Axon’s Q1 2024 marked another incredible year start, with significant excitement around drones, robotics, and aerospace security.
The company is advancing in artificial intelligence applications, notably through Draft One, which aims to significantly reduce the time officers spend on report writing.
Axon introduced real-time operation solutions and a new mobile application, enhancing situational awareness and evidence management.
The company remains committed to its mission of protecting life, amidst recent police and public tragedies.
Financial Highlights
Axon reported 34% top-line growth year-over-year, with cloud and services revenue growing by 51.5%.
TASER segment saw a 33% growth year-over-year, with TASER 10 driving demand.
Adjusted EBITDA margin improved from 19% to 23.6% year-over-year, marking the strongest quarter in 3 years.
Axon raised its full-year 2024 revenue guidance to $1.94 billion to $1.99 billion, representing approximately 26% annual growth at the midpoint.
Adjusted EBITDA is expected to be $430 million to $445 million, with an adjusted EBITDA margin of approximately 22%.
Strategic Initiatives and Acquisitions
Axon’s anticipated acquisition of Dedrone is highlighted as a strategic move to overcome limitations in drone use by law enforcement, enhancing drone tracking and countermeasures.
The Dedrone acquisition is expected to increase Axon’s total addressable market (TAM) by $14 billion, bringing it to $77 billion.
Acquisitions including Sky-Hero, Fusus, and the planned acquisition of Dedrone, have expanded Axon’s TAM by over 50% in the last year.
Market and Product Development
Axon continues to focus on the operating system of public safety, with a strong pipeline across all major customer segments.
The company sees opportunities for growth in domestic state and local law enforcement and emerging markets.
Axon’s strong international presence, bolstered by the Dedrone acquisition, is expected to accelerate international channel expansion.
Leadership and Talent
Cameron Brooks has joined Axon as the new Chief Revenue Officer, bringing valuable experience from Amazon Web Services.
Axon’s leadership team has been fortified over the last two years, preparing the company to accelerate its pace of innovation and execution.
Future Outlook
Axon is increasing its investment in CapEx to $80 million to $95 million for the year to meet strong demand for TASER 10.
The company has a strong pipeline to support its forecast and has factored in the expected revenue from Dedrone into its updated guidance.
Question and Answer
Draft One Approval Process and Adoption
Question
How long do you foresee departments needing for approval processes for Draft One, and will the approval processes speed up once major departments sign off?
Answer
Draft One has generated significant enthusiasm, with many police officers finding the reports it generates to be superior to those they write themselves.
The adoption process is expected to be relatively frictionless, with low barriers to entry and positive feedback from early users.
While there will be a sales cycle associated with the product, early orders are coming in, and the pipeline is building, indicating that it will contribute to in-quarter revenue in the second half of the year and beyond.
Fusus and Dedrone Contribution to the Year
Question
What is the expected contribution of Fusus and Dedrone to the year, both inorganic growth-wise and in terms of their impact on the company’s financials?
Answer
Fusus and Dedrone are small and growing quickly, but their contribution to the top line and overall growth rate is immaterial.
The company is cautious about EBITDA due to absorbing the integration costs of these acquisitions and ensuring a successful integration.
The company’s guidance accounts for these impacts, and it is not expected to pull the Q1 EBITDA margin through to the rest of the year.
Q1 Revenue Growth and Full-Year Guidance
Question
The strong mid-30s percent revenue growth in Q1 implies some deceleration for the full year based on the raised guidance. Can you provide perspective on whether this is due to pull-forward into Q1 or conservatism for the remainder of the year?
Answer
The company prefers to see more of the year materialize before providing a full-year revenue estimate.
Q1 typically has the slowest revenue quarter, making the year-over-year comparison easier.
The company is optimistic about having another great year and will update guidance quarterly as necessary.
The deceleration in the full-year guidance is primarily due to lapping a very strong previous year.
TASER Automation and Gross Margin
Question
Can you provide an update on the TASER automation process, the availability of supply to meet demand, and any impact on gross margins?
Answer
The company is balancing ramping up capacity and working on cost-down initiatives for TASER 10.
Demand for TASER 10 has been better than expected, and the company is focusing on ramping capacity to support this demand.
While it may take some time to implement cost-down initiatives, the company is on track with its plans.
Gross margins for the rest of the year may be impacted by a general mix shift, with devices expected to be lighter and software stronger compared to Q1.
The company does not expect gross margins to improve for the full year compared to Q1.
Seasonality of Bookings
Question
Can you discuss the seasonality of bookings and the factors contributing to the sequential decline in Q1, which is unusual for the company?
Answer
Q1 is typically the low point for bookings due to several factors, including coming off a strong Q4, adding salespeople and adjusting to new regions, and the lack of urgency from customers with no major fiscal budgets ending in Q1.
Q1 is focused on building the foundation and rebuilding the pipeline, and the company expects a strong response from the sales team in quarters 2, 3, and 4.
Federal Business and Deployment Schedule
Question
Are the large federal bookings from last year starting to deploy, or is there a longer deployment schedule? How will this contribute to overall revenue growth?
Answer
Many large federal bookings are phased into multiple years, and revenue is recognized upon product deployment or shipment for TASER.
While there may be some noise in the timing of shipments and deployments, the company is confident in the healthy pipeline for the federal business and expects another strong year.
Body Cam Safety and Engineering
Question
In light of a recent body cam issue with a competitor’s solution catching fire, can you discuss how quickly Axon could provide a replacement product if asked and what engineering measures have been taken to ensure the safety of Axon’s cameras from battery malfunctions?
Answer
The company expresses concern for the injured captain and is focused on continuing to build great products.
Axon has invested significantly in its hardware and devices pillar and has considered and addressed potential edge cases and safety concerns.
While specifics of the engineering are not disclosed, the company is confident in the performance of its products and will be ready to deploy if an opportunity arises.
TASER 10 Demand and Automation
Question
Is there anything to highlight regarding the strength of TASER 10 demand in Q1, particularly between domestic and international markets, and the timing of automation benefits?
Answer
TASER 10 is experiencing exceptional demand, outpacing TASER 7 by double and showing strong indicators of effectiveness in outperforming firearms.
The company is working to ramp up production capacity to meet this demand and is investing in automation to maximize build capacity.
The future looks bright for TASER 10, and the company expects it to be a significant driver of growth.
Dedrone Acquisition and Market Potential
Question
The Dedrone acquisition significantly expands your TAM, but it may face sensitivity and potential pushback due to concerns about how it will be used. Can you discuss how you expect Dedrone to be deployed, its potential for becoming a material contributor in the future, and the timeline for this?
Answer
Dedrone is focused on monitoring drones in the airspace, particularly in response to the new threat vector that drones pose in modern warfare and their potential use in various public safety risks.
The company does not anticipate significant pushback as Dedrone primarily addresses the need to protect against aerial threats and provides transparency and control over drone usage, including by government agencies.
Dedrone is expected to be a significant pillar of the company’s business in the future, with a focus on long-term growth and investments in robotic security.
Competitive Landscape for Draft 1
Question
Given the incredible demand for Draft 1, how challenging do you see the competitive landscape for entering this market, considering the presence of other solutions, and what advantages does Axon’s ecosystem provide?
Answer
Axon’s investment in a record management system several years ago was specifically aimed at addressing the need for AI-powered solutions like Draft 1.
The company acknowledges the competitive market but believes its ecosystem, customer trust, and rigorous evaluation of risks provide a strong competitive advantage.
Draft 1 focuses on responsible AI usage and high payback, minimal risk applications, which contribute to its positive reception and early excitement from customers.
Data and AI Concerns for Fusus
Question
With the increasing importance of data for AI, are there any concerns about data sharing for products like Fusus, which rely on data from various sources, including non-Axon proprietary data, and the potential for vendors to become less cooperative in sharing data?
Answer
The company has not encountered any pushback regarding data sharing for Fusus, as most partners share data with the primary goal of enhancing safety and supporting law enforcement.
Customers have the ultimate control over data sharing and can choose to work with multiple vendors and partners, which incentivizes all parties to collaborate effectively and maintain good relationships.
Counter UAS Use Cases for Dedrone
Question
How much do you intend to focus on counter UAS use cases for Dedrone, and what opportunities does this present for expanding the customer base and leveraging the Axon ecosystem?
Answer
The company plans to lean into counter UAS use cases to protect lives from drone-related threats.
Dedrone is expected to be appealing to new customer segments, such as major sporting stadiums, critical infrastructure, and military organizations, both in the U.S. and internationally.
Bone Acquisition Rationale and Technology Stack Participation
Question
Why is now the right time to acquire Bone, and has there been any change in your thoughts regarding the technology stack you want to participate in for the drone opportunity compared to your approach with TASER and body cams?
Answer
The company’s decision to acquire Bone was driven by the strategic importance of robotic security and the opportunity to strengthen its roadmap and pillars through M&A.
The company’s approach to the technology stack, whether to build, partner, or acquire, is an evolving target and is based on evaluating the best combinations for achieving its goals and maximizing leverage.
CapEx Rationale and Timing for Investments
Question
Can you explain the rationale behind accelerating investment plans this early in the year, and should we expect a gradual increase in automation and capacity, or will there be a more significant inflection point in a later quarter?
Answer
The decision to accelerate investments is driven by the best pipeline the company has ever had coming out of Q1 and the need to meet the strong demand for TASER 10.
Investments in capacity involve buying specialized equipment with lead times, requiring early action to support capacity increases in 2025.
The company is steadily ramping up capacity to avoid backlog issues and is confident in the demand and pipeline, making it prudent to bring capacity online now rather than waiting.
Axon Cloud Services Growth and Drivers
Question
Can you provide insights into the sequential growth expectations for Axon Cloud Services and the key drivers behind this growth?
Answer
The significant step-up in Q4 was partially due to revenue recognition and the lumpy nature of records revenue.
The $13 million step-up in Q1 is still healthy and in line with the company’s expectations for normal quarterly growth.
Themes Across Recent Axon Wins
Question
Can you discuss the progress of RCMP field testing and any common themes observed across recent Axon wins, such as those in Cornelius, North Carolina, or Puerto Rico, particularly in terms of product or cost advantages?
Answer
The company emphasizes its focus on delivering value and performance in the field, rather than competing on cost, and believes this approach is resonating with international customers.
