Hey, everybody, Andrew Sherman, software analyst at TD Cowen covering Axon. I'm here with Josh Isner, President of Axon, who I'm sure many of you know and know the story. I'm going to jump right into it since we only have a half an hour. Q1, you had a great quarter. I'll kick it off there. Really strong start to the year. Dedrone was one thing that really stood out, 300% revenue growth, I think. Bookings was even higher than that. Talk about what inflected in there. I know there's some World Cup. Other than that, what else has drove that?
Ultimately, I think between Ukraine and Russia and what's going on in Iran right now, I think it just opened a lot of eyes to what the future looks like in some contexts around drones, and security, and public safety. I think for the first time, a lot of governments are really recognizing how serious the threat is and exploring opportunities to try to mitigate that threat. Dedrone's a business that's been around for 10+ years at this point. We acquired them about 18 months ago. We're very excited about not only their footprint internationally already, but the applicability of the products to pretty much all of our markets, whether it's the federal market, enterprise, U.S., state, and local, or international. It's worked out very well.
We've already booked on that product line essentially more than the acquisition price, which was a very exciting moment in time, given that the acquisition only happened 18 months ago, and certainly see a lot of upside in that business durably. World Cup is great. It's securing 11 sites and so forth. It feels very relevant. It's a good opportunity for us. These events, in general, they're happening all over the world every week, and it's not really a moment in time. It just feels that way because it's so close to the U.S. right now. We see a lot of durable opportunity there for the long term.
Right. It's relevant to a lot of different things, campuses, data centers. We can touch on that.
Yep.
Executive residences. There's a large number of use cases.
Totally. Warehouses, anywhere you're housing valuable inventory, stadiums, et cetera. Yeah.
Data centers itself sounds like could be interesting.
Apparently, there's a lot of building going on. We anticipated it, we're excited to participate in that.
Okay. For the state and local departments, they can't yet take drones out of the sky. Maybe explain where we are in that.
It's actually the first product we've ever acquired and sold in the market where the U.S. public safety business is the smallest of all the businesses, and that's because in the U.S., you're not allowed to mitigate the drones unless you're the federal government. What ends up happening is cities can deploy this for tracking, but they would actually have to call in the FAA to take a drone out of the sky. For the World Cup, it's the first time that cities have been given a waiver to be able to mitigate drones. This will be, hopefully it doesn't come to that in any way, but the capability is now there and quasi-mainstream, and from there, we believe the government will continue to let major cities and so forth mitigate drones.
Because that is still in motion in the U.S., other markets have just moved ahead of it. International has been very exciting for Dedrone, not only in and of itself, but the network effect to have the right connectivity in a national police force and leverage that to sell body cameras or TASER devices or whatever the case may be after that. Enterprise, we talked about certainly opportunity there. Then in the federal civilian market, our product, we're not necessarily super focused on Department of War. We're more focused on federal civilian public safety use cases. Department of War is much more focused on blowing things up in the sky, interceptor drones, and so forth. That's not going to be our core competency. So for federal civilian and state and local, it's a really good fit, as well as ministries of interior internationally.
Okay. someday state and local might be able to?
Yeah, someday as soon as this year or into next year.
You guys are working on?
I think as always, the government's got to make sure that we're not getting out over our skis and allowing capabilities that have negative effects, but this one feels pretty down the middle of the fairway for things they're looking at and saying, hey, there's much more good than harm that can be done in this case.
Yeah. In the same vein as drones, DFR seems to be accelerating.
Sure
It's pretty early innings, I think. Could we envision a world where that is ubiquitous as TASERs and body cameras? What would that take to?
Yeah, absolutely. DFR, for those that are unaware, drones as a first responder. This is essentially the idea you call 911 and a drone is immediately dispatched to the scene of an incident to give the police more situational awareness as to what's going on. In terms of officer safety, read about officers being ambushed when they show up on site or called to a domestic abuse and someone's waiting there for them or something. This technology gives you the lay of the land, and makes the police officer far more informed. It's been a very valuable tool, and it aids in car chases. You don't have to chase cars anymore with a car. You can just follow them overhead with a drone. A lot of different monitoring critical infrastructure, power, and things like that. We see a lot of utilities. Skydio is the market leader here.
They've been our partner in this space for a long time. Our products integrate very nicely together. Our go-to-market motion is very well coordinated. We're feeling a lot of tailwinds right now from that construct.
Excellent. The AI Era Plan has obviously been a huge success in just a short amount of time. A lot of healthy contribution to bookings last year in its first year, about 10% of the total. It sounds like all agencies are now thinking about this, maybe buying it or planning to buy it. Is it like a product maturity thing where finally they're realizing the benefits of Draft One and the other products, and what ultimately, how broad can this go across your state and local?
Yeah. It's our fastest selling product ever. As I was saying in our group meetings, it's so ironic we're caught in the middle of this SaaSpocalypse fear. It's like we are the company going on offense in AI. Our first year of selling AI products to police, we sold almost $1 billion of it, for a company whose revenue was around $3 billion last year or whatever it was. It's like this is a meaningful contributor and something that's growing, g rew 140% in Q1 year-over-year. We're going on offense in a big way in AI. I think our customers recognize us as the company that they can trust deploying AI. I think we've earned that trust through bringing several disruptive categories to law enforcement, whether it was conducted electrical weapons, whether it was body cams, whether it was the cloud, virtual reality.
We've just built up a lot of equity with customers that they trust us to deploy this well. For us, that's where the opportunity is and speaks to the product market fit to see bookings growing this fast in such a short time, and we expect that to continue throughout the year and feel really good about the opportunities that the AI Era Plan positions us for in the future.
Yeah. Draft One pays for itself pretty quickly.
Yeah.
I've seen some small agencies buy that, too.
Absolutely.
It's not like you need a massive budget.
Yeah, the equation there is really, really simple. Like today, police spend 50% of their time writing reports. That's 2.5 days per week that they're sitting behind a computer writing police reports instead of being out in the community fighting crime, doing what they're passionate about. With Draft One, that goes down to about 20%. You're giving every police officer a day and a half back per week, and you can understand what that means for vacancies in policing. All of a sudden, you don't need to hire all these unhired roles that have been sitting there the last couple of years.
You can redeploy that headcount money to buy tools like this that make you more efficient and put your folks back on the street to do what they do best. It's really been a massive winner, and one that our customers have highly valued.
That's great. There's also the overtime budget component. I was actually looking at my town's budget book that they send everybody.
A hotly read publication.
Well, I didn't crack it until I realized that this data was in there about the police budget, which 89% of the budget goes to people.
Yep.
They are a TASER customer, which is great.
Thank you.
13%-15% of that people salary is overtime.
Yeah.
If you can cut that out by making them more efficient.
Totally
Are you seeing customers?
Oh, absolutely.
Save customers budget?
Absolutely. Yeah, people are the biggest cost in every public safety budget. Whenever you can really convince and show that your products can save money out of the people budget, that's a well that's not tapped very often because there are so few products that meet that bar. We're very lucky that Draft One is one of them.
Yeah. Speaking of budgets, I get a lot of questions on that. It was more so a year ago given the federal stuff. You guys have had a remarkable ability to drive up budget capture by adding more products in. You're less than 1% of the average customer, but that could be 3%. How do you just keep growing that over time?
I think the name of the game is you have two options. You can create new categories. You better make sure that new category you're creating solves a massive problem, because that's where there's not a lot of net new money trickling into police budgets every year. If you're going to launch something new in a new category, you got to have a plan of you're going to solve a problem so important that the customer has no choice but to invest in that. The other option is you disrupt incumbent spend categories, and I think that's what we've gotten really, really good at the last few years, is things like Draft One. It's like we're disrupting the headcount spend that exists, especially the vacant headcount spend.
Everything we do, VR, you're taking this training budget that's heavily weighted on in-person training where you're firing all this ammo, you're spending all this fuel to get everybody to a centralized location. You're paying overtime for the people that have to cover the shifts, and all of a sudden, you can administer better quality training every single day by wearing a VR headset in your precinct for 10 minutes versus one day a year of in-service training where you're firing devices and weapons at an actual range. That's the kind of positioning and approach that leads to some of this new funding that shows up. It's coming from other spend categories in a police department budget.
Yeah. That's awesome. On the bookings growth side, you had a great Q1. You had a huge year last year, over 40%. How should we think about, I know it's seasonal, and we're not talking about quarterly? How should we think about this year's bookings growth?
Yeah, we see a similar opportunity for growth this year. Every year, you get the law of large numbers, so you're coming off a bigger base, and in our business, we're doing bigger and bigger deals. What I would say is quarter -to -quarter, like last year was the first. Usually, every quarter goes up into the right incrementally in bookings. That's what we saw for 20 years. Last year was the first quarter where we went up in Q1, then Q2 and Q3 were kind of flat with each other, and then Q4 was a very, very steep ramp. That'll happen, I think, throughout years in different quarters, just based on when we're able to close these massive nine-figure deals. There's just a little more of that that's going to factor into the growth rate.
It's not going to look perfect every quarter, but I think when you add it all up at the end of the year, there's a similar opportunity to put up the kind of numbers we have in the last few years.
Yeah. Great. The visibility you have into the pipeline, because all these are slated with city councils, essentially. They know that their deal's up or that they want to expand it, and so there's a meeting. There's a whole process to that. That gives you good visibility.
In U.S. state and local, for sure.
Yeah. That's it. Yeah.
In federal, it's a little more unpredictable.
Yeah.
There's different procurement policies and rules and procedures. International is probably the hardest one to exactly predict because you're working in markets that are kind of new for you. A lot of that can be resolved just with good salespeople going through a good sales process and connecting with the right stakeholders, and we feel like that's a core strength of ours.
Yeah.
There's certainly opportunity in a lot of places right now.
Yeah. Great. Yeah. Speaking of international, that really felt like it took off last year, after years in the making.
Yeah.
I know you've done some things on the go-to-market side, but is the market itself embracing more cloud readiness, potentially because of AI? Talk about that a bit.
Sure, yeah. Last year was our first year over $1 billion in international bookings. That was a big moment in time. I remember I took over international sales as a sales leader in 2016, and we were pumped when we broke the $30 million threshold for the first time.
Wow
Super exciting to see the growth over the last 10 years. I think the next 10 years are even going to be more exciting because, like you said, we've established more of a presence internationally, and the idea like AI is, maybe ironically just based on the state of software right now, but AI is actually driving more cloud spend internationally. A lot of these governments that wanted to do as much as they could on-prem historically are now realizing it's just not scalable to run all of the AI tools you want on-premise. That's opening up more adoption to the cloud. That's opening up more potential body cameras and Evidence.com customers for us, as well as some AI opportunities. That's a piece of it, no doubt. The go-to-market investment over the last five years has been a piece of it as well.
There's probably two other motions. One's around system integrators. We've just gotten better at working with the right systems integrators in some of these markets, where we can go and work at the national police level instead of working our way up through users and try to get to as high as you can in the hierarchy. Essentially, these system integrators have a seat at the table in some of these large national forces, and we've been able to close some large deals through integrators in the last Q4, that happened a few times in large volume. We're seeing that again this year. Then the last one is these acquisitions between especially Dedrone and Carbyne, our call handling 911 solution.
Both of them have a large international presence already, and so going in and not having to start from scratch and have a product in market that's working well, that customers like, that's just such a more advantageous position to start from as we look to diversify the number of products we can sell into that customer.
Wow. International, it's not like it's just Europe where your product can work, any country, essentially, so t here's no reason why all sorts of different countries, and these agencies are huge.
Totally. Historically, the Commonwealth countries have been our most consistent international markets, U.K., Canada, Australia. Now we're seeing major business in South America, we're seeing major business in Europe, major business in the Middle East, some in Asia, and then Africa coming online with more and more TASER purchases as well.
Really?
Really starting to see it happen. It's like we knew it was there. Certainly, we know the products add value. Just had to kind of crack the code between the go -to -market and some of the right partners and acquisitions to position us well.
Yeah. Wow. That's great. The other new market I want to touch on is enterprise which has gotten a lot of attention for obvious reasons. Talk about the three buckets, Fusus, Body Mini, and Dedrone, and your approach to each of those.
I think we have three very clear opportunities in enterprise. For us, when we talk about enterprise, we're really talking about not public safety. Businesses, retailers, logistics companies, those types of businesses would be in our enterprise bucket. There we see really, as Andrew said, three different types of opportunities emerging. Number one, body cameras on retail workers. We have a product called Axon Body Mini. It's launching in July. We're already in field trial with some of the biggest retailers in the world on it. They've already pre-ordered some of these cameras. We're very bullish on what the opportunity is in that market. I'd say it really comes down to limiting shrink and limiting workplace violence and abuse, and both of those are unfortunately on the rise right now. We're helping there.
I think customers are seeing that, and they're investing in the body camera product. The biggest overall bucket, though, is Fusus, which is our video stream aggregation tool. Picture a lot of these Fortune 500 companies, they've built out their geographical footprints over 20, 30, 40 years such that they have buildings in different states or countries. All of those buildings were built at different times, so they have different core camera infrastructure, like CCTV with different vendors, different products, different models. Now, they're establishing their security operations center, which is becoming more and more common to see businesses have their own security forces. Some of them are the size of NYPD, some of these private companies and their security forces, and they want everything centralized in their global operations center. What does that mean?
You've got to find a way to take all of these disparate cameras and connect them into one place in a way that's low drag, which means you don't want to go out and replace all of the camera infrastructure. You want to find a way to just leverage what's in place and aggregate it into your command center. That's exactly what Fusus does. Our biggest deal in the enterprise space, at the time it was our biggest deal in company history, involved 300,000 video streams from one company. You can think about the amount of work to deploy that and so forth. It's a lot of work, but certainly a lot of upside in doing so. We're seeing that continue to just drive a lot of enterprise interest right now. The third one, like we talked about before, just counter-drone.
Like valuable assets, whether they're data centers, whether they're warehouses, logistics facilities, whatever they are, there's a lot of interest coming out of the threat of flying drones into data centers in the Middle East that kind of materialized in the last few months. That's driven a lot of interest in this, and especially in these massive CapEx, like data center build-outs. We think this is a really good opportunity for us to integrate this technology as this space gets hotter and hotter.
Yeah, that's awesome. On the retail trials, what have they seen so far? I know it's early, but what have they seen? There's a report you guys put out, there's some metrics around the level of deterrence. It's not like the associates are going to stop what's happening, but i t's capturing the footage.
We went out to see one customer who's piloting the Body Mini. It's a brand everybody in the room has heard of, a very large company. We walk into their storefront, and within 10 minutes, we see a woman approach a cashier just screaming at the person around the return policy, getting very, very aggressive, and you see the cashier say, excuse me, I'm going to turn my body camera on. All of a sudden it's like, whoa. Let's settle everything down. The person just totally changed in behavior. It's like when we launched body cameras into police, you saw the exact same thing, and the person from corporate turned to us and said, did you stage that? That's ultimately what we're seeing.
Wow
The temperature is coming down in all of these places due to body cameras. The other effect of that is a lot of times in certain states, prosecutors are saying they're not going to prosecute theft. Well, when you have a body camera video that's clear as day of the person stealing with their face and just leaving no room for interpretation, all of a sudden prosecutors are willing to prosecute those cases. The reason that's so important is so much of retail theft is organized crime.
Right.
It's not one person going in and taking stuff to their house to use in their, that happens, but the lion's share, like 80% of the actual shrink, is getting exported out of the United States in an organized fashion. When you can really provide a deterrent for these shoplifters, you're not limiting the one-offs, you're attacking the apparatus that's driving most of the shrink.
Wow. Yeah, that's a great example. That's how they're thinking about the ROI is just that, and maybe also greater employee satisfaction, less turnover. If this is a high turnover job.
Totally. 90% of retail associates say they're safer with a body camera on.
Yeah.
Which is, again, very close parallel to what police officers are saying when they first started wearing body cameras.
You have a lot of hospitals already.
Hospital security and nursing. Similar thing in emergency rooms. Nurses are often abused or don't feel safe as folks are coming into the ERs, oftentimes late at night. Body cameras on nurses has been, again, another deterrent in the ER. Hospital security forces using TASERs, body cameras, Fusus, et cetera. Yeah.
My wife's a nurse, not in the ER, but.
Got to get her to start wearing a body camera.
Yeah. There's like 5 million nurses in the U.S., what would it take to get that kind of broad adoption?
I think a lot of them are, and I'm not sure if this is the case with your wife, but they're organized into these networks almost. It's not about going to each hospital and trying to sell to the hospital, it's more about trying to sell to the healthcare system or the nursing organization where you can capture high volumes without going place to place.
Right.
That's really the motion there a lot of times.
Right. Any big hardware R&D areas of the future you guys are thinking about or talking about?
Absolutely. We're excited. TASER technology, we think, is applicable in a lot of places right now. We still are looking at the idea of putting TASER technology on a drone for SWAT instances and then eventually into , we think this can limit mass shootings, and it was a little controversial when Rick talked about the idea of this in schools, and that's probably not the place we would start.
When you think about the idea of a mass shooter on the loose and police taking time, even if it's a matter of minutes, to respond to that, if you've got a drone mounted in the ceiling with TASER technology that's flown by someone that's a law enforcement officer in a command center that's a drone pilot that can choose to deploy this technology, and it's not done autonomously, we think that's a Nobel Prize-capable product of really limiting mass shootings.
Wow
We're very excited about the prospect of it. There's still a lot of work to do before anything comes to market, but I think our conviction is growing that in today's world, it might sound a little crazy, it might sound a little controversial. Show me a better path to stopping mass shootings?
Yeah. Wow.
That's one that we're excited about into the future. Certainly, we've got some opportunities to refresh our core business devices, whether it's the next generation TASER, next generation body camera. Those are all coming up in the next couple years here. More and more that can interact on police cars, t hings that can potentially limit car chases. More and more in the VR space in terms of sensors, more and more in the counter-drone space. Yeah, hardware will continue to be a massive part of our business. Absolutely.
That's amazing. Wow. Back to some of the newer products, 911, given the acquisitions has been a focus, and you touched on those earlier internationally. Maybe just walk through like the land and expand you're trying to do there with Prepared and Carbyne. What is the existing calling infrastructure? It's very ancient. It's taken a long time to kind of disrupt this.
Yeah
Can we see that accelerate a bit with given where you are there?
Certainly. Prepared. You're right, this is a market that it takes the actual turnover of the call center technology and the call handling technology. Those are big enterprise, like changeover. They take time and a lot of work. What Prepared does is it's a layer on top of all that. It's agnostic. You can use whatever call handling you want, and Prepared has multiple kind of AI features that are very useful. Anything from transcribing to localizing the language, to sending a drone directly based on the GPS coordinates of the caller that are taken from the metadata of the phone, to non-emergency call handling, which is a new one. LAPD was one of the early adopters of this product.
Essentially, when you call 911 and you don't have an emergency, you wait on the call for like an hour before someone talks to you. Now this is set up where an agent just answers the call, gets all the key data, and routes it to somebody who can help, so that the emergency line stays open for emergency callers. This is like the early, over the top type of functionality, but we're delighting customers with it. The bet we're making is those delighted customers, when they want to switch out their call handling technology, which a lot of them do, they will go to Carbyne, which is the other acquisition we made, the cloud native modernized call handling platform. Starting to win a lot in major cities, starting to be very disruptive in the market.
We're really excited about the combination of those two companies. When you're involved on the front end of 911, it enables you to, just these workflows, whether they're dispatch related, whether they're communication related, whether they're drone related, all of those you can get ahead of if you're on the front end of the 911 call. That's the goal there.
Wow, that's great. On the ALPR side, you've had that product for a bit here. Talk about that traction pipeline? Market dynamics.
Yeah. We were not the first to market an ALPR. Motorola originally was with a company called Vigilant. That since kind of slowed down in favor of a company called Flock. Flock's had some success in the public safety market. I think they've had some challenges as well around data privacy and security and so forth, that's really opened up an opportunity for us as really the trusted brand around how we manage data and sensitive data and so forth. We're already a camera provider, so like making a stationary camera that detected license plates was something that was like one degree away from what we already do, so it made a lot of sense to enter that space. We've had a lot of tailwinds in the last year.
We're pipeline's up over $100 million for this year on that product line. It's going to grow from there. We see enterprise applicability to it as well. Very excited about how that's going.
Wow. That's great. Good. There's been a lot of surveillance privacy concerns that have come up because of that. The police really needs it because I think there's like 80% of crimes involve a vehicle.
Yeah. That's exactly right. I think, ultimately, one of the things that we've done a little differently than most of the vendors in our space is we have what we call the EEAC. It's Ethics & Equity Advisory Coalition. These are the folks that are generally skeptical of the police. They're generally from activist communities, and we invite them in to put our products through the wringer. Everything from any inherent bias in the algorithms to how users will deploy weapons and everything in between. We've built a lot of trust that way because we listen, we want our products to not only work for police, but to work for communities as well. When we have representation from both populations, we get to the best products.
When we show up at a city council meeting and we walk through all of the checkpoints around privacy and security and the responsible design of the product, it carries a lot of weight. I'd encourage everyone, there's this great video the mayor of Denver put out, I think in February or March, explaining the cut over from, I think it was Flock to Axon in that case, and all of the thinking that went into that and why that's the best solution for their community. It really does a good job outlining kind of the competitive differentiators there. We're proud of that. We're proud of the fact that we're trusted in the space and we take that trust very seriously.
Yeah
it's been a big part of why we've been successful.
That's great. One last question. You've been running the company for a long time. You've worked there for a long time. In many different roles. You're a lot bigger than you used to be. What is currently, though, something you think the investor community either underappreciates or misunderstands?
Yeah, I think a lot of it right now as covering software, it's like kind of lumped into this software basket at times, and we do have a big software business, but I think we started disrupting our own software business two years ago. That's why we built the biggest AI business in public safety. When you couple that with hardware and with this regulation of all these information security clearances and a high barrier to entry and a very effective sales channel, I think we envision ourselves as one of the big winners in kind of this AI revolution.
Yeah
I think more and more as people dig in, I think they're starting to realize that and appreciate it. At the time, it kind of just got lumped in with other companies that may or may not be similar in those ways. Part of that's on us. We've got to message it better at times, but we're really bullish on what the future holds.
Awesome. Thanks for your time, Josh.
Thanks a lot.
Appreciate it.
Appreciate it.
Thanks.