It was pretty buggy. So we bit the bullet — bit the bullet about 18 months ago to go all in on developing specialized hardware with the integrated infrared tracking lights, They’re the same that are in the native HTC or Oculus controllers. And that has just gotten phenomenal customer feedback, where, oh my gosh, this just works, it’s very accurate, it’s no longer getting — sort of buggy and needs to be recalibrated. So I think that was pretty exciting in terms of the near-term stuff that I think we’ve just had another product sort of crossover from that early developmental product market fit phase to where now it’s just dialing it in, getting more hardware launched and scaling content.
Trevor Walsh: Great. Thanks, both, for the color, and congrats on a solid quarter. Appreciate the time.
Rick Smith: Thanks.
Andrea James: Thank you. And as I’m going down my list here, if you have video off as a courtesy, I’m not calling on you. So if you do want me to call on you, just come on video when you’re ready to be called on. Joe Cardoso at JPMorgan. You’re up next. Go ahead, Joe.
Joe Cardoso: Thanks for the question, guys. Yes. So maybe a couple questions rolled into one. You showed the video in the beginning and talked to the opportunity in federal space or the military space. Can you outline perhaps the drivers as to why this opportunity is materializing in a more material way nowadays? Maybe how large this opportunity could be for you guys and, you know, which offerings are really resonating with the military folks? Thanks.
Rick Smith: Yes, so, I would start out by saying what’s resonating is our existing product suite, which has been more focused on like military policing and protecting basis. You know, this year, I think the — I saw the light bulb click at AUSA. In previous years it felt like we were, maybe a little bit of an outsider company from, you know, from over in law enforcement that was coming into federal. This year it felt like we were home. The promotional video showing how you use live streaming cameras, counter drone, you know, TASER 10, all in an integrated way. Our vehicle-based, you know, fleet solutions, our partnership with Fusus on integrating multiple cameras from both, you know, partner agencies as well as existing agency, really resonated to where it just — it felt like people saw what we could do in base security.
What I’m really excited about for the future is, we want to get into combat operations. And, you know, you may first say, well, jeez, you know, if your mission is to protect life, why would you want to do that? Well, because I believe successful military operations in the future will be those that kill the least, right? We racked up a big body count in Vietnam, and it didn’t work. We killed a lot of people in Iraq and Afghanistan. And the more people we killed, the less successful our mission was. You look at what’s happening in the Middle East right now with Israel. You know, imagine if they had more precise drones and robotics that could be going into those tunnels rather than dropping 2000 pound bombs with tons of collateral damage. You know, we will stay true to our mission to protect life.
And I think, look, when I wrote my book the End of Killing, I believe we were closer to the end of war than it turned out. I was tragically and catastrophically wrong. You are seeing what’s happening in Ukraine. But I think, you know, I wrote, I believe, in our shareholder newsletter last year or so. Imagine if we had invested in counter-material drones that we could have provided to the Ukrainians, where those drones would go out with fully autonomous artificial intelligence, not to kill people, to avoid people, but to destroy equipment. You know, if you could have brought 150,000 Russians to have to walk home because we destroyed the treads and the barrels and the engines on their equipment, while minimizing human casualties, you know, we think about, we have plenty of lethality.
We’re not giving a lot of it to the Ukrainians because we’re actually trying to toe the line of not over-escalating. And I believe that sort of general thought process, how do we deescalate the level of violence and death to accomplish our nation’s priorities and those of other sort of civilized nations is a huge opportunity. And this year at AUSA, for the first time, I had some conversations with people in senior positions in the military and military development programs, and I got a different emotional reaction. Now that’s going to be years off. But I think the message is starting to resonate. You know, no matter what the mission is, killing should always be a last resort, and we should put a lot more creativity into how we accomplish our mission while minimizing the loss of life.
Brittany Bagley: Just to follow up with some stats, you’ll see some of these in the shareholder letter, but we have pegged the TAM, our total addressable market for federal at about $10 billion. And the other exciting fact we shared this quarter is that five of the top 10 deals we booked were in our federal business. And we’ve given a couple of examples of where we’re getting really nice traction with federal customers. So the VA has gone live on Axon Records. The Department of Homeland Security has an IDIQ for our body-worn cameras and our software. The U.S. Army is renewing its TASER modernization program, and our first TASR contract with the US Federal government agency has been signed. So we’re really seeing the momentum from the customers in the deals we’re doing and in the bookings and think there’s a pretty large opportunity out there just from an addressable market size to everything. Rick talked to.
Rick Smith: Totally and to speak to the timing a little bit, I think, you know, key, as you heard Josh talk about before, to our market expansion and our flywheel overall is this simple, you know, two-phase approach to every new market, which is, first, we earn the right to sell to a new class of customers by taking our existing products and tailoring them in the ways that are needed to make them resonate and have product market fit with that new customer segment while we build out that sales channel. And then once we’ve done that and have brought them into the fold as an existing customer segment we’re strong with, then we’ve earned the right to go even bigger by building bespoke new products that are really tailored especially for that market segment.
And that story is playing out resoundingly in federal. So over the last several years, we’ve made tons of investments in the background, laying pipe with things like FedRAMP Compliance, FedRAMP Moderate, then FedRAMP High, and IL4 and towards IL5, all of those sorts of things, as well as hundreds of small little adjustments to all of our core hardware and software products to make them viable and ready exactly for these federal customers. And a great example of that is the VA going nationally live with Axon Records this quarter. And then what you’ll start to see over time that opens us up into more of that TAM as well in addition to selling more and more of our existing, you’ll see us start to develop bespoke SKUs and product lines that are even more tailored just for federal.
Josh Isner: Yes, I want to come back on one last thing. I don’t want my comment to be misinterpreted. When we, for example, say we want to drive down police shootings, we’re not passing judgment on whether police are justified or not. And similarly, with what’s happening in Gaza right now, I’m not passing any judgment about the appropriateness of the use of force. The fact is, I think what the Israelis are facing right now is in order to get the military targets they’re going after. Those targets are embedded deeply in civilian. They’re intentionally buried in civilian epicenters. And so if you could imagine a world where a modern military could go in and put everybody to sleep and then sort out the good people from the bad people without a loss of life, that would be an amazingly important capability.
