Welcome, everybody. We're delighted to have Axon here with us today. We have Brittany Bagley, CFO and COO. I'm Meta Marshall. For those who don't know me, I cover a bunch of stuff here. All right. So, Brittany, when we had you here, you had just started. Now you've been with Axon for about 18 months. The stock has more than doubled in that time. Relative to when you started, how have your conversations with investors changed? And just what do you see as the most underappreciated part of the Axon story? Yeah. I mean, I think what I would have said was the most underappreciated part of the Axon story a year ago was probably software and how much of the business was software. I think that answers what has really changed in our investor conversations, which is, at this conference last year, we were spending a lot of time talking about TASER 10, which made a lot of sense. It was a new product. We just launched it. But that really has shifted, given our performance over the last year, how we're doing on ARR. We have almost $700 million of ARR. It's growing incredibly rapidly. And so the conversation really has shifted to our software business. What does that look like? What's driving that? How do we keep growing that? How long are we going to see growth like we've seen? Just how do we think about the business holistically rather than really some of the separate parts? OK. OK. We just talked about kind of new product introductions that benefited Axon in 2023 on the hardware side. Just what are some of the new end markets, either by vertical or geography, that supported 2023 and kind of coming in at the 30% versus kind of the original 20% expectation? Yeah. I mean, I think one of the things that maybe continues to be underappreciated or challenging about the story is just how much continued strength we've had in our core domestic law enforcement business. And so we get a lot of questions about, when are we going to run out of room there? And I think one of the big surprises in 2023 was just how strong that continues to be, how much room there continues to be in that core market. And a lot of that is driven by things like new products driving upgrade cycles, customers being excited about our new products, and it driving additional software attached. So one is that the core business continues to perform incredibly well and has runway. I think, too, is that there are interesting new markets that we've been expanding into. International is one that we talk about a lot in terms of long-term potential. Federal had really nice traction for us. Then there's longer-term markets that we've been talking about, whether or not it's robotic security or drones. So we have this sort of portfolio of new opportunities, some of which are hitting us here and now, like federal, and some of which we're going to be going after for the next 10 years, like drones. OK. So you mentioned the software story has kind of come into focus. You grew ARR by $225 million or to $700 million in 2023. Just can you give us a sense of how much of this growth was contributed to by continued momentum in digital evidence management relative to some of the newer products like records? Yeah. So digital evidence management, or you'll hear us call it DEMS, is still very much the hero of our story. It's growing very nicely. It's resonating into these new markets. It's helping us grow both in core law enforcement and outside of core law enforcement, so as we talk about the Justice Department or some of our other customers. That all said, I think we actually are starting to see some nice contributions and parts of the business that is outside of that core DEMS platform contributing. And so we've been talking about how our records business has started contributing really for the first time this year. Our productivity platform is doing nicely. And then we made an acquisition of Fusus, which we'll go into our Real-Time Operations platform, which is where records sits. And so we are really starting to be able to say that the software categories outside DEMS are really starting to ramp. OK. OK. Looking at the product roadmap, what features or products are customers most excited about? Your development philosophy for kind of displacing a lot of customized solutions and homegrown solutions, just how is that informing kind of your roadmap? Yeah. I mean, I think the nice thing for us is, and we work very hard at it, but we work very hard to deliver a really good experience to our customers. And so what we hear from them is that they appreciate that we've got an ecosystem, that our products work together, that it makes it easy for them to have all of those pieces come into place. And so when we do want to go try something new, that gives us a bit of the license, where sometimes they'll say to us, or they'll say to Rick, our CEO, who spends a lot of time with customers, we trust that if you guys go into something, you're going to do a good job of it. That gives us a little bit of a license to continue to expand out from the core and experiment and really try and have that time. It all comes back to really just delivering for our customers and solving problems for them. Is it records or kind of some of the areas that you've seen traction in today that they're most excited about? Or kind of where in that roadmap are they like, oh, we definitely want to see that product? Yeah. I mean, it's different for some of our different customers, depending on what pain points they have or what problems we're trying to solve. I would say there's a lot of interest in our productivity suite of tools. Anything that can really help them reduce the amount of time they're spending writing reports or doing some of the administrative stuff is garnering a lot of interest. OK. You just mentioned you recently acquired Fusus, which enhances real-time operations. Just how do you see M&A as a part of that roadmap, given you guys do a healthy amount of R&D internally? Yeah. Yeah. So Fusus is a great one where we partnered with them first. So we do that sometimes. We'll either do just plain partnerships or we'll invest in companies and take a small stake and then work with them as partners. And so Fusus is one where we made an investment. We started working with them as partners. We started integrating with them. We would go to market to our customers and talk about Fusus as part of a solution. And so in a lot of ways, it was just a very natural acquisition for us. We already knew how we worked together. We were already integrating from a product standpoint. And as we looked out at the future of real-time operations, we just said, this makes a lot of sense together. And so I think you'll see us use M&A where it makes sense to buy versus build it ourselves. I think Sky-Hero is another example of that. But we could have tried to go rebuild what Fusus built and compete with them. But instead, we had a great partnership strategy that proved itself out. And we'll go faster for having done an acquisition there. OK. Maybe moving on, when it comes to AI or drones, there's obviously a lot of innovation happening. But it's almost happening faster than kind of customers can adopt it. Just what are some of the hurdles that you've seen in terms of customers may want it, but they can't yet adopt it? Yeah. Yeah. I mean, drones are a fascinating and very complex market in terms of how they're going to get used and how many different types of drone products there are. I would say some customers are really on the forefront of how they use drones. And we spend a lot of time with those customers listening to what they want and what they need. I think there are challenges. DJI has been a big drone provider. And there's been a lot of pressure not to use them. They're a Chinese company. And so that's been a challenge for some of our customers. And we have a software product that integrated with DJI. So just as the landscape shifts of who's providing drones, we have to adapt. We also have a partnership with Skydio, which is a private drone company. So it's nice that we have that partnership. This likely creates a bigger opportunity for them. Then we just continue to be nimble and try and understand how we solve customer problems and how the landscape is evolving. Do you think some of that, I think on the earnings call you had mentioned, OK, well, some of these you have to have line of sight of the drone or some of these areas, do you feel like that gets settled in a, OK, we just had to see one big city, one big state kind of figure this out, and then everybody else figures it out? Or just how do you kind of, how have you traditionally kind of seen that adoption, considering this isn't the first kind of technology innovation you've been a part of? Yeah. Yeah. I think that's a great example of, yes, you tend to see one or two cities or counties go in and try something new and then share how that works. And the thing about being with state and local is you can have different regulations in different places. And so you can go see what works and then share that back out. And they share it back out and figure out how they go. OK. Another component of the story has been kind of this election of the higher price bundles over time and kind of seeing customers upgrade over time. When you look at who elects those higher OSP bundles, just, are there any trends on who's normally electing the highest price bundles or where you see kind of the biggest group that could kind of continue to grow that number of electing that higher priced bundle? Yeah. I mean, it certainly doesn't happen this way at every customer. Some customers come in and they're really interested in the full suite of product offerings. But a lot of what you see is customers will come in and they'll start at a lower priced bundle. And then as they continue to learn what it means for them to run and operate video or as we continue to strengthen our product offerings or as we add more things to some of the premium bundles, sometimes one of those things will really spark an interest for them. And so they will continue to upgrade over time. And that's typically how we see them come into the ecosystem, is they want to use all of our products. Then once they're on all of our products and we're continuing to add and develop and build new things, whether or not it's transcription or maybe it's records, some of these products start to get appealing. They start to think about why they would want to upgrade to that as part of a premium bundle. OK. Given the strength of your positioning in hardware and DEMS, have you seen any pushback from customers related to kind of wallet share or just not wanting to kind of give you more share of their business? Yeah. I think actually it's the opposite right now, which is they would like us to solve more of their problems if we could and do more for them. I think the other thing is we actually aren't a huge part of their overall budget. So a lot of their budget is really around people and training. And those are the big budget line items. So if we're coming up with tools that help improve that, help make that more productive, more efficient, save their officers time, help in any way with either the burden or the cost of running the people part of things, that's really high value benefit for them. And I think even for our customers who are running sort of our full suite of products, it's, I think, 3% or so of their overall budget. So we're just not a huge line item yet. OK. You recently noted the introduction of body cameras for kind of frontline or more retail audience. Just how big of a market opportunity could that be? And is there as big of an associated software opportunity as there is kind of on the traditional body camera business? Yeah. So that's part of our $15 billion TAM Enterprise business. There's a couple of pieces inside of that. So the retail business that you talked about is in there. We also have private security in there, which looks a lot like our traditional customer. And then we have hospitals in there. Today, that looks a lot like hospital security. But we also think there's an opportunity for nurses down the road. And the reason we think there's a big opportunity for retail associates and nurses is those are two environments where both sets of those employees feel quite unsafe in their work environment. And so the theory behind adding a potential body camera in is to de-escalate the situation, to have a single point of truth in any kind of interaction that is happening. Body Workforce is really meant to provide a camera that is easier for someone who isn't kitted out in full gear and wearing a vest and having a really comfortable place to put that camera, to have an option to wear a camera. We just launched it. I'm sure we have a lot to learn about going into that space. That is the idea, is that they'll have something that is a little bit more comfortable, a little bit more sort of retail consumer-friendly to wear. They will be able to decide that they can capture that interaction. In our early trials, just having the camera results in de-escalation, like just somebody knowing that they are being filmed, can sort of put a little pause on things. That's a big angle that we're going after. I mean, just in terms of kind of the ASP or kind of like, I would assume it's kind of a lower ASP item, even though obviously a lot more kind of workers, or am I wrong? And it can kind of be that same ASP opportunity for those customers or ARPU customers? Yeah. I mean, there's nothing we're seeing right now that I would call it out as being a materially different sort of gross margin profile. I could imagine we might have a slightly lighter weight camera that came in at a lower price point but didn't have a materially different business model. And I would expect that we're still attaching our software platform, our DEMS model to all of those cameras. Because a big part of the value, either for nurses or retail associates or anyone having that DEMS platform, is being able to have and manage that video. And then if necessary, being tied into law enforcement from a workflow standpoint to share that when needed. Got it. I mean, maybe jumping back to AI, just because TMT 2024 wouldn't be a session. It must be talked about AI. I don't think it's difficult for anybody in this room to think that you guys could do a ton with AI. It's not just drones or kind of like some of the ways that you've talked about it. Just how are you managing kind of how you want to approach that, what capabilities to add as part of the portfolio versus things that you either think for private security reasons or personal security reasons or otherwise you wouldn't kind of get into? I know it's more of a Rick question, but still. No. I've heard Rick talk about AI a lot. One, we have been using AI in our portfolio for a while. So I think we've always tried to be really on our front foot and leaning forward. And so now it's really about how do we incorporate generative AI into the portfolio and what does that do? And I think to your point, you can imagine with the amount of data that we have and the amount of data we can collect, there are lots of ways that we could think about using that for better analysis, for training purposes, for productivity purposes. And so that's really what we're thinking through in terms of how do we roll it out and how do we use it. I think we're going to be careful to make sure that because of our customer and because it's law enforcement, there's an incredible importance on accuracy and fidelity in the data. And so for us, it's going to be making sure that we can provide these tools or provide these capabilities. But But in a way where likely they're still getting checked, they're still getting approved. You're not going to have sort of deepfakes and unsanctioned things running through our database and our operating system. OK. You mentioned upfront that international was kind of a huge growth opportunity for you guys over the coming years. Just how should we contextualize kind of what those best opportunities are, both kind of product and geography-wise? Yeah. So we break international into a couple of different buckets. We think about it as the Commonwealth countries. And those are countries that are really looking and operating a lot more like our U.S. customers. They're very mature. They're tending to buy as an ecosystem. So that's really just an extension sort of of what our business looks like in the U.S. We then have Europe. Europe historically has been slower to move to cloud, which means it's more of a conversation still around our TASERs and our body cameras. And we do better selling it as an ecosystem. So we do better when it does include our cloud software solutions. So I think we're spending a lot of time understanding which countries are there and what the timing might be like as they consider cloud more seriously. We look at South America. We announced a big deal with Brazil. So Brazil has been a big customer for us in South America. And then we look at Asia as having big customer opportunities. And then each country is sort of in its own. It has its own pain points, its own regulations, its own sort of where it would like to adopt, how it would like to adopt. I just said that a lot of Europe is really looking at TASERs and body cameras. But then we get an example with Scotland where they skipped that and they went straight to our digital evidence management platform. And that's how they're really coming into the ecosystem. So we then get very nuanced sort of country by country and even sort of force inside the country. OK. So is it still, I mean, it seems as if just given the traction that you've had, that some of the hurdles around cloud adoption are starting to fall in those regions. But maybe data sovereignty or just kind of how to think of making sure it's still staying within the country is a bigger concern. Or is that kind of overstating it? And it's still, OK, we have to get them to think cloud and then the 10 other items you listed out? I think it's in between. I won't say it's fallen. I think it is still a concern. But I think we're hearing openness to the discussion. And then there are conversations around data sovereignty as potentially being a path versus just shutting it down. OK. Maybe just in terms of how we should think about or turning to the model, one question we get from investors frequently is the degree to which more rapid adoption of TASER 10 could cannibalize TASER 7 post-launch. Just has that accelerated adoption largely been attributable to larger, more sophisticated deployments? And just how would you frame or debunk kind of cannibalization concerns for investors? Yeah. I mean, I would frame it as we would be very happy if TASER 10 replaced all of our TASER 7 products out there. Because TASER 10 is a better product. It's a better product for our mission and our moonshot. We think it's a better product for our customers. We've talked about how it is getting faster adoption than TASER 7 got. And so it's continuing to perform very nicely. So I would say that's a great thing. That said, we do still have customers buying TASER 7. That's been in our numbers is that TASER 7 is still there. It's just not taking as much of the growth. So I would imagine we'll be supporting TASER 7 for customers who want it, for customers who've trained on that, for customers who are on TASER 7 and they're adding officers for international countries maybe who haven't gotten TASER 10 approved yet. So I wouldn't think of it as going away tomorrow. We will sell TASER 7 for a while. But I would also think that we would be very delighted when the majority of that TASER revenue is from TASER 10. OK. I mean, that brings up kind of the topic of kind of continuing to move to these higher price bundles, continuing to move to kind of higher innovation. You guys have these kind of growth targets out there, kind of multi-year growth targets out there, just how to contextualize growth. When we think about kind of the growth formula for the company, how much of it is kind of this moving to higher price bundles, getting expansion with current customers just in terms of adding new products versus kind of adding new customers? Yeah. I think it's both. I think a lot of the success we have seen in the last year and a half really has been expanding with existing customers. I mean, we've talked about international. We've talked about how great international is. And we've talked about having record bookings quarters with international. And it is also still a smaller percentage of our revenue than it was a year ago because our core domestic business is doing so well. And I think that there are new opportunities on the domestic side. I mean, I think federal is a great example where we really are getting new customers and we're winning big new contracts. And then I think the law enforcement side is really that continued migration to adopting more software, more products, upselling, moving up into those premium bundles. OK. Axon has significantly expanded its product portfolio. So just how has the go-to-market changed relative to kind of how your portfolio had been in the past? Or have there been any changes, particularly as you've expanded into international, more federal, kind of other agencies? Yeah. Yeah. We don't stand still as a company. So stuff is always changing. We're always sort of reacting and adapting. And that is true for our sales teams too. And so I think we have gone through a bit of an evolution from a sales standpoint just as we have more and more products that we're selling, including products from partners, where we have more overlay experts who are really an expert in our Axon Air product or they're really an expert in VR. And so they can come in and help explain that to customers, help sell that to customers. And so just really deepening the knowledge in the sales team of those specific additional products. Obviously, we cover our major accounts. We try and stay very close to our customers, all of the traditional sales things you would think we would do. OK. I mean, you've mentioned getting additional benefits from SG&A leverage in 2024 despite the robust growth profile. But just how are you judging that kind of OpEx leverage versus investment in a very large opportunity? Yeah. So from an R&D standpoint, we're not trying to get leverage out of R&D. We're going to continue to invest in R&D at the same pace as top line growth in the business. So it does come down to SG&A, which is why that's mostly what I talk about. And there we continue to invest in target markets for sales and marketing. So that continues to be an investment area. We have priorities. We have markets we focus on based on where we think the biggest opportunities are. And then on the G&A side, it's really a balance between investing to grow and scale and support this type of revenue and getting some leverage there. OK. On the earnings call, Rick spends a fair amount of time kind of talking about a lot of blue sky or not blue sky, but what I would consider more five, 10-year objectives. Just from an R&D standpoint, how are you kind of judging? Is there an internal 80/20 rule? Is there kind of how do you judge how much should go towards these longer-term objectives that certainly are very big opportunities versus kind of what is the product roadmap for the next two, three years? Yeah. Yeah. We don't have a hard and fast 80/20 rule. Hopefully, Rick isn't listening to this and thinking about getting 20%. Eric will strike it. So we don't have a hard and fast rule. But we do go through and make sure that there is a good chunk of the R&D budget dedicated to sort of future things. And then the more right we are about those future things, the more they just become part of the core. And the other future stuff continues to get a budget there. And then I think we are, and so how do we think about that? We think about what are our customers asking us for? What are their biggest needs? Are we delivering on that? Are we really delivering on what we've promised people our roadmap will look like? And then we do think about how we can go invest in some of these newer, longer-term markets. I think Sky-Hero is a great example of that where we really, for a fairly reasonable price, went out and brought in some great talent who really understood drones and understood the indoor robotic security market. That will help us go a lot further on understanding and developing that market in a way that is financially responsible and faster than just having to do all of that organically ourselves. OK. Before I jump into kind of the nitty-gritty of Brittany's area on financials, is there any other questions from the audience they want to ask? All right. We have a question up here. Yeah. Thank you. In the camera business, how do you think about facility-based physical security? And And potentially either from an internal product development standpoint or potentially from an M&A standpoint, stocks up a lot. You have a currency to do M&A if you want. There's a bunch of, yeah, there's a bunch of private cloud-based physical security IoT companies, whether it's like a Verkada or a Spot AI or a Rhombus or anything like that. Do those fit naturally into the product portfolio? How would you think about that? Yeah. So when we think about M&A, we usually think about it as a way to accelerate something that would be on our roadmap anyway. And so that's how I think about it. Is it really a build versus buy decision? And when I do the build versus buy decision, does it make more sense to go buy? So for that category specifically, it would depend on whether or not we really thought it was on our roadmap long term. It's not anything that Rick has talked about. So when you think about where is he incredibly excited right now, it's really, it's drones, it's AI. And then it's some of the things in the enterprise business we've talked about. So that's really what we've highlighted for the next handful of years of really being sort of where are we going and where are we trying to drive towards. Any other questions? All right. So we mentioned this a little bit up front or you kind of alluded to it. State and local budgets growth has been very healthy over the past couple of years. And so obviously, kind of an investor concern constantly is, OK, real estate values have stagnated. Some of the property taxes, some of those tax collections have kind of leveled out. Just where do you think kind of investors miss that conversation about, OK, the tax base is going up at this, but our growth is going up at this? Yeah. I mean, I think it's, of course, a great question, right? Because it gets to how much tailwind is there out there to continue expanding your spend with your customers? I think what we've seen, though, back to my point of we're not a huge part of the budget, is that we are not necessarily correlated to what those overall budgets look like. And we're really correlated to how much value are we delivering to the department and how much do they need what we're offering? And if they already have it but we're thinking of moving them up to a more premium version of the bundle, are the additional features and functionality we're getting in that bundle, A, worth it? And then B, do they see the value there in terms of improving their officers' productivity or how enjoyable the job is to do? I mean, it's a hard job out there right now. And so anything that can help it make it easier for them to recruit, train, increase productivity is pretty high on their list. And in fact, if we look back the last couple of years, even when there were sort of defund-the-police initiatives, we continued to do pretty well because they weren't pulling back investment on technology spend. OK. Free cash flow generation and free cash flow conversion was kind of one of the targets that you kind of had laid out. Just how are you thinking of kind of improving that or kind of some of the levers that we should be thinking of? Yeah. So probably one of our big levers. We've said that we're going to target approximately 60% average annual free cash flow conversion. We were well above that in 2022. We didn't quite hit that in 2023. So you may have to average us out over a couple of years as we look at that. But one of the big things in 2023 was we were investing in inventory for two new products and continuing to ramp and build those products. And so I think that's one of the big levers we have to pull in 2024 to make sure we hit our target. It's just the level we're investing in inventory. OK. And then maybe finally for me, just SBC dilution over the past couple of years has been kind of more meaningful. But you obviously had a growth rate to kind of balance that out. Just how is management thinking about dilution and kind of share-based compensation going forward? Yeah. So it was pretty all over the place historically. And I think part of that was because it was really a performance-based share program. And so as we saw really nice performance, what was happening was people were unlocking sort of tranches of equity. And that made it really spiky depending on how they were doing. I think one of the things that we've really looked at going forward is trying to make it more predictable. We've committed to having it be sort of an average or not more than an average of 3% a year. So really trying to think through what are some of the long-term implications of stock comp expense. And I think we continue to really want to make it very performance-based. Stock comp has been a big way that we've attracted and retained great talent, probably punched above our weight on that. People are very aligned to the performance and the mission and the goals as a result. So how do we keep the good things that that got us while keeping a lid on the amount of dilution we have every year? OK. All right. Well, Brittany, thank you so much for being here today and walking us through the story. Thank you so much for having me.