Axon(AXON) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported Q3 revenue of $711 million, a 31% year-over-year increase, marking the seventh consecutive quarter of 30% or greater growth [21] - Software and services revenue increased 41% year-over-year to $305 million, while connected devices revenue grew 24% year-over-year to $405 million [21][22] - Adjusted gross margin was 62.7%, a decrease of 50 basis points year-over-year, primarily due to tariffs [22] - Annual recurring revenue (ARR) grew 41% to $1.3 billion, with net revenue retention at 124% [21][22] Business Line Data and Key Metrics Changes - TASER revenue grew 17%, driven by TASER 10, while personal sensors grew 20%, led by Axon Body 4 [21][22] - Platform solutions revenue surged 71%, driven by CounterDrone, virtual reality, and Fleet [21][22] - AI Aeroplan is on pace to contribute over 10% of U.S. state and local bookings for the year, with bookings for newer offerings like Axon Air and Dedrone up more than 3X year-to-date [16][18] Market Data and Key Metrics Changes - Year-to-date bookings are up over 30%, with significant contributions from corrections and international markets [17][18] - The company closed a nine-figure cloud deal in Europe, indicating a shift in international markets driven by cloud product value [17][51] - The international business is seeing consistent bookings from Canada, Australia, and South America, with growing adoption of TASER 10 [51] Company Strategy and Development Direction - The company is focused on expanding its ecosystem, particularly through the introduction of Axon 911, Prepared, and Carbine, which aim to unify technology for better outcomes in public safety [6][11] - The strategy includes leveraging AI to enhance 911 call processing and improve response times, moving away from legacy systems [9][10][31] - The company aims to create a connected platform that upgrades existing systems without requiring complete replacements, allowing agencies to modernize at their own pace [10][11] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's growth trajectory, anticipating another record year in 2026, driven by investments in products and sales teams [18][70] - The management highlighted the importance of customer trust and product-market fit, as evidenced by increasing deal sizes and the breadth of product offerings sold to customers [15][18] - The company is optimistic about the future, believing that the best is yet to come as it continues to innovate and expand its reach [11][18] Other Important Information - The company is raising its Q4 revenue guidance to between $750-$755 million, implying full-year revenue of about $2.74 billion, representing approximately 31% growth at the midpoint [24] - Adjusted EBITDA for Q4 is expected to be between $178-$182 million, maintaining a full-year margin target of 25% [24] Q&A Session Summary Question: Was there any delayed contract decisions in Q3 that affected bookings? - Management confirmed that they still expect bookings growth to be in the high 30s% year-over-year, indicating confidence in Q4 performance [27] Question: Can you elaborate on the rationale behind the Prepared and Carbine acquisitions? - The acquisitions are seen as foundational for innovating in the 911 space, allowing the company to leverage AI and improve communication systems [30][32] Question: How do you see the interplay between software and 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 opportunities [40][41] Question: What is the outlook for gross margins moving forward? - The impact from tariffs is expected to be a one-time adjustment, with future growth in software business expected to improve overall gross margins [82] Question: How is the company positioned regarding the competitive landscape, especially with Motorola's new offerings? - Management emphasized their focus on customer needs and innovation, asserting confidence in their body camera products and the potential of the 911 space [66]