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SCOTTSDALE, Ariz., Nov. 8, 2022
Customer enthusiasm across our product suite, including notable strength in our Software & Sensors business, drove record quarterly revenue of $312 million, up 34% year over year. Continued momentum on the top line, sequential gross margin improvement and the inherent leverage in our business model supported net income of $12 million and allowed us to generate Adjusted EBITDA of $68 million, at 21.7% margin.
Our demand backdrop remains robust and we have tremendous confidence in our sustainability of pipeline, which is supported by our mission-critical product offerings and long-term contracts. Importantly, our highly recurring, stable business model benefits our company as well as our customers, who see us as their trusted technology partner. We are especially pleased that our highest tier integrated bundle is demonstrating the highest adoption rates this year. Year to date, more than half of customers who chose Officer Safety Plan selected Officer Safety Plan 7+ Premium, which is listed at $249 per officer per month and includes the TASER 7, Axon Body 3 camera, and more software features than any other bundle. Even with this healthy demand, the penetration rate of our highest tier bundles is less than 15% relative to our potential state and local law enforcement install base (1), signifying that our domestic business enjoys wide runway for continued growth.
Our shareholders can expect Axon to continue to build upon this solid foundation of customer trust, signing long-term contracts with future deliverables, and introducing more and broader enterprise bundles as we build the premier operating system for public safety. We are emboldened by our market leadership position, and feel confident in the sustainability of our long-term growth profile.
(1) Based on a potential domestic state and local government install base of 712,112 sworn officers, according to data from the U.S. Census Bureau’s State and Local Employment and Payroll Data as of March 2021.
Brittany Bagley, CFO & CBO
In September, Brittany joined Axon as Chief Financial Officer and stepped into the newly created role of Chief Business Officer. Brittany is a seasoned business and finance leader with experience both as an operator and as a board member. She has hit the ground running over the past 40 days, conducting deep dives into key metrics, taking a strategic and holistic lens to operations and meeting customers and partners at the IACP conference. By way of background, Brittany is a current member of the board of directors of self-driving technology company Aurora Innovation (NASDAQ: AUR), where she also serves as Audit Committee Chair and serves on the compensation committee. Prior to joining Axon, she served for 3.5 years as Chief Financial Officer at Sonos (Nasdaq: SONO), overseeing traditional finance functions, including investor relations and M&A, as well as real estate and information technology. From 2017 to 2019, Brittany served on the Sonos board of directors, where she chaired the compensation committee. Over the course of 12 years on KKR’s Americas Private Equity team, she held various investing roles including as a Managing Director of the technology team. At KKR, she also served on numerous boards.
“Axon is uniquely positioned to deliver strong growth and drive long-term profitability with its model of high-margin software growth that drives annual recurring revenue. I look forward to partnering with this great team and building upon their outstanding track record of execution and delivering shareholder value.” — Brittany Bagley, CFO & CBO
Mission & vision update
In October, Axon returned to the International Association of Chiefs of Police (IACP) annual conference, the largest law enforcement event of the year and a key customer-facing event for us. This year, we announced that Axon is joining forces with law enforcement and community leaders in a moonshot goal to cut gun-related deaths between police and the public in half by 2033.
In announcing this moonshot goal, Axon pointed to the relevance of our R&D product roadmap of hardware devices and SaaS software solutions. We are committed to investing in the technology, training and data that will help achieve better outcomes and deepen trust between law enforcement and the communities they protect and serve. Our product roadmap includes accelerated advancements in non-lethal and de-escalation tools and training, next-generation cameras and evidence capture devices, real-time response and communications tools, community impact, engagement and feedback solutions, and more comprehensive and actionable use of force and response to resistance reporting.
Executing on our strategic vision
Relentless product innovation
We continue to invest in new product development in support of our ultimate mission to protect life, as well as in support of our long-term revenue target CAGR of 20%+.
Five key product developments since our last update include:
Never Miss a Moment is a framework that Axon has introduced to help agencies and communities ensure that critical moments are always captured and stored. The four components to never missing a moment are:
Axon Investigate adds a valuable tool to our suite of digital evidence management solutions. Our investments in this software support our ultimate goal of providing an end-to-end solution for every piece of an agency’s digital evidence, not just body camera video, from capture to courtroom.
“Axon Investigate solved the issue we were facing with ease, this easily saved us many hours and added a layer of integrity we would not have had if we were forced to process the video another way.” — Captain James Evans of the Racine County Sheriff’s Office (Wisconsin)
My90 gains momentum, fostering community engagement. Axon acquired this community engagement tool last year, and it is quickly becoming a key addition to our solution suite. It allows customer agencies to automatically send short surveys about officer interactions, such as after a 911 response. It also collects candid feedback from officers to reduce burnout and support officer wellness. Resulting reports and analytics can be reviewed to bridge gaps and bank trust, winning positive reviews from several agencies.
“My90 is a great way to engage with our community to better understand how the public feels about interactions with our agency. Since deploying a trial of My90, we have collected over 3,000 responses in just over 2 months. We have the opportunity to review these results to gain valuable feedback on an ongoing basis from people we have just served.” — Chief Kevin Davis, Fairfax County Police Department
Axon Records continues to forge a steady and accelerating path toward market leadership, one deployment at a time. We have nearly 40 agencies with nearly 14,000 sworn officers live on Axon Records, including 12 agencies that are already using our product to fully replace their legacy records management system. The amount of custom work for each marginal customer continues to decline, while the number of simultaneous deployments increases. Indeed, we are seeing clear proof points that bundling Records with our higher-tier Officer Safety Plans is a go-to-market differentiator.
Axon Respond, the centerpiece of our real-time operations platform, also continues to demonstrate strong momentum. Respond paid licenses have expanded to more than 1,500 agencies, representing hundreds of thousands of connected Axon body cameras. Active usage across all Respond features continues to rapidly grow as well, helping supervisors be more aware of officer locations and be notified of critical events. Our customers tell us that Axon Respond video streaming dramatically enhances supervisors’ ability to support officers in the field, and some agencies are now using Axon Respond to enable dispatchers to view live video for every call for service, providing an extra set of eyes and additional safety for officers in the field. Growing usage of the tool demonstrates its utility to customers and supports future contract renewals, validates our selling motion of offering software bundles with integrated features, and seeds a pathway for our long-term ambitions to be a leader in real-time solutions for public safety.
Diversifying our customers and markets
We are diversifying into new markets by adding new types of customer profiles, or users, and by adding to our core customer base. We think of those core customers as falling into roughly four categories of funding sources: U.S. state and local governments, the U.S. federal government, international government customers, and commercial enterprises. Simultaneously, the types of customers who find value in our product offerings are expanding beyond law enforcement to include attorneys, fire and EMS personnel, corrections and the U.S. military.
U.S. federal government progress update
This year, we are seeing continued growth acceleration with U.S. federal customers. In the first three quarters of 2022, the federal government has booked contracts exceeding $200 million, with deliverables that extend over the next several years. This progress is the result of a growth initiative that Axon began in 2019, when we began establishing trusted relationships with agencies that are now finding value in our products, mission, and commitment to law enforcement and communities.
Over the past four years, Axon has established itself as a key partner to many of the federal offices that collectively employ about 137,000 federal civilian law enforcement agents(1), each with an agency that serves a unique mission. Axon’s compelling value proposition to the federal government includes our mission focus, our stability and reliability as a company that has been innovating since 1993, and our technology leadership building unique products to solve unique problems. In addition, to date, Axon remains the only FedRAMP-authorized digital evidence management system cloud service provider.
U.S. government adoption of body cameras and digital evidence management
Axon is working to support customers, helping them tackle difficult challenges and lead successful body camera programs, such as the Department of Homeland Security’s first-ever deployment of body cameras along the U.S. southern border. The evidence captured on those body cameras is managed in our FedRAMP-cloud environment.
Additionally, the U.S. Marshals Service, Drug Enforcement Administration (DEA) and the U.S. Park Police are expanding their body camera programs, including awarding Axon additional contracts this year.
In May 2022, the White House issued its Executive Order on Advancing Effective, Accountable Policing and Criminal Justice Practices to Enhance Public Trust and Public Safety. The order contained a key provision outlining a requirement for federal agencies to adopt body-worn camera policies.
Since then, the U.S. Department of Veterans Affairs (VA) became the first agency to award a contract and begin the process of instituting a new body camera program. The department signed a $60 million contract(2) with the potential to expand over time, showcasing both VA’s commitment to veterans and officers, as well as Axon’s ability to respond to the requirements of the federal market.
“Our mission is to deliver professional law enforcement and security services, and the protection of persons and property on VA campuses; as well as the buildings under the jurisdiction of the Department of Veterans Affairs. That includes ensuring the safety of our Veterans, their care givers and VA employees at all medical centers and clinics. By providing our police officers, detectives and special agents with real-time visibility and situational awareness, we ensure a safe environment for our Veterans across the healthcare system.” — Troy Brown, Director, VA Law Enforcement Services
U.S. government adoption of TASER devices
We are also seeing healthy interest in our less-lethal technology from myriad government customers. The U.S. Secret Service Uniformed Division, for example, recently awarded Axon a contract to deploy TASER 7. This represents the first Homeland Security agency — and the largest federal customer — to deploy TASER 7 less-lethal technology.
We expect more agencies to adopt Axon-provided capabilities and are pleased with our progress in supporting the U.S. federal government.
(1) Source: U.S. Department of Justice’s Bureau of Justice Statistics, Federal Law Enforcement Officers, 2020 – Statistical Tables published on September 2022
(2) Axon’s $60 million indefinite delivery, indefinite quantity (IDIQ) contract with the VA includes a price schedule that allows for performance over a five-year period.
Summary of Q3 2022 results
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