$AXON Axon Enterprise Q2 2025 Earnings Conference Call

Thanks, Rick. And good afternoon, everybody. Before we get into our results, I want to say we're thinking about the NYPD and the victims of last week's horrible tragedy. We are reminded of why we come to work every day. We'll all continue to pursue Axon's mission of protecting life with vigor. As we reflect on our Q2 results, the theme continues to be customer obsession. We consider it the honor of a lifetime to work with the men and women of public safety and our continued emphasis on the customer experience is central to how we run the business. I tend to be the curmudgeon on the team that reminds everyone that no matter how much success we have, we can always be better. I'm not sure that'll ever change, but I'd like to take a reprieve from that for a few minutes as I'm truly awestruck at what our team is accomplishing. And the most exciting part is we continue to accelerate. This is not a team that slows down. Maybe the best example of this is our state and local team under the leadership of Jessica Duncan. This team took back the record for the largest deal in Axon company history by a wide margin. This contract with a major city police department also marked the largest contract we've seen in terms of new product bookings encompassing everything from drones to our AI products. Similarly, our corrections team led by Zach Austin also closed their largest deal in team history and contributed two of the top 10 deals in the quarter. Corrections has been an important area for us to grow our presence because the value our products offer to keep correctional institutions safer is so clear. What's exciting here is that the deals we are seeing in the vertical now include products from across our ecosystem. Taser 10, body cameras, VR, evidence management, and fus. Next, our wins in international and enterprise continue to validate our investments in these areas. Our international team added a new taser customer in Africa, becoming the largest in the region. And in enterprise, we signed a contract opening up a major opportunity in the gaming space. It was our first win in that vertical to include our AI products and a clear indicator to me that we're on the right path. Zooming out a bit, every quarter that goes by indicates more and more of a contribution from new products. We closed almost $150 million of bookings for our AI era plan in Q2 alone, and over 30% of bookings this quarter came from new product categories. We've talked in the past about an opportunity to grow our presence with officers as our product portfolio expands. Just a few years ago, the maximum an agency could spend with us on a per officer basis was less than $300. Today, that sits over $600 due to new products. And we saw the per officer bookings in our largest deals push up against that level. These are just a few examples of the activity we saw in another strong quarter. As I said in Q1, the team came out of the gate with speed this year, and that momentum is accelerating. Coming off a strong first half with a growing pipeline, we now have line of sight to deliver year-over-year bookings growth in the high 30% range, which would once again put our second half in line with the prior year's entire campaign. At Axon, we're an execution shop. We don't fall in love with what we just did or what we did last year or the year before that. But as I said, I am so proud of our sales and product teams. To see bookings accelerating at this stage in our business speaks to the level of execution and innovation going on at Axon. As I digested these results, I was brimming with excitement about what the future holds and the impact that we can have. You are truly seeing what a world-class team is capable of doing when everybody is on the same mission. And with that, let's kick it over to Britney.

Sure, I'll take that one. Enterprise certainly is going very well. We're excited about the breadth of product interest there between not only our body cams and evidence.com and Fucus and drones, counter drone, and frankly across all these opportunities we're seeing more and more interested in the full suite of products there. But Keith, I got to be honest. I'm shocked that after predicting bookings were flat, you weren't wondering why you're up 50%.

No, no, no. That was my next question though. In terms of bookings, can you perhaps parse out where was the success?

Yeah. I mean, you had said bookings would be flat at a billion dollars. I was up by 50%. You had said we didn't have any large deals in the quarter. We booked our largest deal in the company's history, including our largest deal in corrections. You had said the bookings growth rate was slowing down. And in fact, it's picking up. And it's all a result of really, really good execution from our product team and our sales team.

Yeah, Andrew thanks for the question. Good to see you again. Absolutely it's accelerating. Yeah, we're excited about the result. We had talked about this a lot in the Q1 call that the first half, we'd see some incremental growth and we certainly did, but the pipeline in the back half of this year for the AI era plan is loaded and we certainly expect to continue to go fast in terms of the AI era plan. It's something that's very well received from our customers. I think it's a good indication of not only the time savings that customers are seeing with these products but it's also the fact that there's more and more products that are making a difference day-to-day in this plan that customers are getting along the way. So they're super pleased with draft 1. We continue to see more and more momentum there. But now with the AI assistant and the real-time translator as part of that and products like form one and brief one getting going, there is a lot of customer excitement around this plan and a huge shout out to Rick a year ago, a year plus ago now, for calling out the need to invest heavily in the AI world and in product line, and then of course Jeff and his team for implementing these products in a way that makes a real difference for our customers. It's just very, very cool to see right now.

Thanks, Andrew.

Maybe just the fact that one of the reasons, and we had mentioned this when the acquisition closed, is we really believe we can lead with Done in some international markets. And I think in certain places that's not only very relevant to today, but a nice difference where some of the new products that we're acquiring, we can get in the door, so to speak, with those and with a lot of interest from a customer. And then when a customer is ready to move to body cameras or less lethal or video aggregation or AI, we're better positioned to participate in some of those opportunities.

Sure thing, Will. I definitely say we're excited about DFR. And one of the things kind of taking shape in DFR or drones as a first responder is that while we don't manufacture the hardware for outdoor DFR, there are opportunities popping up around the hardware that create a lot of value for the customer. Things like live streaming, having the evidence in evidence.com and so forth and then even figuring out how we get drones in the sky faster through software even before 911 calls in. So I think there's a lot of exciting work around DFR and then frankly the biggest relevance at Axon on our product portfolio right now is D drone which makes sure the skies are safe for drones to fly. So a lot of people associate Done with counter drone and tracking nefarious drones and taking them out of the sky. But another big benefit there is a police department using Done can see the entire map throughout their city of where their own drones are. So, we think we'll be relevant in the DFR space for a long time. Skydio and us, we have a great partnership. We would say it's going very, very well, and we're excited about what the future holds there.

Sure thing Mike, good to hear from you again. And on your question, I'd say we've said for a long time and Jeff brought this framework to Axon when he first joined which was we want to be really, really good at selling new products to existing customers. So that's our US customer base and there we're talking about drones, AI, virtual reality, Fus, Done, all of our software add-ons that we continue to build, as well as iterating on the taser and body camera. And then you combine that with selling existing products to new markets. And there we're talking about international, enterprise, and federal where we can take the things that are very successful in state and local. And all of a sudden, customers in those other segments are starting to see really, really good product market fit there. So, it's not one thing. And that's one of the things we're most excited about is we feel like we're very diversified. We have a lot of ways to win the game, so to speak, and we're going to keep investing in all of them because we see a ton of opportunity ahead.

Yeah, I appreciate the question. We tend to be a little less specific about where we're going internationally only because as a competitive group we don't want to tip anything off here, but we do see opportunity across LATAM, certainly the UK and Europe, and then certain segments within Asia as well. So very much feeling like over the next few years international should continue to be really, really exciting. I mentioned Cameron, our CRO had come in and he just as a Q2 celebrated his one-year anniversary and we're certainly seeing the investments of having a CRO in Europe with the team over there starting to pay off as well. So, much more to come on that.

Sure. On the AI bookings question, Mina, I think really it's the same thing that we really believe in across all our products which is when you put products in the hands of users and let the users give you feedback and experience them and see the value themselves. There is no amount of sales or marketing or packaging or anything else that compares to that. So, when customers start to use a product like Draft 1 for 60 days and they say, "Man, I'm spending a full day more every week on the road fighting crime as opposed to sitting behind a computer." Those are the kinds of stories that just build. Or, with our AI assistant, the real-time translator, you have customers at the border or in Canada, in Quebec or whatever the case may be, saying like, "Man, this is really relevant and practical for what I need to do my job." And that's kind of our bar for these AI products is this isn't like handwavy stuff. This is the stuff that keeps police safe, communities safe, and allows police to be in the communities fighting crime as opposed to behind a computer. And the best part is we're still on like our own 5-yard line of the football field. We got a long way to go and a lot of great ideas about how to deliver more and more cutting edge AI products to public safety. And then your second question, do you mind reminding me what that was? Oh, the immigration enforcement dollars opportunity.

Sure thing. So, the federal government we believe between Q1 of their fiscal year which is Q4 of our calendar year we'll start to see more and more solicitations whether they're RFIs or RFPs for products that they're looking into with this money coming out of this bill. And so for us that's really around counter drone, certainly the video products like fus, drone technology, and beyond maybe some taser as well. So we're right now as a team even earlier today starting to sit down and map out the customers and figure out what we expect the opportunity to be in each of those customers and see how we can help and frankly with some of these federal agencies being among our largest customers in the US we believe we're well positioned to be able to demonstrate how much we can help right now.

So Rick, why don't you start since you've been over in Europe for the better part of the summer meeting with customers.

Yeah, um, I would tell you the visibility is certainly rising. I had my first ever meeting with a prime minister of a NATO nation in the last week. I met with several ministers of the interior level folks. There is a ton of need. I mean, the social displacement that has been happening in Europe, the amount they're dealing with their own immigration problems as well. With the best of intentions, Europe sort of took in a lot of folks and is now realizing that they weren't set up to integrate all those people, and they're seeing surging social problems. I was getting questions related to border security where they're seeing, frankly, hybrid warfare from the Russians, like pushing and encouraging mass migration across the borders as a destabilizing function. One example: I had border guards asking if we could tune the Taser 10. Right now, the Taser 10 can handle up to three people that you would hit with it. And we generally discourage thinking about using a Taser 10 on multiple people because in the United States, we're very focused on civil rights. If you hit the first person, the second person, and then the first person complies, but the second doesn't, you might have a problem legally if you activate and hit both of them. When I bring that up as a concern to these European border agencies, they're like, 'That is not our concern. We are getting overwhelmed and we're literally going to be shooting and killing people en masse at the rate things are going.' There's an opportunity for Taser to become a primary defensive weapon in Europe, and I think the need for that is rising. On the other side, our real-time translation — we actually had to shift our priorities so that we could get it translating into a non-English language as its primary language in order to meet an Eastern European country's immediate need, and that went extremely well. I think the real-time translator is being seen as a 'have to have' capability, and that is opening up opportunities. I'm personally involved in two countries that, in full disclosure, I probably couldn't have picked out exactly — I could have pointed generally where they were on the map, I couldn't have told you which ones they were — that are now talking to us about very large deals, larger than deals we'd ever signed a few years ago and up with some of the larger ones we're signing now. I don't want to get too far ahead of my skis that this is all going to happen quickly, but the overall level of interest across the board is really very high. And Joe, your question also included whether some of that is baked into bookings already or in the back half. We do expect Q3 and Q4 to be very exciting quarters for our international business. Look, we've got to go execute and prove it, but pipeline-wise, we're pleased with what we're seeing.

Yeah, Jonathan, I think our sales leaders would tell you this isn't a hobby at this point. This is what they're good at, and this is what our pipeline indicates. We've given a lot of bookings commentary over the last three or four years, and as you've seen, we've been able to deliver on what we've said, and we feel no differently right now. We have a ton of confidence and fidelity in our pipeline, and frankly, halfway through Q3, we're already at a very productive July. So things are going well. We've got very, very strong sales professionals that believe in our mission and our customers, and it just shows quarter after quarter. I'm really proud of the team, and I have a feeling I'll continue to say that for a long time. We're very confident we're going to have a big second half booking-wise.

Sure. And just across the ecosystem in terms of upgrades —

Sure. Generally speaking, customers tend to be most price-focused in their first contract, whenever that may be. So you definitely don't see OSP as commonly as you do with existing customers. You tend to see a customer buying maybe some Tasers and some body cameras and the core feature set of Evidence.com. But then a lot of our products have been built as a result of customers expressing where they want to go next in their program. Inevitably, customers that are newer are going to hit those same points along the way and say, 'Hey, it would be nice if I could add this, this, and this,' and that becomes an Officer Safety Plan conversation. And with AI now on top of the Officer Safety Plan, for those customers that have been on OSP for a while, they start to see the value of these AI features on top of what they're already doing. So I think it's a really nice path that our customers take to adopting more and more. Frankly, we're very disciplined about measuring how customers use new products and making sure they're very pleased with what they're seeing, and then years later that manifests itself in terms of adoption. That's a little bit about how we get from A to B there. I think the only thing I would add, Jonathan, is that because of the pace of our product innovation, many of the products that are available now might not have been available when the customer was originally signing up. As they come back and we naturally have more software features, functionality, and capability, it's a different conversation we can have with them in terms of what's even in some of these more premium bundles. I think that's a lot of what continues to drive that, and AI only helps that conversation.

Yeah, certainly directionally. Two or three years ago, maybe call it three years ago, the top offering in OSP, our Officer Safety Plan, might have been in the mid-200s. And then we started adding drones and Fus and additional value. We never simply inflate the price of Officer Safety Plan. If the price changes, it means there's more added to the bundle. That's what's happened from year to year. So now we're in the mid-300s just on Officer Safety Plan alone. And then you combine the AI Era Plan, which has a list price of $1.99 a month, and you add in-car video, you add Done across your enterprise, you add Fus — all things you build out more and more — and that's where we're seeing some of these numbers in the right around the 600s in terms of monthly value per user. Certainly, it's great to see some customers doing that, but our job is to communicate the value to every customer so they appreciate the incredible ROI they get even at those numbers. That's what we're focused on right now.

No, that's the high end. That drove our largest deal in US history and company history. We do think that's a promising sign of things to come, but certainly wouldn't set the expectation that the majority of customers are there right now.

Uh, no, we don't have an updated number on that. What we said a quarter or two ago was that about 70% of our customers were still on one of our basic plans. So lots and lots of room to upgrade. To Josh's point, we don't give an actual ARPO number. It could be as high as 600, but we still have so many customers that are not coming in and buying our whole suite of products. When we talk every quarter about our amazing software growth, some of it is the natural rotation you see as our customers come back in, upgrade, and move up their price points.

Sure thing. Thanks for the question, Alyssa. Maybe the second one first. The hard part about — I do think international is going to keep growing in a very exciting fashion. The hard part about talking about the mix is that the US is growing very fast as well. So it's hard for it to take over a bigger part of the mix because that would mean the US is slowing down, and it's the opposite right now. So we think both the total bookings rate will grow excitingly, but also that international will grow as a standalone. I just can't guarantee the mix is going to change all that much so long as the US keeps going on the path it is right now. If that makes sense. And I did forget your first question by answering the second one first. Would you mind —

Josh, Alyssa, I think you can go back. We've sort of given that metric at points in time. I think we gave it when it was like 80%, then 75%, then 70%. So we are working our customers up. It's not like it turns all on in one quarter. It's that we are over time moving the customers up to those more premium plans. But the other point I would make is that what's in the premium plan — to Josh's comment — we keep adding new things in it. So how premium the plan is, or how much they could pay, as we get new products in over time, that also keeps moving up. So we have those two drivers: moving customers further up the plan and actually having more product offerings that they could buy.

And then the AI Era Plan being yet another new plan on top of that plan that they can do.

No, it's — I don't, Britney, correct me if I'm wrong — but it's actually toward the smaller ones right now. Frankly, it's growing every quarter, but certainly not the biggest driver of new product bookings growth.

Therein lies the opportunity. Ultimately, we think it's a very relevant product. We got a lot of white space in front of us, and we're gearing up to execute well there.

Yeah. A lot of times when you hear me waxing during the call, it's rarely about the stuff that's selling well this quarter. It's stuff that I'm looking at a year out.

Maybe I'll start there and kick it over to Rick and Jeff. Jeremy, I think it's the same formula every year. The numbers might change, but it's really: we start with we are going to relentlessly invest in R&D every year. That's core to who we are as a company. This is an innovative company with an innovative founder, and we are going to continue to invest in every opportunity we can to pursue our mission, especially when we're seeing such incredible buying signals from our customers. We do that at times at the expense of — we try to fund that by getting leverage out of SG&A, or really G&A. Sales people — we look at where the opportunities are, and those are generally the easiest ones to say yes to because when you're hiring a salesperson for X dollars and their quota might be $5 to $10 million a year, you get a very clear return on that. But we are very disciplined in the rest of the G&A segment around how we use AI internally, just like our customers are using AI externally. How do we use AI to make sure that our team doesn't balloon as our business grows? So a lot of discipline in G&A, a lot of investment in sales, and relentless investment where we see opportunity in product.

Sure. Very exciting to be live with a few customers already in trials. For a product that we announced in May and have really invested in a lot in the first half of the year, to see poles in the ground and cameras working at certain large customers right now is obviously a great first signal. I don't want to get out over our skis there. There are certainly things we're learning and things we need to do better as part of that, but that's just the cycle all of our hardware goes through. We really believe we're on the right track. We think we're going to be very competitive in this market, and we're excited about the opportunity.

Britney, why don't you take that one if that's all right?

Yeah. So Jordan, on the strategy one, we don't necessarily want to tip off our hand on how we're thinking about the opportunity, but we'll be in the game when the lights come on, and we're ready to prove what we can do for sure. Josh, why don't you take that first question if that's okay?

Yeah, sure. Just like with everything we do, we submit things in as we have new things in our envelope, and we go through the official certification testing and then ultimately the FedRAMP body itself going through their final checkboxes. So exactly on plan: we submitted and completed all the work to make Fus FedRAMP compliant, submitted as part of our last package. So you can think of it as we are FedRAMP compliant at the moment, and the only thing waiting is the natural course of the committee sort of officially giving that last checkmark. But we're operating in the market with customers knowing that we've met all those requirements.

Let me take the first part. We are absolutely having those conversations. Draft one is the baseline of: 'Hey, if I can spend less time doing administrative work and more time doing police work' — we're hearing across the board things we can do with technology. Even DFR is one of those, right? If there are calls that we can clear without having to send officers, that means we can focus our manpower on the calls that make more sense. The same thing is true of inbound call handling. Customers are interested in: are there things we could use with technology to handle non-critical calls? Maybe we don't send an officer at all. Maybe we port them to an AI agent. Translation — historically there are multi-minute waits to get a translator when you're in the middle of a critical incident or an inbound call. Those are the sorts of things that across our stack or through our partners, we can begin to turn into real time. Right now, it doesn't need a person at all. It's technology aiding the person, or in some cases we can hand the whole thing over to tech. We think a combination of AI and robotics over the coming years is going to enable us to take on a greater and greater portion of that workload, allowing the human beings to focus on the top end of those incidents that really require human engagement. I'd say there's probably at least 50% of the workload of a police department that's automatable, and we are seeing that they're open to thinking their budgets that way. I can think of a few conversations we've had where agencies have said, 'Hey, I'm understaffed by this many folks. I'm just going to take part of that budget and push it over here and maybe not hire a couple of those.'

Yeah. So I'll maybe go in reverse order, and then Josh can jump in on enterprise too. We are continuing to ramp Taser 10 capacity. I would say we are continuing to ramp Taser 10 capacity as much as we can because we continue to see great demand for that. So we're ramping it this year. You saw us take our capex guidance up a bit. That's us continuing to ramp it into next year so that we continue to meet that demand. From an enterprise standpoint, and I know Josh will jump in, we continue to be really excited about the pipeline we're seeing. I think a lot of our products are really relevant to the enterprise segment. But I will say Fus has been particularly exciting as we've brought it in. That's just really resonating well with our enterprise customers and opening a lot of doors and a lot of great conversations. Our cameras, as we talk about retail and frontline workers, you could see counter-drone, you could see a whole lot of our portfolio being relevant. It's a huge market, so we'll continue to update over time, but there's a lot as we start to bite that off.

Yeah. The only other thing I'd add is that enterprise deployments are hard by nature. We're talking about aggregating hundreds of thousands of video screens to one pane of glass. That's hard work. The deployment is going well, and what we learn here will absolutely make us better in the next three, four, five of these that we do. The team's doing great work. There are some new variables when you have enterprise customers relative to government, and we're working through those and feeling good about where we're going to land.

Let's leave it at video for now. There probably are opportunities in gaming for less lethal as well in terms of security, but video between body cameras and Fus certainly has a lot of applicability given the amount of money on the line at each one of those sites. And Andrew, thanks for the patience.

Nope. You said it well, Rick. Thank you.