Axon Enterprise Inc ($AXON) Q1 2025 Earnings Call

Axon's executive team today. I hope you've all had a chance to read our shareholder letter released after the market closed, which you can find at investor.axon.com. Our prepared remarks today are meant to build upon the information in that letter. During this call, we will discuss our business outlook and make forward-looking statements. Any forward-looking statements made today are pursuant to and within the meaning of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. These comments are based on our predictions and 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. We discussed these risks in our SEC filings. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our shareholder letter as well as on our investor relations website. Now turning to our quarterly update. First, we're going to show you a quick video recapping some of our recent announcements from Axon Week in April.

The mission is really simple. Design like it matters because it does. This is not just another ALPR camera. It's two cameras in one. It doesn't just capture plates. It recognizes vehicle make, color, visible damage, and even bumper stickers or roof racks. We're turning ordinary street lights into extraordinary tools for public safety. Our goal here is to build an ecosystem with many partners bringing together millions of cameras from any provider to solve crimes. This is one of the most ambitious things we've ever done at Axon because of the massive scale. And with that, I am excited to announce the Axon Assistant. It's an AI powered companion that just sits right on your chest with a camera you already own. The Axon assistant launches with a groundbreaking capability. Realtime translation.

Good morning. I am excited to present to you the capabilities of Axon assistant. And the Axon assistant and all the new AI features I just shared are part of what we call the AI era plan which gives you predictable pricing and guaranteed access to all these new AI solutions. Maybe you're catching a theme here. Public safety is an ecosystem. And that ecosystem is stronger when we come together with industry leaders. Please welcome the inventor of the doorbell camera and the founder of Ring, CEO of Aura, of Citizen Safari Land. I'm proud to announce that Ring will be integrating with Axon's community request service, the first of hopefully many partners to do so. The retail Chrome hub becomes your go-to for engaging with retailers. Announcing citizens partnership with Axon. Instant access to millions of public cameras. Technology is what we build, but relationships are why we build it. And so today, I want to thank you for our relationship.

All right. Thanks, Eric. I always enjoy watching those highlight reels. And welcome everyone to our first quarter 2025 earnings call. We kicked off another exciting year at Axon just a couple weeks ago as we hosted our annual user conference which is one of my favorite events of the year as we dedicate a full week to spending time with our customers. And as you can see from that video, we got to show them the many exciting things we've been working on. I believe our work is about far more than technology or results. It's about our mission to protect life. It's about giving those who stand on the front lines of our communities the tools, the tech they need to be safer, faster, smarter, and better connected. We envision a society where violence and crime rarely occur because it is simply so unappealing and so well deterred. I'm so proud of the products we've developed and brought to market over the past few years because I think we are creating the power of that deterrence to create a safer society. Each quarter, we're putting Taser 10 in the hands of more people, helping them safely deescalate conflict without escalating to lethal force. We're giving them better training tools alongside while investing to improve efficacy in more and more situations. At the same time, our camera and sensor systems are becoming increasingly connected and exponentially more intelligent with the power of AI. Draft 1 is helping officers cut back on administrative workloads so they can focus their attention in the field where it matters. In the field, Axon Assistant ensures they're no longer alone. They have an always available voice-driven AI assistant delivering critical information exactly when and where it's needed through hardware that they already have. With Fus, they also have the support of hundreds of thousands of public and private cameras to provide them another layer of real-time visibility. And now with Axon vehicle intelligence and light post and outpost, our tools are delivering actionable insights through license plate recognition and real-time alerts available through innovative, flexible form factors. Through our newly launched integrations with Ring and Citizen, we're also helping public safety and the community work together to help keep their neighborhoods safe, building a critical bridge, all while protecting privacy and the right to choose whether or not you want to participate. As you know, I spend my time thinking about where Axon is going. And part of that is thinking about how we grow. Our new headquarters project is a focus of mine and I'm excited to share that we recently cleared another hurdle with the passing of Arizona Senate Bill 1543 recently signed by the governor. This gets us one step closer to moving forward and one step closer to keeping Axon in Arizona. Our efforts around this new legislation are another example of what our unstoppable team can do. I could not be more proud. Challenging divisive political opposition and obstacles have stood in front of our project for nearly five years, but our team found a way and the leadership of Arizona found a way to step up and help us stay here. We don't have everything finalized yet. There are still a few other hurdles to clear, but I wanted to thank our team for everything they've done for this effort, including hundreds of employees who showed up at the Arizona State Capital Building and personally met with and wrote letters to our elected officials to help them see just why we want to lay the foundation for decades of future growth at Axon, right here where we started. We will come back to you with more details when we have them and look forward to updating you on our continued progress. And with that, I'd like to hand over to our president, Josh, to share more about what the team accomplished in the first quarter. Over to you, Josh.

Thank you, Josh. As Josh and Rick mentioned, we're extremely proud of our results and performance as we deliver for our customers and invest in the future. First quarter revenue of 604 million increased 31% year-over-year. Our 13th consecutive quarter over 25% and we delivered a 25.7% adjusted EBITDA margin with 1.1 billion in ARR. Before I go into the details, you'll notice we updated our segments from taser and software and sensors to connected devices and software and services. As we mentioned last quarter, we made this change to better align our segment reporting given our increasing product diversification. Some previously disclosed margin information will no longer be included in the shareholder letter as a result, but we'll continue to give periodic updates on our earnings calls. Software and services increased 39% year-over-year to 263 million, driven by continued strength across digital evidence management and premium add-ons, each contributing about half of our overall software growth. We continue to see growing adoption of our premium plans. Approximately 70% of our domestic user base is still on our basic plans and our offerings continue to get better over time, convincing more customers to upgrade. Our NRR, also a measure of our existing customers coming back and buying more, remained at 123% and supported annual recurring revenue of 1.1 billion, an increase of 34% year-over-year. Connected devices revenue of 341 million grew 26% year-over-year. This was driven by growth across Taser 10 devices and cartridges, AB4s which are now included in personal sensors and fleet counter drone and VR which are now included in platform solutions. Adjusted gross margin of 63.6% was up 40 basis points year-over-year largely based on mix shift to software. Adjusted operating expenses of 236 million were up 3% sequentially and down 140 basis points year-over-year. As a result, adjusted EBITDA margin came in ahead of expectations at 25.7%. Part of this leverage was driven by timing of our hiring ramp and we do expect to continue to ramp investment through the year especially in our R&D organization. We also expect some impact to the rest of the year from tariffs. As many of you know, we already manufacture our taser devices in Arizona, but we do have an impact on the supply chain. The team has done a great job ensuring we can be flexible and nimble, and we think we are well positioned to manage through the shifting environment. Based on timing, Q1 had a minimal impact. For the full year, we have offset some of the tariff impact through other cost measures and overall we expect a net impact to our adjusted EBITDA margin guidance of approximately 50 basis points for the full year. This is based on where tariffs stand today. We are not planning any price increases to our customers at this point. We review pricing annually and will assess the need heading into next year. Turning to guidance for 2025, we expect revenue in a range of 2.6 to 2.7 billion or 27% annual growth at the midpoint. This is up from 2.55 to 2.65 billion or 25% growth. Our comfort in raising guidance is based on the strong Q1 bookings performance as well as the pipeline we see for the year and the future contracted bookings of 9.9 billion. On adjusted EBITDA, we continue to target margin of approximately 25% for the year which raises our guidance to 650 to 675 million from our previous outlook of 640 to 670 million. Tariffs and exciting R&D investments are factored into this guidance and we're very pleased to be able to maintain the 25% margin target. Overall, we're delivering another strong quarter in Q1 as well as a healthy outlook for the rest of 2025. This is based on our momentum across a wide range of product categories and end markets. We continue to be long-term focused on our investing in the business to deliver for our shareholders and for our customers well into the future. With that, we'll turn it over for questions.

Thanks, Britney. Let's pull everyone up into gallery view. All right, we'll take our first question from Andrew Sherman at TD Cowen.

Oh, great. Thanks. Good to see everyone. Great to see the strong cloud numbers. ARR growth was very very strong especially for Q1. Talk about anything that drove that strength in the quarter specifically and on draft one. Great to hear it was two of the top 10 deals the 30,000 seats was great to hear at Axon week. Talk about what pipeline, any kind of pipeline update for draft one would be great and how you're thinking about this in guidance.

Great. Thanks. Just Andrew, to give you a little color on ARR, because thank you for calling that out. It was a really nice number this quarter. It's usually about a quarter off from our bookings. So, what you're really seeing come through in ARR was the strong bookings results we had in Q4. So, that's driving some of the growth. And then, as I mentioned, it's really coming both from new users as well as people adding on some of the more premium subscription pieces. So, it's really nice healthy growth that we're seeing driving that ARR number.

Great. One more for you, Josh. 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 two 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?

Perfect. Thank you.

Thanks, Andrew. Up next we have Joe Cardardoso at JP Morgan.

Yeah, thanks. Thanks for the questions guys. Maybe I just wanted to start off and maybe this is more of a clarification for you Josh. Based on your prepared remarks you're sounding pretty bullish on demand, the pipeline etc. However obviously there's just persistent concern around the macro just given kind of the current backdrop. So maybe you can just clarify or touch on, are you seeing any signs in the conversations that you're having with customers that there's these prevailing concerns? Is that showing up in any of the deals that you guys are seeing? And then maybe if you could bifurcate that in conversations with your traditional core base of state and local law enforcement versus kind of the other verticals that you guys are obviously gaining traction with.

Got it. Clear. Thanks for the color. And then maybe just a follow-up, wanted to touch on some of the recent product introductions maybe on the hardware side. Obviously you disclosed the two new fixed mobile hardware products that you guys kind of put out there. And I guess the crux of my question is just really around obviously you had Fus and that was kind of giving you an entry point in kind of the fixed mobile market there. What was the main drivers in kind of owning the hardware stack there? Was it more of a customer push? Did you not see that you were getting enough traction on deals? Any way you can flesh that out in terms of what drove kind of the entry there? And I guess the second part of that question is like is this kind of more of a test in the waters and then you can expand that product set there in terms of addressing other applications or I guess how are you thinking about the opportunity there?

And two just really quick things to add on that. Built like you mentioned Fus, this is all about doubling down and going even further above and beyond what the momentum that has started with Fus. You've heard both Rick and myself talk before about we're at this unique moment in time where the intersection of real-time crime center, DFR, and vehicle intelligence broadly because of the crucial role that vehicle intelligence plays in solving so many crimes. The intersection of all of those three and the power that new AI capabilities brings to making them be able to be more powerful and effective than ever is really at the heart of this and making sure that we bring our best foot forward on all three legs of that stool both with what we do ourselves and with what we partner with. And then the second part on responsible AI innovation, as Rick said, that's always been a cornerstone of how we build and what we build. From if you go back to the beginning when we first laid out and shipped Fleet 3, we were extraordinarily careful and extraordinarily clear in how our view and why we felt compelled to bring ALPR technology ourselves in the first place was to deliver better results for customers with better ethical and responsible design built in from the ground up. And we choose partners like Aura and others that embody that same approach. And you'll see that continue to play out as we go forward.

Yep. Got it. Thanks for the insight guys and thanks for having me.

Thanks Joe. Up next we have Alyssa Shreves at Barclays.

Hi everyone. Just a quick few ones on draft one and AI era plan. I saw the success with draft one, but is there any kind of difference in with the AI era plan penetration versus the early days of OSP? I heard the call outs on draft 1, but seems like AI era might be a little bit different. And then I just had a follow-up on that.

Okay. And then just a quick one on that. How are you guys longer term kind of thinking about EBITDA target with this kind of growth and draft one AI era given it's kind of all SaaS? Thanks.

Yeah, I mean I think it's been really nice that software in general has been a great tailwind to our margins from a gross margin basis and then I would say at the same time we are bringing on new hardware products as well which are also really exciting but those will sort of balance out. So, I think you've seen over the last year or so, we've had a little bit of a tailwind from software, but we really do have mix factors that you have to consider. We don't have a specific long-term target out there after this year, but obviously it helped in, software helped in this quarter and in general, we're really happy we're continuing to blend out at that 25% even with tariffs. We'll probably think about longer term margins as we come up at the end of this year and really think about refreshing what that long-term model looks like for everyone.

Great. Thank you.

Thanks, Alyssa. Up next, we have Jamie Reynolds at Morgan Stanley.

Great. Thanks, guys. And congrats on the strong results. Maybe just following up on that, as you've layered in some of this newer AI functionality kind of beyond draft one, are you seeing sort of increased hurdles from like an adoption standpoint or greater concerns from some of those prosecutor type constituents or, now that draft one's been in the market for a year, is that conversation kind of getting easier? And then I have a follow-up.

I think the flip side to that too though is like it also gives people more reasons to be excited about AI and to get excited about adopting AI and so I think we just haven't seen higher enthusiasm from our customers about the whole suite of the AI products we have and that really encourages them to push to adopt and get over those hurdles. So, I actually I totally agree, but also I would call out for you like that the broader the product suite we have, the more the return for them that they see on using it. And so I think that just gives them a lot of momentum to go look at that whole product suite. Once again, just like Josh was talking about with the era plan and the brightness there, the beauty of having a plan that includes everything that we do, not just right now, but over the next 5 years is it gives any individual agency a pallet of choices. So even if in that particular agency one particular thing might not yet be for them, there's many different ways

Got it. And then maybe just on the drone side, I think a couple weeks ago the FAA might have made some improvements to the waiver process specific maybe to DFR. So I guess how has that changed conversations? And then what do you think we still need to see from a regulatory standpoint to see broader based adoption?

Maybe that's pretty good. I think the key is really a meaningful step forward with the FAA stuff. Obviously, it's not all the way done, but the changes that really expedited the path to getting these waivers was a very meaningful step forward for the industry. And then as Rick said, the key to having the best solution is arming customers with the full palette of the ability to have what you need to do to fly low and with a lot of autonomy and a lot of capability in a diverse range of situations close to the ground and equally to have access to fly high. And again, that's why we're investing the way that we are and think we're bringing by far the broadest and most comprehensive range of options that are moving in lockstep as the regulatory framework keeps unveiling.

Awesome. Thank you so much and congrats again.

Thanks Jamie. Up next we have Jordan Lionus at Bank of America.

Hey, thank you for taking the question. On the federal side, the FY26 skinny budget called out 44 billion increase for DHS. How are you guys thinking about that across the verticals? Because it also said they need advanced border security technologies. They need to prep for the World Cup and the Olympics. So where are you guys most excited about that Axon can help?

Yeah, I would add the real-time translation is going to be hugely beneficial. I had a regional commander for border patrol a year ago come to me asking for exactly that capability because they're constantly dealing with people coming across the border and they have no idea what language they're going to run into. And today it's a very manual process. You've got to call, get an operator. That operator at a service provider then has to figure out even what the language is and how you patch somebody through. I think I may have mentioned, but I was in Norway showing an early prototype and one of the instructors from Iceland wanted to see if it could work with Icelandic and it was pretty flawless. And Icelandic is one of those languages you don't run into very often. So I'm not as close as Josh to the actual pipeline with the federal government, but I can tell you the fundamental underlying demand. I think the translator is going to be of huge interest for border.

Got it. And then is there anything else that has to get done on the federal side so things can move quicker? I don't know if Fus was FedRAMP certified yet or if you guys are starting to see existing DRON contracts where agencies are jumping into those that it might not have been initially thought that it would be for that but okay we can procure body cam 4 and Draft One now.

Yeah, I think we can. You know the process for all the FedRAMP stuff is you go through, we submit sort of every six months or whatever our updates to our things. The official assessors make their official recommendation that says yes, this is ready for extension and then it just takes another couple months for the formal paperwork approval on the back end. And with Fus, we passed that submission stage very recently. So we're in the chute. So, Fus is absolutely FedRAMP ready. It has been officially recommended by the auditors and now it just needs to finish the last little bit of certification. So, we're very excited about that.

Awesome. Thank you.

I would just, Jordan, I would just add that I love that you're highlighting some of these opportunities just from a guidance standpoint. As you can imagine, we've been pretty conservative on what we've assumed for the year on federal. So, some of these things would be upside and tailwind if they started to happen faster.

Got it. Thank you.

Thanks, Jordan. Up next, we have Will Power at Bar.

Awesome. All right. Yeah, congratulations on another great quarter. I want to start with a question on enterprise. You know, I know you all have viewed this as a significant TAM expander. I think last quarter you talked about a big logistics company win. I think that's how it was framed. So, A, I'd be curious just kind of how that's going. And then B, just any other color you can share on what the pipeline looks like there and how you get these deals converted whether it's retail or other verticals you're targeting there.

Yeah, I was invited to keynote at RIA, which is like the retail security... I can't remember what the acronym is for, but it's basically all the retail security...

Retail Industry Leaders Association. RILA.

There we go. Thank you for the phone a friend help there. And I can tell you, I was talking to our head of enterprise and his feedback was, Rick, it's happening, this is really coming together now. Again, these deals, the bigger the agency or the bigger the company, the longer the time it is. And we've sort of baked all that into our guidance for the year. But we think enterprise is going to become a more and more meaningful contributor.

Okay. And then my second question, whether you know Rick you want to take it or Josh or whoever wants to take it, just looking at this fixed ALPR opportunity. I mean how do we, you know, maybe help us kind of size the opportunity. I guess I'd also just be curious in early feedback you're getting. It'll take some time obviously to build the bookings there and the opportunity but any help just kind of sizing the opportunity, early conversations, and then just the sales process, you know, is it can you use your existing force, are there distinctions you need to make as you deal with municipal governments etc being accessed, how does that work?

Yeah, I would add the other thing that was really a pleasant surprise was how well Ubiquia was received. You know, just doing the permitting and all the logistics behind that is a real sort of issue and challenge for our customers and Ubiquia brings with them preset access to tens of millions if not hundreds of millions of street lights. I can't remember the number. Huge, because they already have relationships where they're putting equipment on these light poles and they have relationships with the utilities that run them. Ubiquia, they showed it on stage, they can do an installation in like a minute. Now of course you got to get out there with a truck and all that but the fact they don't have to go through permitting because it's all preset, the poles are already there. These are sturdy poles with power and a universal adapter plug. I think Ian told me there's like 450 million street lights worldwide that all share that same plugin. So we think that could also be a real accelerator.

That makes sense. Thank you.

Thanks, Will. Up next, we have Josh Riley at Needham.

All right. Thanks for taking my questions. Kind of following up on Will's question there. How are you thinking about the ramping up production of the camera units for the Outpost and the Lightpost? I, you know, obviously you've done some different things in terms of manufacturing for the Taser versus the body camera. Just wanted to get a sense so we level set expectations that, you know, I assume it'll be supply constrained for a while. Just wanted to get a sense there.

Got it. That's helpful. And then what's the feedback from customers in terms of the sense of urgency of closing some of the leader pricing deals for Draft One and the AI Era Plan? I believe, correct me if I'm wrong, it was June 30th because you mentioned that some of those deals might actually be closing in the second half now. So, just wanted to get a sense of the price sensitivity there.

Awesome. Thanks guys.

Thanks. Nice to see you a couple weeks ago Josh. Appreciate it.

Next we have Jeremy Hamlin at Craig-Hallum.

Thanks and congrats on another really strong quarter. I want to come back to your traditional cloud services business. So, you know, I think there about 40% of revs. You crossed over to having a million platform users the end of last year. As we look into '25 and think about the growth that you're expecting, 27% total revenue growth. As we think about the cloud services, do you expect more of that growth to come from growing your user base versus kind of that ASP per user per month as we're kind of looking about that? And then maybe contrasting that to what we've seen here over the last couple of years.

Yes, Jeremy. I'd say the last couple quarters we've called out that it's been split about 50/50 between our user growth and our premium adoption. So, I mean, not perfectly, but I would say that's a really good rule of thumb to use at least as we go through the rest of this year. And then, with things like AI and Draft One that will really ramp even more next year, we'll see if that mix changes at all.

Got it. Okay. That was the second part or followup there on how it looks in '26 and beyond. Okay. And then I wanted to shift gears then and ask about DRON. Right, there's a lot that's kind of going on in the space. There's a lot on a geopolitical sense and a lot of speculation about the opportunities with the current administration and how capabilities might be utilized both domestically, close relations, but then also we are seeing an uptick unfortunately in geopolitical activity. But just wanted to get a sense for what you are sensing out there in the market. Now that these overseas wars are not fading away but seem to be increasing in terms of magnitude and presence.

Yeah. Well, I would say we continue to believe that we're really excited about the acquisition because we got into one of the most important spaces in the world right now. Whether it's military, whether it's political leaders, we have interest from enterprise, executive protection, there, you know, we're seeing drone systems used there to protect headquarters and to protect people's homes. I think people are rapidly realizing if you're an actor who's out to do something bad, a drone is a unique threat vector that everybody who's in the security business has got to think about and deal with. And so we're now, some of these, like when you start talking about military customers and others, some of those are longer programs and ones where we're really not at much liberty to talk about what's going on there. But there's certainly, you know, there's a ton, President Trump has talked about this, the American equivalent of the Iron Dome in terms of ballistic missile defense. And we believe there's going to be, that'll be a multi-layered system that's going to include close quarter air support from things like first-person view and consumer drones. And so we think it's going to be a really exciting business long term. So, we're glad we're in it and we're really excited. AD and the team at Dedrone are pretty fantastic. They're doing great work.

Just as a quick followup, maybe for Britney in terms of thinking about that segment of business going forward, is it going to be a reportable segment? I know it may not quite be material just yet, but hopefully it will become material. And then if it's not a reportable segment, would that just fall under your software and services?

Yeah, so Dedrone has two components. It has a hardware component and a software component. The software piece you'll see show up in our software and services. And the hardware component you'll see show up in our platform solutions. I think it's unlikely to get broken out separately, at least for a while. But one of the reasons we're really happy to do the break apart of our segments is you can see inside of our connected devices that platform solution segment and inside of there the big drivers of that will really be Fleet VR and some of the counter-drone pieces. And so it gives us a little bit more visibility into some of those drivers to share with all of you.

Great. Thanks for taking the questions. Best wishes.

Thanks, Jeremy. Up next we have Trevor Walsh at Citizens.

Thanks Eric. Thanks team for taking the questions. Rick, maybe for you if I can. It was cool to hear about the Apollo cartridge plans. I know it's been maybe kind of the last piece of T10 kind of getting through the thicker pieces of clothing. And I think you've talked about that in the past more in the international opportunity in the kind of cold weather areas, but we obviously have our fair share of cold weather environments here in the US and domestic market. So can you just talk about kind of where that cartridge is at and then what type of opportunities get locked if there is domestic kind of holdouts if you will or if it's more again internationally focused and kind of as a primary weapon in those or kind of service thing for that.

So, we're about a year out from scaled automated production. We wanted to get ahead of it, this is such a fundamental shift. It takes the Taser from sort of this less lethal capture device to a self-defense weapon. And as you heard probably from Espen, our friend from Norway, he's coming to conclude intellectually he has already concluded that if you're in close quarter combat, a T10 plus this new Apollo dart is a better, more effective, safer option for you to use than a gun. Now, you even have to be careful saying that. We were a little nervous about putting him on stage because that's such a high bar. It's almost a little bit of a lightning rod. Now where this is going to make a difference in the US, there will be some marginal revenue from it. We'll probably have some kind of upgrade tactical package that includes that cartridge and it is, you know, obviously looking at it's a bit more sophisticated. It's going to be a little higher price point than our traditional cartridges have been. But I think really the impact in the US is going to be on the moonshot. Like our goal today, an officer, their weapon of last resort is their gun, but their weapon of first resort is also their gun. So the thing in their hand if they don't know what's behind the door is a gun. And we've all seen the catastrophic consequences when you go through and you have to make an immediate decision. I think over time we're going to see the T10 be a first choice. Now look, if you know you're going into a gunfight, they're going to go to their firearm. But we think, especially around edged weapons and others, this is the piece that really gives us a shot at displacing lethal force in our estimates are about 40% of situations where people are shot and killed in the US today. So here, I'd say it's probably more about the moonshot internationally. And the reason I say that is most agencies in the US are already buying tasers. So yes, there's going to be a little bit of upgrade opportunity there, but in the US, it's going to drive the mission more than a pure revenue driver. Internationally though, I think that's where tasers are not standard issue in most countries. They're shared among specialty teams. But when we get to the point where it's like, hey, we're going to use this as our primary defensive weapon. Now you go from 3 to 10% of the agency using it to potentially 100% of patrol. And then that should begin to pull through with it much of the rest of our ecosystem. So I think from a pure financial business sense I think T10 is going to be much more impactful in global markets and then frankly in enterprise and other places where whether you're somebody like Loomis who's in the business of moving cash around or casino guards or anywhere you see armed private guards we think T10 plus the Apollo is going to begin to be much more widely deployed there because and maybe they'll still carry their gun. They might start to look more like a cop where they have two weapons. But we think all the business operators pay a ton of attention to the liability issue and if they can avoid a shooting, there's a lot of financial incentive in addition to the moral imperative. So, I'd say this is going to, its biggest impact will be opening new markets for Taser.

Awesome. Super helpful. Maybe one just quick followup for Britney. Appreciate the color around tariffs and the 50 basis point impact to the adjusted EBITDA for the year. Would you call that kind of your worst case where all the kind of adjustments and adaptability that you've built in around supply chain kind of noting exactly or is that just give us a sense of like kind of where that falls in terms of your high side low side sort of expectations around the impacts.

Yeah, I mean I think it's our best guess at being realistic. And that's obviously with what we know today. It's always hard to caveat that, this has been dynamic and it doesn't assume new retaliatory tariffs or anything like that. But just based on what we know today, what we're able to offset, I would say it's realistic. Of course, we're going to try and do more if we can do more and continue to work those supply chain muscles, but I think it's a fair bet knowing what we know right now.

Got it. Awesome. Thanks for the questions.

Thanks, Trevor. Up next, we have Keith Ham at Northcoast.

Yep. Thanks, guys. I appreciate it. Rick, you know, we saw at Axon Week, the Axon ecosystem is growing and becoming more and more important to your agencies that you serve. Is there a point where your customers become concerned that you're too big a part of their ecosystem? You know, that you're too important, they're too levered to you. And how do you address that? And, you know, is that a risk to your growth going forward? If it's, you know, next year, five years, 10 years down the road.

Yeah, I would actually say we started hearing that maybe five years ago, six years ago, that was coming up as a concern. I've been hearing it less recently. What we've been hearing from our customers more is like, hey, we've got all this technology that doesn't play particularly well together. Can you take on more? Like, you know, last year when we exited the CAD business, doing the dispatch software, thing we heard from a lot of our customers was like, 'Oh gosh, we really wanted you to take that over too because when Axon does it, we know it just works and we know that we're going to get a great response if we have an issue and it's going to be supported.' So, I'd say it feels to me like it's less of a concern than it was a few years ago. I think we've sort of crossed this Rubicon where we're such an integral part of, they're already kind of all in with us. And so kind of even including more stuff I think doesn't really increase their risk. Like if Axon went out of business or there was some catastrophic event, it would be majorly disruptive already. And I think what they continue to tell us is though, things just work better the more they work with us. And that's why also this year we really wanted to lean into the partnerships. We're both signaling and living up to a commitment to our customers that, hey, we know we can't be everything and we're going to identify best-in-class partners and bring them to you and have an open ecosystem so that you can feel more comfortable working with us that we're not going to try to box you into a walled garden. And that ultimately you'll be able to use the parts of our ecosystem you want and the parts that you don't want to use you can use other tech solutions and we'll keep things open so you can integrate with us.

Okay. Gotcha. And just a quick followup, you obviously guys got a great net retention rate. And I'm assuming, you guys still have not lost a significant vendor or a significant agency to a competitor yet. Correct. When it comes to the Axon body camera.

Thanks, guys. Good luck.

Thanks, Keith. Up next, we have Jonathan Hoe at William Blair.

Hi, good afternoon and thanks for sneaking me in. Just in terms of the Taser 10 growth, I think you've called out just some pretty phenomenal growth here. What gives you the confidence that with this rapid rate of adoption, do we kind of run into the risk of hitting the wall at some point or you seeing that adoption rate, as fast as it is, sort of get in the way of growth in future quarters?

Great. I'll keep it to one. Thank you.

Thanks, Jonathan. We got one left with Mike at Goldman Sachs.

Great. Thanks for the question. I just have two quick ones. First just on the AI Era Plan and AI services, are there any meaningful margin differences relative to Evidence.com just because you have to pay the cost to compute? And then secondly I just wanted to ask about the state and local budget flush outlook which typically happens in 2Q and 4Q. Just wondering if you had any early expectations on what you can expect there just given what you're seeing in the pipeline. Thank you.

Sure. Britney, do you want to cover the first one though?

I can take the margin one. Yeah. I mean nothing that I would sort of factor in as a meaningful driver. You know, we talk about our software business continuing to be above 80% gross margins. And the AI Era Plan would certainly fit in that. Now, the interesting thing about the AI Era Plan is like we don't actually know every product we're going to go put into the AI Era Plan because there's still more to come. But based on what we are releasing right now and what we're seeing, we're pretty happy that it falls in that range of what we would expect for our software business.

Great. Thanks, Josh. Thanks, Britney.

All right. We'll kick it to Rick to close us out.

Sorry, I had myself muted there. Hey everybody. Again, I hate to sound like a broken record because we keep breaking records, but it's exciting. Like Josh and Britney and Jeff, the entire team, just the sheer breadth of the products that we've been bringing to market, the intensity of our sales and customer support teams to both get it to customers, but make sure it's working and deliver a world-class experience, and just everything it takes to run this business, it is pretty mind-blowing. I don't know that I can think of another tech company that has so much breadth across so many different areas. And then coupling that with the challenges of selling into public safety and the regulatory environment around managing government data whether it's from FedRAMP to CJIS. And I'm just delighted that we're able to continue turning in these results and it's a privilege to work for all of our shareholders that are on today and to work with all the analysts. You know, you guys ask great questions. You help us even take a hard look at different aspects of our own business and together we're doing great things. So excited to see you all again, maybe at our shareholder meeting in May and if not certainly at the next earnings call in August. Thanks everybody.