Axon Enterprise, Inc. Price & Performance (AXON)

Design like it matters because it does. This is not just another ALPR camera. It's two cameras in one. It doesn't just capture plates. It recognizes vehicle make, color, visible damage, and even bumper stickers or roof racks. We're turning ordinary street lights into extraordinary tools for public safety. Our goal here is to build ecosystem with many partners, bringing together millions of cameras from any provider to solve crimes. This is one of the most ambitious things we've ever done at Axon because of the massive scale. And with that, I'm excited to announce the Axon Assistant It's an AI powered companion that just sits right on your chest. With a camera you already own. The Axon Assistant launches with a groundbreaking capability, real time translation. Axon Assistant.

Good morning. I am excited to present you the capabilities of Axon Assistant.

And the Axon Assistant and all the new AI features I just shared are part of what we call the AI era plan, which gives you predictable pricing and guaranteed access to all these new AI solutions. Maybe you're catching the theme here.

Public safety is an ecosystem. That ecosystem is stronger when we come together with industry leaders. Please welcome the inventor of the doorbell camera and the founder of Ring, CEO of of Citizen, SafariLand. I'm proud to announce that Ring will be integrating with Axon's Community Request Service the first of hopefully many partners to do so. The retail crime hub becomes your go to for engaging with retailers. Renouncing Citizens partnership with Axon. Instant access to millions of public cameras. Technology is what we build. But relationships are why we build it.

And so today, I wanna thank you for our relationship. Alright. Thanks, Eric. I always enjoy watching those highlight reels, and welcome everyone to our first quarter twenty twenty five earnings call. We kicked off another exciting year at Axon to a couple weeks ago, as we hosted our annual user conference. Which is one of my favorite events of the year. As we dedicate a full week to spending time with our customers. And as you can see from that video, we got to show them the many exciting things we've been working on. I believe our work is about far more than technology, or results. It's about our mission to protect life. It's about giving those who stand on the front lines of our communities the tools tech they need to be safer, faster, smarter, and better connected. We envision a society where violence and crime rarely occur. Because it is simply so unappealing. And so well deterred. I'm so proud of the products we've developed and brought to market over the past few years because I think we are creating the power of that deterrence. To create a safer society. Each quarter, are putting Taser Time in the hands of more people, helping them safely deescalate conflict without escalating to lethal force.

We're giving them better training tools alongside while investing to improve efficacy. In more and more situations. At the same time, our camera and sensor systems are becoming increasingly connected and exponentially more intelligent.

With the power of AI. Draft one is helping officers cut back on administrative workloads. So they can focus their attention in the field where it matters. In the field, Axon Assistant ensures they're no longer alone. They have an always available voice driven AI assistant delivering critical information exactly when and where it's needed through hardware that they already have. With FUSYS, also have the support of hundreds of thousands of public and private cameras to provide them another layer of real time visibility. And now, Axon Vehicle Intelligence, and LightPost and Outpost, our tools are delivering actionable insights license plate recognition and real time alerts. Available through innovative, flexible form factors. Through our newly launched integrations with Ring and Citizen, also helping public safety and the community work together help keep their neighborhood safe. Building a critical bridge all while protecting privacy and the right to choose whether or not you want to participate. As you know, I spend my time thinking about where Axon is going, and part of that is thinking about how we grow. New headquarters project, is a focus of mine, and I'm excited to share that we recently cleared another hurdle with the passing of Arizona Senate Bill fifteen forty three recently signed by the governor.

This gets us one step closer to moving forward and one step closer to keeping Axon in Arizona. Our efforts around this new legislation are another example of what our unstoppable team can do. I could not be more proud. Challenging divisive political opposition and obstacles have stood in front of our project for nearly five years. But our team found a way. And the leadership of Arizona found a way to step up and help us stay here. We don't have everything finalized yet, There's still a few other hurdles to clear. But I wanted to thank our team for everything they've done for this effort, including hundreds of employees who showed up at the Arizona State Capitol Building and personally met with and wrote letters to our elected officials to help them see just why we want to lay the foundation for decades of future growth at Axon right here where we started. We will come back to you with more details when we have them, look forward to updating you on our continued progress. And with that, I'd like to hand over to our president, Josh to share more about what the team accomplished in the first quarter.

Over to you Josh. Thanks a lot, Rick.

And good afternoon, everybody.

As I'm sure you can gather from Rick's comments, we're really proud of everything going on here at Axon. Ramping our investments to deliver on our vision and our team's ability to execute quarter after quarter has allowed us to do so at an incredible rate for our customers.

The start of the year is a great opportunity for our sales and product teams to do just that. Plan and work through customer priorities and see where we can help.

I'm proud to say our partnership has never been stronger. This was especially evident coming out of Axon week our user conference in April, and continues to be evident as we look ahead. Q one bookings are a great indicator of our momentum, Although seasonally, the most modest bookings quarter of the year were off to a fantastic start. A year ago at the end of q one, felt like we could have come out of the gate faster, and we talked a lot about that. Throughout 2024. I'm thrilled to say our sales team responded to that message, emulating the sense of urgency and mission orientation that our customers deserve. As a result, we emerged from q one with a far stronger outcome and an even more exciting pipeline for the remainder of 2025. We expect another record for annual bookings with a growth rate in the range of what we last year. I'm proud of our mentally tough sales team who embraces the fact that pressure is a privilege. More specifically, our pipeline strong across customer segments, especially with US state and local are upgrading to our OSP 10 premium plans beginning to deploy draft one. In fact, five of our top 10 q one domestic deals included an OSP 10 premium and two included draft one.

Along the same lines, through the first two years, TASER 10 orders continue to pace at 2x the rate of adoption of TASER seven. This is our fastest new TASER adoption by a wide margin. And through one year, draft one remains our fastest adopted software product. With nearly 30,000 active users across Draft one our AI era plan to date. More than two x any other product we've launched one year in. Turning to our other customer verticals, international bookings are off to a strong start. We're seeing demand in Australia, Latin America, Canada, Asia, The UK, Europe, all of which contributed to our top 10 international deals in the quarter. The team delivered a record q one booking results, and we have more and more conviction in the growing global pipeline. Additionally, we're seeing strong demand across our emerging verticals, including triple digit growth in corrections and injustice. And in enterprise, we're coming off a record deal in q four and building a strong pipeline in several key industries. US Federal, as we mentioned in q four, represents a strong long term opportunity. While there's a lot of uncertainty within the federal agencies. Our solutions are mission critical, and the value we deliver is clear.

While congress discusses reconciliation in a final budget for next year, we will continue to focus on converting the existing large deals in our federal pipeline. Finally, I'll conclude with a quick note about the current tariff situation. Which Britney can expand upon in more detail. A couple years ago, our team flagged tariffs and the uncertainty in the South China Sea as reasons to diversify our supply chain and make large, but low risk investments in inventory. I'm proud of Brittany, Josh Goldman, and Eric Kurtz and our entire operations team for seeing around corners and ensuring we are ready for a climate like this. This, of course, puts us in a better position to serve our amazing customers. That's always the priority, and we're confident in our ability to do that given the quality of our team. With that, we're on to the next play. We'll kick it over to Britney.

Thank you, Josh.

As Josh and Rick mentioned, we're extremely proud of our results and performance as we deliver for our customers and invest in the future. First quarter revenue of 604,000,000 increased 31% year over year, our thirteenth consecutive quarter over 25%. And we delivered a 25.7% adjusted EBITDA margin with $1,100,000,000 in ARR. Before I go into the details, you'll notice we up updated our segments from TASER and software and sensors to connected devices and software and services. As we mentioned last quarter, we made this change to better align our segment reporting given our increasing product diversification. Some previously disclosed margin information will no longer be included in the shareholder letter as a result. But we'll continue to give periodic updates on our earnings calls. Software and services increased 39% year over year to 263,000,000 driven by continued strength across digital evidence management and premium add ons, each contributing about half of our overall software growth. We continue to see growing adoption of our premium plans. Approximately 70% of our domestic user base is still on our basic plans. And our offerings continue to get better over time convincing more customers to upgrade. Our NRR, also a measure of our existing customer coming back and buying more, remained at a 23% and supported annual recurring revenue of 1,100,000,000.0 an increase of 34% year over year.

Connected devices revenue of 341,000,000 grew 26% year over year. This was driven by growth across TASER 10 devices and cartridges. A b fours, which are now included in personal sensors, and fleet counter drone in VR, which are now included in platform Adjusted gross margin of 63% was up 40 basis points year over year largely based on mix shift to software. Adjusted operating expenses of 236,000,000 were up 3% sequentially and down a 40 basis points year over year. As a result, adjusted EBITDA margin came in ahead of expectations at 25.7%. Part of this leverage was driven by timing of our hiring ramp and we do expect to continue to ramp investment through the year especially in our r and d organization. We also expect some impact to the rest of the year from tariffs. As many of you know, we already manufacture our TASER devices in Arizona, but we do have an impact on the supply chain. The team has done a great job ensuring we can be flexible and nimble and we think we are well positioned to manage through the shifting environment. Based on timing, q one had a minimal impact. For the full year, we have offset some of the tariff impact through other cost measures And overall, we expect a net impact to our adjusted EBITDA margin guidance of approximately 50 basis points for the full year.

This is based on where tariffs stand today. We are not planning any price increases to our customers at this point. We review pricing annually, and we'll assess the need heading into next year. Turning to guidance for 2025, we expect revenue in a range of 2.6 to 2,700,000,000.0 or 27% annual growth at the midpoint. This is up from 2.55 to 2,650,000,000.00 or 25% growth. Our comfort in raising guidance is based on the strong q one bookings performance as well as the pipeline we see for the year, and the future contracted bookings of 9,900,000,000.0. On adjusted EBITDA, we continue to target margin of approximately 25% for the year, which raises our guidance to 650 to 675,000,000, from our previous outlook of $640,000,000 to $670,000,000 Tariffs and exciting r and d investments are factored into this guidance, and we're very pleased to be able to maintain the 25% margin target. Overall, we're delivering another strong quarter in q one as well as a healthy outlook for the rest of 2025. This is based on our momentum across a wide range of product categories end market. We continue to be long term focused on our investing in the business to deliver for our shareholders and for our customers well into the future.

With that, we'll turn it over for questions.

Thanks, Britney. Let's pull everyone up into gallery view. All right. We'll take our first question from Andrew Sherman at TD Cowen.

Great. Thanks. Good to see everyone. Great to see the strong cloud numbers.

ARR growth was very strong, especially for Q1. Talk about anything that drove that strength in the quarter specifically And on draft one, great to hear it was two of the top 10 deals. The 30,000 seats was great to hear at Axon Week. Talk about what pipeline, any any kind of pipeline update for draft one would be great. How you're thinking about this in guidance Sure thing. Andrew, good to see you again, and and nice to see you at Axon Week a couple weeks ago. In terms of pipeline, think the result in q one was really just a better like like, a result of of all the work that went into last year, not only converting on pipeline in 2024, but making sure that that we we had a far, more, predictable q one and and driving a lot more activity into q one that last year kind of got delayed until q two and q three. And so the team really you know, took it took it upon themselves to, to to up our game there, and I'm really happy about the way they And in doing so, we built a lot of pipeline for q two and beyond as well.

And as you mentioned, part of that is the AI error plan. And draft one. In terms of expectation setting, I think the first half of this year, is still about making sure that we we have identified all the key opportunities in draft one and and the AI era plan, and we think in the back half of the year, we'll start to see a lot of a lot more of those convert. Now that's not to say I or the, the draft one and AI airplane haven't been well adopted so far, but know, relative to what we saw at the end of last year, I think we're we're in for a far stronger result this year. And, really in q three and q four, you should start to of assume that'll that'll, show up in our future contracted bookings.

Great. Thanks. Just Andrew, to give you a little color on ARR because you for calling that out. It was a really nice number this quarter. It's it's usually about a quarter off from our bookings. So what you're really seeing come through in ARR was was the strong bookings results we had in q four. So that's driving some of the growth. And then as I mentioned, it's really coming both from new users as well as people adding on some of the more premium subscription pieces. So it's really it's nice healthy growth that we're seeing driving that ARR number.

Great. One more for you, Josh. The international commentary was great. There were a lot of countries and regions in there and you said they had a record Q1. So great to see kind of two quarters of really strong momentum there. What are kind of the most adopted products? Or is there a trigger point? Or is it go to market improvements? Or what's kind of causing that continued inflection up internationally?

Yeah. I think it starts with just a little more focus from all of our teams at Axon. I think, you know, historically, know, we've been a very US focused company. And with the hire of Cameron Brooks a year ago as our chief revenue officer, there's just been far better sponsorship for our international business, and that's, trickling down into our product focus, to our go to market focus, our services focus, and so forth. So the level of execution is is, really the strongest it's been, in in international and on top of that, I think the the product adoption is ranging from TASERs to body cam to more and more cloud openness. And so, I think, you know, our our plan is always the same. We've gotta win with one product and then, earn the right to sell more to the customer through a great customer experience and a lot of value provided through our products and services. And that's kind of the playbook we're running internationally, and and we're starting to see the fruits of that.

Perfect. Thank you.

Thanks, Andrew. Up next, have Joe Cardoso at JPMorgan.

Hey. Thanks. Thanks for the questions, guys.

Maybe I just wanted to start off, and maybe this is more of a for you, Josh. You know, based on your prepared remarks, you know, you're sounding pretty bullish on demand. The pipeline, etcetera. However, obviously, there's just persistent concern around the macro just given kind of the current backdrop. Maybe you can just clarify or touch on, you know, are you seeing any signs in the conversations that you're having with customers that there's these prevailing concerns Is that showing up in any of the deals that you guys are seeing? And then maybe if you could bifurcate that in conversations with you know, your traditional core base of state and local law enforcement versus kind of the other verticals that you guys are obviously gaining traction with?

Yeah. Sure. I I would say, you know, virtually no headwinds you know, in terms of anything macro. With US state and local enterprise or international. I think there are a little challenges along the way, but I think our team is prepared. You know, we've built a great team be able to handle challenges like we're seeing in the in the macro environment right now. So don't I don't necessarily have a lot of concern in those markets. And in federal, it just is one where right now, it kind of is what it is. We know that until a new budget is passed, and there's more clarity on where the federal civilian customers as well as the DOD will be spending money. Our best strategy is just to focus on the deals that we know are right in front of us, and and that's what the team's doing. And some of those deals are very large and very exciting. But, there, I'd say the volume of opportunity is a little bit out a standstill just until, some of the budgeting and reconciliation stuff gets worked out. But in terms of that impact on our overall bookings, it's minimal, and, and and we're really excited about, you know, the the rapid growth that we're still seeing in The US and in international and in enterprise.

No. Got it. Clear. Thanks for the color. And then maybe just a follow-up. You know, touch on some of the recent product introductions maybe on the hardware side. Obviously, you you disclosed the two new fixed mobile hardware products that you guys kinda put out there. And I guess the crux of my question is just really around obviously, you had FUSYS, that was kinda giving you an entry point in kind of the fixed mobile market there. You know, was the main drivers in in kind of owning the hardware stack there? Was it more of a customer push? Did you not see that you were getting enough traction on deals? You know, any way you can flesh that out in terms of what drove the kind of the entry there? And and I guess the second part of that question is, like, is this kind of more of a test in the waters and then you can, you know, expand that product set there in terms of addressing other applications? Or I guess how are you thinking about the opportunity there?

Yeah. Let me let me start with that one. So much like, you know, we started with body cameras and then we added fleet cameras. To expand our ecosystem deeper. The fleet camera is already a real time camera in car that does ALPR and live streaming video. So this was a natural extension. Where one of our advantages like, our we've got just an awesome imaging team and we felt we could provide you know, really best in class for fixed LPR, which has been a growing category, and especially in the context of FUSIS. Know, making sure that we add a really great overall experience. This we identified this as a very interesting and fast growing expansion opportunity for us. One that fit very naturally with all the things we we're already doing in mobile, So why not you know, take same technology, repackage it, have the best in class you know, fixed cameras. And then you layer that on top of then also, this whole works with Axon workflow. How do we go identify all the different sources of different camera feeds and then find a way to connect them into our ecosystem you'll notice I started our our keynote very much focused on the privacy issues.

We certainly get it. What we're building is really powerful tech. And we wanna be really thoughtful about it as do our partners. I mean, each of the partners we we brought on stage are the market leaders in their segment. And I think bringing this together do it the right way, again, with this idea what we don't wanna do is create a surveillance state we're being tracked everywhere we go. What we do wanna create is a state where who need help or people that are dangerous or vehicles that are wanted for some reason can be quickly identified, primarily so we can get help where it's needed, or deter criminal activity I actually think right now The US is sort of got the op the the balance is completely wrong. You know, when you're incarcerating a ton of people, but deterrence isn't high enough to stop crime, that's, like, the worst outcome. Like, the best outcome is you deter crime by having a very high probability you're going to get caught. Such that it just doesn't make sense for people to start to engage. I think we're seeing a real swing back from, you know, post the early pandemic and George Floyd we saw the pendulum swing very hard against public safety, and there was the decriminalization of you know, shoplifting and retail crimes.

With catastrophic consequences. Right? We've seen just Citi urban centers hollowed out as retailers had to move out of town. We've seen know, they've gotta lock up the shampoo and the toothpaste. And that's where our partnership with Aura, I think, comes in here really well as well. They're like, people realize you have to have fundamental stability and safety and rules that are enforced in society, or the little things escalate. And I was shocked to learn as I got to know Orr that, the significant majority of retail crimes associated with people who are either part of a criminal network or and or involved in violent crimes as well. So they sort of the scene from Les Miserables where you know, it's a woman trying to steal bread for her children [indiscernible] not you know, and I don't think that's what anybody's talking about. It's when gangs of people rush into a Best Buy grab TVs and run out in a mob. Like, that is organized criminal activity. So you know, we really looked at this to expand where we can do partners well. Where we wanna be first party so that we make sure that we've got best in class capabilities.

And two just really quick things to add on that. Bill, like you you mentioned FUSYS, You know, this is this is all about doubling down and and going even further above and beyond what would the momentum that has started FuSys. You've heard both Rick and myself talk before about we're at this unique moment in time where the intersection of real time crime center DFR, and vehicle intelligence broadly, of the crucial role that vehicle vehicle intelligence plays in solving so many crimes. The intersection of all of those three and the power that new AI capabilities brings to making them be able to be more powerful and effective than ever is really at the heart of this and making sure that we bring our best foot forward on all three legs of that stool, both with what we do ourselves and with what we partner with. And then the second part, on responsible AI innovation, as Rick said, you know, that's always been a cornerstone of how we build and what we build from if you go back to the beginning when we first laid out and shipped fleet three, we were extraordinarily careful and extraordinarily clear in how our view and why we felt compelled to bring ALPR technology ourselves in the first place was to deliver better results for customers with better and responsible design built in from the ground up, and we choose partners like Auror and others that embody that same approach and you'll see that continue to play out as we go forward.

Got it. Thanks for the insight, guys, and and thanks for having me.

Thanks, Joe. Up next, we have Alyssa Shrives at Barclays.

Hi, everyone. Just a quick few ones on, draft one and AI Aeroplan. I saw the success with Draft one, but is there any kind of difference in with the AI era plan penetration versus the early days of OSB I heard the callouts on draft one, but seems like AI era might be a little bit different. Then I just had a follow-up on that.

Sure thing, Alyssa. Thanks for the question. I'd say, you know, draft one launch a full year before the AI era plan. So in terms of just pipeline conversion, you know, draft one, we just started from a bigger foundation that we're already in the ask to councils and working through budgets. I think over the last quarter and then, and and certainly into q two as well, after we converted some of those early deals. We're still seeing them come in But some of the larger ones, like, this is the time where we're getting them integrated into our quotes, with our customers for the back half of the year, some of the larger police departments will will be sponsoring, you know, large deployments, you know, and and to their communities and and, and putting those on city council agendas in q three and q four. So I think it's just a matter of draft one had know, a faster head start and thus you know, it's it's a little more, well adopted right now, but we're starting to see more and more draft one conversations become AI era plan conversations. And, a lot more excitement, especially after we announced all the new, inclusions in the AI era plan after Axon Week.

So I think the future is very, bright, for the AI era plan, and and, again, we'll start to see that really convert in a much bigger way to bookings in the back half of this year.

Okay. And then just a quick one on that. How are you guys going longer term kind of thinking about EBITDA target with you know, this kind of growth in draft one AI era given it's kind of all SaaS?

Thanks. Yeah.

I mean, I think it's been really nice that you know, software in general has been a great tailwind to our margins. You know, from a gross margin basis. And then I would say at the same time, you know, we are bringing on new hardware products as well, which are also really exciting. But those will sort of balance out. So I think you've seen over the last year or so, you know, we've we've had a little bit of a tailwind from software, but but we really do have mixed factors that you have to consider. We don't have a specific long term target out there after this year, but, it helped in you know, software helped in this quarter. And in general, we're really happy. We're continuing to blend out at that 25% even with tariffs. You know, we'll probably think about longer term margins, you know, as we come up at the end of this year and and really think about refreshing what that long term model looks like for everyone.

Great. Thank you. Thanks.

Thanks, Alyssa. Up next, we have Jamie Reynolds at Morgan Stanley.

Great. Thanks, guys, and congrats on the strong results. Maybe just following up on that, I mean, as you've layered in some of this newer AI functionality kind of beyond Draft one, are you seeing sort of increased hurdles from, like, an adoption standpoint or greater concerns from some of those prosecutor type constituents? Or, you know, now that draft one's been in the market for a year, you know, is that conversation kind of getting easier? And then I have a follow-up.

Let me let me start on this one. I would say, look, things like the real time translator like, enormous interest, and I haven't really heard any critique of that. Like, it's just so powerful for an officer to be able to communicate clearly with something in front of them. So you know, we are leading with the productivity enhancements and things that sort of have extremely high benefits with sort of the smallest risk footprint. And as we get into, like look. Like vehicle intelligence, now you're starting to find vehicles, etcetera. They're you're gonna face a little more maybe opposition from some of the police skeptics there. And and there we just think it's important to make sure that we're really feel good that we're winning right, that we're doing this the right way. You know, we've our ethics framework. We spent a lot of time developing. So there will be I think, jurisdictions will be slower to adopt tend to be a little more skeptical of police, and the ones that are more supportive will probably be faster to adopt. But the other thing I would say is the AI aero stuff, Like, a lot of those features, the real time translator, like, it's I don't think it's you know, fully shipped.

We're in, like, beta with customers. Now, so it's really just preparing to roll out. So, of course, there's also the need to get this stuff out in the hands of customers. Typically wanna get some some cycles in before they've know, made a a large purchasing commitment.

I think the flip side to that too, though, is, like, it also gives people more reasons to be excited about AI and to get excited about a adopting AI. And so, I think we just haven't seen higher enthusiasm from our customers about the whole suite of the AI products we have, and that really encourages them to push to adopt and get over those hurdles. So, I actually I totally agree, but also I would call out for you, like, that the the broader the product suite we have, the more the return for them that they see on using it. And so I think that just gives them a lot of momentum to go look at that whole product suite.

Once again, just like Josh was talking about with the, the Aeroplan and the brightness there, the the beauty of having a plan that includes everything that we do, not just right now but over the next five years, is it gives any individual agency a palette of choices. So even if in that particular agency, one particular thing might not yet be for them, There's many different ways to stack up the points on the board within the plan. For the plan to be a fantastic value for any given customer. Got it. And then maybe just on the drone side, I think a couple weeks ago, the FAA might have made some improvements to the waiver process specific maybe to DFR. So I guess how has that changed conversations? And then what do you think we still need to see from a regulatory standpoint to see like broader based adoption?

I don't know, Jeff, do you wanna talk at all about the the more detailed portion? I I I can tell you that we're definitely seeing DFR go mainstream. And and the timing is just really phenomenal. You know, our partners at Skydio are really just now scaling the manufacturing of their docs, and I'd say the DFR limitation is is probably somewhat production constrained right now. In the back half of the year, we we really expect that to grow strongly. And Skydio has really become a pretty well oiled machine at getting waivers, particularly you're gonna flow below fly below 200 feet where I think Skydio is really the only viable solution in that space because they have such solid autonomy and collision avoidance. And then if you wanna come up a little higher into the two to 400 foot range, really then pairing it with d drone helps there. They're the FAA, you know, wants to see more aerospace awareness. You're more likely to need visual observers or things like high zoom cameras and radar whereas down below 200 feet, there's just less concern about, drones being involved in air traffic issues. So, Jeff, I think you'd wanna add.

Okay. That's pretty good. I think that the key is really meaningful step forward, with the FAA stuff. Obviously, it's not all the way done, but the the changes that really expedited the path to getting these waivers was a was a very meaningful step forward for the industry. And then as Rick said, the key to having the best solution is to arming customers with the full palette of the ability to have what you need to do to fly low, and with a lot of autonomy and a lot of capability in a diverse range of situations close to the ground. And equally to have access to that fly high. And again, that's why we're investing the way that we are and think we're bringing by far the broadest and most comprehensive range of options that are moving in lockstep as the regulatory framework keeps unveiling.

Awesome. Thank you so much, and congrats again.

Thanks, Jamie. Up next, have Jordan Linus at Bank of America.

Hey, thank you for taking the question. On the federal side, the FY '26 skinny budget called out $44,000,000,000 increase for DHS. How are you guys thinking about that across the verticals because it also said they need advanced border security technologies. They need to prep for the World Cup, and the Olympics. So where where are you guys most excited about, that Axon can help Yeah. For sure. I think, on the border, bill, there's there's or, you know, on the border focus, there's a lot of focus on drones, and counter drone, which I think we are excited to participate in, as well as real time video, which is kind of a core of what we do at this point. And so think all the work we've done in the last few years, with some of the federal, agencies to make a bit make body cameras, evidence.com, and live streaming. Available to them as kind of the precursor, to to fill in some of the existing blanks, around, you know, better video, in more places, better counter drone, solutions, of course, more drone solutions, you know, that are that are USA made and and fit for purpose for the US government.

And so, that's that's where our focus will start. Of course, we're working on a number of deals across the fed civ agencies and a number of use cases, but specifically for kind of new money coming into the federal government I think those are really the focal points, along the border.

Yeah. The, I I would add the the real time translation is gonna be hugely beneficial. I had a a regional commander for border patrol a year ago come to me asking for exactly that capability because they're constantly dealing with people across the border and they have no idea what language they're gonna run into. And today, it's a very manual process. You know, you've got a call, get an operator, That operator at a service provider has to figure out even what the language is and how you pass somebody through I think I may have mentioned, but I was in I was in Norway showing an early prototype and one of the instructors from Iceland wanted to see if it could work with Icelandic. And it was pretty flawless. And Icelandic is one of those languages you don't run into very often. So I'm I'm not as close as Josh to the sort of actual pipeline with the federal government, but I can tell you the fundamental underlying demand, I think, that translator is gonna be a huge interest for Border. Got it.

And then is there anything else that has to get done on the federal side, things can move quicker? I don't know if FUSEUS was FedRAMP certified yet or you guys are starting to see existing d drone contracts where agencies are jumping into those that might not have been initially thought that it would be for that, but okay. We can procure BodyChem four and draft one now.

That is a great question, particularly on FUSYS. Jeff, do wanna give a I wanna make sure we give an accurate we're making progress with FUSIS. Know what we can say publicly about where we're at.

Yeah. I think we can you know you know, the process for all the FedRAMPing stuff is you go through you know, we submit sort of every six months or whatever our updates to our things, the official assessors. Make their official recommendation that says, yes, this is ready for extension. And then it just takes another couple months for the formal, you know, kind paperwork approval on the back end. And with FUSEIS, we passed that's that that submission stage very, very recently. So we're in the chute. So FUSYS is absolutely FedRAMP ready. Has been officially recommended by the auditors, and now it just needs to finish the last little bit of certification. So we're very excited about that.

Awesome.

Thank you.

I would just Jordan, I would just add that like, I love that you're highlighting some of these opportunities just from a guidance standpoint. As you can imagine, we've been pretty conservative on what we've assumed for the year on, federal. So some of these things would be upside and and tailwind if they started to happen faster.

Got it. Thank you.

Thanks, Jordan. Up next, we have Will Power at Baird.

Awesome. Alright. Yeah.

Congratulations on another great quarter. I I wanted to start with a question on enterprise. I know you all view this as a significant TAM expander.

Yeah. I think last quarter, you talked about, you know, a a big logistics company win. I think that's how it was phrased. So, hey. I'd be curious just kinda how that's going. And then, b, just any other color you could share on, you know, what the pipeline looks like there and how you get these deals converted, whether it's retail or other verticals you're targeting there?

Yeah. So, we set we set our large provider last quarter. I think everything's going, you know, nicely with that, and and everything's on track there. Just from a pipeline standpoint, I think getting a big like that is a really great signal. To the market and a really great blueprint for us to go show other customers you know, how how we can roll those out and how we can get traction. So again, we're sort of rebuilding the the pipeline for the year, in in q one, but we continue to be really excited about as a category in a long term market.

Yeah. I was invited to a keynote at Rilla, which is, like, the retail security I can't remember what the acronym is for, but it's basically all the retail security Retail Industry Leaders Association. Real There we go.

Thank thank you for the phone a friend help there. And and I can tell you the I was talking to our head of enterprise, and his his feedback was, Rick, it's happening. Like, this is really coming together. Now, again, these deals, the bigger the agents, or the bigger the company, the longer the time it is. And we've sort of baked all that into our guidance for the year. But we think enterprise is going to become a more and more meaningful contributor.

Okay. And then and then my second question whether, you know, Rick, you wanna take it or Josh or whoever wants to take it, looking at this fixed ALPR opportunity, how do we know, maybe help us kinda size the opportunity. I guess I'd also just be curious in early feedback you're getting. It'll take some time, obviously, to, you know, build you know, the bookings there and the opportunity. But any help just kind of sizing the opportunity, early conversations, and then just the sales process. You know? Is it the can you use your existing force as there are there distinctions you're need to make as you deal with missile governments, etcetera? Getting access? How how does that work?

Sure.

Maybe, Rick, I'll start and then you can, fill in any blanks. Ultimately, we'll, this is a a very, very competitive space right now, and we're excited to be a part of that competition. So I'm gonna keep the kinda commentary at a very high level here. But but, ultimately, we were really thrilled with the customer reaction during Axon Week. Agencies that took us ten, fifteen years to win on body cameras and digital evidence management are asking us for very large deployments out of the gate of this product. I think our real you know, we're we're excited to be in this market because ultimately, this capability is very complementary to the to the other products that we build, and we can offer it at a far more, reasonable price, than some of our competitors. And and give them the opportunity, to to have other options out in the market. And so for us, we're gonna you know, answer your question about the sales team, we have a dedicated sales team to this product Of course, our key account leaders that manage the relationships with our large agencies will be a big part of that as well. But, we're gearing up, and and we expect to win in this market.

Yeah. I would add, the other thing that was really a a pleasant surprise was how well Ubiquiti was received. You know, just doing the permitting and all the logistics behind that is a real sort of issue and and challenge for our customers. And Ubiquiti brings with them preset access to tens of millions is if not hundreds of millions of of street lights. I can't remember the number. It's huge. Because they already have relationships where they're putting equipment on these light poles they have relationships with the utilities that run them. That, you know, you make they showed on stage. They can do an installation in, a minute. Now, of course, you gotta get out there with a truck and all that, but the fact they don't have to go through permitting because it's all preset The poles are already there. These are sturdy poles with power. And a universal adapter plug. I think Ian told me there's, like, 450,000,000 street lights worldwide that all share that same plug in. So think that could also be a real accelerator.

That makes sense.

Thank you. Thanks, Will.

Next, have Josh Riley at Needham.

Great. Thanks for taking my questions. Kind following up on Will's question there. How do you how are you thinking about the ramping up production of the camera units for the outpost and the light post? I you know, obviously, you've done some different things. In terms of manufacturing for the taser versus the body camera. Just wanted to get a sense so we level set expectations that, you know, assume it'll be supply constrained for a while. I just wanted to get a sense there.

Yep. Plan on no major revenue impact this year as, you know, we go through trials and then maybe some early shipments at the end of the year. But this year is about getting trials out there, getting really good at the installations, delivering a very, very high quality product, and, really, you know, converting those opportunities to revenue next year. But, you know, the fact that, you know, we build cameras, you know, every day in in a lot of different form but a lot of the same underlying technology has accelerated our path to market here, and we're really excited to kick off trials this summer.

Got it. That's helpful. And then what's the feedback from customers in terms of their sense of urgency of closing some of the, leader pricing deals for draft one and the AI era plan. I I believe, correct me if I'm wrong, it was June 30 because you mentioned that some of those deals might actually be closing in the second half now. So just wanted to get a sense of the price sensitivity there.

Yeah. Great question, Josh. I I we're working through that right now. So I think, you know, whenever we quote something, sometimes there's a reality that some of those deals could slip quarter after quarter. The leader's pricing is to potentially, you know, ensure that there is a sense of urgency from the from the customer as well. And so if anything changes there, we'll certainly you know, let everybody know. But but at this point, we're still focused on on making sure we convert everything in the pipeline in q two here.

Awesome. Thanks, guys.

Thanks.

Nice to see you weeks ago, Josh.

Appreciate it.

Next, we have, Jeremy Hamblin at Craig Hallum.

Thanks and congrats on another really strong quarter.

I wanna come back to, you know, kinda your traditional cloud services business. So, you know, I think this about 40% of revs you crossed over to having a million you know, platform users, at the end of last year. As we look into '25 and think about the growth that you're expecting, 27% total revenue growth, As we think about the cloud services, do you expect more of that growth to come from growing your user base versus kind of that ASP per user per month as we're kind of looking about that and then maybe contrasting that to what we've seen here over the last couple of years.

Yes.

Jeremy, I'd say the last couple quarters we've called out that it's been split about fifty fifty between our user growth and our premium adoption. So, I mean, not not perfectly, but I would say that's a really good rule of thumb to use at least as we go through, you know, the rest of this year. And then, you know, with things like, you know, AI and draft one that will really ramp even more next year, you know, we'll see if that mix changes at all.

Got it. Okay. That was the second part, or follow-up there. On on how it looks in '26 and beyond.

Okay.

And then I wanted to shift gears then and ask about D drone. Right? There's a lot that's kind of going on in the space. There's a lot on a geopolitical sense, and a lot of speculation about the opportunities, you know, with the current administration and how, capabilities might be utilized both domestically, close relations, but then also you know, we are seeing, an uptick unfortunately, in geopolitical activity. But just wanted to get a sense for what your you know, kind of sensing out there in the market. You know, now that kind of these overseas wars are are not fading away, but seem to be increasing, in terms of magnitude and presence.

Yeah. Well, I would say we continue to believe that we're really excited about the acquisition because we got into one of the most important spaces in the world right now. Whether it's a military, whether it's political leaders. We have interest from enterprise. Executive protection, They're you know, we're seeing d drone systems used there to protect headquarters and to protect people's homes. I think people are rapidly realizing if you're an actor who's out to do something bad, a drone is a unique threat vector that everybody who's in the security business has gotta think about and deal with. And so we're now somebody's still like we start talking about military customers and other some of those are longer programs and ones where we're really not at much liberty to talk about. You know, what's going on there. There's certainly you know, there's a ton Trump has talked about this, the American equivalent of the Iron Dome in terms of ballistic missile defense. And we believe there's going to be that'll be a multilayered system that's going to include you know, close close quarter air support from things like first person view and consumer drones. And so we think it's gonna be a a really exciting business long term.

Yeah.

So we're we're glad we're in it, and we're we're really excited AD and the team at Dedrone are are pretty fantastic. They're doing great work.

Just as a quick follow-up, maybe for Britney. In terms of thinking about that you know, segment of business, Going forward, is it gonna be a reportable segment? I know it may not quite be material just yet, but hopefully, it will become, material. And then if it's not a reportable segment, would that just fall under your software and services?

Yeah. So d drone has two components. It has a hardware component and a software component. The software piece you'll see show up in our [indiscernible] And services, and the hardware component you'll see show up in our platform solutions, I think it's unlikely to get broken out separately, at least for a while. But one of the reasons we're really happy to do the breakup apart of our segments is you can see, you know, inside of our connected devices that plat segment. And inside of there, the big drivers of that will really be fleet, VR, and some of the counter drone pieces. And so it gives us a little bit more visibility into some of those drivers to share with all of you.

Great. Thanks for taking the questions. Best wishes.

Thank you.

Thanks, Jeremy.

Up next, we have, Trevor Walsh at Citizens.

Great.

Thanks, Eric. Thanks, team, for taking the questions. Rick, maybe maybe for you, if I can. I would cool to hear about the Apollo cartridge, plans. I I know it's been maybe kind of the last piece of t 10 kinda getting through the thicker pieces of clothing. And I I think you've talked about that in the past more in the international opportunity and the kind of cold weather areas, but we're obviously have our fair share of cold weather environments here in The US and domestic market. So can you just talk about kinda where that cartridge is at and then what type of opportunities get locked if there is domestic kind of holdouts, if you will, or if it's more, again, internationally focused and kind of as a primary weapon in those or or servicing for that.

So about a year out from scaled automated production. We wanted to get ahead of it. Like, this is such a fundamental shift It takes the taser from sort of this less lethal capture device to a self defense [indiscernible] And as you heard probably from Aspen, our friend from Norway, he's coming to conclude he intellectually, he's already concluded that if you're in close quarter combat, a t 10 plus this new Apollo dart, is a better, more effective, safer option for you to use than a gun. Now you even have to be careful saying that. We were little nervous about putting him on stage because that's that's such a high bar. It's it's almost a little bit of a lightning rod. Now where this is gonna make a difference in The US there will be some marginal revenue from it. We'll probably have some you know, kind of upgrade tactical package that includes that cartridge. And it is you know, obviously, looking at it's a bit more sophisticated. Gonna be a little higher price point than our traditional cartridges have been. But I think really the impact in The US is gonna be on the moonshot. Like, our goal today, an officer, their weapon of last resort is their gun.

But their weapon of first resort is also their gun. So the thing in their hand if they don't know what's behind the door, is a gun. And we've all seen the catastrophic consequences you go through and you have to make an immediate decision. I think over time, we're gonna see the t 10 be a first choice Now look. If you know you're going into a gunfight, know, they're gonna go to their firearm, we think especially around edge weapons and others, this is the piece that really gives us a shot at displacing lethal force and our estimates are about 40% of situations where people are shot and killed in The US today. So here, I'd say it's probably more about the moonshot. Internationally. But and the reason I say that is most agencies in The US are already buying TASERs. So, yes, there's gonna be a little bit of upgrade opportunity there. But in The US, it's gonna drive the mission more than a pure revenue driver. Internationally, though, I think that's where TASERs are not standard issue in most countries. They're shared among specialty teams. But when we get to the point where it's like, hey.

Gonna use this as our primary defensive weapon. Now you go from three to 10% of the agency using it potentially a % of patrol. And then that should begin to pull through with it much of the rest of our ecosystem. So I think from a pure financial business sense, I think t 10 is gonna be much more impactful in global markets and then frankly in enterprise and other places where you know, whether you're somebody like Lumis who's in the know, business of moving cash around or guards or anywhere you see armed private guards. We think t 10 plus the Apollo is gonna begin to be much more deployed there because maybe they'll still carry their gun. They might start to look more like a cop where they have two weapons. But we think, you know, all the business operators pay a ton of attention to the liability issue, if they can avoid a shooting, it's you know? There's a lot of financial incentive in addition to the moral imperative. So I'd say this is gonna its biggest impact will be opening new markets for TASER.

Awesome.

Helpful. Maybe one just quick follow-up for Britney. Appreciate the color around tariffs and the 50 basis point impact to the adjusted EBITDA for the year. Would you call that kind of your I guess, worst case where all the kind of, you know, adjustments and adaptability that you've built in around supply chain kind of, you know, not exactly, or is that just give us, I guess, a sense of, like, kinda where that falls in terms of your you know, high side, low side sort of expectations. Around the impacts?

Yeah. I mean, I think it's our best guess at being realistic. And that's obviously like, with what we know today, I like, it's always hard to caveat that, you know, this has been dynamic, and it doesn't assume new retaliatory tariffs or anything like that. But just based on what we know today, what we're able to offset, I would say it's realistic. Of course, we're gonna try and do you know, more if we can do more and continue to to work those supply chain muscles. But I think it's a fair bet knowing what we know right now.

Got it. Awesome. Thanks for thanks for the questions.

Thanks, Trevor.

Up next, we have Keith Housum at Northcoast.

Yep. Thanks, guys. I appreciate it.

Hey, Rick. Is you know, we saw Axon Week, the Axon ecosystem is growing and becoming more and more important to your agencies that you serve. Is there a point where your customers becomes concerned that you're too big a part of their ecosystem? You know, that you're too important or too levered to you? And how do you address that? And, you know, is that a risk to, you know, your growth going forward? It's, you know, next year, five years, ten years down the road?

Yeah. I would actually say we started hearing that maybe five years ago, six years ago that was coming up as a concern. I've been hearing it less recently we've been hearing from our customers more is like, hey. We've got all this tech technology that doesn't play particularly well together. Can you take on more? Like, you know, last year when we exited the CAD business, you know, doing the dispatch software, we heard from a lot of our customers was like, oh gosh. We really wanted you to that over too because when Axon when Axon does it, we know it just works, and we know that gonna get a great response if we have an issue and it's gonna be supported. So I'd say, I it feels to me like it's less of a concern than it was a few years ago. I think we've sort of crossed this Rubicon. Where we're we're such an integral part of they're they're already kind of all in with us. And so kind of even including more stuff, I think, doesn't really increase their risk. Like, if if Axon went out of business or you have some catastrophic event, it would be majorly disruptive already.

I think what they're they continue to tell us is, though, you know, things just work better the more they work with us. And that's why also this year, we really wanted to lean into the partnerships. We're we're both signaling and living up to a commitment to our customers that's that's, hey. We we know we can't be everything, and and we're gonna identify best in class partners and bring them to you. Have an open ecosystem so that you can feel more comfortable working with us. We're not gonna try to box you into a walled garden. And that ultimately you know, you'll be able to use the parts of our ecosystem you want and the parts that you don't wanna use You know, you can you can use other tech solutions, and we'll know, keep things open so you can integrate with us.

Great.

And and Go ahead. One more thing, Keith, there is just, you know, I think some of that is inform some of that thinking's informed in how we've got to mark with our AI era plan where, you know, some of these, software heavy offerings, I think it's better to you know, to to offer customers a fixed price with certainty and continue to delight them with more and more features in there that they don't have to pay a additional dollars for. So I think, you know, in a lot of the new disruptive technologies that we're entering, it's far more about derisking the proposition for them by by, you know, making sure that we're very fair and predictable on pricing, and and we over deliver on on the expectations in terms of features and service.

Okay. Gotcha. And just a quick, follow-up. You obviously guys got a great net retention rate. I'm assuming, right, you guys still not lost a significant vendor or a significant agency to a competitor yet? Correct, when it comes to Axon Body Camera?

That's correct, Keith. Yep.

Thanks, guys. Good luck.

Thanks.

Thanks, Keith. Up next, we have Jonathan Ho at William Blair.

Hi.

Good afternoon, and thanks for sneaking me in. Just in terms of the TASER 10 growth, I think you've called out just some pretty phenomenal growth here. What gives you the confidence that with this rapid rate of adoption, do we kind of run into the risk of hitting the wall at some point or you're seeing that adoption rate as fast as it is sort of get in the way of growth in future quarters?

Yeah, Jonathan. It's a fair question. I personally don't see a lot of that given that, you know, there are still customers that are using the x 26 p, and customers that are using the x two. And and a lot of what TASER 10 has done is accelerated the upgrade cycle. So I think that were that would be much more of a concern if all customers predictably upgraded every five years, eventually, we'd hit a rate problem there. But in reality, historically, taser 10 is the first one where customers are feeling like, hey. We must upgrade as soon as we possibly can even if it's inside of five years. So I do think there's still plenty of opportunity in in the next, you know, three, four years, in terms of TASER 10. And, of course, you know, the name of the game there is not only filling out deployments and upgrading deployments our state and local customer base, but extending t 10 to, you know, to our international customers and and a ton of white space there, and we're seeing a lot of excitement as Rick highlighted in Europe and in other in other geographies as well.

Great. I'll keep it to one. Thank you.

Thanks, Jonathan.

Thanks, Jonathan. We've got one left with Mike Ng at Goldman Sachs.

Great. Thanks for the question. I just have two quick ones.

First, just on the AI error plan and AI services, are there any meaningful margin differences relative to Evidence's .com just because, you know, you have to pay the the cost to compute? And then secondly, I I just wanted to ask about you know, the state and local budget flush outlook, which know, I think tick typically happens in in February and April. Just wondering if you had any, early expectations on you know, what you're what you can expect there just given what you're seeing in the pipeline. Thank you.

Sure.

Do you wanna cover the first one? They'll cover the take the margin one. Yeah. I mean, nothing that I would sort of factor in as a mean driver. You know, we talk about our software business continuing to be a above 80% gross margins, and the AI era plan would certainly fit in that. Now the interesting thing about the AI Era plan is, like, we don't actually know every product we're gonna go put into the AI era plan because they're still more to come. But based on what we are releasing now and what we're seeing, you know, we're pretty happy that it falls in that range of what we would expect for our software business.

And then on the state and local budget items, Michael, I I don't know know that we're a lot different there as it relates to us. Now other companies are seeing at times that these grants that were out there are starting to dry up And but a lot of those grants were were helpful in paying for, like, onetime upfront purchases. Most of our, activity, as we've talked about in the past, is is highly related to to operational expenditures. As opposed to Capital Ones. And so, you know, for us, I think as we work through budgetary quotes, like, you know, for example, some some large states, their budget ends on September 30 and starts again on October 1, and we're working through hey. Here's here's, you know, budgetary quote, that that you can kinda you know, bank on for q four. We're not seeing much difference in in how we've handled those in the past years, if if any at all. So, certainly, something that, you know, we'll continue to monitor. At this point, we we feel really good about what we're seeing in terms of, you know, availability of of of funds and opportunity opportunity to invest from some some of our state and local customers.

Great. Thanks, Josh. Thanks, Brittany.

Thanks a lot.

Month.

Alright. We'll kick it to Rick to close this out.

Sorry. I had myself muted there. Hey, everybody. Again, I hate to sound like a broken record because we keep breaking records, but it's exciting. Like, Josh and Brittany and Jeff and the entire team, just the sheer breadth of the products that we've been bringing to market the intensity of our sales and customer support teams to both get it to customers, but make sure it's working and deliver a world class experience. And just everything it takes to run this business it it is pretty mind blowing. I I don't know that I can think of another tech company that has so much breadth across so many different areas. And then coupling that with you know, the challenges, of of selling into safety and the regulatory environment around managing government data, whether it's from FedRAMP to CJIS. And I'm just delighted that we're able to continue turning in these results And it's a privilege to work for all of our shareholders that are on today to work with all the analysts. You know, you guys ask great questions. Help us even, you know, take a hard look at different aspects of our own business. And together, we're doing great things.

So excited to see you all again, maybe at our shareholder meeting in May, if not, certainly the next earnings call. In August. Thanks, everybody.