Axon Enterprise Inc ($AXON) Q1 2026 Earnings Call

Hello everyone, and thank you for joining Axon's executive team today. Before we get started, I'll note that our remarks today are meant to build upon our most recent shareholder letter and investor materials, which you can find at investor.axon.com. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our 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 as discussed in our SEC filings. We will also discuss certain non-GAAP financial measures. Descriptions and reconciliations to GAAP are included in our shareholder letter and available on our investor website. Now, as always, before we kick it over to Rick, we have a quick video to get us started. Let's pull it up.

Welcome to Axon Week, and welcome to Nashville, Tennessee. Welcome to the singularity, where AI changes the equation entirely. We're standing on the most extraordinary frontier our species has ever stood at. The explosion of AI capabilities we've introduced this past year has been mind-blowing. For example, Axon Assistant grew from a few skills to a chatbot with real-time detection on the way. Prepare and Carbyne doing AI for 911 and voice. Vehicle intelligence out posting light post with computer vision. Draft and Form 1, Brief 1 are streamlining records. Smart detection, auto into attribute search help you make sense of your evidence. Case Compass and People Search go through your records management. Meta Coach and VR are transforming how you train with interactive AI. And next, we're bringing Axon Gravity. One program to pull all of your agency's data into one place. So, you have a super intelligent analyst. You can ask it any question powered by AI. 20 years ago, we were a company with one product, the Taser. Today, we operate the largest network of public safety sensors and technology on Earth. And everything we built sets us up for this moment now. We can layer AI on top of all of this, but we must do this ethically. This isn't automation replacing judgment. Humans make 100% of decisions. It's helping humans do things they couldn't do on their own. Speak 30 languages. Surface the right information at the right moment. Our mission is about connection. But the most important connections we've ever made aren't just in the technology, they're here in this room. In the relationships that we have with Axon, the one thing that really sold me is this is much more than a company. The relationships with the people who trust us with the hardest moments of their lives, that's the network that matters most.

All right. Thank you, everyone, for joining us for our first quarter 2026 earnings call. I'm really pleased with how the year has started, and I'm even more excited about where we're going. I always say Axon Week is one of my favorite events of the year, and every year it somehow gets better. What we shared with customers this April felt fundamentally different. It's no longer just about our new products. After decades of partnership, it's about how we've earned our customers' trust at a moment when it matters most. I'm more convinced than ever that we're building something the world genuinely needs.

I spend my time thinking about how we can make an impact, how we can do more, faster. Today, I think we've passed the inflection point. We are entering what I believe will be a generational leap in both the pace of innovation we can achieve, and the speed of customer adoption we will see. There are two things I'm looking at that drive my conviction. First, technology is no longer evolving linearly or even exponentially. It's evolving across multiple dimensions at once, a hyper-exponential. The result is a compounding effect where more data, more tools, and more connections multiply what's possible. Our ecosystem is built for exactly this moment. We've created secure end-to-end operational workflows across products, customers, and verticals. We made the decision over a decade ago to invest in tightly integrated solutions across hardware and software, creating an ecosystem that allows customers to scale and grow as fast as technology is moving. Our software is better because of our hardware. And our hardware enables software features that wouldn't be possible without capable, connected sensors at the edge. No single tool, or even a collection of individual tools, can deliver the same value as this kind of unified system. And as technology advances, the difference isn't incremental. It's transformative. The simplest way to think about it is this. Outcomes now depend on the fusion of sensors, available and connected in real time, with an increasingly intelligent AI backbone. Across AI, real-time operations, drones, and connected devices, we're moving beyond product adoption and towards system adoption. A system that operates faster, safer, and with more awareness.

Axon Vision, Guardian, and Assistant are early examples of what this phase looks like. Always on, always available, and more and more intelligent. Axon Vision enables teams to understand what's happening in time so they can respond with the best and most informed resources. Axon Guardian monitors alongside officers and can call for help before they can. Axon Assistant has already surpassed 1 million uses and will soon be available wherever officers work. And over time, our Axon Gravity Initiative will bring in more data that can be harnessed to make even more possible. Our position as the leading repository of data for our customers will continue to broaden to be the leading unleasher. Importantly, every capability we add now makes every other capability more valuable. Data flowing through Axon 911 becomes more powerful when connected to first responder drones or body cameras. Insights from Vision become more impactful when integrated into real-time operation centers. Draft One improves with every report and every sensor. The value of each will continue to get stronger. My second observation is just as important. Adoption is now accelerating akin to innovation and expanding in scope. In the past, new technologies were adopted gradually. Today, demand is immediate. Customers want these tools now and they want more of them. They are ready. Just yesterday I hosted a collection of chiefs in San Francisco. 2 years ago, when I queried the room who had used AI, it was almost zero. Today, it's 100% are using AI tools in their personal lives daily. But they know those tools can't be used on government data. And that's why we added the Axon chatbot into Assistant so that they have a CJIS secure accredited AI they can use at work. It's just one of many features we're bringing to them. This isn't limited to law enforcement. Fusus, Drones, Axon 911, license plate readers, vehicle intelligence are being deployed across entire cities and countries. And now enterprises are seeing similar needs. The environments may differ, but the requirements and the needs are the same. Safety, efficiency, and trust in a fast-moving world.

Everything we do is built on trust. Our customers move faster than anyone else to adopt AI because they trust how we build it. Carefully, deliberately, with the hard conversations happening up front, not after the fact. That's what makes our technology more durable, more trusted, more widely adopted. And that trust is what earns us the privilege to keep pushing forward. Three decades of building, millions of sensors, millions of users, trillions of data points flowing through one connected network. Every camera, every device, every line of code, it's all been leading here, to this moment. The AI breakout. And no one in public safety is positioned like we are. Positioned to change the world. Positioned to create extraordinary value for our shareholders, our customers, and society itself. I'm incredibly proud of what this team has built. And as I look at all this coming together, I'm just even more excited about what comes next. And with that, I'll turn it over to Josh.

Thanks, Josh. Well said on what an exciting opportunity we continue to see in front of us. Rick has consistently provided a compelling vision and we are seeing the results of that come through in our numbers.

Revenue of 807 million was up 34% year-over-year and marks our ninth consecutive quarter of growth above 30%. Software and services increased 35% year-over-year to 355 million. While all of our software products continue to grow, AI was a standout with AI product revenue growing more than 700% year-over-year. This is on a small revenue base but is delivering on the strong bookings from last year and will continue to scale. Our AI products are also continuously improving including with the launch of new features at Axon Week which we highlighted in the shareholder letter. The value proposition is clearly resonating and adds another leg to our consistent software growth. This growth supports strong net revenue retention which was 125% in the quarter and strong in ARR which grew 35% year-over-year to 1.5 billion. Connected devices revenue grew 33% to 453 million. This was a particularly strong Q1 for connected devices. Taser 10 and Body 4 remain durable drivers of growth and platform solutions which includes our counter drone hardware grew 95% year-over-year. In total across hardware and software, Dedrone revenue was up over 300% year-over-year. The need for counter-drone capabilities is becoming increasingly obvious and critical, and we're proud to have a leading solution in the space. As Josh mentioned, we expect this strength to continue, and counter-drone is another major leg supporting our growth. In addition to strength across our products, we are seeing strength across end markets. International revenue was up over 100% year-over-year as we delivered on the bookings momentum we highlighted last year, and it represented 20% of our revenue for the quarter. Future contracted bookings was up 44% year-over-year to 14.3 billion, reflecting this broad-based momentum.

Given these trends, our strong Q1 results, and the momentum we are seeing in our pipeline, we're well-positioned to deliver on our top-line expectations, and are raising our revenue guidance for the year to a range of 30 to 32% growth. We still expect to deliver 25.5% adjusted EBITDA margins for the year, consistent with our prior guidance. This improves upon the 25% adjusted EBITDA margin we delivered in Q1, with operating leverage expected in the second half of the year allowing us to hit that annual target. Incorporated in this guidance is continued tariffs, inflationary component costs, inclusive of memory, and product mix shift from continued platform solutions growth as well as software and services. As we scale the business, we are also focusing on our free cash flow conversion from adjusted EBITDA. Josh talked about the continued investments we're making in inventory this year, which you can see in Q1. These investments will position us well to deliver on demand through the rest of this year. Even with these investments, we expect free cash flow conversion to improve meaningfully, and expect to deliver approximately 450 million of free cash flow for the full year in 2026.

On stock-based compensation, we expect full year of expense of approximately 590 to 620 million. As a reminder, a portion of our stock-based compensation expense is tied to our performance plans and will only be realized if we hit the share price and operational milestones laid out as part of our XSP program. This program is long-term in nature and doesn't scale linearly with growth because of how we account for the probability of the tranches. The expected expense from this plan is down from last year. The other portion of stock-based compensation is run-rate RSU grants, which are important to hire and retain the best talent. Inclusive of both of these programs, we are committed to average annual dilution less than 2.5%. As the impact from our performance plans normalize, stock-based compensation dollars should remain roughly flat over the next few years, meaning it will decline as a percentage of revenue with our continued growth. We talk about hitting 55 on the rule of 40 and yet again, we delivered in excess of that goal this quarter. We're very happy with the results, especially in what is typically a seasonally softer quarter, pointing to the underlying momentum we continue to see in the business.

We're focused on growing and scaling for many years to come, supported by our great customers, diversifying end markets, and broad product portfolio. We're excited to deliver another great quarter. And with that, I will turn it over for questions. Thanks, everyone.

All right. Today up first, we have Will Power at Baird.

Okay, great. Thanks, everybody. Congratulations on another really strong start to the year. I probably for Rick, Josh, Jeff, or whoever wants to take it. I'm just coming out of Axon Week, a lot of focus on some of the new AI capabilities, Axon Vision, Guardian, Form1, etc. It'd be great just to get a sense for where you saw the highest levels of customer engagement and interest, and how that might kind of fold into the pipeline built for the year as you think about the broader AI portfolio. Then I have a question for Brittany, too.

Yeah, so let me start with that one. I would say, look, the keynote ran a bit long because we had so many things to talk about, and then frankly across so many different personas in the audience. We had leaders from healthcare, we had leaders from enterprise, we had prosecutors, police chiefs, TASER instructors. And part of what I really wanted to do was to just share the breadth of everything becoming possible in every role with AI that can impact anybody who's touching this information, and then wrap it up at the end like, hey, this is more than you can really wrap your head around, and we simplify it all with this AI era plan. And the feedback I got pretty overwhelmingly from customers was that that really hit home. There's a sense of like, my god, the world is moving fast. It's almost disorienting, but we know we have to keep up. And the general sense was, look, you guys have always, you brought us TASERs when we didn't think we needed it. You brought us body cameras when nobody wanted to wear them. And thanks for making this something where we have a partner that we feel like you guys can help us make sense of all this because it's head spinning. And so really it's just each of those features are targeting different personas. Like, Brief 1 is really focused much more on an investigator or command staff or a prosecutor compared to, Form1, the new feature that enables them to use their digital evidence to fill out any form, not just ours, but any web-based form. And so for me it was pretty evenly distributed. This was the first year I felt that the entire vibe nobody was saying like, I don't know if this AI thing is for real. Like everybody was like, 'Wow, it's like it's everywhere.' And help us figure this out. So I don't know if Josh or Jeff if you want to add anything. Yeah, I'll just add one quick thought which is I think, in times of uncertainty this is where the 17, 18, 20 years in the cloud and software space and wearable space really pays off is like customers trust us to bring market-leading products to market in responsible ways. And I'm really proud of Jeff and our team as to how fast we've been able to release new features into our AI era plan. I think that's incumbent upon us to continue to delight customers. And look, we're like, where Kentucky Derby was last week, the Belmont in a few weeks, we look at ourselves like Secretariat at the Belmont. We want to be accelerating ahead of everybody in AI. And the sheer volume of new useful tools we are sending out to our customers, like our customers had We do this shark tank idea where they come up with new ideas. And we're building one and our goal is to release that to every customer who came to Axon Week in the next couple months just to show we can go from idea to execution to output in a very condensed period of time now. And we think that's going to be a massive tailwind for our customers, our investors, and our company.

Okay. And then if I can, I appreciate that, great perspective. I guess some of the questions I've gotten, I guess really hear a bit on the free cash flow side and then you addressed on the inventory piece and inventory commentary. Is there any way to kind of share as you think about the higher inventory investment, how much of that relates to higher memory cost and inflationary pressure versus just trying to meet customer demand. And then anything you can share on the CapEx change, which I think came down a little bit. And just putting all that together, how you get comfortable with the free cash flow conversion targets given the moving pieces here?

Yeah. No, thank you for asking. So, as we look at inventory, of course memory is included in that overall number. But this is really about inventory investments to make sure we have supply across all of our products and have the ability to scale to meet demand as we look forward into the next year. So, I would view it as including memory and making sure that we're in a good place on memory, but not at all solely driven by memory. We would be doing this with or without memory just to make sure that we are in a good supply chain position. If you look at Q1, Q1 is our generally our seasonally softest quarter from a free cash flow standpoint. We have bonus payments, we have commission payments, we have one of our two semi-annual interest payments in Q1. And even with all of that, without the inventory investments, we would have been positive from a free cash flow standpoint in Q1. So, as we look at the next three quarters of the year, we're very comfortable that with the inventory investments we have in mind, with everything we can do around working capital and the fact that we won't have some of those Q1 events reoccurring, that we can get to that target for the year. From a CapEx standpoint, as we go into we tend to have a lot of projects, a lot of things on our plate. And then as we get into the year and we see what we're actually executing on, we can refine that CapEx forecast. And so, that's really all you're seeing there as we're just refining and tightening up that CapEx forecast for the year.

Okay. Thank you.

Thanks, Will. Up next we have Andrew Sherman at TD Cowen.

Oh, great. Thanks. Good to see everybody. Congrats on the quarter. Josh, the AI era plan bookings up 140%, revenue up I think 700%. That was a lot higher than I thought and interesting comment on all large agencies including that now maybe just to expand on that. Are we hitting a tipping point now where the bundle's been out for a while so you're seeing more viral type of adoption? Are you seeing that in the pipeline?

Excellent. Thanks. One more for you Josh. The enterprise teleco deal in April very impressive. That's your second big deal in enterprise focused on Fusus. So, talk about the use case in this example?

Awesome. Thanks, Josh.

Thanks, Andrew. Up next we have Jim Fish at Piper Sandler.

Hey guys, a nice quarter. Look, multiple large events are coming up here. You just highlighted a few that this past weekend. Hopefully your horse won. But just how is this impacting bookings and pipeline? And really how much of the Dedrone kind of uptick and outsize performance is being tied to these events? And really the crux of it all, guys, is just trying to understand like is this event-driven or is it sustainable kind of demand?

I would think of this as infrastructure. Like certainly events are nice moments in time where we can show off the product. They're not super large deployments and they're kind of ephemeral in nature, but what it does do is it gives the host city and federal law enforcement a view into what's happening. Like federal law enforcement was very complimentary to us about our Dedrone installation at the Super Bowl and that drove interest in that segment. And so they think of these as great opportunities to show what we can do, but it's really about translating that into permanent infrastructure in these cities and businesses, and that's where the real long-term value lies and that's happening. Like Dedrone is, we're very bullish about the acquisition and what it would mean for our business and what it would mean for our ability to protect lives and all of those expectations have been shattered. I mean the demand for this product is in terms of hardware about as fast as I've ever seen adoption of a hardware product that we've made. So very exciting and a lot of work to do to continue to build out the ecosystem there, but certainly a lot to get us very optimistic about being a leading counterdrone provider.

I would just add even if you look at some of the legislation like the Safer Skies initiative that's coming through, it is really enabling counterdrone technology to be sustainable and that is a multi-year program. So to Josh's point, the events are great, but I would not view D-drone as being successful only because those events. This is a real trend and a real change in the trajectory and the need for adoption of counterdrone and we are seeing that. I would say right now we're more limited by our actual ability to scale and get the product out the door than we are by opportunities out there.

I appreciate all the details there guys and Brittany not just to belabor the point, but what's your purchase commitments at this point as if I look at your inventory today and I understand the investment you're making, it's about half of your product cost for the year. So what's giving you enough confidence here that we have the inventory availability to meet the demand for the year?

Yeah, look, I think part of the thesis behind this investment is you can see how quickly we're growing and how quickly we're ramping all of our hardware and so we want to make sure that we have the ability to hit that demand and that is part of the investment behind it. We work really closely with all of our suppliers. We have mission critical hardware. This hardware is it is not a nice to have, it is a must have for our customers. And so as we look at our investments and we look at the year, we're really making sure that we work with our suppliers to get in what we need to get in to give them those long-term forecasts because we have products that last for a long time. We have a lot of stability in our demand and our need.

Makes sense. Thanks, guys.

Thanks, Jim. Up next we have Jonathan Ho at William Blair.

Hi, congratulations on the excellent quarter. Can you maybe talk a little bit about your AI cross sell cadence, particularly for customers that are maybe in the middle of like the existing long-term contracts, are most waiting until their contracts expire? Is there a way for you to sort of restructure these mid-flow, particularly for those contracts that are in place? Any color would be helpful there.

Got it. And then, just as a follow-up, you've referenced multiple times the strength in international growth. And I just wanted to better understand sort of the drivers here. It seems like you've initially landed with many of the national police forces. Are you seeing this strength come from filter down? Or is this new national police forces? Any color would definitely be helpful.

Yeah, I would add in I just got back from a two-and-a-half-week overseas trip. We're seeing some of the smaller countries looking at going all in on a national basis, which is kind of a new dynamic, and I think that's really quite helpful. Especially within some of these different blocks where maybe there's historically not been as much comfort with the cloud. Seeing some of these smaller countries go all in gives us proof points. I had one of my first 90-minute sessions with a prime minister where this is rising up to that level, where they're looking at this going, 'Wow, we could sort of leapfrog and become one of the most advanced police agencies on Earth because we could just deploy everything with Axon.' It's been a pretty solid dynamic to feel that shift happening. And I think as these smaller countries do it, it'll give us the ability to earn our way up into the larger. As with everything, the really mega forces move much more slowly and that's true like these big national forces compared to maybe some of the smaller ones we're finding a bit more nimble. And it's again plowing the ground by having, for example in the EU, some people leading the way, really going all in on cloud. The last thing I'll say there really fast, similar to the enterprise discussion that Josh said before, in a lot of these other countries, they've spent a tremendous amount on massive networks of CCTV cameras. And so that's another place where Fusus is a catalyzing part of the equation. It's not just our body cameras and just AMS, like Fusus is a socket to let them get more value out of the investment they've already made in these other cameras and that just makes the overall ecosystem story from Axon kind of easier to reach the tipping point of their interest. So it's a great catalyst.

Thank you. Up next, we have Keith Huseman from Northcoast.

Great, thanks guys. Good morning. Obviously a very solid quarter for you guys. Brittany, if there's anything to pick out from an investor standpoint, it might be in the software and services standpoint. Software and services tends to be very lumpy. I think what we saw here is sequentially probably a little bit lower than what we were expecting. Perhaps walk us through some of the puts and takes about software and services for the quarter and how we should be thinking about that.

Sure, happy to. I would say this is pretty typical for our seasonality in Q1 and so you saw a similar dynamic in Q1 of 2025. So we just tend to have a slightly smaller software step in Q1. If you want to look at our ARR though, that's usually where it shows up first and we had absolutely phenomenal ARR growth this quarter. And so really I'd look at 25 and say it comes through first in the ARR growth and then you could expect you'll start to see that in the software step for next quarter. So I would dive a little deeper on the picking and look at it as pretty typical seasonality with very nice strength continuing in our software business and you just see that picking up in ARR first.

Okay, appreciate it. And then Josh, if I could ask you a follow-up to the enterprise question before. Maybe I missed this, was this a telecom retailer? Because I understand Fusus excellent body mini and not only is it a retailer but also is this an auction process? Was this you guys going to them? Perhaps in the background between behind adoption by this customer?

Great, thank you. Thank you, Keith. Thanks, Keith. Up next we have Brennan Rogers at Wolfe.

Hi guys, thanks for taking my question. Wanted to ask a quick one on AI. Coming out of Axon Week, there was a ton of innovation, a ton of new products. How do you guys think about pricing to value as you kind of furiously add these new products into the bundle over the course of the year? I think traditionally a pricing cycle would happen and you guys would revise the pricing in, you know, Q4, Q1, but just given even in the shareholder letter you guys are talking about Axon Vision being GA in Q4, we just heard about that at Axon Week. You guys probably won't have a chance to update pricing. How do you guys think about that?

Got it. Thank you. And then just one more, sort of on that memory side, any chance you guys can quantify the impact in terms of margins? I'm assuming it's probably not big enough to reprice, or maybe that's the wrong assumption. Any color on that front?

That's right, it's not big enough for us to break it out for all of you guys. If you think about it, the products that we have memory going into the most are our camera products. So, they're clearly important for us, but they are only a part of our overall portfolio. So, you can imagine that the basis point impact to gross margin is not meaningful enough to break it out. Now, it's certainly something we're looking at. It's certainly one of the many puts and takes going into our gross margin for the year, and it is all contemplated as we think about our guidance. But I wouldn't over index on it.

Thanks, Brennan. Up next, we have Meta Marshall at Morgan Stanley.

Great. Thanks so much, guys. Maybe a couple of questions for me. Noted still very early days of Carbyne and Prepared, but just what you're seeing in terms of how you're looking at that market opportunity. And then maybe just second on federal, obviously some kind of shutdowns at various points this year. No, it's not a major business for you, but just how you're seeing the deal environment on the federal side. Thanks.

Yeah, I would tell you my natural inclination, I'm highly biased towards building things ourselves, but when we met both Amir and his team at Carbyne and Michael Chime and his team at Prepared we were like, 'Wow, these are great teams.' It would take us time to go build great teams and they've built great products. Customer feedback has been just phenomenal. I was just with them recently at some customer events and I can tell you we're getting glowing customer feedback. And it's also kind of fun for me as an entrepreneur who's getting a little further in my career. The energy these younger entrepreneurs are bringing into the organization is great. It's like a fresh wave of energy into the whole company. It's been great. And it's just one more also go ahead. Go ahead Jeff.

Yeah, I was just going to say really quick. It's yet another example of how the whole is greater than the sum of the parts, right? The enthusiasm that we're seeing customers have for how quickly we brought the data from Prepared and 911 alerts directly into Fusus and then also bringing that directly into Skydio as part of DFR. Those things together make shorter response times happen and that is a perfect example of the flywheel that Rick was referring to before.

Great. Thanks so much.

Thanks Mita. Up next we have Joe Cardoso at JP Morgan.

Hey, good evening guys. Thanks for the questions here. So maybe you can just touch on, I wanted to circle back on the Fusus conversation and maybe more specifically the level of attach that you guys are seeing with some of the opportunities here. Particularly as it relates to Outpost. You know, you mentioned it with the telecom win but curious how much more pervasive that dynamic is playing out and what's exactly driving customers to adopt the hardware side of things. I guess the crux of the question really comes down to are you actually seeing folks rip and replace hardware to essentially install Outpost and what's the driving force behind that. And then I have a follow-up. Thank you.

Yeah, if I can add in, if you go search the mayor of Denver did a great video tweet where he's talking about they moved from a competing system to Axon, largely because of the data privacy, data ownership. We really structured this in a way where it's not just talk, right? When we think about building products rigorously in a way we're going to be proud of, we do that both so our insides match our outsides. Employees want to be authentic and know that we're doing things in a way that they're going to be proud of, but it stands up to scrutiny. And ultimately, that pays off when customers are like, 'Oh wow, we didn't realize our license plate reads were being shared with a federal agency that's frankly not popular with our constituents in this area, and we don't want that happening certainly without our knowledge.' And when we come in and we say, 'Look, here's how this system works. It's your data. We don't have any right, title, or interest to it. We certainly enable you to share with anybody you want to share it to, but in ways that are very explicit and well understood, and it's you making the decision, so you're never getting surprised.' Those sort of things pay off pretty big when controversies hit. And one of the things you'll hear from the customers or that we're actually positioned with them is like, we can help you get your job done and stay out of the headlines. And that's important to them.

I'm just going to add that one of the fun things about talking about Prepared and Carbyne and Outpost is that these are all things that are not called out in our revenue commentary because they're still immaterial to our revenue in this quarter. So, we did 34% growth without any of these and these are amazing drivers to support our long-term growth in our future.

Now, I appreciate the color, guys. And then maybe just as my follow-up here on the drone opportunity and maybe this one's more geared towards you, Brittany. Obviously, nice growth this quarter. Appears to be a building pipeline here, a strong pipeline building. But just given its infancy, I'm sure it's weighing on the device margins here. So, maybe can you help us frame where this business sits today within the margin structure versus maybe what your ambitions at scale and what level of scale would you need to achieve that? Thank you.

Yeah, no, it's a great question and you're absolutely right. We've called out before that our platform solutions business is the lowest of our three hardware businesses inside of connected devices. And certainly the Dedrone hardware is a portion of that. I do think there's room for us to continue to improve that margin as we scale. I don't have an exact level for you, but that is something where it is small today and as we scale and as we get repeatability and as we get larger numbers that we can go leverage, we would of course expect it to improve over time. I would also make a reminder that there's also a nice software component to our Dedrone business. And so, that spreads out more years. We get more of the hardware up front, but there is a great software component to Dedrone that shows up inside of our software business and our software only grows margins if you include the services piece continue to be above 80%. So, we're still really happy with the contribution of Dedrone, but certainly with the type of growth we're seeing, we will take a little bit of movement quarter to quarter in our connected devices gross margin in return for that.

Thanks, Joe. Up next we have Trevor Walsh from Citizens.

Great. Thanks, Eric. Josh and or Jeff, maybe for you guys. Also want to ask about Dedrone, but maybe in a different way. So, the commentary you had around the strength and the momentum there seems very event driven, protecting infrastructure, counter drone. But we've thought of Dedrone as well as more the airspace management and how it can relate to DFR opportunities. So, is it really being driven by that counter drone piece or is that DFR element still present and how is that going? I'm trying to just like can you think of it as two separate buckets or they really need to be together? I guess that's the question.

Just to connect those dots, the technology piece is shared, so that thesis is still 100% right. But what you're seeing is as DFR is also explosively growing super fast. There's just a mixture of where they're relying on the onboard autonomy versus where they're relying on the Dedrone tech to do it. And it's just a mix and situational. So, you have all of these things growing super fast and so right now at this moment, I totally agree with Josh, right? The majority of the Dedrone growth is on the counter side, but the tech thesis is the same and it fits hand in glove with the overall DFR hyper growth as well.

Okay. And Josh, maybe just based on your answers, a quick follow up for Brittany. Just given what your colleagues just said, are you currently or in the future going to be able to maybe differentiate between what revenue is more DFR related for Dedrone versus counter? I don't know if you have that level of visibility. Could we maybe expect something to kind of give us some bread crumbs as to how that's all flowing in which direction, if you will, for that line of the business?

I mean, I think you might expect us to give bread crumbs and continue to give color on the call. I think we're a pretty long way from further breaking out platform solutions as a segment. But as we always do on some of these segments, we will, of course, try and give you color as we see developments going places.

Thanks, Trevor. Up next, we have Jeremy Hamblin at Craig-Hallum.

Thanks and congrats on the strong results. I want to start with your annual recurring revenue. So, an uptick in the year-over-year growth rate on that from a sequential and total dollar amount, the fastest growth that you've ever had. Just in terms of quantifying how or what's driving that, is the portion of growth more being driven by user growth or is that being driven by more adoption of AI Era plan and really getting higher monthly user pricing as a result of adoption of more premium plans?

I mean, it's really both, honestly. We continue to see nice growth in our user accounts and our user adoption, and you're seeing AI come in. So, there's really no one driver. I would say you're seeing the business hit on all cylinders, and you're seeing the AI plan really kick in on top. So, you're seeing the benefit in ARR of our big bookings quarter in Q4. You're starting to see that show up, and then we're continuing to have NRR of 125%. So, that's been very consistent, but you're seeing those existing customers come back in and trade up and buy more. So, as I said earlier, it's strength across the board, but you're seeing it in ARR first.

And then just a follow up here on the commentary around drone and in your international business. So, you saw huge growth internationally, the best in quite some time, and 20% of your total business here. So, what portion of that is being driven by Dedrone? And is that something that, the international portion because of that and because of what's going on geopolitically, is that something where we should be expecting international is going to be just a bigger portion of the total here for the foreseeable future?

It is going to move around. As Josh said, it's lumpy. It's quarter to quarter, but we are seeing fundamentally more strength in international. And so, I would expect you'll continue to see it be a big topic for us and some of the momentum. And we've had sort of two quarters in a row now up at that 20% level. So, it is really contributing nicely to the business.

Thanks, Jeremy. And we would love to try to get everyone in here knowing that we're coming up above the hour here. Maybe if everyone could pick their favorite question for the next few, we'll start with Mike Eng at Goldman Sachs.

Great. Good afternoon. Thank you for the question. I think implied bookings in the quarter were up roughly 75% year-over-year. I certainly appreciate it's the smallest seasonally bookings quarter, seasonally the smallest booking quarter of the year. But I was just wondering what that tells you about the momentum for full year bookings growth. Could we expect full year bookings growth kind of growing in line with revenue growth? Thank you.

Thanks, Mike. Thank you. Up next we'll go to Andrew Spinola at UBS. If you're still with us. Maybe we lost Andrew. Okay, David Page at RBC.

Hi. Thank you for taking my question. Maybe just a quick one again on the drone. It looks like you have a quote here in the deck that says over 400 unauthorized drone detections by Dedrone. So I'm curious when you actually go to market and sell the drone offering, what are people looking to protect against or what's their main use case? Thank you.

Thank you. Thanks, David. Up next, Jordan Lyness at Bank of America.

Hey, thanks for taking the question. On Dedrone, how are you guys going to market for it? How is it different than the other products? Is it customers coming to you, selling through distributors? And then for the defense and international side, how much more do you think we could see this accelerate if Dedrone gets FedRAMP status? Thanks.

Yeah. Thanks, Jordan. On the counter drone go to market, I think it varies a little by market. US state and local, we very much sell direct and so it's in our packaging there and you could buy it as a standalone as well, but I think the real takeaway on Dedrone outside of its just pure momentum and revenue growth and bookings growth and all that is the idea that this product is truly opening up opportunity across all four of our customer segments. And even more so than Taser, more so than body cameras, this product solves a need in all four customer segments that's urgent. And so our job is to not only win those deals and delight customers out of the gate, but that land and expand play with that is the hallmark of our execution as a go-to-market apparatus. We've got to do that well in Dedrone across all four markets and you'll see the tailwinds of that in our other product sales. So, really, really excited about not only the growth, but the doors that are opening as a result of the interest in that one product. And then Fusus FedRAMP certainly opens up opportunity in the federal government and I'm not sure that if I were stack ranking the products, I'd still say there's interest across the board and certainly in our core business and core products as well as Dedrone and DFR and others, but Fusus is in that bucket and it'll certainly help, especially across some of these ecosystem deployments where you're adding to an evidence.com environment with these Fusus streams.

Thank you. Thanks, Jordan, and we'll take our final question today from Alex Latimore at Northland.

Hey guys, thanks for taking my question here. I was curious what your acquisition interest looked like for the year. I saw that you had a $10 million investment in Vantare Aerospace. Maybe it's a drone manufacturer. Anything there would be great.

Alex, I would just note that was an investment though and I would expect like we have been historically and we will continue to make investments in places that we think are interesting in the ecosystem. I differentiate that pretty dramatically from us making acquisitions where we have to bring the companies and the teams on and integrate them and all of that. So, we'll continue to make investments sort of consistently as we go. That one in particular, Bruntar, they are in Ukraine. They're one of the leading reconnaissance drone makers. They're one of several companies we invested in to help build our footprint and our relationship across the Ukrainian drone and counter-drone space because that's where the fastest level of innovation is happening and our Dedrone is one of the key systems there. So, I would look at that one more as a key market partnership than any sort of a near-term acquisition. Lord knows what could happen way down the road, but I would say in Ukraine right now, their hands are pretty busy. They're not looking to get acquired, but we do think it's important for us to put some investments in the market to build those relationships and for us to be able to learn together with them and have people that can help us grow our footprint in Ukraine. And then long-term we could also be a great sales channel for some of the technology coming out of Ukraine. When the war is over, we think there's going to be a lot of go-to-market opportunities where we might be able to bring that tech into other markets.

Thank you. Thanks, Alex. And Rick, we'll let you close this out.

Awesome. Well, it's been a wild year geopolitically. The optimist in me hopes that the universe is clearing its throat and we're going to get back after the pandemic and the wars that have happened to maybe a little more stability in the world. And I'm proud of the role that we're playing in helping to mitigate some of those threats to help reduce some of the effects of violence in society that at times is feeling more polarized and unstable than ever. At least maybe it feels that way. And I'm really proud of our team's ability to continue to execute and to continue to build out the team with great people and great technology. And it continues to be a real privilege for me to get to work with awesome people on problems that really matter. Doing things that are fundamentally moving the ball down the field. We never like to be second or third in the category. We like to create new categories, new capabilities that have never existed. And stay tuned over the next year, you're going to see in addition to the great stuff we've been doing, we have whole new categories coming. And that's what keeps us really invigorated and excited. So, great seeing you all and we'll see you on next quarter's call.

Thank you.