Thank you, everybody. Welcome to the Axon Fireside Chat at the Goldman Sachs Communacopia and Technology Conference. I have the privilege of introducing Brittany Bagley, who's the Chief Financial Officer and the Chief Operating Officer of Axon. Brittany joined Axon in August of 2022 from Sonos, where she served as CFO and previously worked at KKR on the Americas Private Equity team. My name is Mike Ng, and I cover Axon and hardware here at Goldman Sachs. We have about 35 minutes for today's presentation, inclusive of investor Q&A, which we'll get to towards the end. First, Brittany, thank you so much for being here. We always appreciate your participation. Thank you for having me. It's great to be here. So let's start with a big-picture question. You know, Axon's a market leader within public safety. The company has had 10 consecutive quarters of revenue growth over 25% and a customer base over 17,000. In addition to selling TASER products, Axon also sells sensor products, body cameras, and fleet cameras, as well as software offerings. Could you just elaborate on Axon's mission and journey and discuss the Axon financial model? Yeah, I'd be really happy to. So Axon was founded over 30 years ago. Our founder is still our CEO, which is great. It was really founded around TASERs, and so that's how a lot of people know us. That is sort of the anchor of the business, but to Mike's point, we've grown significantly over the last few years in terms of our product offerings and what we have out there, and the overarching umbrella is really about safety and transparency and public safety, and our Moonshot mission is to reduce gun-related deaths between police and the public by 50%. You will hear us talk about our Moonshot mission and what we come back to, and a lot of product decisions we make and a lot of conversations we have with our customers really go back to that moonshot. How can we solve problems for our customers that make the community safer, that make policing, you know, easier to do for both our customers and, and for the public? So as we look at that, what does that get to from a model and a business standpoint? Well, we've continued to add products that support that. So again, TASER. TASER was the core of that, but as we've grown over time, we've added the body camera to provide the video. We've added significant software around that body camera video. A lot of what we'll be talking about from a software standpoint is around bringing sensor feeds together, around productivity, around how do you manage that, that data that you get. The digital evidence management platform, or Evidence.com, that we have in software is still really the core of that business, but Axon has continued to innovate, continued to add new products over the years. So what's driven, you know, those ten quarters of really strong growth? It is that incredible product innovation. It is adding more products, adding more solutions for our customers, and continuing to have deep relationships with those customers, where we're really trying to deliver for them and solve problems for them. That's great. Thank you for that. And I was hoping we could talk a little bit about the demand environment. Maybe we can start with domestic law enforcement, which is an umbrella term. You guys do a lot with state and local, but you're also increasingly doing well more with federal as well. You know, some of the recent customer wins include the U.S. Marshals Service, where the patrol officers there will adopt TASER 10 as well as some training solutions. Could you talk a little bit about what Axon's currently seeing in terms of the demand environment and how you would characterize the opportunity within domestic? Yeah, I love that question because a lot of times people skip right over our state and local police forces and go to some of the other markets we're going into, and domestic law enforcement is still the core of our business. It's the core of what's driving that growth. It's really, it's our large business today, and I think one of the stats we gave in Q1 is that about 75% of our revenue is still coming from that core law enforcement business. So if you think about what drives our business over the next few years, yes, we're absolutely getting great traction in other areas. We're talking about where are we investing, but our core domestic law enforcement business has a lot of legs and a lot of traction. And that's probably the biggest question we get over and over is like, "Really? How much, how much more room do you have to go there? Like, are you sure you still have room in your domestic business?" And so I'll share some of the fun stats just to think about how we quantify that. So, for most of our customers, we're probably about 1% of their budgets. For our largest customers who have adopted our full product suite, we're still probably about 3% of their budgets. So there is a lot that they are spending money on that is not related to Axon. Some of the largest spend line items really are on people and training. So anything that we can do from a productivity standpoint to help make it easier for them, around how they utilize their people or how do they get better from a training standpoint, we talked about VR on training sometimes, really helps justify and support why spending money with Axon makes a lot of sense. You know, I think the other stat we give is we have something called our OSP bundles. It's Officer Safety Plan. It's where customers can subscribe to all of our products together, so TASERs, body cameras, and our software solutions. And we talked about how about 20% of our customer base is on any one of our OSP plans. So there's still pretty significant runway for that domestic law enforcement customer to continue to move up and buy more of our products and buy more from us. At the same time, you know, we're not standing still, so we're coming out with more products, more reasons that they might want to migrate up into some of those plans, or more reasons they might want to come and buy something from us. That's great. I was wondering if you could address some comments around Axon's competitive differentiation. You know, my view is that Axon is the leader in TASER, and the company has done an incredibly good job of cross-selling sensors and software. But when you win from competitors, like, what are the typical drivers of those customer wins? Yeah, I mean, I think the biggest driver for us is, one, we are customer obsessed. We really try and do the right thing by our customers, and, you know, most companies say that, and I think most people acknowledge it's a good thing to do, and, and we also do. Like, we really try and do that. So, you know, we'll win with our customers because they say, "We know Axon will do the right thing. We know they'll treat us the right way. We know that you'll make the product work. We know that you'll go above and beyond." We, we take delivering for the customer really seriously, and we take those customer relationships really seriously. And that helps us a lot in whatever product we're trying to sell into our customers, just that knowledge that we're gonna do the right thing, we're gonna make it right, we're gonna stand by our customers. Because no product ever is perfect or deploys perfectly, right? So you always have to stand by that. I think the other piece is just the ecosystem. So we've really developed products that work very nicely together. We are an open ecosystem, but our products work very well together. And so having that full suite of products, regardless of what you start with, because, yes, many domestic customers started with TASERs because that was all we had back when they became our customers. But if you look internationally, that's not always the first product they start with, right? So we've had customers who've become software-only customers first. It's really, as you think about going from whatever your first product is into the full suite, the fact that it is an ecosystem, the fact that it does work well together, that the products really complement each other. Yeah. And I'm glad you mentioned that some customers come in software first, because I think you guys have demonstrated a tremendous amount of momentum in international over this past year, and my understanding is that in those markets, they're not necessarily led by TASER. In many cases, it's sensors or software. Could you talk about the international opportunity and some of the wins and traction that you made outside of the United States this past year? Yeah. So international is actually an area we've been investing in for a long time. It has been a very clear, you know, potential opportunity for us. And what we've seen in the last year or so, just to put some numbers around it, international is about 15% of our revenue, but in Q2, it grew faster than the overall business, so it had really nice traction in Q2 in particular. What you're seeing with some of that is customers that we've been working with, investing behind for a long time, are starting to look like some of our U.S. customers, where they actually are buying that full suite of products, so they're buying everything from us. And I would say that that's particularly true in countries that look or act more like the U.S. looks and acts, so English-speaking countries, countries that police in similar ways. And then the rest of international, you know, it's very country specific in terms of what they're looking for. Some of them are starting with software, some of them are still starting with TASERs, some of them might start with sensors, right? So it's really getting very specific on the market, having great salespeople in those markets, really understanding what our customers are looking for, what they need, and how our solutions can help them problem solve, and then once you get in the door, you know, being customer obsessed and making sure that they're willing to buy more from you going forward. One other area of the new TAM or the TAM expansion that we haven't talked about yet is enterprise, and, you know, Axon's launched a few new enterprise-specific products. I know that there's been a success in, you know, hospital security, and there have been some opportunities in retailing that the company has talked about. Would you just address about... You know, address some of the things that you're doing in enterprise? Yeah. So, like, international enterprise is a huge umbrella, so we're doing a lot of different things inside of enterprise. The first and probably easiest to conceptualize is security. Whether or not that's private security, hospital security, that all falls under enterprise for us, and it's probably really easy to think about why our products would be relevant there as well as in, in law enforcement. Then from there, you think about, well, where else can you expand out? And there's a lot of things going on right now in the world, making it challenging for retailers to, you know, manage what's going on in their stores, or challenging for hospitals to manage what's going on. And so we are fully admit very early stage in trying to figure out, you know, the market and product-market fit for all of this and making sure, again, we're solving a real problem that's out there. But you can imagine there's trials with and these are public trials, where retailers are trying body cameras on their associates, or they're trying body cameras on their asset protection workers, right? To really both have a sense for what's going on in the store, but also, you know, there are studies that show people will de-escalate themselves if they see that someone has a camera on and is, you know, taking video of them while they're doing whatever they're doing in the store. And so we think it could be a really big long-term opportunity. We're leaning into that. Also, you know, we've made some acquisitions recently, both with Fusus and with Dedrone, and those both have potentially quite interesting opportunities in the enterprise as well, which we can talk about more, but certainly, as we add our product offerings, we're seeing that they have applicability more broadly. ... We started out the conversation with you talking about Axon being 1-3% of most customer budgets. I was wondering if you could speak to what's happening with customer budgets right now, and then relatedly, what do you expect to happen with public safety budgets as a result of the political cycle? Yeah. The very nice thing for us from a political standpoint is that a lot of what we're doing really has bipartisan support. So, you know, especially in policing, making things more transparent, making things safer, you know, providing less lethal options out there. And so because we have strong bipartisan support, we can sort of feel comfortable that regardless of what happens in November or what goes on, you know, it'll continue to be a positive tailwind for us from a macro standpoint. I think in general, you know, police budgets have consistently gone up over the last 30 years, some years more, some years less, but police budgets have consistently gone up, and we are such a small part of that budget that we're really not tied to how is the overall budget doing. We're really tied to are they seeing value and are we delivering value out of the additional products we are looking to have customers buy, right? So if the biggest parts of their budget are training or personnel, and we can provide a solution that means that they have a software tool that, you know, does redaction instead of having 10 people sitting in the back room redacting video, well, then they can go put those dollars in terms of having officers out on the street, right? And that's a win for them in any budget environment. Great. You mentioned Dedrone. I listened to the drone as first responder webinar, and I was really impressed with what I saw. I know that it hasn't contributed a material amount of revenue yet, but I wanted to ask you about the drone as first responder initiative, the partnership with Skydio, the acquisition of Dedrone. Maybe you can just lay the framework about the vision for what you're doing for drones. Yeah. You can tell from that intro that we think drones are going to be big going forward. So we've been doing a lot in drones, actually. It really started with our acquisition of Sky-Hero, which was a little over a year ago. That's an indoor tactical drone product, really targeted at specialized markets where you can imagine you need an indoor tactical drone. And back to my point about, you know, saving lives and having a real mission to do that, if you can send a drone into the room first instead of a person into the room first, that has pretty big opportunities in terms of de-escalating a situation and keeping everybody safer. So that was an acquisition we made a little over a year ago. We're pretty excited about the long-term potential for that relative to Moonshot. Then we have something that we call Axon Air, which is really around the software and the systems that would be required for drone as a first responder. And when I say drone as a first responder, that would allow police departments to send drones in first instead of, you know, an officer. So the first thing, you know, that got to a scene would be a drone rather than a person, and then it could feed back a ton. First, it could be faster, and second, it could feed back a ton of very relevant information and data for whomever was going to get there next and come deal with the situation. There's a lot of regulatory stuff around drone as a first responder, but I would say generally, it's pretty widely acknowledged that it has an important future to play in policing, and so we are thinking through what solutions are required, what software is provided, you know, what do we have to do to help our partners and our customers participate in that market. That is where we've done this partnership with Skydio that we're really excited about. Skydio is producing great drones to serve the DFR market, and they're making them in the U.S., which is important right now from a regulatory standpoint. So without getting into all of that, just suffice it to say that having drones made in the U.S. is going to be important for our customers, and so we're happy to be able to partner with them on the whole DFR solution. And then Dedrone. You want me to do Dedrone? See, you opened a can of worms. Dedrone is really counter-drone technology right now. So we've said they'll close this year, so to the point of, you know, immaterial financials. But they're counter-drone technology. That's basically, if you think about there being a proliferation of drones out there, and there's now drones all around, well, you know, you need to make sure they're the right drones in the right places at the right time and not where you don't want to have drones. And that would be true for, you know, police forces, that could be true for corporate campuses, that could be true for sporting events. And it will, you know, also help if you think about what will it take from a regulatory standpoint to let the FAA fly drones. Well, potentially having counter-drone capabilities may be one of the things that unlocks that market. And is there anything you could share as it relates to how you think about the financial implications of your drone strategy? Is this really about, you know, an extension of runway for the long-term growth rate? Anything you could talk about in terms of some early traction that you've made, in terms of, like, trials or pilots or anything like that? Yeah, I mean, I think this is sort of back to my point about, you know, domestic law enforcement is driving the near-term growth. When we talk about these markets, they're pretty nascent. There's lots that's still getting figured out in terms of what solutions when, how do they work? We're pretty early, and so this is something that you have to believe comes together over the next five years. It's not really something you need to believe is happening for next year. And so, I think we'll be talking a lot about how this market continues to shape up and how does it evolve, and, you know, how assumptions change, or how are our products traction, or where have we found new use cases as they go forward? But this is really a long-term driver of the business. Axon's undergoing a, I'll call it a product refresh cycle in TASER, with TASER 10 replacing TASER 7, and the progress has been very good. I was wondering if you could talk a little bit about the momentum that you have for TASER 10, how much more runway is there in terms of refreshing the install base, and any updates on the margin trajectory for TASER 10, right? It's something that I think has a lot of opportunities to benefit from manufacturing efficiencies and leverage, but would love to get your thoughts on that. Yeah. So we're about a year and a half into TASER 10 at this point. Our refresh cycles are usually about five years in length, so we're still pretty early in our TASER 10 refresh cycle. We are seeing great reception for TASER 10. It's really sort of a step function change from a product standpoint relative to TASER 7. So that has given us a lot of good traction, and it's given us nice traction both with existing customers, but it's also helping us open up new markets that maybe wouldn't have considered TASER 7 before, where now they look at the TASER and they say, "Hey, this is really sort of now at the point I need a TASER to be to adopt it." So we're excited to see what it's opening up in terms of new opportunities for TASER as well. All that said, again, TASER 10 has seen really fast adoption. It's seen sort of faster initial adoption than TASER 7 did, but we have a pretty large install base. We are still selling TASER 7s, right? So those are gonna then be out there for the next five years. So think about us as being relatively early in the runway of our TASER 10 upgrade cycle, and that's before we even go sell new TASERs. From a margin standpoint, it was really nice in Q2 to say that, like, more or less, we've reached sort of scale margins on TASER 10. So we've made great progress in getting our automation up and running. There will still be fluctuations quarter to quarter. There's a lot that goes into, like, the ultimate TASER margin, so expect quarterly fluctuations. But in general, you know, we're pretty much at scale from an automation standpoint. You know, margins are fairly stable from here, and the name of the game is we're actually still scaling capacity to meet all of the demand we're seeing for TASER 10. Is it fair to say that TASER 10 has a ASP pricing premium relative to TASER 7, so that can contribute to some growth as you refresh the install base? Yeah. TASER 10 is higher than TASER 7. Maybe not as much higher as you might think, given how we talk about how great we think the product is. You know, and generally, when we talk pricing, we really like to make sure we're delivering great value for whatever those price increases are. So TASER 10 is priced above, but it's priced for adoption, too. You know, body cameras is another area that has been seeing a lot of success. Certainly a market that feels like it's a little bit more competitive for Axon than TASER is. Maybe you can just touch on, you know, the body cam momentum that Axon has, how Axon Body camera might be different from your leading competitor, and if you win or lose, like, what are the main factors in those cases? I mean, the name of the game for us, really across our whole product portfolio, is innovation. So we like to think that we are innovative and leading the field and leading the market in terms of adding features and functionality to our body cameras. And so when we come out with a new body camera, you know, that's really what we're doing. We're trying to be the market leader from a technology standpoint in that body camera. You take that and you add in the fact, you know, back to what I was saying about it being an ecosystem, it working really well with our software features and functionality, it all working well together, and that's usually our best way to win, is to provide great functionality, innovative functionality, market-leading functionality in an ecosystem bundle where you get a lot of value out of everything you're getting from us working together. So Axon's the market leader in TASERs. They've done a very good job of cross-selling body cameras into that TASER install base, and that body camera and other sensor install base, I think, opens up the opportunity for a lot of software monetization. Maybe we can talk about Axon Cloud. You know, one of the things that impressed me last quarter was that, I think almost half of the year-over-year growth in Axon Cloud came from things beyond evidence, right? And I think that's just showing the software suite that Axon has is really picking up momentum. Maybe you can just help to unpack that a little bit and talk about the, you know, features that are resonating the most within the software suite. Yeah. I mean, that's spot on. The bulk of our cloud business really is still our Evidence.com business. We've been in the market with that for a long time, and it's a great business for us. It really is sort of the market standard for evidence management of that body camera. And then you can see that we are laying additional features and functionality on top of that, so redaction, transcription, productivity tools. So that's a lot of what we're adding to our software portfolio, and it is getting momentum. Customers are seeing the value in having more of those, more of our software offerings. We're seeing nice traction and growth there. And at the same time, we have a long way to go, 'cause really, Evidence.com continues to be the bulk of the software business. ... And, you know, one new software module that's been getting a lot of folks excited, including myself, is Draft One. Draft One is an AI-driven software, helps law enforcement officers save a lot of time by doing that first draft of a police report. On the last earnings call, the company talked about a over $100 million order pipeline. Could you just give us an update on how that rollout is going, and anything you could share as it relates to your go-to-market, how you're selling it, what's the price point? Where are we at in terms of that product rollout? Yeah. Yeah, and when we talked about all the great software growth in Q2, Draft One's not in there, right? We launched that product in April. Sales cycles are pretty long. It's not in any of our bundles yet. It is an à la carte product. We said it was the fastest product to get to a hundred software product that we've had get to $100 million in pipeline, and we really shared that stat to give a sense for the amount of enthusiasm that's out there. Like, it's not getting pulled through with other products. It's not getting pulled through in the bundle. It is an à la carte offering that we launched in April, and by the time we did Q2 earnings, like, we had $100 million in pipeline from people who were excited to buy it. So, we've heard great comments from our customers, like: "Now that I have this, please don't ever take it away from me. It makes my job more enjoyable to do." Because what it's doing is it's helping officers spend less time writing reports, and that is very beneficial to them from, you know, an overhead job satisfaction standpoint and getting them back out doing the job they love more. So we're pretty excited. Now, it's gonna take some time. Like, we don't have any solid numbers to put around it. It's probably something we'll be talking about more, more and more next year and the year after, as that product's rolled out and we start to see some wider adoption. But great initial traction with it. Customers are really happy. All that said is, like, it's AI. There will be an adoption timeline to it. There will be people who adopt AI tools faster, and there will be places where AI tools get adopted more slowly, and so I'm sure we'll have a multi-year journey. And just as a point of clarification, the $100 million+ pipeline, that's, that's a multi-year pipeline, right? Just pipeline. Could be a three-year deal, five-year deal, ten-year deal. It's just total pipeline. Got it. Understood. You know, one of the unique, you know, characteristics of Axon's growth profile is that a lot of the revenue is recurring, right? And, you know, the company's talked about a very strong dollar-based net revenue retention, and things like the software, the OSP bundle, all contribute to that recurring revenue nature. Perhaps you could share a little bit about that. Yeah. So, just to throw out some stats on our software business, 'cause we're pretty proud of our software business. You know, we've got $850 million in ARR. We've got 122% net revenue retention. You know, it's growing almost 50%. So it's a really strong, healthy business for us. And again, it's coming back to, you know, not only are more customers moving on to our software offerings, but they're buying more of our offerings, and we're selling to more and more customers, even outside of our core law enforcement business. So, just really, really strong growth. And, and what leads to the net revenue retention like that? Well, it is... Right, our, our customer contracts are usually five years. Some are longer, some are 10 years. So when they come back in to renew, there are significantly more products that they can buy from us than when they last did their contract, and that goes back to the amount we're investing in innovation and new products. We have about five or six minutes left. Why don't I take a pause and see if there are any questions from the investment community? Great, we've got one in the front. We're just gonna get a mic over to you. It's right over. Just wondered, in terms of domestic, so TASER penetration, 30%, and then OSP accounts for 20%. So I know you've got a range of customers, but can you just talk about where that's going and why it's quite low today? The question is, why is TASER penetration low, and why is OSP penetration low? Yeah. So I think some of those penetration numbers really just get to the set of opportunities that are still in front of us. When we talk about TASER penetration numbers, and those are coming from a slide that we have in our investor deck, that you can find on our investor page. So, go ahead and take a look at that, at least on the TASER penetration number. It's really because there are a lot of markets where we really aren't that penetrated yet. And so you can think about those as being federal, corrections, private security. So some of those markets we've talked about as being new markets, where we really have a lot of opportunity to go out and continue to introduce TASER, and TASER 10 is a great product to go do that with, 'cause it's really resonating with some of those customers. And then a lot of what happens is, you know, some customers might come in and buy our OSP products right off the bat. But a lot of customers, especially if they're older customers and they've been with us for a while, when we didn't even have OSP or we didn't have some of these features and functionality, like, they just didn't have the opportunity to buy it. And so it just takes time, given the length of the contracts, for customers to come back and have that be an option and to move into our latest offerings. So, you know, our OSP 10+ Premium, which is our most premium bundle, we've only offered that since the start of this year, right? So, very, like, you would have to be a customer who came in and bought OSP ten this year, and we're halfway through this year, to have a customer on that bundle. And so that's really what you're seeing, is it'll take time as customers come back in and renew to move on to the OSP bundles. On gross margins, you know, Axon expects relatively stable gross margins to the second quarter 2024 reported margins. Why is that the case? I mean, there's this continued mix shift towards software, which I think should be accretive, and then how should we think about gross margins over the long term? Yeah. Yeah, so, ballpark, our TASER business is about in line with our overall business from a gross margin standpoint, and then our devices business is a headwind on gross margins. And again, this is all in our shareholder letter, so you can pull the exact ones. But, you know, think about our devices as being in the low forties and our TASERs as being in the low sixties, and then our software business, you know, the way we report gross margins is it's software and services together, so those are in the mid seventies. We do say that our pure software margins are above 80%, but we do have services mixed in to go do installations. So, you know, as we see the software business grow, that's a tailwind. So you throw all those headwinds and those tailwinds together and it really... You know, over the course of the year, it's a bit of a mix in terms of what we've sold more of in that quarter. Are you seeing slightly higher gross margins because there's a higher mix of software or how are devices coming in? So those sort of wash out. You know, over the long term, you know, obviously, it's beneficial for us to have the business move more and more towards the high-margin software. I'll ask one just around the 2024 and 2025 outlook. You know, what's driving the 2024 outlook today? Are there any factors that could drive, you know, some upside or downside? And then, I don't think this was asked on the last earnings call, so I'll ask it, but is the 2025 targets of at least 20% revenue growth and 25% EBIT margin still the right targets to think about, particularly given that you've been outperforming in 2024 since you've talked about those 2025 targets? Yeah. Yeah, they we gave those targets again on our Q2 call, so they're still the right targets. It's that EBITDA margin is another two hundred basis points from the midpoint of our twenty twenty-four guidance, so we still have some work to go do to deliver on that nice bottom line. I know you all believe we can do it. Thank you. And now you're asking about more, but, like, let's get there first. And then, you know, I think we've tried to be pretty transparent on what we know about 2024, including sharing some of the color that we see around bookings. So, I think you all know sort of what we know at this point about 2024, and it's really just about... That's all predicated on our existing products and business and everything we've talked about. So, you know, what makes it better or worse? It's really just how many new contracts we win as we go through the year. Great and to close things out, maybe you can just talk about some of the key priorities that Axon has over the next twelve to twenty-four months, you know, to drive this continued compounding. As you can tell, we stay pretty busy. We're doing a lot of things, so I could probably do another thirty minutes on everything we're working on over the next 12 to 18 months, but I will, I will leave you with a lot of product, product, product, so following up on Draft One, getting more AI products out there, really solidifying what's going on in the drone market and how we're going to play with that, continuing to invest behind, you know, Fusus and our single pane of glass for dispatch. It's, it's really, it's really product for the next 12 to 18 months. Brittany, thank you so much for being here with us at our conference. We really appreciate it. It's been a privilege to have you on stage. Thanks for having me.