Axon Enterprise Q1 2025 Earnings Report

Axon Enterprise EPS Results

• Actual EPS: $1.41
• Consensus EPS: $1.34
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: $1.15

Axon Enterprise Revenue Results

• Actual Revenue: $603.63 million
• Expected Revenue: $585.67 million
• Beat/Miss: Beat by +$17.96 million
• YoY Revenue Growth: +31.30%

Axon Enterprise Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 5:00PM ET

Axon Enterprise (NASDAQ:AXON) is a leading provider of law enforcement technology solutions that enable using less-lethal weapons, body cameras, and cloud-based software. The company's mission is to protect life by providing innovative solutions that increase transparency and accountability in law enforcement. Axon's products and services include body-worn cameras, digital evidence management software, less-lethal weapons, and crime scene investigation tools.

Axon's primary target market is law enforcement agencies in the United States and abroad. The company's key customers include police departments, sheriff's offices, and federal law enforcement agencies. Axon is headquartered in Scottsdale, Arizona, with additional offices in Seattle, Washington, and London, UK. The company was founded in 1993 as TASER International Inc. and rebranded as Axon in 2017. Axon has also been recognized for its corporate social responsibility efforts, including its commitment to reducing the environmental impact of its products and operations.

Axon's management team is led by Chief Executive Officer and founder Patrick (Rick) Smith, who has been with the company since its inception. Before founding Axon, Smith worked as a software engineer at Honeywell and Intel. He has a bachelor's degree in electrical engineering from Harvard University and a master's from Stanford University.

Axon has experienced strong revenue growth over the past few years, driven by law enforcement agencies' adoption of body cameras and digital evidence management software. The company has been reporting increasing revenue each year for the past several years, and in 2022 it reached a milestone reaching meaningful profitability numbers for the first time. Axon's profit margins have also improved over the past few years, with the company reporting a gross margin averaging around 60%. Axon has a relatively low debt and more than enough assets to cover the company's debts. 

Axon's valuation metrics are relatively high compared to its industry peers, reflecting its strong growth prospects and leadership position in the law enforcement technology market. Axon's price-to-earnings ratio and price-to-book ratio are much higher than industry peers. Axon's stock price has experienced significant volatility over the past few years, driven by various factors, including regulatory changes, news events, and earnings reports. 

Axon Enterprise operates in the law enforcement technology industry, providing products and services to improve public safety. The company primarily focuses on producing and selling conducted electrical weapons (CEWs), body-worn cameras, and software solutions designed to streamline the law enforcement process.

The market for law enforcement technology is highly competitive, with major players such as Motorola Solutions, Inc. and Digital Ally Inc. competing for market share. The industry is also highly regulated, with stringent quality control and safety standards in place. Any missteps or quality issues could damage the company's reputation and lead to regulatory action.

One of Axon's key advantages in the market is its strong brand recognition and reputation for quality. The company's body-worn cameras are considered the best in the industry, and its software solutions are highly regarded. In addition, the company has built a loyal customer base over the years, with a significant percentage of its revenue coming from repeat business.

The law enforcement technology industry is facing significant headwinds. The ongoing debate around police reform and the use of force by law enforcement officers has led to increased scrutiny of companies like Axon, and there is a risk that sales could decline as a result. In addition, the industry is facing pressure from lower-cost competitors, and there is a risk that Axon's pricing strategy could become less effective in the face of increasing competition.

Axon Enterprise Q1 2025 Earnings Call Transcript

Presentation

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Axon's executive team today. I hope 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 Safe Harbor provision of the Private Securities Litigation Reform Act of 1995.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

These comments are based on our 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. 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 on our Investor Relations website.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Now turning to our quarterly update. First, we're going to show you a quick video recapping some of our recent announcements from Axon Week in April.

The mission is really simple. 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 an ecosystem with many partners, bringing together millions of cameras from 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 am 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.

Good morning. I am excited to present to 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 a theme here. Public safety is an ecosystem, and 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 Aura, 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 Chrome 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 just 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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, the 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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, we're putting TASER 10 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 FUSEIS, they also have the support of hundreds of thousands of public and private cameras to provide them another layer of real time visibility. And now with Axon Vehicle Intelligence and LightPost and Outpost, our tools are delivering actionable insights through license plate recognition and real time alerts available through innovative, flexible form factors. Through our newly launched integrations with Ring and Citizen, we're also helping public safety and the community work together to help keep their neighborhoods safe, building a critical bridge, all while protecting privacy and the right to choose whether or not you want to participate.

[Rick Smith, CEO & Founder at Axon Enterprise]

As you know, I spend my time thinking about where Axon is going, and part of that is thinking about how we grow. Our 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 are 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 and 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

Over to you, Josh.

[Josh Isner, President at Axon Enterprise]

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. We're 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, to plan and work through customer priorities and see where we can help. I'm proud to say our partnership has never been stronger.

[Josh Isner, President at Axon Enterprise]

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 seasonably seasonally, the most modest bookings quarter of the year, we're off to a fantastic start. A year ago at the end of q one, I 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.

[Josh Isner, President at Axon Enterprise]

As a result, we emerged from q one with a far stronger outcome and an even more exciting pipeline for the rain remainder of 2025. We expect another record for annual bookings with a growth rate in the range of what we saw last year. I'm proud of our mentally tough sales team who embraces the fact that pressure is a privilege. More specifically, our pipeline is strong across customer segments, especially with US state and local who are upgrading to our OSP 10 premium plans and beginning to deploy draft one. In fact, five of our top 10 q one domestic deals included o s p 10 premium, and two included draft one.

[Josh Isner, President at Axon Enterprise]

Along the same lines, through the first two years, TASER 10 orders continue to pace at two x 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 and 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, and Europe, all of which contributed to our top 10 international deals in the quarter.

[Josh Isner, President at Axon Enterprise]

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 in justice. 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.

[Josh Isner, President at Axon Enterprise]

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 Hertz 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.

[Josh Isner, President at Axon Enterprise]

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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 customers 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 and VR, which are now included in platform solutions. Adjusted gross margin of 63.6% 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%.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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, Q1 had a minimal impact.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

This is based on our momentum across a wide range of product categories and end markets. 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.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Andrew Sherman, Analyst at Cowen]

Great. Thanks. Good to see everyone. Great to see the strong cloud numbers. ARR growth was very strong, especially for Q1.

[Andrew Sherman, Analyst at Cowen]

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 and how you're thinking about this in guidance?

[Josh Isner, President at Axon Enterprise]

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, I 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 existing 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 responded. And in doing so, we built a lot of pipeline for q two and beyond as well.

[Josh Isner, President at Axon Enterprise]

And as you mentioned, part of that is the AI error plan, in 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 in the AI error 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 AI or the draft one and AI airplane haven't been well adopted so far, but, you 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 kind of assume that'll that'll, show up in our future contracted bookings.

[Andrew Sherman, Analyst at Cowen]

Great. Thanks.

[Brittany Bagley, COO & CFO at Axon Enterprise]

Just, Andrew, to give you a little color on ARR because thank 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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.

[Andrew Sherman, Analyst at Cowen]

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.

[Andrew Sherman, Analyst at Cowen]

What are kind of the 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?

[Josh Isner, President at Axon Enterprise]

Yeah. I I think it starts with just a little more focus from all of our teams at Axon. I think, you know, historically, you 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.

[Josh Isner, President at Axon Enterprise]

And 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 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.

[Andrew Sherman, Analyst at Cowen]

Perfect. Thank you.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

Hey. Thanks. Thanks for the questions, guys. Maybe I just wanted to start off, and maybe this is more of a clarification for you, Josh. You know, based on your prepared remarks, you know, you're sounding pretty bullish on demand, the pipeline, etcetera.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

However, obviously, there's this persistent concern around the macro just given kind of the current backdrop. So 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 and local law enforcement versus kind of the other verticals that you guys are obviously gaining traction with?

[Josh Isner, President at Axon Enterprise]

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 little, you know, challenges along the way, but I think our team is prepared. You know, we've built a great team to be able to handle challenges like we're seeing in the in the macro environment right now.

[Josh Isner, President at Axon Enterprise]

So I 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 at a standstill just until, some of the budgeting and reconciliation stuff gets worked out.

[Josh Isner, President at Axon Enterprise]

But in terms of that impact on our overall bookings, it's 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.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

No.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

Got it. Clear. Thanks for the color. And then maybe just a follow-up.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

You know, wanted to 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 kind of giving you an entry point in kind of the fixed mobile market there. You know? What was the main drivers in and then kind of owning the hardware stack there?

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

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?

[Rick Smith, CEO & Founder at Axon Enterprise]

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 the really best in class for fixed ALPR, which has been a growing category, and especially in the context of FUSYS, you know, making sure that we had a really great overall experience.

[Rick Smith, CEO & Founder at Axon Enterprise]

This we identified this as a very interesting and fast growing expansion opportunity for us. I want to fit very naturally with all the things we were already doing in mobile. So why not, you know, take that same technology, repackage it, and 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 where how do we go identify all the different sources of different camera feeds and then find a way to connect them into our ecosystem? And you'll notice I started our our keynote very much focused on the privacy issues.

[Rick Smith, CEO & Founder at Axon Enterprise]

You know, 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 to do it the right way. Again, with this idea, what we don't wanna do is create a surveillance state where we're being tracked everywhere we go. What we do wanna create is a state where people 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

I actually think right now The US has sort of got the op the the balance is completely wrong. You know, when you're incarcerating a ton of people, but your deterrence isn't high enough to stop crime, that's, 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. And 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

Right? We've seen just city urban centers hollowed out as retailers had to move out of town. We've seen, you you know, they've gotta lock up the shampoo and the toothpaste, and that's where our partnership with Orr, I think, comes in here really well as well. They're like, realize you have to have fundamental stability and safety and rules that are enforced in society the little things escalate. And I was shocked to learn as I got to know Orr that, the significant majority of retail crime is associated with people who are either part of a criminal network or and or involved in violent crimes as well.

[Rick Smith, CEO & Founder at Axon Enterprise]

So they sort of the scene from Les Miserables where, you know, it's a woman trying to steal bread for her children is 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 and where we wanna be first party so that we make sure that we've got best in class capabilities.

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

And two just really quick

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

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 the momentum that has started with FUSIS. 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 because 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.

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

And then the second part on responsible AI innovation, as Rick said, 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 ethical 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.

[Joseph Cardoso, Vice President, Equity Research at JP Morgan]

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

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Alyssa Shreves, Vice President - Equity Research 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 OSP? I heard the callouts on draft one, but seems like AI era might be a little bit different. And then I just had a follow-up on that.

[Josh Isner, President at Axon Enterprise]

Sure thing, Alyssa. Thanks for the question. I'd say, you know, draft one launched 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, is the time where we're getting them integrated into our quotes with our customers for the back half of the year.

[Josh Isner, President at Axon Enterprise]

Some of the larger police departments, will will be sponsoring, you know, large deployments, you know, and, to their communities and and, and and putting those on city council agendas in q three and q four. So I think it's just a matter of drafting one had, you 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, 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.

[Alyssa Shreves, Vice President - Equity Research at Barclays]

Okay. And then just a quick one on that. How are you guys got 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 mix factors that you have to consider. We don't have a specific long term target out there after this year, but, obviously, it helped in you know, software helped in this quarter.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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.

[Alyssa Shreves, Vice President - Equity Research at Barclays]

Great. Thank you.

[Brittany Bagley, COO & CFO at Axon Enterprise]

Thanks.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Jamie Reynolds, Senior Equity Research Associate at Morgan Stanley]

Great. Thanks, guys, and, congrats on the on the strong results. Maybe just following up on that. I mean, as you've layered in some of this newer AI functionality kind beyond draft one, are you seeing increased hurdles from an adoption standpoint or greater concern from some

[Jamie Reynolds, Senior Equity Research Associate at Morgan Stanley]

of those

[Jamie Reynolds, Senior Equity Research Associate at Morgan Stanley]

prosecutor type constituents? Or 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 things like vehicle intelligence, now you're starting to find vehicles, etcetera.

[Rick Smith, CEO & Founder at Axon Enterprise]

There 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 got our ethics framework. We spent a lot of time developing. So, there will be I think some jurisdictions will be slower to adopt that tend to be a little more skeptical of police, and the ones that are more supportive will probably be faster to adopt.

[Rick Smith, CEO & Founder at Axon Enterprise]

But the other thing I would say is the AI era stuff. Like, a lot of those features, like 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. They typically wanna get some some cycles in before they've you know, made a a large purchasing commitment.

[Brittany Bagley, COO & CFO at Axon Enterprise]

I think the flip

[Brittany Bagley, COO & CFO at Axon Enterprise]

side to that too, though, is, like, it also gives people more reasons to be excited about AI and to get excited about 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 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.

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

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, you 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.

[Jamie Reynolds, Senior Equity Research Associate at Morgan Stanley]

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 to DFR. I guess how has that changed conversations? And then, you know, what do you think we still need to see from a regulatory standpoint to see, like, you know, broader based adoption?

[Rick Smith, CEO & Founder at Axon Enterprise]

So, 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 docks, and I'd say the DFR limitation is is probably somewhat production constrained right now. But 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 if 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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?

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

Okay. That's pretty good. I think the the key is really meaningful step forward with the FAA stuff. Obviously, it's not all the way done, but the changes that really expedited the path to getting these waivers was 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.

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

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.

[Jamie Reynolds, Senior Equity Research Associate at Morgan Stanley]

Awesome. Thank you so much, and congrats again.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Hey. Thank you for taking the question. On the federal side, the FY twenty six 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.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

They need to prep for the World Cup and the Olympics. So where where are you guys most excited about, that Axon can help?

[Josh Isner, President at Axon Enterprise]

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 what we do at this point. And so I 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 fill in some of the existing blanks, around, you know, better video in more places, better counter drone, solutions, and, 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.

[Josh Isner, President at Axon Enterprise]

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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 coming 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

That operator at a service provider then 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, the fundamental underlying demand, I think, that translators can be a huge interest for border.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Got it.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

And then is there anything else that has to get done on the federal side, so things can move quicker? I don't know if FUSIS was FedRAMP certified yet or if you guys are starting to see existing d drone contracts where agencies are jumping 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

That is a great question, particularly on FUSIS. Jeff, do wanna give a I wanna make sure you give an accurate we're making progress with FUSIS. I don't know what we can say publicly about where we're at.

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

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 of paperwork approval on the back end. And with FUSE, we passed that's that that submission stage very, very recently.

[Jeff Kunins, Chief Product Officer & CTO at Axon Enterprise]

So we're in the shoot. So FUSYS is absolutely FedRAMP ready. It 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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.

[Jordan Lyonnais, Equity Research Associate at Bank of America]

Got it. Thank you.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[William Power, Senior Research Analyst at Baird]

Awesome. All right. Yeah. Congratulations on another great quarter. I I want to start with a question on enterprise.

[William Power, Senior Research Analyst at Baird]

You know, I I know you all view this as a, you know, 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, a, I'd be curious just kinda how that's going.

[William Power, Senior Research Analyst at Baird]

And then, b, just any other color you could share on, you know, what the pipeline looks like there and and how you get these deals converted, whether it's retail or other verticals you're you're targeting there?

[Brittany Bagley, COO & CFO at Axon Enterprise]

Yeah. So we set we set a large logistics 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 customer 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 enterprise as a category in a long term market.

[Rick Smith, CEO & Founder at Axon Enterprise]

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

[Brittany Bagley, COO & CFO at Axon Enterprise]

Retail Industry Leaders Association, Rilla.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 agency or the bigger the company, the longer the time it is.

[Rick Smith, CEO & Founder at Axon Enterprise]

And we've sort of baked all that into our guidance, you know, for the year, but we think enterprise is going to become a more and more meaningful contributor.

[William Power, Senior Research Analyst at Baird]

Okay. And then and then my second question, whether, you know, Rick, you wanna take it or Josh or whoever wants to take it, just looking at this fixed ALPR opportunity, I mean, how do we, you 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 the, 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?

[William Power, Senior Research Analyst at Baird]

Is it, can you use your existing force? Is there are there distinctions you're need to make as you deal with missile governments, etcetera, getting access? How how does that work?

[Josh Isner, President at Axon Enterprise]

Sure. Maybe, Rick, I'll start, and then you can, fill in any blanks. Ultimately, Will, 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 kind of commentary at a very high level here. But but, ultimately, we were really thrilled with the customer reaction during Axon Week.

[Josh Isner, President at Axon Enterprise]

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, to 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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, not hundreds of millions of of street lights. I can't remember the number.

[Rick Smith, CEO & Founder at Axon Enterprise]

It's huge. Because they already have relationships where they're putting equipment on these light poles, and they have relationships with the utilities that run them that, you know, Ubiquiti, they showed on stage. They could 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 we think that could also be a real accelerator.

[William Power, Senior Research Analyst at Baird]

That makes sense. Thank you.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Thanks, Will. Up next, have Josh Riley at Needham.

[Joshua Reilly, Senior Analyst at Needham & Company]

Great. Thanks for taking my questions. Kind of 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.

[Joshua Reilly, Senior Analyst at Needham & Company]

Just wanted to get a sense so we level set expectations that you know, I assume it'll be supply constrained for a while. Just wanted to get a sense there.

[Josh Isner, President at Axon Enterprise]

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, 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 factors, but a lot of the same underlying technology has has accelerated our path to market here, and we're really excited to kick off trials this summer.

[Joshua Reilly, Senior Analyst at Needham & Company]

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.

[Josh Isner, President at Axon Enterprise]

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.

[Josh Isner, President at Axon Enterprise]

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.

[Joshua Reilly, Senior Analyst at Needham & Company]

Awesome. Thanks, guys.

[Josh Isner, President at Axon Enterprise]

Thanks.

[Rick Smith, CEO & Founder at Axon Enterprise]

Nice to

[Rick Smith, CEO & Founder at Axon Enterprise]

see you weeks ago, Josh. Appreciate it.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Next, have Jeremy Hamblin at Craig Hallum.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Thanks, and congrats on another really strong quarter. I wanna come back to, you know, kind of your traditional cloud services business. So, you know, I think there's 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?

[Rick Smith, CEO & Founder at Axon Enterprise]

Yes.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 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.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

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.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

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 you were, 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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.

[Rick Smith, CEO & Founder at Axon Enterprise]

And so we're, now some of these two, 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, but there's certainly you know, there's a ton president Trump has talked about this, the American equivalent of the Iron Dome in terms of ballistic missile defense, and we believe there's gonna be you know, that'll be a multilayered system that's gonna include, you know, close close quarter air support from things like first person view and consumer drones. And so we think, you know, it's gonna be a a really exciting business long term. Yeah. So we're we're glad we're in it, and we we're we're really excited.

[Rick Smith, CEO & Founder at Axon Enterprise]

AD and the team at d drone are are pretty fantastic. They're doing great work.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

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 a reportable segment, would that just fall under your software and services?

[Brittany Bagley, COO & CFO at Axon Enterprise]

Yeah. So d drone has two components. It has a hardware software component. The software piece you'll see show up in our software 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

But one of the reasons we're really happy to do the break apart of our segments is you can see, you know, inside of our connected devices, that platform solution 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.

[Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC]

Great. Thanks for taking the questions. Best wishes.

[Brittany Bagley, COO & CFO at Axon Enterprise]

Thank you.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Thanks, Jeremy. Up next, we have, Trevor Walsh at Citizens.

[Trevor Walsh, Director - Equity Research at JMP Securities LLC]

Great. Thanks, Eric. Thanks, team, for taking the questions. Rick, maybe maybe for you, if I can. It was cool to hear about the Apollo cartridge, plans.

[Trevor Walsh, Director - Equity Research at JMP Securities LLC]

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 to talk about that in the past more in the international opportunity and the kind of cold weather areas, but we 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 American service thing for that?

[Rick Smith, CEO & Founder at Axon Enterprise]

So we're 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 weapon. And as you heard probably from, 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

Now you even have to be careful saying that. We were a 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

It's 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 when you go through and you have to make an immediate decision.

[Rick Smith, CEO & Founder at Axon Enterprise]

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, you they're gonna go to their firearm. But 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 forty percent of situations where people are shot and killed in The US today. So here I'd say it's probably more about the moonshot.

[Rick Smith, CEO & Founder at Axon Enterprise]

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.

[Rick Smith, CEO & Founder at Axon Enterprise]

We're gonna use this as our primary defensive weapon. Now you go from three to 10%, of the agency using it to 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, you know, business of moving cash around or casino guards or anywhere you see armed private guards, we think t 10 plus the Apollo is gonna begin to be much more widely deployed there because and maybe they'll still carry their gun.

[Rick Smith, CEO & Founder at Axon Enterprise]

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. And if they can avoid a shooting, it's you know, it 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.

[Trevor Walsh, Director - Equity Research at JMP Securities LLC]

Awesome. Super helpful. Maybe one just quick follow-up for Britney. I 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 built in around supply chain kind of, you know, not I mean, 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.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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, like, 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.

[Trevor Walsh, Director - Equity Research at JMP Securities LLC]

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

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Thanks, Trevor. Up next, we have Keith Housum at Northcoast.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Yep. Thanks, guys. I appreciate it. Hey. Hey, Rick.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

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. They're too levered to you.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

And how do you address that? And, you know, is that a risk to, you know, your growth going forward if it's, you know, next year, five years, ten years down the road?

[Rick Smith, CEO & Founder at Axon Enterprise]

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. What we've been hearing from our customers more is like, hey. We've got all this technology that doesn't play particularly well together.

[Rick Smith, CEO & Founder at Axon Enterprise]

Can you take on more? Like, you know, last year when we exited the CAD business, you know, doing the dispatch software, the thing we heard from a lot of our customers was like, oh gosh. We really wanted you to take that over too because when Axon when Axon does it, we know it just works, and we know that we're 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. 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 some catastrophic event, it would be majorly disruptive already. And I think what they're they continue to tell us is, 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

We we know we can't be everything, and and we're gonna identify best in class partners and bring them to you and 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, you know, keep things open so you can integrate with us.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Great.

[Josh Isner, President at Axon Enterprise]

And and

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Go ahead.

[Josh Isner, President at Axon Enterprise]

One more thing, Keith, there is just, you know, I think some of that is inform some of that thinking's informed on how we've got a 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 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 overdeliver on on the expectations in terms of features and service.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Okay. Gotcha. And just a quick, follow-up. You obviously guys got a great net retention rate. And 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?

[Josh Isner, President at Axon Enterprise]

That's correct, Keith. Yep.

[Keith Housum, Managing Director & Research Analyst at Northcoast Research]

Thanks, guys. Good luck.

[Josh Isner, President at Axon Enterprise]

Thanks.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Jonathan Ho, Research Analyst 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, you know, as fast as this, you know, sort of get in the way of growth in future quarters?

[Josh Isner, President at Axon Enterprise]

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 ten 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.

[Josh Isner, President at Axon Enterprise]

Eventually, we'd hit a rate problem there. But in reality, historically, TASER ten 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. Of course, you know, the name of the game there is not only filling out deployments and upgrading deployments in 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 and in other geographies as well.

[Jonathan Ho, Research Analyst at William Blair]

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

[Josh Isner, President at Axon Enterprise]

Thanks, Jonathan.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Michael Ng, Managing Director - Global Investment Research 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.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, you know, I think typically happens in in 2Q and 4Q.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

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.

[Josh Isner, President at Axon Enterprise]

Sure. Britney, do you wanna cover the

[Josh Isner, President at Axon Enterprise]

first one?

[Brittany Bagley, COO & CFO at Axon Enterprise]

They'll cover take the margin one. Yeah. I mean, nothing that I would sort of factor in as a meaningful driver. You know, we talk about our software business continuing to be above 80% gross margins, and the AI era plan would certainly fit in that.

[Brittany Bagley, COO & CFO at Axon Enterprise]

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 there's still more to come. But based on what we are releasing right 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.

[Josh Isner, President at Axon Enterprise]

And then on the state and local budget items, Michael, I I don't know know that we're seeing 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, one time 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 kind of, you know, bank on for q four.

[Josh Isner, President at Axon Enterprise]

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. But 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.

[Michael Ng, Managing Director - Global Investment Research at Goldman Sachs]

Great. Thanks, Josh. Thanks, Britney.

[Josh Isner, President at Axon Enterprise]

Thanks a lot.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

Thanks, Mum.

[Erik Lapinski, Senior Director, Head of Investor Relations at Axon Enterprise]

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

[Rick Smith, CEO & Founder at Axon Enterprise]

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 Britney 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.

[Rick Smith, CEO & Founder at Axon Enterprise]

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 public 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 and to work with all the analysts. You know, you guys ask great questions. You help us even, you know, take a hard look at different aspects of our own business. And together, we're doing great things.

[Rick Smith, CEO & Founder at Axon Enterprise]

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

Participants

Executives

• Erik Lapinski, Senior Director, Head of Investor Relations
• Rick Smith, CEO & Founder
• Josh Isner, President
• Brittany Bagley, COO & CFO
• Jeff Kunins, Chief Product Officer & CTO

Analysts

• Andrew Sherman, Analyst at Cowen
• Joseph Cardoso, Vice President, Equity Research at JP Morgan
• Alyssa Shreves, Vice President - Equity Research at Barclays
• Jamie Reynolds, Senior Equity Research Associate at Morgan Stanley
• Jordan Lyonnais, Equity Research Associate at Bank of America
• William Power, Senior Research Analyst at Baird
• Joshua Reilly, Senior Analyst at Needham & Company
• Jeremy Hamblin, Senior Research Analyst at Craig-Hallum Capital Group LLC
• Trevor Walsh, Director - Equity Research at JMP Securities LLC
• Keith Housum, Managing Director & Research Analyst at Northcoast Research
• Jonathan Ho, Research Analyst at William Blair
• Michael Ng, Managing Director - Global Investment Research at Goldman Sachs