AXON ENTERPRISE, INC. Q1 FY2025 earnings call

• Hosted Axon Week, showcasing new products and initiatives focused on protecting life and providing tools for frontline workers.
• TASER 10 adoption is pacing at 2x the rate of TASER 7 adoption. Draft One has nearly 30,000 active users, the fastest adopted software product.
• International bookings off to a strong start with demand in regions like Australia, Latin America, Canada, Asia, the U.K., and Europe. Emerging verticals like corrections and justice show triple-digit growth.
• Diversified supply chain to address tariff uncertainties and inventory investments. Progress on new headquarters project in Arizona.

First quarter revenue was $604 million, increasing 31% year-over-year. Software and Services segment grew 39% year-over-year to $263 million, driven by digital evidence management and premium add-ons, each contributing about half of the overall software growth. Connected Devices segment revenue was $341 million, up 26% year-over-year, driven by TASER 10 devices and cartridges, AB4s, counter drone, and VR. Adjusted EBITDA margin was 25.7% with annual recurring revenue (ARR) at $1.1 billion, an increase of 34% year-over-year.

• Revenue guidance raised to $2.6 billion to $2.7 billion, representing 27% annual growth at the midpoint, up from previous guidance.
• Adjusted EBITDA guidance increased to $650 million to $675 million, targeting a 25% margin, factoring in tariffs and R&D investments.

• Tariff uncertainties impacting supply chain and margin.
• Regulatory challenges related to adoption of new products such as vehicle intelligence and DFR.

Q: Great to see the strong cloud numbers. ARR growth was very that drove that strength in the quarter specifically and on Draft One, great to hear, it was 2 of the top 10 deals, the 30,000 seats. Talk about what pipeline, any kind of pipeline update for Draft One would be great and how you're thinking about this in guidance?

A: Sure thing. Andrew, good to see you again, and nice to see at Axon 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 in Draft One. In terms of expectations 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 in 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 AI -- or 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 will show up in our future contracted bookings.

Q: 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 2 quarters of really strong momentum there. what are 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?

A: 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 body cam 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.