Thanks in today's session with Axon. My name is Jonathan Ho, and I'm the research analyst for William Blair & Company. Our speaker today is Josh Isner, who's the president of Axon. Before we begin, I'm required to inform you that a complete list of research disclosures or conflicts of interest is available at our website at www.williamblair.com. With that, I'll hand it over to Josh to give a high-level overview of Axon before we head into a fireside chat. Josh, thank you.
Thanks, Jonathan. Good morning, everybody. Try to be quick here with the slides, and we'll open it up for the Q&A shortly thereafter. Of course, our safe harbor statement, which I'm sure you're all familiar with. A little about our company, Axon, founded in 1993, first as a TASER company. We built the TASERs that you see public safety using today, all the police officers with those yellow TASERs on their belts. It's a story of one thing leading to another. Essentially, people were questioning how TASERs are being used in the field. We started to put a camera on the TASER. That was well-received. We took the camera off the TASER, put it on the officer's body.
That was well-received as well. It actually created a bigger problem to solve, which was all the data coming off of those body cameras and how you manage them and administer all of the evidence from that point forward. That created Evidence.com, which is now the largest police evidence repository in the world. We manage about 50x as much content as on the Netflix library. We're Microsoft Azure's biggest customer. Ultimately, this business has created a lot of offshoots of opportunity. Of course, this massive data set is very useful in the age of AI. There's also all of these downstream workflows to prosecutors and other stakeholders that create additional opportunity. We've built out an additional sensor network around that.
Drones, in-car video cameras, fixed cameras, et cetera, all of these sensors feeding data into Axon Evidence, that data powering a lot of the workflows that police rely on today. When we think about who we serve as customers, our core market is U.S. state and local. Think all the cities and towns and state police agencies. We also have a large federal government business. There, we talk more about DHS, Department of Homeland Security, as well as our federal civilian customers. Not so much in the DOD, the Department of Defense. Those are more built-for-spec type products that we're more of an off-the-shelf vendor. I think federal law enforcement is a lot better of a market for us. International, this business has grown substantially. Last year was our first year booking over $1 billion in this segment. Continues to grow nicely. Enterprise.
These are all essentially use cases outside of sworn law enforcement. Private security, retail, security operation centers, Fortune 500 companies, et cetera. Then, of course, we have this large ecosystem of hardware, software, and AI that I mentioned. You see all of these sensors, whether they're TASERs, fixed cameras, license plate recognition, virtual reality devices, drones, robots, all of those things we sell to public safety in addition to our new Dedrone, counter-drone platform that has been one of our largest product lines, garnering a ton of interest over the last few quarters. Pair that with a lot of software and then additional AI capabilities on top of that. Last year was our first year selling dedicated AI tools. We booked over $750 million in AI bookings. That number is up in Q1, 140% year-over-year. We expect another exciting year of AI growth in our business.
I think we're really proud of the fact that we've built AI-first products that police are using in the field today. This isn't hypothetical, we could do this. AI is a little part of this product. These are AI-first products that police are paying large dollar amounts for because they drive so much efficiency at their agencies. This is our very simple framework for how we think about growth. In U.S. public safety, that would be that top left box. It's an existing customer. That's our core customer market. There, the motion is building out new products for those customers. We sell new products to an existing customer. We essentially do the inverse of that, which is the bottom right, in our new markets. We take our new customers, and we sell existing products to them.
The one thing we don't do a lot of is build brand-new products for brand-new markets. That's a risky proposition that can go a couple different directions. Given how much trust we've built up in our U.S. state and local business, it makes far more sense to just keep innovating there, driving ARPU up, and solving more problems in that market. We have so many products that we already feel have great product-market fit in international and federal and enterprise that applying those products to those markets as opposed to trying to invent off the bat in those markets we feel like is a much more sustainable growth strategy. That's manifested itself in the numbers. You see that top left chart is our bookings growth. Since 2022, that number has essentially 4.5x-ed. Net revenue retention continues to go up.
That's driven by that motion of selling new products to existing customers. Our annual revenue, we're very proud of the fact that we've been a 30% grower for several years now and a 25% grower before that for seven years. You don't see a lot of 30-year-old companies doing that, and we're really proud of the fact that we continue to provide that type of growth. Lastly, you see margin expansion. We have expanded EBITDA margins from about 19% four or five years ago to 25.5% is what we're guiding to this year. In our long-term guidance, three years out, the full year 2028, guiding to 28%. You'll see continued margin expansion coupled with very exciting revenue growth, which we think is a very durable combination and one that we're very focused on. That's a little about our company.
Our mission is to protect life. We're a mission-driven company. That's what we care about, is making sure that we're building tools that keep police officers and community members safe. That resonates a lot with our employees. It leads to great employee retention. We feel like we've got a very solid core team that's been together for a long time, and it builds a lot of customer trust. When we're trying to solve literally the biggest problem police have, how do you limit people dying in communities, we feel like we're central to that and very relevant in that equation. That's a little about Axon. We'll open it up to questions from Jonathan.
Josh, thank you for that overview. Just to maybe level set the audience a little bit, Axon has seen tremendous growth over the past few years, and the company has expressed confidence that it can continue this for many more years. Can you help us understand what gives you the confidence that there's a long road ahead to sustain this growth, and maybe what some of those primary growth drivers are?
Sure thing. It's a lot of that motion I mentioned, but it's really that top left chart that you see on the slide now. Those are five-year bookings. Our back of the napkin is, look, if five-year bookings continue to grow by 30%+, you can kind of expect revenue to follow that same trend. Every year we look at bookings as the leading indicator of revenue. You couple that with a strong in-year pipeline, and you couple it with just more core product expansion, body cams, TASERs, software, AI, across all our markets. We really feel good about just the core business continuing to drive growth like we've seen historically. We see some upside to that with some of the new M&A. I mentioned Dedrone. That was up 300% year-over-year in Q1. We expect that to continue.
Counter drone technology is becoming more and more relevant. I think that's become very visible in what's going on in Ukraine and Iran right now, where drone warfare is a big part of how these conflicts are manifesting themselves. We see a lot of opportunity there into the future and, hopefully, a great opportunity to keep Americans safer.
Absolutely. One of the things that's been most impressive about the company is the sheer number of products and product categories that you've been able to expand into over time. Can you help us maybe understand how that broader vision fits together? How do your customers use the products together as a platform, and how does that make Axon stronger as a whole?
Yeah, sure. I think platform is the exact right word for it. We look at all of our products as this combination of point solutions that together form this operating system that police rely on. When you think about evidence management, it's Axon Evidence. That's at the center of that ecosystem where you plug in all of these sensors, some of which we own, some of which we partner on, and all of them feed into this one engine that is the well of information that the police department manages. Likewise, on real-time activity, whether it's real-time video or counter drone, we look at that as a platform as well, where the user interface there is a map, and it's showing all of your sensors across your city, whether they're fixed cameras, in-car video, body cameras, et cetera.
Now you get a new view of that map, which is also in the airspace above your city, and that's where you're seeing all the counter drone technology take place, both in terms of tracking drones, seeing where the pilots are located, which is a feature of Dedrone, and then eventually being able to mitigate those drones by jamming them, by cyber takeover, et cetera. Really, we've built essentially two integrated platforms, one associated with all the police evidence and then the other one associated with all the real-time activity taking place in a city. We think those are very durable, and they allow us to continue to plug, whether it's M&A or partnership, can plug in new modules into those platforms and remain relevant for a very long period of time.
Excellent. I know the origins of the company were with U.S. law enforcement and specifically state and local, Axon itself has been able to expand dramatically into new types of customers as well, whether that's international or whether that's into the enterprise market. What inning are we in in terms of those opportunities, and how do you sort of unlock more of these markets over time?
Yeah. I think in our new markets, the game hasn't even started yet. We're still in the national anthem, getting ready to run out on the field here. In U.S. law enforcement, we see, like you said, the new products really driving that growth. I'd say if international isn't eventually bigger than our U.S. business, we did something wrong. If enterprise isn't bigger than both of those businesses, we didn't execute as well as we could have. I think we've got a lot of opportunity from our new markets. You just think about internationally, I use a stat, in Italy, there's two police forces that make up a third of the total number of officers in the United States. That's one relatively mid-sized country. You think about Walmart as a company.
They have 2.4 million retail workers, and there's 1 million cops in the U.S. You just think about the pure dynamics of the TAM there. We got a lot of execution in front of us. We got to do all the things, but it's right there for the taking.
Absolutely. With AI, there seems to be a common misperception in the market that AI is going to eat software. Can you talk a little bit about the moats that Axon has that maybe make your products AI-proof?
Yeah. I think that's relevant to some pure software businesses. I think when you have the fact that our hardware is creating all the content that's driving the software experience, that's driving the utility of AI tools, and then you're in this environment where it's highly regulated with a lot of security clearances, so generally a small market where you got to win the most of it to be relevant. We just think there's a lot in there that is not easily replicable. Integrations with all the prosecutors, integrations with all the courts, integrations with all the jails. There's just a lot of infrastructure there where we think we are actually positioned to be one of the big winners in this shift to AI, where it's like, hey, we are serving a customer base that is in need of dramatically different workflows and speed.
Certainly something that AI is very good at. We're serving customers that have these massive wells of data that we manage for them, that's training the AI, that's optimizing it. Again, we see that as a big tailwind. We've just built up so much equity with our customer base where they trust us to be the delivery mechanism of disruptive technologies into public safety. That happened with TASER, that happened with wearable technologies like body camera. It happened with cloud. It's happened with drones. It's happened with counter drones. We think that's going to happen with AI as well, where we will be the company delivering this technology into public safety.
Absolutely. Just to elaborate on that point, how do you partner with the frontier models today?
Yeah.
Have they ever expressed any interest in going into the space directly, or will you be the distribution channel for this?
I think we look at ourselves as a distribution channel for it. Like I said, law enforcement, it's hard for a lot of companies to get excited about in a 1 million-officer TAM, right? You've really got to be confident you can win the most of it at high dollar amounts with differentiated products, and that's our DNA. That's what we do as a company. It's really hard to build that whole motion from the outside. As we look at models, I think our name of the game is diversification. We don't ever want to be in a situation where something in a model changes, that there's a lot of inherent bias in, and all of a sudden, all of our recognition models in the field are affected by that, and that puts our brand or trust at risk.
We vet pretty much every publicly available model to have backup plans in every case. We work with these vendors on version control, where we get a little more latitude switching from version to version, so we can actually test everything around the way the new models work and so forth. We diversify our contracts, so we're not locked into one vendor as well, which we think is really important. I guess the last thing is, all these AI models do different things well. For us, there might be a vendor that does our Draft One product that's the perfect fit at a relatively low cost. Some of our more complex reasoning models, we might pick a different vendor. Diversification's the name of the game there.
Excellent. One of the things that you've been doing is bringing AI to your customers through the AI Era Plan and the ability to cross-sell that into the customer base. What are some of the new AI functions that have people most excited? What have you been able to add, and any sneak peek on what you're going to add in the future?
Sure thing. Our first flagship AI product was called Draft One, and what the product does is it listens to the body camera video, essentially. It's listening to the audio portion of it, and it's writing a draft police report in real time. When you get back to the station and you click into a case that you were the officer assigned to on a given day, you're going to see the first draft of that police report, and you go in and edit it. You have to make it your own. You can't just click submit and not make no changes. There's the blinking red screen where that happens. It won't let you do that. You still have to edit it.
Essentially what we're seeing in the field is before Draft One came out, officers spent 50% of their time writing police reports, so two and a half days a week just simply writing police reports. That number's now down to 20%. We've given every police officer back a day and a half of time to be in the field fighting crime. That's a really attractive proposition for our customers because every police department on Earth right now has headcount vacancy. When you think about, "Oh, I don't have to hire as many police officers now because I've just picked up a day and a half of a week in my current police force," they can fund all these products through those headcount savings. We sell these types of products in a plan called the AI Era Plan.
Draft One was the anchor, as I mentioned. We have the real-time translator out now for the World Cup and being used at the border, being used internationally, where a police officer walks up to a person, they're speaking a different language, they have an emergency. You hit one button on your body camera, it identifies the language they're speaking, and it translates it for you. All you do is speak back in your native language, translates it back to the person that's speaking in their native language. In terms of just the utility of that core product alone, massive in policing environments. Then we're building more and more tools around that. We have Axon Vision, which turns your CCTV cameras into detection mechanisms. You can detect a person lying motionless on the ground. You can detect a tussle. You can detect a car break-in.
You get real-time alerts of these things that are happening in your city. We launched a product called Axon Gravity, where Evidence.com connects to all the other systems in a police force, and then it can give you real-time insights across data sets. When we think about the next frontier of AI in policing, the first one is, hey, delivering point solutions like I just mentioned, the translator, the Draft One, et cetera. Eventually it becomes, hey, we're going to be on-site building custom AI workflows and experiences with Axon Gravity being the foundation of that. Over time, we think ultimately this just becomes more and more relevant for our customers.
Absolutely. When you mention the World Cup and just given everything that's changed geopolitically, how do we think about the opportunity in the drone market and the counter-drone market? This is something that Axon invested in early, had a vision for, but it seems like it's still relatively early in terms of the stages of adoption.
It's definitely early. We acquired a company called Dedrone, what was it? Late 2024, less than two years ago. We've already booked more dollars on that product than we paid for the acquisition, we're very excited about the trajectory that it's on. We think right now we're seeing international, federal, and enterprise as the three biggest potential markets for that product, the only thing that has to happen for state and local to join that is cities are given the opportunity to not only identify drones in the sky but mitigate them and take them out of the sky. Right now, that power sits with the FAA. The World Cup cities are the first cities that have been granted a waiver to be able to mitigate drones. We view that as the next step of that will be major cities in the U.S. having that same capability.
That'll be an exciting moment for our public safety business. The good news for us right now is all these World Cup cities are essentially getting a trial of the product. They've paid for it, but it's limited installments because you're just protecting a stadium's airspace generally. All those cities will take those products that are mounted on trailers right now, and then they'll mount them on fixed sites in their city, and they work in a 2-5-mile radius, call it, or kilometer radius, I'm sorry. You need a bunch of them to cover your whole city, and this is kind of the wedge into each city is having these early installments that are repurposed from the World Cup.
We think we're really well-positioned to see this business grow nicely in all of our markets, but it's really the first one, interestingly, that state and local has been our slowest to adopt. Usually, that's the engine, and then we feed it out to other markets. In Dedrone's case, it's opened a lot of doors in international. It's opened a lot of doors in enterprise with protecting these data centers and warehouses and valuable inventory, logistics hubs, et cetera. Then in the federal government at the border and otherwise, certainly a lot of relevance there as well.
Excellent. Just speaking of fixed mount sort of enclosures, you've also sort of invested in the fixed mount camera space. Sticking to this theme of products, how do you think about the opportunity to expand in this market? There's been some privacy challenges with some of your competitors, and so can you speak to what that looks like?
Yeah. We're very proud of the fact that we're viewed by our customers as the responsible innovation company in public safety. About six years ago, we created an AI ethics board, which has evolved a little bit. There used to be a lot of academic researchers on that board, and now it's much more comprised of community activists and folks who are generally a little skeptical of the police. We invite them in, and we walk them through everything we do product-wise every quarter. They meet with our board once a year, and they essentially are the balancing act to everything we want to do on the policing side. Ultimately, our products have to work not only for our police customers but for communities as well.
When we start with that foundation, when products are delivered to the market, they're just so much more thoughtfully delivered and thinking about privacy and security and making sure that we've been responsible in how we build the models when we're talking about AI. When we sit in front of a city council and walk them through all the work we've done, or better yet, have some of the members of this board sit in front of the city council, it really resonates. We've seen some of our competitors trip up in this area pretty substantially, and that's ultimately been a tailwind for us because it's refreshing for city councils to hear from a company that's thought this stuff through at the level we have.
Excellent. One thing I want to understand a little bit better as well is that as you sort of expanded the product set, as you target these larger market opportunities, how does your distribution strategy need to evolve in order to match this growth opportunity? Where do you see the opportunity to invest? Where are you light?
Yeah
Can you beef it up?
In U.S. state and local, we have a high conviction that a direct selling motion is the way to go. We're going to do our products more justice than any distributor would in those markets. We have the relationships and the incumbency in these customers that we don't necessarily need someone to connect the dots. We have the relationships, we've built a very focused direct sales model in our U.S. state and local customer base. When we go into federal, generally the same thing. We use some government affairs and so forth, we're more of a direct selling motion. In international and enterprise, I think system integrators are a lot more valuable to us because there we don't have the years of incumbency. We don't have all the relationships.
We might be 20% of a national policing deal that's relevant to our products, and that might be a massive deal for Axon, but that also might just be a medium-sized piece to the entire ecosystem that the system integrator is selling. There's some value in selling through those partners, and that's frankly one of the motions that's unlocked our international business. Similar with enterprise, a lot of large companies buy from specified security vendors or distribution partners of some kind on technology. Making sure we're building relationships there and creating multiple pathways into some of these large companies is, again, it's something that's paid off.
Excellent. I have to ask at least one financial question.
Sure.
How do we think about the balance between profitability and sustaining that growth longer term? How do you mitigate those?
I think we can do both, if guns to our head and we had to choose, we'll take the growth. I think we can always solve for profitability if we're growing substantially, it's way harder to figure out how to grow 30+ p ercent than to figure out how to cut costs or be responsible with your budget. Those things I think we're pretty good at these days. For us, it's the focus on 30+ percent revenue growth and making sure that we're capturing the opportunity in front of us.
Excellent. We'll now open it up to the audience to take a couple of questions before we go to the breakout. Go ahead.
Sure thing.
Please repeat the question.
Oh, absolutely. The question was about how is the newest model TASER device doing, and what's our plans for future TASER devices. We launch a new TASER every five years. We are essentially in our fourth year of that cycle right now, so we've still got about 18 months left in that cycle. TASER 10, which is our newer device, it shoots 10 darts out of the TASER instead of two cartridges in our previous model. It gives the officer more opportunities to connect through heavy clothing and to deescalate the situation safely. TASER 10, through present day, has sold at 2x the volume of TASER 7 over the same time duration. It is certainly growing very quickly. It's not only growing quickly in our U.S. state and local base, international and federal, both growing quickly as well.
It's really been a breakthrough product for us on the TASER side. I'm sure you guys can guess what our next TASER is going to be called, if this one's called TASER 10. When that product comes out in about 18 months, we'll be excited to, directionally, it might be a couple of years, but that'll be the next upgrade cycle. We'll continue to solve for the biggest challenge and the biggest kind of breakthrough we still need to make is how do you go from 85% to 90% effective to 100% effective? Because if not 100% effective, you're not going to displace firearms eventually. When we think about that, it's really about breaking through clothing resistance. That's still the biggest challenge in that last 10%, people wearing heavy clothing in the winter and so forth. We're solving that in two different ways.
We're creating a new dart design that we're experimenting with internally that can pierce a little deeper, but still safely. The second one is using machine vision to guide the darts into low resistance areas. There'll be eventually, you'll see a camera on the front of a TASER that is essentially sensing where the resistance is. A person's wearing pants that are like jeans or khakis or something, and they're wearing a heavy winter jacket. The darts will be guided at the pants and be able to pierce through more reliably there, and we'll be using computer vision to guide those darts. We're actually working on that technology in drones right now. It'll first launch in a drone for SWAT instances and so forth, and then eventually make it through to the TASER. At that point, we think we can displace the firearm.
What does the backlog consist of? Sure. We sign multi-year contracts. The backlog is essentially anything in the out years that we haven't recognized yet as part of our in quarter revenue or in year revenue. If we sign a new five-year contract this quarter, all five years are going to the backlog because it hasn't been delivered yet. Once it starts delivering, the revenue offsets the backlog. The way to look at this chart in my opinion is, ultimately you need to see that number growing by 20%, 25%, 30% every year. In backlog, that indicates that bookings are still growing substantially and you can feel good about the growth rate continuing. Yes. There's essentially some non-appropriations clauses in there that cities have. It's like, hey, if the city council decides they can't fund a contract anymore, that's city government.
You have to have that flexibility. We've never seen a customer non-appropriate, so it's a very low risk. Well, they're the market leader in voice, so we're in pretty much every major or minor policing environment together. In terms of products, I certainly think we're viewed as the market leader by a substantial margin on a lot of the body camera evidence management side of the house. They're obviously the market leader in voice. There's some categories that we're more actively competing against each other, and 911 being the newest one of those. You have competitors in pretty much anything, and you just got to focus on what you can do and build your competitive advantage and go on offense as much as you can. We feel like we're doing that, and we're excited to compete. We like competing against Motorola.
We'll continue to do it and see what the scoreboard says.
Yeah. One last one for me. Just as you mentioned 911, I'd be remiss not to at least ask about the CAD space.
Yeah
Some of the opportunities that you have there. Can you talk a little bit about the strategy, why you made the acquisitions, and the success that you're seeing in that space?
Yeah. When you imagine a call center from the movies in 1960s and '70s, the scary part is your imagination is still accurate to the present day. These call centers are relying on antiquated on-premise technology. It's not a feat of engineering or innovation. It's just very much like the switchboard type stuff that you've seen for years and years. There's a new age of 911 companies out there that are using AI tools to layer on top of this infrastructure to add much more sophisticated capability. Anything from transcribing the calls, to localizing the language, to sending a drone based on the metadata coming off the cell phone when they call 911. We think all of these things, that's where the opportunity lies because, ultimately, switching out infrastructure is a once in five or 10 years thing. You want to do that as little as possible.
The question is, in the age of AI, how do you take advantage of all the new tools without having to go through these big infrastructure cycles? That's exactly what Prepared 911 does, and that's why we acquired them. We can sell over the top of any 911 infrastructure out there, and this company is growing very, very fast, or this product line's growing very, very fast. As we create this additional kind of customer base in 911 and as they want to optimize their new call center infrastructure and modernize it, we acquired the second company called Carbyne, which is cloud native call center infrastructure. Prepared is kind of the front end of that.
We go out and try to win everywhere we can on Prepared, delight the customer with an amazing experience using AI, and then we'll have earned the trust to update their call center infrastructure over time with Carbyne. That's kind of the playbook there.
Excellent. Unfortunately, we've reached the end of our time. Please join us in the Mar room for the breakout session. Thank you.