AXON - NASDAQ

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. 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 show you a quick video recapping some of our recent announcements from Exxon week in April. [Video Presentation]

All right. Thanks, Erik. I always enjoy watching those highlight reels. And welcome everyone to our first quarter 2025 earnings call. We kicked off another exciting year at Axon just a couple of weeks ago as we hosted our Annual User Conference, which is one of my favorite events of the year. As we dedicate a full week to spending time with our customers. And as you can see from that video, we got to show them the many exciting things we've been working on. I believe our work is about far more than technology or results. It's about our mission to protect life. It's about giving those who stand on the front lines of our communities the tools, 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. 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. 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 when where it's needed through hardware that they already have. With Fusus, 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. As 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 1543, 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 cannot be more proud. Challenging, divisive political opposition and obstacles have stood in front of our project for nearly five years, but our team found a way, and the leadership of Arizona found a way to step up and help us stay here. We don't have everything finalized yet. There 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. Over to you, Josh.

Thanks a lot, Rick, and good afternoon, everybody. As I'm sure you can gather from Rick's comments, we're really proud of everything going on here at Axon. 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. This was especially evident coming out of Exxon week, our User Conference in April, and continues to be evident as we look ahead. Q1 bookings are a great indicator of our momentum. Although seasonally, the most modest bookings quarter of the year were off to a fantastic start. A year ago at the end of Q1, 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. As a result, we emerged from Q1 with a far stronger outcome and an even more exciting pipeline for the remainder of 2025. We expect another record for annual bookings with a growth rate in the range of what we 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 OSP10 premium plans and beginning to deploy Draft One. In fact, five of our Top 10 Q1 domestic deals included OSP10 premium, and two included Draft One. Along the same lines, through the first two years, TASER 10 orders continue to pace at 2x the rate of adoption of TASER 7. 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 2x 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. The team delivered a record Q1 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 Q4 and building a strong pipeline in several key industries. US Federal, as we mentioned in Q4, represents a strong long-term opportunity. While there's a lot of uncertainty within the federal agencies, our solutions are mission critical, and the value we deliver is clear. While Congress discusses reconciliation and 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 Brittany can expand upon in more detail. A couple of 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. 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 Brittany.

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 million increased 31% year-over-year, our 13th consecutive quarter over 25%, and we delivered a 25.7% adjusted EBITDA margin with $1.1 billion 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. 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 million, 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 123% and supported annual recurring revenue of $1.1 billion, an increase of 34% year-over-year. Connected devices revenue of $341 million grew 26% year-over-year. This was driven by growth across TASER 10 devices and cartridges, AB4s, 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 mixed shift to software. Adjusted operating expenses of $236 million were up 3% sequentially and down 140 basis points year-over-year. As a result, adjusted EBITDA margin came in ahead of expectations at 25.7%. Part of this leverage was driven by timing of our hiring ramp, and we do expect to continue to ramp investment through the year, especially in our R&D organization. We also expect some impact to the rest of the year from tariffs. As many of 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. 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 will assess the need heading into next year. Turning to guidance for 2025, we expect revenue in a range of $2.6 billion to $2.7 billion, or 27% annual growth at the midpoint. This is up from $2.55 billion to $2.65 billion, or 25% growth. Our comfort in raising guidance is based on the strong Q1 bookings performance, as well as the pipeline we see for the year and the future contracted bookings of $9.9 billion. On adjusted EBITDA, we continue to target margin of approximately 25% for the year, which raises our guidance to $650 million to $675 million from our previous outlook of $640 million to $670 million. Tariffs and exciting R&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 Q1, as well as a healthy outlook for the rest of 2025. 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.

[Operator Instructions]

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

Oh, great. Thanks. Good to see everyone. Great to see the strong cloud numbers. ARR growth was very strong, especially for Q1.Talk about anything that drove that strength in the quarter specifically. And on Draft One, great to hear it was two of the top 10 deals. The 30,000 seats were great to hear at Exxon week. Talk about what pipeline, any kind of pipeline update for Draft One would be great and how you're thinking about this in guidance.

Sure thing. Andrew, good to see you again. And nice to see you at Exxon week a couple of weeks ago. In terms of pipeline, I think the result in Q1 was really just a better, like a result of all the work that went into last year, not only converting on existing pipeline in 2024, but making sure that we had a far more predictable Q1 and driving a lot more activity into Q1 that last year kind of got delayed until Q2 and Q3. And so the team really took it upon themselves 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 Q2 and beyond as well. And as you mentioned, part of that is the AI Era Plan and Draft One. In terms of expectation setting, I think the first half of this year is still about making sure that we have identified all the key opportunities in Draft One and the AI Era Plan. And we think in the back half of the year, we'll start to see a lot more of those convert. Now, that's not to say the Draft One and AI Era Plan haven't been well adopted so far, but relative to what we saw at the end of last year, I think we're in for a far stronger result this year. And really in Q3 and Q4, you should start to kind of assume that'll show up in our future contracted bookings.

Great, thanks.

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 usually about a quarter off from our bookings. So what you're really seeing come through in ARR was the strong bookings results we had in Q4. So that's driving some of the growth. And then as I mentioned, it's really coming both from new users, as well as people adding on some of the more premium subscription pieces. So it's really, it's nice, healthy growth that we're seeing driving that ARR number.

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

Yes, I think it starts with just a little more focus from all of our teams at Axon. I think, historically, we've been a very U.S.-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 really the strongest it's been in international. And on top of that, I think the product adoption is ranging from TASERS to bodycam to more and more cloud openness. And so I think our plan is always the same. We've got to 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 we're starting to see the fruits of that.

Up next, we have Joe Cardoso of JPMorgan.

Thanks. Thanks for the questions, guys. Maybe I just wanted to start off, and maybe this is more of a clarification for you, Josh. Based on your prepared remarks, you're sounding pretty bullish on demand, the pipeline, et cetera. However, obviously, there's just persistent concern around the macro, just given kind of the current backdrop. So maybe you can just clarify or touch on, 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 your traditional core base of state and local law enforcement versus the other verticals that you guys are, obviously, gaining traction with.

Yes, sure. I would say virtually no headwinds in terms of anything macro with U.S. state and local enterprise or international. I think there are little challenges along the way, but I think our team is prepared. We've built a great team to be able to handle challenges like we're seeing in the macroenvironment right now. So 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 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. But in terms of that impact on our overall bookings, it's minimal. And we're really excited about the rapid growth that we're still seeing in the U.S. and international and in enterprise.

Got it clear. Thanks for the color. And then maybe just a follow-up. I wanted to touch on some of the recent product introductions, maybe on the hardware side. Obviously, you disclosed the two new fixed mobile hardware products that you guys kind of put out there. And I guess the crux of my question is just really around, obviously, you had Fusus and that was giving you an entry point in kind of the fixed mobile market there. What was the main drivers in kind of owning the hardware stack there? Was it more of a customer push? Did you not see that you were getting enough traction on deals? Any way you can flesh that out in terms of what drove the entry there. And I guess the second part of that question is, like is this more of a test in the waters and then you can expand that product set there in terms of addressing other applications? Or I guess, how are you thinking about the opportunity there?

Yes. Let me start with that one. So much like 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, we've got just an awesome imaging team and we felt we could provide really best-in-class for fixed ALPR, which has been a growing category. And especially in the context of Fusus, making sure that we had a really great overall experience. We identified this as a very interesting and fast-growing expansion opportunity for us. And when it fit very naturally with all the things we were already doing in mobile, so why not take that same technology, repackage it and have the best-in-class 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 keynote very much focused on the privacy issues. We certainly get it. What we're building is really powerful tech and we want to be really thoughtful about it, as do our partners. I mean, each of the partners 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 want to do is create a surveillance state where we're being tracked everywhere we go. What we do want to 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. I actually think right now the US has sort of got the balance is completely wrong. When you're incarcerating a ton of people, but your deterrence isn't high enough to stop crime, that's like the worst outcome. Like the best outcome is you deter crime by having a very high probability you're going to get caught, such that it just doesn't make sense for people to start to engage. And I think we're seeing a real swing back from post the early pandemic and George Floyd. We saw the pendulum swing very hard against public safety, and there was the decriminalization of shoplifting and retail crimes with catastrophic consequences, right? We've seen just city urban centers hollowed out as retailers had to move out of town. We've seen they've got to lock up the shampoo and the toothpaste. And that's where our partnership with Auror, I think comes in here really well as well. That like people realize you have to have fundamental stability and safety and rules that are enforced in society or the little things escalate. And I was shocked to learn as I got to know Orr that the significant majority of retail crimes associated with people who are either part of a criminal network and or involved in violent crimes as well. So they sort of the scene from Les Misérables where it's a woman trying to steal bread for her children is not, 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 we really looked at this to expand where we can do partners well and where we want to be first party so that we make sure that we've got best in class capabilities.

And two just really quick things to add on that. Like you mentioned Fusus, this is all about doubling down and going even further above and beyond the momentum that has started with Fusus. You've heard both Rick and myself talk before about we're at this unique moment in time where the intersection of Realtime Crime Center, DFR and vehicle intelligence broadly because of the crucial role that vehicle intelligence plays in solving so many crimes, the intersection of all of those three and the power that new AI capabilities brings to making them be able to be more powerful and effective than ever is really at the heart of this and making sure that we bring our best foot forward on all three legs of that stool, both with what we do ourselves and with what we partner with. And then the second part on responsible AI innovation, as Rick said, 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.

Up next, we have Alyssa Shreves at Barclays.

Hi, everyone. Just a quick few ones on Draft One and AI Era Plan. 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 call outs on Draft One, but it seems like AI Era might be a little bit different. And then I just had to follow up on that.

Sure thing, Alyssa. Thanks for the question. I'd say Draft One launched a full year before the AI Era Plan. So in terms of just pipeline conversion, 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 certainly in the Q2 as well, after we converted some of those early deals, we're still seeing them come in, but some of the larger ones, like this is the time where we're getting them integrated into our quotes with our customers for the back half of the year, some of the larger police departments will be sponsoring large deployments to their communities and putting those on city council agendas in Q3 and Q4. So I think it's just a matter of Draft One had a faster head start and thus 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 Exxon week. So I think the future is very, very bright for the AI Era Plan. And again, we'll start to see that really convert in a much bigger way to bookings in the back half of this year.

Okay, and then just a quick one on that. How are you guys got longer term kind of thinking about EBITDA target with this kind of growth and Draft One, AI Era, given it's kind of all SaaS, thanks.

Yes, I mean, I think it's been really nice that software in general has been a great tailwind to our margins from a gross margin basis. And then I would say at the same time 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, we've had a little bit of a tailwind from software, but we really do have mixed factors that you have to consider. We don't have a specific long-term target out there after this year, but obviously it helped in -- software helped in this quarter, and in general, we're really happy. We're continuing to blend out at that 25% even with tariffs. We'll probably think about longer-term margins as we come up at the end of this year and really think about refreshing what that long-term model looks like for everyone.

Up next, we have Jamie Reynolds at Morgan Stanley.

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

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 somebody in front of them. So 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, et cetera. You're going to face a little more, maybe, opposition from some of the police skeptics there, 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. 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. 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 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 the stuff out and in the hands of customers. They typically want to get some cycles in before they've made a large purchasing commitment.

I think the flip side to that, too, though, is, like, it also gives people more reasons to be excited about AI and to get excited about 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 broader the product suite we have, the more the return for them that they see on using it, and so I think that just gives them a lot of momentum to go look at that whole product suite.

Once again, just like Josh was talking about with the Era plan and the brightness there, the beauty of having a plan that includes everything that we do, not just right now, but over the next five years, is it gives any individual agency a palette of choices. So even if in that particular agency, one particular thing might not yet be for them, there's many different ways to stack up the points on the board within the plan for the plan to be a fantastic value for any given customer.

Got it. And then maybe just on the drone side, I think a couple of weeks ago, the FAA might have made some improvements to the waiver process specific maybe to DFR. So I guess, how has that changed conversations? And then what do you think we still need to see from a regulatory standpoint to see like broader based adoption?

So I don't know, Jeff, do you want to talk at all about the more detailed portion? I can tell you that we're definitely seeing DFR go mainstream, and the timing is just really phenomenal. Our partners at Skydio are really just now scaling the manufacturing of their docks, and I'd say the DFR limitation is probably somewhat production constrained right now, but in the back half of the year, we really expect that to grow strongly. And Skydio has really become a pretty well-oiled machine at getting waivers, particularly if you're going to fly below 200 feet, where I think Skydio is really the only viable solution in that space because they have such solid autonomy and collision avoidance. And then if you want to come up a little higher into the 200 to 400 foot range, really then pairing it with Dedrone helps there. They're the FAA 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 want to add.

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

Up next, we have Jordan Lyonnais with Bank of America.

Hey, thank you for taking the question. On the federal side, the FY26 skinny budget called out a $44 billion increase for DHS. How are you guys thinking about that across the verticals? Because it also said they need advanced border security technologies. They need to prep for the World Cup and the Olympics. So where are you guys most excited about that Axon can help?

Yes, for sure. I think on the border bill, 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 body cameras, evidence.com and live streaming available to them as kind of the precursor to fill in some of the existing blanks around better video in more places, better counter drone solutions, and of course, more drone solutions that are USA made and fit for purpose for the US government. And so that's where our focus will start. Of course, we're working on a number of deals across the feds of 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.

Yes, I would add the real-time translation is going to be hugely beneficial. I had 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 going to run into. And today it's a very manual process. You've got a call, get an operator, 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 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 not as close as Josh to the sort of actual pipeline with the federal government, but I can tell you the fundamental underlying demand, I think the translator is going to be a huge interest for border.

Got it. 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 Fusus was FedRAMP certified yet or if you guys are starting to see existing Dedrone contracts where agencies are jumping into those that might not have been initially thought that it would be for that, but okay, we can procure a bodycam for and Draft One now.

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

Yes, I think we can, the process for all the FedRAMPing stuff is you go through, 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 of months for the formal kind of paperwork approval on the backend. And with Fusus we passed that submission stage very, very recently. So we're in the shoot. So Fusus 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.

Yes, 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 tailwind if they started to happen faster.

Up next, we have Will Power at Baird.

Awesome. Yes, congratulations on another great quarter. I want to start with a question on enterprise. I know you all view this as a significant TAM expander. I think last quarter you talked about a big logistics company win. I think that's how it was framed. A, I'd be curious just kind of how that's going. And then B, just any other color you can share on what the pipeline looks like there and how you get these deals converted, whether it's retail or other verticals you're targeting there.

Yes, so we set a large logistics provider last quarter. I think everything's going nicely with that 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 how we can roll those out and how we can get traction. So again, we're sort of rebuilding the pipeline for the year in Q1, but we continue to be really excited about enterprise as a category in a long-term market.

Yes, I was invited to a keynote at RILA, which is like the retail security. I can't remember what the acronym is for, but it's basically all the retail security.

Retail Industry Leaders Association, RILA.

Thank you for the phone-a-friend help there. And I can tell you, I was talking to our head of enterprise and 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. And we've sort of baked all that into our guidance for the year, but we think enterprise is going to become a more and more meaningful contributor.

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

Sure. Maybe, Rick, I'll start and then you can fill in any blanks. Ultimately, Will, this is a very, very competitive space right now, and we're excited to be a part of that competition. So I'm going to keep the kind of commentary at a very high level here. But ultimately, we were really thrilled with the customer reaction during Exxon Week. Agencies that took us 10, 15 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, we're excited to be in this market because ultimately this capability is very complementary to the other products that we build, and we can offer it at a far more reasonable price than some of our competitors and give them the opportunity to have other options out in the market. And so for us, we're going to, in terms of 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 we expect to win in this market.

Yes, I would add the other thing that was really a pleasant surprise was how well Ubicquia was received. Just doing the permitting and all the logistics behind that is a real sort of issue and challenge for our customers. And Ubicquia brings with them preset access to tens of millions, if not hundreds of millions of streetlights. I can't remember the number, 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 Ubicquia, they showed on stage, they could do an installation in like a minute. Now, of course, you got to get out there with a truck and all that. But the fact they don't have to go through permitting because it's all preset, the poles are already there. These are sturdy poles with power and a universal adapter plug. I think Ian told me there's like 450 million streetlights worldwide that all share that same plug-in. So we think that could also be a real accelerator.

Up next, we have Joshua Reilly at Needham.

All right, 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 Outposts and the Lightpost? Obviously, you've done some different things in terms of manufacturing for the TASER versus the body camera. Just wanted to get a sense, so we level set expectations that I assume it'll be supply constrained for a while. I just wanted to get a sense there.

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

Got it. That's helpful. And then what's the feedback from customers in terms of their sense of urgency of closing some of the leader pricing deals for Draft One in the AI Era Plan? I believe, correct me if I'm wrong, it was June 30th, 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 price sensitivity there.

Yes, great question, Josh. We're working through that right now. So I think whenever we quote something, sometimes there's a reality that some of those deals could slip quarter after quarter. The leaders pricing is to potentially ensure that there is a sense of urgency from the customer as well. And so if anything changes there, we'll certainly let everybody know. But at this point, we're still focused on making sure we convert everything in the pipeline in Q2 here.

Next, we have Jeremy Hamblin at Craig Hallum.

Thanks and congrats on another really strong quarter. I want to come back to kind of your traditional cloud services business. So I think there's about 40% of revs you crossed over to having a million platform users at the end of last year. As we look into ‘25 and think about the growth that you're expecting, 27% total revenue growth. As we think about the cloud services, do you expect more of that growth to come from growing your user base versus kind of that ASP per user per month? As we're kind of looking about that, and then maybe contrasting that to what we've seen here over the last couple of years?

Yes.

Jeremy, I'd say the last couple quarters, we've called out that it's been split about 50-50 between our user growth and our premium adoption. So, I mean, not perfectly, but I would say that's really good rule of thumb to use at least as we go through the rest of this year. And then with things like AI and Draft One that will really ramp even more next year, we'll see if that mix changes at all.

Got it. Okay. That was the second part or follow-up there on how it looks in ‘26 and beyond. Okay. And then I wanted to shift gears then and ask about Dedrone, 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 with the current administration and how capabilities might be utilized both domestically, close relations, but then also we are seeing an uptick, unfortunately, in geopolitical activity. But just wanted to get a sense for what you were kind of sensing out there in the market now that kind of these overseas wars are not fading away, but seem to be increasing in terms of magnitude and presence.

Yes, 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. There we're seeing Dedrone 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 got to think about and deal with. And so we're, now some of these still like when you 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 what's going on there. But there's certainly 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 going to be -- that'll be a multi-layered system that's going to include close quarter air support from things like first person view and consumer drones. And so we think it's going to be a really exciting business long term. Yes, so we're glad we're in it and we're really excited. AD and the team at Dedrone are pretty fantastic. They're doing great work.

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

Yes, so Dedrone has two components. It has a hardware component and a 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. But one of the reasons we're really happy to do the break apart of our segments is you can see 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.

Up next, we have Trevor Walsh at Citizens.

Great. Thanks, Erik. Thanks, team, for taking the questions. Rick, maybe for you, if I can, it was cool to hear about the Apollo cartridge plans. I know it's been maybe kind of the last piece of T-10 kind of getting through the thicker pieces of clothing. And I think you've talked 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 U.S., the domestic market. So can you just talk about kind of 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 primary service thing for that.

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 Espen, our friend from Norway, he's coming to conclude, intellectually, he has already concluded that if you're in close quarter combat, a T-10 plus this new Apollo Dart is a better, more effective, safer option for you to use than a gun. Now, you even have to be careful saying that. We were a little nervous about putting him on stage because that's such a high bar. It's almost a little bit of a lightning rod. Now, where this is going to make a difference in the U.S., there will be some marginal revenue from it. We'll probably have some kind of upgrade tactical package that includes that cartridge. And it is obviously looking at it's a bit more sophisticated. It's going to be a little higher price point than our traditional cartridges have been. But I think really the impact in the U.S. is going to 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. I think over time, we're going to see the T-10 be a first choice. Now, look, if you know you're going into a gun fight they're going to go to their firearm. But we think especially around edged weapons and others, this is the piece that really gives us a shot at displacing lethal force. And our estimates are about 40% of situations where people are shot and killed in the U.S. today. So here I'd say it's probably more about the moonshot internationally but and the reason I say that is most agencies in the U.S. are already buying TASERS. So, yes, there's going to be a little bit of upgrade opportunity there. But in the U.S., it's going to 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, we're going to use this as our primary defensive weapon. Now you go from 3% to 10% of the agency using it to potentially 100% 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 T10 is going to be much more impactful in global markets and then, frankly, in enterprise and other places where whether you're somebody like Loomis who's in the business of moving cash around or casino guards or anywhere you see armed private guards, we think T10 plus the Apollo is going to begin to be much more widely deployed there because and maybe they'll still carry their gun. They might start to look more like a cop where they have two weapons. But we think all the business operators pay a ton of attention to the liability issue. And if they can avoid a shooting, it's, there's a lot of financial incentive in addition to the moral imperative. So I'd say that this is going to, its biggest impact will be opening new markets for TASER.

Awesome. Super helpful. Maybe one just quick follow up for Brittany. 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 adjustments and adaptability that you've built in around supply chain kind of not being exactly? Or is that just give us, I guess, a sense of like kind of where that falls in terms of your high side, low side sort of expectations around the impacts?

Yes. 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 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 going to try and do more if we can do more and continue to work those supply chain muscles. But I think it's a fair bet knowing what we know right now.

Up next, we have Keith Housum, Northcoast.

Thanks, guys. I appreciate it. Rick, is we saw Exxon 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 become concerned that you're too big a part of their ecosystem, that you're too important or too levered to you? And how do you address that? And is that a risk to your growth going forward? If it's next year, five years, 10 years down the road?

Yes, 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. Can you take on more? Like last year when we exited the CAD business 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 does it, we know it just works and we know that we're going to get a great response if we have an issue and it's going to be supported. So I'd say it feels to me like it's less of a concern than it was a few years ago. I think we've sort of crossed this Rubicon where we're such an integral part. They're already kind of all in with us. And so kind of even including more stuff, I think, doesn't really increase their risk. Like if Axon went out of business or there was some catastrophic event, it would be majorly disruptive already. And I think what they continue to tell us is, though 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 both signaling and living up to a commitment to our customers that say, hey, we know we can't be everything and we're going to 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 going to try to box you into a walled garden and that ultimately, you'll be able to use the parts of our ecosystem you want and the parts that you don't want to use. You can use other tech solutions and we'll keep things open so you can integrate with us.

Great. And one more thing, Keith, there is just I think some of that is informed, some of that thinking is informed in how we've got to market with our AI Era Plan where some of these software heavy offerings, I think it's better 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 in a lot of the new disruptive technologies that we're entering, it's far more about de-risking the proposition for them by making sure that we're very fair and predictable on pricing and we over deliver on the expectations in terms of features and service.

Okay. Got you. And just a quick follow up. Yes, obviously you guys got a great net retention rate and I'm assuming, right, you guys still have not lost a significant vendor or a significant agency to a competitor yet, correct? When it comes to the excellent body camera.

That's correct, Keith. Yes.

Up next we have Jonathan Ho at William Blair.

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

Yes, Jonathan, it's a fair question. I personally don't see a lot of that given that there are still customers that are using the X26P and customers that are using the X2 and a lot of what TASER 10 has done is accelerated the upgrade cycle. So I think that would be much more of a concern if all customers predictably upgraded every five years, eventually we'd hit a rate problem there. But in reality, historically, TASER 10 is the first one where customers are feeling like, hey, we must upgrade as soon as we possibly can, even if it's inside of five years. So I do think there's still plenty of opportunity in the next three, four years in terms of TASER 10. And of course 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 our international customers and a ton of white space there. And we're seeing a lot of excitement as Rick highlighted in Europe and in other geographies as well.

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

Great. Thanks for the question. I just have two quick ones. First, just on the AI Era Plan and AI Services, are there any meaningful margin differences relative to evidence.com just because you have to pay the cost to compute? And then secondly, I just wanted to ask about the state and local budget flush outlook, which I think typically happens in 2Q and 4Q. Just wondering if you had any early expectations on what you can expect there just given what you're seeing in the pipeline. Thank you.

Sure. Brittany, do you want to cover the first one though. I will cover the –

I can take the margin one. Yes. I mean, nothing that I would sort of factor in as a meaningful driver. We talk about our software business continuing to be above 80% gross margins and the AI Era Plan would certainly fit in that. Now, the interesting thing about the AI Era Plan is like, we don't actually know every product we're going to 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 we're pretty happy that it falls in that range of what we would expect for our software business.

And then on the state and local budget items, Michael, I don't 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. But a lot of those grants were helpful in paying for like one-time upfront purchases. Most of our activity, as we've talked about in the past, is highly related to operational expenditures as opposed to capital ones. And so for us, I think as we work through budgetary quotes, like for example, some large states, their budget ends on September 30th and starts again on October 1st. And we're working through, hey, here's a budgetary quote that you can kind of bank on for Q4. We're not seeing much difference in how we've handled those in the past years, if any at all. So certainly something that we'll continue to monitor. But at this point, we feel really good about what we're seeing in terms of availability of funds and opportunity to invest from some of our state and local customers.

All right. We'll kick it to Rick to close us out.