Axon Enterprise Inc

NASDAQ:AXON

Earnings Call Transcript 2021-Q2

[Rick Smith, Chief Executive Officer]

All right. Great job on the video, Andrea. And folks, I'm giving for Andrea a heart-attack today; I was supposed to be safely in my home office connected to the internet, but I've been out all day, with most of the summer doing customer demos. I'm in the fleet three demo vehicle, and we had a bunch of great meetings today. In fact, we're going to do this live without a net, I am going to do a quick screen share and show you what we're seeing live from the fleet vehicle here; hang on a second.

All right, so as you can see there, hey, Garrett wave; in the backseat, we have our prisoner transport area, that's Garrett Langley, the CEO of Flock Safety, an incredible partner of ours, they do -- they are all here with another customers. They've told us today about a number of crimes they've already solved, thanks to Flock cameras. And then we do the mobile; so it's [indiscernible] has been a great investment for us, and really brings powerful capability through partnership; you'll see on the upper left there is a wide angle camera, and then on the right is our high resolution 4K camera that we use for the license plate reading, gives us great resolution at closing speeds of upto 140 miles an hour. Yes, we've got our Product Manager here as well.

I'll show you -- here is an example of a plate read; this is from -- just a sample list we use not from criminal data; so this is just a sample we did earlier today. And you'll see -- this will pop an alert; the officer can then check and make sure that it's got it correct, they can go in and they can do things like categorize their existing videos, whether it's the in-car body cameras, etcetera. It's a really intuitive simple user interface, and we're getting fantastic customer reviews.

All right, so with that -- I have been traveling a lot seeing our customers which has been great. We've also been encouraged to see this summer at The National Conversation Ramp; policing is evolving to reflect what we've known all along, i.e. police reform and progress bars investment, and focused attention from our best and brightest minds. We're obviously pumped about our quarterly performance, and I couldn't be prouder of how our team is executing and it's translating into growth that we've sustained now over the last few years, and we intend to keep doing it.

I'm also proud of our product development team. They have been working really hard as we've invested to build these transformative capabilities. In the fleet three, which I just demoed right here; we're able to bring artificial intelligence, to bring ALPR to every car. Within 90 days of launch, we've already been done deploying 550 vehicles at Pinellas County [ph], and to my awareness, I -- as far as I know, that's the largest ALPR in the country, and it's happening literally within weeks our product launch. And we're already late stage negotiations with another major city to deploy over 1,500 license plate readers, more than doubling what we're doing right now, tech analysis.

So you all know, you know, you shouldn't text and drive; those who are doing this all the time they're typing in license plates while they're driving, or they've got to read it in over the radio. Fleet Street [ph] does that for them at a dramatically lower price point, allowing them to deploy this to every car making driving safer, and reducing crime. We've already had customers just in the first few weeks catching serious offenders and finding missing children.

On another front our Axon evidence software continues to grow well beyond simply being a backend for our cameras. We want highly competitive digital evidence program in EMEA with an EMEA government encompassing the management of all digital evidence, independent of body camera programs; and this builds on to similar success we've had in Canada and paves the way for us to continue to lead with our software solutions. We feel really well positioned for the back half of the year and beyond as we see traction beyond core, U.S. municipal law enforcement moving into counties and state patrols, federal government and private enterprises.

International revenue grew 60% in Q2 and international bookings, which are our forward looking indicator nearly tripled. So in some my part, at Axon, we're excited, we're leading the way in creating a work environment where employees can maximize their happiness and productivity. We offer remote hybrid options; you can work from the office, you can work from your home, you can work from your car; I'm showing you today even on the earnings call. So, we're focused on doing whatever it takes to get the best top tier talent, keep them focused, keep them rested, keep them happy, keep them energized, keep them creative and that's how you get great products and breakout capabilities.

So our leadership is now supported by an exceptional workforce that is almost 2,000 people and that's what is going to help drive us to long-term profitable growth; this continuing to build and maintain and groom a fantastic team. And with that, let me turn over to the President of the Company, Luke Larson.

[Luke Larson, President]

Thanks, Rick. The business is firing on all cylinders and we are focused on sustaining momentum. Operationally, we're doing really well, even in the face of global supply chain risk. The reality of the current macro situation is well documented, from geopolitical factors to semiconductor and resin shortages, to logistics, import stoppages are the continued impact of COVID. There's never been a more complex time to make electronics, we have risen to the challenge, and we monitor conditions daily and have put risk mitigation strategies in place that are supporting a rapid growth. While these headwinds persist, our teams are definitely navigating and effectively positioning the business to continue to meet our increasing demand pipeline. In fact, our teams are delivering Olympic level execution on behalf of all of our stakeholders, most notably our customers and our shareholders.

Another area where you will see this is our teaser segment gross margins, which are up 500 basis points over last year, as we sell into strong demand; we have engineered costs out of our building materials, and the effects of that continued into this quarter. As you saw in our video and read in our letter, we are ecstatic about the fleet 3 launch and that it's shipping; and we're getting ecstatic reviews from our early customers, as Rick mentioned earlier. And we believe we're just getting started with virtual reality training, with booking nearing $8 million in the first six months, up less than $1 million in the first six months of last year. You've heard me talk about virtual reality on the last several earnings calls, and we're pleased of the demand that we're seeing, and that validates our excitement. We're looking forward to a strong back half of the year and continued momentum into 2022.

And with that, let me turn it over to our Chief Financial Officer, Jawad Ahsan.

[Jawad Ahsan, Chief Financial Officer]

Thanks, Luke. The results we're sharing with you today reflect the straightforward and consistent nature of our strategy, which is threefold; execute in the near term in a focused and disciplined way, identify and invest in future areas of growth, and then finally, reinvest the upside from our strong top line performance back into the business to accelerate that growth.

We believe that the goals we're working towards are profound, and that our success will be measured by metrics such as the number of lives saved and the level of transparency in the justice system. This is why last quarter, we invited you to look at our business the same way that we look at it; with a long term view. It's why we move to giving two-year annual guidance, because we're thinking about in building the business for the long-term. As you saw in our shareholder letter; today, we are raising our outlook for both fiscal year's 2021 and 2022, which reflects our confidence in our growing global demand. We now expect to deliver between $825 million to $850 million in revenues in 2021, and $960 million in revenues in 2022.

We're also pleased with how our investments are seeing traction on three fronts; in international sales channels with new products in a new non-municipal law enforcement markets. Rick highlighted the international strength; now, I'd like to touch upon the traction we're seeing in these latter two categories: new products and new markets.

New product bookings are up more than 100% year-over-year. We like looking at bookings as if they forward looking indicator as Rick mentioned, and we typically signed contracts with an average five-year life. These products are largely fast centric and are helping drive our net dollar retention of 119%. They're the result of more recent R&D and include software products, such as records, in standards, respond, VR, citizen, performance, transcription, Axon Air and others. We're also expanding outside of law enforcement into new markets, including federal, enterprise security, consumer and fire & EMS. Bookings in these new markets doubled year-over-year and we see substantial runway for expansion.

We focused a lot on financial discipline, which means balancing investing for growth while also demonstrating leverage. This is an area where we feel a strong sense of accountability. So I'm pleased to point out that Q2 adjusted EBITDA grew at 83% year-over-year, and we were able to do that while investing to scale into a broader global profile.

Finally, I wanted to highlight that I'm not only proud of how the business is executing, but also of the corporate strategy capability that we've built, where we're partnering with and investing in other innovators and thought leaders in our space. Our recent partnerships and investments are reflective of our vision for the Axon brand to become synonymous with public safety. And equally important, allow us to leverage and expand our platform in a transformative way. To build a public safety ecosystem of the future, we're aligning with other innovators and technology disruptors.

Thanks, Erik. Do any of our analysts have any follow-up questions? No? Okay. Well, thanks, guys, so much for joining us. We’re going to have Rick close us out.

[Rick Smith, Chief Executive Officer]

Thanks, Andrea. Hey, before you leave, if you have time to stick around, we’re going to play our quarterly earnings video. So, thanks for joining. We look forward to updating you throughout the year. We’ll drop off after this video. And the webcast will be posted to investor.axon.com. Roll video.