Axon Enterprise Inc

NASDAQ:AXON

Earnings Call Analysis

Axon Reports 32% Revenue Growth and Strong Market Demand in Q3

Axon delivered a robust 32% revenue growth year-over-year in Q3, achieving a record adjusted EBITDA margin of 26.7%. This strong performance stemmed from significant demand in its TASER segment, which saw a remarkable 36% revenue increase, fueled by new product adoption. Future contracted revenue reached approximately $7.7 billion, reflecting a 33% increase. Notably, Axon raised its Q4 revenue guidance to between $560 million and $570 million, projecting over 30% growth at the midpoint and signaling strong expectations for 2025. Meanwhile, adjusted EBITDA is expected to range from $130 million to $135 million, suggesting a 23.5% margin.

Robust Financial Growth

The company reported a remarkable 32% year-over-year revenue growth, translating to a significant expansion of its adjusted EBITDA margin to 26.7%. This demonstrates the company's ability to balance top-line growth with bottom-line performance. The financial results indicate a solid operational leverage, underscoring the organization’s capacity to scale while maintaining profitability.

Diverse Revenue Streams

Notably, the revenue growth was broad-based across various products and customer verticals. TASER revenue, which grew 36% year-over-year, reflects the strongest performance in this sector in over two years, driven by increased demand and manufacturing capacity. Likewise, the cloud and services segment reported a 36% growth, primarily led by software revenue. The annual recurring revenue (ARR) also reported an impressive increase to $885 million, marking a 36% year-over-year rise, alongside a net revenue retention rate of 123%. This suggests strong customer loyalty and ongoing demand for the company's offerings.

Future Revenue Projections

Looking ahead, the company has revised its revenue guidance for the fourth quarter to a range of $560 million to $570 million, resulting in a projected annual revenue of approximately $2.07 billion. This projection represents an exceptional year-over-year growth rate of over 32%, a significant increase from prior guidance expectations of $2 billion to $2.05 billion. This indicates confidence in future performance, especially considering the recurring nature of its revenue streams.

Operational Performance and Market Opportunities

The company has maintained a stable adjusted gross margin of 63.2% and expects this to moderate but remain strong going into Q4. The confidence in operational efficiency is reaffirmed by the ongoing demand in key market segments, including federal customers, where bookings are at record levels. International bookings have also surged, increasing by 40% sequentially from Q2 and matching last year’s performance in Q4. This sets a strong foundation for revenue growth in the upcoming quarters.

AI Integration and New Product Launches

The ongoing emphasis on product innovation, particularly with the introduction of AI-driven products, is seen as a critical growth driver. The company expects significant contributions from their new AI Aeroplan bundle, which is anticipated to enhance future sales. Early feedback suggests high interest levels in the AI offerings, indicating a promising avenue for growth. The revenue potential from these innovations could significantly bolster financial results moving forward.

Sustained Momentum in the TASER Segment

The TASER segment shows promising sustainability with a strong demand pipeline, potentially driven by the new TASER 10 product, which is fundamentally more advanced and offers superior performance. The management team expressed optimism about the TASER's capability to become the primary device for law enforcement internationally, suggesting expansive growth opportunities in both domestic and international markets.

Expectations for the Fourth Quarter

As the company approaches the close of Q4, management expressed confidence in the quarter being potentially the strongest in terms of bookings performance. The anticipated success is rooted in strong execution across all market segments and the buildup of a substantial bookings pipeline built throughout the year. Management forecasts Q4 to surpass previous quarters, setting an optimistic tone for record results for 2025.

Strategic Insight

The strategic focus on maintaining robust R&D investment despite increasing EBITDA margins reflects a commitment to innovation and long-term growth. Management’s assertion that they will not sacrifice future potential for immediate gains is a positive signal for investors who are concerned about sustainable growth. This consistent investment in technology and market leadership positions the company favorably in a competitive landscape.

Earnings Call Transcript 2024-Q3

[Unknown Executive]

Hello, everyone, and thank you for joining Axon's executive team today. I hope you all had a chance to read our shareholder lender release after the market closed, which you can find at investor.axon.com. Our prepared remarks today are going 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. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a 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'll start off with a quick video showing an awesome example of one of our customers using products across our ecosystem. It will be about 5 minutes. So you get a chance to take a minute.

[Presentation]

[Patrick Smith, executive]

All right. Thanks, Eric. I would thank all of our shareholders for joining us here today. So welcome to Axon's Third Quarter 2024 Earnings Call. It is truly humbling to come back to you with another fantastic update. And to show you these videos that capture what we've been working on and the relationships we strive to build with our customers. These goals are a great opportunity for us to reflect on our recent momentum while thinking about what's next. As I've shared with you in the past, I spend the majority of my time with our customers and with our product teams, ensuring that we are inventing and focused on the right things and aligning our efforts where our customers need us and where they need us to be for their future. I've been able to lean in with hundreds of our customers over the past few months between the AUSA, which is the Big Army Show, IACP, the Chief of Police Conference and several events at our offices and internationally. .

Our customers are as excited as we are about what's ahead, and it's energizing to see them ready to move forward with us on this journey together. There's no place where this is more clear to me than the area of artificial intelligence. The interest is immense here and we are already building a suite of products for our new AI era plan, providing access to an expanding set of solutions.

Our strategy here is two-fold. First, we understand and believe that AI innovation is moving at a breakneck pace. It would be almost impossible for us to continually update our go-to-market offerings at the speed that AI is moving. With this plan, we had to deliver an ever-changing and expanding offering that drives increased value for our customers over time. Second, we want to partner with our customers by offering them access to the solutions we have today and those we are building for the future. We can work together on this, adapting to deliver what they need as technology improves and evolves. We know the best way to win is by putting our customers first. This is going to be how we help them harness the power of AI as we launch many exciting products over the coming years.

AI was one of the many areas that excite me about our business, but it's not the only one. TASER 10, combined with the power of our expanding virtual reality or VR training portfolio continues to gain traction as a disruptive force to how we de-escalate in difficult situations. Real-time capabilities enabled with Axon Body 4 infuses an advanced response and communication in ways that are finally modernizing public safety communication tools that have been a bit stagnant for decades. And our momentum in newer categories like drones and robotics continues to accelerate with our recently closed acquisition of Dedrone, which helped enable [indiscernible] PD, as you saw, to give the first FAA approval waiver for 24/7 drone operations as first responder.

To summarize, I'm very excited about what we are seeing in the market today and the energy our customers have put behind what we are doing. We're on a multiyear journey to modernize the way public safety operates. And the opportunity in front of us is to drive real improvement in outcomes that matter to our communities and to our customers who work tirelessly every day to make the world safer. While we report our results to you on a quarterly basis, I believe our success is measured in years and lives saved. We remain focused on our moonshot goal and our mission to protect life. And we are thankful to have you on this journey with us. And with that, I'll turn it over to Joshua Isner.

[Joshua Isner, executive]

Thanks a lot, Rick, and good afternoon, everybody. This week, we are participating in a core element of our culture at Axon, putting our customers first together. It is the week of the customer internally where we invite customers into work to share their stories, recognize our internal support teams and double down on employee training to ensure that the customer remains at the center of our universe. I'd like to share a quick anecdote to that end. In response to the devastating hurricanes that impacted the Southeastern U.S. in September and October, we deployed our Axon emergency response team to work alongside first responders around the clock for 16 days. .

Our team had to witness the magnitude of customers' efforts firsthand. At Axon, we know our customers are heroes and being a small service to them in this mission was an honor and nothing short of inspirational. We work every day to help our customers achieve better outcomes. And when we put their needs first, we get to share in their successes. Understanding this is something I have spent a lot of time on and a percolates into how we built our team. When I look at what our team is working on with our customers and the results we are delivering because of our strong partnership with them, I continue to be excited and impressed.

I'll briefly share a few updates that build my confidence. First, our record results. We just delivered our 11th consecutive quarter growing above 25% in our third quarter this year growing above 30%. That growth puts us at a level where we are accomplishing in quarters what took us years to do only a few years ago. Second, while we've been growing fast, we still have line of sight to a multiyear growth opportunity that continues to build. We closed Q3 with record bookings in excess of $1 billion on both an absolute and normalized 5-year basis. That's our strongest normalized booking quarter in history outside of Q4 last year. As we move to close out this Q4, which has historically been our strongest bookings quarter, we are already executing against the largest pipeline we've ever had, and we fully expect to post an exceptional and record results again. Third, what's really encouraging here is that we are seeing strength across the board. Our state and local business is firing on all cylinders, led by Jessica Duncan, in the early interest we are seeing in our AI Aeroplan signals to me that this new offering could be one of the more meaningful drivers for us in the year to come. Beyond our state and local business, our U.S. federal bookings came in higher than what we did in a full year just a few years ago with four of our top 10 domestic deals in the quarter coming from federal customers across several agencies, including DHS, IRS and Amtrak. Looking ahead, we have a clear path to surpass the Q3 federal bookings again in Q4 for our strongest year yet.

International bookings came in at near record levels, matching Q4 of last year, up 40% sequentially from Q2, and our year-to-date international bookings are up 40% from last year. Similar to federal, we see a clear path to surpass Q3 bookings again in Q4. Finally, we saw strong bookings from corrections customers from our -- in our Justice segment continue to grow, and we have several Fortune 500 companies conducting retail security trials with Axon products in the enterprise segment. As is the case every Q4, we must do two things well: Number one, close out the year with maximum intensity and flawless execution; And number two, ensure that we are well prepared to drive a record 2025. We have a lot of sharp adaptable and unstoppable teammates that are embracing this challenge.

I know I say this a lot, but I truly believe Axon is in the strongest position we've ever been. We have an immense opportunity ahead to grow our business and continue to progress toward our moonshot goal, which we will pursue with vigor. Now I'll pass it over to Brittany to go over everything in more detail. Brittany?

[Brittany Bagley, executive]

This quarter marks 2 years for me in Axon and the business has certainly been incredible. I couldn't be more pleased to share the results of another great Q3. We grew revenue 32% year-over-year and delivered strong adjusted EBITDA with a 26.7% margin. We achieved this margin expansion while driving over 30% top line growth, and we continue to successfully prioritize balancing the bottom line with achieving that strong top line growth that we promised. As Rick and Josh both talked about, the focus on product innovation and delivering for our customers remains our North Star and is what enables us to keep delivering these types of results. Thank you to everyone on our team who drives that focus.

As we get into the details, I am particularly excited that the revenue growth is broad-based in terms of products and customer verticals. Josh spoke to the strength we're seeing across different customers. The strength is across our products as well. For example, our acquisition of Fusus has been very positive across a number of our verticals and TASER 10 also continues to exceed our expectations on its adoption. TASER revenue was a standout in the quarter, growing 36% year-over-year, the strongest growth in our taser segment in more than 2 years on the back of increased capacity and broad-based demand. Cloud and services was up 36% year-over-year with software revenue as the primary driver. ARR of $885 million is up 36% year-over-year, and our net revenue retention, an indicator of growth with our existing and new customers increased to 123%. Sensors and other revenue was up 18% year-over-year with strong demand for Axon Body 4 partially offset by Fleet. Fleet continues to be a very strong product, but given RFP timing and customer deployment schedules, we expect it to have inconsistent hardware revenue quarter-to-quarter. Overall, our future contracted revenue sits at approximately $7.7 billion exiting the quarter, which is up 33% year-over-year.

As a reminder, this is a GAAP definition of our remaining performance obligations and will not tie exactly the commentary we share about bookings. Bookings are also seasonally strongest for us in Q3 and Q4. And as Josh shared, we're continuing to see that this year with a strong Q4 in front of us. Adjusted gross margin of 63.2% was stable sequentially and up approximately 50 basis points from last year. Overall, as we have ramped automation and efficiency in our TASER 10 manufacturing, we have stabilized our margins and expect to maintain these approximate levels subject to the usual business mix dynamics. Adjusted EBITDA margin of 26.7% was a 3-year record driven by operating leverage as we delivered scale on strong revenue. One note on our financials that you will see in our forthcoming 10-Q is that we have made a revision to our historical financials to reflect corrections of certain errors related to the categorization of some of our partner relationships as principal and instead as agent. We concluded that these were not material to any previously issued financial statements.

Our current period reported financials and revised historical financials reflect revenue and expense recognition consistent with the corrections we made in the revision.

Now turning to our guidance. We are pleased to raise guidance again on both revenue and adjusted EBITDA. Our Q4 revenue guidance is a range of $560 million to $570 million, representing more than 30% growth at the midpoint. This implies approximately $2.07 billion in full year revenue or greater than 32% annual growth, up from our prior guidance of $2 billion to $2.05 billion or 29.5% growth. Our adjusted EBITDA guidance for the fourth quarter is a range of $130 million to $135 million or approximately 23.5% adjusted EBITDA margin. This implies full year adjusted EBITDA dollars of approximately $510 million or 24.6% merger.

Note that Q4 implies lower adjusted EBITDA margins than we were just able to achieve in Q3, which is a result of timing on some of our expenses and also reflects a full quarter of our now closed Dedrone acquisition and costs to integrate. We continue to have conviction in our margin target of 25% for '25, which continues to show nice leverage over full year '24. Overall, we are very pleased with our progress against the 3-year targets we set out for 2025. We on pace to deliver our initial $2 billion revenue target for 2025, a full year early and remain confident in our extended target of 20% or greater annual growth. all while increasing our adjusted EBITDA margins and achieving the 25% target next year. With that, I'd like to turn the call over to take any questions.

[Unknown Executive]

Thanks, Britanny. We can all get up into gallery view. We'll take our first question from George Notter of Jefferies.

[George Notter, analyst]

Congratulations on the strong results. I wanted to ask some questions about draft on I'm curious if you can give us an update on your progress in the September quarter there in terms of pipeline. Was there any revenue recognition tied to Draft One? Any significant contributions to your ARR?

[Joshua Isner, executive]

So thanks a lot for the question. I really appreciate it. In terms of Draft One, yes, we did receive some orders in Q3 from kind of early customers. So there was some impact on revenue from Draft One, but I would still say we're in like the top of the first inning on what that's going to look like moving forward, especially as we go into next year with Draft One being the anchor product of our AI [ Aero ] bundle, and so certainly, we're very, very bullish on Draft One and all of our AI products contributions to both revenue and profitability over time, but we're still not yet seeing a major impact on the quarter-to-quarter results, which is expected due to the SaaS accounting.

[George Notter, analyst]

Last quarter, I think you guys mentioned $100 million pipeline, I think in 6 or 7 weeks of selling on Draft One. Is there an update to that number?

[Joshua Isner, executive]

It continues to grow, especially after IACP. So we're -- again, we're converting some of that pipeline into the new kind of AI era bundle that we're coming out with next year as well. And again, Draft One is really the kind of central driver of interest in that bundle along with a number of other AI features we're developing right now. So certainly safe to say that the interest is the most we've seen out of any year 1 product.

[George Notter, analyst]

Got it. One last follow-up I'll pass it on. Where are we going to land in terms of the pricing on that? I realize it's going to go into the bundle I know you guys have been selling it all a card to some degree to early customers. We heard price points of $30 and $40 a month. But is that kind of the right zip code in terms of where this is price or where maybe the incremental bundle would step up to in terms of pricing? Any sense there?

[Joshua Isner, executive]

Sure. So right now, Draft One alone is $65 a month and it requires transcription on top of that for another $20. So $85 a month for just Draft One. We're looking at the AI [ Aero ] bundle price of $199. And the sum of the parts of that bundle is expected to be somewhere around $250 to $350 in terms of everything included in it. So good economics for buying as a group of features instead of individual stand-alone features. But that will be the price going into next year.

[Unknown Executive]

And those are just the launch features. Of course, the features in the AI Aeroplan are going to grow rapidly.

[Brittany Bagley, executive]

I'd probably just note that we'll probably -- you'll hear us talking more and more about the AI bundle plan and less about Draft One is sort of an individual product or an individual data point. It's really going as Josh said, be the anchor product in the new AI bundle. We'll continue to add features there, but that's what you'll hear us talking about quarter-to-quarter.

[Jeffrey Kunins, executive]

That's right. And of course, pretty much everything in that plan are pure SaaS software additions on top of our overall software ARR, of course, they build upon people who have our hardware like cameras and tasers and the like, but the Aeroplan itself is all good old as SaaS.

[Unknown Executive]

Up next, we've got Jonathan Ho, William Blair.

[Jonathan Ho, analyst]

Just wanted to get a sense from you as you start to think about sort of the broader opportunity around drones, as a first responder, how should we think about maybe the ability to monetize this, the ability to see broader adoption? And what sort of has to happen for that to take place?

[Unknown Executive]

Rick, do you want to start? And I'll follow.

[Patrick Smith, executive]

Sorry, I have myself on mute. So yes, we see drones as a huge opportunity. The Dedrone acquisition, we think, is a real key part of that because before you can start flying dose without expert human standing around watching them, you've got to be able to see your aerospace and an array of sensors can see the air space far better than a human on a rooftop. And so part of our assessment in making the DEMS acquisition was a dual bet. Number one, that it would be a key enabler for GFR, to be able to fly your own drones, you got to be able to see the air space well. And then the second is that we're going to see increased interest in counter drone capabilities I just learned this past week that apparently somebody in Pennsylvania, put a pipe bomb on a drone and it's going to fly it into critical infrastructure or something. We'd be glad to see there has not been that much of that kind of activity here in the U.S., but it's certainly growing all over the world. And what we certainly hope it doesn't come here. I think it is something that's likely to get more nefarious use. And right now, counter drone is really limited to federal agencies, meaning state and local cannot interdict the drones themselves. So Dedrone is helpful in that case because they will tell me where the pilot is and you can go deal with the pilot directly. However, there was a bill in Congress, I believe this year, I don't think it's going to make it through, but there have been some efforts to give state and local law enforcement, the ability to interdict drones, not to get into politics, but my assessment of the shift of of the election we're coming out of is that, that is likely to speed up law enforcement enabling legislation, potentially including the local ability for law enforcement to interject drones.

So Dedrone is a tech enabler. I think Skydio is a partner. We sort of made a shift with the shipping relationship. DJIs a Chinese drone manufacturer, we think there's legislation a foot that passed the House of Representatives unanimously that's going to be blocking DJI long term, and frankly, all Chinese drones. And so we shifted our focus really with Skydio, who turns out is the world leader in autonomy already for drones that can fly themselves effectively. So between the partnership, the acquisition of Dedrone and then some pending legislative changes that I would expect within 24 months we'll see a shifting landscape to where our state and local folks can begin using more aggressive counter drone capabilities.

And by the way, last thing I'll say is we did a full scan of the world's sort of counter drone providers a few years ago before we selected Dedrone. And we like Dedrone strategy. They were very focused on detection and not getting too aggressive on mitigation, knowing that, that basically owning the detection space and being at a lower cost point than some of the competitors that have been out there focused on more military style interdiction efforts has given them a good footprint to scale from, and then the strategy has been able to plug in other hardware over time as the legal landscape changes.

[Jeffrey Kunins, executive]

And then, John, just to add two things on Rick's great summary. One thing that we're super pumped about is how the market is evolving to think about the real-time prime center space and the DFR space together, which we think is both right and good for agencies and communities and plays right into our strengths and our differentiation as a solution. So the combination of uses in the real-time prime center deeply connected with all of our other devices and then into the DFR partnership stuff that Rick was talking about. Agencies are thinking about buying those together, and that's both great for them as they think about how they use this technology to keep community safe, and it plays right into all of Axon's strengths. And the second, which is another example of that same thing. We just had a major agency who is in the middle of rolling out their DFR stuff the other day, top unprompted about the notion that they would love to have an officer be able to press that watch [ mute ] button that you know we have on our AB4 cameras and have that under the right conditions, automatically trigger the dispatch of a DFR drone to bring health and extra overwatch to that situation even faster than what any other human the loop could be. And that's exactly the kind of solution that's powered by the combination of all the things we bring to bear for agencies.

[Jonathan Ho, analyst]

Excellent. And then just as a follow-up. I mean, TASER again had a very strong quarter. We regularly received a question whether the TASER business can sustain this level of growth. And I just want to get a sense from what gives you the confidence that we can continue to see TASER be one of the major drivers of the business? Or maybe do you see a shift in leadership where things like rate will start to take over that growth over time.

[Patrick Smith, executive]

[indiscernible], but they do compete for the top slot and it does make me proud that the old war horse that's TASER can still run. So we I think we've got so many things that have the opportunity to continue to be disruptive and to grow. The big one for TASER just to come back on that to me, is really international. I think we are on the cusp, but actually I'm getting text updates from my engineers that are in the lab today actually working on some pretty cool stuff related to TASER that we think we have the opportunity in the next couple of years to become the primary weapon internationally. Now in the U.S., the guy is going to remain primary for quite a while, culturally because police are dealing with so many guns out in the public. But in much of the world, a gun is just if you had a viable, high-reliability alternative within that 45-foot range, I just say the last thing we're working on this clothing penetration. Once we get that dialed in, we've got a shot at becoming the primary self-defense weapon in international markets where there's not a high propensity of pan guns out in the public. And I think that could be a real game changer for TASER.

[Joshua Isner, executive]

And I'm going to just add one or two more thoughts there about the question of is it sustainable for the TASER business to keep growing. In my opinion, the answer is absolutely yes. Like where you're two of five in an upgrade cycle right now. We continue to see exceptionally strong demand, literally double what it was as we've said on previous calls, with T7. And so certainly a lot of runway ahead to continue to grow the TASER business and look like, as Rick said, the TASER business is going to solve one of the most critical issues in policing over the long term, which is that these encounters can end in deck either from a civilian or police officer. And if we can solve that problem, I still think we're scratching the surface of what the TASER business is capable of.

[Brittany Bagley, executive]

Yes. Just from a detailed sort of modeling perspective, I don't know that I would expect every quarter to be as strong as this quarter was. This was a particularly strong quarter for there. And that is partly because we got more capacity online for the TASER business, which helps us to fulfill all of that demand. So just from a growth standpoint, I would say this quarter really stood out, and it continues to be across both T10 and our T7 and legacy handle. So that was a little bit unique. But everything Rick and Josh said about the long-term trajectory, the power of TTM, the ability to sell it into different markets holds over the long term.

[Unknown Executive]

Up next, we have Mike Ng at Goldman Sachs.

[Michael Ng, analyst]

Good afternoon. Thank you very much for the question. I wanted to follow up on a comment made about 4Q '24. I think you said it would be likely a record bookings quarter. Is that right? And was the year ago 4Q bookings in that like $1.7 billion, $1.8 billion range just to make sure we're thinking about that the right way. And if you could talk about some of the visibility and the confidence that you have in those things that you mentioned, federal bookings increasing sequentially international bookings. Is it AI Aero. Is it the pipeline growth that you've seen coming out of IACP, would just love some color around the bookings outlook at year for [indiscernible].

[Joshua Isner, executive]

Sure. Yes, certainly reiterating that I'm very confident and encouraged here in terms of what we're going to do in Q4 bookings. I probably won't give you a specific number other than we expected to exceed last quarter. And I think on the last call, I said the sum of Q3 and Q4 this year will be comparable to what we did in the full year last year in terms of bookings. So we're very bullish on bookings. Part of what's informing that confidence is just tremendous execution across all four segments of the business. state and local, enterprise, federal and international. We have meaningfully -- meaningful deals in all four of those segments in Q4 and a lot of them such that there's no it sounds like a huge percentage of the bookings would be concentrated on one deal. We feel really, really good about the foundation. And we're excited to talk in more detail about our Q4 bookings in February.

[Brittany Bagley, executive]

There's been a couple of questions now about like what's going to do better or what's going to drive the growth going forward. I think one of the things that I like so much that this quarter demonstrates is the growth is across the board. So you might get a little more from one segment, one quarter and a little more from another segment than another quarter. But really across the business, the devices on the strength of AB4,Taser on the strength of TASER 10. And then our software on the strength of both our existing software business is continuing to perform well and then the very right future that we think the AI plan has will continue to drive software. And so you'll see a slightly different mix every quarter. But as you look long term, you really should expect all three of those pieces to continue driving our growth. .

[Michael Ng, analyst]

Excellent. And if I could follow up on the earlier TASER question. The revenue I counted -- this was the sixth consecutive quarter where taser has hit a revenue record. You talked a little bit about faster-than-expected adoption. I mean if we look back to TASER 7, it probably took you, I think, 5 years to get to 80% to 85% adoption. How much shorter can that be? And could you just remind us like what's the typical price mix or ASP uplift versus TASER 7?

[Joshua Isner, executive]

So Michael question was how fast can we get to 85% adoption on T10 versus T7?

[Michael Ng, analyst]

Yes, that's right.

[Joshua Isner, executive]

Okay. Look, I think that would be setting our sights short, I would say. Our goal is to transition every T7 and legacy model TASER into a T10. And we think we have an opportunity to do that. I think this TASER time, while each TASER is an incremental improvement over the last one, TASER 10 is just a fundamental massive leap forward in the technology, in the deescalation capabilities in the officer safety features, we really believe that every comp will be best served with the TASER 10, I'm sorry. And certainly, as we go into the next few years here of the TASER 10 life cycle, the primary goal is upgrade and replacement of the current fleet. And again, we're very confident in our ability to do that.

[Unknown Executive]

Up next we have Joe Cardoso at JPMorgan.

[Joseph Cardoso, analyst]

I guess maybe just a quick clarification on the bookings. And Josh, can you just like quickly clarify if your comments today, are you guys on track to meet the bogey that you laid out last quarter and achieving bookings in line with full year '23 in the back half of this year? Or is it more like unknown. I'm just curious if you could just flesh that out a little bit more because it does seem like perhaps you're a little bit off pace. And I just want to make sure that I'm not thinking about that incorrectly.

[Joshua Isner, executive]

I'd say you're thinking about that incorrectly.

[Joseph Cardoso, analyst]

Okay. And then so when you're going into the back half of this year, like where are you actually seeing the growth in driving these bookings across the portfolio really all broad-based in terms of the entire portfolio? Are you guys embedding any of the new AI suite in that in terms of the releases there? Just curious in terms of like how you're thinking about the drivers in the rank ordering? And then I have a quick follow-up.

[Joshua Isner, executive]

Yes, sure. Look, I certainly appreciate the question, Joe. And these deals that are going to be closed in Q4 are deals that generally a 6- to 12-month sales cycle at a minimum, right? These things take the full year to come together we talked in Q1 when bookings are seasonally light traditionally part of that is the team is getting their arms around the new products and the new pricing, getting our arms around their new book of business as the territories can change and so forth. And so that's really where the groundwork goes into like building the pipeline for the rest of the year. And naturally, most of that closes in Q3 and Q4, especially when you see some of the biggest budgets in the country -- the federal government in Florida, Texas, all ending on September 30, you get a lot of September action and then you've got a lot of new budget dollars being spent in Q4. And so I don't know that the AI bundle is going to have a major impact on Q4 since we launched it in the same quarter. And we're still building the pipe for the long term for some of our newer features and products. So the big driver of a lot of these deals is officer safety plan execution in the same local market and some large deals in international federal and enterprise that have been coming together over the course of several quarters. So certainly expect Q4 to really truck Q3 in terms of just the absolute dollars and the normalized bookings, but it's also the result of a lot of pipeline building that happened throughout the year.

[Joshua Reilly, analyst]

Got it. Very clear. I appreciate the explanation there. And then maybe a question for Brittany. Just margins subtract nicely through the year and expanded each quarter and even outperforming kind of your expectations, if I'm remembering the guides correctly. So as we look here into the fourth quarter and the guide here for a sequential decline, can you maybe just walk us through what has been the driver of outperformance in margins over the past couple of quarters? And then relative to your expectations going into this quarter, like what's different that's driving your expectation for the sequential decline to occur in the fourth quarter itself?

[Brittany Bagley, executive]

So we [indiscernible] a pretty good job hitting our expense targets and our OpEx targets. And then our revenue has outperformed. And so what you're really seeing is some nice flow-through on that higher top line revenue coming through the bottom line. And it's been really nice to see how the team has been able to scale and get some leverage out of the OpEx and especially on the SG&A side. When we look at Q4, though, we also expect that some of the benefit has been timing, right? Like we've been talking about timing on everything hits exactly in the quarter. So we've been a little bit behind on some of our expense spend as we've gone through the first 3 quarters. We expect to catch up on some of that in Q4. And then the other thing is we expect to have a full quarter of Dedrone and some of the integration costs associated with Dedrone in Q4 now that we have closed that deal.

[Joshua Isner, executive]

And I might just add one more thought on adjusted EBITDA just high level, which is the thing I'm most excited about is the fact that we are not sacrificing R&D to achieve these results, right? Like that's a -- it would be very easy to drive up adjusted EBITDA by mortgaging the future. And I don't think anyone feels that way right now. We're still in the place of just loading up on new opportunities and investing relentlessly in them. We're just seeing, like British [indiscernible] over delivery and a lot more discipline in SG&A as well.

[Unknown Executive]

Next, we have Jamie Reynolds at Morgan Stanley. .

[Unknown Analyst]

Rick, I know you just mentioned there's probably some stuff to keep an eye on for the international market going forward. But just given the strength in bookings that you've kind of seen through the year, I guess, could you give us a sense as to what's driving maybe the improved traction kind of near term and kind of as we go into next year?

[Patrick Smith, executive]

It really is broad-based. I think the -- about Jeff was at 6, 7 months ago, I just come back to my tech conference and told Jeff, we need to pull the emergency break and take a look at all of our product development plans and look at where AI would enable new features that weren't even on our on our visibility last year.

[Jeffrey Kunins, executive]

Not the emergency break, turn the wheel.

[Patrick Smith, executive]

Well, no, this is the one where you're in reverse and you pull the brake. You like the Duke hazard -- it was a pretty big shift. And for example, 1 that came out of that, we also do these AI roundtables. Well, they're customer round tables, but we did one really focused on AI. And one thing that became very clear was being able to do real-time translation on a body camera would be just insanely valuable. If rated at the top of the charts. And so we pivoted -- Jeff, basically -- can you imagine like how disruptive business in his days managing like 1,000, 1,500 engineers, and it's like, hey, ,I know we've got everything planned that everybody is working, but let's like disrupt everything. And I think that enabled us to talk about six or seven major new AI features by IACP already. And I'm really proud. -- companies in our scale. It's hard to move like that. But I think that -- so our customers are seeing, again, things that just feel almost magical that are possible with AI. And our investment in things like our EAC, our FX Advisory Council to help us do safety testing on things like draft lung or simply running tests to see if you change the race of the subject, does that pick up any historical bias from the global data sets that these models are trading on. And we did pick up some things like word choice. If it says the man fled the scene versus the man left the scene can really change the emotional perception of that statement. And so we did things like tuning down the word choice severity so that our AI rates the most boring police report it can write because it's a human's job to add a motion and tone to it.

Anyway, I think that focus is really rejuvenated interest in the real-time connectivity of body cameras. You want me remember a few years ago, we had this whole debate about when we were developing AI should we put a wireless chip, a cellular LTE chip in the camera. Our customers were telling us they actually -- not only were they not interested in it, they were skeptical of it, we were hearing things like, "Oh, I know what my boss watching me real-time and micro managing me from the field. And we still say, just it may not be -- maybe they don't want a real stream real-time video, but there's going to be something they're going to want to do. And so not only do we decide to put the LTE chip in the camera, we decided to put it in every camera. We made a decision not to sell a camera without it because we knew our customers if we had a cheaper camera without the thing they didn't know they needed yet, that's the one they would buy. And there was some short-term pain because our cost of goods crept up. And as maybe our customers are on these upgrade plans where they get the next camera, and we don't get to charge them any more for it. So eating an $80 [ BOM ] increase on the hopes and dreams that we would find a value for that was a bit of a risky bet. Well, now that's really coming home to roost because things like Draft One are only possible because of that real-time connectivity real-time translation only possible because of that real-time connectivity.

So I think we're now reaping the gains of some of those bets we've made historically. And it's across the portfolio. I don't think there's any what that's what makes is just so exciting. I mean it makes Jeff job so difficult and [indiscernible] because I'm throwing 1,000 features at Jeff, he's like, oh, slow it down. We got like rationalize the sequencing and when we're going to build things and what are the things that are going to be delightful to use out of the gate now that aren't going to overset customer expectations. And of course, Brittany's while making sure that we're holding the line on how much we're spending on all this stuff.

[Jeffrey Kunins, executive]

On just thought, I think, again, so many of the things that are goldilocks and magical, I think, about Axon's flywheel for lack of better phrase, connecting like the questions about what's happening with bookings or demand, like right now and everything Rick is talking about the future is it's all of our new innovations are really leading indicators of this time next year's growth, not about this quarter's growth because of the sales cycle stuff because of building stuff, but they feed into customers' excitement about their bet on Axon for the long term. But the bookings that are this quarter, next quarter are about the pipe, as Josh talked about, that got laid 9 months ago, and it all connects in that ongoing sequence, beating upon itself in a really virtuosic way that we're super excited about. .

And Jamie, was your question specific to international at all? Or was that ...

[Unknown Analyst]

Yes. Yes, it was just kind of what's driving that improved it internationally.

[Joshua Isner, executive]

Yes, for sure.

So on international, look, as you know, we -- in searching for a new CRO, our big priority was upping our game internationally. And [ Cameron Brooks ] has come in really early on this year, hit the ground running and has really just helped up our game in terms of the quality of the team, the quality of the execution, how we're executing now, but also building for the future. And I think just across the board, we've got some new players on the team that are a really good kind of free agent signings. We've got a lot of customer momentum from the work that's been done in the last couple of years. And we're starting to, frankly, just see things come together at a more polished level. Still a long way to go. There's still a huge TAM out there. Everything is going to take time internationally, just due to the fact you're dealing with federal governments in all of these countries, not saying local police forces that are able to operate semiautonomously. So it's still going to be a grind, but we really, really believe we're on the right track, and it's a tribute to kind of the team we're building here led by camera.

[Unknown Executive]

Next we have Jordan at Bank of America. .

[Jordan Lyonnais, analyst]

On the administration change, how are you guys looking at the opportunities versus the risks involved just with what plans have been said if they come to or not the increased emphasis on border security versus tariffs?

[Joshua Isner, executive]

Yes. I appreciate the question, Jordan. I'd say the first thing that I want to make really clear is like we have a very apolitical culture at Axon. We know we've got to be successful in a Democratic administration as well as the Republic administration. And we've seen that over the last 10 years with both parties being in power and the business continuing to grow. Of course, there are going to be some interesting opportunities for us in the new administration that's focused primarily on border security. We're excited about how we can help there and new capabilities that we can bring to the table to offer support on that. But at the high level, certainly, we believe, look like saving lives, driving transparency and delivering disruptive technologies to governments and public safety agencies around the world. Those are things that are really not specific to which party is in power, and we're really focused on just delivering the best products we can. .

[Jordan Lyonnais, analyst]

And then on just -- if tariffs are imposed, how are you looking at what levers you can pull to offset any supply chain component changes?

[Brittany Bagley, executive]

Yes. So we certainly lived in an environment of tariffs before. And so I think our philosophy is generally to be pretty flexible. We've got multiple sources from a supplier standpoint, we do -- we manufacture our tasers like in the U.S. so that it will really be on component parts as those come in. So look, we'll just work through it and we'll be flexible and be nimble as those come through and as we see what they are. .

[Unknown Executive]

Next we have Josh Riley at Needham.

[Joshua Reilly, analyst]

Maybe just starting off, can you discuss how the FedRAMP status in your position as the, I believe, the only cloud body cam vendor with the highest level, FedRAMP status has been helping me win some of these U.S. federal opportunities? And how -- just along with that, how is the growth in U.S. federal been, I guess, relative to the broader business this year? Is it significantly above the consolidated growth rate? I know you don't break it out, but any color there would be helpful.

[Joshua Isner, executive]

Yes. Thanks a lot, Josh. On the first question regarding FedRAMP, look, like -- we've invested a lot and we put a lot of effort into being a FedRAMP high product in the federal government. No question about that. And that's certainly a differentiator for us. But I would be simple as to say even if everybody was on FedRAMP, we're still winning the majority of deals in state and local, we're competing against the same companies without FedRAMP. And so I think it's more of a tribute to the team's quality product delivery and the federal team's phenomenal execution on the sales and more importantly, the support front for our federal law enforcement customers. And so -- the team has done a nice job this year. There's -- as I said in my remarks, there's a lot to still close in we could have a better Q4 than Q3 in the federal space, which is generally uncommon because at the end of the budget year at the end of Q3. And so we'll have to see where the dust settles, but certainly exciting double-digit growth from federal and a lot of conviction that we're on the right path there.

[Joshua Reilly, analyst]

Got it. That's helpful. And then just going back to the TASER revenues. I think we all generally know that the capacity has been increasing sequentially. But maybe just over the next 3 or 4 quarters, should we assume that -- I know you said that maybe the sequential increases in revenue may not be the same, but is it safe to assume there's still more capacity increases that will be coming in the next kind of 3 to 5 quarters as well?

[Brittany Bagley, executive]

Yes, for sure. I mean, we -- as we talk about capacity, we have both capacity and handle capacity. And as you can imagine, we're working to bring both of those up to meet the demand lease. There are lead times. We do have automation equipment. So it's not -- we can't always turn on as much supply immediately as we would like to. So you can see the results of us getting more supply in this quarter. And then again, the growth is particularly impressive this quarter. I want to temper everyone's expectations on that looking the same every quarter. But yes, we'll keep bringing capacity on as we continue to see demand increase. .

[Unknown Executive]

We'll go to [indiscernible] at [ GMP ]. .

[Unknown Analyst]

Maybe Rick or Josh kind of high level one for you, circling back to the Dedrone, sort of just general DRF opportunity. Can you -- does that seem to be in your minds, kind of a state and local U.S. domestic kind of initial push? Or is there international opportunities along the lines there? And I guess I ask from the standpoint of seems like landing with TASER any kind, whether it's TASER 10 or previous models is sort of the kind of the tip of the spear for the U.S. business. and it seems to be following a similar type of path in kind of the international front. But just curious if there's ways for DFR type of use cases to be more again in that tip-of-the-sphere kind of on the international front with respect to Dedrone and the other things you guys are doing.

[Patrick Smith, executive]

Sure. If I could start first just Dedrone by itself without DFR, a ton of interest internationally. I mean every country in the world is now thinking about how they're going to deal with growing threats in the last 24 months. And in many cases, AD product just a great capability as the COD drone as -- and he's brought us new customers, too, whether it was the World Cup in Qatar, the NFL stadiums, critical infrastructure. And then we've seen the same thing with fuss. I mean both of these acquisitions, these were two big bites for us to take this closely together. And it's been really just impressive how much customer interest there has been in those with uses that's really supercharged our enterprise customers. Enterprises want to be able to work collaboratively with public safety and Fusus becomes the backbone of doing that in real time. Dedrone, we think there's more -- it's a new angle into military customers for us. Militaries around the world are very interested in how you deal with these small first person or mavic style drones critical infrastructure and then enterprise there as well. So I'd say Dedrone even on its own is, I think, not only interesting to our existing customers, frankly, probably even more interesting to the new customer sets they're bringing to us. The DFR is what's making counter drone special survey our customers in state and local, the responses are. Yes, we're kind of interested in counter drill, but it's not really our mission set today to be dealing with hostile drones coming in.

Now that thrust is more of a future bet that that's going to come on your place those threats grow, but the DFR thing is here and now, that's where our customers really with up, oh, I can use dedrone to enable DFR, I want to be able to fly my own drones, not something I can do today but I've got to do it in this awkward way where I've got to have people standing on rooftops and it's kind of this manual [indiscernible] thing, and we make it much safer and less [indiscernible] by putting a Dedrone sensor up there. So I also am giving interest where was it we had another DFR use case in one of our other markets. It's not drone as a first responder, but for competitive reasons, I don't want to name which sector it is, but this is a non law ienforcement sector. and they don't need to be flying drugs is first responder, but boy, they sure would like to be able to fly drones on automated patrol around their facilities. And so our partnership with Skydio, and the acquisition of Dedrone really come together naturally for us to be able to service a lot more than just drone as they first responder for police. If you want to fly a drone without having to have manual human overseas on site, like we could take that. And by the way, Skydio was a partner as well, brings us into potentially new customers in critical infrastructure and elsewhere, where we haven't been historically.

[Unknown Executive]

Up next, we have [indiscernible] at North Coast. .

[Unknown Analyst]

I know we're long here, so I'll try to make my questions quick. I was just really quick, Brittany. You talked about a pull forward or catching up with a T10 capacity. How much of growth in the quarter would you say was more of a catching up on capacity as opposed to normal is demand?

[Brittany Bagley, executive]

We break it out necessarily Keith, what I would say is we've had incredible demand like our demand has been outpacing our capacity. And so as that demand for every quarter, we need to bring more capacity on. And so what you saw this for is the combination of the two. But I wouldn't say if not like we done through backlog or something like that to deliver. You're just seeing the ability for us to ship more into that demand. .

[Unknown Analyst]

Got you. Appreciate it. and then services. I know services can be lumpy. But if we look at sequential growth in services of about $6 million, probably the lowest is growth sequentially for several years, if I correctly. Any happen in the quarter? Or how should we think about services going forward?

[Brittany Bagley, executive]

Yes, great question. I think there's two pieces of that. One, there's a little bit of a lag in that step as you go through each quarter. So what we really booked in Q3 will show up in Q4. So a little bit of what you're seeing in the step in the quarter is sort of what was going on in Q2 from a booking standpoint. And that's because many of the bookings come in pretty late in the quarter. So they hope the revenue from that doesn't necessarily get captured in our actual number. Then the other piece that's going on in there is that both our software stack and our services business. And so with some of the deployments of our fleet hardware being down in the quarter, which you can see in the fleet number, we actually had less professional services associated with fleet. And so that's actually offsetting some of the software piece. So if you were just looking at software, you would see a larger step than what's coming through in the numbers you're actually seeing because we actually have a step down in PSO, which is atypical. Normally, PSO is growing and software is growing, but because fleet came down this quarter, you're seeing that dynamic.

[Unknown Executive]

We'll try to get everyone in here. With William Power [indiscernible].

[William Power, analyst]

Awesome. Thank you all. Congratulations on a very strong quarter of execution. Question probably for Brittany. The software and our growth continues to be very good. There was some deceleration from the trend line you've been on there. So I guess I wonder if there's any other color or impacts got to be aware of there? And how to think about modeling that going forward? Is the already so of the right growth rate? And what are the puts and takes there?

[Brittany Bagley, executive]

Yes. I mean, we really look at that sort of on an average basis, like I think because of the dynamics I just talked about, the timing of when bookings come in, in a quarter, looking at any one quarter, it's not as good as sort of averaging out over the year, and you do have things like seasonality playing into that. So I would say nothing underlying it that would change our sort of 4 to 6 quarter average on anything, the step on ARR growth on any of that. you're just seeing a little bit of timing and a quarterly lag is what's showing up in Q3 is really Q2. What will show up in Q4 is really what we're talking about with strength in Q3 and then what will show up in Q1 will be whatever we deliver in Q4.

[Operator]

We have one last with Jeremy Hamblin at Kirk Allen.

[Jeremy Hamblin, analyst]

Congrats on another fantastic quarter. I might come back to TASER just for a second, right? So I think 50% year-over-year growth, really impressive. And it sounds like getting great traction on the international front. I wanted to see if we could unpack the driver there. And it sounds like it's really picking up on the international piece of the business. We know that there's a lot of opportunity domestically still. But internationally, is this more about the capability? And I think just seeing what the device does versus the prior version. It is a huge step forward from a technology perspective. But does this make you think that the longer-term potential is quite a bit bigger internationally than maybe what you've seen before. That's part one of my question. The second part actually has to do with the cartridge revenue relative to the growth in TASER was really -- that was -- it was up, I think, maybe about 10% year-over-year. And I'm just curious if there was something in particular there, why that didn't grow a little bit stronger.

[Brittany Bagley, executive]

Yes. I can maybe start a cartridge because that's easy and then Josh wants to talk more about Taser, he can. So most of our teaser customers are on sort of a cartridge deployment plan, which moves how do you see cute revenue coming in. But we do have international customers who are not on a plan. And so what you'll see is every now and then, our purchase revenue is particularly lumpy quarter-to-quarter. And so last quarter, we had some big international customers come in and place cartridge orders and then those didn't repeat this quarter. So again, I look at a longer trend line of cartridge growth versus last quarter to this quarter. I think the only other thing I would add, maybe to give a little more color on TASER before I let it go over to Josh last quarter in his script, Josh talked a bit about how much demand we're seeing for TASER 10 relative to TASER 7. I think he said demand is sort of 2x, the pace. But we are still seeing really good performance from TASER 7. And part of what you're seeing in this quarter is not only are you getting all of those benefits from TASER 10 that we've been talking about, but we do still have customers ordering these or even in some of our other legacy handles and products. And so that's sort of combining to give a particularly nice result.

[Joshua Isner, executive]

Yes. And I'll just add, Jeremy, I'd say -- it's in part due to international. Certainly, it's a big TAM. We're getting better there. We're building relationships kind of with the right customers. We're doing a better job explaining and demonstrating the value that TASERs bring to police both in terms of live safe but also in terms of officer safety increasing and workers' comp decreasing and just some of the issues that come along with absence of TASER deployments. But I think the bigger thing is just very simple. We have phenomenal product market fit with this product, and that's really credit to Rick. Like our customers are, for the first time, really seeing that man, this thing is on track to outperforming the firearm in the field. And we have been talking about it for a long time, but for 30 years with only up to two shots, that was still kind of a pipe dream and now we're seeing it with 10 shows and customers are saying, "Man, increased distance of 45 feet combined with the number of shots combined with the better penetration, those are all things that I think are inspiring more confidence in the device from our customers, whether they be in say, local or federal or international. And so I think that's really it. It's like good sales execution with product that has phenomenal product market fit.

[Jeremy Hamblin, analyst]

Great. Thanks for all the color. Best wishes. .

[Joshua Isner, executive]

Thanks, Jeremy. It was nice to see many of you at IACP. Thanks for making the trip out there and always great to see you at the booth.

[Unknown Executive]

Thanks, Jeremy, and thanks, everyone. That's it [indiscernible] will give to Rick to close this out.

[Patrick Smith, executive]

All right. So I have two things I want to conclude on. One, I want to be careful in my previous statement, when I talked about the election results, I'm not talking about which party won where, I'm talking about the overall political environment. For example, in California, the voters approved Proposition 36 that basically raised the penalties for shoplifting in certain drug trends. We're seeing a general shift that manifested in this election swing the pendulum more support of public safety in general. And I would say in our company, we are violently nonpartisan. We have passionate gun controll advocates and passionate second amended gun owners who come to meetings together and are productive. And you could say that across all the divisive issue in politics and match particular has done a great job from setting the tone from a leadership perspective. that we want to be an intellectually diverse space that where everyone is welcome, and we keep the device of stuff like out of the office because we've got a job to do. And we do best when the best, brightest smartest, most passionate people no matter their political views, feel like this is a place where they can come and do their best work.

And then the other thing I wanted to say was our 2 years. It's flown by. The -- what you're seeing right now, I mean, we see a lot of bringer prints on the P&L. She really does a great job just driving both operating and financial rigor. I come back from customers with all sorts of ideas. Some people might say they're crazy and some of them are between Brittany and Jeff, they've got to figure out, okay, how do we -- how do we sort through what we're actually going to execute onwards. It's actually going to go into a product. You say, Jeff, give me a thumbs up. He said, "It's a great rate. This is really fuzzy idea. There his idea is to take it from fuzzy to concrete. And for Brittany to work with the team, make sure we can make this stuff and execute and make money on it. And then Josh and the other team member of the team here. He's our Jimmy Johnson, who's a lifelong Cowboys fan. I'm sure he'll appreciate that reference. He's our head coach and really focus on just building the team and the people and that is the metric that we're seeing now is we've got these awesome productive dynamic tensions between our teams. We each have different strengths and weaknesses. And through the whole organization, you're just seeing a phenomenal execution.

And I would also say, the ownership is part of this team as well. So we appreciate our shareholders and the analysts who take the time to get to know us over the years, and are supportive of us using our shareholders' capital to go solve these problems that we're excited and interested to go do that fundamentally, we believe, make the world a better place when we're done, and that motivates everybody to come to work exciting. So Rich.

[Unknown Executive]

I would have appreciated a ballot comparison over Jimmy Johnson, but I'll let that one slide.

[Patrick Smith, executive]

I should have made a bet whether I could get that by without comment. All right. So thanks, everybody. Thanks to our team. Those people listen on the phone on a phenomenal quarter, and we're really excited to talk to you after the first year but have a fantastic holiday season. Hour kids in your family. Hopefully, the world is going to get a little less crazy over the next couple of years, and it's been over the last few with what's been happening in the Middle East and Ukraine it's been so much violence in the world. Self-admittedly was maybe too optimistic am 2017 or '18 book the end of killing, the thought we were at the end of war. Proven sort of the thesis was wrong in terms of timing, but I do think community can do better, and we can find ways to deal with threats while minimizing the loss of life, and we're going to stay true to that mission. So thanks, everybody. Enjoy the holidays. We'll see you next year.