$AXON Axon Enterprise Q4 2024 Earnings Conference Call

What an amazing company, what an amazing group of people. The people I get to work with, our employees, my teammates, our customers, working on problems we care about. It's a privilege I get to work here. All right, welcome to another one of our team members, our investors, and we're here to report our fourth quarter 2024 and year end. We just finished what I believe will be a pivotal year in the history of our company, and we're looking forward to another exciting year in 2025.

The best part of my job is getting to spend time with our customers. As you can see in the video, we feel like we're on this mission together. Understanding the challenges they face every day is our guiding light, and we have worked tirelessly to become their trusted technology partner. There's so much we can do to make their jobs easier, their lives safer, and their days just a little bit better while helping them protect us.

Over the years, we've introduced new tools that have advanced the way our customers operate and how they think about technology. We are at a place where the benefits of adopting newer technologies are so clear, it's almost impossible to imagine what the world would be like if they were never brought forward. We launched Taser 10 about two years ago. It's just one example of a product that is not only driving growth in our business but it's changing the world. I rarely go a day without one of our customers telling me how this device has changed their world, and we're investing to make it better. We have a lot of work ahead of us to deliver on our moonshot, and I believe we have the roadmap to get us there.

I'm in an international market where I just came back from one of the most inspiring days of my career, and I can't wait to share the results that will unfold over the next 24 months as we move forward towards our moonshot. It's bigger than just the United States and cutting gun-related deaths between police and public in the US. It is a worldwide phenomenon that's going to happen here. Stay tuned. We're going to have better efficiency, better training, and new ways to apply our technology.

Over the horizon, our cameras and our sensors are helping our customers capture more moments. Our acquisition of Fusus helps us connect more sensors and cameras than ever before. There are countless places where the benefits of better transparency and operations with the increased application of connected technology are just undeniable. Our investments and our ability to lean in, out of the foresight to invest in the things that led us here, that enable connectivity and software behind not just cameras but all these sensors that are now taking flight into so many new sets of customers where we've never had the chance to engage previously.

Our devices are connected by the most powerful purpose-built public safety operating system in the world. We now have more than 1 million users of our software solutions spanning evidence management, real-time operations, productivity, and yes, artificial intelligence. We understand the interconnection of advanced software and hardware, and we unlock value in solutions that leverage the seamless connectivity to solve problems we care deeply about. This is where we differentiate ourselves.

With this foundation, we see several major tech trends unfolding before our very eyes: exponential advances in artificial intelligence, increasing connectivity, real-time sensor fusion, and growing applications for drones and robotics, to name a few. These aren't just buzzwords to us; these are our passions, and we're making them real and real businesses. These product areas were more or less elements of our imagination a few years ago, and today they account for nearly half of the overall opportunities in our pipeline. We believe we will be the partner who enables our customers to leverage these tools to make their jobs safer, to make them better and more efficient.

I continue to spend my time thinking about the big picture while ensuring that we're on the right path to make giant leaps that challenge our conventional thinking, so we can be prepared for and deliver and be the driver of the future for our customers. I've never felt more confident about our position or more just insanely excited and motivated by what we're doing and frankly by the people I get to work with every day.

One final note before I pass it on: I would like to provide an update about something near and dear to me. It's been one year since we last updated you on our intent to invest in our headquarters campus. We have a vision for a campus. We've put in a lot of work, I personally have, into that vision, and we hope to keep it based here in Arizona. We love Arizona and we want to be here. Unfortunately, Arizona has a political and legal environment that is making it challenging for businesses like us to invest here. After several years of working with our various elected administrative officials, developing plans that were responsive to our community, and we received unanimous approvals from the planning commissions and then through a vote of our elected officials, we've had a setback. Unlike states like Florida and Texas, Arizona allowed zoning decisions to be subjected to political petitions and frankly political gamesmanship. In our case, we faced paid petitioners who collected 93% of the signatures on a pay-for-signature basis, with two-thirds of those people coming from outside the state of Arizona, from another state which I may have just mentioned. If we allow this to stand, this would delay our project by two years and reintroduce the risk of having to start over. Unfortunately, this same phenomenon caused Arizona to lose our NHL pro sports team, and it's placing Axon and other major projects at risk. So like many things, we're digging in to fix the problem. I'm working with our elected officials to try to fix this situation and enable Arizona to be an attractive, predictable environment for businesses. If we can fix it, it'll keep us here and it'll help the state attract other businesses and really grow into the tech center I believe it can be. If we can't fix it, well, then we're going to have to move on. We have several states courting us that don't have this same risk profile. So we're not going to leave this decision open forever. We will update you again as soon as we have fully vetted our options and come to a final decision. I intend to make that decision together with our board in the coming weeks. So with that, I'll pass it on to a guy again who I'm just excited to work with, who really leads the business, which gives me the time to spend a lot of time with our customers. And Josh is going to give you the details on what our incredible team accomplished in this most recent quarter.

Thank you, Josh. As Rick and Josh mentioned, it's wonderful to come back to you with another great quarter and report results that exceeded our expectations once again. Q4 revenue of $575 million increased 34% year-over-year, for our 12th consecutive quarter of over 25% revenue growth. I'm particularly excited that we saw double-digit year-over-year growth in all of our business areas, with Taser up 37%, sensors up 18%, and software and services up 41%. Our software remains a driver of our overall growth and contributed 40% of our total revenue in Q4. ARR increased to $1 billion, up 37% year-over-year, and net revenue retention remains strong at 123%, reinforcing the visibility and predictability in our business.

Adjusted gross margin was 63.2% and has been very stable across the year. At an overall company level, adjusted EBITDA margin was 24.6%, and we continued to invest in our business to ensure we are positioned to grow with new customers and markets while driving innovation in our technology. On a full-year basis, we delivered over 33% top-line growth, driven by continuing to deliver more to our customers with strong product performance across the board. We also delivered strong bookings, taking our total future bookings above $10 billion and providing support for years to come. We made significant strides in profitability, expanding adjusted EBITDA margins almost 400 basis points this year. As a result, we achieved a 25% adjusted EBITDA margin for the full year, a milestone we initially set for 2025. With this result, we reached both our three-year revenue and adjusted EBITDA margin targets a full year ahead of schedule.

As we exit the year, our product teams are working on new technology that will support our growth outlook for many years ahead. We are quite excited about our newer product areas and continue to invest in R&D to support our growth. We are entering the new year in the strongest and cleanest inventory position we've been in for the last three years. We did all that with strong free cash flow generation above 60%. We continue to drive strong customer satisfaction, which is our North Star. It's humbling to think about where we are, and I thank our teams across the company for the work they put in during this incredibly busy and exciting year.

Now I'll turn to our 2025 guidance. We expect 2025 revenue in a range of $2.55 to $2.65 billion, or approximately 25% annual growth at the midpoint. This would mark our seventh consecutive year of 25% or greater annual growth. Similar to past years, we looked at the strong execution across all segments, momentum in future contracted bookings, and our pipeline entering the year to develop this guidance. We expect 2025 adjusted EBITDA in a range of $640 to $670 million, representing approximately 25% margins. We believe this margin level puts us at the right balance to invest in the future growth opportunities we see while still delivering strong profitability and cash flow.

As a management team, we are focused on delivering year after year over the long term. That requires continued innovation, product risk-taking, and investment, and we're lucky to have Rick who is such a visionary in this space. I hope you can tell we're excited about the opportunities in front of us. It is this type of product innovation that has allowed us to deliver our consistent, impressive top-line growth numbers. Beyond R&D, we're also investing in our sales functions to support new customers and market opportunities, as well as continuing to scale the business. For some context, we are now at four years of hitting well above the rule of 40. We're pleased our guidance implies another year of hitting that type of number.

We also expect capex in the range of $140 to $180 million, up year-over-year on a dollar basis but only up two points as a percent of revenue. This is driven both by more Taser 10 capacity to keep up with our continued strong demand, as well as investment in both R&D and manufacturing for our many exciting new product areas. We're proud of all we accomplished in 2024 and are looking forward to another dynamic and innovative 2025 that delivers for our customers and our shareholders. Now we will turn it over to take your questions.

Thanks, Britney. Let's pull everyone into gallery view. All right, we're going to take our first question from Jeremy Hamlin at Craig-Hallum.

Thanks and congrats on the very strong results and guidance. I wanted to start with a topical question and get a sense for what portion of your total revenues are coming from federal contracts with the US government, and whether some of the things that are happening in terms of hiring freezes might cause any potential change in the timeline of deployments. Anything you might be able to share to provide a better sense? We've certainly got a lot of questions around the potential risk around this area.

Yeah, I really appreciate it, Jeremy. Thanks. A couple thoughts on this. Number one, I certainly don't think in terms of Axon's case in our future there's any real cause for concern about what's happening with the funding cuts and DOGE and so forth. Actually, I think there's a world where we could come out of this with more opportunity as they start to look at where federal law enforcement is getting their bang for their buck, and technology. I think they'll point back to Axon, and I think we'll have the opportunity to continue to support the federal government across both federal civilian and DOD hopefully in bigger ways moving forward. We're excited to compete for more business there. So I personally think there's more opportunity than risk right now for us in the federal space.

Right. And then a potentially related question: it looks like we may be coming towards an end hopefully in the war in Ukraine. I know that Drone has certainly been impactful in terms of operational support in those efforts. I also know that the recent government changes in terms of funding outline that drones would not be impacted by any hiring. I wanted to understand the potential mix of change related to if we get an end to Ukraine in the next month or two, and then what you expect from a border patrol support and opportunities that are there for Drone related to those efforts.

Got it. Let me maybe take this one. So yes, Drone has sold a lot of stuff into Ukraine, but the far bigger picture is what happened in Ukraine has put drones on everybody's roadmap. Every military in the world is thinking about how do you detect these small drones that traditional military systems are not designed to detect, how do you defend against them. We acquired the world leader in drone detection, we acquired at least one of the world leaders in indoor tactical drones with Sky Hero, we've partnered with the leading US maker of long-range autonomous AI-driven drones. In the moment where basically DJI is largely being made illegal in the United States, we think we are in an amazing position for drones and robotics. It's an area we're investing heavily. We're currently either the leader or partnered with the leader in the key market segments. When you think about things like patrolling borders, protecting stadiums, and Ukraine has shown what anybody could do with a drone you can buy for less than $500, everybody in the world is thinking about how to defend against those. We think we are, if not the best positioned, among the best positioned for helping our customers globally solve that problem. So from a human perspective, I certainly hope that all the violence we're seeing in the world comes to an end, but in a way that is persistent and sort of long-term puts these issues to rest. We look forward to playing a role in helping use technology to protect people from killer drones. We're not going to get into the lethal drone business ourselves, but we're going to absolutely be a leader in helping defend against those kinds of threats and then using drones to be able to go out, act more intelligently, save lives, and stop threats without using lethal force. We think those opportunities have all gotten bigger just given the quick evolution of the space that's been caused by what's been happening in the Middle East and in Ukraine.

Understood. Thanks so much for the color and best wishes on continued success.

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

Great, thanks. Congrats on the quarter. Maybe to start with, great traction on noting the 100,000 incident reports already completed with the AI tools. What are you seeing in terms of AI adoption, either what type of bundles they're opting for or just pipeline there? And then maybe as a second question, you noted the large Enterprise deal. What was the point there? Was it Fusus, was it body cameras? Any context there would be helpful. Thanks.

Let me take the first part and I'll have Josh talk about the second part. So in terms of AI, without a doubt these are the fastest growing adoption products we've ever had, and it's not by a small margin. We're seeing these products and services really resonate with our customers. It's unbelievable. The AI Era plan that we were closing deals within eight or nine weeks of launch, that's like I don't think we've ever seen things move that fast. Maybe a little bit with like the Taser, but that's where somebody had an existing Taser line item, we introduced a new Taser and they went from Taser 7 to Taser 10. So yes, that has happened, but a new product category going from zero to deals in that short timeframe is super encouraging.

Great, thanks. I'll pass it on.

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

All right, thanks for taking my questions. Just wanted to hit on the news with the Flock Safety partnership. What happens in terms of the technology licensing for Fleet 3 ALPR technology now that the partnership has ended? And then how are you thinking more broadly about your relationship with the company moving forward and your strategy around fixed LPR?

Understood. And then maybe just back on the federal business: have you heard any feedback thus far from customers with regards to their ability to expand and take down more body cameras or Tasers under the existing contract structures, which to my understanding were often open-ended with their ability to add more products since the election has happened?

Josh, let me add as well. You know, when we first introduced body cameras in law enforcement, most cops didn't want to wear them. There was one Statewide union leader who sort of famously told me, "No cop wants to wear a body camera until they've worn one for 30 days, and then they'll refuse to go on patrol without it," because they realize in today's world it protects them from all the crazy allegations somebody could make. And that's also true of our federal customers. I meet with them all the time. So early on, I think it was kind of helpful to get a political push from the top to get these agencies to try it, but once they start using it, we see the same phenomenon. If you're whatever federal agency you work for, you just realize your job places you not only at physical risk but at risk of being accused of just about anything. Having a video that shows you're a professional doing the job the right way gives them great comfort to go do their jobs with confidence that they're not going to get hung out to dry by somebody making something up about what they did.

Understood. Thank you.

And by the way, the other thing I'll add is these new tools like Draft One, customers absolutely love it. Cops are over the moon about this. The idea that I don't have to spend four hours of shift doing reports, I'm cutting that in half. I was just demonstrating our new real-time translator. I'm outside of the US right now. We did a demo in Icelandic yesterday and the guy said there's no way it was going to work, and his jaw hit the floor. Before we did Arabic, Norwegian, and a couple other not exactly the most heavily used languages in the world. We think the real-time translator is going to be another real hit. So the body camera is evolving, and our customers are seeing it. It's not just a recording that can help me; it's now the edge of the AI internet on my chest. I've got a real-time AI assistant that'll help me translate, help me write my reports, help me look up things I need to know, help me ask policy questions. I don't have to call a lawyer at 2:00 AM about how to deal with some obscure legal situation. I can just immediately cross-reference my reports. All those capabilities are included in the new Era plan, which is why we saw it go from zero to revenue so quickly. One of the things you continually hear in the industry right now is a lot of theory and not a lot of practice and application with the power of these new AI tools. What we are all about is the applied practice directly in service of real problems for our real customers, and that's what they love about what we're building.

Thank you. Thanks everyone. Up next we have Mike Ang at Goldman Sachs.

Hey, good afternoon. Thanks for the question. I just have two: one on bookings and one on cloud. First, on bookings, it's a two-parter. You guys had bookings of over $5 billion this year. I think this is at least the third year of bookings growing a billion dollars year on year. So when you look at your pipeline going into 2025, in your base case or in your bull case, are you assuming bookings grow a billion dollars again to $6 billion? Any thoughts qualitative or quantitative would be helpful.

Great, thank you. And then just on cloud: Axon Evidence and cloud services revenue within software and sensors saw a solid step up quarter on quarter. I think it was up $35 million sequentially, the largest on record. Could you talk a little bit about some of the key things that drove that strength? Was there anything unusual that made that sequential growth particularly good this quarter, or are you thinking that the structural run rate of sequential increases may have stepped up? Thank you.

Okay, I'll take that one. I think it's very much what we talk about from a seasonality standpoint as we go through the year, which is that our step up from a software standpoint often lags how we're doing on bookings by a quarter. It's not always perfect because there's timing inside of the quarter, but as you think about it, our strongest bookings quarters tend to be Q3 and Q4, and then Q1 is our seasonally softest and it steps through the year that way. So if this step is lagging by a quarter, what you see typically is Q4 and Q1 have the bigger steps up from a software standpoint. I think you're just seeing the strength in the software business come through. We're seeing more user adoption and we're seeing more products, more software products get sold into those users. Also, Drone is not material to our business, but they do have some software revenue, so you are seeing a small bit of Drone come into the software step for the first time this quarter.

Great, thank you.

Britney, thank you. Josh, thanks Mike. Up next we have Jonathan Ho at William Blair.

Good afternoon and let me echo my congratulations as well on the strong quarter. With your international bookings, can you talk a little bit about the strength here and maybe what's changed in the decision to expand the TAM?

Yeah, so I think a lot of what you're seeing in the TAM is we refresh the TAM every two years. We did a little bit of an interim update when we did our Fusus and our Drone acquisitions, but that was really an in-house process. As we came back to look at our TAM this year, we really looked out over the next two years and what's changed a lot from two years ago is really the number of products we have. That applies to International as well. As you look at the international market, we now have a lot more products that we can go ahead and sell into the international market, like Fusus, like Drone, like AI. So you're seeing that strength come through. We're also continuing to see some nice traction outside of some of our Commonwealth markets, and that gives us increasing confidence in that higher international TAM.

Excellent. And just as a follow-up, a big picture question for Rick. We've clearly seen a strong value proposition here from generative AI tools. How do you imagine what you can do with agentic AI, which seems to be all the rage on the tech side, and potentially is even more impactful than generative AI? Thank you.

Yeah, I mean I think it just sort of builds for us. It's all about where the workflows matter that will enable our customers to do the things they need to do in their jobs. So I think a lot of it right now is like, "Okay, take this transcript, run it through and create a report for me," or "Hey, take this and translate it." I think agentic AI allows you to start to do things like, "Hey, go search across this giant data set and help me solve some problem that currently I have teams of people working on." We think we're in a unique position given our customer trust, given that we're housing so much of their data for them and managing their sensors, that we'll just kind of keep going down the list of their problems. For us, there's also a risk-reward trade-off. We intentionally started with report writing rather than, for example, facial recognition where there are various privacy and related concerns. Report writing was like, "Hey, we can ensure there's human oversight. If the AI gets it wrong, it's actually not a catastrophic failure. You've always got the underlying evidence. We can put in speed bumps to make the officer do it." We are starting to look at more uses of AI that will help with some more core law enforcement functions. We're going to do it in a way that we will always be proud of, that respects and balances privacy. We want to build the world of Gene Roddenberry, not George Orwell. These agentic workflows will just allow us to start handling higher levels of complexity. But for us, it starts with I go out, I meet with customers, I hear what their problems are, then I get to come back to the company looking like a genius with all these great ideas. I'm like a bee carrying pollen back to the hive, and then Jeff's got to make sense of it all and work with our thousand-plus engineers and product people to take these great customer ideas and put them together. Then Josh and Britney are going to staff and execute the business to run it, and I get to go out on the road again. The team works really well together. I just love my job getting to go imagine, talk to customers about their problems, and try to match it with what tech is going to work. To be honest, Jeff really holds me accountable. A lot of our conversations, Jeff uses the word "actually" a lot, like, "Okay Rick, this is great stuff, but what can actually work right now in a way that customers will actually use it, it won't disappoint them, and it's not going to be buggy?" So agentic, we're going to approach it kind of the same way: where are we at and what will work well for our customers? It's a lot of us just getting the sequencing down.

Thanks, Jonathan. Up next we have Andrew Sherman. Andrew, welcome to the call.

Great, thanks. Good to be on the call. Congrats on the quarter. Britney, one for you on the revenue growth guide of 25%, very strong. Maybe just walk us through your assumptions embedded there for NRR, any color on the AI Era contribution, the sustainability of the strong 123% NRR, and any change to your guidance philosophy versus the past couple years.

Yeah, thank you. As I talked about, no actual change in our guidance philosophy. What we do is we've got our future contracted bookings, we know approximately how much of that will convert in the next year, so we know how much of a go-get we have. Then we can look at our pipeline and see how our pipeline stacks up and how we feel about that go-get. That's pretty much how we do it, and that's how we continue to do it this year. In terms of assumptions going forward, we have really low churn. Our NRR has really only continued to be very stable to positive, so no major changes in assumptions going forward.

Great, thanks. And for Britney and Josh, maybe just touch on where the supply-demand balance is for Taser 10. Great to see that it's still tracking at 2x T7, but where do we stand today on supply-demand balance? I think Britney, your capex comments would imply more supply coming on. So what is that signal for growth this year?

You got it. We are still outpacing our supply with our demand, so still in a great place. We are investing next year to try and bring more supply online. We'll see where demand goes. I think we imagine that sometime next year we've got that supply-demand in balance. But what you're really seeing right now is we are basically selling as much T10 as we can make, so we've got to keep investing behind our capacity.

Yeah, I just met with some new European customers who have not had T10 for very long, and two of them told me they've already averted at least one shooting, saved at least two lives in the early few months of deploying it in the field. These are countries obviously that don't have the frequency of shootings that we do in the US, so it was pretty significant to hear that from them. While all of our products work so well together as an ecosystem, there are pairs here and there that are doubly so, peanut butter and chocolate, and drive each other forward. With T10, the story with VR is such a great one because T10 is not only so transformational in its capability, but it is new and different in a way that really motivates the sale and adoption of our VR training that goes along with it. It's the catalyst for getting the best possible outcomes with T10. In a similar story for DFR and robotics with Fusus and RTCC, you see all these pairings that go so well together combined with the leverage of them adopting more and more of our whole ecosystem.

Great, thank you all.

Thanks, Andrew. Up next we have Will Power at Baird.

Great, thanks. I guess I got a couple. First, Rick, I'm sure the Lone Star State would love to have you if Arizona doesn't work out. First question for Joshua, but Rick who really wants to take it: it sounds like really strong early success with the AI Era plan. I think he noted 10 deals in Q4. I just want to understand the confidence and visibility there as you move forward because it's a big lift in OSP pricing, right? You're going from $350 to the high end of $550. What's the conviction, confidence, visibility, and agencies having enough budget to be able to adopt this at a rapid pace from here?

Let me jump in on that. I met with a large customer in a relatively new segment for us, so it's not state and local law enforcement, a big agency. I spent a day with the customer going through their operations, learning how things work. It was a lot of fun for me. There is a new AI service we could do that would literally offload more than half of what their entire staff spends their time doing that they hate doing, that's administrative in nature, with a lot of similar characteristics to Draft One. This customer was like, "Oh my God, this would be game-changing for my budget. It would free my people to do more training, and I wouldn't need as many people, so I could grow a little slower, and my morale would go up dramatically." That's something I came back to Jeff and we said, "Okay, let's put a team on how to figure out how to do this." With the new AI tools, it's going to be very doable. That's just another example where AI is allowing us to rapidly bring the promise of AI tech doing sort of repetitive jobs. One of the great things is it's not like they're firing people. This is taking the crappy, low-value, time-consuming, bureaucratic suck of their job away, and that's a win-win. They're excited: "I get to go do stuff I enjoy doing. It gets me excited to go to work." For the chief, it's like, "Yeah, I'm getting more out of my people." So it's paying for itself.

That was great to hear. It sounds like Jeff's got job security as he works on those projects. Maybe just a quick second one, probably for Josh: the Enterprise deal, the largest deal in history. Maybe I missed this, but any color as to exactly what they're utilizing? Are they utilizing body-worn cameras, is it Fusus, is it both, is it Drone for facilities? What's getting used there?

Thank you.

Thanks, Will. Next we have Trevor Walsh at JMP.

Great, thanks team for taking the questions. Josh maybe for you, but Rick feel free to jump in. I want to ask the federal question maybe a different way. I understand it's more opportunity versus risk on the federal opportunity itself, but one of your peers kind of in the state and local technology-centered sales motion gave some statistics on their call a few weeks back about how federal funding flows down into state and local budgets. Just curious if from that kind of general commentary, state budgets can be a little more impacted or draw a lot more from federal funds. So just curious if you're hearing concerns for that state level, state police, whatever it might be, types of organizations having worries or concerns around what the federal fund flow will be for them, less so obviously like county and local level if that makes sense.

Great, thanks both for the color. Maybe just one quick follow-up for Britney. Appreciate the new future contracted bookings metric. Always love adding a new metric to keep tabs on. Can you clarify: it sounds like it's RPO basically plus additional contracts that have T for C or other clauses that obviously don't put them into RPO. Is that new metric a function of more of those termination clauses or doing more contracts that have more of those types of things, and so it kind of helps to give more visibility there? Where do those contracts fall? Are those federal customers that just generally have that written in, or are there other places where you're seeing that more and more generally from a contract perspective? Thanks.

Yeah, you nailed it. That's exactly what it is. We're going to move to talking about our new total future bookings number because it's really more indicative of what the business is doing and the bookings commentary and color we give. We have been going through, and we changed accountants this year, so we've really been scrubbing RPO. There's just a lot that ASC 606 doesn't allow us to put in from a GAAP standpoint. So you will still find our GAAP RPO number in the 10-K; we have to report that. You'll see that, but more and more it's diverging from how we actually measure our business. If you go back and look at our historical contracts, even when we have termination for convenience, our customers don't actually leave us. They don't utilize that. We really don't have churn, so it's just not indicative. In terms of where we're seeing it, honestly it's across the board. More and more customers just want termination for convenience as a best practice. We're seeing it in a lot of places, so we're just going to move to this non-GAAP version of the metric, which we think is a better reflection.

Great, thanks. Great finish of the year.

Up next we have Jordan Lius at Bank of America.

Hey, thanks for taking the question. Could you guys talk about how you're approaching your go-to-market with Skyio and the Sky Swap program and how that's been going so far?

Let me jump in and actually say it's not even that Skyio is behind DJI. DJI got to market first with scale, but Skyio is actually the world leader in autonomy. Like many things, the Chinese companies had really inexpensive hardware and they did a great job with the user experience. Skyio has a big team in Silicon Valley that's been very much focused on leveraging AI and sensors so that the drones can launch and fly themselves autonomously now. Look, we bought a drone company two years ago, Sky Hero, but that was for a different use case: indoor tactical drones. As we did an assessment on the make-versus-buy, what Skyio is doing is just a different level of complexity. If a tactical drone falls out of the sky, it falls to the floor from six feet; it doesn't fall on somebody. It doesn't have to fly itself. You build it to be more resilient to bump into things, and you don't need all the autonomy that can get confused in an indoor environment. There are other applications for the long term that we felt Sky Hero would be transformative for us to own and work on. With Skyio, our assessment was, "Wow, it took a team of 600 people working for the better part of a decade with pretty massive investments to do this, and they've got a huge head start." As we got to know each other, it was one of those, as Jeff would say, chocolate and peanut butter moments. It was really a great fit. I've developed a great personal relationship with the team and Adam up there, and it really fits nicely like a lock and a key with each other's portfolios. We're going to market hard to the paint with the partnership, and we're getting tremendous customer feedback. In fact, it actually costs you a lot less to deploy an American Skyio drone than a DJI drone for this reason: with DJI, you put it in the trunk of the car and then you've basically turned your police officer into an Uber driver for drones. He drives to the scene, then he stands on scene flying the drone, which basically cost you $200,000 per year to get that drone driven around the city. With a Skyio dock, yes the hardware is a bit more and the software, but for $50,000 you can have that drone autonomously that does not consume an officer. It can be autonomously flown. It flies to a site without any need for human oversight. Pair that with our Drone sensors, and now that is an amazing pairing. You can now see the airspace to see where everything is. The drone can fly autonomously, connecting those two systems together. Whoever needs to see the feed just magically sees a camera in the sky where they want it, looking at what they want to see, with zero human overhead. So it's actually about a quarter of the price when you consider the human labor elements. We think this is both an interesting political moment in that the US government policy and the rift with China is accelerating that transition, but it's also matching this wonderful moment in time where AI is now making autonomous flight possible. Skyio is in the process of releasing from beta to production their dock that unlocks this complete autonomy. So it's a really exciting part of the business. We always look to make the best decisions: where we should make, what we should build ourselves, where we should partner. In this case, we found a great partner, and we're confident that it has the right relationship fit and long-term dynamics.

And for your customers, if you're DEA or Border Patrol, can they just go through you to buy the Skyio drone and you guys will put on your kit so it's all connected, or do you need both of you?

Well, we could do those deals on what we call Axon paper or on Skyio paper.

Yeah, one example: an officer with their body camera in the near future will say, "Hey, I need a drone," and we deploy the drone to the body camera. As it flies in, Skyio has done a great job integrating. You'll see a blue augmented reality pillar growing to the sky that tells you right where your officer is, so there's no searching around to find them. It's a seamless mesh of our body cameras, our Fusus, Skyio's autonomy and their flight software. But to the customer, it doesn't matter. It's one experience: "Oh, that officer needs a drone. There it is, and there's my officer, and I can see him, and I can pass that video feed to whoever I need to pass it to."

Thank you all. Thanks, Jordan. Up next we have Joe Cardoso at JP Morgan.

Hey, good afternoon everyone. Thanks for the question. Maybe just wanted to follow up on the drone question but from a different point of view, maybe a bigger picture point of view. How are you guys thinking about the timing of that opportunity materializing in a more material way for Axon relative to a year or two ago? Because it sounds like anecdotally it's ramping much faster than maybe the conversations we were having last year. I'm just kind of curious when we're thinking about the size of this potential business for Axon a year out, two years out, can we think about this as being material volumes, or is that just getting a little bit ahead of our skis as you guys are doing more pilots and programs with some of your end customers, or are we actually starting to see some bigger moves here from your end customers in terms of adoption?

They typically prevent me from throwing numbers out because I get too enthusiastic, but I would say qualitatively we're at a tipping point.

We've got the TAM at about $20 billion for this, and we are in such early innings. We took that up because I think we see opportunity much more clearly in front of us now, just from a logistics and a timing thing. We do long-term bookings; they go into bookings. That's what's giving us excitement about momentum. It takes a little bit of time to start seeing that all flow through the P&L.

Got it. And then maybe a quick question for Britney. Obviously you talked about hitting the 25% EBITDA target a year ahead of plans, still guiding for 25% for 2025. Appreciate that you talk about the investments in your prepared remarks. Maybe just flush out a bit more in terms of where those investments are exactly targeting. Is there any particular areas that you guys are putting those dollars to spend in different parts of the portfolio or engineers, etc.? Just curious where those dollars are being spent, and then anything that we should be interpreting in terms of implications around gross margin expansion for the year from those comments, or is it really just largely taking those dollars and investing them into opex?

Yeah, I'd say it's largely taking those and investing them back into R&D, and it's all the areas we've talked about: drones, robotics, Fusus, all of these new markets that we're so excited about.

Got it. Appreciate the color, guys. Congrats on the results. Thank you.

Thanks, Joe. And finally, go to Keith House at North Coast.

Good afternoon here. Thanks, I appreciate it, guys. In terms of the Enterprise opportunity, obviously sounds like we're having a lot of traction here. Britney, maybe can you talk about the pricing there? I know it's still nascent, but in the public safety space you guys have that nice matrix that you've provided investors over the past several years. How do you think about pricing for the Enterprise market? Is it in a similar vein, or are there different pricing schemes you're going through?

Yeah, I mean I would say it's in a similar vein. I wouldn't think about it as being materially different. Obviously there are some nuances to the Enterprise market of course, but they're still buying device licenses, they're thinking about Fusus, they're thinking about body cameras. So there are certainly nuances, but nothing large I would call out for you as being highly different at this point.

Okay, I appreciate that. And I apologize if I missed this perhaps earlier in the call, but obviously tariffs are top of mind for a lot of people these days, both from a cost perspective for companies as well as perhaps demand issues for geopolitical issues. How are you guys thinking about tariffs from both aspects?

Yeah, we've tried to stay really flexible in our supply chain. Obviously at this point we've been dealing with tariffs of some kind for a number of years, so we really have found that just being flexible and diversified is key. It's hard to exactly predict what is going to happen going forward, so without certainty on what the tariffs are going to be, it's hard to give a perfect answer. But based on what the talk is at least right now in terms of some of the proposed tariffs, there's nothing that I see that would really impact our guidance in any way. We think we've pretty well baked in what is knowable today.

Great, thanks guys. Good luck.

Thank you. Thanks everyone. I'll kick it to Rick to close us out.

Awesome. All right, well obviously we're delighted to have delivered another great year. The team's just doing a great job. I am insanely motivated by our customer feedback. One of the things I'd mention is I think ultimately Taser has the opportunity to become a primary weapon system, and that could drive growth in the international markets even more than in the US, where they will carry a gun and a Taser frequently on every officer. My confidence in that future is growing. So here's to a great 2025. We look forward to seeing you all on our next earnings call, and thanks for being part of the team.