Axon Enterprise, Inc. (NASDAQ:AXON) Q4 2024 Earnings Call Transcript

Axon Enterprise, Inc. (NASDAQ:AXON) Q4 2024 Earnings Call Transcript February 25, 2025

Axon Enterprise, Inc. beats earnings expectations. Reported EPS is $2.08, expectations were $1.37.

Erik Lapinski: Hello, everyone, and thank you for joining Axon’s executive team today. I hope that you’ve all had a chance to read our Shareholder Letter released after the market closed, which you can find at investor.axon.com. Our prepared remarks today are meant to build upon the information in that letter. During this call, we will discuss our business outlook and make forward-looking statements. Any forward-looking statements made today are pursuant to and within the meaning of the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995. These comments are based on predictions and expectations as of today and are not guarantees of future performance. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.

We discuss these risks in our SEC filings. Our most up-to-date SEC filings, including our Form 10-K, will be available this week. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our Shareholder Letter as well as in the Investor Relations website. Now, turning to our quarterly update. First, we’re going to pull up a video that highlights some of the things we’re proud of accomplishing over the past year. [Video Presentation]

Rick Smith: What an amazing company. What an amazing group of people. The people I get to work with are employees, my teammates, our customers, working on problems we care about. It’s a privilege I get to work here. All right. Welcome to another one of our team members, our investors, and, we’re here to report our fourth quarter 2024 and year end. We just finished what I believe will be a pivotal year in the history of our company, and we’re looking forward to another exciting year in 2025. The most rewarding part of my job is getting to spend time with our customers. And as you can see in the video, we feel like we’re on this mission together. Understanding the challenges they face every day is our guiding light, and we have worked tirelessly to become their trusted technology partner.

There’s so much we can do to make their jobs easier, their lives safer, and their days just a little bit better while helping them protect us. Over the years, we’ve introduced new tools that have advanced the way our customers operate and how they think about technology. We are at a place where the benefits of adopting newer technologies are so clear, it’s almost too impossible to imagine what the world would be like if they were never brought forward. We launched TASER 10 about two years ago. It’s just one example of a product that is not only driving growth in our business, but it’s changing the world. I rarely go a day without one of our customers telling me how this device has changed their world, and we’re investing to make it better. We have a lot of work ahead of us to deliver on our moonshot, and I believe we have the roadmap to get us there.

I’m in an international market where I just came back from one of the most inspiring days of my career, and I can’t wait to share the results that’ll unfold over the next 24 months as we move forward towards our moonshot. It’s bigger than just the United States and cutting gun-related deaths between police and the public in the US. It is a worldwide phenomenon that’s going to happen here. Stay tuned. We’re going to have better efficiency, better training, and new ways to apply our technology over the horizon. Our cameras and our sensors are helping our customers capture more moments. Our acquisition, Fusus, helps us connect more sensors and cameras than ever before. There are countless places where the benefits of better transparency and operations with the increased application of connected technology are just undeniable.

Q&A Session

Our investments and our ability to lean in and have the foresight to invest in the things that led us here that enable connectivity and software behind not just cameras, but all these sensors that are now taking flight into so many new sets of customers where we’ve never had the chance to engage previously. Our devices are connected by the most powerful purpose built public safety operating system in the world. We now have more than 1 million users of our software solutions spanning evidence management, real time-operations, productivity, and, yes, artificial intelligence. We understand the interconnection of advanced software and hardware, and we unlock value in solutions that leverage the seamless connectivity to solve problems we care deeply about.

This is where we differentiate ourselves for most and with our customers. With this foundation, we see several major tech trends unfolding before our very eyes. Exponential advances in artificial intelligence, increasing connectivity, real-time sensor fusion, and growing applications for drones and robotics to name a few. These aren’t just buzzwords to us. These are our passions and we’re making them real and real businesses. These product areas were more or less elements of our imagination a few years ago and today they account for nearly half of the overall opportunities in our pipeline. We believe we will be the partner who enables our customers to leverage these tools to make them work, to make their job safer, to make them better and more efficient.

I continue to spend my time thinking about the big picture while ensuring that we’re on the right path to make giant leaps that challenge our conventional thinking so we can be prepared for and deliver and be the driver of the future for our customers. I’ve never felt more confident about our position or more just insanely excited and motivated by what we’re doing and frankly by the people I get to work with every day. One final note before I pass it on. I would like to provide an update about something near and dear to me. It’s been one year since we last updated you on our intent to invest in our headquarters campus. We have a vision for a campus we’ve put in a lot of work. I personally haven’t time into that vision, and we hope to keep it based here in Arizona.

We love Arizona, and we want to be here. Unfortunately, Arizona has a political and legal environment that is making it challenging for businesses like us to invest here. After several years of working with our various elected administrative officials, developing plans that were responsive to our community, and we received unanimous approvals from the planning commissions and then through a vote of our elected officials, we’ve had a setback. Unlike states like Florida and Texas, Arizona allows zoning decisions to be subjected to political petitions and, frankly, political gainsmanship. In our case, we faced paid petitioners who collected 93% of the signatures on a pay for signature basis with two-thirds of those people coming from outside the State of California, I’m sorry, outside the State of Arizona from another state who I may have just fraudulently mentioned.

If we allow this to stand, this would delay our project by two years and reintroduce the risk of having to start over. Unfortunately, this same phenomenon caused Arizona to lose our NHL Pro Sports team and it’s placing Axon and other major projects at risk. So like many things, we’re digging into fix the problem. I’m working with our elected officials to try to fix this situation and enable Arizona to be an attractive, predictable environment for businesses. If we can fix it, it’ll keep us here, and it’ll help the state attract other businesses and really grow into the tech center I believe it can be. If we can’t fix it, well, then we’re going to have to move on. We have several states courting us that don’t have the same risk profile. So, it’s we’re not going to leave this decision open forever.

We will update you again as soon as we have fully vetted our options and come to a final decision. I intend to make that decision together with our board in the coming weeks. So with that, I’ll pass it on to a guy again who I’m just excited to work with, who really leads the business, which gives me the time to spend a lot of time with our customers. And Josh is going to give you the details on what our incredible team accomplished in this most recent quarter. Josh?

Josh Isner: Thanks a lot, Rick. I appreciate the kind words. Good afternoon, everybody. As Rick mentioned, our customers remain at the center of our universe. I believe that mindset is what has afforded us the results that we have the privilege of reporting to you today. I’d like to share a few updates that recap the year and then some thoughts about where we’re headed next. First, we just closed the year with revenue in excess of $2 billion. That’s nearly double the revenue we reported only two years ago, and it marks our third consecutive year of growing over 30%. This growth is a testament to our ability to deliver products that drive clear value for our customers and our team’s ability to connect our customers with the right solutions.

It takes an entire team to deliver results like these, and everyone at Axon continues to rally behind Rick’s visionary leadership. Second, we booked over $5 billion in business last year with about half of that closing in Q4, and there was strength across the board. Eight quarters in, TASER 10 orders continue to outpace TASER 7 by 2x, and we continue to see encouraging demand from our emerging market customers. To that end, seven of our top 10 TASER 10 orders to date come from outside US state and local law enforcement, including customers in international, federal, and corrections. We also had our highest ever officer safety plan bookings in Q4, nearly booking more seats in the quarter than the prior three quarters combined. And we continue to see strong adoption of our premium plans within that mix along with adoption of our emerging products.

Draft One continues to garner strong interest, and we are able to close our first ten AI Era Plan deals in Q4. We’re extremely pleased with this outcome given the fact that the plan launched at IACP in late October. New product pipeline generally takes three to six months to materialize, and we view that accelerated adoption of this plan as a positive indicator of the things to come. We updated our TAM. And as Rick mentioned, we believe our investments around AI, real-time operations, and drones and robotics roughly doubles our overall opportunity set. We’re seeing early signs in our product bookings to support that outlook. Third, I want to talk about two growing customer groups that I’m particularly excited about right now, International and Enterprise.

Our international bookings grew nearly 50% sequentially in Q4, and that’s on top of 40% sequential growth that we saw in Q3. In enterprise, our bookings roughly tripled year-over-year. I’m happy to report that in Q4, our enterprise team booked the largest deal in company history with a global logistics provider. Congrats to Mike Shore, Billy Corbett, and the dozens of Axon employees who supported this deal. This development continues to give us confidence that given the large TAM and growing product market fit, the enterprise segment represents one of Axon’s largest opportunities into the future along with federal and international. As we expand and grow, these three customer groups account for over $100 billion of opportunity. Turning to what’s next.

We have a lot of runway ahead. We ended the year with total future contracted bookings of over $10 billion and our pipeline is the healthiest it has ever been even in comparison to this time last year. We expect another record bookings year in 2025 with line of sight into several years of exciting growth ahead. Our team is focused on executing on the many opportunities in front of us, and we are putting in the work to achieve our goals and deliver on our mission of protecting life. I know I say this a lot, but we run our team with a next play mindset. What excites me most about our results is what they signal for the years ahead. That’s why I love the beginning of the year. While it affords the opportunity for others to hypothesize and speculate on varying expectations, that’s the same energy that fuels us to win more often in more places and deliver bigger and bigger societal outcomes.

And that’s exactly what we plan to do in 2025 and beyond. Over to you, Brittany.

Brittany Bagley: Thank you, Josh. As Rick and Josh mentioned, it’s wonderful to come back to you with another great quarter and to report results that exceeded our expectations once again. Q4 revenue of $575 million increased 34% year-over-year for our 12th consecutive quarter of over 25% revenue growth. I’m particularly excited that we saw double-digit year-over-year growth in all of our business areas, with TASER up 37%, Sensors up 18%, and Software & Services up 41%. Our software remains a driver of our overall growth and contributed 40% of our total revenue in Q4. ARR increased to $1 billion up 37% year-over-year, and net revenue retention remains strong at 123%, reinforcing the visibility and predictability in our business.

Adjusted gross margin was 63.2% and has been very stable across the year at an overall company level. Adjusted EBITDA margin was 24.6%, and we continue to invest in our business to ensure we are positioned to grow with new customers and markets while driving innovation in our technology. On a full year basis, we delivered over 33% top line growth, driven by continuing to deliver more to our customers with strong product performance across the board. We also delivered strong bookings, taking our total future bookings above $10 billion and providing support for years to come. We made significant strides in profitability, expanding adjusted EBITDA margins almost 400 basis points this year. As a result, we achieved a 25% adjusted EBITDA margin for the full year, a milestone we initially set for 2025.

With this result, we reached both our three year revenue and adjusted EBITDA margin targets a full year ahead of schedule. As we exit the year, our product teams are working on new technology that will support our growth outlook for many years ahead. We are quite excited about our newer product areas and continue to invest in R&D to support our growth. We are entering the New Year in the strongest and cleanest inventory position we’ve been in for the last three years. We did all that with strong free cash flow generation above 60%. We continue to drive strong customer satisfaction, which is our North Star. It’s humbling to think about where we are, and I thank our teams across the company for the work they put in during this incredibly busy and exciting year.

Now I’ll turn to our 2025 guidance. We expect 2025 revenue in a range of $2.55 billion to $2.65 billion or approximately 25% annual growth at the midpoint. This would mark our seventh consecutive year of 25% or greater annual growth. Similar to past years, we looked at the strong execution across all segments, momentum in future contracted bookings, and our pipeline entering the year to develop this guidance. We expect 2025 adjusted EBITDA in a range of $640 million to $670 million representing approximately 25% margins. We believe this margin level puts us at the right balance to invest in the future growth opportunities we see while still delivering strong profitability and cash flow. As a management team, we are focused on delivering year-after-year over the long-term.

That requires continued innovation, product risk taking, and investment, and we’re lucky to have Rick who is such a visionary in this space. I hope you can tell we’re excited about the opportunities in front of us. It is this type of product innovation that has allowed us to deliver our consistent impressive top line growth numbers. Beyond R&D, we’re also investing in our sales functions to support new customers and market opportunities as well as continuing to scale the business. For some context, we are now at four years of hitting 50, well above the Rule of 40. We’re pleased our guidance implies another year of hitting that type of number. We also expect CapEx in the range of $140 million to $180 million, up year-over-year on a dollar basis, but only up two points as a percent of revenue.

This is driven both by more TASER 10 capacity to keep up with our continued strong demand as well as investment in both R&D and manufacturing for our many exciting new product areas. We’re proud of all we accomplished in 2024 and are looking forward to another dynamic and innovative 2025 that delivers for our customers and our shareholders. Now we will turn it over to take your question.

A – Erik Lapinski: Thanks, Brittany. Let’s pull everyone into gallery view. All right. We’re going to take our first question from Jeremy Hamblin at Craig Hallum.

Jeremy Hamblin: Thanks, and congrats on the very strong results and guidance. I wanted to start with, I figured, a topical question and just get a sense for what portion of your total revenues are coming from federal contracts, with the US government, whether or not, some of the things that are happening in terms of hiring freezes, you expect to have any potential change in the timeline of deployments or anything you might be able to share on that to provide us a little bit, better sense. We’ve certainly got a lot of questions around the potential risk around this area.

Josh Isner: Yes. I really appreciate it, Jeremy. Thanks. A couple thoughts on this one. Number one, I certainly don’t think, in terms of Axon’s case in our future, there’s any real cause for concern about what’s happening, with the funding cuts and DOGE and so forth. Actually, I think there’s a world where we could come out of this with more opportunity as they start to look at, hey, where are, federal law enforcement getting their bang for their buck in technology. And I think they point back to Axon. And I think we’ll have the opportunity to continue to support, the federal government, across both federal civilian and DOD, hopefully, in bigger ways in DOD moving forward. And we’re excited to compete for more business there. So, I personally think there’s more opportunity than risk right now for us in the federal space.

Jeremy Hamblin: Great. And then potentially related questions. So other topical news is looks like we may be coming towards an end hopefully in the war in Ukraine. I know that Dedrone has certainly been impactful, in terms of operational support, in those efforts. I also know that the recent kind of government, changes in terms of funding outlined that drones would not be impacted by any hiring. I wanted to understand, the potential mix of change related to if we get an end to kind of Ukraine war in the next month or two, and then vis-a-vis what you expect from a border patrol support and opportunities that, that are coming from or were there for Dedrone related to those efforts.

Rick Smith: Got it. Let me maybe take this one. So, yes, I mean, Dedrone has sold a lot of stuff in Ukraine, but the far bigger picture is what happened in Ukraine has put drones on everybody’s road map. Every military in the world is thinking about how do you detect these small drones that traditional military systems are not designed to detect, how do you defend against them. We acquired the world leader in drone detection. We acquired the at least one of the world leaders in indoor tactical drones with Skydio. We’ve partnered with the leading US maker of long range autonomous AI driven drones, in the moment where, basically DJI is largely being made illegal in the United States. So we think we are in an amazing position for drones and robotics.

It’s an area we’re investing heavily. We’re currently either the leader or partnered with the leader in the key market segments. And when you think about things like patrolling borders, protecting stadiums, and, I mean, Ukraine has shown what anybody could do with a drone you can buy for less than $500 and everybody in the world is thinking about how to defend against those, and we think we are, if not the best positioned, among the best positioned, for helping our customers globally solve that problem. So from a human perspective, I certainly hope that all the violence we’re seeing in the world, comes to an end, but in a way that is persistent and sort of long-term puts these issues to rest. And we look forward to playing a role in helping use technology to protect people from killer drones.

We’re not going to get into the lethal drone business ourselves, but we’re going to absolutely be a leader in helping defend against those kinds of threats and then using drones to be able to go out, act more intelligently, save lives, and stop threats without using lethal force. And we think those opportunities have all gotten bigger, just given the quick evolution of the space that’s been caused by what’s been happening in the Middle East and in Ukraine.

Josh Isner: And, Rick, I might just add one more thing there, which is just, to the first part of your question, Jeremy, just to address any ambiguity. None of our forward-looking guidance assumes any incremental revenue from Ukraine.

Jeremy Hamblin: Understood. Thanks so much for the color, and, best wishes on continued success.

Josh Isner: Thanks.

Erik Lapinski: Thanks, Jeremy. Up next, we have Meta Marshall at Morgan Stanley.

Meta Marshall: Great. Thanks and congrats on the quarter. Maybe to start with, great traction on kind of noting the 100,000 incident reports kind of already completed kind of with the AI tools. Just what are you seeing in terms of kind of AI adoption either into what type of bundles they’re opting for or just kind of pipeline there. And then maybe as a second question, noted kind of the large enterprise win, just what was kind of, the entry point there? Was it Fusus? Was it kind of body cameras? Just any contact there would be helpful. Thanks.

Rick Smith: Let me take the first part, and I’ll have, Josh talk about the second part. So in terms of AI like, without a doubt, these are the fastest growing adoption products we’ve ever had, and it’s not by a small margin. So we’re seeing these products these services really resonate with our customers, and they’re, it’s unbelievable the AI Era Plan that we are closing deals within eight or nine weeks of launch. That’s like, I don’t think, we’ve ever seen things move that fast. Maybe a little bit with like with a TASER, but that’s where like somebody had an existing TASER line item. We introduced a new TASER and they like went from TASER 7 to TASER 10. So, yes, that has happened, but a new product category going from zero to deals in that shorter time frame is super encouraging.

Josh Isner: Awesome. And on the second part of that question on enterprise, I think the really exciting news is, there are multiple entry points into some of these large opportunities. I think Fusus is certainly relevant. Body cameras are certainly relevant. Dedrone is relevant. Drones are relevant. Obviously, Evidence.com. I think there’s, we’re starting to see, like I said, just better and better product market fit to address this group of customers. And really the most encouraging thing of that is it’s still along the lines of our mission and use cases that we really want to support and that they lead to better, safer outcomes, in these enterprise environments. And so it really is exciting. I believe this is, going to be a major, major part of our business, maybe even the biggest part of our business long-term and I think we’re on the right track there for sure.

Meta Marshall: Great. Thanks. I’ll pass it on.

Erik Lapinski: Thanks, Meta. Up next, we have Josh Reilly at Needham.

Joshua Reilly: All right. Thanks for taking my questions. Just wanted to hit on the news with the Flock Safety partnership. Maybe what happens in terms of the technology licensing for Fleet 3 ALPR technology now that the partnership is maybe ended? And then how are you thinking about more broadly your relationship with the company moving forward and your strategy around fixed LPR?

Josh Isner: Yes. Thanks a lot, Josh. Look, a lot’s been made of this obviously in the last week, and frankly, I think it’s somewhat overblown. We did exit a partnership with Flock. However, I think both sides have an interest in getting back to that partnership. We propose new terms. I think what we’re asking for is just a more fair flow of information into Fusus just like we support into FlockOS and to Flock’s Credit. They’ve been receptive to our feedback there, and we hope to be able to resume it. And so I’m not going to speculate on what happens if that doesn’t come into fruition. And of course, we’d have to look at how we support those customer use cases. But right now, our focus is just on making sure that we can arrive at a new partnership that really, in the end, benefits our customer and the use of their own data.

Joshua Reilly: Understood. And then maybe just back on the federal business. Have you heard any feedback thus far from customers with regards to their ability to expand and take down more body cameras or TASERs under the existing contract structures, which, to my understanding, we’re often open ended with their ability to add more products since the election has happened?

Josh Isner: Yes. Thanks for the question. So on some of these customers in federal, as you probably saw in the news, one of the first executive orders addressed body cameras for federal law enforcement. And, yet, our customers are still wearing our body cameras. They’re seeing a lot of great outcomes as a result of wearing them. And we do believe these programs will continue to expand into federal. So again, I don’t think the world has changed much, if at all, for us in the federal space. I think that’s the benefit and reward for having products that drive true outcomes in the field, and I think our customers see that and we get a lot of support from them on this. So we’re proud of the partnership and certainly think it’s going to be a bright future there.

Rick Smith: Hey, Josh, let me add in as well. When we first introduced body cameras in law enforcement, most cops didn’t want to carry it, but didn’t want to wear them. And there was one of the statewide union leaders sort of famously told me, no cop wants to wear a body camera until they’ve worn one for 30 days, and then they’ll refuse to go on patrol without it because they realize in today’s world, it protects them from all the crazy allegations somebody could make. And that’s also true of our federal customers. I meet with them all the time. And so like early on, I think it was kind of helpful to get a political push from the top to get these agencies to try it. But once they start using it, we see the same phenomenon. Like if you’re — whatever federal agency you work for, you just realized like your job places you not only at physical risk, but at risk of being accused of just about anything.

And having a video that shows, you’re a professional doing the job the right way is something that gives them great comfort to go do their jobs with confidence that they’re not going to get hung out to drive by somebody making something up about what they did.

Joshua Reilly: Understood. Thank you, guys.

Rick Smith: And by the way, the other thing I’ll add is these new tools like Draft One, customers absolutely love it. I mean cops are over the moon about this, the idea that, God, I don’t have to spend four hours a shift doing reports. I’m like cutting that in half. And I was just demonstrating our new real-time translator. I’m outside of the US right now. Like we did a demo in Icelandic yesterday. And the guy said, we think there’s no way it was going to work and his jaw hit the floor before we did Arabic, Norwegian and a couple of other not exactly in the set of like the most heavily used languages in the world. We think the real-time translator is going to be another real hit. So the body camera is evolving and our customers are seeing it.

It’s not just a recording that can help me. It’s now the edge of the AI Internet on my chest. I’ve got a real-time AI assistant that will help me translate, that will help me write my reports, that will help me look up things I need to know, help me ask policy questions. I don’t have to call a lawyer at 2 A.M. in the morning about how to deal with some obscure legal situation. I can just immediately cross reference my reports and all those capabilities are included in the new Era Plan, which is why we saw it go from zero to revenue so quickly.

Jeff Kunins: And I think one of the things you continually hear in the industry right now is a lot of theory and not a lot of practice and application with the power of these new AI tools and what we are all about is the applied practice directly in service a real problems for our real customers, and that’s what they love about what we’re building.

Joshua Reilly: Thank you.

Erik Lapinski: Thanks, everyone. Up next, we have Mike Ng.

Michael Ng: Hey, good afternoon. Thanks for the question. I just have two, one on bookings and one on cloud. First, just on bookings, it’s a two-parter. You guys had bookings of over $5 billion this year. I think this is at least the third year of bookings growing $1 billion year-on-year. So when you look at your pipeline going into 2025 in your base case or in your bull case like are you assuming bookings grow $1 billion again to $6 billion? Any thoughts, qualitative or quantitative would be helpful.

Josh Isner: Sure thing. Like I said, Mike, in my prepared remarks, the pipeline is extremely healthy right now, even healthier as relative to where it was at this time last year. And look our goal is that our bookings growth rate looks similar to our revenue growth rate and that just at the back of the napkin, it kind of pencils out to, hey, we can just keep this high growth rate going well into the future. So it’s not necessarily about growing $1 billion every year or less or more it’s more about, hey, can we have our bookings growth rate somewhat mirror our revenue growth rate and if we do that every year, the business will be very, very healthy for a long time.

Michael Ng: Great. Thank you. And then just on cloud, Axon Evidence and Cloud Services revenue within Software & Sensors, that saw a solid step up Q-on-Q. I think it was up $35 million sequentially, I think the largest on record. Could you talk a little bit about some of the key things that drove that strength? Was there anything unusual that made that sequential growth, particularly good this quarter or are you thinking that, hey, the structural run rate of sequential increases may have stepped up? Thank you.

Brittany Bagley: Hey, I’ll take that one. I think it’s very much what we talk about from a seasonality standpoint as we go through the year, which is that our step-up from a software standpoint, often lags how we’re doing on bookings by a quarter. Now, it’s not always perfect, right, because there’s timing inside of the quarter. But as you think about it, our strongest bookings quarters tend to be Q3 and Q4 and then Q1 is our seasonally softest and it does, it goes through the year that way. And so if this step is lagging by a quarter, what you see typically is Q4 and Q1 have the bigger step-up from a software standpoint. I think you’re just seeing the strength in the software business come through. We’re seeing more user adoption and we’re seeing more products, more software products get sold into those users.

Dedrone is not material to our business, but they do have some software revenue. And so you are seeing a small bit of Dedrone come into the software step for the first time this quarter.

Michael Ng: Great. Thank you, Brittany. Thank you, Josh.

Erik Lapinski: Thanks, Mike. Up next, we have Jonathan Ho at William Blair.

Jonathan Ho: Hi. Good afternoon and let me echo my congratulations as well on the strong quarter. With your international bookings, can you talk a little bit about the strength here? And maybe what’s changed in the decision to expand sort of the TAM?

Brittany Bagley: Yes. So I think a lot — Josh may cover the strength on international, but I think a lot of what you’re seeing in the TAM is we refreshed the TAM every two years. We did a little bit of an interim update when we did our Fusus and our Dedrone acquisitions, but that was really an interim process. And so as we came back to look at our TAM this year, we really looked out over the next two years. And what’s changed a lot from two years ago is really the number of products we have. And so that applies to international as well. As you look at the international market, we now have a lot more products that we can go ahead and sell into the international market like Fusus, like Dedrone, like AI. And so you’re seeing that strength come through. We’re also continuing to see some nice traction outside of some of our Commonwealth markets and so that gives us increasing confidence in that higher international TAM.

Josh Isner: Yes. And I’d just add, Jonathan, on the international bookings piece. I think it’s just a story about execution. I think we have plenty of product market fit to be very successful internationally. I think the team has been somewhat of a transformative year for our international business in terms of the team, bringing on Cameron Brooks as our CRO out in Europe, and he’s made a couple of key hires in Europe and our Latin America and Canada function is going very, very well under Vishal Dhir. And we just we’ve got more of the team in place that’s just executing on a higher level. And so we’re pretty bullish on international moving into the future here, as Brittany was saying. I think now as we’re landing in more places, there’s going to be the opportunity to expand with more and more products.

Jonathan Ho: Excellent. And just as a follow-up a big picture question for Rick. We’ve clearly seen a strong value proposition here from generative AI tools. How do you imagine what you can do with Agentic AI, which seems to be sort of all the rage on the tech side and potentially is even more impactful than Generative AI? Thank you.

Rick Smith: Yes. I mean I think it just sort of builds for us, it’s all about like where do the workflows matter that will enable our customers to do the things they need to do in their jobs. So I think a lot of it right now is like, okay, take this transcript, run it through, and create a report for me or like, hey, take this and translate it. I think Agentic AI allows you to start to do things like, hey, go search across this giant data set and help me solve like some problem that currently have teams of people working on. And we think we’re in a unique position given our customer trust, given that we’re housing so much of their data for them and managing their sensors that we’ll kind of keep going down the list of their problems.

And then for us, there’s also a risk-reward trade-off. Like we intentionally started with report writing, rather than, for example, facial recognition, where there’s various privacy and related concerns where report writing, like, hey, we can ensure there’s human oversight. If the AI gets it wrong like it’s actually not a catastrophic failure. You’ve always got the underlying evidence. We can put in speed bumps to make the officer to do it. I mean we are starting to look at more uses of AI that will help with some more core law enforcement functions. We’re going to do it in a way that we will always be proud of that respects and balances, privacy, and we want to build the world of Gene Roddenberry, not George Orwell. And these Agentic workflows will just allow us to start handling higher levels of complexity.

But for us, it starts with, I go out, I meet with customers, I hear what their problems are and then I get to come back to the company looking like a genius all these great ideas like a bee carrying pollen back to the hive. And then Jeff’s got to make sense of it all, segment it, work with our thousand plus engineers and product people to take these great customer ideas and put them together. And then Josh and Brittany are going to like then staff and execute the business to run it and I get to go out on the road again. So the team worked well together. And I just, I love my job getting to go just sort of imagine talk to customers about their problems and try to match it on, okay, what tech is going to work in it. To be honest, Jeff, really holds me accountable.

A lot of our conversations Jeff uses the word actually a lot. I’m about like, okay, Rick, like this is great stuff. What can actually work right now in a way that customers will actually use it. It won’t disappoint them and it’s not going to be bugging. And so Agentic work goes, we’re going to approach it kind of the same way, okay, where are we at? And what will work well for our customers, and it’s — a lot of it’s just getting the sequencing down.

Erik Lapinski: Thanks, Jonathan. Up next, we have Andrew Sherman, Andrew, welcome to the call.

Andrew Sherman: Great. Thanks, Eric. Good to be on the call. Congrats on the quarter. Brittany, one for you on the revenue growth guide of 25%, very strong. Maybe just walk us through your assumptions embedded there for NRR. Any color on the AI Era contribution, the sustainability of the strong 123% NRR. And any change to your guidance philosophy versus the past couple of years.

Brittany Bagley: Yes, thank you. So as I talked about, no actual change in our guidance philosophy, what we do is we’ve got our future contracted bookings. We know approximately how much of that will convert in the next year. So we know how much of a go-get we have. And then we can look at our pipeline and see how out pipeline stacks up and how we feel about that go-get. So that’s pretty much how we do it, and that’s how we continue to do it this year. In terms of assumptions going forward I mean and we have really low churn, our NRR has really only continued to be very stable to positive. So no major changes in assumption going forward.

Andrew Sherman: Great. Thanks. And also for Brittany and Josh maybe just touch on where the supply demand imbalance for TASER 10, great to see that it’s still tracking at 2x T7. But where do we stand today is supply demand imbalance. I think, Brittany, your CapEx comments would imply more supply coming on. So what does that signal for growth this year?

Brittany Bagley: You got it. We are still outpacing our supply with our demand, so still in a great place, we are investing next year to try and bring more supply online. So we’ll see where demand goes. I think we imagine that sometime next year, we’ve got that supply demand imbalance. But what you’re really seeing right now is we are basically selling as much T10 as we can make, and so we’ve got to keep investing behind our capacity.

Josh Isner: Great. Andrew, thanks a lot, we’re particularly excited about T10 just because of what it means for our mission and moonshot as well. The more customers deploying it. We are seeing videos of better and better outcomes in the field. And I think that’s kind of continuing through a network effect across the entire market. And so we’re very exciting excited about what the future holds for TASER 10 and I don’t think there’s any slowdown inside here. It’s our highest demand CEW ever, and I think that will continue.

Rick Smith: Yes, I just met with some new European customers who have not had T10 for very long, and two of them told me they’ve already averted at least one shooting, saved at least a life in the early, few months of them deploying in the field. And these are countries, obviously, that don’t have the frequency of shootings that we do in the US. So it was pretty significant to hear that from them.

Jeff Kunins: All of our products work so well together. And as an ecosystem, there are payers here and there that are doubly so peanut butter and chocolate and drive each other forward. And so with T10 the story with VR is such a great one because T10 is not only so transformational in its capability, but it is new and different in a way that really motivates the sale and adoption of our VR training that goes along with it. And it’s the catalyst for getting the best possible outcomes with T10 and A similar story for like DFR and robotics with Fusus and RTCC. So you see all these pairings that goes so well together combined with the leverage of them adopting more and more of our whole ecosystem.

Andrew Sherman: Great. Thank you all.

Erik Lapinski: Thanks, Andrew. Up next we have Will Power at Baird.

William Power: Great. Thanks. I guess I got a couple. Well, I guess first, Rick, I’m sure the Lone Star State would love to have you. Maybe first question for Josh or Rick whoever want to take it. Look, it sounds like really strong early success with the AI Era Plan. I think you noted 10 deals in Q4. I just want to understand the confidence and stability there as you move forward because it’s a big lift in OSP pricing, right? I mean, going from 350 at the high end of 550. What’s the conviction confidence, visibility and agencies have enough budget to be able to adopt this at a rapid pace from here.

Josh Isner: Yes. It’s interesting. Well, it’s a great question, and it’s nice to see you again. What I would say about the AI Era Plan and about our AI products in general is they are driving such an ROI that can be measured in staffing and officer time that our customers are saving money as a result of deploying this for $200 a person like you could just do the math on Draft One alone. And essentially what it is allowing you to do, if you’re a police chief, is have 20% more capacity day-to-day of your police officers. And this is an environment where police departments are still very understaffed. They’ve got dozens, in a lot of cases, hundreds of open roles that are unfilled. And so when they can allocate some of those dollars over to these tools that might mitigate the need to have more officers at the department to begin with, that’s highly valued.

And so we’re very, very encouraged and it’s mostly because we know what type of financial outcomes some of these AI products are driving for our customers.

Rick Smith: Yes. Let me jump in on that. I met with, a large customer in a relatively new segment for us, so it’s not state local law enforcement. Big agency, and meeting I spent a day with the customer going through their operations, learning how things work. It was a lot of fun for me. And there is a new AI service we could do that would literally offload more than half of what their entire staff spends their time doing, that they hate doing, that’s administrative in nature. It’s got a lot of the similar characteristics to Draft One to where, its customers like, oh my god. This would be game changing for my budget. It would free up my people to do, like, more training, and I wouldn’t need as many people so I could grow a little slower.

And my morale would go up dramatically. And so that’s when I came back to Jeff, and we’re like, okay. Let’s put a team on how to figure out how to do this. And with the new AI tools, like, it’s going to be very doable. And so, again, that’s just another example where AI is allowing us to rapidly, bring the promise of, like, AI tech doing sort of repetitive jobs. And because our customers one of the things that’s sort of great is it’s not like they’re firing people or this is taking people’s jobs. It’s taking the crappy, low value, time consuming, bureaucratic suck of their job away. And that’s like a win-win, and they’re just excited. But, yes, I get to go do stuff I enjoy doing that gets me excited to go to work. And then for the chief, it’s like, yes, I’m getting more out of my people.

So, it’s paying for itself.

William Power: That was great to hear. It sounds like Jeff’s got job security as he works on those projects. And maybe just a quick second one, probably for Josh. Just the enterprise deal, you hear the largest deal. I think in history, maybe I missed this, but any other color as to exactly what they’re utilizing? Are they utilizing body-worn cameras? Is it Fusus, is it both? Is it, I don’t know, even Dedrone for facilities? What’s kind of getting used there?

Josh Isner: Yes. I think in this particular deal, Will, it’s body cameras and Fusus with, of course, Evidence.com licensing as well. But the same customer has a lot of interest in Dedrone and other products as well. So I think what you’re going to see throughout this year in the enterprise segment is we’ll be landing in a lot of cases with Fusus and body-worn cameras. But just like I was saying about international, I think the same holds true, where a bigger and bigger part of our product portfolio will be applicable to the enterprise segment and we’re very excited about that.

William Power: Okay. Thank you.

Erik Lapinski: Thanks, Will. Up next we have Trevor Walsh at JMP.

Trevor Walsh: Great. Thanks, team, for taking the questions. Josh, maybe for you, but Rick, feel free to jump in. I want to ask the federal question maybe a different way. So I understand it’s more opportunity versus risk on the federal opportunity itself, but one of your peers kind of in the state and local technology centered kind of sales motion, gave some statistics on their call a few weeks back about kind of how federal funding flows down in the state and/or local budgets. Just curious, it sounds like from that kind of just general commentary that state budgets can be a little bit more impacted or kind of do draw a lot more from federal funds. So just curious if you’re hearing concerns or for that state level, state police, whatever it might be types of orgs having maybe worries or concerns around kind of what the federal fund kind of flow will be for them, less so, obviously, like county and local level, if that makes sense.

Josh Isner: Yes. Thanks a lot. Personally, I’m not sure I agree with that commentary. It is true that some grants in other programs have dried up. A lot of those were not particularly impactful to Axon, maybe to some other companies. But I still think there’s a universe where police and federal military are better funded by the federal government, state and local police and federal military are better funded by the federal government in this next year than I think people are assuming. And so personally, I don’t necessarily see any headwinds in that way that would have any material impact on our business.

Rick Smith: And if you hear the types of projects that are getting paraded in front of the cameras is, like, examples of waste. None of them are, like, critical public safety equipment and technology. It’s stuff that people are like, oh, wow. That’s weird they’re spending my money on that. And like, we just don’t think we’re, like, our products make a ton of sense for customers that bipartisan are pretty universally both Republicans and Democrats in the last election cycle, I think, were going out of their way to make sure that they knew that they were pro public safety, pro law enforcement. So we’re again, I don’t want to be arrogant about it and say we’re bulletproof, but I would say, we think net, we haven’t seen the political winds really affect us that much as long as we’re delivering things that actually help our customers do their job. Then whether it’s in a blue city, a red city, a Trump administration, a Biden administration, like, the product carries the day.

Trevor Walsh: Great. Thanks both for the color. Maybe just one quick follow-up for Brittany. I appreciate the new future contracted bookings metric, always love adding a new metric to keep tabs on. It sounds like it’s RPO basically plus additional contracts that have T for C or other clauses that kind of obviously don’t put them into RPO. Is that kind of new metric a function of that more of those termination clauses are doing more contracts that have more of those types of things and so it kind of helps to give more visibility there. I guess where are those contracts falling? Are those federal customers just generally have that written in or are there other places where you’re seeing that kind of more and more generally from a contract perspective? Thanks.

Brittany Bagley: Yes. I mean, you nailed it. That’s exactly what it is. And so we’re going to move to talking about our new total future bookings number because it’s really more indicative of what the business is doing and bookings commentary and color we give. We have been going through and we changed accountants this year. So we’ve really been scrubbing RPO. And there’s just a lot ASC 606 doesn’t allow us to put in from a GAAP standpoint. So you will still find our GAAP RPO number in the like 10-K, we have to report that, you’ll see that. But just more and more, it’s diverging from how we actually measure our business. And we don’t go back and look at our historical contracts like even when we have term for convenience, our customers don’t actually leave us like they don’t utilize that.

We really don’t have churn. So it’s just not indicative. In terms of where we’re seeing it, honestly, it’s across the board, like more and more customers just want term for convenience as a best practice. And so we’re seeing it in a lot of places. And so we’re just going to move to the sort of non-GAAP version of the metric, which we think is a better reflection.

Trevor Walsh: Great. Thanks all. Great finish of the year.

Erik Lapinski: Thanks, Trevor. Up next we have Jordan Lyonnais of Bank of America.

Jordan Lyonnais: Hey. Thanks for taking the question. Could you guys talk about how you’re approaching your go-to-market with Skydio and SkySwap program and how that’s been going so far?

Josh Isner: Yes. And certainly, I’ll start, but I think others should chime in on this one. Look, we’re really excited to have Skydio as a partner. We think they’re the most talented team in drone technology. They’re a phenomenal cultural fit with us in terms of our go-to-market motions. The product is fantastic. Like Rick was saying, DJI has fallen out of favor in US public safety and Skydio is the obvious choice behind them. And so we’re really excited to be able to kind of augment our ecosystem with Skydio hardware. And really give our customers more situational awareness and more opportunities for really integrated DFR drone as a first responder experience. So I think that’s something that we’re very, very excited about and very encouraged about what the results have been so far in that partnership.

Rick Smith: Yes. Let me jump in and actually say, it’s not even I wouldn’t even say Skydio is behind DJI. DJI, like, got to market first with scale, but Skydio is actually the world leader in autonomy. Like many things, the Chinese companies had really inexpensive hardware, and they did a great job with the user experience. Skydio has a big team in Silicon Valley who’s been very much focused on leveraging AI and sensors so that the drones can launch and fly themselves autonomously. Now, look, we bought a drone company, two years ago-ish with Sky-Hero. That was for a different use case. That’s for indoor, like, tactical drones. And as we did an assessment on the make, build, buy, what Skydio is doing is just a different level of complexity.

Like, if a tactical drone falls out of the sky, it falls to the floor from six feet, it doesn’t fall on somebody, it doesn’t have to fly itself. You build it to be more resilient, to bump into things, and you don’t need in fact, all the autonomy can get confused in an indoor environment. And there’s other applications for the long term that we felt Sky-Hero would be transformative for us to own and work on. With Skydio, this was just, our assessment was, wow. It took a team of, like, 600 people working for the better part of a decade with pretty massive investments to do this and they’ve got a huge head start. And as we got to know each other, it was one of those, like, Jeff would say chocolate and peanut butter moments. It was really a great fit.

I’ve developed a great personal relationship with the team and Adam up there, and it really fits nicely, like, like a lock and a key with each other’s portfolios. And so we’re going to market, hard to think, with the partnership, and, we’re getting tremendous customer feedback. In fact, it actually costs you a lot less to deploy an American Skydio drone than a DJI drone for this reason. With DJI, you put it in the trunk of the car, and then you’ve basically generally turned your police officer into an Uber driver for drones. He drives to the scene, then he stands on scene flying the drone, which, basically costs you $200 per year to get that drone driven around the city. Over the Skydio dock, yes, the hardware’s a bit more, and the software, but for $50,000, you can have that drone autonomously that does not consume an officer.

It can be autonomously flown. It flies to a site without any need for, like, human oversight, and you pair that with our Dedrone sensors. Now that is an amazing pairing. You can now see the airspace to see where everything is. You can the drone can fly autonomously cross connecting those two systems together, and then whoever needs to see the feed just magically sees a camera in the sky where they want it, looking at what they want to see with zero human oversight. So it’s actually about a quarter the price, when you consider the human labor elements. And we think this is both an interesting political moment in that, the US Government policy and the rift with China is accelerating that transition, but it’s just, matching this wonderful moment in time where AI is now making the autonomous flight possible.

Skydio is in the process of releasing from beta to production their dock that unlocks this, like, complete autonomy. So it’s just a really exciting part of the business, and we always look to look for and just make the best decisions where we should make, what we should build ourselves, where we should partner. In this case, it was a — we found a great partner and, we’re confident that — it’s got the right relationship fit and long-term dynamics.

Jordan Lyonnais: And for your customers, if you’re DEA or Border Patrol, can they just go through you to buy the Skydio drone and you guys will put on your kit. So it’s all connected or do you need both of you?

Josh Isner: We could do those deals on what we call Axon paper or on Skydio paper.

Jordan Lyonnais: Got it. Thank you.

Jeff Kunins: And more and more and more as customers get excited about this space for all the reasons Rick just went through, again, they think of the evolution of the real-time crime center space and that opportunity as hand in glove with DFR and drones as a first responder. And so the combination of Fusus with Skydio with the rest of the Axon suite is just hands down unmatched in terms of bringing the capability that customers want and need in giving them the situational awareness and autonomous response that they’re looking for.

Rick Smith: Yes. One example as well like an officer with their body camera, in the near future, they’ll be able to say, hey, I need a drone. And we deploy the drone to the body camera, and as it flies in, Skydio has done a great job integrating. You’ll see a blue augmented reality pillar growing to the sky that tells you right where your officer is, so there’s no searching around to find them. It’s a seamless mesh of our body cameras, our Fusus, and Skydio’s autonomy and their flight software. But to the customer, it doesn’t matter. It’s one experience. Like, oh, that officer needs a drone. There it is. And there’s my officer, and I can see him, and I can pass that video feed to whoever I need to pass it to.

Jordan Lyonnais: Got it. Thank you all.

Erik Lapinski: Thanks, Jordan. Up next we have Joe Cardoso at JPMorgan.

Joseph Cardoso: Hey. Good afternoon, everyone. Thanks for the question. Maybe just wanted to follow up on the drone question, but from a different point of view and maybe a bigger picture point of view like how are you guys thinking about timing of that opportunity, materializing in a more material way for Axon relative to a year or two ago. Because it sounds like anecdotally, it’s ramping much faster than maybe the conversations we were having last year. And just kind of curious like when we’re thinking about the size of this potential business for Axon a year out, two years out, like can we think about this as being material volumes or is that just getting a little bit ahead of our skis as you guys are doing more kind of pilots and programs with some of your end customers or are we actually starting to see some more bigger moves here from your end customers in terms of adoption?

Rick Smith: They typically prevent me from throwing numbers out because I get too enthusiastic, but I would say qualitatively we’re at a tipping point.

Joseph Cardoso: Okay. So you’re starting to see more of a, sorry, go ahead, Brittany.

Brittany Bagley: I was just going to say we’ve got the TAM at about $20 billion for this and we are in such early innings. So we took that up because I think we see the opportunity much more clearly in front of us. Now like just from a logistics and a timing thing, right? We do long-term bookings, they go into bookings. That’s what’s giving us excitement about momentum. It takes a little bit of time to seeing that all flow through the P&L.

Joseph Cardoso: Got it. And then maybe a quick question for Brittany. Like obviously you talked about it hit the 25% EBITDA target a year ahead of plan, still guiding for ’25 — for 2025. I appreciate that you talked about the investments in your prepared remarks. Maybe just flesh out a bit more in terms of where those investments are exactly getting like is there any particular areas that you guys are kind of putting those dollars to spend in different parts of the portfolio or engineers et cetera. Just curious where those dollars are kind of being spent. And then anything that we should be interpreting in terms of implications around gross margin expansion for the year from those comments or is it really just largely taking those dollars investing it into CapEx.

Brittany Bagley: Yes, I’d say it’s largely taking those dollars and investing them back into R&D, and it’s all the areas we’ve talked about, right? It’s drones, it’s robotics, it’s Fusus, it’s all of these new markets that we’re so excited about.

Joseph Cardoso: Okay. Got it.

Josh Isner: And I’d also add, Brittany just it’s also our enterprise go-to-market function as well. That’s a big investment for us this year as we’re seeing these early results. Now it’s about, hey, how do we really cover the market well from a sales and sales support and customer success perspective. So that’s a large investment center this year for us and one that you have high conviction will pay off nicely in the year to come.

Joseph Cardoso: Got it. Appreciate the color guys and congrats on the results.

Brittany Bagley: Thank you.

Erik Lapinski: Thanks, Joe. And finally we’ll go to Keith Housum at Northcoast.

Keith Housum: Good afternoon here. Thanks. I appreciate it, guys. In terms of the enterprise opportunity, obviously, it sounds like we’re having a lot of traction here. Brittany, maybe can you talk about the pricing there? I know it’s still nascent, but in the public safety space, you guys have that nice metric that you guys provided investors over the past several years. How do you think about pricing for the enterprise market? Is it in a similar vein or is there different pricing schemes that you’re going through?

Brittany Bagley: I mean I wouldn’t say it’s in a similar vein. I wouldn’t think about it as being materially different. Obviously, there are some nuances to the enterprise market, of course, but they’re still buying DEMS licenses, they’re thinking about Fusus, they’re thinking about body cameras. So there’s certainly nuances, but nothing large, I would call out for you on being highly different at this point.

Keith Housum: Okay. I appreciate that. And I apologize if I missed this perhaps earlier in the call. But obviously tariffs are top of mind for a lot of people these days, both on a cost perspective for the companies as well as perhaps demand issues for geopolitical issues. How are you guys thinking about tariffs from both aspects?

Brittany Bagley: We’ve tried to stay really flexible in our supply chain. Obviously, at this time, we’ve been dealing with tariffs of some kind for a number of years. And so we really have found that just being flexible and diversified is key. Now it’s hard to exactly predict what is going to happen going forward. So without certainty on what the tariffs are going to be, it’s hard to give a perfect answer. But based on what the talk is at least right now in terms of some of the proposed tariffs, there is nothing that I see that would really impact our guidance in any way. We think we’re pretty well baked in what is knowable today.

Keith Housum: Great. Thanks, guys. Good luck.

Brittany Bagley: Thank you.

Erik Lapinski: Thanks, everyone. I’ll kick it to Rick to close us out.

Rick Smith: Awesome. All right. Well, obviously, we’re delighted. You’ve delivered another great year. Team’s just doing a great job. I am insanely motivated by our customer feedback. One of the things I’d mentioned is I think ultimately TASER has the opportunity to become a primary weapon system and that could drive growth in the international markets even more than in the US where they will carry a gun and a TASER frequently on every officer. And my confidence in that future is growing. So here’s to a great 2025. We look forward to seeing you all on our next earnings call and thanks for being part of the team.