Brittany Bagley; Chief Financial Officer, Chief Operating Officer; Axon Enterprise Inc
Jeffrey Kunins; Chief Technology Officer, Chief Product Officer; Axon Enterprise Inc
Joshua Reilly; Analyst; Needham & Company Inc.
William Power; Analyst; Robert W. Baird & Co., Inc.
Hello, everyone. Thank you for joining Axon's executive team today. I hope that you've all had a chance to read our shareholder letter released after the market closed, which you can find at investor.axon.com.
Our prepared remarks today are meant to build upon the information in that letter. During this call, we will discuss our business outlook and make forward-looking statements. Any forward-looking statements made today are pursuant to and within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These comments are based on our predictions and expectations as of today and are not guarantees of future performance. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially.
We discuss these risks in our SEC filings. Our most up-to-date SEC filings, including our Form 10-K will be available this week. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our shareholder letter as well as on our Investor Relations website.
Now turning to our quarterly update. First, we're going to pull up a video that highlights some of the things we're proud of publishing over the past year.
(video playing)
What an amazing company. What an amazing group of people. The people I get to work with our employees, my teammates, customers are working on problems we care about. It's a privilege 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 -- year. 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 most rewarding part of my job is getting to spend time with our customers.
And 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. We have worked tirelessly to become their trusted technology partner. There's so much we can do to make their jobs here, their lives safer and their day is just a little bit better while helping them to 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 with the benefits of adopting newer technologies. We're so clear. It's almost too impossible to imagine what the world would be like if they were never brought forward. We launched TASER 10 about 2 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 road map to get us there.
In an international market, where I just came back from 1 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 -- shot, it's bigger than just the United States and cutting unrelated deaths between police and public in the U.S. 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 fuses helps us connect more sensors and cameras than ever before. There are countless places where the benefits of better transparency operations with the increased application of connected technology are just unviable. 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 -- 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 -- undervalue and solutions that leverage the seamless connectivity to solve problems we care deeply about. This is where we differentiate ourselves with our customers.
With this foundation, we see several major tech trends unfolding before our very eyes. An 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 them work 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 -- a better 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 moment before I pass it on. I would like to provide an update about something near and dear to me. It's been 1 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 haven't timed 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 legal environment that is making it challenging for businesses like us to invest here. After several years of working with our various selected administrative officials, developing plans that are responsive to our community, and we received unanimous approval from the planning commissions and then to vote our elected officials. We've had a sec, unlike states like Florida and Texas, Arizona allows on 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 per signature basis with 2/3 of those people coming outside the state of California -- I'm sorry, outside the state of Arizona, from another state who I may have just -- recently mentioned. If we allow this to stand, this would delay our project by 2 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 playing 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 will keep us here, and it will help the state attract other businesses, and really grow to 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 come to a final decision. I intend to make that decision together with our order in the coming weeks.
So with that, I'll pass it on to a guy, again, who I'm just excited to work 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. Josh?
Joshua Isner
Thanks a lot, Rick. I appreciate the kind words. Good afternoon, everybody. As Rick mentioned, our customers remain at the center of our universe. I believe that mindset is what has afforded us the results that we have the privilege of reporting to you today.
I'd like to share a few updates that recap the year, and some thoughts about where we're headed next. First, we just closed the year with revenue in excess of $2 billion. That's nearly double the revenue we reported only 2 years ago and it marks our third consecutive of year of growing over 30%. This growth is a testament to our ability to deliver products that drive clear value for our customers and our team's ability to connect our customers with the right solutions. It takes an entire team to deliver results like these and everyone at Axon continues to rally behind Rick's visionary leadership.
Second, we booked over $5 billion in business last year with about half of that closing in Q4, and there was strength across the board. 8 quarters in TASER 10 orders continue to outpace their 7 by 2x. And and we continue to see encouraging demand from our emerging market customers. To that end, 7 of our top 10 -- TASER 10 orders to date come from outside U.S. state and local law enforcement including customers in international, federal and corrections.
We also had our highest ever officer safety bookings in Q4, nearly booking more seats in the quarter than the prior 3 quarters combined. And we continue to see strong adoption of our premium plans within that mix, along with adoption of our emerging products. Draft 1 continues to garner strong interest and we were able to close our first 10 AI Aeroplan deals in Q4. We are extremely pleased with this outcome given the fact that the plan launched at IACP in late October. New product pipeline generally takes 3 to 6 months to materialize, and we view that accelerated adoption of this plan as a positive indicator of things to come.
We updated our TAM and as Rick mentioned, we believe our investments around AI real-time operations and drones and robotics roughly doubles our overall opportunity set. We're seeing early signs in our product bookings to support that outlook.
Third, I want to talk about 2 growing customer groups that I'm particularly excited about right now, international and enterprise. Our international bookings grew nearly 50% sequentially in Q4, and that's on top of 40% sequential growth that we saw in Q3. In Enterprise, our bookings roughly tripled year-over-year. I'm happy to report that in Q4, our enterprise team booked the largest deal in company history with a global logistics provider. Congrats to Mike Shore, Billy Corbett and the dozens of Axon employees who supported this deal.
This development continues to give us confidence that given the large TAM and growing product market fit, the enterprise segment represents one of Axon's largest opportunities into the future, along with federal and international. As we expand and grow, these 3 customer groups account for over $100 billion of opportunity.
Turning to what's next. We have a lot of runway ahead. We ended the year with total future contracted bookings of over $10 billion, and our pipeline is the healthiest it has ever been even in comparison to this time last year. We expect another record bookings year in 2025 with line of sight into several years of exciting growth ahead. Our team is focused on executing on the many opportunities in front of us, and we are in -- the work to achieve our goals and deliver on our mission of protecting life.
I know I say this a lot, but we run our team with the next-play mindset. What excites me most about our results is what they signal for the years ahead. That's why I love the beginning of the year. While it affords the opportunity for others to hypothesize and speculate on varying expectations, that's the same energy that fuels us to win more often in more places and deliver bigger and bigger societal outcome and that's exactly what we plan to do in 2025 and beyond.
Over to you, Brittany.
Brittany Bagley
Thank you, John. As Rick and Josh mentioned, it's wonderful to come back to you with another great quarter and to 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 higher -- 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 remained 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 and we continue to invest in our business to ensure we are positioned to grow in 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 million 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 3-year revenue and adjusted EBITDA margin chart, a full year ahead of schedule. As we exit the year, our product teams are working on the 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 and the strongest and cleanest inventory position we've been in for the last 3 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 million 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 million 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 managing, we are focused on delivering year after year over the long term. That requires continued innovation, product risk taking and investments, 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 4 years hitting 50, 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 million to $180 million, up year-over-year on a dollar basis, but only up 2 points as a percent of revenue. This is driven both by [Morty's] or 10 capacity to keep 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, Brittany. It's all put into gallery view. Great. We're going to take our first question from Jeremy Hamblin at Craig-Hallum.
Jeremy Hamblin
Thanks and congrats on the very strong results and guidance. I wanted to start with a figure a topical question and just get a sense for what portion of your total revenues are coming from federal contracts with the U.S. government whether or not some of the things that are happening in terms of hiring freezes, you expect to have any potential change in the time line of deployments. Anything you might be able to share on that to provide us a little bit of a better sense, we've certainly got a lot of questions around the potential risk around this area.
Joshua Isner
Yes, I really appreciate it, Jeremy. Thanks. A couple of thoughts on this one. 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 dose 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, hey, where are federal law enforcement, getting their bank for their buck technology, and I think they 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 in DoD moving forward, and 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.
Jeremy Hamblin
Great. And then potentially related questions. So other topical news is, it looks like we may be coming towards an end, hopefully, in a war in Ukraine, I know that Dedrone has certainly been impactful in terms of operational support in those efforts. I also know that the recent kind of 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 kind of Ukraine or in the next month or 2.
And then vis-a-vis what you expect from a border patrol support and opportunities that are coming from -- or there for Dedrone related to those efforts?
Patrick Smith
Got it. Let me maybe take this one. So yes, I mean Dedrone has sold a lot of stuff in Ukraine, but the far bigger picture is what happened in Ukraine has put drones on everybody's road map. Every military in the world is thinking about how do you detect these small drones that traditional [millers] systems are not designed to detect how do you defend against them. We acquired the world leader in drone detection.
We acquired the -- it was one of the world leaders in indoor type of drones with Skydio, we've partnered with the leading U.S. maker of launch autonomous AI-driven drones in the moment where basically, DJI is largely being made illegal in the United States. So we think we are in an amazing position for drones and robotics. It's an area we're investing heavily. We are currently either a leader or partnered with the leader in the key market segments.
And when you think about things like protecting borders, protecting stadiums. And I mean you can show that anybody could do with a drone you can buy for less than $500. And everybody in the world is thinking about how to defend against those. And we think we are, if not deposition, among the best positioned for helping our customers globally solve that problem.
From a human perspective, I certainly hope that all the things we're seeing in the world comes to an end, but in a way that is resistant and sort of long term put these issues to rest. And 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, to act intelligently save lives and stop threats without using legal force. Those opportunities have all gotten bigger, just given the quick evolution of the space that's been caused by happening in the Middle East and in Ukraine.
Joshua Isner
And Rick, I might just add one more thing there, which is just to the first part of your question, Jeremy, just to address any ambiguity. None of our forward-looking guidance assumes any incremental revenue from Ukraine.
Thanks, Jeremy. Up next, we have Meta Marshall at Morgan Stanley.
Meta Marshall
Congrats on the quarter. Maybe to start with great traction on kind of noting the 100,000 incident reports kind of already completed kind of with the AI tools. Just what are you seeing in terms of kind of AI adoption either in what type of bundles they're opting for just kind of pipeline there? And then maybe as a second question, noted kind of the large enterprise win. Just what was kind of the entry point there?
Was it fuses? Was it kind of body cameras? Just any context there would be helpful.
Patrick Smith
Let me take the first part, and then I'll have Josh talk about the second part. So in terms of AI, like without a doubt, these are the fastest-growing adoption products we've ever had, and it's not by a small margin. So we're seeing these products, these services really resonate with our customers. And it's unbelievable that AI Aeroplan that we are closing deals within 8 or 9 weeks of launch. Like I don't think we've ever seen things move that fast, a little bit -- we like with a TASER, but that's more like somebody on an existing TASER line item.
We introduced a new TASER and they like went from TASER 7 to TASER 10. So yes, that has happened. But a new product category going from 0 to deals in that shorter time frame is super encouraging.
Joshua Isner
Awesome. And on the second part of that question on enterprise, I think the really exciting news is there are multiple entry points into some of these large opportunities. I think TASER is certainly a body cameras are certainly relevant. Dedrone is relevant, drones are relevant. Obviously, Evidence.com, I think there's -- we're starting to see, like I said, just better and safer product market fit to address this group customers.
And really the most encouraging thing of that is it's still along the lines of our mid and use cases that we really want to support in that they lead to better, safer outcomes in these enterprise environments. And so it really is exciting. i believe this is going to be a major, major part of our business, maybe even the biggest part of our business long, and I think we're on the right track there for sure.
Next, we have Josh Reilly at Needham.
Joshua Reilly
All right. Just wanted to hit on the news with the Flock Safety partnership. Maybe what happens in terms of the technology licensing for fleet ALPR technology now that the partnership has maybe ended? And then how are you thinking about more broadly your relationship with the company moving forward, our strategy around fixed LPR?
Joshua Isner
Yes. Thanks, Josh. Look, a lot has been made of this, obviously, in the last week, and -- I think it's somewhat overblown -- we did exit a partnership with Flock. However, I think both sides have an interest in getting back to that partnership. We proposed new terms.
I think what we're asking for is just a more fair flow of information to fuses, just like we support into FlockOS and to FlockCredit, they've been receptive to our feedback there, and we hope to be able to resume it. And so I'm not going to speculate on what happens if that doesn't come into fruition. And of course, we'd have to look at how we support those customer use cases. But right now, our focus is just on making sure that we can arrive at a new partnership that really, in the end, benefits our customer and the use of their own data.
Joshua Reilly
Understood. And then just back on the federal business. Have you heard any feedback thus far from customers with regards to the ability to expand and take down more body cameras or TASERs under the existing contract structures, which, to my understanding, we're often open if their ability to add more products since the election has happened?
Joshua Isner
Yes. Thanks for the question. So on some of these customers in federal, as you probably saw in the news, one of the first executive orders addressed body cameras for federal law enforcement. And yes, our customers are still wearing our body cameras. They're seeing a lot of great outcomes as a result of wearing them.
And we do believe these programs will continue to expand into federal. So again, I don't think -- has changed much, if at all, for us in the federal space. I think that's the benefit and reward for having products that drive true outcomes in the field, and I think our customers do that and we get a lot of support from them on this. So we're proud of the partnership and certainly think it's going to be a bright future there.
Patrick Smith
And Josh, let me tell as well. We introduced body cameras in law enforcement, most cops didn't want to carry it, but didn't want to wear them. And there was one of the statewide union leaders sort of famously told me, no comp once they were a body camera until they've worn on 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.
And so like 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. Like if you're -- whatever federal agency you work for, you just realized like your job places you now have physical risk, but at risk of being accused of just about anything. And having a video of your choice, you're a professional doing the job the right way is something that gives them great comfort to go do their jobs with confidence that they're not going to get hung out to drive by somebody making something up about what they did.
And by the way, the other thing I'll add is these new tools like Draft 1, customers absolutely love it. I mean, cops are over the moon about this, the idea that, God, I don't have to spend 4 hours a shift doing reports. I'm cutting that an app. And I was just demonstrating our new [brand] translator. I'm outside of the U.S.
right now. Like we did a an Icelandic yesterday. And the guy said, we think there's no way it was going to work and his jaw hit the floor before we did. Eric, Norwegian and a couple of other not exactly in the side of like 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 will help me translate, that will help me write my reports, that will have me look up things I need to know, help me ask policy questions. I don't have to call a lawyer at 2 a.m. in the morning about how to do some obscure legal situation. I can just immediately cross -- my reports and all those capabilities are included in the new Aeroplan, which is why go from 0 to revenue so quickly.
Jeffrey Kunins
And I think 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 and what we are all about is the applied practice directly in service a 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 Ng.
Michael Ng
I just have 2, 1 on bookings and 1 on cloud. First, just on Kings, it's a 2-parter. You guys had bookings of over $5 billion this year. I think this is at least the third year of bookings growing $1 billion year-on-year. So when you look at your pipeline going into 2025 in your base case or in your bull case, like are you assuming bookings grow $1 billion again to $6 billion?
Any thoughts, qualitative or quantitative would be helpful.
Joshua Isner
Sure thing. Like I said, Mike, in my prepared remarks, the pipeline is extremely healthy right now, even healthier as relative to where it was at this time last year. And look, our goal is that our bookings growth rate looks similar to our revenue growth rate and in the back of the napkin, it kind of pencils out, hey, we can just keep this high growth rate going well into the future. So it's not necessarily about growing $1 billion every year or less or more it's more about, hey, can we have our bookings growth rate somewhat mirror our revenue growth rate and if we do that every year, the business will be very, very healthy for a long time.
Michael Ng
Great. And then just on cloud, Axon Evidence and cloud services revenue within software and sensors, that saw a solid step up Q-on-Q. I think it was up $35 million sequentially, I think 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, hey, the structural run rate of sequential increases may have stepped up?
Brittany Bagley
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 software standpoint, often lags how we're doing on bookings by a quarter. Now, it's not always perfect, right, 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 does, it goes through the year that way. And so if this step is lagging by a quarter, what you see -- finally is Q4 and Q1 have the bigger stuff 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 sold into those users. Dedrone is not material to our business, but they do have some software revenue. And so you are seeing a small bit of room come into the software step for the first time this quarter.
Thanks, Mike. Up next, we have Jonathan Ho at William Blair.
Jonathan Ho
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 sort of the TAM?
Brittany Bagley
Yes. So I think a lot -- Josh may cover the strength on international, but I think a lot of what you're seeing in the TAM is we refreshed the TAM every 2 years. We did a little bit of an interim update when we did our fuses and our Dedrone acquisitions, but that was really an interim process. And so as we came back to look at our TAM this year, we really looked out over the next 2 years. And what's changed a lot from 2 years ago is really the number of products we have.
And so 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 [uses], like Dedrone, like AI. And 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 so that gives us increasing confidence in that higher international TAM.
Joshua Isner
Yes. And I'd just add, Jonathan, on the international bookings piece. I think it's just a story about execution. I think we have plenty of product market fit to be very successful internationally. I think the team has this has been somewhat of a transformative year for our international business in terms of the team, bringing on Cameron Brooks as our CRO out in Europe, and he's made a couple of key hires in Europe and our Latin America and Canada function is going very, very well under [Michelle Deers].
We've got more of the team in place that's just executing on a higher level. And so we're pretty bullish on international moving into the future here, as Brittany is saying. I think now as we're landing in more places, there's going to be the opportunity to expand with more products.
Jonathan Ho
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 a genetic AI, which seems to be sort of all the rage on the tech side and potentially is even more impactful than generative AI?
Patrick Smith
Yes. I mean I think it just sort of builds for us, it's all about like where do the workflows matter that will enable our customers to do the things they need to do, in their jobs. So I think -- live right now is like, okay, take this transcript, runthrough, and create a report for me, or like, 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 like some problem that currently have teams of people working on." And 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 would kind of keep going down the list of their problems.
And then for us, there's also a risk-reward trade-off. Like we intentionally start with report writing, rather than, for example, facial recognition, where there's various privacy and related concerns where we report writing, like, hey, we can ensure that you an oversight. If the AI gets it wrong, like it's actually not a catastrophic failure. You've always got the underlying evidence. We can put in speed bumps to make the officer to do it.
I mean we always 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 we will always be proud of that respects and balances, privacy, and we want to build the world of Jean Rotenberg, not George Orwell. And these Agentic workflows will just allow us to start handling higher levels of complexity. But for us, I go out, I meet with customers, I hear what their problems at and I get to come back to the company looking like a genius all these great ideas like a bee carrying pollen back to the hive.
And then Jeff's got to make sense of it all, segment it, work with our thousand engineers and product people to take these great customer ideas and put them together and then Josh and Brittany are going to -- like the staff and execute the business to run it, and I get to go out on the road again. So the team worked well together. And I just -- I love my job getting to go just sort of imagine talk out the problems and try to -- okay -- what tech is -- to be honest, Jeff, really holds me accountable. A lot of our conversations uses the word actually a lot about like, okay, Rick, this is great stuff. 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. And so Agentic, we're going to approach it kind of the same way, okay, where are we at? And what will work well for our customers, and it's -- a lot of it is just getting the sequencing down.
Thanks, Jonathan. Up next, we have Andrew Sherman, Andrew, welcome to the call.
Andrew Sherman
Great. Thanks, Eric. Good to be on the call. Congrats on the quarter. Brittany, 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 ERA contribution, the sustainability of the strong [1% to 3%] NRR. And any change to your guidance philosophy versus the past couple of years.
Brittany Bagley
Yes, so 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. And then we can look at our pipeline and see how pipeline stacks up and how we feel about that go get. So 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, and we have really low churn, our NRR has really only continued to be very stable to positive. So no major changes in assumption going forward.
Andrew Sherman
Great. And also for Brittany and Josh, maybe just -- where the supply.demand imbalance for TASER 10, great to see that it's still tracking at 2x T7. But where do we stand today is supply/demand imbalance. I think, Brittany, your CapEx comments would imply more supply coming on. So what does that signal for growth this year?
Brittany Bagley
You got it. We are still outpacing our supply with our demand, so still in a great place, we are -- into next year to try and bring more supply online. So we'll see where demand goes. I think we imagine that time next year, we've got that supply-demand imbalance. But what you're really seeing right now is we are basically selling as much T10 as we can make, and so we've got to keep investing behind our capacity.
Joshua Isner
Great. And Andrew, thanks a lot, we're particularly excited about T10 just because of what it means for our mission and Moonshot as well. The more customers deploying it. We are seeing videos of better and better outcomes in the field. And I think that's kind of continuing through a network effect across the entire market.
And so we're very exciting excited about what the future holds for TASER 10, and I don't think there's any slowdown inside here. It's our highest demand CW ever, and I think that will continue.
Patrick Smith
Yes. I just met with some new European customers who have not had T10 for very long and 2 of them told me they've already inverted at least 1 shooting at least a life in the early few months of the deployment in the field. And these are countries, obviously, that don't have the frequency of shootings that we do in the U.S. So it's pretty significant to hear that from them.
Jeffrey Kunins
All of our products work so well together. And as an ecosystem, there are payers here and there that are doubly so peanut butter and -- drive each other forward. And so with 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. And it's the catalyst for getting the best possible outcomes with T10. A similar story for like DFR and robotics with USIS and RTC.
So you see all these pairings that goes so well together, combined with the leverage of them adopting more and more of our whole ecosystem.
Erik Lapinski
Great. Thank you all. Thanks, Andrew. Up next Will Power at Baird.
William Power
Great. Thanks. I guess I got a couple. And we get for the reconciliation of Lone Star state would love to have you. Maybe first question for Josh or Rick, whoever want to take it.
Look, it sounds like really strong -- at the AI play in. I think you noted 10 deals for Q4. I just want to understand the confidence and stability there as we move forward because it's a big lift in OSP pricing, right? You're going from 350 at the high end of 550. What's the conviction confidence, visibility and agencies have enough budget to be able to adopt this at a rapid pace from here.
Joshua Isner
Yes. It's interesting. Well, it's a great question, and it's nice to see you again. What I would say about the AI Aeroplan and about our AI products in general is -- they are driving such an ROI that can be measured in staffing and officer time that our customers are saving money as a result of of deploying this for $200 a person. You could just do the math on Draft 1 alone.
And essentially, what it is allowing you to do, if you're a police chief, is have 20% more capacity day-to-day of your police officers. And this is an environment where police departments are still very understaffed. They've got dozens, in a lot of cases, hundreds of open roles that are unfilled. And so when they can allocate some of those dollars over to these tools that might mitigate the need to have more officers at the department to begin with, that's highly valued. And so we're very, very encouraged and it's mostly because we know what type of final outcomes some of these AI products are driving for our customers.
Patrick Smith
Yes. Let me jump in I met with a large customer in a relatively new segment for us. So it's not state local law enforcement, big agency and meeting. I spend a debit with the customer going through their operations, learning how things work. It was a lot of fun for me.
And there is a new AI source we could do that would literally offload more than half of what the entire -- spends their time doing that they hate doing, that's administrative in nature. It's got a lot of the similar characteristics to Draft 1 to where customers like, "Oh, my God, this will be game-changing for my budget, it would free up my people to do." Like more in -- and I wouldn't need as many people so I could grow a little slower and my morale will go up dramatically and that's something I can back to Jeff, and we're like, okay, let's put a team and I have to figure out how to do this. And with the new AI tools like it's going to be very doable. And so again, that's just another example where AI is allowing us rapidly bring the promise of like AI tech doing sort of repetitive jobs. And because our customers -- one of the things that's greatest, it's not like they're firing people, just taking people's jobs.
It's taking the crappy lower time consuming bureaucratic suck of their job away. And I take a win-win and they're just excited, but yes, I can get to go do stuff I enjoy doing that gets me excited to work. And then for the chief and say, yes, I'm getting more out of my people, it's paying for itself.
William Power
It sounds like Jeff's got job security as he works on those projects. And maybe just a quick second one, probably for Josh. Just the enterprise deal, you hear the largest deal. I think history -- maybe I missed this, but any other color as to exactly what they're utilizing? Are they utilizing body-worn cameras, is it USIS, is it both?
Is it, I don't know, even deter -- for facilities? What's kind of good news there?
Joshua Isner
Yes. This particular deal, Will, it's body cameras and fuses with, of course, Evidence.com licensing as well. But the same customer has a lot of interest in Dedrone and other products as well. So I think what you're going to see throughout this year in the enterprise segment is we'll be landing in a lot of cases with fuses and body-worn cameras. But just like I was saying about international, I think the same holds true, where a bigger and bigger part of our product portfolio will be applicable to the enterprise segment, and we're very excited about that.
Up next we have Trevor Walsh from JMP.
Trevor Walsh
Josh, maybe for you, but Rick, feel free to jump in. I want to ask the federal question maybe a different way. So 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 kind of sales motion, gave some statistics on their call a few weeks back about kind of how federal funding flows down in the state and/or local budgets. Just curious, it sounds like from that kind of just general commentary that state budgets can be a little bit more impacted or kind of do draw a lot more from federal funds. So just curious if you're hearing concerns or for that state level, state police, whatever it might be types of orgs having maybe worries or concerns around kind of what the federal fund kind of flow will be for them, less so, obviously, like uncanny and local level, if that makes sense.
Joshua Isner
Yes. Thanks a lot. Personally, I'm not sure I agree with that commentary. It is true that some grants in other programs have dried up. A lot of those were not particularly impactful to Axon, maybe to some other companies.
But I still think there's a unit where police and federal military are better funded by the federal government, state and local police and federal military are better funded by the federal government in this next year than I think people are assuming. And so personally, I don't necessarily see any headwinds in that way that would have any material impact on our business.
Patrick Smith
And if you hear the types of projects that are getting printed in front of the cameras is like examples of waste, none of them are like critical public safety equipment and technology. It's stuff that people like, wow, that's where they're spending my money on that. And like we just don't think we're -- like our products make it on a sense for customers that buy part and are pretty universally Republicans and Democrats in the last election cycle, they were going out of their way to make sure that they knew that they were Flock Safety prolong enforcement.
Again, I don't want to be arrogant about it and say we're bulletproof, but I would say we think net -- we haven't seen the political wins really affect us that much as long as we're delivering things that actually help our customers do their job. Then whether it's in a Blue City or Red City, Trump administration, Biden administration, like the product carries today.
Trevor Walsh
Great. Maybe just one quick follow-up for Brittany. I appreciate the new future contracted bookings metric, always adding a new metric to keep tabs on. It sounds like it's RPO basically plus additional contracts that have T4C or clauses that kind of obviously don't put them into RPL. Is that kind of new meta function of that more of those termination clauses are doing more contracts that have more of those types of things, and so it kind of helps to give more visibility there.
I guess where are those contracts falling? Are those federal customers just generally have that written in? Or are there other places where you're seeing that kind of more and more generally from a contract perspective?
Brittany Bagley
Yes. I mean, you nailed it. That's exactly what it is. And so we're going to move to talking about our new total future bookings number because really more indicative of what the business is doing and bookings commentary and color we give. We have been going through and we changed accountants this year.
So we've really been scrubbing RPO. And there's just a lot ASC606 doesn't allow us to put in from a GAAP standpoint. So you will still find our GAAP RPO number in the like 10-K, we have to report that, you'll see that. But just more and more, it's diverging from how we actually measure our business. And we don't go back and look at our historical contracts, like even when we have termed for convenience, our customers don't actually leave us like 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, across the board, like more and more customers just want term for convenience as a best practice. And so we're seeing it in a lot of places. And so we're just going to move to the sort of non-GAAP burn of the metric, which we think is a better reflection.
Erik Lapinski
Next, we have Jordan Lyonnais at Bank of America.
Jordan Lyonnais
Could you guys talk about how you're approaching your go-to-market with Skydio and Sky Swap program and how that's been going so far?
Joshua Isner
Yes. And certainly, I'll start, but I think others should chime in on this one. Look, we're really excited Skydio as a partner. We think they're the most talented team in drone technology. They're a phenomenal cultural fit with us in terms of our go-to-market motions.
The product is fantastic. Like Rick was saying, DJI has fallen out of favor in U.S. public safety and Skydio, is the obvious choice behind them. And so we're really excited to be able to kind of augment our ecosystem with Skydio hardware. And really give our customers more situational awareness and more opportunities for really integrated DFR drone as the first responder experience.
So I think that's something that we're very, very excited about and very encouraged about what the results have been so far in that partnership.
Patrick Smith
It's not ever -- actually say -- It's not even -- I wouldn't say Skydio is behind DJI, like got to market first with scale. But Skydio's actually the world leader in autonomy, like many things, the chase companies had really inexpensive hardware and they did a great job user experience. Skydio, has a big team, Silicon Valley has 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, 2 years ago-ish with Sky-Hero, that was very pre-use case. That's for indoor like tactical drones. And as we did an assessment on the make, build, buy, what Skydio is doing is just a different level of complexity. Like if a tactical drone that falls out of the sky, it falls to the floor from 6 feet, it doesn't -- somebody, it doesn't have to fly itself. You build it to be more resilient to bump into things and you don't need -- in fact, all the autonomy can get confused in an environment.
And there's other applications for the long term that we felt Sky-Hero would be transformative for us to own and work on with Skydio, this was just -- our assessment was, wow, it took a team of like 600 people working for the better part of a decade with a sim investments to do this, and they've got a huge head start. And as we got to know each other, it was one of those like Jeff say talked peanut butter moments. It was really a great fit. I've developed a great personal relationship with the team and out there, and it really fits nicely like a lock in key with each other's portfolio. So we're going to market, hard to think with the partnership, and we're getting tremendous customer feedback.
In fact, it actually cost you a lot to deploy an American Skydio than a DJI drone for this reason.
With DJI, you put it in the trunk of a car and then you basically generally turn your police officer to an Uber driver for drones. You drive to the team, and he stands on seeing flying the drone which basically cost you [$200,000] per year to get that drawn driven around -- over the Skydio 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 with a any need for like human oversight and you paired out our dedrone centers.
Now that is an amazing pairing, you can now see the airspace to see where everything is. You can -- the drone can fly autonomously connecting those 2 systems together and then 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 0 human oversight. So it's actually about 1/4 of the price when you consider the human labor elements. And we think this is both an interesting political moment in the U.S.
government policy and the rift of China is accelerating that transition. But it's just matching this wonderful moment in time where AI is now making the autonomous life possible. Skydio, is in the process of releasing from beta to production, their dock that unlocks this like complete autonomy. So just a really exciting part of the business. And we always look to look for and just make the best decisions where we should make, what we should build ourselves, where we should partner.
In this case, it was a great partner, and we're confident that it's got the right relationship with it in long-term dynamics.
Jordan Lyonnais
And for your customers, your DJI order patrol, can they just go through you to buy the Skydio drone and you guys put on your kit. So it's all connected? Or do you need both of you?
Joshua Isner
We could do those deals on what we call Axon paper or on Skydio papers.
Jeffrey Kunins
And more and more and more, as customers get excited about this space for all the reasons Rick just went through, again, they think of the evolution of the real-time crime center space and that opportunity as hand in glove with DFR and drones as first responder. And so the combination of FSIs with Skydio with the rest of the Axon suite is just hands down unmatched in terms of bringing the capability that customers want and need in giving them the situational awareness and autonomous response that they're looking for.
Patrick Smith
Yes. One example as well, like an officer with their body camera, in the near future, we may say, "Hey, I need a drone," and we deploy the drone to the body camera. And as it flies in, Skydio has done a great job integrating. You'll see a blue augmented reality pillar growing the sky that tells you right where your officer is. So there's no searching around to find them.
It's a seamless mash of our body cameras, Our FSIs and Skydio's autonomy and their flight software. But to the customer, it doesn't matter. It's one experience say, "Oh, that offer need to grow there it is." And there's my offer and I can see and I can pass that video fee to whoever I need to pass it to.
Erik Lapinski
Thanks, Jordan. Up next, we have Joe Cardoso at JPMorgan.
Joseph Cardoso
Thanks for the question. Maybe just wanted to follow up on the Dedrone question, but from a different point of view and maybe a bigger picture point of view, like how are you guys thinking about timing of that opportunity, materializing in a more material way for us onto relative to a year or 2 ago? Because it sounds like anecdotally, it's ramping much faster than maybe the conversations we were having last year. And just kind of curious like when we're thinking about the size of this potential business for Axon a year out, 2 years out, like 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 kind of pilots and programs with some of your end customers?
Or are we actually starting to see some more bigger moves here from your end customers into adoption?
Patrick Smith
They typically prevent me from throwing numbers out because I get too enthusiastic, but I would say qualitatively, we're at a tipping point.
Joseph Cardoso
Okay. So you're starting to see more of a -- sorry, go ahead, Brittany.
Brittany Bagley
I was just going to say we've got the game about $20 billion for that, and we are in such early innings. So we took that up because I think we see the opportunity much more clearly in front of us. Now like general logistics and a timing thing, right? We do long-term kings, they go into bookings. That's what's giving us excitement about momentum.
It takes a little bit of time to seeing that all flow through the P&L.
Joseph Cardoso
Got it. And then maybe a quick question for Brittany. Obviously, you talked about it hit the 25% EBITDA target a year ahead of plan, guiding for '25 -- for 2025. I appreciate that you talked about the investments in your prepared remarks. Maybe just flesh out a bit more in terms of where those investments are exactly getting?
Like is there any particular areas that you guys are kind of putting those dollars to spend in different parts of the portfolio or engineers, et cetera. Just curious where those 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 investing it into CapEx.
Andrea James
Yes, I'd say it's largely taking those dollars and investing back into R&D, and it's all the areas we've talked about, right? It's drones, it's robotics, it's FSIs, it's all of these new markets that we're so excited about.
Joshua Isner
Got it. And I'd also add, Brittany -- it's also our enterprise go-to-market as well. That's a big investment for us this year. We're seeing these early results. Now it's about, hey, how do we really cover the market well from a sales and sales support and customer success perspective.
So that's a large investment center this year for us and one that you have high conviction will pay off nicely in the year to come.
Erik Lapinski
Thanks, Joe. And finally, we'll go to Keith Housum at Northcoast.
Keith Housum
I appreciate it. In terms of the enterprise opportunity, obviously, it sounds like we're having a lot of traction here. Brittany, 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 metric that you guys provided investors over the past several years. How do you think about pricing for the enterprise market?
Is it in a similar vein? Or is there different pricing schemes that you're going through?
Brittany Bagley
I wouldn't 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 dams licenses, they're thinking about FSIs, they're thinking about body cameras. So there's certainly nuances but nothing large, I would call out for you on being highly different at this point.
Keith Housum
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 on a cost perspective for the companies as well as perhaps demand issues for geopolitical issues. How are you guys thinking about tariffs from both aspects?
Brittany Bagley
We've tried to be really flexible in our supply chain. Obviously, at this time, we've been dealing with tariffs of some kind for a number of years. And so we really have found that just being flexible and diversified is key. Now 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 -- enter.
But based on what the talk is at least right now in terms of some of the proposed tariffs, there is nothing that I see that would really impact organization any way. We think we're pretty well baked in what is knowable today.
Erik Lapinski
Thanks, everyone. I'll kick it to Rick to close this out.
Patrick Smith
Awesome. All right. Well, obviously, we're delighted to have delivered another great year. team is just doing a great job. I am insanely motivated by our customer feedback.
On the things I'd mention is, I think, ultimately, [TDN] has the opportunity to become a primary weapon system and that could drive growth in the international markets even more than in the U.S., where they will carry a gun in the TASER frequently on every officer. And 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.
