Q4 2023 Axon Enterprise Inc Earnings Call

During Q4.

Yes.

Thanks, John.

45 feet.

More range more accuracy and more punch through clothing.

Take your time is a first giant leap.

This is the workhorse, it's going to get us into lunar orbit.

Okay.

Okay.

Alright.

So that's a nice drop in <unk>.

What unfolded and why.

It excites me that we've made huge strides in that our technology is driving better outcomes I think a lot of what we're working on now has the opportunity to become so pervasive in the future it will be hard for us to remember life without it.

Highly disruptive technology.

Speaker Change: That's the beauty of it.

Speaker Change: When you get it right.

Speaker Change: Quickly becomes difficult to imagine what things were like beforehand.

Speaker Change: But we're not always going to get it right by ourselves we rely heavily on feedback from our customers. There are challenges in the long term rather than what is simply in demand today.

Speaker Change: While present needs do matter too I spend most of my time with our customers on the vision beyond Tomorrow, which is what I believe will drive our growth for not just the next one to five years, but the next decades.

Speaker Change: What Energizes me and my time with customers is they provide us with the best and most actionable feedback on our roadmap. The snags in problems, we may run into and help us think through the way to overcome those challenges and the best avenues for us to deliver them what they need.

Speaker Change: Most critical for US is making sure we have the right people to help us deliver for our customers.

Speaker Change: When I look at our team I know, we have attracted some of the best and brightest to come into work here. If it's not meeting with a customer about a new product, we havent development, it's somebody from our team.

Speaker Change: Our team works together released feedback and understand our common goal we.

Speaker Change: We don't accomplish what we're doing in silos, we joined forces across the company.

Speaker Change: And together with our customers.

Speaker Change: This goes beyond our current team extends into key partners like fuses who were thrilled is now part of axon. Our partnership with futures began a few years ago and we've really been impressed with the people and the product they've built.

Speaker Change: I'm traveling with their founder as we speak today.

Speaker Change: Together, we're taking a real time operations to the next level and opening our ecosystem to an even larger network of sensors and devices, which will unlock entirely new solutions for our customers over time.

Speaker Change: Before I hand, it over.

Speaker Change: I'd like to say that I'm grateful that ive been trusted to lead this company for the past 30 years.

Speaker Change: And that we've been able to maintain same drive and energy we had when we started.

Speaker Change: I might be a little atypical as the CEO is my day to day responsibilities aligned more with my background as a founder than as a senior manager I am focusing on what's next.

Speaker Change: Which always important in driving any enterprise startup to a $20 billion public companies that we need to encourage people to be the best versions of themselves, but also to challenge each other just as our customers will challenge us and share in a common mission with a culture that encourages us to do our best work.

Speaker Change: I'd like to provide one last comment on something near and Dear to me, we've talked about our intent.

Speaker Change: To invest in our new headquarters over the past few years, and we mentioned last quarter. We were revisiting those plans. After we had paused work in September or I'm, sorry in the summer of 'twenty two.

Speaker Change: Part of revisiting that has been working to bring our vision of a corporate campus to life.

Speaker Change: We would like axon to remain headquartered in Scottsdale, where we owned a piece of land and where we have built this business.

Speaker Change: I loved Scottsdale however.

Speaker Change: It's not clear the Scottsdale once axon is limited are staying there.

Speaker Change: <unk> become more challenging and frankly anti development.

Speaker Change: It's unclear if we will get the approvals, we need to execute our product or project.

Speaker Change: So we're exploring several geographies and other options as a result, and it may take some time before we have a definitive decision on our next steps we will keep you updated in the coming quarters as we resolve our plans and we make progress.

Speaker Change: Now I know, we're not a startup anymore and that also means we need people focus on execution, making sure that what we do is viable and has executed to world class standards.

Speaker Change: Beyond fortunate that Josh and Brittany and their teams here to help me in.

Speaker Change: And our execution.

Speaker Change: With that I'll turn or turn it over to them now Europe first Josh.

Josh: Thanks, a lot rich and good afternoon to everybody I continue to believe there is no better place to be than at axon. We are building. The most talented outcomes oriented team intact, knowing that that's what it'll take to deliver on our moon shot of protecting life and reducing.

Josh: The number of deaths and civilian police encounters by 50% over a 10 year period.

Josh: 2023 marked another promising step in that direction, we just recorded our fifth consecutive year of greater than 25% revenue growth and we beat that far by a good amount coming in at 31%.

Josh: Year over year.

Josh: Looking ahead to 2024 and beyond the opportunity is right there in front of US we're steeply ramping Taser 10, and axon body for we are building transformative new products and we've added few system Sky hero, which together grow our estimated tam by over $13 billion.

Josh: To a total of 63 billion.

Speaker Change: And I'd just like to say welcome to the <unk> team is your first earnings call as part of Axon and we're thrilled to have everybody on board.

Speaker Change: In the past I've shared my vision on axons priorities over the next three to five years, we are focused on delivering the technology goes.

Speaker Change: System of public safety globally. This approach supports our growth in two powerful ways number one through new product introductions, which expand our ecosystem and deliver new value to our existing customers and number two through expansion into our new customer verticals, where our existing products and power new users.

Speaker Change: To deliver safer outcomes and drive a clear ROI. This framework has led us to invest in opportunities with federal and international governments Justice corrections and in the enterprise space. We finished the year with record federal bookings as we continue to see rapid adoption of both hardware and software.

Speaker Change: Where within the federal civilian market likewise, the new axon body workforce camera or a VW as we call. It has driven strong pipeline in several segments within enterprise such as retail and healthcare one shining use case within the health care space with Fairview health, where they are trialing a BW.

Speaker Change: Nurses as part of their commitment to patient and staff safety.

Speaker Change: Key to our success is that we continue to lead the market in innovation. It's no surprise when you listen to erect that we believe our ability to innovate is a competitive advantage for axon.

Speaker Change: Just leadership and our product or or combined with.

Speaker Change: Rick's visionary thinking and foresight has an unmatched combination that gives us the luxury of doing two things in parallel building. The next wave of world class products for public safety and identifying the most synergistic partners in the market such as fuses and Sky hero, our standards are high and yet year in and year out.

Speaker Change: Our products our product team sets, a new bar before I turn it over to Brittany to go through our operations and financials in more detail I'd like to congratulate several of our teams on some substantial recent achievements first the Taser <unk> team led by patent Adam We are now four quarters in our order rate is pacing.

Speaker Change: At more than four times, what we saw with Taser seven and then secondly, with the axon body for a product line led by Jason Hartford, and David <unk>, we shipped more than 100000 units in the second half of 2023, only two months after announcing the product.

Brittany: While these.

Brittany: Product started in R&D and in the hands of our great customers and a lot of collaboration amongst functions or as we call. It hashtag joined forces happens in between our teams deliver outsized societal outcomes together.

Brittany: As you can see we're not slowing down we're incredibly humble.

Brittany: By the trust, our customers and shareholders continue to place in us and we remain committed to holding up our ended that Barton 2023 was a record year and we're so proud of the team, but we are equally proud that that same team moved on from 2023 58 days ago as we like to say we're onto the next play.

Britney: To you Britney.

Britney: Thank you Josh.

Britney: As Josh mentioned 2023 was another great year for us with revenue growth of 31% year over year in Q4 revenue growth of 29%.

We continue to be incredibly pleased with all segments of our business and continue to see enormous opportunities in front of us.

Britney: In addition to continued strong topline growth, we expanded our profitability with a 21% adjusted EBITDA margin for the fourth quarter and full year.

Britney: This represents a 160 basis points of improvement versus 2022, largely driven by leverage on our SG&A functions.

Britney: As we've talked about before we continue to focus on expanding gross margins and expect improvement over the course of 2024 as we see the benefit from our enhanced efficiencies with Taser Cam from manufacturing automation and cost initiatives.

Britney: As well as continued benefits from software growth.

Britney: We're also going to continue investing in our R&D to support the opportunities we see in front of us and to make sure. We can keep delivering strong growth for years to come.

Britney: You've heard today and read in the shareholder letter the significant growth opportunities, we see in federal International and enterprise as well as for Axon Air Real time operations of new software capabilities to name just a few.

Britney: We think we're heading a nice balance of investing for the future, while also increasing profitability and driving towards operational excellence.

Britney: Well, we have leveraged SG&A. We have also continued to invest in expanding our sales and marketing teams to address new markets, improving our internal technology capabilities and bolstering our financial strength, including the fact, we remediated our material weakness this quarter.

Britney: This positions the business well to continue growing and scaling.

Britney: Now as I turn to our guidance, we expect 20% to 24% total revenue growth or 188 to $1 94 billion for 2020 for.

Britney: This is quite strong guidance for us and is the result of increased visibility for 2024.

Britney: <unk> visibility is driven by teens are 10 demand as well as the continued strength in our future contracted bookings, which has reached $7 1 billion as of the end of Q4 growing 54% year over year.

Britney: Our software, which provides us with strong visibility recurring revenue and attractive gross margins also contributes to the strength of our guide.

Britney: In Q4, our IRR with $697 million, which grew 47% year over year.

Britney: We continue to have 122% net retention rate and strong customer satisfaction.

Britney: We expect adjusted EBITDA of $410 million to $430 million, which implies an adjusted EBITDA margin of approximately 22% up another 100 basis points from this year.

Britney: On moderate gross margin improvement as well as continued SG&A leverage.

Britney: This guidance includes the impact of Sky Hero and few says that we aren't going to comment specifically on either of their financials.

Britney: Finally last year, we put out a 2025 target model of $2 billion in revenue and 25% adjusted EBITDA margin.

Britney: As you can see from our 2024 guidance, we're pacing to well exceed our revenue target in 2025 and tracking nicely to our adjusted EBITDA margin target.

Britney: As we look to 2025 and beyond we expect to continue targeting a 20% annual revenue KBR and a 25% adjusted EBITDA margin.

Britney: We think this is achievable and represents a very healthy sustainable and attractive long term model.

Britney: We're comfortable in maintaining this long term growth rate based on the opportunities we've discussed them.

Britney: Think this is the right balance of investing back into the business and generating attractive profitability.

Britney: Also while we have fantastic organic growth opportunities, we're very excited to be able to strategically make acquisitions in markets that will continue to support and grow our Tam like we have just done with PSS.

Britney: Finally, we are also continuing to target, 60% free cash flow conversion on adjusted EBITDA and approximately 3% average annual dilution from stock compensation expense for 2025 and beyond.

Britney: As you can tell we're all incredibly excited about what we can deliver in 2024 to both our customers and our shareholders. We're looking forward to another great year.

With that I would like to open it up to questions.

Speaker Change: Moderators can you bring everyone at the gallery view.

Speaker Change: Thank you we're going to take our first question from Trevor Walton JMP.

Great. Thanks, Eric Thank you.

Speaker Change: Eric.

Speaker Change: Thanks, everyone. After the question may be for either.

Trevor Walton: Josh or are Rick excuse me.

Trevor Walton: I appreciate it the Tam outlined in the shareholder letter as far as how that's expanding and kind of where sky hero and pieces are coming in but there wasn't.

Trevor Walton: Unless I missed it I didn't see any details around the axon body for workforce kind of component and contributor to that can you maybe just give us generally how you see that opportunity unfolding and especially curious to see.

Trevor Walton: The adoption rate there just given it's a kind of a new vertical or user experience and how does it look like the body camera kind of adoption rate within law enforcement or does it kind of feel.

Different from what you are seeing yeah Trevor.

Trevor Walton: Trevor Thanks, a lot for the question I appreciate it the first thing just to clarify is within the enterprise section of our Tam, that's where the axon body workforce.

Trevor Walton: Would roll off then we could certainly talk through that more offline.

Trevor Walton: And in terms of just interest in in a camera we had a launch event, we had some customers in town for it and some trial partners in town I think this year is truly about hey, how do we how do we make our early customers are really successful on this product.

Trevor Walton: And then build from there it's not much different than the playbook that we ran in public safety and.

Trevor Walton: And so much of it comes down to just having these early maven type customers that.

Trevor Walton: That will.

Trevor Walton: It will help us not only build our brand in that space, but also help us build the next iterations of the products and so that's really what we're focused on we really do believe the future is bright and enterprise. We're seeing that early on in the bookings results were not quite ready to share anything more on those at this point, but over the coming years, we do believe enterprise will become a <unk>.

Trevor Walton: Bigger and bigger part of our business.

Speaker Change: And just to jump on a little bit. So we gave enterprise a $15 billion Tam and our update so that's where.

Speaker Change: Where we see that playing in.

Speaker Change: A lot of the body workforce camera really came because we were getting feedback from our customers as we were trialing it largely in retail and in health care about sort of the size and weight and how they wanted to wear it and how they wanted to use it and so we really took that feedback and we reflected it in the updated product and.

Speaker Change: That's what you see we announced Fairview health is and early customer there but were really.

Speaker Change: Looking to be able to provide the solution into the retail and the nursing part of the market, where they're facing a lot of challenges today around our associates, our nurses feeling safe and network environment.

Speaker Change: Great. Thanks for the color I appreciate it and congrats on a solid finish to the year.

Speaker Change: Thanks, Trevor we will take our next question from Joe Cardoso with J P. Morgan.

Joe Cardoso: Hey, good afternoon, everyone and I'll I'll go also echo my congratulations on the results and thanks for the question. So.

Joe Cardoso: So it's great to hear the Taser 10 momentum is tracking where you left off last quarter, but curious if you could just touch on how youre thinking about the margins tracking for the product if I take a look at Taser gross margins look like you had some stability over the past two quarters. Just curious if we should interpret this as a floor for the segment and then how should we think of.

Speaker Change: About the trajectory for the remainder or as we hear about their progress through 24 of particularly in the backdrop of you guys. You know you've been talking about it for a couple of quarters now bringing on automation the cost efficiencies. So just curious how youre thinking about the margin trajectory. There. Thank you yeah. Great question. Thank you I mean, we had a one time event and Taser and <unk>.

Speaker Change: Q4, where we.

Speaker Change: We had a bit of a manufacturing issue largely related to a batch in March of last year, and so that is impacting our gross margins in this quarter in teaser by about 420 basis points. So absent that one time impact.

Speaker Change: Would it still be down slightly on mix, but they would look much more stable sort of quarter to quarter and so as we go into next year, you know that one time impact comes out and that's where you start to get the commentary about how the teaser gross margins you know overall, we expect them to improve and they really are improving.

Speaker Change: Around our efforts for peace our 10-K's.

Speaker Change: Taser 10 mixes and that has an impact but then we're offsetting that by the fact that we're getting benefits from automating the line and doing cost down initiatives as we go through the year.

Speaker Change: Yeah, and just to jump in and reiterate there. The issue is on Taser seven not Taser 10 that led to this warranty reserve.

Speaker Change: The thing I'd point out is Taser seven was developed prior to the current regime under heightened merits, that's leading our whole hardware engineering groups and we've seen substantially more rigorous pre market validation and as a result with a.

Speaker Change: Hey, before in the fleet three and so far with Taser 10, we've actually seen more robust field reliability lower return rates. So just want to make sure we didn't conflate that.

Speaker Change: Warranty issue.

Speaker Change: Does T seven previous designed not to going to 10.

Speaker Change: No got it totally makes sense and then maybe just a quick clarification on that front just in terms of the Taser 10 improvement.

Speaker Change: Not to harp on it but maybe just in terms of the improvement you're expecting through the year is the expectation that it happens more linearly or is it more back end loaded just curious just in terms of like as you bring on this automation equipment is that more subject to being in the back half or is it more first half just curious how we should think about linearity through the year.

Speaker Change: I think theres, a number of initiatives going on including the automation and then cost down initiatives and so I would expect you see that starting to roll in as we go through the year. So it won't be all back half weighted but obviously, you'll see the cumulative impact of that more in the back half as we get all of that was executed.

Speaker Change: Thanks, Britney I appreciate all the color.

Britney: Thanks, Joe We're gonna go to Jonathan Ho at William Blair next.

Jonathan Ho: Hi, good afternoon, congrats on the strong quarter, maybe just starting out with a high level question. You know how should we think about the impacts from the fuses and Sky hero acquisitions, I know youre not giving financials that you are in terms of your ability to either sort of approach your longer term vision, where to cross sell the products.

Jonathan Ho: Just wanted to get a sense of the synergies that you see here with these these acquisitions.

Jonathan Ho: Okay.

Speaker Change: Yeah, I can I can start and I'm sure that the team will want to jump in.

Speaker Change: You know I would say that.

Speaker Change: These are acquisitions that we're really doing for you know product.

Speaker Change: And the team and the opportunity far more than we're.

Speaker Change: We're doing specifically for synergies so I really want to focus everybody on sort of the long term market opportunity and customer opportunity that they bring in and.

Speaker Change: All that said I think there are some real benefits as we as we bring on these products and these teams to having access to our customers and our channels and all of the experience that we've had scaling up these types of businesses as well as giving them access to some of our infrastructure and support.

Speaker Change: On the G&A side, and so and a lot of ways, we're hoping that that really allows them to run faster and accelerate what theyre doing.

Speaker Change: Yes.

Speaker Change: Starting to respond there I had muted myself.

Speaker Change: The other thing I would say is on each of them. They are highly strategic so users what they really bring as I described described them at a high level like the Switzerland of cameras. They are integrated with every imaginable sensor and CCTV camera and we met them were introduced by customers, who really loved what they were doing it.

Speaker Change: Hey, we want you to integrate axon cameras onto the Puces map, because we don't want to have to open a different map in a different interface for every different vendor of cameras that we're using.

Speaker Change: And that's a lot of work to build somebody infuses has stayed away from building first party cameras, and we really don't want to keep that solution very open.

Speaker Change: So that it can be broadly compatible virtually any type of sensor any type of camera in the market and we think that's critical to expanding the utility of our ecosystem to our customers.

Speaker Change: And then on the Sky hero side.

Speaker Change: Long term this is probably not going to be big revenue in the short term, but they are one of the if not the leading tactical drone maker in the world use by special forces by Swat teams.

Speaker Change: And we think.

Speaker Change: If we wanted to eradicate violence from society, we've got to get out of this mindset, where you stop a person with a gun and sending more people with more guns and ammo gunfight.

Speaker Change: And we think drones and robotics have a huge role to play there.

Speaker Change: That's probably a little longer term.

Speaker Change: Not going to be a 2024 or maybe even 2025 revenue impact, but 10 years out when we think it could have an enormous both societal and revenue impact, especially in this space around.

Speaker Change: Private security, where theres millions of people worldwide, whose job is to sort of observe reporting secure facilities. That's a highly monotonous job and one way or drones and robotics, we need to do a much better job at those monotonous jobs and when those jobs could come dangerous they could do a much better job than putting a human and.

Speaker Change: Danger, when a threat does emerge.

Speaker Change: Thank you.

Speaker Change: Thanks, Jonathan we'll take our next question from will power of Baird.

William Verity Power: Okay, great. Thanks for taking the question I'm going to vehicles I'm going to video for a moment, maybe if I could come back to software I know you expect that to be one of the key drivers in 'twenty four along with PJM and other products.

William Verity Power: Any way to kind of help unpack what the expectations for growth there are across the different components evidenced versus records dispatch et cetera, just to get a sense for.

William Verity Power: The breadth of that growth.

Speaker Change: Sure thing.

Speaker Change: I think the the answer will it really depends on the market segment I think for state and local that's where we're really really focused on selling the officer safety plan. In this bundled set of enterprise software from digital evidence management to reporting software to all of the key software add ons all in one place.

Speaker Change: That's one of the true measures of success in the channel domestically internationally, its really about hey, how do we get folks on the cloud for the first time and then for some of these government. It's literally the first time they are on the cloud and.

Speaker Change: In their professional lives in so that's we're starting from a place of just arriving at that moment and then building from there over the next several years and of course in enterprise and federal it somewhere in between where we might not exactly sell suburban.

Speaker Change: The OSB that we sell to domestic but it might be some more tailor made software offerings that are the right fit for those customers and so for US I think we always ended in the same place, which is highly valuable highly useful high rois software being deployed the customers that remained.

Speaker Change: And happy with it it's just a question of the path that it takes to get there in each segment it might be slightly different and so that's a bit of a summary for you.

Speaker Change: Yeah, and well just on the commentary you know I would say I was highlighting our teton and software, particularly as drivers for improving gross margins.

Speaker Change: They obviously, both would be great contributors to our revenue next year, but but really all of our segments are performing incredibly well and no all contribute really nicely next year.

Speaker Change: Got it thank you.

Speaker Change: Thank you will and we're going to take our next question from Melissa Sri vis at Barclays. I think she has dialed in.

Speaker Change: It looks like she might be muted as well.

Speaker Change: Yeah.

Speaker Change: Overall.

Melissa Sri: Oh can you hear me.

Melissa Sri: We can can you hear me Oh, great.

Speaker Change: Good afternoon, guys, just a kind of a quick question on the key tenant demand.

Speaker Change: Is it are you seeing existing customers looking to upgrade is it penetration into new markets.

Speaker Change: And how much is this VR training kind of moving the needle in terms of the T 10 adoption.

Speaker Change: Yeah. It's a fantastic question. Thank you very much.

Speaker Change: The first answer.

Speaker Change: It's kind of yes to both I think in our existing customer base is very predictably upgrading not only at the end of their useful life of their previous generation will happen, but for the first time, we're seeing customers expressed an interest in an early upgraded to Taser 10. So we're really encouraged by that Additionally this.

Speaker Change: As you know we do believe this will open new customer markets for us.

Speaker Change: Internationally.

Speaker Change: You know in some.

Speaker Change: Private security and federal use cases, as well and so across the board very bullish on <unk> adoption and the rate at which that adoption is occurring so.

Speaker Change: That's a little bit about the market.

Speaker Change: Our response to T <unk> or can you just remind me what the second portion of that question was.

Speaker Change: Yeah, how much of the VR train is kind of driving customer interest is it more a nice to have or are customers kind of viewing. This now as a need to have once they trial it.

Speaker Change: I would say.

Speaker Change: We're probably squarely in the middle of those two at the moment and this is a big year for our VR.

Speaker Change: Our program because now that the sensors work very well and very reliably it's about how much content. We can build to deliver to these end users to simulate different training scenarios. So it's a move from hey, how are you.

Speaker Change: Performing with T tender at a range setting or some basic interactions.

Speaker Change: And we will build on that to these more complicated decision, making type of scenario. So we think this is going to go in and not only you know of course the training experience. If it's very strong will help adoption of the product, but it will also drive far safer outcomes in the field.

Speaker Change: We're able to stimulate the type of stress that you can feel in VR.

Speaker Change: Our <unk> two shooting at people in costume or with Velcro Susana it's stationary targets at a range. These are the things that that can really make the difference in the field and so very excited about that we're rolling it out to international as well, we're rolling it out to federal we're tailoring.

Speaker Change: Scenarios for those markets.

Speaker Change: So we think these two products VR and Taser 10 or kind of late.

Speaker Change: Moving forward.

Speaker Change: As represented by the way, we go to market as well, where you pay one right for both of those offerings and any debt both throughout the term of the contract.

Speaker Change: Great. Thank you so much.

Speaker Change: You got it.

Speaker Change: Thank you Melissa we'll take our next question from Mike King of Goldman Sachs.

Mike King: Great. Good afternoon. Thank you very much for the question I have two.

Mike King: First there was a big step up in future contract revenue.

Mike King: One 3 billion sequential increase is the biggest on record.

Mike King: Is there anything to call out as it relates to.

Mike King: Outside deals or customer wins that contributed to that or would you consider that normal momentum and then I have a quick follow up.

Speaker Change: For sure.

Speaker Change: I don't think there was anything.

Speaker Change: Abnormal about.

Speaker Change: Q4 other than it was a record quarter for us and you know there is some seasonality in our business. You know it was our first quarter of a billion plus dollars booked across the business and five year bookings. So we're really excited about that we don't necessarily share much more than that on our total bookings, but that was a pretty big milestone.

Speaker Change: One for our team so of course that'll that'll represents itself in future contracted revenue and we're excited about that trend.

Speaker Change: Certainly aiming to outperform that record this year.

Speaker Change: Great and then just a follow up for Brittany, just on that future contracted revenue I know you guys have talked about 15% to 25% of that being recognized in the next 12 months.

Brittany: I guess has the duration of that future contracted revenue extended at all have there been longer term deal nats.

Brittany: Naturally that's the reason why I ask because it seems like.

Brittany: 25% of $7 $1 billion, you have full visibility into the <unk>.

Speaker Change: <unk> thousand 20 for revenue guidance I don't know I'm not sure if thats the right way to think about it. Thank you.

Speaker Change: Yeah of course, that's a great question.

Speaker Change: It hasn't changed such that that 15% to 25% guidance of what converts for the next year has been pretty consistent over at least the last few quarters.

Speaker Change: I think in general we have seen a trend towards some longer contract. So.

Speaker Change: Again, Josh Josh will correct me, but I think historically there were more five year contracts and now we're seeing more 10 year contracts and some that are even longer than 10 years.

Speaker Change: So that's certainly a factor in there, but nothing nothing is massively changed in terms of how that future contracted revenue converts and for the next year.

Speaker Change: I do think it helps in terms of us having visibility and giving a strong guide for next year and so I think that's where you see some of that come through.

Speaker Change: Excellent. Thank you Josh Thank you Brittany.

Speaker Change: Thanks, Mike we're going to go to Josh Reilly at Needham next.

Joshua Isner: Alright, Thanks for taking my questions I got one and a quick follow up here if.

Joshua Isner: If you look at the <unk> acquisition is this a product that is going to require a little bit of incremental investment on your part to kind of drive broad customer adoption across the customer base or is this ready to go day, one for your entire customer base.

Speaker Change: Yes, I'll take that the good news is it's a combination of the two so right now out of the gate you know one of the reasons why we were so excited about <unk> as a partner and then moving to the acquisition is that their product turnkey out of the box today is ready to go.

Joshua Isner: Very broadly across our state and local in the U S. And then beginning internationally as well, it's absolutely a groundbreaking change for the ability for our agencies with our real time crime Center is in command staff and even right in the dispatch center to get unparalleled.

Joshua Isner: Situational awareness by partnering with.

Joshua Isner: CCTV cameras from private enterprise and the likes of Ray out of the box.

Speaker Change: It is.

Joshua Isner: Selling and growing like gangbusters and it's a fundamental part as we go forward of our overall real time operations vision, you've heard us talk about for a long time, where our real strategy is to provide the best full stack and open ecosystem, we can to help agencies with the entire lifecycle of an incident.

Joshua Isner: And it's ultimately about our play to earn the right to win more sockets mean, a win more sensors and when that pane of glass, where they review the information from those sensors and to win more and more communications moments as both first responders and the businesses where things happen our work together.

Joshua Isner: The other to resolve as quickly as possible things when they occur.

Speaker Change: Got it that's helpful. And then just a quick follow up on the Taser 10 automation is that going to also benefit unit growth. In addition to benefiting margins.

Speaker Change: I would say it does yes.

Speaker Change: More automation, we have the more it helps our capacity I would say that's pretty much factored in as we think about next year, though so I wouldn't necessarily expect any surprises coming from that.

Speaker Change: Got it thanks guys.

Speaker Change: Thank you.

Speaker Change: Thanks, Josh.

Speaker Change: Keith <unk> Northcoast Europe. Thanks.

Speaker Change: I appreciate it.

Speaker Change: International a little bit more and perhaps I missed this in the.

Speaker Change: Released.

Keith: Perhaps talk about if you don't mind, some trends that you're seeing in international obviously, another very strong bookings quarter last quarter, but how did it look with core growth in bookings or are we starting to see some of that revenue that you booked last year come to fruition.

Speaker Change: Yes, Thanks, a lot Keith and Great question. So we're super excited about the quarter. We had in terms of bookings last quarter I believe it was a record a new record in terms of bookings. So the team's executing in terms of writing orders and are driving a lot of the momentum in market, but there's just some noise around when the revenue rec.

Speaker Change: Ignition will occur and I would expect that to fluctuate a little bit more than it does in the U S. Because.

Speaker Change: You've got things like country by country approval of Taser 10.

Speaker Change: So even if the customer wants it or in some cases purchased it need to wait till all the testing complete until they can take delivery of it in the video business there as you know.

Speaker Change: Longer lead times on implementations, because you know, there's you're deploying over the country and national government not the city and a lot of cases, so the amount of sites in NIM.

Speaker Change: Amount of work and clearances, you'll need to do that work as is considerable and so all.

Speaker Change: All to say the revenue will continue to be lumpy quarter to quarter based on shipment times and based on implementations, but.

Speaker Change: From where we sit as long as the bookings number continues to drive that revenue will fall.

Speaker Change: Well you know it will start to it will start to add up and fall to the bottom line in terms of the EBITDA dollars as well so.

Speaker Change: We're certainly excited about it we the team has got the wind at their back after a couple of years of really trying to build more of an apparatus in continental Europe, and we're starting to see the fruits of that labor.

Speaker Change: Pay off so futures bright for international Nothing's really changed in terms of our outlook or perspective on that but there will be some some peaks and valleys in terms of the Rev. Rec over over the course of the year.

Speaker Change: And Jonathan this is for you as well, but in terms of like the corruption of impressions market. Obviously, you guys just kind of.

Speaker Change: Lot of time on that again in the release today right.

Jonathan Ho: We're seeing new products and what's the strategy in terms of growing corrections and how're you guys excuse me a successor hub.

Jonathan Ho: Yes, certainly Keith we think the foundation of it not.

Jonathan Ho: Not different from any of our other segments as tasers and body cams, but things later.

Jonathan Ho: Excuses things like drones, both indoor and outdoor.

Jonathan Ho: Those are VR training and corrections those are those are investments. We're currently making and we really believe are a great fit for for corrections and.

Jonathan Ho: Up till now we've really talked about corrections as a domestic and.

Jonathan Ho: <unk> stayed low.

Jonathan Ho: The whole function, there's large corrections opportunity in federal Theres, a large corrections opportunity in international and I think all of those potential products fitting in is not is not unique to domestic so certainly we're excited about that and we believe especially after the feedback we've been getting on some of our early meter.

Jonathan Ho: He was on some of these new products with corrections that there is there is a lot of interest in those will fuel some growth in that segment right.

Speaker Change: Great. Thank you.

Meta A. Marshall: Thanks, Steve and I'll take our next question from meta Marshall at Morgan Stanley Europe, Great.

Meta A. Marshall: Great. Thanks mm Hmm, maybe you know you talked initially just about kind of the the drone business, maybe not contributing necessarily this year.

Meta A. Marshall: Wanted to kind of get an update on you had quotes in terms of feedback that you've gotten from certain customers, but just what are some of the hurdles to kind of greater drone adoption and just kind of an update on what was going on with the integration of Sky hero or just kind of early traction there.

Meta A. Marshall: And then maybe just a second question just to kind of give them all at once just on it sounds like there's a little bit going on with the headquarters decision. Just is there a kind of drop dead deadline, when you're hoping to kind of make a decision on on what city to do the expansion them. Thanks.

Speaker Change: Alright, let me take that and I'll start with the drones.

Meta A. Marshall: I think drones is an area, where again, we see tremendous long term opportunity.

Meta A. Marshall: Near term there is a couple of different issues that have slowed there is sort of I think where pre inflection point shall we say so on the outdoor drones.

Meta A. Marshall: There is a growing.

Jonathan Ho: Interest in drone is a first responder, namely today the way they deploy drones as the police drive up in Air Patrol car then they opened the trunk they take out the drone and they fly a drone around.

Jonathan Ho: That doesn't give nearly as much benefit because you've already get a gate on seem to use the drawn and then frankly from an officer safety perspective, it's not necessarily great to be standing around you're staring at a drone controller.

Jonathan Ho: Where the market wants to go is this idea of drone is a first responder, where the drone is deployed Rama fixed facility flies to the scene and gets there before officers can that started in Chula Vista, California.

Jonathan Ho: Got out to cheap Roxanna Kennedy there, who really started this we are seeing that it is in the early stages of an exponential doubling banner and every year, we're seeing about double the agencies doing drone is a first responder went from single digits to now in the tens of agencies doing it.

Jonathan Ho: In order for that to really take off.

Jonathan Ho: We need a little more clarity from the FAA on.

Jonathan Ho: Agencies being able to fly beyond visual line of sight.

Jonathan Ho: To be able to fly the drones safely today, if you want to fly joined as a first responder. Most of the time you have to have a police officer standing on the roof under an umbrella of watching with drone flying into the distance.

Speaker Change: We are.

Speaker Change: Through one of our other partnerships with D drone that as the world leader in drones, you're tracking and counter drone. We've invested that we partnered with them D. Drone gives you the ability of the NFL stadiums use it to track all the drones around an NFL stadiums in Ukraine is buying a ton of these to track drones for obvious reasons, we have some pilots we're doing where.

Speaker Change: D drone is coupled with drone is a first responders, who instead of a human being watching into the distance they can't see a drone beyond a couple of hundred meters. We can actually track those drones in the aerospace with this integrated solution and we think that is going to be foundational to really letting.

Speaker Change: Drones really grow actually let me pause for a second I jumped me about a technical correction for me on the growth rate.

Speaker Change: I guess, we're gonna be conservative it was more than a doubling this year, but it was off a small base.

Speaker Change: So again, we're seeing really early exponential growth in VFR now when we think about indoor drones.

Speaker Change: Guy here, one we acquire them. So one of the downsides of being a big company is we have lots of lawyers to make sure that we're very compliant and that's obviously a good thing most of the time, but for example, we discovered that Sky hero had some challenges.

Speaker Change: And that the bands of energy they were using for RF transmission to get through the walls to be able to why indoor effectively were outside of the acceptable bands under the FCC here in the United States. So we've had to actually pause selling on a temporary basis, while we are working to get approved.

Speaker Change: Oh from the FCC and an exemption.

Speaker Change: On being able to sell those to state and local in the U S.

Speaker Change: But again, we didn't buy sky hero for the near term revenue its really about the relationships they have with the world's leading Swat teams in tactical users and we believe that's the foundation on which we can build transformative new capabilities. So part of it is just kind of getting.

Speaker Change: With Sky Hero now, they're part of a big organization and good news is.

Speaker Change: We've got full teams focus on international legal compliance. So we're kind of upping their game from a compliance and legality standpoint. Meanwhile, they're bringing their I would say young scrappy innovation. When these guys built a profitable drone business with a very small team not many people have done that.

Speaker Change: And I would say the magic has happened being they are working with our design team and I would say over the next couple of years.

Speaker Change: Maybe a two to five year horizon, you'll start to see some pretty mind blowing stuff coming out of our indoor tactical drones as well as our outdoor GFR. We think the I think those are the two biggest segments being able to fly outdoor drones without humans on site and then be able to go into buildings and use drones and the most dangerous situations.

Speaker Change: That's right and there is also really exciting hybrid.

Speaker Change: Between the sort of thrown in a trunk thing Rick talked about and.

Speaker Change: Bold VFR as the whole industry tries to sort of find their way forward as fast as they can and this is the thing that actually you know.

Speaker Change: Adam.

Speaker Change: The CEO of one of our other partners Scotty.

Speaker Change: He and I talk together about it their keynote of there a launch a few months ago their newest drone, where you combine the physical drone being with a patrol officer, who has seen it but then the incident that they need it you have that remote pilot who's able to.

Speaker Change: Manage it on scene in a <unk> style and so what youre seeing is innovation and experimentation to try to move as fast as possible while navigating around these various short term constraints and so it just keep watching this space.

Speaker Change: Thing I actually I do want add one more thing.

Speaker Change: So all of this complexity.

Speaker Change: <unk>.

Speaker Change: Shifting sands between the United States and China is also creating another.

Speaker Change: Change in the marketplace of dji was by far the dominant hardware provider and we have chosen to partner with many different hardware providers.

Speaker Change: Initially we were partnered with dji, that's no longer very viable because the U S government federal will not buy any DJ hardware and states are now passing similar laws. So it will be AC up and coming folks like Sky D. O that have really just recently gotten to what I would say as a competitive hardware platform. The dji for the outdoor drone use case, we partner with the company.

Speaker Change: Out of Switzerland called prototype that does tethered drones. So each of these things that have created some short term shifts in the marketplace.

Speaker Change: But we think the foundation is going to be firming up over the next couple of years to see this go from.

Speaker Change: It really awesome concepts too.

Speaker Change: Significant businesses.

Speaker Change: Great. Thanks, so much.

Speaker Change: And then Rick did you want to answer the second question as well on the new headquarters timing.

Rick: We hope to we hope to have a decision by sometime this summer.

Rick: To make the calls so this is kind of a drug on for a while so we're.

Rick: Sure.

Rick: Yes, we'd like to get moving on it.

Rick: Thanks.

Rick: Thanks, Peter we will take our next question from Mike Latimore at Northland.

Mike Latimore: Alright, thank you.

Mike Latimore: So within the cloud category.

Mike Latimore: You have the digital evidence management real time operations productivity software.

Mike Latimore: Their relative contributions to growth in 2000 and for me now.

Mike Latimore: Obviously different than what you saw in 'twenty three.

Mike Latimore: Yeah.

Mike Latimore: So the question just so.

Mike Latimore: I'm clear on it Mike is what type of growth are we looking at for 2024 relative to the 23 in our software offerings.

Mike: Yes, among those 30 this long to get more pronounced in 'twenty four yeah.

Mike Latimore: And I just feel free to follow on with your thoughts, but my instinct is dams is essentially built out and we're on the right track there and we'll continue to to continue to build out that ecosystem into new markets and and so forth, but productivity is really the one that stands out to me.

Mike Latimore: Is the huge opportunity for the year I think we've we bear all the pain of coming to market with enterprise software, especially historically custom enterprise software over the last couple of years and now we really believe we've we've found market product market fit when we deploy this product to customers.

Mike Latimore: We're getting fewer calls in the weeks following that are hey, this didn't quite work the way, we thought it would or new feature requests or whatever the case may be customers are very very happy with with their early experiences with the product and now we feel like hey, we can start to dump a little more gasoline on the fire and deploy faster across more.

Mike Latimore: Customers in a year.

Mike Latimore: And then.

Mike Latimore: The one eight of that I'd say is our response product, which is our live streaming product and that's part of our real time operations pillar in there Thats all the live streaming from the body camera, that's where fuses slots and as well there's interesting things we can do.

Mike Latimore: Queen thesis and.

Mike Latimore: Sorry, and our real time products so very.

Mike Latimore: Very excited about each of those but in the short term I think.

Mike Latimore: The biggest growth relative to 2023 year over year will come from productivity.

Speaker Change: Yes, that's right. Thanks, Josh all of those are incredibly exciting and I think the reason why we call. It productivity is it is it is not only a while it also includes our straight up.

Speaker Change: Product for full arent classic RMS replacement, it's really the vision. There is all of the things that relate to helping as Rick talked about in his intro saving time, and giving hours and minutes and moments back for officers to be out in the field are helping our communities be better as opposed to.

Speaker Change: Doing paperwork or other things and so there's exciting story on multiple fronts. There first you've heard us talk for a long time about transcription and transcription has been steadily and steadily and steadily been being adopted even for the straight up use of looking at a single body camera video at a time and being able to.

Speaker Change: Scrubbed through the video and see in search through the transcript of that just that one video.

Speaker Change: And now.

Speaker Change: As that gets adopted more and more we can build incredible new functionality on top of that using AI and other things and so stay tuned for future announcements in that regard, but that keeps mixing up in customer delight and customer adoption on pure records as a as Josh said now we've got more than 100 agencies who are.

Speaker Change: Alive with at least one module of Axon Records.

Speaker Change: Including a rapidly can still growing or those who have done their full RMS replacement as well as a bunch that are using that axon standards product, which is the use of force module, which is the easiest thing for them to get started with alongside even before they've made the full replacement of their RMS. So we're just incredibly excited about the.

Speaker Change: Trajectory and the momentum and the acceleration there.

Speaker Change: Great Alright. Thank you and then just on the future contracted revenue 15% to 25%.

Speaker Change: In this next 12 months can you just talk a little bit about the variables that would move that to 15% versus 25%.

Speaker Change: And it's really about sort of average contract lengths inside of that future contracted revenue. That's that's sort of a variable between the 15 versus the 25% and Brittany would you also say, it's the number of tap upgrades of hardware that that would ship in the current year. So our upgrade.

Speaker Change: Cycle.

Brittany: It's two and a half years. So if we have outsized number of contracts that you are aware these customers at two and a half we'll see more revenue because we're shipping all that upgraded hardware and if it's a year, where it's more software in.

Brittany: The upgrade is next year then.

Brittany: That'll be closer to 15 versus the 25%.

Speaker Change: Okay.

Speaker Change: Alright.

Speaker Change: Thanks, Mike We've got one minute left we'll go to Jeremy Hamblin for last question that Craig Hallum. I believe is dialed in on a phone Jeremy can you hear us.

Jeremy Hamblin: Yes. Thanks, hopefully you can hear me okay.

Jeremy Hamblin: Congrats on the strong results.

Jeremy Hamblin: Just in terms of wanted to sorry, if I missed the explanation on this already but in terms of Taser automation impact.

Jeremy Hamblin: And thinking about what that can do for gross margin on that product line.

Jeremy Hamblin: Both in the second half of 'twenty four but also then as we get beyond the 25.

Speaker Change: Can you just provide me with a little bit of color on that.

Jeremy Hamblin: That.

Speaker Change: Yeah of course so.

Speaker Change: So I think the taser automation as well as initiatives that we're doing around cost improvements are a lot of what gives us comfort talking about how we think we will have moderate gross margin improvement for 2024, and then we don't have any long term margin guidance out beyond that our long term.

Speaker Change: Guidance beyond 'twenty for US is really focused on the 20% revenue CAGR in the 25% adjusted EBITDA margins.

Speaker Change: But just following up is specific to that product line and not necessarily thinking about it in terms of total company.

Speaker Change: You know what are the.

Speaker Change: If you undertake a project like that what is the kind of the goal of a range of outcomes in doing that.

Speaker Change: I think the coal and the range is to really improve the Taser 10 margins. So that you see in a sort of stable.

Speaker Change: Our gross margins over time, rather than some of the fluctuations that you've seen but again, we don't have a long term target out there specifically for Ts our gross margins.

Speaker Change: Got it and then last one quick here.

Speaker Change: In terms of you know your.

Speaker Change: You're kind of Tam penetration and opportunities and as we think about I think with slide 15.

Speaker Change: As you look at.

Speaker Change: Adoption rates in rest of Europe versus your Commonwealth.

Speaker Change: Hmm.

Speaker Change: Don't know exactly the timing, but in terms of thinking about.

Speaker Change: The success that you've had in Commonwealth versus what Youre seeing in rest of Europe.

Speaker Change: Can you give us a sense for how that timeline is playing out.

Speaker Change: <unk> when you kind of had some breakthrough.

Speaker Change: Contracts that you won you know maybe at this 0.789 years ago.

Speaker Change: Yeah, just trying to get a sense for how that might play out yeah. Thank you Jeremy and it's nice to hear from you I would say, it's really a tale of two product lines. There on the Taser side, we're actually seeing continental Europe already start to outpace.

Speaker Change: The Commonwealth countries.

Speaker Change: In pockets and so we're really excited about that we had some large orders.

Speaker Change: Last quarter on the Taser side, and we see the path here, where you know the nice thing is in these Commonwealth.

Speaker Change: Countries. There are set up much more like the United States, where they either have states or.

Speaker Change: You know territories or whatever the case may be some of these larger markets in Europe. They buy from the from the federal level and so the order volumes are just much higher and you can really build with one customer with a much bigger kind of.

Speaker Change: A white space in front of you and so we do believe youll start to see Continental Europe really.

Speaker Change: Rival or outperformed the Commonwealth markets as soon as this year or in the coming years.

Speaker Change: On the cloud side, that's where the Commonwealth were very early adopters really across the board U K.

Speaker Change: Australia and Canada.

Speaker Change: In Europe.

Speaker Change: I don't think its a secret it's been slow and maybe slower than we would've expected upfront I would say thats fair to say, but at the same time, we've really zeroed in on three markets in Continental Europe, where we really are starting to break through on the cloud we've got trials.

Speaker Change: On or paid pilots, even and in there I think our thesis is there's plenty of work to do and plenty upside just amongst those few markets, but having a few really breakthrough in the next year or two will be the kind of tailwind do we need to start to steepen that adoption curve another.

Speaker Change: Other markets as well so still some work to do on the cloud side, although we're seeing some really encouraging signs there and on the Taser side I think things are happening as we speak which were you know which is encouraging.

Speaker Change: Alright, great. Thanks for taking the questions. Good luck. This year guys. Thank you Jeremy we'll see you in a few months at your conference.

Speaker Change: Thanks, Jeremy.

Speaker Change: Alright, we're going to kick it I'll kick it over to Rick closes out.

Rick: Alright, Thank you to our investors for joining thank you to our incredible employees that I'm. So fortunate to work with thank you to our new team members from few systems Sky Hero and actually today, we had one of our one of our employees who joined through an acquisition of input as a few years ago and I was just delighted to.

Speaker Change: Here.

Speaker Change: One of the things that is really important to me is that those new team members and our employees find a new and exciting home there where they want to stay we are but we don't buy companies because we're going to go in and slash and burn to cut costs.

Speaker Change: Make money through.

Speaker Change: The traditional synergies we buy these companies because they are critical to our mission. There are people who are doing great work. They are innovating in ways that we're excited we'll continue to inject that sort of late stage startup energy back into our own bloodstream and keep us going so couldnt be more excited and grateful for the team of investors.

Speaker Change: <unk> we've got.

Speaker Change: Without with Chris today, showing fuses to some customers and maybe some things Jeff was hinting at it might need our redaction tool to cut out all the positive expletives I got today.

Speaker Change: Some of our new capabilities, so theres never been a brighter time to be at axon and I can't wait for the rest of the euro unfold that way too.

Speaker Change: Did accelerate here in about a month and all.

Speaker Change: Look forward to talking to you all again in May so thanks and have a great night.