really strong where we continue to see more adoption of evidence dot com and body cams, but also kind of our newer features on evidence dot com like real time streaming and transcription.
And so the next step for US internationally is going to repeat is going to be to repeat that same.
Level of execution in tier two and tier three markets in there we've got to do a really good job of evangelizing the cloud and helping customers understand why the cloud is far far better as a mechanism for storing and sharing digital evidence and so we're working through that process will continue to build there, but we're really excited.
<unk> about all the work our international team is doing and they're really focused right now on driving the results upward.
Thank you.
Thank you and analysts on this call we assumed during Q. So you don't have to keep your hands up and but we got you. We'll take our next question from Erik <unk> from JMP go ahead Eric.
Yes, thanks for taking the question good quarter here.
Well on.
I don't know if you said this but can we assume that backlog grew from the from the.
End of Q1 to the end of Q2.
Or how should we think about some of the backlog that you carried over from Q4 into Q1 and did that roll into Q2, and then secondly, any comments about supply constraints does that improve or where are we.
From a supply constraint.
Hi chain constraint perspective.
I can so I think the first half of that.
Yes, so the we disclosed future contracted revenue Eric in the letter so that grew to $3 3 billion. So it's up versus a little bit less than $3 billion as at the end of <unk>.
Q2, and then yes, there is really no nothing in Q4, we had some unfulfilled demand.
<unk> enrolled in.
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For the year.
Right.
Okay.
Yes.
We do our through the dividend will continue to to be able to build the supply orders, but also start to build a little buffer there as well on on our Taser and core body camera lines.
Would you care to.
Yes.
Timing when wind supply chain might be relatively normalized any thoughts where it will be as we enter 2023.
Well at this point I don't think were guessing we're just executing against our plan and I think you know.
By the end of this year, we'll certainly see.
Some buffer in the Taser, seven and a b three or axon body three product lines and from there I think it will just be about optimizing the level of inventory, we we keep on the shelves and so from from an investor or results perspective.
I wouldn't plan on seeing any kind of abnormal activity in either product shifts or inventory backlogs.
Great. Thank you.
Alright. Thank you next question Sami Badri from Credit Suisse go ahead Jamie.
Thank you.
You made a reference earlier, maybe it was Rick regarding profitability being better in the second half of 2022.
And I think you just made a reference that second half revenue growth is at the second half revenue production is usually better.
In the first half so is there a specific segment or a product that's seeing very good profitable dynamics in the second half that's kind of giving you guys that operating leverage that's the first question the.
The second question is the free cash flow guidance was reiterated and unchanged for the fiscal year 'twenty two but it looks like there were some changes in capex could you kind of give us the puts and takes on that.
Sure thing I'll talk briefly about the free cash flow element there.
Mind may have your first questions family.
Products that are enabling better profitability in the second half of 2022 I'll take those two and then I'll kick it over to Rick on the on campus piece as well.
So in general I think we see stronger bookings in the back half of each year and that's really across all products.
This is the end of Q3.
If the <unk> and <unk>.
Fifth.
Year.
Okay.
Okay.
Adrian.
Okay.
Govern.
Covenant.
Product and Carnival, IP, but really across the board, we do see a lot of upside in the back half of the year.
And in terms of free cash flow I would just say, we've reiterated our guidance because.
We feel like frankly coming from sales. This to me is not all that different than inside sales, we've got to get in touch with customers have a process. We follow have well trained people on the phone get commitments follow up on those commitments and then just get to the point of real predictability, there and I think Jim and I are.
Partnering together there and we've just brought in a new leader I'm personally investing time with our accounts receivable team to build a playbook here, where we can really measure of efficiency and productivity, but this again. This one is really within our control and when we couple that like you mentioned Sami with.
A better EBIT.
Both dollars and margins in the back half of the year, there's a lot of opportunity to improve free cash flow in the back half and we're really focused on it and that's what we're going to do and so.
Kick it over to Rick to talk about the the new campus.
Yeah. Thanks, Josh.
So earlier this year, we had projected and accelerating spend on the new campus. We've got now one basically telling you we're going to slow that down we're pacing it out of it there's been a number of things that I'd say one of them is just the inflationary environment, what we've seen.
As you're getting ready to to really move forward one of the significant build out on the campus construction costs are just up pretty dramatically.
When we couple that with we are also seeing Covid resurging, I think even more than people had expected.
And we looked at the whole return to work dynamics, we've come to accept that the future is going to be hybrid work. So.
We also saw an opportunity to really like what is the best use of the overall land really optimizing for collaborative events customer centric events of course is the land we need in this space, we need for manufacturing and warehousing and all that.
But maybe shifting the balance away from the idea of people coming into the office.
So much and really more of a hybrid work environment and then in this environment as Wallach Theres lot going on and we just wanted to preserve some optionality of our cash.
Joseph We basically said, let's let's slow down a little bit, what's really kind of recalibrate and see what the post COVID-19 world looks like.
And lifestyle.
<unk> cool off a little bit and I will give us a little time, just keep tuning and refining the world is.
The constant state of flux, and we'd rather take our time and make sure we get them right.
Got it thank you.
Alright next that Keith <unk> Northcoast go ahead Keith.
Hey.
Secondly, I cannot fully dependent on the campus headquarters, we're already starting to add to sort of build out that automation I think part of what we're seeing in the first half was really pressure in terms of growing into our expanded manufacturing.
<unk> footprint, so we've been investing to sort of build out the footprint of capacity to build and I think it would be grow into those spill plans I think we'll see better overhead absorbed Shannon there are and I think that's a that is not contingent upon the VW Gotcha and then the professional services aren't heard the software and sensors gross margins.
In advance of the address of the system, you're putting in there where it was that spending being done.
It covers CAD RMS AMR are sort of the software pieces, but there is a heavy fleet.
Or as well so.
Okay.
Yes.
Pete.
Thanks again.
Listing of the.
Revenue growth as well, so it's sort of set the groundwork for future growth, but I think DSO is an important part of us controlling that customer experience and really getting sticky customers. Okay. Alright. Thank you I appreciate it.
Alright awesome. Thank you. So much next question from Jonathan Ho at William Blair Go ahead Jonathan.
Hi, Good afternoon, I just wanted to understand first of all with your head count increases can you talk a little bit about where you're making sort of those incremental iron and what sort of changed for you to want to make those hires now I think you referenced a better hiring environment, but just curious in terms of your thinking.
Yes, absolutely I think look the last couple of years, we've hired very very aggressively across all segments of the business and now our.
Starting in in a lot of places to grow into that size and not need to hire as aggressively but the one major exception to that is in product I think from our perspective.
We have a lot of great ideas and we limit those what we do based on where where we think we have the most upside and also the size of our team in and what our team can take on and so for us as long as there is talented.
Engineers product managers on the market that can help us deliver product faster and build.
Products that we feel can really change outcomes in public safety, we're going to keep investing there and so I think going into next year.
<unk> said its going to be get a little leaner in terms of our hiring plans in SG&A and continue to be aggressive where we can.
Oh.
Yeah.
Okay.
And our.
D.
Okay.
Yes.
Awesome.
Sure.
Was there a dissipation tightened about think of it I'm not sure. It's a lack of oversight I think certainly we've got very good controls and processes in place to measure expenses, but I think at times, we've we've gotten just a little bit.
Bought it and how we think about things from the number of.
People that attend meetings with customers like Rick mentioned or you know.
Yeah.
Yeah.
Flat.
Okay.
Another.
Yes.
Where.
We.
We.
Yeah.
Maybe.
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Okay.
The glazing.
Men.
Outside thing or our employee sentiment at axon and I think we can thread that needle very effectively Jonathan let me jump in and add it as well like a business like any community count sort of have all messages all resonate all at the same time.
So you go through cycles with several years ago. We had these scrappy here where that was opportunity for saline is okay. This is a year, we want people to really like.
It's very similar overdue expecting like VIX yours they'd all be scrappy was hey, we want to focus in on finding ways to more efficiently get things done and reward people are being scrapped or not.
Throwing a body at every problem.
We've had a fair number of new employees come in and certainly we have our standard expense controls and training, but we felt with what's happening what's the overall market's down inflation.
Other companies are they more aggressively cutting back their investment players. We saw this as an opportunity to meet with our employees.
Spending like it's you're right. This is a moment, let's take what's gone outside everyone has things in your control, where you cut back spending and by doing that we will all be rewarded in the market is rewarding companies that have more financial rigor and we can also reward you by investing and not having to pull back on our investment plans and the exciting.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Yep.
Chip.
Okay.
It's been about Europe .
These are the times and accelerate our growth. So I hope that gives a little bit of context as to how we.
So all we could position this look our company employees to really get them, all running say direction, yes.
Very helpful and going back to I think I, probably add back to just the fact overall travel Costas bank everybody seen also went up sort of at the same time as we certainly dealt with that sort of pent up post pandemic demand and I think as we've done.
And as Greg.
Jen.
We had job too.
Oh.
That's way down.
Awesome.
From a trend.
Perfect.
Good morning.
Yeah.
Australia, Laurie <unk> Andrea for the question.
So taser revenues, obviously were above what we were modeling you touched on this a bit but how much of the back orders you expected at the end of last year.
To become green.
Yes.
Thank you.
Thank you.
Okay.
Bye.
<unk>.
Great.
Okay.
Hi, Ann.
Okay.
<unk> revenue.
So I'd say, it's fair to say and because sequentially Taser shipments go up in the back half of the year.
We still feel like Q3, and Q4 will be.
The highlights of the year revenue wise and so.
I think that's kind of the story Q4 tends to be a little more.
A little higher than Q3, but you know over the years, we've seen we've seen the inverse of that as well, but as a back out we certainly have a lot of confidence that will outpace the first half of this year in revenue.
Got it that's super helpful. And then on the Axon fleet units, both increased nicely as well quarter over quarter.
Should we assume that all of those are fleet three at this point or are you still shipping any fleet too and then how should we think about the level of supply constraint versus demand.
In terms of the mix of fleet Theres still a little bit of week, two but mainly for at least three and of course, a lot of body camera shipments going out supply chain constraints I'd say.
We have plenty of supply to deliver on our guidance in the back half of the year.
Alex byproduct when we get outside of our core Taser a body camera products. There is a little bit of flux month to month there but.
In a macro sense, we're feeling great.
Great about where we stand from an inventory perspective.
Awesome Thanks des.
Alright, Jeremy Hamblin, Craig Hamblin, Craig Hallum go ahead Jeremy.
Thanks for taking the questions and congrats on a strong momentum in the business.
So federal contracts clearly a pretty key segment right now really a big driver of the business. Some of the momentum there I wanted to get a sense for whereas we've seen.
Executive order mandating.
Mandating.
Federal agencies to use body cams wanted to get it.
Yeah.
Yes.
Paul.
Okay.
Okay.
Okay.
Okay.
Oh, Yeah, I think it's a good question, Jeremy and as you'd expect it varies a little bit and say it looks like the United States, Canada, Australia, and the UK were relatively early adopters of body cams. So even if a mandate were to come down at this point I think I don't know that it would change the buying behavior all that much in those three.
The markets I think the market is decidedly already shifted to body cameras there.
In other markets, we're starting to see.
I'd position it.
International governments are starting to dip their toe a little bit into a into the body camera world will start to understand kind of what's going to work for them and what's not and so I think we do have a lot of opportunity there first with cost kind of small and mid sized orders and then growth overtime and so that's the.
That's that's really where we see kind of international Boeing in terms of body cameras, but like I mentioned, we are seeing international government start to deploy tasers with a lot more conviction.
Conviction around the globe and when we should expect to see that continue for the years to come.
As a follow up question.
Domestically federal contracts in terms of the value that you're getting.
In those deals right youre talking about a huge buyer of buyer that's been mindful.
To look at.
Gideon best pricing et cetera.
So wanted to understand in terms of length of contracts, there and kind of the value we're getting the ASPD.
How that compares obviously without getting into specifics.
Specifics.
But just understand that a little bit.
Of that buyer.
Is that for international specific know domestically are domestically okay.
Well it was Eric I think the question was about our federal buyers of bedrock okay.
Separately mirrored in our federal government as is generally mirroring what our state and local customers are doing pricing wise.
We do have some commitments.
Make sure that we are.
Recognizing the federal government and then most favored nations clauses in some of those contracts but.
Ultimately, we do feel pretty good that those license types and sizing is similar to what we see is far far far ahead of where a R.
When our state and local customers started to buy in large volumes.
The federal government.
Tennis.
Skip.
Is that.
Okay.
Okay.
Okay.
Recycle.
Okay.
The nightmare requirement.
In some certain terms of hardening of different devices or or software to meet certain federal requirements that in some cases came and it could even lead to premium price great. Thanks for the color best wishes.
Thanks.
Great. We have one more analyst and then if any of you guys have a follow up we'd love to take your follow up because it looks like we will have time. So we'll take our last question from Eric Lapinski at Morgan Stanley Go ahead, Eric.
Thank you I, just maybe wanted to follow up on the federal market. Some of the comments you guys made there I'm curious in terms of just the on bundling that youre seeing in the federal market are you seeing similar uptake of OSP seven plus I know that.
A number of agencies already have tasers or are they looking at body camera contracts kind of separately or a bundling when you see those deals.
I'd be curious and kind of what it looks like yeah.
Great question, then Eric I'd say.
We're seeing kind of that.
Department by Department, a little bit of everything I think the agencies you mentioned that agencies already have taser has a lot of those are up for upgrades. So it's a great time to buy our body cameras and software and bundle those that upgraded version of the Taser in would that contract other customers are buying software only.
Our investigator package first for certain for certain customers and the federal government and <unk> and then some standalone activity as well the one really encourage or theres a lot of really encouraging things here, but one of them that stands out as customers are also buying across our suite of products Theyre seeing used cases for live streaming.
We're seeing use cases for our records are seeing sleep three.
Interest and so really across the board, we're seeing a lot of interest and a lot of different products from the federal government and its really a credit to the work Richard Coleman, our head of federal and his team have done is really kind of transformed over the last few years from kind of a steady state market into an exponentially growing one.
Thank you that's helpful and if I can sneak in another one I know the corrections market is kind of another expansion area for you guys that we didn't talk that much about this corridor.
I'd be curious if just any whether its from funding initiatives are tracking or kind of just what the states are looking at in terms of the corrections market.
Being more of an uptick there or if it's kind of I know there had been a couple early prism over the past couple of quarters.
But just in terms of kind of building on top of that yes. The team is definitely growing and for US I think it's more of a it's less about the federal government you know give.
Giving grants for fundings or any kind of overall market effects. There I think it's more just historically, we haven't really had a team focused on erections as its own market. We really did a lot of correction sales through the sheriff's office, while they were buying products for the rest of their deputies and now just having a really focused team.
We're starting to unlock a lot of that market on a much more predictable basis, and so I think the growth there just attributable to our team's focus as opposed to any external factors.
Yes.
Thank you.
Great looks like we have a follow up from Jonathan Ho at William Blair. Thanks, Jonathan.
Just a couple for me I wanted to maybe dig a little bit into your Microsoft opportunity can you talk a little bit about on.
Paul.
Hello.
Okay.
Okay.
Bidder.
Okay.
From ft.
I'm sorry.
Hi, Sandburg, hoping we can go.
Yeah.
At a high level it enables it to us.
It supports our target long term of having 80 plus percent software gross margins and I think the duration of that contract is really helpful for us for having that card financing and visibility to our pricing when we set our contracts with customers. So I think it helps us.
Over time sort of mix sort of maintained slash expand our axon cloud gross margins I think the best thing of the Kosmos gives us predictability.
Got it got it and then just in terms of the commercial market can you talk a little bit about your progress there and there may be some of the go to market opportunities that you see is specific to commercial.
Yeah, we're we're thrilled with the opportunity there Mike.
Mike Shore and his team have just done a great job.
Building something from you know, we don't get those those.
Same advantages, we stopped sometimes happen in the public sector, where the referral network and stuck with them build those from scratch and Mike and his team have done a great job of that and all of her team continues to be opex cadence of kind of doubling every year and that has happened in terms of the results for the last three years now.
We're we're still probably about 90% of the way there on product market fit where we've got some really evangelical early adopters that are that are excited about how things are growing and now it's just kind of closing that last 10% of some of the product market fit items and really expanding each year end.
I think we're really really well positioned to do that and you'll start to see some some names that you're very familiar with.
Adopting our products for more commercial purposes.
That's it for me thank you.
Great do you have any other color you can give me a second.
You can see that thinking okay.
Alright, let's have rig closes out.
Alright, well.
Obviously, another great quarter, I'm really proud of what the team was able to deliver.
You know, it's there's a lot going on in the world.
And our team just really dig in and Josh just does a great job of keeping people focus right block out the noise. There is a lot happening in the world that we can effect, but there are things within our control and more referral gets the better the results our incentive fee. So I appreciate everybody joining us today and we look forward to updating you on our back.
Have a great day.
Okay.