Q1 2024 Axon Enterprise Inc Earnings Call
Well everyone. Thank you for joining axons executive team today I hope you've all had a chance to read our shareholder letter, which was released after the market closed you can find at Investor Axon Dot com our prepared remarks.
Today are meant to build upon the information and financial tables in that letter. During this call. We will discuss our business outlook and make forward looking statements any forward looking statements made today are pursuant to and within the meaning of the safe Harbor provision of the private Securities Litigation Reform Act of 1995.
These comments are based on our predictions predictions and expectations as of today and are not guarantees of future performance. All forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially. We discussed these risks in our SEC filings.
We will also discuss certain non-GAAP financial measures a description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our shareholder letter as well as in the Investor Relations section of our website.
Now turning to our quarterly update we would like to start off every quarter with the video because we think it's a great way to show you more about our business and Theres no shortage of pilots to share from our team. We've got a good one this quarter, it's about five minutes, let's pull it up.
[noise] young president inspired us to look to the stars launching emission it wasn't just about reaching the moon. It was about bringing people together aiming for the impossible.
I'll Miss the term moonshot was born.
Today, we are driving toward a new era in public safety, one where we can protect more people and more places more of the time.
This is our product portfolio, we have built the leading operating system a vast ecosystem for public safety.
The new Taser timing do you take this to a new level. It is critical to our moon shot, but it's only part of the equation.
As we introduced new tools, we also need to rethink how we trained a master them.
So with axon VR training Youre now able to train more effectively anytime anywhere.
Earlier this year.
Very excited to announce our acquisition of users the people who created real time crime centers in the cloud.
I'd like to take a moment now to introduce the founder of users and their CEO, Chris Linda now to talk more about the platform. So great to be a part of the axon family, we created fuses to bring communities together with law enforcement, allowing public safety to leverage the most expansive network of cameras available anywhere in the world. We're now also layers.
Chris Linda: And artificial intelligence on video sources.
Chris Linda: This camera is picking up every single Blue Honda sedan that has passed in the past 24 hours and it's doing it at a click of a button.
Chris Linda: Seven years ago, we released this vision video.
We were imagining what it would be like artificial intelligence could extract the police record from the body camera video now back then.
Chris Linda: Theres a lot of skepticism and look we did not know when the technology would arrive that would make this possible.
Chris Linda: But that day.
Is arriving.
We are entering into the age of AI we.
Chris Linda: We are so excited to introduce draft, one truly revolutionary system that leverages axon body worn cameras.
Chris Linda: And it uses AI to create a narrative with all the details.
Chris Linda: <unk>.
Chris Linda: I believe drones will become first responders and many agencies. We're now doing that it's called D. F. Our drone as first responder and it is going to revolutionize public safety.
Chris Linda: The newest coupled with an index quantifying.
Chris Linda: And then the investigators see a drone dropped a phone and marijuana a sharp jump in global oil pricing frustration. It's every single flight.
Chris Linda: Two drugs to be exact cellphone video capture the drone exploding in mid air.
Chris Linda: Great attack that disproportionately affected or becoming a global threat you.
Speaker Change: We need to think about that threat, that's going to come in swarms.
Speaker Change: Monday night officers, who are called about two setbacks breaking into vehicles around the walnut area, but the offices were able to keep an eye on them. Thanks to advanced technology, the drone, helping police deescalate gun confrontation catch drug dealers and put away.
Speaker Change: Violent criminals.
Speaker Change: And Robin feel township, New Jersey.
Speaker Change: You find a child with London.
Speaker Change: In beachside, Santa Monica Police Officer, Ken Survey, a city block or a reported suspicious person from a command center a mile away.
Speaker Change: Second our lives and our line of work.
Speaker Change: Generally as you walk into a situation that you are getting second or third hand information on.
Speaker Change: [music] a drone in this setting enables the law enforcement officers to change their approach.
Speaker Change: Right.
Speaker Change: To actually see the situation and walking into.
The address the former.
Speaker Change: Hi, I just heard that the kras, one Andrea do you want to start that way.
Speaker Change: About 90% of the time with drones first on scene before any of our officers in the field, we're getting unseen in three minutes from the time the call comes into dispatch.
Speaker Change: Yes.
Andrea: It provides situational awareness that cannot be replaced by simple lies in the ground.
Andrea: Okay.
Andrea: Yes.
Andrea: Yeah.
Andrea: And revolutionize the way we respond.
Andrea: Okay.
Andrea: Yes.
Andrea: Okay.
Speaker Change: Alright, Thank you Eric and thank you all for joining US here today and welcome you all to our first quarter 2024 earnings call. We have kicked off what is shaping up to be another <unk> <unk>.
Speaker Change: <unk> year at Axon you.
Speaker Change: So let me talk about my vision in the video we just show you and I'm energized by the updates we're bringing you today.
Speaker Change: First one of the areas I'm, obviously very excited about is drones robotics and aerospace security I believe drone as a first responder or <unk> is a massive opportunity ahead of us we anticipate that it will drive faster response times and improved decision, making giving us extra seconds and more information before we.
Speaker Change: <unk> in critical situations.
Speaker Change: As we push forward into this new era of aerial innovation drones are not just helpful tools theyre, becoming indispensable.
Speaker Change: The same time drone tracking and countermeasures become equally if not even more important.
Speaker Change: We believe a critical element to enable widespread drone is a first responder programs.
Speaker Change: <unk> programs are designed to deploy drones to an emergency and advance of human first responders enhancing situational awareness to improve response strategies optimizing the allocation of already limited resources and reducing the risk of harm to first responders and communities.
Speaker Change: Limitations exist that to date have hindered the use of GFR at scale.
Speaker Change: <unk> current FAA requirements mandate the presence of the human virtual observer.
Speaker Change: Standing on a rooftop to ensure each drone remains in a direct line of sight that means operators must be positioned in relatively close proximity to the scene.
Speaker Change: Leon rooftops and operating primarily in clear daytime conditions.
Speaker Change: That's one of the reasons I'm, so thrilled about our planned announced acquisition of Deidre.
Speaker Change: We believe <unk> technology solves through these limitations, allowing law enforcement to operate and low visibility conditions and at times a day without the need to maintain a human observer with a line of sight.
Speaker Change: The planned combination of <unk> drone with axon is a natural extension of our strategy with several tangential applications already deployed in the field, including stadium Aerospace security along with robust military critical infrastructure and other civilian protection applications.
Speaker Change: Another area I'm very passionate about is the realm of artificial intelligence I believe that we will one day look back on these times since the beginning of the AI era.
AI has applications across every element of what we do and offers the potential to unlock our human capital resources to accomplish more than we've ever been able to in the past.
Speaker Change: In the video we showed you briefly source introduce our most recent innovation here born from our visionary initiative seven years ago dropped one leverages AI to produce police reports from body camera audio and video.
Speaker Change: Our studies have found that officers in the U S spend about 40% of their time for 15 hours per week on what is essentially data entry writing reports.
This is valuable time, they could be spending in their communities with their families and training are on their own well being.
Speaker Change: But dropped one we're giving them a new lifeline that we expect will save them critical hours each and everyday.
Speaker Change: And while these two developments are massive and their potential. They are just two examples of where we're focusing our innovation and we are not slowing down in several other areas that we believe will also be critical to achieving our moonshot goal.
Speaker Change: We've introduced real time operation solutions that bring situational awareness into the modern age expanding our ecosystem to ingest networks of cameras and sensors fuses and raising the bar for communications beyond monolithic audio to include live streaming video and two way voice communications through video and audio feeds.
Speaker Change: We introduced our new mobile application, which allows our customers to seamlessly work together on evidence management and report writing while they're on the go and we're giving agencies new capabilities and next level training to improve human performance under pressure and the most high stakes events with our continuously improving and expanding VR portfolio.
Speaker Change: As I reflect on what we've delivered to the market and where we're investing I think we're still in the early chapters of an epic story.
And before I pass it over I want to take a minute to acknowledge that our mission is more important than ever we've seen a number of truly unfortunate and devastating tragedies between the police and the public over just the last few months, our thoughts are with the families and departments, who are experiencing these difficult times, but we are out to end.
Speaker Change: We're innovating for a better future and remain dedicated to our mission to protect life.
Speaker Change: And with that I.
Speaker Change: I'll turn it over to Josh.
Josh: Thank you Rick and good afternoon, everybody I'm humbled to share more about another excellent quarter at axon, while we continue to build out the operating system of public safety. The team has not lost focus on the importance of execution. There is no doubt in my mind, we have the best and most well equipped team in our industry.
Josh: And our first quarter results are further proof of that.
Josh: I feel really good about our momentum to start 2024, we started the year running at full speed as the team closed out 2023, with our strongest bookings quarter in company history. In Q1, we worked hard to set the stage for the remainder of the year.
Josh: Since it is the only quarter in which very few budgets close we focus on pipeline development and key customer facing hiring initiatives I am happy to report that our pipeline is the strongest and is the healthiest it has ever been across all major customer segments.
Josh: This is a testament to our awesome R&D teams that continue to zero in on strong product market fit across our entire portfolio driving this type of record demand.
Josh: Whether it's Taser 10, now being more directly linked to VR training within our Taser platform or our on body cameras changing the game for real time operations or dropped one revolutionizing the RMS category Theres, so much for us to bring to the market and we are just at the beginning of what we think will be a deep inquiries.
Josh: And the ways, we leverage technology and public safety for the better over the next decade looking.
Josh: Looking ahead I see many opportunities for continued growth, we believe our domestic state and local law enforcement customers are eager to adopt the new products that we've brought to the market and we are seeing our emerging markets become more meaningful contributors to our results.
Josh: One of the many things that gets me excited about the drone is there strong international presence, which could accelerate our international channel expansion.
Josh: On that note I'd like to share our excitement and welcoming Cameron Brooks as our new Chief revenue Officer Cameron came to us from Amazon Web services, where he most recently led their Europe Middle East and Africa business for the public sector as.
As we look to drive more cloud adoption across the world Cameron's wealth of experience in spring International cloud adoption will be a powerful asset to our team.
Josh: Cameron joining axon is a perfect example of how our mission and our unique approach to the market helps us attract the best talent from some of the most successful companies in tech.
Josh: Before I pass it over to Brittany I want to briefly highlight how grateful I am for my teammates at Axon. We have spent the last two years for defining fortifying and rebuilding our leadership team and we are ready to move faster than ever we are focused on the right areas to continue delivering in the quarters and years to come both on our final.
Speaker Change: <unk> commitments and on our mission, we just recorded our ninth consecutive quarter of greater than 25% revenue growth and our business has approximately quadrupled over the last five years.
Brittany: We're also delivering our strongest adjusted EBITDA margins and more than three years as promised this kind of compounding does not happen without the best people and the best products without a lot of things going right behind the scenes, while its always encouraging to deliver such strong results. We continue to embrace our <unk>.
Brittany: Mindset and put our collective organizational energy behind the most important metric evolve and that is lives saved.
Brittany: I'll pass it over to you Britney.
Britney: Thank you Josh.
Britney: We're very proud of the results again this quarter for both revenue and adjusted EBITDA.
Britney: We had 34% topline growth on top of 34% growth in Q1 last year supported by our cloud and services revenue, which grew 51, 5% year over year.
Britney: This came from growth in both users and premium product add ons driving upsell.
Britney: Demand for teens or can also remained robust and drove 33% growth year over year and our teams are segment supported by increasing supply availability.
Britney: Sensors and other revenue grew 14% year over year with the adoption of axon body for driving camera revenue somewhat offset by lapping the big catch up in fleet revenue from Q1 last year as we are now at more normalized deployment levels.
Britney: In addition to healthy growth across all our categories, we see strength across our end markets.
Britney: Q1 over 25% of our revenue came from outside domestic law enforcement, including international Federal other adjacent markets like corrections and Justice and enterprise.
Britney: <unk> for the quarter at $825 million up almost 50% year over year and it now includes <unk> and our teams are warranty revenue.
Britney: We continue to maintain our net revenue retention of 122%.
Britney: In Q1, we introduced adjusted gross margin to normalize for increased stock based compensation, resulting from the grants, we mean to employees, whose compensation was under a specified threshold many of whom are in manufacturing.
Britney: As a reminder, we've committed to keeping our stock based compensation at or below an average annual dilution of 3% for 2025 and beyond and this is in keeping with our commitment.
Britney: Adjusted gross margin for the quarter was 63, 2%.
Britney: Up from 61, 5% in Q4.
Britney: This improvement was from product mix benefit as well as the fact, we didn't have any onetime reserves this quarter.
Britney: We do expect some pressure on gross margins for the rest of the year as we continued a balanced mix shift and ramping T can capacity.
Britney: Q1, adjusted EBITDA margin increased year over year from 19% to 23, 6%, representing a 460 basis point improvement.
Britney: In addition to the benefit of strong gross margin, we saw operating leverage contributing approximately 110 basis points year over year.
Britney: As Josh mentioned this is our strongest adjusted EBITDA margin quarter in three years since COVID-19.
Britney: We continue to balance driving strong top line growth with investing in the business. We're pleased to be able to do this both organically and Inorganically and are thrilled about our plans to welcome to key drawn team to axon.
Britney: Rick did a great job talking through the strategic rationale.
Britney: From a financial standpoint, we expect to close the deal sometime over the summer and to have approximately one full quarter of financials included in our 2024 results.
Britney: This timing is subject to customary closing conditions.
Britney: We expect that the potential acquisition of <unk> would increase our Tam by 14 billion, bringing our overall addressable market to 77 billion.
Britney: Either one is still investing for growth and we expect incremental costs from their business and from integration that would have a slight impact to our core adjusted EBITDA margin. We've tried to factor this into our updated guidance and should be able to further refine these assumptions next quarter.
Britney: Indeed, Raman is small relative to our overall business and once closed you will see them incorporated into our software and sensors segment.
Britney: Pedro highlights another step in our M&A strategy of acquiring talent and technology that complements our roadmap and expands our addressable market.
In total our acquisitions of Sky Hero, <unk> and our planned acquisition of deep Brown have expanded our tam by more than 50% over the last year from $50 billion to 77 billion.
Britney: The acquisitions also increased our capabilities in robotics security and real time operations. Both areas, we view as critical to the future of policing and our other markets and we are excited to continue delivering on our product vision.
Britney: Finally, I'll turn to our guidance.
Britney: We're increasing our full year 2020 for expected revenue guidance to $1 94 to $1 99 billion, which represents approximately 26% annual growth at the midpoint.
Britney: The prior high end of our guidance range of 20% to 24%.
Britney: This incorporates both our outperformance in Q1 and our increased expectations for the year.
Britney: While future contracted revenue was down slightly quarter over quarter to $7 billion. In Q1, we have a strong pipeline for the year to underpin our forecast. We have also included an immaterial amount of revenue we expect to come from <unk>. This year, reflecting everything we currently know.
Britney: We expect adjusted EBITDA of $430 million to $445 million, which implies an adjusted EBITDA margin of approximately 22% up year over year and approximately in line with our prior guidance on.
Britney: This includes our best estimate of integration costs and impact from M&A on the year.
Britney: Finally, we've also increased our expected investment in capex to $80 million to $95 million for the year as we are continuing to ramp our capacity investments to meet the strong demand for teens or time.
Britney: We're very pleased with these results I think the quarter demonstrates continued execution on our business across both the top and bottom line as well as strong investments for the future. So we can continue to deliver outsized performance.
Speaker Change: And with that I would like to open it up to questions.
Speaker Change: Thanks Brittany.
<unk> been gallery view.
We will take our first question from me to Marshal at Morgan Stanley.
Marshal: Great Thanks, and congrats on the quarter guys.
Marshal: I wanted to dig into dropped one and just get a sense of you know her.
Marshal: How long do you foresee kind of departments meeting for approval processes, and whether you kind of see that once a couple of major departments sign.
Marshal: Sign ups that the approval processes can go much quicker and then maybe just a second question for Britney that'll include just upfront.
Marshal: This is a contribution of used to.
Marshal: To the year or just what youre kind of accounting for between fuses and D drone for kind of the inorganic contribution to the year. Thanks.
Britney: Yes. Thank you very much for the question Rick did you want to lead us off I saw you're speaking yes.
Rick: Find mute there yeah, I would start by telling you.
Speaker Change: We've introduced a lot of exciting products over the years. This is probably the most enthusiasm I've seen for any product we've ever introduced.
Speaker Change: Police officers did not get in this career to be writing reports and we've done a lot of background work with our ethics and equity Advisory Council as well as district attorneys and others looking at what the risks are in testing against those.
Speaker Change: We do.
Make sure that we're putting speed bumps in there. So officers are reviewing the final report, it's really important that it's theirs.
Speaker Change: But what we're seeing is pretty rapidly they are realizing the agencies and their partners again at district attorneys and others are telling us their reports, they're getting when officers youre using dropped one are better than the reports that theyre, writing on their own and so.
Speaker Change: Well, it's pretty early for us to make any exact predictions.
Speaker Change: The overall friction to adoption is low this doesn't require a lot of <unk>.
Speaker Change: Personal services and integration, it's pretty easy for us to turn it on and it's very simple for officers to figure out how to use and we're finding again as soon as they get experience with it their feedback is pretty fantastic.
Speaker Change: Yes, just add to that ultimately there will be a sales cycle associated with it just like anything in selling the government, but I think we're already seeing some early orders come in in the pipeline is building we think in the second half of this year and especially going into next year, we will see this.
Speaker Change: Ill start to really contribute.
Speaker Change: In quarter revenue and ultimately.
Speaker Change: At a high margin as well so we're very excited.
Speaker Change: About what would this will entail for our results, but most excited about the fact that.
Speaker Change: Climate, where it's very hard to add police officers to police forces.
Speaker Change: We have the propensity to put police officers back on the street instead of behind the computer here without having to make any incremental hires from the outside so very excited about what this product entails.
Speaker Change: I'll take your second question.
Speaker Change: Question I would say both thesis Andy Brown are small they are growing fast, but they are immaterial to our top line and really immaterial to our overall growth rate. So we've incorporated that all into the guidance, we're giving for the year, what do you see a little bit more of an impact as us being.
Speaker Change: Cautious on EBITDA, just you know given absorbing those businesses and having integration costs to really make sure we called him in and do a good job and so as you see us not pulling the Q1 EBITDA margin through the rest of the year, you really see us accounting for some of those impacts and where we need to invest.
Speaker Change: Great. Thanks, I'll hand, it off.
Speaker Change: Thanks, Peter will take our next question or promote with this roofs at Barclays.
Both are already won.
Speaker Change: Be muted on your phone.
Speaker Change: I will skip for now we will go to willpower at Baird.
Willpower: Alright, great. Thanks, Congratulations on the strong Q1 results.
Willpower: First question really probably for whoever wants to take it obviously strong mid 30% revenue growth in Q1, if you look at the full year guide while raised it does imply some deceleration. So I'd just love to get perspective on any level of pull forward into Q1 versus conservatism for the remainder of the year and any broader thoughts on that front would be great.
Speaker Change: Yeah. Thanks, a lot we'll have nice to see you I I'd say.
Speaker Change: As usual, we like to see more of the year materializing before we get out over our skis on total revenue for the year and so we're off to a nice start we see the pipeline very strong we're excited about what Q2 and beyond will hold its also worth noting the year over year comp for Q1 is always the easiest comp of the year.
Speaker Change: In terms of Q1 tends to be the slowest revenue quarter and so yeah. We're just.
Speaker Change: It's not we don't have any kind of a pet.
Speaker Change: Pessimism out there or any any reason not to think we're going to have another great year, we'd just like to see that materialize in terms of.
Speaker Change: Throughout the year and the sales cycle and and we'll certainly update that quarterly as we always do.
Speaker Change: I would just add nothing sort of embedded in there other than the fact that we're lapping a very very strongly year last year.
Speaker Change: Yes that all makes sense if I can just ask a quick second question on changed there or maybe any just update on how the automation process is going.
Speaker Change: Where you are with respect to having enough supply to meet demand and maybe any other color on the gross margin commentary there because as you automate over time that should help gross margins.
Speaker Change: It sounds like this is probably the initial investment and David is impacting it just wanted to get some color on that Brian.
Brian: Yeah, I think you I think you sort of summarize that really well, which is we're in this balance between focusing on ramping capacity and really working on cost down initiatives and we continue to see better demand than we've even expected fourteens or 10, and so we continue to be in.
Brian: That area, where we're really ramping capacity.
Brian: You saw that come through in 33% growth in Q1, I mean that was because we had more supply available. So I think the team is doing a really nice job getting that capacity online and supporting that customer demand.
Brian: It might take us a little bit longer to hit some of those cost down initiatives as we hit that balance.
Brian: But ultimately that's just a matter of timing you know one quarter to the next as we figure out how to slot that in I would say overall its going nicely and is on track and then as you look at our gross margins for the rest of the year. You will also have a general mix shift balance that we we do our best to look into our Crystal ball.
Brian: And try and figure out you know software versus our devices versus our teas our business.
Brian: And I would say devices were a little bit lighter in software was pretty strong in this Q1 and so as we go through the year I would expect some health and devices to balance that down a bit. So that's that's all of that's embedded in our trying to say that that gross margin guidance is probably not not going to get better for the year than it was in Q1.
Speaker Change: Got you. Thank you.
Speaker Change: Thanks, Bill well go to Keith <unk> Northcoast.
Keith: Good morning, guys and thanks, a question for you Josh here in terms of maybe a seasonality that type of business. You know you guys have grown so much over the years and we look at last year fourth quarter was tremendous bookings quarter for yet obviously not so much this quarter no frame, probably the first time I remember a sequential decline.
Josh: Maybe you can talk about how you're thinking about the seasonality of your bookings as we look for the next year. This year. The next several years.
Yeah Yeah.
Josh: Great question I appreciate it and I think ultimately very similar story as Q1 last year, where bookings were kind of the low point of the year in Q1, it's a hard quarter to really.
Josh: Rack up bookings for a couple of reasons number one like you said, we're coming off a really strong one where we can capture the chips and in Q4, where we can but then we go through a cycle, where we add salespeople that means the region change the region's change and that means just getting up to speed on the book of business, there's not a lot of urgency on the customer.
Josh: Side, because like I said in.
Josh: My remarks, Q1 is the only quarter of the year, where no major fiscal budgets and really only the UK ends in Q1.
Josh: And so it's Q1s about kind of building the foundation rebuilding the pipeline, but I can tell you I see no red flags in bookings for the remainder of the year I think the team is going to respond really strongly I think its always nice we've got a really really good sales team in and when we can kind of light a fire under armour after kind of a so so.
Josh: Quarter that usually tends to lead to some some good out quarter results and that's certainly what I expect here in quarters, two three and four so yes, I'd say for the future I'd consider Q1 kind of the seasonal low point to be expected for bookings, but.
Josh: Really not an indicator of what's to come here in the future okay.
Speaker Change: Follow up question in terms of federal the federal last year, and a great year, a great year for bookings.
Speaker Change: Are we seeing those start to deploy here or are those going to I've got a little bit longer I guess deployment schedule. How do we think about that kind of contributing to your overall revenue growth.
Speaker Change: You know it.
Speaker Change: These a lot of these large federal bookings they are phased into multiple years and so we tend to recognize revenue when the products deployed or when it shipped on the Taser side and so of those phase deployments that are previous bookings you know theres, just some noisy ness in and when the shipments are and when the when the deployments are done but.
Speaker Change: Federal is in that bucket of when I said, we had a really really healthy pipeline for the rest of the year, we're feeling great about where the federal business is headed.
Speaker Change: Got some large opportunities here in the next few quarters and certainly expect federal to register another awesome year.
Speaker Change: Great. Thank you I appreciate it.
Speaker Change: Thanks, Keith up next we have Josh Reilly at Needham.
Joshua Christopher Reilly: Yes, thanks for taking my questions here.
Joshua Christopher Reilly: Following the body Cam issue with the N Y New York Department of Corrections from a competitor solution.
Joshua Christopher Reilly: And why PD as we know as a customer for you guys and in other areas of their police force with body cameras can you just speak to how quickly you could move in Asquith replacement product there and maybe just from a higher level like what have you done from an engineering perspective to ensure that your cameras don't catch on fire from.
Joshua Christopher Reilly: Battery malfunctions.
Speaker Change: Yes, Josh Thanks, a lot and the first thing I want to say about this is there is a captain.
Joshua Christopher Reilly: That was injured as part of this and so our thoughts are with him is really.
Joshua Christopher Reilly: Bad scenario when this type of stuff happens.
Speaker Change: You indicated there might be a business opportunity here, we'll see what happens with that where certainly we feel good about our ability to deploy products. We've invested a lot into them. We've invested a lot into the deployment and we have the opportunity of course will be ready to ready to go but in the meantime, we're just we're focused on what's in front of us and Thats continuing to build great products.
Speaker Change: Like you alluded to.
Speaker Change: We've invested a lot into our hardware and in into our devices pillar and we have great people and thinking through all of these kind of fringe and edge edge case scenarios that could pop up with the hardware and so while we're not going to kind of disclose any trade secrets here any any in depth engineering I will say, we thought through a lot of.
Speaker Change: These.
Speaker Change: Potential edge cases, and we feel good about how our products will perform in them and so.
Speaker Change: In the meantime, we'll we'll keep just doing what what's in front of us and what we're in control of and if an opportunity presents itself we'll be ready.
Speaker Change: Got it. Thank you and then just a quick follow up on the teaser revenue strength in the quarter here is there anything to call out in terms of CAGR 10, domestic strength versus international being stronger I know you had some big opportunities there for the seven in Australia and.
Speaker Change: Then just balancing that versus the automation coming on.
Speaker Change: It was the automation of benefit in Q1, because I was thinking that was a little bit more tilted for the automation equipment, taking hold in the second half. Thank you yeah, maybe I'll cover the demand and then we talk about the automation after I mean, taser tens of Monster, Josh like it's it's the most popular taser device, we have ever brought to market it's outside <unk>.
The Taser 10 demand our taser seven demand by double.
Speaker Change: We continue to see strong indicators from all over the world that this product is the one that is a meaningful step and outperforming our firearm and it puts us on that moonshot journey that we've talked a lot about and it's a credit to Rick and our entire Taser pillar for all the great work they're doing.
Speaker Change: To ramp this product and and do so with high quality and so.
Speaker Change: I think with demand there is a need to ramp faster we want to get this device out to our customers as fast as we can because we really believe it'll save lives and so we're working through that of course, we have to invest more in automation to to.
Speaker Change: Maximize our build capacity every quarter and we're in the process of doing so but our future is very very bright on the Taser 10 side.
Speaker Change: Thanks Chuck.
Speaker Change: We'll go to Jeremy Hamblin with Craig Hallum.
Jeremy Scott Hamblin: Jeremy I think make sure you come off mute.
Jeremy Scott Hamblin: Thanks for taking the question.
Jeremy Scott Hamblin: I wanted to talk a little bit more in depth about.
Jeremy Scott Hamblin: The the acquisition.
Jeremy Scott Hamblin: As well as just the new product opportunities.
Jeremy Scott Hamblin: This is a pretty substantial increase.
Jeremy Scott Hamblin: In your Tam and you've had a couple of occasions here over over the last six or seven years.
Jeremy Scott Hamblin: But this is among the most significant and just getting a sense for for the drone, which.
Jeremy Scott Hamblin: I gather there's there's quite a bit of sensitivity out there and how this is going to be use potential for for pushback.
Jeremy Scott Hamblin: In the community.
Jeremy Scott Hamblin: Give us a sense for how.
Jeremy Scott Hamblin: How you expect that to be deployed.
You know through your your customer segments as they stand today.
Jeremy Scott Hamblin: Is this the type of product, where you know while it's immaterial now do you see it potentially is a material contributor or let's say in two to three years.
Speaker Change: Yes, let me take that one to get started.
Speaker Change: A few years ago, when we were standing up axon air.
Speaker Change: Our business leader there.
Speaker Change: <unk> insight that is important as drones are probably even more important is going to be how public safety can deal with the new threats that drones posed.
Speaker Change: And that was before what we've seen recently and world events were.
Speaker Change: And modern warfare turns out these small consumer level drones are a real game changer, but theyre also presenting new threats to everyone from stadiums to critical infrastructure.
Speaker Change: Major events.
Speaker Change: Actually with D. Drone, we don't see a lot of pushback because D. Drone is really about monitoring drones in the aerospace and again, especially given the new threat vector that that represents we're seeing pretty widespread support that people expect their local government or public safety would be able to protect them and air.
Speaker Change: Threats or just an entirely new vector now the drone is a first responder.
Speaker Change: Which can be enabled by deidre, so deidra and both helps control aerial threats and then if you want to deploy your own drones.
Speaker Change: Having really great visibility of the aerospace as a key part of that now VFR does present, some concerns people may have about the government flying drones.
Speaker Change: But we find gets most people comfortable if those drones are really being used to respond to 911 calls and.
Speaker Change: And people can understand that that gets please is on the scene much more quickly to help them make better resourcing decisions, but these are not being flown.
Speaker Change: Just hovering over the population they are really being used to respond to calls for help.
Speaker Change: That combined with good transparency about drawing missions that are being flown and how they're being used in public policy.
Speaker Change: The size of their policy helps most agencies I think really gain a lot of public support so to finish out we see this as being very material to.
Speaker Change: For the future.
Speaker Change: We think drones are already proving to be transformative and will only become more so.
I would just say from a timing standpoint, I Echo Echo Rick fully I think this is a question of is it you know from a financial standpoint is it two to three years from now is it longer I mean, it will certainly be a really big pillar of our our business and you can see us investing heavily behind robotic security I think.
Speaker Change: We are really seeding a long term growth trajectory, though a business that's going to be material.
Speaker Change: And for many years in the future more than targeting a year or two years from now.
Speaker Change: Got it helpful color and then just following up here on draft, one which the.
Speaker Change: The demand for this sounds incredible.
Speaker Change: In terms of thinking about the competitive set there are you know.
Speaker Change: Lots of other solutions out there, although you know maybe not.
Speaker Change: You don't quite.
Speaker Change: <unk> rolled out in the way that bond horseman is looking for just yet.
Wanted to get a sense of how challenging you see that market.
Speaker Change: In terms of entering it or is it that your ecosystem is such where.
Speaker Change: There is a natural fit and that's giving you a competitive advantage simply because of the other product lines that you already have out there.
Well. This is the entire reason that we invested in our records management system.
Speaker Change: Six seven years ago was entirely because we saw this coming but the ability to not only have your video evidence and your written records in one system, but to be able to extract one from the other would be critical.
Speaker Change: And I think we're really seeing that come to bear so we always want to stay.
Speaker Change: A little paranoid about competition, it's a very competitive market, but we think between the combination of the ecosystem.
Speaker Change: Really providing a great user experience and what we invest in earning customer trust and support and the rigor with which we've evaluated the risks.
Speaker Change: And really dealt with all the critical players whether it's from community concerns to district attorneys and legal concerns.
Speaker Change: Across the board.
Speaker Change: We've done this in a way that our customers can know that this is a pretty well vetted approach and obviously AI. It can be a bit controversial and we intentionally chosen area that is very high payback for our customers with very minimal risk compared to some other areas where using AI today may introduce more.
Speaker Change: Our risk here, we think given especially because it's derived from the body camera video.
Speaker Change: Derived directly from the evidentiary record, which we think leads to us.
Speaker Change: Actually even better more detailed more accurate police reports.
Speaker Change: I'll try and just building on what Rick said.
Speaker Change: As always we obsess about our customers' wellbeing healthily self aware about the competitive landscape and.
Speaker Change: That's one of the reason we talk about the ecosystem. So much as you were talking about we've had transcription of the audio from body camera video at scale with a very large number of customers building up and out for several years now we've got the footprint of both our body cameras themselves and Denver and the growing momentum in our records and all of that together as sort of the <unk>.
Speaker Change: Yep.
Speaker Change: <unk> dropped one possible and then the second thing as Rick was saying you know a lot of people talk about the concept of responsible AI and using these techniques and ways that combine.
Speaker Change: The results for customers with doing it in a principled and appropriate way and dropped one really is that actually put into action and it's why we're so proud of it and why we believe customers are showing the early excitement for it.
Speaker Change: Great Congratulations and thanks for all the color.
Speaker Change: Thanks, Jeremy up next we have Trevor Walsh with JMP.
Trevor James Walsh: Great. Thanks for taking my questions Rick maybe one for you. It was great to hear all of the commentary around the kind of opportunities around AI coming out and Exxon leaks.
Trevor James Walsh: I was wondering if you could just ponder or kind of pontificate, a little bit for us around.
Rick: The nature of data and AI versus the sensors that sort of drive that is there any worries.
Trevor James Walsh: Sure.
Trevor James Walsh: Firms such as excuses for example, where it's relying on not just axon proprietary data, but things coming from other places where vendors don't necessarily start to play is nice in the sandbox when we kind of realized.
Trevor James Walsh: I think realize that AI is kind of the new or the data for AI is kind of the new goals. So that become an issue in terms of people kind of sharing that data.
Trevor James Walsh: More on a more longer term basis.
Speaker Change: Well, we certainly haven't seen it yet and most of the partners that are sharing into refuses I mean, those are really members of the community businesses other enterprises churches schools.
Speaker Change: No partner government agencies that are sharing that data, primarily because they want to be safer and they wanted to be able to have that data.
Speaker Change: Puts us to be able to help police do their jobs better and identify.
Speaker Change: Whether it's criminal activity or solve crimes. So.
Speaker Change: We haven't seen.
Speaker Change: People sort of.
Speaker Change: Pushing back against using that data responsibly to protect them better Jeff I don't know if you have any color you might want to add on that.
Sure and thanks, so much for the question again, I mean youre right on both fronts right. One is it is the case that having.
Jeff: Aggregated access to large amounts of data are really powerful differentiator and one of the things one of the reasons why we put so much into everything we've built over the last year. So that's one of the things that we think enables us to keep building and building and differentiated ways at the same time one of the key incentives that helps us.
Jeff: Or not worry as much about the particular concern you noted is that for the most part all of this data is in fact, our customers data ultimately and they're the ones where they choose to work with multiple multiple vendors and partner with us in sensors and providers of other times as well as businesses in their community.
Jeff: Themselves get to vote with their feet about how they want the various tools they choose to work with including us to work together and so there are really powerful voice. There then.
Jeff: That incentivize as all of us to play nicely in the sandbox while.
Working to keep making our individual products as differentiated as possible.
Speaker Change: That's terrific really appreciate the color there with maybe one quick follow up maybe piggybacking that absolute drilling comments.
Speaker Change: How much do you intend to kind of lean into the large counter UAS counter dressing type use cases.
Speaker Change: For some of the non kind of public safety customers that either.
Speaker Change: Yeah.
Speaker Change: Yes, I would say, we intend to lean in pretty hard.
Speaker Change: So our goal is to protect life.
Speaker Change: And to the degree that drones are being used to threaten lives.
Speaker Change: We see that as a 100% in hour.
Speaker Change: And our mission set to.
Speaker Change: To try to create new ways to protect from those risks. So we see this could end up being a real opportunity where <unk> not only is useful to our existing customers.
Speaker Change: But D drone is interesting to a new set of customers for example, major sporting stadiums critical infrastructure and indeed military use.
Speaker Change: U S and internationally. They are a customer set that is new for us and can bring our ecosystem into those customers as well.
Speaker Change: Great I appreciate the questions congrats important okay.
Speaker Change: Thank you.
Speaker Change: Thanks, Trevor of next we have Joe Cardoso at J P. Morgan.
Joseph Lima Cardoso: Hello, everyone and good afternoon, and thanks for the question.
Joseph Lima Cardoso: First one here just wanted to follow up on the Dijon questions. Obviously, you know.
Joseph Lima Cardoso: <unk> been working with them for a while and this isn't the first time, you've pulled the trigger on acquiring or partner of yours that you guys think there's value in owning just curious why right. Now is the right time for you guys to acquire them has there been any change in terms of like I know you talked the timeline, but maybe is there some type of change that maybe we don't appreciate and then maybe.
Joseph Lima Cardoso: Just can you just talk about you know.
Joseph Lima Cardoso: Has there been any change relative to your thoughts around participating.
Joseph Lima Cardoso: Sorry, which parts of the technology stack do you want to participate as it relates to the drone opportunity and whether that differs than what youre doing currently around like Taser and body Cams and then I have a follow up thank you.
Joseph Lima Cardoso: So Jeff you want to take first crack at that one.
Jeff: Maybe I'll do the timing of why why now.
Jeff: And Jeff can talk about the technology pieces.
Jeff: So I think Theres a couple of things one we knew we were going to get a bit more active from an M&A standpoint, and that's why we opportunistically.
<unk> strengthened our balance sheet and get our capital raise back in the fall of 2022, and so that was really so that we could go out and be methodical and pick up some of these pieces of the puzzle, where we really wanted to strengthen.
Jeff: Road map and the pillars and Rick has consistently been talking about the importance of robotics security and so both sky hero, Andy drone fit squarely into his vision for what robotic security looks like for us in the future everything from the indoor tactical drones Sky hero to have.
Jeff: <unk> deep Brown helped support D F R and help support counter drone and all of those markets that just goes back to timing of like when does it feel right for them given everything else. They have on their they are played and what theyre thinking about as an independent company versus when it makes sense to come together with us.
So I think nothing big out there that we're not talking about other than the fact that it.
Jeff: Felt right.
Jeff: Timing wise for them and for US they were a partner of ours, we had invested in a number for where we very much need them. When we made that investment that we might make an acquisition and this is the timing that sort of worked out for both sides from acquisitions gambling.
Jeff: Yes, and then just building from there again, great question about the ecosystem.
Jeff: Recently spent my sort of three decades across lots of the businesses I worked in on these kinds of ecosystems that are always this delicate balance between thinking about where do you build by partner et cetera, and those things evolve over time and Youre always trying to decide at each layer of the stack.
Jeff: Where are we.
Jeff: Where are the best opportunities to really really partner well with other fantastic teams another fantastic providers and wear overtime can you get the most leverage by self building whereby growing organically and as you see with US that's an evolving target, but what it combines all of those decisions over time is looking to see.
Jeff: Based on where we are now where we see ourselves going what's what's the best combination of where we can join forces with others <unk>.
Jeff: Building ourselves at both across the hardware and software side of things and so you can see for example, with drones, we made a very surgical and key decision with Sky hero.
Jeff: And bringing in this very focused tactical drone hardware provider you see the work we've done with thesis and then all of the organic build you'll see us do everywhere.
Jeff: And we will continue to evaluate that carefully and be as smart as we can as we go.
Jeff: I appreciate the color there and then maybe for my second question just on the Capex range. Today, maybe you can just talk us through what's driving the confidence to accelerate your investment plans necessarily into the area, but obviously you could talk about it as being like a slower bookings quarter, but the pipeline is growing so maybe you can just dive into that why pull the investments sit today versus <unk>.
Jeff: The days in the future right and then just maybe a second part of that is just as we think about these invest investments coming online.
Jeff: Should we think about as being more gradual over time, adding more automation and then capacity coming on slowly or is this more of a we should expect some kind of inflection in bigger magnitude in a later quarter any color around the timing associated with the capacity acceleration or a capacity investment acceleration would be appreciate it. Thanks, yeah sure.
Speaker Change: I'd focus you on the part of Josh is commentary when he said, it's the best pipeline, we've ever had coming out of Q1 and really drive you. There I think what you're hearing from US is like yes. We have we had slightly softer future contracted revenue in Q1, but that is not at all indicative of how we see the year.
Speaker Change: Going which I think you can see from our guidance in our commentary.
Speaker Change: And so as we look out at pipeline as we look at the demand for teens are Ken as we look at the 33% growth in Q1.
Speaker Change: We basically said that in order to keep meeting that demand, we don't want our customers to have to wait too long for a product that we needed to invest in more capacity and then the way we invest in capacity and we're buying pretty specialized equipment to run our lines and do our manufacturing and so there's lead times associated with that so.
Right now we have to start making investments to support capacity increases in 2025 basically at this point.
Speaker Change: So theres no inflection point, you just see us nicely and slowly ramping our capacity increases maybe not slowly but steadily ramping our capacity increases to meet that demand and trying to get out in front of it. So that we don't get caught in 2025 said, we don't have the ability to meet demand and we're going to have to.
Our backlog our customers for a significant amount of time.
Speaker Change: So that's that's really just what we're seeing is making sure we're getting ahead and being prepared for 2025.
Speaker Change: You know if we waited 90 days that would just mean, we were bringing on 90 days later in 2025, when we got ramped up.
Speaker Change: I think we have enough confidence I'm, telling you we have enough confidence in the pipeline and the demand that it's prudent for us to bring that online.
Speaker Change: No understood Brittany, Thanks for all that color I appreciate it congrats on the results guys.
Speaker Change: Yeah.
Speaker Change: Thanks, Joe we will take our last question from Mike <unk> at Goldman Sachs.
Mike: Great. Good afternoon, and thanks for the question I have two as well.
Mike: First just on the axon and cloud services.
Mike: It was up $12 million quarter on quarter could you talk a little bit about how we should think about the sequential growth. In this line is this low double digit dollar grows sequentially still a good way to think about it.
<unk> is this more user base driven with the growth in the install based cross body in fleet or are we beginning to see more software in I'll call. It <unk> uplift from records and standards and dispatch and then I have a quick follow up.
Speaker Change: Yeah, so our our step up quarter over quarter was almost $13 million.
Speaker Change: Would say part of that was in Q4 last year, we had a really big step step up part of that was from revenue recognition, we've talked particularly about how we'd records coming online some of that revenue recognition is going to be a little bit lumpy. So we had a particularly large quarter in Q4, and then that way.
Speaker Change: It's just slightly smaller step.
Speaker Change: Q4 to Q1, but I also think $13 million continues to be a pretty healthy Scott and sort of in line with what we've indicated is like if you averaged out our quarters that feels like a pretty normal step up each quarter.
Speaker Change: Great. Thanks.
Speaker Change: And then I was wondering if you could comment on some of the.
Speaker Change: Axon wins that have been reported in the media.
Speaker Change: How is our CMP field testing going are there any themes across the.
Speaker Change: The wins in Cornelius North Carolina, or Puerto Rico.
Speaker Change: I know some of them were from large competitor so any any themes in terms of product or costs.
Speaker Change: We are driving those wins thank you.
Speaker Change: Yeah, Thanks, Mike Great question.
Speaker Change: I'm going to give you a little bit more of a general answer on them I think we've said this a lot about our international business that we are going to be and we're not aspiring to be the kind of low cost a vendor in the space. We believe will we built is really really valuable and we believe that we can.
Perform.
Speaker Change: And our products can perform in the field just as we say they will in the written solicitations and that's not always the case for other vendors in this space and so at times, a customer upfront might focus on cost as you know and say Hey, This is the lowest price point and then when they start.
Speaker Change: To use the products and test them out and see.
Speaker Change: What they do well and where the shortcomings are they might feel like Hey, you know that the ROI is such that we should look at a product that is priced differently, even if its higher end.
And oftentimes, that's that's where we've come in internationally and while it takes a little bit of discipline on the front end. We think it's the right long term winning strategy because we do really have a lot of conviction what we built.
Speaker Change: A police officer is lesser served with with something else.
Speaker Change: In their hands around their chests are on their belt and so we've got a lot of conviction that the right strategy and we're starting to see that play out in international markets.
Speaker Change: Excellent. Thank you for the thoughts.
Speaker Change: Thank you.
Thanks, Mike I think thats it for questions that I will turn it over to Rick to close this out.
Rick: Awesome, alright, well, thanks, Eric and thanks again to all of you for joining I'm really proud of our entire team and the incredible execution.
Rick: <unk> may continue to show that will be really excited to come to you with more updates later this year and we look forward to seeing you all again in August.