Q4 2022 Axon Enterprise Inc Earnings Call

Speaker 1: Hey everyone, today we're reporting to you from TeaserCon, a new conference where we put out some big news. In November , we told you about our moonshot goal to cut gun-related deaths between police and the public by 50% in 10 years. And investors who've been with us for a while might recall that two years ago, our CEO and founder,

Speaker 1: investment that went into this weapon, we're going to spend some extra time on it today. We want to give you a sense of the culture of innovation and care that drives success across our company. That said, remember that Taser segment revenue represents about 45% to 50% of our business. And the other half is a growing enterprise cloud software suite, body cameras and in-car dashboard cameras.

Speaker 2: Who is an officer ever need to use lethal force? Police don't use lethal force because it's lethal. They use it because it's reliable. It's the most effective way to stop a threat. Today, public safety has limited opportunities to stop a threat with a less lethal weapon. And when less lethal tools don't work,

Speaker 2: to find a solution to a problem that was and is costing lives. We had conversations with both public safety and the community. We really involved the true end users. The only motivation we needed was knowledge that when this product launches, lives will be saved. We owe public safety and communities a better way to stop threats, without having to take a life.

Speaker 2: When we set out to develop our next generation TASER energy weapon, we couldn't make a weapon that was simply a small step above our last model. We needed a weapon that would begin to shift how the world looks at less lethal technology. The key is to find common ground. We want people in the community to be safe and feel safe.

Speaker 3: Rick has a history of being an incredible innovator. For outsiders, it might appear to be an unrealistic timeline, but if you know Rick, you know anything is possible. For Rick, this was never about money or profit. This was about the mission. He'd remind us on a daily basis that lives were being lost, and as a team we knew that there was no excuses. We just had to figure out a way to get it done.

Speaker 3: It's really all about the missiles. You look at the causes of ineffective use of the case or energy weapon and everything indexed back towards, I just need more rounds. We had to find a way to get public safety more cartridges and more capability in the same size weapon. We also knew that trust in the weapon was going to be key, which is why we focused so heavily.

Speaker 2: and improving taser technology for 30 years. I've dedicated my entire career to the idea that we can and we must find a way to stop threats without taking lives. I'm the first to admit taser weapons aren't perfect, but taser 10 is a hell of a step towards making taser energy weapons the most reliable and effective force option.

Speaker 3: twice the distance of our previous models. That's pretty incredible. When someone steps back and deploys their weapon from 35 feet, even 40 feet, they're astonished. That's when they realize this device is truly groundbreaking. It's important that the TASER-10 can be effective at stopping threats in situations.

Speaker 2: Having 10 cartridges is a real game changer.

Speaker 2: Currently, TASER energy weapons have one to two cartridges. Officers in the field now have significantly more chances to stop a threat with a less lethal weapon, increasing the possibility of an effective outcome. And because this weapon only deploys one cartridge at a time, officers now have even more control over creating a large enough probe spread to really cause immobility. This device is part of a larger movement within Axon to make change at a faster pace. Axon has a moonshot goal.

Speaker 3: Sh between public safety and the community. I hope thatwhenthe agencies here about ter 10, they're excited knowing that they're going to be able to protect them, servetheir communities more safely and more effectively than ever before. I hope that officers feel relieved knowing that they'll have a tool designed to keep them safe and avoid having to take a life. Hope communities.

Speaker 2: or it's near them. That one decision dictates whether or not someone ever goes home.

Speaker 3: I feel a sense of true hope watching this technology be adopted, and I can't wait to see where the coming years will take us. We're excited about the future and already executing against our 2023 plan, but we do want to take a moment to reflect on our 2022 performance.

Speaker 1: Brittany Bagley. You can expect Axon to exhibit compelling revenue growth, financial discipline that drives bottom line leverage, and strong management of working capital and cash. And on the product front, you can count on us to invent and deliver at scale across our product suite, including our staff software platform, our body cameras and plate in-car cameras and more. We are also primed to win new...

Speaker 2: All right. Thank you, Andrea and Angel. Great job. And to our investors, I hope you can feel the passion that comes through in that video. And I'm just so humbled to be a part of this team. And the formula has really worked for us.

Speaker 2: is when we focus on one of the most important problems we can solve. That gets us solving the things that are also the most valuable problems for our customers. And that ultimately puts up the results that you see from last year. So, Taser 10 is the most sophisticated, accurate, and effective Taser energy weapon we've ever created. It's a hugely forward. Future generations may simply take for granted the existence of these truly capable, less lethal technologies as if they had always existed. And like all technological advancements that drive our society forward, that is our goal.

Speaker 2: Now the customer reception has been fantastic. We are incredibly humbled to be at the forefront of breakthrough technology and societal change. Our 2022 standout performance with revenue up 38%, strong profitability and cashflow, follows multiple years of exceptional results, even through difficult macro environments. Axon's history of superior execution can be traced to a few key things. Our vision and mission, our long-term strategic thinking, and that attracts.

Speaker 2: Just an amazing team of passionate and talented people. And our relentless focus on customers. We build upon a solid foundation of customer trust. And finally, our conviction to double down on investments to drive unprecedented change and cumulative growth. A prime example of this is the foresight we had more than a decade ago to start building a software business. In 2022, our recurring high margin cloud revenue comprised more than 30% of the company total. It's great to see our long-term strategies continuing to bear fruit. To that end, I'll take a moment to talk about areas where we're currently investing to ensure that Axon continues to drive value creation well beyond the 2025 planning horizon we're sharing today. The future of policing will include more robotic security, full stop. We stood up our Axon Air program a few years ago, and we continue to invest in that. We view drone and robotics technology, first and foremost, as a way to extend visibility and communications for first responders. Robotic security is already playing an increasingly important role in search and rescue, as Dr. Mike Augustine says, about natural disaster response.

Speaker 2: crime and accident scene reconstruction, and a new category of DFR, or drone as a first responder. We see potential for robotic security to play a greater role in de-escalation. Numerous high-profile cases, we've all seen these tragedies on the news, have inspired police departments to do everything possible to reduce the frequency of use of force incidents. Substituting a robot for a human can help in many types of scenarios. One example is high-risk entry with SWAT teams. We see the opportunity to reduce the need for people as police officers to enter a home with firearms drawn, for example.

Speaker 2: Another area we see coming is the fusion of intelligence ecosystems that integrate with public safety, allowing video from multiple types of cameras and sensors to port into one system, both to assist in real time response and to support investigations. We're also excited about these recent advances in generative AI. Nearly six years ago, we published a vision video with the idea that artificial intelligence could one day extract key information from body camera videos, which, together with a brief oral description from the officer, could be used to write the police report for that officer. Well, that vision no longer feels like science fiction. This vision was part of our thesis and our focus on artificial intelligence.

Speaker 2: and building out our cloud infrastructure over the past decade. And we're excited to see what capabilities we will be able to leverage over the next few years to delight our customers and to make our public tax dollars much more efficient by automating many mundane yet very time-consuming tasks. And finally, when we build for the future...

Speaker 2: We collaborate with our trusted constituencies. We work with governments, city councils, public safety, and our ethics and equity advisory council. This council provides invaluable feedback. They ask us the hard questions and help us to see around corners. We look to them for assistance in ensuring ethical design and that we continue to work with our council leaders who are each dynamic, highly successful, and impressive individuals in their own right.

Speaker 2: With that, I'd now like to turn it over to our COO, Josh Isner, to talk in more detail about the business. Josh. Thanks a lot, Rick. Last August , I talked about four major areas of focus for the back half of 2022, and I'm pleased to report that we delivered on all fronts. First, we are driving discipline and prioritization across the business. We say no to many opportunities, and when we do say yes, we win.

Speaker 2: The results of our efforts include a phenomenal close to the year with revenue up 44% in the back half and more than 50% in Q4 alone, and then a game-changing product launch of Taser 10 just a few weeks later. The second area I talked about was investing to penetrate our total addressable market. In our shareholder letter today, we introduced a new TAM analysis, which outlines a $50 billion opportunity and shows growth in our core markets. That core TAM, which includes our SaaS categories, cameras, professional Taser, Axon Air, VR, and a customer base that includes US Federal, International, and Commercial Enterprise.

Speaker 2: Grew from $34 billion to $45 billion in our updated analysis. Much of the TAM we pursued today is in areas where our investments have helped position us as a leader and as a pioneer. We see ourselves as a best position to deliver on the future of policing that Rick discussed a moment ago. Thirdly, I'm very pleased to see us deliver on our promise to generate strong cash flow. For the full year, we delivered 195 million in adjusted free cash flow. This was an 84% conversion on adjusted EBITDA of $232 million.

Speaker 2: beyond. We are building a culture where we expect to deliver on our commitments to employees, to customers, and to our investors.

Speaker 2: Looking forward to 2023, working with Brittany, we have streamlined our company-wide bonus metrics to four core items. The entire organization is incentivized to measure, drive toward and exceed the following. Number one, revenue. Top line growth remains a top priority. Number two, adjusted EBITDA margin, which Brittany will take you through in a moment. Number three.

Speaker 2: New market expansion in the US federal government and international markets, and number four, new product adoption, ensuring that the products we are building continue to be adopted and used by our customers. We never stop helping our existing customer base to walk up the value chain and take advantage of our new software features. Finally, before bringing lays out our three-year plan to achieve $2 billion in revenue, I wanted to provide some color on what we think will help us build toward that milestone. Our path to $2 billion in revenue and beyond will be driven by a combination of selling new products into our existing markets.

Speaker 2: and by selling existing products into new markets. We continue to introduce new products that deliver value to our existing customer base of US state and local law enforcement and we believe we will continue to grow our share of wallet in that market. Items such as Taser 10, Fleet 3, Virtual Reality, Axon Records, Axon Dispatch, Axon Air, and the multitude of Evidence.com add-ons will continue to drive growth amongst our state and local US customers.

Speaker 2: In parallel, we will continue to grow international, federal, and enterprise leveraging our core product portfolio. Not only will the combination of these two simultaneous motions create top-line growth opportunities for the future, well beyond 2025, but they will also provide multiple paths to our annual revenue guidance year in and year out.

Speaker 2: We will continue to grow international, federal, and enterprise leveraging our core product portfolio. Not only will the combination of these two simultaneous motions create top-line growth opportunities for the future, well beyond 2025, but they will also provide multiple paths to our annual revenue guidance year in and year out. And with that, I'll turn it over to Brittany.

Speaker 1: Thank you, Josh. It's particularly gratifying to see broad-based strengths across the business and our strong 2022 execution. Both software and hardware are driving robust performance. Notably, Axon Cloud now represents about a third of our business, carrying best-in-class metrics on growth and net revenue retention. In 2022, cloud revenue grew 50% to $368 million with a 73% gross margin. Annual recurring revenue has grown to $473 million and the net revenue retention is 121%. In addition, we are incredibly proud of the fantastic job Axon has done selling hardware and subscription bundles. 90% of total revenue in 2022 was tied to a subscription, compared to just a few years ago when less than half of revenue was subscription-based. On Josh's commentary regarding the TAM opportunity, he said,

Speaker 1: of cloud revenue that we had previously underreported. This revenue relates to work that was completed in prior periods and was unrecognized due to our ERP implementation in 2021. While the impact is immaterial to our financials, it did result in a material weakness.

Speaker 1: Remediating this will be a focus in 2023, and we have laid out a detailed plan in our 10K. Against the backdrop of an exceptional 2022 and an improving demand environment, we are thrilled to be sharing another robust outlook for the year ahead.

Speaker 1: Additionally, now that I've had some time to dig into the business, we are introducing three-year financial goals. Looking at 2023, my key financial priorities for the year are the following. First, executing against our financial objective of delivering revenue growth of 20%. Second, working towards long-term gross margin improvement.

Speaker 1: We feel confident in the levers we can pull on gross margin over time, which include investing in automation, improving manufacturing efficiency, further growing our software revenue mix, and offsetting inflation with pricing. In 2023, we are balancing these opportunities against ramping Taser 10 in the first half of the year, and continuing to catch up on our fleet in-car camera installation.

Speaker 1: Our fleet business carries a lower margin up front and transitions to high-merge and recurring software revenue over time. Third, controlling operating expenses by enhancing our financial discipline.

Speaker 1: In 2023, we are still digesting large investments we made in 2022 and investing for growth. We are guiding to 20% adjusted EBITDAM margin, which implies 50 basis points of improvement year over year.

Speaker 1: Fourth, delivering on our ecosystem vision by leveraging strategic partnership, investments, and potentially M&A. And fifth, setting us up to ensure we are on the path to hitting our three-year goals.

Speaker 1: Turning to those goals, our 2025 outlook for more than $2 billion in revenue is underpinned by our confidence that we can deliver on the 20% CAGR that we've communicated previously and as Josh laid out the drivers.

Speaker 1: Over the next three years, we also expect to drive gross margins and leverage our operating expenses to achieve approximately 25% adjusted EBITDA margins. We are excited to demonstrate the increasing profitability of the business.

Speaker 1: and this represents significant expansion of more than 500 basis points. We are also focusing on cash flow, and through prudent management of working capital and CAPEX, we are targeting a justice recash flow conversion above 60% on adjusted EBITDA.

Speaker 1: This allows us to both invest in our business and deliver attractive free cash flow generation.

Speaker 1: Finally, we have heard you on share count dilution, and while we will spend the next few years working through existing stock comp expenses, we are committing to bring our dilution down on a go-forward basis. Personally, I'm incredibly energized by the runway we see over the next three years.

Speaker 1: Axon enjoys a compelling business model delivering subscriptions to a stable and growing end user market. We enjoy low global tam penetration, strong customer relationships, and innovative R&D capabilities that are building solutions to meet a critical market need.

Speaker 1: With that, I would like to open it up to questions. Okay, thank you. And do we have everyone in gallery view? Okay, awesome. Sammy Badry from Credit Suisse, you are up.

Speaker 4: Yes, thank you very much. Just have a couple. First one is for Rick. You know, I think Brittany just mentioned that Taser 10 is going to be ramping up in 2023. But one thing I think that you laid out in the video is just the feature set and what Taser 10 actually proposes to a lot of your customers.

Speaker 4: Would there be customers that feel very strongly about maybe a early shipment or an early refresh of their actual taser non-lethal weapon, or would they have to stick to kind of the plan or subscription type timeline that they've already signed and are subscribed to? Well, great question. I would say I have never seen demand this strong in a new taser launch in my history in the business, which

Speaker 2: the on our contracts with the multiple deliveries is a bit complex. So we're taking those on a case by case basis, but we believe that overall, we will be able to find ways to accommodate customers, to be able to take early upgrades in ways that also, you know, work for our shareholders and for, you know, that are profitable for us and help our customers get this capability sooner without the need for any big one-time expenditures.

Speaker 2: by just being able to bring forward and adjust. And obviously we hope they'll also upgrade to some of our other new capabilities that we're launching some of our new VR and other things. So we think this really, the business model continues to set up a win-win for us and our customers. And one great example is the ability for us to accelerate their upgrade cycles. Got it. Thank you. Next one is for Josh. Josh, you talked about how compensation will be measured.

Speaker 4: by four key drivers, one of the drivers was actually selling other products or cross-selling. Will that include ecosystem partners that are part of your Axon cloud feature set also being pulled through in the sales motion, or is that very isolated to just Axon products and services? Yeah, great question, Sammy. I'd say...

Speaker 4: You know, anytime we're a sales agent, you know, there is a revenue impact when we sell through a, you know, a partner's product, but, you know, to set expectations, I think that'll be a relatively small part of our overall revenue for next year. So it's part of it. And then when you look at the the RAP level commission plans, we do have a new product sales team that is...

Speaker 4: essentially compensated in large part in momentum of both new products and partner sales. So that's how we solve for that. Got it. And then one last one for Brittany. Brittany, for the 500 basis points of expansion by 2025, is this going to be back half loaded across these three years just because of the comment you made regarding some of the products, well, the comments you made.

Speaker 4: in large part in momentum of both new products and partner sales. So that's how we solve for that. Got it. And then one last one for Brittany. Brittany, for the 500 basis points of expansion by 2025, is this going to be back half loaded across these three years just because of the comment you made regarding some of the products, well, the comments you made and.

Speaker 1: the comments made in the actual press release regarding margin neutrality for some of these products and then as they ramp up with software design. I think Sammy froze, but I think we got the gist of this question so we can answer it. Yeah, so I'm taking the gist of the question to be when might we get to that 25% margin? And we're really looking to make sure we get there by 2025, Sammy, like there are a bunch of those puts and takes that we're looking at both for 2023 and certainly part of getting to the OPEX leverage that we've talked about is getting to that 2 billion in revenue and so we need to pull those levers and it's nice that we have multiple different levers to get there both from a gross margin and an.

Speaker 4: significantly year over year. And as I'm sure you're aware, we've talked about in the past that we do measure five year normalized bookings as kind of a forward looking indicator of what revenue will look like into the future. And not only on a growth basis, but on a year over year basis. And we continue to be optimistic about the results we're seeing and the five year bookings growth.

Speaker 4: and in that five year bookings growth rate. It's a combination of seeing a lot of really exciting indicators in our new markets, seeing our new product scale, and seeing some of the reinforcements in terms of future revenues that the look into bookings provide. Excellent. Just with regards to the Taser 10 case of adoption, can you remind us what happened when Taser 7 was released? Do you worry at all about maybe customers delaying orders to purchase the 10?

Speaker 4: and new customer shipments and it provides certainly one path to meet our guidance for the year. We're going to exceed our guidance for the year but there are several paths toward that goal as well. So, you know, we don't want to get too far out of our ski, out over our skis here. We want to make sure that the product we ship is a very high quality one that scales.

Speaker 4: very well in the field. And as we do that, we'll certainly continue to ship all the other high demand products that we offer to combine for a really nice year this year. Thank you. Thank you. Next question, Eric Seppiger from JMP. There we go.

Speaker 5: So a couple questions here. First off, it looks like your tether revenue was down sequentially. I'm curious, was there any reason for that and conversely the axon cloud and the sensor revenues were up sharply? What was causing that? And I think you had some.

Speaker 4: supply chain constraints that were a factor last quarter. What happened with those various dynamics? Yeah, absolutely. I think it's just timing of shipments and orders and I think toward the end of the year as we looked at the year and the upcoming product launch, we wanted to be thoughtful about with a product launch a couple of years away.

Speaker 4: maintaining flexibility for our customers as we knew some might be interested in the next one. And so we tried to manage that as best we could and we're very excited to see the supply chain opening up on Fleet. I think you'll notice that was a big item in terms of the volume of Fleet that shipped in Q4. We expect that to continue throughout the years. You mentioned some of the supply chain challenges historically. We're cautiously optimistic that we're...

Speaker 4: We're past kind of most of the storm there and feeling good about having the opportunity to ship certainly record-breaking amounts of Fleet 3 this year and of course plenty of phasers, body cameras, and some of our other solutions as well. Okay, and then your, can you give us a general idea of how much of your installed base has been migrated to the TASER 7 at this point? You know, I don't have the exact number in front of me but I'd say, you know, over the last year.

Speaker 4: In terms of the amount of CW shipped, Taser 7 was above 80 to 85 percent of the total there. So I think that speaks to the fact that much of the market had moved over from our legacy smart weapons into Taser 7. And now, you know, we have the opportunity to, of course, upgrade all of our early Taser 7 customers. But as something you mentioned earlier, that market has to be well behaved and hopefully Palestinians will permanently damned. And that's exactly what I was going to say. So I would say as soon as we are technically pillars, we'll definitely need to become you know, the embrace Anthony manager other than Scottmud Commissioner Jayanchez. Please throw here if you're coloured. directed at your in both the two

Speaker 4: Thanks, guys. Appreciate it. We look at the community time coming out. First off, you guys are now just to get that community to pool it. And then second, if we look at past robots, other taser weapons, there's obviously been some challenges in terms of the first margin recognition in those first few quarters.

Speaker 2: So perhaps you guys can address, you know, steps you guys have taken over the past several years to identify and address those issues and what you guys are doing different with this rollout to protect your gross margins.

Speaker 1: I think it goes to everything from how we design the products to how we design our manufacturing We've talked about how when we get to scale, which will happen in the second half of the year, so we are calling it out as a little bit of a potential headwind in the first half.

Speaker 2: was the first major product to launch under the new regime, you know, with Hans Moritz running our R&D and, you know, John Roff and his team running engineering and building in and others in NPI. And basically what we saw with PLE3, we injected probably six to 12 months of additional.

Speaker 2: pre-release testing to really validate the product. And that paid off in a big way where PLE3 is a very sophisticated product, but it's had among the lowest out of the box return rates and customer bugs reported of any product we've ever shipped. And Taser 7, I'm sorry, Taser 10 went through a very similar...

Speaker 2: It has been in testing with a highly automated production line for probably six to nine months leading into the launch here. So the level of testing compared to previously when we were maybe a less mature company and still making that transition from the more entrepreneurial days.

Speaker 2: that there's just a lot more time, effort, and expense that goes into the upfront testing, but that is paying dividends in the stability and reliability at which we're able to scale these without some of the challenges we had with T7 in particular come to mind.

Speaker 2: There's just a lot more time effort and expense that goes into the upfront testing, but that is paying dividends in the stability and reliability, which were able to scale these without some of the challenges we had with T7 in particular come to mind. Great. I have a research.

Speaker 4: Okay. Taser 10 is, uh, Taser 10 will start shipping in March. In March. Okay.

Speaker 2: And then just if I could, you know, Brittany, perhaps you have some of the context or color regarding the convertible note offering you guys did in terms of plans that you guys had to use that cash.

Speaker 1: Yeah, of course. One, I would say, you know, as you can tell, because it's been a little bit of time. Now it was very much opportunistic from our side to strengthen the balance sheet and to give ourselves a bit more flexibility from a capital standpoint. And we think we found a time to...

Speaker 1: might potentially consider M&A as we look going forward. And so we want to make sure that when we find something that is appealing from an M&A standpoint, that we're able to be on our front foot and move quickly and smartly going forward on that.

Speaker 1: We spent a lot of time on that convertible offering, talking about what might we look for from an M&A standpoint, because that was that was top of everybody's mind. And so a little color is, I think if you look at our M&A history historically, that's probably a pretty good indication. We're really looking.

Speaker 1: for either technology or talent that will support our future product roadmap and or our move them shot whole and mushrooms.

Speaker 6: Thank you. Thanks, Keith. Paul Chung and J.P. Moore again.

Speaker 7: Great. Thanks for taking my question. So just another follow up on kind of the pace of operating leverage through 2025.

Speaker 7: You know the pace accelerates a bit in 24 and 25 to get to that 25% How do we think about the op-back space kind of relative to gross margin expansion and you know longer term? Can you still get to that 30% mark you've mentioned in the past?

Speaker 1: and then we'll start looking out from beyond there in terms of where we will go. So I wouldn't say we're pulling that, but maybe we're phasing that out and focusing on what is actionable and in front of us and what we really see a path to right now, and that's that 25% in 2025. I think you are correctly interpreting that we've got some puts and takes.

Speaker 1: to find the pieces a bit more, but for right now, we're just really looking on driving both of those together to hit that 25%. And again, it's about 50 basis points of leverage in 2023. So, you know, you are all correctly picking up on more of that improvement will come in 24 and 25. Okay, great. And then just to follow it by.

Speaker 7: On cashflow, can you expand on kind of the big upside relative to prior guide and you know your bug your target kind of conversion rate this year or in back in 2022 and then.

Speaker 7: How do we think about free national conversion in 23 and the puts and takes there?

Speaker 7: You know is at least 60% conversion longer-term Somewhat conservative doing you know, given the tough back macro backed up you guys hit 8% plus mark is that can we be at that 8% mark pretty consistently. Thank you

Speaker 1: Yeah, no, those are all excellent questions. I might go in reverse order, which is, I don't want to say that we'll be at that 80% plus consistently. We're really, we're looking to be at that 60% plus.

Speaker 1: And the reason that we're there rather than the 80% plus, even though we did a phenomenal job on free cash flow generation this year is if you look at 21, I would say we did a less phenomenal job on free cash flow generation. And so if you look at sort of 21 and 22 together.

Speaker 1: You know, you actually get back to that roughly 60%, 65-ish percent free cash flow generation on average between those two years. And some of the things that lead to that just are, you know, investing in working capital and investing in inventory as we continue to grow our hardware business, continuing to invest in CapEx like automation.

Speaker 1: but I think as you look over a three year period and as we've looked back that's that's probably the right expectation level to set while we are growing at the kind of rates we're growing at. So you know if we if we aren't growing at 20% plus anymore would we revisit that free cash flow target? Yes certainly.

Speaker 1: but at those types of top line growth rates, we think that's the right balance in terms of what we're flowing through.

Speaker 1: of top-line growth rates, we think that's the right balance in terms of what we're flowing through. Okay, great. Thank you.

Speaker 4: Thank you. Little power at there. I got a couple of questions. I guess I better start with Taser 10. Probably for either Rick or Josh, you know, work. I guess over a month past Tasercon. I wouldn't be having additional feedback comments. You could share from agencies. You can see to the venue.

Speaker 2: So I'll start off, we continue to get great feedback from the field. I think we've now had something approaching 40 or so different uses. I think we've had the one that I mentioned at TaserCon where it was fired in a running situation at something like 40 feet and the person stumbled forward.

Speaker 2: one where it was in close quarter use. An officer fired the first dart, and it turned out the second officer had not been trained on the TASER-10 yet, and actually ran in and got between the operator and the subject before he fired the second dart. And so one of the things we took away from that is actually making sure we work with our partners that they train all officers in how the new system.

Speaker 2: functions. So the good news is we're seeing this a very high effectiveness. We since taser con we presented to the major city chiefs and the major county sheriffs with just very significant interest across the board. I talked to one major county sheriff that has had a fair number of shootings already this year with firearms.

Speaker 2: And they basically ran through with me of the cases they've had this year. They think Taser 10 could have changed the outcome in every one of them, which was a pretty remarkable statement. And I was actually with another major city chief today that told me in her agency, she thinks Taser 10 could have alleviated about two-thirds. And she said, anyway, my Mutual integration,

Speaker 2: of their shootings as she enumerated them. So we're continuing to get very positive feedback. I'm about to go on an international tour. The first one I'll do since the TASER 10 launch and start talking to some international customers where I think that might be the greatest growth potential internationally because internationally we don't see many agencies

Speaker 2: individually issuing tasers the way they do in the United States. But Taser 10 could reach a level of capability where it could become the primary defensive weapon. And I think that that means in many countries, you know, where they don't have many guns in the hands of the public, but the officers are carrying a firearm in those countries, we might actually see them begin to move to take

Speaker 2: And then what was the second part of your question? I think I was gonna let Josh take it. Yeah, it was just about component availability, I think. Is that right, Will? Yeah, supply chain component is both for devices and cartridges. What does that look like?

Speaker 4: Yeah, absolutely. So our supply chain team, as always, has just done a fantastic job staying ahead of the curve. And what are less challenging times than maybe a year or two ago, but anytime you launch a new product, there are a lot of revisions and moving parts leading up to that. And ultimately, we feel really good about our capacity, not only this year, but continuing to...

Speaker 2: Great. If I could just add a question on software, continue strong traction across axon cloud. Maybe maybe kind of two part there too. What's kind of driving a continued DIMS adoption? It feels like that continues to, etc. I guess in some respects. And I guess in tandem with that.

Speaker 4: Maybe just any kind of update of what you're seeing with respect to records and other products out of that core evidence.

Speaker 4: slash dems category? Maybe I'll start with the dems question and then hand it over to Jeff for records. But the reason I want to take this one, Will, is to give Jeff a huge shout out for the work he's done over the last few years. He's essentially built a team that not only has delivered on the core ecosystem, but continues to build out the last mile types of features and products that make.

Speaker 4: the product not only that much more valuable to our core market, but also more attractive to our up and coming markets in federal and international. His team has just done a great job continuing to identify opportunity and market needs and then executing well on the plan to deliver those capabilities. Just that flywheel continues to lend itself to more customer interest and more happy customers that will buy more over time. That's been the backbone of our dems adoption.

Speaker 2: add where appropriate new tiers of the bundle. That just makes it again easier and easier for agencies to make one simple choice to get access to this very Amazon Prime or Microsoft Cal-like basket of both hardware and software benefits that they buy at a price that feels great to them even for the subset of the components that they know they want to use up front.

Speaker 2: And then as they go forward, all those additional benefits in the basket feel free because they've already made the what feels to them like a good deal price for the basket and that drives the flywheel. And on top of that, even those who aren't yet in those programs, all the cars are more and more and more seeing the value of those add-ons.

Speaker 2: and incrementally growing growing ARPU as well as adding new logos. On the record side again we continue to be both humble and really excited and optimistic about the continued growth and trajectory. Just sort of using the same numbers we've talked to you about over the last couple quarters. With growth now we have over 50 agencies

Speaker 2: that represent over 8, almost 18,000 sworn officers live on at least one record, one module of Exxon records. And that includes now 16 agencies who are already using the product to fully replace their legacy RMS. And that includes, you know, at this point, major cities such as Tucson and Baltimore, Virginia Beach and Fresno.

Speaker 8: intense well!

Speaker 1: 100%, thank you so much. Love it. So we have three analysts left in the queue and we're happy to go past the top of the hour so we can make sure we get to everyone. We love the engagement. Jeremy Hamlin at Craig Hallam. Go ahead, Jeremy.

Speaker 7: Thanks and congrats on all the momentum in the business. So just want to start with a high level question in terms of.

Speaker 7: thoughts around M&A strategic investments. You guys have a pretty robust balance sheet that has been building. Want to get a sense in terms of what you might be looking at on a go forward basis in terms of scale size of potential opportunities, whether it's strategic investment or M&A.

Speaker 7: And then to get a sense, are there any guidelines that you're looking at in terms of whether or not a deal is the creative or delutive. You know, obviously you've kind of changed some of the viewpoints on stock based comp and so forth. So to reduce future delusion.

Speaker 1: But wanted to get a sense for how you guys are looking at that. Yeah, no, it's a great question. You know, for us, it really is about either finding technology or teams that fit in well with our mission and or our business model.

Speaker 1: And so there are multiple parameters that we are looking to evaluate companies on. And so it's always sort of a multifaceted equation for us as we think through them. That's not to say that we aren't looking at whether or not something is financially attractive to us.

Speaker 1: But it could be across different metrics. It could significantly increase our TAM. It could help us get conviction on supporting that 20% growth long, long, long term. Or it could be accreta to our gross margins or EBITDA margins.

Speaker 1: holistic axon solution as we look forward. And then I'll just note that that dilution number is really sort of an organic dilution number. So I think we have a strong balance sheet. I think we can certainly use cash for that. If we were going to use equity, I would consider that separately from what we're doing from just an internal.

Speaker 7: But wanted to get an understanding for versus the TASER-7, what your kind of net ASP might look like on a go forward basis, you know, vis-a-vis, you know, kind of 10% higher ASP. You know, ASP, obviously, you know, there may be.

Speaker 7: higher cartridge use, you know, given the product. So that's one on the PASER 10. And then secondly, you had a pretty massive quarter in axon fleet. You know, I think by far almost double what you've ever done in a quarter.

Speaker 7: In fact, almost as much as you've done in any years. So I wanted to just get an understanding of, you know, was that a couple of really big orders? Or is there something specific to that product that you've really gained traction and now maybe we're past?

Speaker 4: certain lights, you know, cycles on prior contracts where you guys are just gaining more share. Any color there would be super helpful. Yeah, absolutely. Thanks a lot for the question. Nice to see you, Jeremy. On taser 10 ASPs, we're not going to get too prescriptive there, but I'd say, you know, you should expect an uplift over previous generation.

Speaker 4: be in our bundles so there'll be a slight inherent discount you know associated with any product in a bundle but um you know uh at a high level that's kind of the story with with Taser 10 and then with Fleet 3 yeah no no outsized orders like just just a lot of volume and and you should expect that to continue and uh and and maybe even higher levels this year the product has great product market fit it's a well-built well-designed product.

Speaker 4: But then fleet three was the moment where we really surged ahead of the market and became the highest, the largest selling in car video system in public safety. And so actually, I think that's a path you can expect from a lot of our products over time where we reach.

Speaker 4: parody with one version and then we really Accelerate ahead and and so we're really excited about the progress with fleet three Blake Bullock Our product manager and our entire team on fleet three is just done a fantastic job there And we're really proud of the progress still a lot of work to do but Encouraging to see

Speaker 4: you know, that product takes shape as the highest demand in car video system and public safety. Yeah, and I think we've produced like the perfect example of the power and the beauty of us being both an IoT hardware devices company and a cloud software company under one roof because, you know, we can deliver an end-to-end experience that not only functionality-wise,

Speaker 7: They can either buy up front or they can easily add at any point later with just the flick of a switch. And the whole thing works end to end with the rest of our suite.

Speaker 6: Great, thanks. Best wishes. Thank you. We have two folks left. Alyssa Shreeves is on for Tim Long at Barclays. Go ahead, Alyssa. Alyssa, you're off mute, but we're not hearing anything come through. Thank you.

Speaker 6: Okay, let's go to Josh Riley from Meet Him. Josh, go ahead and ask your question.

Speaker 3: Alright, thanks for taking my questions. It seems like there's more opportunity for you guys to have some competitive takeaways and body cams in the US based on our discussions with customers. Is that what you're seeing today or would you characterize more of the growth in 2022 as a greenfield with officers who didn't have a body cam at all?

Speaker 4: I think Josh, the nice part is it's a combination of both. You know, we continue to sell high volumes of body cameras to new customers, but we also continue to see existing customers buy more and deploy more widely. And then of course, by.

Speaker 4: more and more of our features that are on top of the body camera and peripheral products like fleet and virtual reality and drones and so forth. So it's a nice healthy mix across the board and we're very excited about that. We want to diversify the

Speaker 4: the number of ways we can achieve these types of results. And I think we're doing that and we're very excited about that trend. Got it, that's helpful. And then can you just remind us, is there any seasonality around any of your products or just the overall business that we should be aware of as we're modeling revenue for 2023? And how could the Taser ramp impact the first couple quarters of the year's Taser revenue, if at all?

Speaker 4: of results and I think we're doing that and we're very excited about that trend. Got it that's helpful and then can you just remind us is there any seasonality around any of your products or just the overall business that we should be aware of as we're modeling revenue for 2023 and how could the taser ramp impact the first couple quarters of the years taser revenue if at all?

Speaker 4: You know I think again like you know we've got a number of ways to deliver in each quarter and so it's it's of course you know if if we start out with you know strong shipments of Taser 10 then you know that that makes the path easier but that's not our only path and so

Speaker 4: We're excited about the fact that between all of our hardware products and just the growing base of software revenue that we have in the business that we've been thoughtful about our guidance here. We believe it's very achievable. We continue to expect to grow 20% year over year and quarter over quarter. And so we'll continue to

Speaker 1: to execute here and make sure that, you know, between Taser shipments and all of our other products that we're very thoughtful about how we guide. Yeah, and specifically, I would say, Josh, we're not calling out anything unique on the shape of the year. And so I would expect pretty typical seasonality for us.

Speaker 1: Even with T10 coming in, we still have really nice, strong T7 performance. We've got a lot of puts and takes to Josh's point, and I would say for your model, think about normal seasonality. Great. Thanks, guys. Nice performance. Thanks, Josh.

Speaker 3: Hopefully it gets a little warmer where you are. Doesn't look too nice outside today. Yeah, we had a blizzard last week, so it's actually, this is a lot better. I love it. Well, Elissa, should we try one more time? Okay, we will get you next. Oh, go ahead.

Speaker 3: Okay, we'll make sure you've got good audio for next time and we'll get you on the next quarterly call. Let's have Rick Smith close us out. All right. Well, again, it's always such a pleasure to be able to share results like this. I've had a lot of Ji

Speaker 2: Josh, Brittany, the whole team, some of the other names you heard, a lot of people working really passionately and hard to turn these results in. And couldn't be more excited to see how this year unfolds with Taser 10, Fleet 3, our software products really starting to...

Speaker 2: and to scale themselves as you're seeing the financial results. So a lot of exciting things to look forward to. We look forward to seeing some of you accelerate in April at our shareholder meeting, which I believe is coming up in May. Then we'll be back to share.

Speaker 2: Q1 results here in a few weeks as well. So thanks everybody. We appreciate the opportunity to work for you on such an amazing mission.

Speaker 2: results here in a few weeks as well. So thanks everybody. We appreciate the opportunity to work for you on such an amazing mission. The recording has stopped.