Andrea James and Angel Ambrosio welcomed everyone to the Second Quarter Earnings Call and introduced Erik Lapinski, the new Director of Investor Relations and Financial Communications. They thanked Angel for helping to make the call Zoom-first and for her help with ESG reporting. The shareholder letter was released after the market closed and the prepared remarks were meant to build upon it. They then played a video before turning it over to Rick Smith, who reported that customers had a great reception to the new products.

Police chiefs have reported positive feedback for the TASER 10, leading the company to promote Brittany to COO and CFO and Josh Isner to President. The company is focusing on product development, with plans for robotic security and generative AI in the near future.

Axon acquired Sky-Hero in June, which will not be a major revenue contributor this year but is highly synergistic with their product roadmap. Sky-Hero is already selling to U.S. federal government customers and SWAT teams in the U.S. and Europe and is based in Belgium. Axon is looking to use generative AI and large language models to create game-changing products for their law enforcement customers, which they have been anticipating for years. They focus on mapping key technology trends to customer needs, rather than waiting for the customer to ask for it.

Axon has invested heavily in the development of an ecosystem of wearable cameras and sensors, and a secure cloud platform, in order to collect, share, and analyze data for its customers. This data will enable the use of advanced AI tools in public safety, and Axon is already seeing promising results from its early work. Joshua Isner is proud to lead an organization that is committed to its mission and is unapologetic about winning.

Rick is pleased with the customer feedback for TASER 10 and Axon Body 4, which has translated to strong orders in the first half of the year. Q2 saw revenue growth of over 30%, driven by the right products, sales strategy, and team. Cloud business grew 62%, and TASER business grew 14%. The company is focusing on revenue, profitability, new market expansion, and new product adoption. They are looking to increase software penetration and have launched two of their largest product launches to date. Profitability is a key focus, and they are pleased with the team's focus and execution in Q2.

In the second quarter, the company saw strong growth with a 31% year-over-year increase in top line revenue and 22% EBITDA margins. Gross margins improved sequentially, primarily due to the mix of software. Additionally, 35% of total revenue came from Axon Cloud and services, compared to 29% in the previous year. The company also saw triple-digit bookings growth in the federal and justice markets, as well as a 50% year-over-year increase in emerging product bookings.

The company expects gross margin to remain flat or improve modestly from Q1 2023 due to professional services, product launches, and software growth. Operating expenses have seen leverage, resulting in an adjusted EBITDA margin of 22%. The company has increased its full year revenue outlook to a range of $1.51 billion to $1.53 billion, with an adjusted EBITDA margin of 20%, and is focused on delivering on their guidance.

Joshua Isner discusses two elements of the company's cloud adoption: proliferating hardware in different forms and selling body cameras into existing core markets, international, federal and enterprise. He believes that this will drive more usage of Evidence.com.

In the second half of the year, Axon has good visibility of their product sales due to the customer reception of their new products, AB4 and TASER 10. They have confidence in the volume of the products they can manufacture and have good visibility of delivering in the second half of the year.

Brittany Bagley explains that there are three main factors affecting gross margins this year: getting the TASER 10 ready to ramp and scale, the launch of AB4, and adjustments to the Axon Cloud. These headwinds will be beneficial for next year, as the TASER 10 and AB4 will be fully scaled and ramped up.

Fleet has been a successful product this year for the company due to inventory constraints. The product comes with hardware and professional services to install it, which is a one-time hit to gross margin. However, this investment will enable recurring software revenue in the future. Additionally, the company has seen larger deals in newer areas such as federal, justice, and international. These deals have been increasing in size, which indicates the success of Richard Coleman's team in the federal business.

In their Tier 1 markets, the U.K., Canada and Australia, TASER and body cams are seeing meaningful orders. They are making headway in other large markets, mainly with taser-oriented orders. In the long term, international sales are expected to be five times larger than the U.S. market. This is because the gun culture in the U.S. is different from other countries, making TASER 10 more transformative. In other countries, it could be the primary defensive weapon for police officers, as firearms may not be necessary in certain situations.

In response to a question about customers switching from TASER 7 to TASER 10 and the impact on Q2 and Q4 revenue, Joshua Isner explained that there was a period of uncertainty when the new products were released, but the interest in TASER 10 has been high and customers have been switching over. He also noted that AB4 camera sales are driven by hardware upgrades in the TASER Assurance Plan, which is a slightly different story.

Axon Cloud and services revenue saw a substantial increase in Q2, outpacing the growth of the Sensors and other segment revenue. Brittany Bagley mentioned that TASER 7 was stable and TASER 10 was starting to ramp up, while the camera business didn't see significant growth due to customers refreshing on AB4. Josh Reilly asked about the Fleet 3 catch-up and Bagley mentioned that the bottleneck had shifted from the hardware inventory to the installation process.

Joshua Isner and Brittany Bagley discussed the increase in revenue, which is attributed to the sale of Officer Safety Plans, which include a number of different software features, as well as the growth in records management, justice segment, and new markets. They also mentioned that Evidence.com licenses drove the largest sequential increase and that Standards product, now in general availability, helped make the step up slightly larger this quarter.

Patrick Smith discussed the success of Evidence.com domestically, which is driving the growth of the segment. He also discussed the opportunity for Evidence.com to be adopted by agencies that are not using their body cameras, such as the country of Scotland. Smith highlighted the strength of their software products, such as Records, and how they are able to unlock valuable data from audio and video records for their customers.

Rick and Joshua both agree that Axon Records will increase the number of licenses purchased by agencies for non-sworn personnel. Jeffrey adds that the combination of hardware and software in the Axon ecosystem drives increased adoption and encourages customers to use more of what is available in the bundle they have paid for.

Patrick Smith has been focusing on customers and technology for the past 5-6 years, wanting to understand their pain and create a story for the next 10 years. This requires a different mental outlook than running a business day to day, which Smith was becoming burned out from. Mike mentioned DEMS, which stands for Digital Evidence Management System, and discussed how it can be used to tailor products for federal customers and justice.

The CEO is working harder and traveling more to meet with customers and attend large expos, while Josh and Brittany take on more of the operational and board meeting roles. This frees up the CEO to focus on the unique aspects of founder-led companies that can help them outperform traditional businesses. The team has developed a strong connection to understand each other's strengths and for the CEO to focus on the next big leg of the business.

Taser, body cam, and cloud markets were created without customers asking for them, and Jeff has built an amazing team. The author believes that in the next 10 years, police will no longer use push-to-talk walkie talkies as their primary method of communication, but will instead use audio, video sensors and AI to manage data flow. This will provide officers with the information they need in a focused and least distracting way.

Joshua Isner is discussing the demand for the T10 taser compared to the T7. He notes that customers are willing to upgrade early to the T10 due to its benefits, such as training uplift and deployment across thousands of users. He states that the early feedback for the T10 has been very strong.

In the past quarter, there was a sequential ramp in Fleet Systems revenue, but it was more modest than what was expected. On the last earnings call, it was mentioned that supply constraints were making it easier to ship the products, which could lead to an acceleration in revenue in the future. Additionally, the demand for TASER 10 handles has been strong and the company is investing in automation to help reduce the initial cost and improve gross margin.

Brittany Bagley explains that the company is largely getting through their inventory supply constraints and looking at what it will take to get Fleet installed. She also mentions that there are three pieces of Fleet revenue: hardware, professional services, and software revenue. Josh Isner adds that the company is focused on their yearly CAGR rather than sequential trends, and Samik Chatterjee inquires about the underlying customer count trends.

Joshua Isner, Jeff, and Rick discussed the company's strategy of selling new products to existing customers and existing products to new customers. They are also tracking metrics related to new product sales and new market sales. The Officer Safety Plan has a penetration rate of less than 20%. They also discussed the customer excitement around the AB4 capabilities and its new use cases.

AB4 is introducing a two-way voice feature that customers are excited about, as well as POV functionality with a simple attachment to the body camera. Battery life is improved, and Respond is making live streaming more native and hands-free. Customers are responding positively to these features.

AB3 was designed with an LTE chip in every camera, as opposed to some competitors who only offered a WiFi-only camera, in order to create more value in the long term. This decision was based on the idea that a connected camera would be more useful, and was made despite the need for profit optimization. The psychology of empowering officers to ask for help is also important, as it gives them the choice to say they want someone to watch their back.

Jeremy Hamblin at Craig-Hallum asked the speaker to come back to Brittany's point about the OSP bundles. The speaker discussed the need to make the right level of investment bets and how real-time capabilities are very useful. They discussed how officers and dispatchers unanimously refused to go back to a world without it and the watch me feature helps with privacy concerns. The speaker also discussed how they are augmenting current communication systems with new capabilities and that it is offloading tons of traffic off the radio, making radio use more productive and more focused.

Brittany Bagley reports that the percentage of customers using OSP bundles has increased from less than 15% in Q3 of last year to less than 20% today. This growth is reflected in the increasing software revenue, which is attributed to the addition of new products such as standards and the recognition of revenue from those products. The growth is especially high in Q4 and Q2 of this year due to one-time revenue and the Standards piece in Q2.

Joshua Isner explains that the international market for software cloud business is bifurcated between Tier 1 customers and the rest of the world. In Tier 1, they are getting closer to offering OSP-like bundles. In the rest of the world, the focus is on landing with one product before moving to multiple products. However, the large federal governments in many cases make it harder to pair two products together due to different procurement processes.

Patrick Smith expressed his gratitude for the hard work that went into the results that were shared on the call and praised the team for their mission, talent, and hard work. He also wished Brittany a happy birthday and thanked the team members who were listening in for their hard work. He concluded by expressing his anticipation for the team's results in the next quarter.

This summary was generated with AI and may contain some inaccuracies.