Loading summary
Transcript49 lines
- [00:00]
A
Many employees can't afford a hefty medical bill that pops up out of the blue. But it happens. And employees who are financially stressed are understandably more likely to be distracted at work, costing their employers greatly in lost productivity. Luckily, Aflac plans help with out of pocket expenses not covered by health insurance and can be offered at no direct cost to businesses. Learn more@aflac.com Frumarkets that's aflac.com Frumarkets For Friday, June 5th it's Brew Markets Daily and I'm Ann Berry. The World cup, kicking off in just a matter of days in the United States, will host the largest coordinated domestic security operation in recent history. 48 teams, 16 cities, billions of eyes watching. One of the companies in the throes of that security effort is Axon. Originally the company behind the Taser, it has since expanded its products to include body cameras, drones and digital evidence management. So I invited Josh Isner, Axon's president, onto the show to give us a glimpse into the company's role in securing those football matches, as well as its rollout of counter drone tech at a time when drones are dominating global headlines. Plus of course, his take on privacy issues. Now that Axon's data cloud holds 50 times 50 the content of the Netflix library, it's a conversation you won't want to miss. Coming up in just a moment, but first, this episode is brought to you by Public John do you have any agents you really trust for big decisions?
- [01:29]
B
I used to use a travel agent back in the 90s.
- [01:31]
A
Not quite what I had in mind. I was thinking more along the lines of an AI agent. Take Public, for example. With their investing platform, you can create agents that can monitor the market, manage your cash, and execute your trades. Just enter a prompt, approve the workflow, and put your agent to work.
- [01:46]
B
It's certainly no honeymoon in Turks and Caicos, but I see where you're going with this. And with Public you can build a multi asset portfolio of stocks, bonds, options, crypto and more while accessing industry leading yields.
- [01:57]
A
To learn more, Simply head to public.com/brew markets. That's public.com/brewmarkets paid for by Public Investing
- [02:04]
B
Full disclosure in Podcast Description and now
- [02:07]
A
my conversation with Josh Isner, President of Axon. So Josh, I think of Axon as Perhaps the nearly $40 billion market cap business that surprisingly few people may have heard of. Say, before we get into the guts of your recent earnings and what you're up to, just give us a little bit of an overview. If you don't Mind on Axon's history and the different services that you offer and to whom, because there are some surprises in there.
- [02:32]
C
Sure thing. So, first of all, thank you for having me today. And ultimately, Axon, we view ourselves as the operating system of public safety, essentially a network of software, sensors, AI and people that drive outcomes in the public safety space. And beyond that, people value and care about. Whether you're a police officer or a community member or anyone else, we want to make sure everyone goes home safe at night. And the way we do that is through a variety of tools that we offer our customers. We start off as a Taser business. For the first 15 years of the company, we simply sold Tasers. And one thing led to another where there were questions about how Tasers were being used. So we started offering body cameras. Then we realized, wow, there's a lot of content coming off these body cameras. We now host the largest cloud network for public safety in the world. We manage about 50 times as much content as the Netflix library, and from there, different opportunities around additional cameras, whether they're in cars in the sky with drones, fixed cameras came up. And then now we view ourselves as the company delivering real AI solutions to public safety as well. So a variety of different products in our portfolio. Our main market is state and local law enforcement in the U.S. but now we started to sell more and more to the federal government, to international customers, and finally to enterprises that have their own security teams and problems to solve on that end. So that's a little about our company.
- [04:05]
A
Well, you touched on drones, Josh, and I feel like we have to go there because drones are dominating the headlines at the moment in a different context, which is not domestic use here in the United States. It's in use in military combat in the Middle east and in Ukraine. But you do have a counter drone segment over at Axon in first quarter of this year, reported revenue up 300% year over year just for that segment alone. Explain what counter drone tech is, if you don't mind, and its. Its uses here in the United States.
- [04:35]
C
Sure thing. So we had the opportunity to invest in a company called D Drone three or four years ago now. And we saw this as kind of like a hit your forehead, simple concept where it's like, hey, if drones are going to be. Are going to be a bigger and bigger part of what happens in really everywhere, whether they're consumers, whether they're military drones, whether, you know, unfortunately they're weaponized at times, as we're seeing in the Middle east, it's Very clear. You need an answer to take these out of the sky at times. And so we invested in Deidre and we eventually acquired them. And now we've grown that business through our channel extensively, whether it's international, federal, or US State and local. And the, you can see if you're, if you're an operator, you can see what drones are flying in the sky, what model and make they are, and where the pilot is located. So that's kind of the first level of awareness. So, you know, ultimately, a lot of people are just consumers unknowingly flying drones in some protected airspace. You can see where the pilot is and you can go kind of let them know, hey, this isn't, this isn't the right airspace to be flying in as a consumer. And then you kind of go up from there. The next opportunity is to be able to mitigate those drones, take them out of the sky. And you could use jammers for that, you could use nets for that, both of which we offer. And then the final tier, which you're seeing in war fighting, you mentioned Ukraine and Iran, you're seeing interceptor drones, drones that, you know, fly at high speeds, generally cheap drones. The whole point is to collide with the drone and, and, and set off the explosion in the air as opposed to on the ground. And so we offer everything up to the interceptor, and then we partner with the interceptor companies. We're big on our, Our mission is to protect life. We offer less lethal tools. Interceptor drones kind of start to infringe a little bit on how we think about our mission. And so we've decided to partner there as opposed to make those products ourselves.
- [06:32]
A
So can we talk about the actual applications, Josh? You know, in a military setting, unmanned systems, you know, I think people can chew it that when it comes to the use of D drone in the United States. What are we talking about? You know, when I look at your materials, it's protecting airspace around locations like, quote, prisons, stadiums, and military installations. But can you just paint a picture for the kinds of locations that you're trying to secure with this D drone technology?
- [06:58]
C
Sure. We're in almost every NFL stadium right now with D drone. So when you're attending a football game, an American football game, you will, you'll see the drones flying, or you'll see our technology deployed there to track drones flying above. And speaking of football, we are protecting all the World cup venues as well in the United States. And so every venue that's hosting games will have our counter drone products there. And in action, we're Very excited to be able to support that. In addition, we protect high value infrastructure. Whether it's electric, you know, electric companies, installations, whether it's things like a data center or a, a warehouse or logistics facility that houses a lot of valuable inventory. You'll see Dedrone kind of everywhere around those installations. And then lastly, you'll start to see it more and more, just protecting city infrastructure. Although cities still need a waiver to be able to take drones out of the sky, the FAA ultimately gets to decide when drones come down. So there's still a little legislative work to work through on that. But those are some of the environments where you'll start to see de drone popping up.
- [08:09]
A
I find this so interesting, Josh, because again, Axon, given the fact that the Taser is such a recognizable brand, there's been an association of Axon with that specifically. So I, I do want to continue to dig into these other areas of your business that perhaps don't get as much, you know, unaided awareness. Another one is the application of your hardware and software systems to the retail space. And I bring that up because with I'm filming here from New York, you're elsewhere in the east coast. And we're still living in a world where I go into CVS or I go into Walgreens and things are behind Perspex glass. Talk to me about what Axon is doing to work with the retail sector to try to reduce the amount of in store theft that we're seeing and some of the other security issues that we hear about.
- [08:53]
C
Sure thing. This is an opportunity that's popped up in the last couple of years. And now we're working with some of the largest retail companies in the world to not only protect inventory, but to also protect their retail workers. I think we've seen two very clear trends. Shrink is way up in retail. It's doubled or tripled in the last few years. And what that amounts to is billions and billions of dollars of lost inventory or stolen inventory. And at the same time, worker abuse, like violence in the workplace, is also on the rise. We saw Target close a number of locations in the Midwest last year because of both of these factors. And so we can help with solutions there with our retail body camera, the Axon Body Mini. And it's a very lightweight, friendly looking camera that will mount easily on a T shirt or collared shirt or really whatever uniform a retail worker would wear. And two things. Number one, retail workers feel 90% safer when they have a body camera on because all of these threats of violence in the workplace go down because there's mutual accountability now. It's going to show up on video from the retail worker's perspective, and then couple that with the fact that these cameras, when they catch theft in progress, that's the evidence a prosecutor really needs to prosecute a case. Right now, a lot of theft cases are going unprosecuted because of a lack of evidence. And this gives prosecutors the tools to be able to prosecute. And what that means is you're creating some mitigation for this to be a repeat offense. And that's really ultimately some of the value we can bring to retail. And we're really excited. Our deployments have already gotten into the dozens of thousands of cameras in retail, and we're launching this Axon Body Mini in July, and we think that'll lead to more interest in a spike in retail body camera sales. So very excited about our prospects there as well.
- [10:50]
A
So, Josh, in retail, but also in the more traditional places in which Axon has played, which is in law enforcement and government agencies, you're clearly through the body cameras, collecting an enormous amount of data. And you made a comment up the top. I think I heard you say that you're sitting on more content, in effect, than Netflix has, which means that you've got an enormous repository of video and visuals on everyday Americans. And that has caused, in some corners, questions about what Axon's policy is when it comes to privacy and protecting data. Can you talk to us about where you are on that as a corporation?
- [11:27]
C
Sure thing. This is front and center for what we think about at work every day. A couple years ago, we launched our Responsible Innovation Frame, which you can see on our website. And we established what we call the eeac, which is the Ethics and Equity Advisory Coalition. And this is a group of folks that generally would be skeptical of law enforcement and public safety. They're from the activist community, and they come in just like our law enforcement customers do, and they advise us on all of the implications of our products that community members will be thinking about.
- [12:00]
A
Like, who are they? Give us some examples for who members are.
- [12:03]
C
Sure. One individual is named Broderick Turner. He's a professor at Harvard, and he specifically drills into these advocacy issues around video and surveillance and privacy. A number of folks from organizations on the ground around the country that have either had children or friends or loved ones killed in policing incidents. And you can see the whole list of our EEAC on our website. But these individuals have been very helpful thought partners. And I think they've seen that Axon takes privacy and information security exceptionally seriously. And it's something that's really turned into part of our value proposition is we are the company in public safety who's thought deeply about these issues and about how to protect the civil liberties of Americans while also allowing our law enforcement customers to have the tools they need to catch the bad guys. And, and that's a delicate balance, as I'm sure you're aware, and it's one that we take very, very seriously. So I think that's, that's become one of our strong suits as a company is as to how to think about doing this responsibly.
- [13:16]
A
Well, the reason I asked the question, Josh and I, and thank you for providing that level of detail. I asked the question because often when you see public companies start to create advisory councils or advisory boards, you know, some folks, some stakeholders say you're just kind of window dressing, right? And you're not alone. This isn't a point to provoke you. It's happened with AI and Safety Council. So I'm always curious how this translates into tangible outcomes that communities can really rally behind. I want to push on another point around AI, and that is with the amount of content that you have and with the amount of AI capability I know that you're focused on building. Talk to us about the cost. Talk to us about the cost of using AI, the cost of compute as the amount of content you have and the level of sophistication available to you to mine, it goes up.
- [14:06]
C
Sure thing. I think. Well, there's two elements of the cost. There's our internal cost to use the tools to develop the products. And as everybody's reading, that cost continues to go up. But the good news is the efficiency and the output continues to get better as well. We're able to innovate and go deeper and deeper into our roadmap, faster and faster. And then externally, I'd say the cost is not as big of a consideration because we found a few use cases already that customers are willing to pay for. One of them is our draft one product which essentially analyzes the body cam video and writes the first draft of a police report for a police officer. They have to go back and edit it and so forth. But what we've seen is officers go from 50% of their time writing reports to about 20. And when you can save an officer over a day, a week, week, in that amount of time, they're able to go back on into the field and do what they do best, which is fighting crime. And you keep Them from kind of devolving into this data entry type of job. And so when you can unlock use cases like that that save police departments money, real money, like they don't have to hire as many police officers now to do the same job, that translates into a viable business model that offsets a lot of that cost. So we think our AI business is driving a nice quality margin type business, but also delivering real solutions, not some of the window dressing like, hey, we involve AI in our software development now. These are real tools that, that police officers are seeing a lot of benefit in. And so we're feeling really good about how all of that is translating into our financials.
- [15:44]
A
Can we actually break, break that down a little bit further, Josh? And without, you know, maybe some specifics, because so often we talk to, I talk to companies who are quick to flag their investment in AI and then when it comes to actually specifying the kind of return on investment, it gets a little bit fuzzier. So in the specific example that you just cited, which is you've got this AI tool, it's saving the time of police officers and it's enabling some of your clients to reduce the hiring needs of. In terms of numbers of police officers, how is that coming back to you? Actually when it comes to your financial performance, does this mean you're able to charge higher prices to your customers? Does this mean that they are expand on the suite of services so you're able to cross sell? How is it tangibly translating into margin expansion or revenue expansion for you?
- [16:32]
C
Sure thing. So ultimately, I think the easiest way to understand it is we sell a bundle of products called the Officer Safety Plan. And this is your taser, your body camera, and all the traditional software you would use in public safety. That goes for, depending on which features you want, it could go from 2 to 300, 200 to $350 a month just, just for that offering. Now we've come out with the AI era plan to go on top of that offering and that's $200 a month. It unlocks an agency to every AI tool we build for police. And so when you put those together, we've essentially had the opportunity to take our ARPU up about 50% by delivering these tools to police.
- [17:15]
A
Let's take a break and when we come back, more of my conversation with Josh Esner. John, I've noticed you're always present here at the office. No distractions.
- [17:23]
B
Thanks, Anne. I like to stay focused.
- [17:25]
A
But do you know who is distracted at the office?
- [17:27]
B
Employees who are financially stressed.
- [17:28]
A
Exactly. Right.
- [17:29]
B
I bet that impacts their productivity too.
- [17:32]
A
It does, and it makes them more likely to miss work. Missed work can cost employers a lot in lost productivity.
- [17:37]
B
Costly, unexpected medical bills are productivity killers. But Aflac can help provide financial peace of mind. They aim to pay claims fast, accurately and fairly.
- [17:46]
A
Offering Aflac isn't just a nice gesture that shows you care. It can be a smart financial move, saving tax dollars when payroll deductible are pre tax.
- [17:53]
B
And businesses that offer Aflac are likely to stay with aflac. Head to aflac.com brewmarkets to learn more. That's aflac.com brewmarkets so good, so good, so good.
- [18:06]
A
Everything you want for summer is at Nordstrom Rack stores now and up to 60% off. Stock up and save on the brands you love like Vince, Sam, Edelman, Frame and Free people. Join the Nordic Club to unlock extra exclusive discounts. Shop new arrivals first and more. Plus buy online and pick up at your favorite Rack store for free. Great brands, great prices. That's why you rack. And now back to my conversation with Josh Isner, president of Axon. You're also starting to deliver these tools to law enforcement officers internationally. Talk to us about the growth in your global and the non domestic side of your business.
- [18:43]
C
For sure, international, depending on which market you're talking about, is a hard business to break into. I think the Commonwealth countries, the Canada, the uk, Australia, very similar policing models to the US although not exactly the same. We've had a lot of success in those historically. But when you move beyond those, a lot of the police forces are centralized at the government level. So it's more like selling to the US Federal government than it is like selling to cities and towns. A lot more bureaucracy, a lot more connecting the dots, a lot more stakeholders. And so that motion, we've had to get good at that over the last five or seven years and with some of our new acquisitions combining with that to open up some new doors on the counter drone side, on the real time 911 side and of course our core products. We've seen more and more doors opening into more and more international markets and thus our business is really exploding there. Last year was our first year of over $1 billion in bookings internationally and we hope to significantly trump that this year. So we're excited about what that business is looks like into the future and the value that we can add into some of these international markets.
- [19:49]
A
Well, speaking of acquisitions, Axon has not been shy of going after those. You had two big acquisitions last year or meaningful ones in terms of product diversification or augmentation. Carbine prepared Didrone, which you referenced, was a 2024 acquisition. What's on the docket for this year? Are you seeing M and A opportunities? And if so, could you comment on the valuations you're observing? Just as the benchmark market valuations have gotten so high. I'm not going to use the word expensive, that's a matter of opinion. But talk to us about what you're seeing in terms of deal volume and also valuation.
- [20:22]
C
Sure thing. The acquisitions you mentioned, that's been a lot of work for us. And there's been one more called Fusis, which is all of our real time video products that we integrate into the command center. And that was a big one as well. So we've had really four of those in two years. This year is about hunkering down and making sure that we get all of the value we anticipated out of these acquisitions. So I said on our earnings call, the sum of two of our acquisitions, Dedrone and Fusis, we've owned those companies for a combined less than two years and we've already booked about 150% more dollars than we paid for the combined value of those two companies. So we got to keep that motion going and make sure we see these opportunities come into maximum fruition. But the valuations, yeah, I would say they're diverging from public markets in a lot of ways when you look at how these private companies are valued, and I think we're seeing that just in tech in general. And so really our goal is to identify these companies early and you get a couple of benefits from that. You pay less for them and you can integrate the teams and products more organically into the business. The bigger they get, the harder that stuff is and the less native that feels to the end user. So our strategy has always been find the early movers with super talented teams and we can help them grow. But ultimately we want this to be an organic experience for our customers. And so that's kind of our bar for how we think about acquisitions.
- [21:51]
A
Well, let's translate all of this a little bit, Josh, into your recent earnings and some of the financial outlook that you provided. And I want to talk about your guidance for the fiscal year 2026. You did something and kudos to you. That was a little unusual. I'm just going to read this about. You lifted your revenue guidance for the year by sort of 2ish, 3, 2 to 3 percentage points. So you're looking at 30 to 32% annual revenue growth for the year, you kept your adjusted EBITDA margin at about 25 and a half percent. But you did something that was unusual in this environment. You took down your CapEx guidance. Previously you said that you were looking at 185 to $215 million of CapEx for 26, brought that down from 160 to 190. Most businesses with the kind of exposure to AI and software that, that we see at the moment have gone in the other direction. So why is you, have you been able to find efficiency in your CapEx spend?
- [22:46]
C
Yeah, I think we've just narrowed the range a little bit on capex. But the name of the game there is for us, it's investing in a lot of automation for our hardware and that's the biggest use of our capex. And it's something that leads to higher gross margins later and our volumes can continue to go up in terms of our output. So ultimately, look, one of the things that I take a lot of pride in at Axon is we treat every single dollar seriously. I look at all of our open rolls, I approve our net new headcount, I approve our budget and go through it line by line. And we want to run a business where we can do a lot of stuff in R and D, but to be able to do that, we have to have extreme discipline in SGA and in CapEx. And so the CapEx projects that we greenlight, those are things we really believe have a significant ROI for our investors. And same with our opex. We are going to run a lean and mighty team to be able to maximize the amount of funding we can put into R and D. Because ultimately that's what pays dividends for our customers. And that's what keeps our 30% plus revenue growth stream durable for the years ahead. And so we're really big on investing heavily in R and D, but offsetting that with, with a pretty fine tooth comb everywhere else in the business.
- [24:02]
A
So with all that being said, Josh, shed some light for us, if you don't mind, on the following. Despite the strong earnings, you had A beat for Q1. The outlook was raised and you just described why. But your share price is down about 15% year to date. So when you're on the road and you're speaking to your institutional investors in particular, what questions are you getting? What are they saying to you about why they are perhaps not holding onto your stock through May?
- [24:32]
C
Sure thing. So ultimately at Axon, you've got to have a little bit of an iron stomach. Our stock Tends to be a little volatile, I always say. Last year we hit the 400 twice. We also topped out in August at 900.
- [24:43]
A
Why? Why, Josh?
- [24:46]
C
Ultimately, I think we're viewed as a growth company and the, the bar gets higher and higher for that trend to continue. And when you have environments like now, between the SaaS apocalypse and all the liquidity going into AI, you know, you see multiples compress and that hits the growth companies a little harder. But ultimately, look, We've been growing by 30 plus percent for three straight years. We've been growing by 25% for seven years now. Our profit margins are expanding. We put our heads down and we just do the right thing for the long term of the business every day. And some of this just gets cleared up along the way. You know, we, we don't really react to the macro stuff going on. We know we are running a rock solid business that's going to be here for a long, long time. And so some of this, you know, you kind of just roll with the punches. And we saw it in Q1, our institutional investors, I think on average up their stake by about 50% in our stock as it was selling off. So you see a lot of the folks that have been with us for a while that understand our business, they're doubling down on the company and using this as an opportunity to do so. But I couldn't be more confident in our future. So this is just a moment in time and we're going to keep doing what we do and everything in the markets will take care of itself.
- [25:55]
A
And just, just related to that, Josh, we have seen, just to go full circle, drone stocks, and again that's for military applications, have absolutely rocketed over the last couple of trading sessions. And that's on reports that the Pentagon is considering funding. And it's not just that specific part of the government that's looking to fund. It's just the idea that the United States in general, for national security reasons, will be looking to invest more in the supply chain and building out a domestic supply chain for drones. It does. Axon to benefit directly from any increased funding from the Pentagon on this in this specific moment in time, from these specific conversations that are said to be underway.
- [26:36]
C
Absolutely, without a doubt. You know, we, we've partnered with Skydio, which is the number one American drone company in the world, number one drone company in public safety, and we are their channel partner. So we sell in their products and we make a, a nice commission on each of those sales as a sales agent. And ultimately we don't take some of the, you know, as they grow, they have to invest heavily in R and D and so forth to keep this product line growing and growing. We kind of are a little immune from all of that investment and we get the benefit of being the channel into public safety. So this funding that is unlocked, certainly a big tailwind for Axon and our prospects in distributing Skydio throughout the market.
- [27:21]
A
Josh Isner, president of Axon, thank you very much for joining us. A big year for the company. So please do come back. We'd love to get some updates from you all.
- [27:28]
C
I would love to. Thank you very much for having me.
- [27:30]
A
Well, huge thanks to Josh for joining us. That's it for today's Brew Markets Daily.
- [27:35]
B
Brew Markets Daily is hosted by Anne Barry and produced by John Croteau, Tarkab delatif, Omni La Roya and Emily Millard. Our technical director is Uchena Waugh. Brittany Dotako is our audio engineer, booking by AB Silver and the president of Morning Brew Inc. And is Devin Emery. If you have any feedback or a company you'd like us to COVID leave a comment or send an email to bluemarketshoworningbrew.com well, have a brilliant weekend and
- [27:56]
A
we'll see you back here on Monday, same time, same place. Your next chapter in healthcare starts at Carrington College's School of Nursing in Portland. Join us for our open house on Tuesday, January 13th from 4 to 7pm you'll tour our campus, see live demos, meet instructors and learn about our Associate Degree in Nursing program that provides prepares you to become a registered nurse. Take the first step toward your nursing career. Save your spot now at Carrington Edu Events. For information on program outcomes, visit carrington. Edu Sci Fi.