Axon(AXON) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Third-quarter revenue reached $711 million, a 31% year-over-year increase, marking the seventh consecutive quarter of 30% or greater growth [22][26] - Software and services revenue increased 41% year-over-year to $305 million, driven by new and existing customers [22][23] - Annual recurring revenue (ARR) grew 41% to $1.3 billion, with strong net revenue retention at 124% [22][23] - Adjusted gross margin was 62.7%, a decrease of 50 basis points year-over-year, primarily due to tariffs [23][26] - Adjusted EBITDA margin was 24.9%, reflecting the impact from tariffs and planned increased R&D investments [23][26] Business Line Data and Key Metrics Changes - Connected devices revenue grew 24% year-over-year to $405 million, reflecting broad-based demand [22][23] - TASER revenue increased by 17%, led by TASER 10, while personal sensors grew 20% driven by Axon Body 4 [22][23] - Platform solutions revenue surged 71%, driven by CounterDrone, virtual reality, and Fleet [22][23] Market Data and Key Metrics Changes - Year-to-date bookings were up over 30%, with significant contributions from corrections and international markets [19][20] - International deals included a nine-figure cloud deal in Europe, indicating a shift in some countries towards cloud products [19][53] - The company is seeing strong momentum in Canada, Australia, and South America, with consistent bookings [53] Company Strategy and Development Direction - The company is focused on expanding its ecosystem, particularly with the introduction of Axon 911, Prepared, and Carbine [5][12] - The strategy includes leveraging AI to enhance emergency response systems and improve operational efficiency [10][11] - The company aims to innovate in critical response workflows without rebuilding legacy systems, allowing for faster innovation [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in achieving another record year in 2026, driven by strong indicators across the business [20][26] - The company is committed to investing in products and sales teams to capture market opportunities [20][74] - Management highlighted the importance of customer trust and product-market fit as key drivers of growth [17][20] Other Important Information - The company is raising its revenue guidance for Q4, expecting revenue between $750-$755 million, implying full-year revenue of about $2.74 billion [26] - The company is also focused on strategic investments in newer product lines like Fusus and Dedrone, which are scaling quickly [25][26] Q&A Session Summary Question: AI's contribution to total bookings and any delays in contract decisions - Management confirmed expectations for bookings growth in the high 30s% year-over-year, indicating confidence in Q4 performance [29][30] Question: Rationale behind acquiring Prepared and Carbine - The acquisitions are seen as foundational for enhancing the 911 ecosystem, allowing for innovation in emergency response and voice communications [30][35] Question: Interplay between software, services, and connected devices - Management expects software and services to continue growing at a higher-than-average rate, driven by increasing user counts and upselling [39][42] Question: International deals and pipeline outlook - Management noted strong momentum in international markets, particularly in Europe, Canada, and Australia, with a focus on capturing cloud opportunities [53][54] Question: Competitive landscape for body cameras and response to Motorola - Management emphasized confidence in their body camera products and the focus on customer needs, dismissing concerns about competition [69][70] Question: Gross margin outlook and tariff impacts - Management indicated that tariff impacts are a one-time adjustment, with expectations for gross margins to improve as software growth outpaces connected devices [84][86]