Axon and AI: Drones, Bodycams and the Future of Policing

Retail associates want to feel safer in their stores. They want to have better experiences with customers. Sometimes just wearing a camera on a retail associate in trials we've done has been proven to deescalate situations.

The security and public safety industry plays a crucial role in how governments and communities function. Sitting at the intersection of technology policy and public trust, axon is a key player in the space. The company that began by manufacturing the taser has since grown into a 57 billion business with the goal of creating an ecosystem for public safety, from body-worn cameras to cloud-based evidence systems to drone and robotic tech. Axon recently posted strong quarterly earnings with revenue of just under $669 million, which beat estimates and came in up 33% year over year, driven in large part by a 39% jump in software and services while investors took notice as the company's stock bumped right on up after the report, and year to date is now up over 25%. Today I'm joined by Axons, chief Financial Officer and Chief Operating Officer Brittany Bagley, to discuss the unique intersection of her jaw roles leading the company's enterprise business and axons adoption of ai. Let's get into it. Wow. Brittany, thanks for joining hearing. Thank you for having me. Erin Studio, congratulations. Thank you on an incredibly strong quarter that you've had a couple of those. At this point, let's break down what's driving this performance. Axons known for taser over a million have been sold to date, but our audience may not be aware that Axon actually does more both in hardware and in software. So pick your favorite place to start. Let's hear what's been going particularly well this last quarter.

I mean, they're all my favorite places. I think what's been going so well is the fact that we really have been growing across the board, across all of our segments. So we are absolutely best known for taser. That's how the company got its start. But in the latest corridor, taser was less than 40% of our revenue. So there's been really significant diversification both into some of our other hardware products, best known for our cameras that you'll see on many, many officers to catch video of what's happening, get a lot of transparency through that video, but then we've built off that video capture a pretty incredible software business. Thank you for noting that. It grew 39% because that software business has just been driving absolutely outsized revenue growth, profitability. It's been an incredible business for us.

Well, the market loves software businesses because of the subscription element I saw 95% of revenue for Axon is tied to customers on subscription plans. When you look today, devices are still about 60 ish percent of your revenue. As you look five years out, what do you think that becomes in terms of the split between devices and software?

I mean, software continues to outpace our hardware growth, so you're going to continue to see that go up as a percentage of revenue, not that our hardware and our devices, businesses aren't doing really well, but software is just outpacing. So I think one of the nice things for us is they work really well together. Our hardware businesses fuel our software businesses. We build off of them, but you'll continue to see it mix up to be a higher and higher percentage of our business.

So let's dig into that a bit more and break down how AI can help expedite some of this growth. When I think about the installed base of Axon Hardware, you've also got headsets, for example, that's part of your product suite. Does your installed base of hardware have the ability to run more sophisticated AI enabled software, or are we looking at a potential future where that installed base needs to be upgraded to be able to do everything that the AI capabilities can start to do?

I mean, we run most of our software in the cloud, and so it can work. All of our installed base can continue to benefit from our AI features and functionality just as it is just today. So they don't need to upgrade. Obviously we continue to make our products better over time and we hope people will upgrade. Part of our subscription business is we put upgrades right into the subscription, so we help our customers with that migration. But AI good to go today. You want to buy our AI products, you can buy them and use them with your existing capabilities.

So bring to life with us. Tell us a story or two about what the AI capabilities are actually doing. Because AI is such an overused term, it doesn't mean predictive capabilities. Does it mean rapid detection capabilities? What are some stories that really show rather than tell what AI means to Axon?

So for us, we always think about solving real problems for our customers, and some of the biggest problems our customers have is actually understaffing. Most police departments will say they are understaffed and they don't have enough time, they don't have enough people. And so our first wave of AI products are really around just efficiency. So we have a product called Draft One where it will take the video off of the body camera and do a first draft of a police report. So that could save an officer hours.

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It could also pick up information the officer maybe didn't hear or didn't catch because it's pulling it off of the video. Now we're really careful with ethics and making sure that the officer has to check through the police report, sign off on it, fill in any details, but that can save them hours. We did a recent survey where some of our AI products are saving officers six to 12 hours a week, and that is huge for an understaffed agency, and we're not stopping there. We're adding more AI products. So one of the ones that just became available, which it's a really fun product to see in action, but on your body camera, you can actually now do translation. So you can push a button and if you are a police officer talking to somebody who doesn't speak English and you don't even have to know what their language is, it will auto detect. It will translate for you time savings, but also just making their jobs easier and making the relationships they have with people better.

And an example like that one, has Axon developed that simultaneous translation capability or are you licensing from someone like a Google translate or

We're building off of the AI cloud provider, so we will build off of an open AI or something like that. But then what we do is we go through and we take all of the data that we have access to and we really make sure we're delivering a quality reliable product for our customers in particular,

As much as AI is clearly driving productivity gains in certain areas and the pressure for companies to demonstrate return on investment in their AI CapEx right. Now, the flip side of this is a concern in some areas that privacy policy hasn't kept up with the pace of innovation. And one of the things I'm curious to know about is the acts on house view on privacy. So you've got image recognition products for example. Where does your company stand on facial recognition and bringing that into product development and using it in a way that perhaps makes your clients comfortable?

Yeah, I mean, I would say historically we have not been heavily involved in facial recognition. That's sort of been a line. I think what we're seeing though is there's more and more push for that. And so something like enterprise customers actually are using facial recognition already. And so that's an area where maybe we will start to dabble our toe into what that could look like. Overall, we have an ethics and advisory council and we spend a lot of time working with them so that as we introduce these products, we're doing it responsibly and some of it's what our customers are asking us for. So if people are going to start using facial recognition with or without us, how do we play in that? Can we potentially provide a product that we have vetted through this ethics and advisory council that we've taken a really responsible approach towards and maybe introduce something like that in a more responsible way. So it's a hot button topic we're talking

About a lot. It's a hot button. And the reason I find it fascinating is if we come out of the area of security and defense for the moment in terms of police policing and law enforcement, but let's take traveling everything from now. If you want to go board your flight, it used to be that you'd have to hand over your boarding pass. Now there's literally a facial recognition option you can opt into. You can go to board the plane and a camera that when the airlines is operating, can you have to opt in? So in your world, when you've got advisors and you've got a council that looks, it's the ethics. How is that conversation actually going when you are in the room? It feels as though it's happening anyway. It's happening sometimes without people necessarily opting in. It feels as though we're almost walking ourselves into it as consumers. On the retail side, for example, what pushback is there?

Yeah, I mean we are walking ourselves into it as consumers because we really like the sort of efficiency gains that you get and return for it. And so I think that's what we're seeing on the retail side as well, is that people are willing to give up a little bit of that privacy if they get something valuable back for it, like time and the cost of that or the downsides aren't really apparent. I think what's gets complicated in policing is the downsides can be bigger, and that's what we really have to think through and make sure we're handling well.

It is kind of amazing in an age where we're all taking selfies. I mean, they're posting it on social media for public consumption for the most part that we do still have this anxiety around how facial recognition is working. The other area of innovation that I find particularly fascinating is robotic security. And I want to know what that means in practice because I feel as though Tesla's optimist, for example, this vision of humanized robots taking to the street tends to be picked up in that area of robotic security. But what does it mean in practice right now at Axon?

Yeah, I mean that's certainly a vision. It's probably a vision far in the future. How far? No, how far in the future though? I mean if you talk to people in the space, they will say it's coming way faster than you think.

Yeah, El Musk would say within the next two years,

Yeah, he'll say it's years away. But I think, and this is sort of a personal opinion that I think there's real value you get out of those human interactions. And so where we see it happening is more around gathering and collecting information. If you're just collecting information that doesn't need to necessarily happen from a person that could happen with something robotic that was getting crime scene footage or reporting back on what was happening somewhere, or there's cameras all over now that are collecting things like license plate data that's already there and that's already happening. So I think that's where you'll start to see robotics in policing first is not the humanoid type robot, but smaller robots that maybe move around and are able to go collect information and provide information and keep officers out of harm's way when there's an uncertain situation. So we talk a lot about drones when we talk about what is the future, how do drones play a role? And that really is here today. We are at the very beginning and that is taking off massively. And a huge amount of that is keeping officers out of harm's way, keeping them out of a high speed chase instead letting a drone follow a car or letting a drone go into a building where there's something going on that is really uncertain in what the situation is. So doing that instead of sending an officer in, so really augmenting the role of a police officer instead of replacing them

For several of these new technologies. Brittany, acquisitions have been your entry point. Talk to us about your m and a strategy and dro and I think for example, is one that you made in that space.

So we think that m and a can really augment our internal development. We are investing as much as we can in r and d. How much are you investing in r and d? We're investing about 15% of our revenue back into r and d. And when we grow revenue, 30%, that's more and more every year. So we're getting some nice dollars to go put back into the business. And even with all of that, we see huge areas of white space and opportunity where we can go find companies that are at the cutting edge, usually talented people, acquihires new markets. Dron and fuss are two great examples of that we've done recently where both of those companies and markets are taking off. Fuss does realtime crime center, single pane of glass. So all those sensors that are out in the world get pulled into that fuss single view for an officer to go look at. It's something where we saw them, they were doing it better than we were doing it, they were doing it faster than we were doing it, and it made a lot of sense to just bring them onto the team.

Sceo is someone you have a partnership with, you haven't acquired them, but talk to us about that one because it's interesting when I read about the capabilities of that autonomous drone startup.

Yeah, so drones, we've been a big believer in drones. We call it drone as a first responder, getting the drone out there ahead of the officers getting information on the scene. When I talked about having a drone follow the car rather than a policeman having to get into the car chase, we're partnering with Skydio to provide that to police departments. That's really what they are doing and they're probably making, in our opinion, the very best US made drone out there on the market.

Now there are applications to this other than in policing. Anyway, it's a good segue to talk about enterprise skydio 3D mapping of factories, for example. And look, I'm in New York now. We live in New York. I feel like every pharmacy I walk to walk into, everything's behind Perspex glass and protective cases, and retail is an area of focus, I think, for your enterprise business. Talk to us about how your product and software suites are being applied outside law enforcement.

So just like we've been developing new products for our existing law enforcement customers, we've realized that those products have broad applicability outside of law enforcement. Corrections has been a big new market for US Federal. We're going international and then enterprise is an incredible opportunity for us. Retail is one that we talk about front and center. To your point, retail associates want to feel safer in their stores. They want to have better experiences with customers. Sometimes just wearing a camera on a retail associate and trials we've done has been proven to deescalate situations. And so we're having a lot of conversations with retailers about what does it mean to put a camera on some of your associates? And I would say similar to our conversation on privacy, there were a lot of questions of how well would this be accepted? But in a world where everyone has a phone and they will whip their phone out and video something that's happening, any scene they see people have gotten really comfortable with and accepting of having a video interaction of what is going on.

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And so instead of customers being nervous about it, it's actually put people sort of on their best behavior and that's allowed the retail associates to be more effective. So I'd say that's a big push into the retail market for us. And then I mentioned fuss. What fuss really does is it takes cameras and it puts it all in one place so you can see what's going on. Well, that's really important to police. It's also really important to people doing asset protection in retailers. They would love to know what's happening in their parking lot or what they need to respond to or what's happening in the corner of their store. So we've been learning a lot alongside our customers and partners, but the more they learn about our technology and what we can provide and how we can stitch some of these sensors together, the more excited they're getting about partnering with us.

And how big is enterprise as a proportion of axons overall business today?

It's still small. I mean, I think one of the things that's fun is we get to talk about all these future things. Even ai, when you look at our Q2 amazing revenue results, there's almost nothing from AI in there because relatively new. And so we talk about it in our bookings. We talk about having really good bookings from ai, our largest deal ever as of Q4, we've since surpassed that. But in Q4, our largest deal ever was in the enterprise space. So there's huge future potential as we see bookings and as we have conversations with these customers, it's still not showing up in our business today because it hasn't translated to revenue yet.

So as heavily dependent as Axon still is on law enforcement budgets, talk to us about you're seeing in terms of police funding, state policy, how is that trending at the moment in the public safety space?

It has continued to trend fairly stably over the long term. Budgets go up probably 5% a year on average. We went through a period of time where the tides had really turned against law enforcement. I would say to some extent that was when they really were dealing with staffing shortages and we were able to help from an efficiency standpoint. I think the tides turned back the other direction a little bit. I live in San Francisco, so we were sort of at the beginning of the tide going one way and now the tide going the other way. So I think law enforcement's really being valued for what they can do when they do a good job of it. And I would say from a budget standpoint, people are really valuing their officers, but they're also valuing technology and how you can multiply what a single officer can do by giving them better technology and tools.

The other area for growth of you, which you sort of touched on is the opportunity to grow more in international markets, which I think are under 20% ish of your revenue today. What do you see as the trajectory there? And I'm very curious to know if these trade deals, which do have elements tied to more spending with US defense businesses, are you going to see any benefit from that?

Yeah, I don't think we will see any benefit from those deals necessarily. Generally not classified as defense spend, but I also don't think we'll see any negatives from those deals either. We tend to be pretty neutral. We're sort of in the middle in that our customers really evaluate us for the benefits that we bring to their department and what we can do to help their police forces. So as we've been expanding into international, that's really what we've seen is other police forces around the world seeing these technology advancements and wanting to bring them into what historically has been a market that's been underserved by technology.

You just said that you tend to be neutral, but you do live in a pretty contentious space.

I do.

And when you look at your share letter to shareholders, for example, axon very clearly states what its mission is. I'll quote here. Axon is a technology leader in global public safety. Our moonshot goal is to cut gun related deaths between police and the public by 50% before 2033. How can you have that kind of mission statement and goal without getting to be a participant in the debate around gun control policies? Does Axon get involved in those conversations?

We really don't get involved because when you listen to our mission, it's hard not to support it no matter where you are. I think everybody would come out and say it would be a good thing if there were fewer deaths between police and the public. It's pretty much sort of motherhood and apple pie for the most part. And then you get into the, well, how do you do that? And that's where you come back to our roots of a taser really being a less lethal device by providing that as an option where in a lot of situations, and we have videos up and you can see videos where officers talk about how happy they are that they didn't have to take somebody's life because they had a taser. That's really how we stay in the middle because we're just trying to make things better for both sides.

There's a lot going on at Axon.

Yes.

How do you focus and you think about, you've got the CFO role, so you are capital allocator in chief in many ways, but you're also an operator. You're the chief operating officer. So you understand that sometimes experimentation needs to be done, particularly in technology to figure out what's going to win. How are you thinking about Ax Exxon's prioritization of its various potential ways to grow? There are so many in front of you.

Yeah, I would say Axon is all about experimentation and taking risk and trying things. And when things don't work, my job is to make sure we are clear-eyed that they're not working and that we make the hard decisions if we have to shut them down. But we absolutely want to take the risk and try. That's how we continue to move forward. And we really do see so much opportunity out there that we take thought. We listen to our customers, first of all, so we make sure we're solving a problem for them. And then if we're solving a real problem for them, it just becomes about how do we do that well? How do we provide a good solution and are we solving a really hard problem that matters to them?

So you recently raised 1.75 billion, you had a capital raise. What are you going to do with all that cash? What's the plan?

I think the plan really is to continue to look for interesting m and a ideas.

Okay.

Yeah. I mean, fuss and Deron have been absolute home runs for us in terms of opening up new markets and new opportunities. Now we're going to be thoughtful. We're going to be careful about making sure we're holding our bar high. Not every m and a deal works, as you know, and we hold ourselves to a really high standard,

And valuations are up there. I mean,

They are,

Drones have really become sort of a topic du jour in terms of m and a activities. They have. You've got fierce competitors to buy some of these assets.

Yes, we do. We do.

Yeah.

I think the nice thing though is often companies really want to come be part of Axon. They see what we've done, they see the relationships we've built with our customers. They see the network we have, they see that we really listen to our customers and we have a good pulse, and so they want to come be part of Axon. And so that helps us a lot as we think about where do they want to find a home. They want to find a home with us.

I'm going to wrap by asking you some questions about your career, Brittany, because I have a bias here. I do understand your background. So Brittany was at KKR, the prestigious private equity firm for a long time. You started your career at Goldman Sachs, which I did too. So I do understand the path. And then you decided to make the move over to be an executive within an operating company. You had became the chief financial officer of Sonos, love Sonos, got the products all over my apartment. Talk to us about making that switch from investor to management team member.

Yeah. When you're an investor, you spend a lot of time looking at companies. You learn what good businesses look like, so you gather all of this knowledge and then you think you would be great at putting it into effect. Yes. And lots of times you do that from the board. You have all of these opinions, but you go to a board meeting once a quarter and then you walk away. And I was incredibly excited to see if I was right, were my ideas right? Could I step in and actually impact the change that I saw from the board that I thought should be happening? And it is incredibly rewarding to be able to see that change, to see the impact of your decisions. And do you get some of them wrong? Yes, you do. Not every decision you make is great, and then you have to figure out, right, because not on the board, you can't be just can't say, well, the management team did that. You've got to go figure out how to fix it and what the right next step is. So it's incredibly rewarding to be on the operating side.

I had this brilliant mentor who said, the key thing is you want your batting average to be well above average, and then when you get it wrong, you need to have the courage to go in and move pretty quickly and reverse any mistakes. Does that resonate with you? Is that something? Absolutely.

I think that's pretty great advice.

And you've also got a dual role, which I think is becoming a little bit more common, but is still not as commonplace as people might think, which is to be both chief financial officer and to have direct p and l responsibility as you do for enterprise. It's fascinating. How are you finding that?

I'm loving it.

Yeah,

I'm loving it. It just gives you a broader view across all parts of the business and what it really takes to win. And then you can make better financial decisions. I mean, ultimately, the only reason we have good financials is because we take care of our customers and we solve real problems. And I can't forget that any day I can't retreat back into my adjusted EBITDA margin or my cashflow metric because every day I know what is driving those numbers and what we have to do to make the numbers that come through my p and l look good.

And how did that come about? Did you raise your hand and say, look, I'm a CFO, but I really, I want to have the responsibility of the p and l, or this happen Was this happenstance?

I raised my hand. I encourage everyone to raise their hand for things because I love the parts of being a CFO, but I also love being challenged and constantly learning and stretching myself and thinking about the whole business. I didn't want to be in a box where you're just the person who says yes or no on financial investment decisions. So I actively wanted to take on more. And because of my background, I spent years and years thinking about the whole business, thinking about all different aspects, and I wanted to use that.

Brittany, come back. There's a lot going on at Exxon. Come back and talk more about the acquisitions. I'm sure we're going to be seeing you doing. I would love to in the coming months. And also folks, just fascinating career trajectory and background as well. So lots to learn from your experience. That was Brittany, CFO, and COO at Axon. Thanks for joining. Everyone. Come back next time. I'm Anne Barry. Thanks for tuning into After earnings, the show that brings you up close and personal with the executives behind the world's most interesting publicly traded companies. If you've learned something today, don't forget to like, subscribe, and share with your friends. Upcoming episodes will feature top executives from ZoomInfo, Potbelly, and Udemy. We'll see you then.