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Axon President on AI, AR, and Drones as First Responders
00:25:38
Axon is on a mission to protect life. As the company works to make the bullet obsolete, the stock has soared, up nearly 160% in the past year alone and returning over 100x since going public in 2001.
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- [00:01]
Josh Isner
We're seeing virtual reality as a major disruptor in training. And the reason is retention. We see that when you train in virtual reality, retention goes up about 40% versus conventional in person training. And it makes sense because you're living those scenarios in a very real, convincing way. You're not firing kind of fake Taser probes at a person running around in a Velcro suit or at a stationary target. Instead, you're confronting real world scenarios that are modeled after real incidents that have happened in policing. And you're training on those under tremendous stress. And the best part of all is you can do it as many times as you want in as many different locations as you want.
- [00:46]
Mary Long
I'm Mary Long and that's Josh Isner. He's the president at Axon Enterprise. Exxon builds Tasers and body cameras for law enforcement officers. They also have a cloud based evidence management system and immersive augmented reality technologies that help police departments better train and prepare officers for stressful, very high stakes situations. Fool analyst Jason Moser caught up with Josh to discuss why Jason thinks of Axon as the apple of its industry. The ways Axon is using artificial intelligence, augmented reality and drones to save lives, and how humanoids could be the next big innovation in law enforcement.
- [01:29]
Jason Moser
I like to view Axon as the apple of public safety. That's a compliment in every way. You guys make market leading hardware. You've developed a tremendous ecosystem of software and services to support it all. Can you just give us a quick breakdown of the actual business? What are the major segments of the business and what are you guys excited about these days?
- [01:49]
Josh Isner
For sure, for sure. We do a lot at Axon. I appreciate the compliment. That's about as lofty of a compliment as we can have. That's very nice of you. Thank you. And we do look at Apple as a good kind of analogy to how our products complement each other. And so we really have two kind of core businesses. One is the iPhone itunes model for body cameras for police. So you have your iPhone, which is your body camera, and then your version of itunes as a police officer is called evidence.com and that's where all of your digital evidence is managed. So all of the video coming off your body camera video coming from cctv, in car video, drones, really any source of video. It's all housed in evidence.com and we house over 30 times the amount of video in the Netflix library currently on evidence.com and so this is a massive, massive data set. And so that's core business number one. And Core business number two is very different. It's our less lethal technologies business. And Tasers, or conducted electrical weapons are the thing there. And we've been in that business since 1993. We're on our 10th version of the Taser, aptly called Taser 10. And certainly the intent there is to make this technology so good that a bullet will never have to be fired in policing. And of course that's a very lofty goal, but that is what we're on a mission to do, is to offer a police officer that same amount of stopping power, but make sure at the end of it that the suspect is alive. And so those are the two core businesses. And then we've got kind of these interesting businesses that we've built off of them. On the Taser side, virtual reality training is one of our fastest growing businesses. On the video side, AI analytics, different tools that you can use within your digital evidence management platform like automated redaction and sharing and being able to view multiple feeds that are time synced. Those are the types of kind of follow on opportunities there are, as well as a records management product that's very closely married to digital evidence. And so, you know, we kind of operate those two businesses at the company in a way that kind of allows them to be scrappy and entrepreneurial. And we've seen a lot of growth in both over the last five or seven years here.
- [04:20]
Jason Moser
You know, something we all think about as investors is your competitive landscape. And there's no obvious Pepsi to your Coke or Coke to your Pepsi if you prefer. But what I'm getting at is competition here. Who do you consider your main competitors today?
- [04:40]
Josh Isner
Yeah, sure, there are plenty of competitors in the body camera space. The one I think people will have heard of before is Motorola. They're very active in this space and that's probably our major competitor in the body camera space. But you know what I say a lot about Axon is our main competition is the status quo. Ultimately, government is not built to be on the front end of adoption. Right. Their procurement cycles are lengthy and protracted and their budget cycles are such that things take time. And so a lot of times it's about convincing the end user that this technology they're deploying is going to have a return on investment, is going to make them more efficient, it's gonna allow them to keep communities safer. But a lot of times in government it can be challenging to kind of move the technological ball down the field. And so I'd say that's really the competition that we're kind of most focused on Gotcha.
- [05:42]
Jason Moser
Okay, well, getting back to that immersive technology angle, because I made a recommendation of Axon in our Augmented Real and Beyond service. Because of the work that you all have been doing in immersive technology, particularly in training, it seems like it makes perfect sense. But we've also seen that adoption of immersive technology, it's still slow going in many cases, I guess, particularly more with the mass consumer. But what does your future look like there? Do you feel like you all are reaping the returns on that investment? And is that something you plan to continue building out?
- [06:15]
Josh Isner
When we talk about our mission, Jason, a lot of people think about, you know, the Taser as the main apparatus to protect life. And certainly you can make that argument very easily. But I would say there's a second component of that which is revolutionizing the way police officers train. And historically, the idea of sending everyone in your department to one location in a city, having them fire consumables once or twice a year, and then certifying them to go out and perform at the highest level in the most stressful situations they could ever possibly imagine. You know, personally, I think that's a disservice to police officers and I think they deserve better than that. And so we're seeing virtual reality as a major disruptor in training. And the reason is retention. We see that when you train in virtual reality, retention goes up about 40% versus conventional in person training. And it makes sense because you, you're living those scenarios in a very real, convincing way. You're not firing kind of fake Taser probes at a person running around in a Velcro suit or at a stationary target. Instead, you're confronting real world scenarios that are modeled after real incidents that have happened in policing. And you're training on those under tremendous stress. And the best part of all is you can do it as many times as you want in as many different locations as want. So in terms of actually preparing police officers for what they're about to face in the field, we truly believe virtual reality is a major, major component of that. And Fast Follow would be augmented reality. And it's turned into a nice business. Our partner is HTC on the headsets, and then we build all the custom content for police officers. So it's one of our fastest growing businesses we've had at Axon. And I think, you know, it's only two or three years old. It's really still got a lot of white space looking ahead.
- [08:12]
Jason Moser
So that's great. You actually answered a question I was gonna ask in regard to the hardware and the software. It sounds like you mentioned you're working with HTC on the hardware side and then building out the software, those experiences on your end, is that right?
- [08:26]
Josh Isner
Absolutely, absolutely. We're, you know, we've been in the police training business since 1993. You know, all of our users go through Taser certification training and so forth. And so for us, we feel like we're really close to the experience already and that informs better content, better scenarios, and ultimately better outcomes in the field.
- [08:47]
Jason Moser
So I'm curious, I guess, given the success that you all have witnessed in the immersive technology space as it applies to your business beyond Axon, are there any cases for immersive technology, any use cases for immersive technology that have caught your attention or the attention of leadership there at the company?
- [09:05]
Josh Isner
Sure. I think there's, you know, the big, the big opportunities for us, you know, outside of just training police officers in immersive technologies is we serve other markets as well, whether it's military, whether it's enterprises that are doing private security details, international government. So for us, it's about diversifying the content within VR to really hit home the major use cases for each one of our customer segments. We also actually offer VR training to civilians and it's called community engagement training. And what it allows you to do is it allows you to put yourself as a civilian in the police officer's shoes and then see the same event unfold from the civilians perspective. So I think it builds a little bit of kind of mutual understanding of what each side and some of these incidents is going through. And it's particularly valuable in terms of training police officers on how to deal with subjects that are going through a mental health crisis or that are hard of hearing. And some of that have Alzheimer's, some of these edge cases that do happen fairly commonly in America today. And then of course, it gives the person on the other side of the body camera that same benefit of being able to see how those scenarios unfold.
- [10:25]
Jason Moser
That's great. Well then leaping from immersive technology on into AI, because you knew this was coming, right? It's all about AI these days. And in your recent shareholder holder letter I was reading through and you all noted the AI era plan, which I think is really compelling. And so for our listeners, can we dig into exactly what the AI era plan is all about? And how are you as a company investing in AI to make your business better?
- [10:53]
Josh Isner
Sure thing. We'll start with the AI ERA plan. We're really excited about what the future holds for this offering. We announced it in mid October and actually this week we've seen the plan already pass several city council meetings. And that is particularly encouraging because in government, generally when you go to market with something, you're not seeing deals transpired two months later. But I think that speaks to the value of the, of the plan and the types of efficiencies it lends to police officers. And so the AI ERA plan is essentially a collection of all of our AI tools today, but it also future proofs you, meaning if you sign up for today on a five year contract, every AI feature Axon makes over the next five years is included in that plan. And so it's a very economical way to lock in the future of AI as a governmental agency and have cost control around it. And some of the things in that plan are products like draft one, which analyzes body camera video and audio transcripts and writes the first draft of the police report for the officer. So today we hear police officers spend about 50% of their time writing reports, and we drive that number down to about 10 to 20% of their time. So, you know, essentially we're giving police officers back more than a day, a week of time to be out in the community doing what they do best, which is fighting crime. And of course, the officer still has to edit the transcript, make sure everything looks right, you know, put in some key identifiers and so forth. That's a really big part of the process to make sure that, you know, revision occurs from the human. But, you know, you're starting, you know, with the, with the ball on the 10 yard line and looking, looking to go into the end zone here. And so it's, it's, it's a, it's a really, you know, compelling value proposition for the customer. And we think over the next year we're, we're positioned to launch seven or eight more of those types of products. And so this AI bundle is, is really gaining a lot of interest and we're very excited about what future holds for it.
- [13:00]
Jason Moser
Well, that's very exciting to hear. Sort of the launches, the rollouts that y'all are planning. And that was, my assumption, was that this was something that would just continue to iterate and evolve. And, you know, something I love seeing in your shareholder letters are the testimonials from your customers regarding the products and the services. And I wonder, in regard to AI era, you know, in your investments in AI, are there any stories in particular, is There feedback in particular that stands out to you. Something that makes you all say, yes, we are absolutely on the right path here.
- [13:34]
Josh Isner
Yeah, I actually think it's feedback coming from the prosecutors themselves. So we knew the police officers would be really excited about this in that, you know, it's less administrative work at the end of every shift. But we didn't know how prosecutors would feel about it because, you know, they're saying, hey, like, is this, how should we think about this evidence? It's written by, you know, an AI model, you know, at least the first draft of it is. And we've seen a lot of promising support and acceptance of these reports in the courtroom already. And so I think early on, you know, the critics were kind of like, hey, will this actually make it through the legal process? And we're seeing that it is. And so to see prosecutors say, hey, the quality of these reports is much better and they're getting generated faster, it's kind of a win win. And that feedback is really encouraging because, you know, the workflows don't really stop with just the police department. They have to go to the DA's office, they have to go to the public defender or the defense firm's office, and eventually they have to go to the courtroom. And so making sure that whatever we build really withstands the captured. A courtroom workflow, as we call it, is a really big part of the process.
- [14:45]
Jason Moser
That's terrific. When I wrote up a recommendation for Axon In August of 2023, I noted in that piece that today Axon is a very US centric business with international operations representing really only around 1/5 of total revenue right now. Not even really just around 1/5. But down the road I saw where founder and CEO Rick Smith anticipates those tables turning to where the international business represents closer to 80% of the overall total. Which that's exciting from an investor's perspective because it gives us a very, a very clear view of ultimately the market opportunity and what y'all are trying to do. I guess I'm just curious, how is that international expansion going? For sure?
- [15:28]
Josh Isner
Yeah, it's going great. We're excited about the results that we're seeing from our international team this year. They're on track and we're feeling really good about the progress we've made. One of the highlights of the year was we hired a new Chief revenue officer who's based in Europe, named Cameron Brooks. And historically he was the head of EMEA for Amazon Web Services. And you know, our big kind of push in Europe is to unlock the cloud. There's some data sovereignty issues there. There's different objections to the cloud, you know, market by market. And so to have someone who's been so successful driving cloud adoption in that exact customer base, that was a great fit for us. And Cameron came in in April and we've rebuilt some of the team, we've rebuilt a lot of our go to market strategy and process, and we're already seeing that lend itself to better results. And so, you know, I certainly think international will continue to grow at, call it a 20 to 30% clip over the next couple years as we build more of that foundation. But for the long term, I think we'll hit a much steeper part of that curve, you know, as some of these sales cycles start to conclude, and these are major customers. I think Rick's right. Like, I think we will have failed if our international business is not bigger than our domestic business as just a function of the tam. There's far more police officers internationally than there are in the United States. And you know, some of these countries, like take Italy, for example, they have almost 200,000 officers spread across their two main police forces in the country. That's five times the size of NYPD. And so, you know, the centralization of these police forces makes it a little harder to break in on the front end. And it's a slow process. But once you're in the sheer scale that you're looking at versus going kind of city by city in the United States, it's a totally different ballgame. And so we're very optimistic that we're going to start to see some of these national police forces adopt our products in larger quantities over time and really propel our international business forward.
- [17:31]
Jason Moser
Well, that's really encouraging to hear. Now, you mentioned earlier in the interview drones, that's been another topic of discussion. Obviously, as the drone space starts to mature and become a little bit more of a thing. Your company, Axon, you recently acquired a little drone company called B Drone, which I feel like that was a really fascinating acquisition from a number of angles, has expanded your market opportunity considerably. That total addressable market, it's expanded that considerably. And it feels like that business could go a lot of different ways. So we see in the shareholder letters this idea is drone as a first responder opportunity. But what's the initial strategy with your drone aspirations today?
- [18:16]
Josh Isner
Sure thing, sure thing. Well, yeah, drone as a first responder. DFR is at the center of it. We really believe that the first police technology to include humans that arrived to a scene is going to be a drone. And the reason that's so important is because it can give the police officer and the dispatcher more situational awareness as they arrive to a scene. One of the things we see a lot today, unfortunately, is very sad is police officers tend to be ambushed. So there's a call for domestic violence or something like that. Police officer walks up to the front door and they're ambushed and killed. And, you know, something like a drone as a first responder could mitigate that. Some of our customers using DFR already are also saying some of these calls for service get resolved by the drone versus ever having to send a human there in the first place. Maybe it was an erroneous call, or maybe it was, you know, something broke out, but then people scattered. Whatever the case is, to not have to send a police officer when they're not needed is also very valuable. So when you take that workflow of drones as a first responder, there's really a couple components. There's the actual drone hardware and that's a space as far as outdoor drones, we're not in right now. We partner with the premier US made drone company called Skydio, but we do all the infrastructure to allow those drones to fly. So part of DFR is actually what's called BV loss beyond visual line of sight. And today, if you can believe it, a police officer to run a DFR mission needs to be standing on a rooftop and watching the drone the whole time. And if the drone flies out of sight, there better be someone downrange on a different rooftop handing it off and watching this drone fly. Essentially what D Drone does is it allows you to watch the drones and have complete situational awareness through, you know, a user interface, as opposed to, you know, humans conducting these, you know, these missions. And you can get a waiver from the FAA to be able to administer DFR this way. So think of Dedrone as kind of the blueprint for how and where the drones are actually going to fly and the awareness around them. And that's a big part of the process. And then the third part is all of the streaming and video and situational awareness capability coming from the drone's camera to your dispatch or real time crime center. And that's kind of our power alley. We have a product called Axon Respond that allows the live streaming of those drones back to rtcc. So it's really those three components. It's the drone, it's the infrastructure, and it's the streaming and situational awareness.
- [21:07]
Jason Moser
The drone opportunity is obviously just getting really started today. It's exciting. As I mentioned, it's really expanded your total addressable market rather significantly. I'm going to ask you to try to predict the future here a little bit. What I want to try to do, let's see around the corner, if we can, beyond drones, what would you say could not necessarily will be, but what would you say could be Axon's next big market opportunity?
- [21:32]
Josh Isner
Sure. It's funny you say see around corners, because that's one of our core expressions at Axon, one of the things we ask our employees to do every day. And I think when we do that, well, it's a major competitive advantage for us. And in this case, if we're looking far out into the future, I bet humanoid robots will be major, major parts of public safety. When you think about what's the best way to ensure a safe outcome in a tense policing scenario, it's to get the human out of there. Right. It's to have the human in a place remotely where they can control the robot, but the amount of stress they're feeling in that moment versus if they were there and there was a threat to their own safety. It's just two different environments. So when you can remove the human and make them remote and then still be dictating the use of force decisions, because I don't necessarily foresee a future where humanoid robots will be making their own use of force decisions. If we could put the human in a far better environment to make those decisions, I think we see much safer outcomes for everyone. So certainly it'll be a few years before the technology is there and it's available at a price that can be deployed en masse, But I certainly think that day is coming.
- [22:52]
Jason Moser
Well, that makes a lot of sense and certainly something exciting that we shareholders can keep an eye out for. I want to wrap our interview up here on a little bit of a lighter note. I understand you love golf, so I feel like this interview was meant to be. I was a PGA club professional in former life, so I've been playing golf all my life as well. Yeah. And for me, you know, I've always drawn parallels between golf life and investing, and I wonder if you ever think of it that way. And if so, how do you feel like golf makes you better at your job or better in life?
- [23:25]
Josh Isner
Sure thing. I love that question. Yeah. I owe a lot to the game of golf. I'm not sure I would have gotten into the college that I got into if I wasn't a Golfer and I played golf there for a little while, and it's still a major part of my life to this day. And in general, whether it's golf or other sports, one of the things we say a lot at Axon is next play. And I don't know that there's a game that. Where that's more relevant than golf. Like, your last shot, whether it was good or bad, no longer matters. The only thing that matters is what you're going to do when you're standing over the ball this time at that moment, you know, and. And especially given how much success we've had at Axon over the last two or three years, it's like, hey, we're next play. Like nobody is patting themselves on the back right now. You know, one of the things we say a lot is you don't get a pat on the back for doing your job. That's what's expected here. And that next play mindset is particularly important. I think when you're having a lot of success, it's really easy to. To look past what just happened and focus on the future. When something didn't go well, when something's going great, you kind of tend to wallow in the success, and that's not the behavior we're looking for here at Axon. And so learn that from golf, learn that from other sports. But certainly, you know, if you don't have that mindset in golf, as you know, it's going to be a really long day out there.
- [24:46]
Jason Moser
Well, Josh, this has been a real pleasure. Thank you so much for your time today.
- [24:51]
Josh Isner
Thank you very much, Jason, and congrats on all of your success, and thanks for letting me be a part of it today. I appreciate it.
- [24:57]
Jason Moser
Absolutely.
- [25:03]
Mary Long
As always, people on the program may have interest in the stocks they talk about, and the Motley fool may have formal recommendations for or against. So don't buy or sell stocks based solely on what you hear. All personal finance content follows Motley fool editorial standards and are not approved by advertisers. The Motley fool only picks products that it would personally recommend to friends like you. I'm Mary Long. Thanks for listening. We'll see you tomorrow, Fools.