Axon Enterprise Inc (AXON) 2024 Q3 法說會逐字稿

The safe harbor provision of the Private Securities Litigation Reform Act of 1995.

These comments are made for 19 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.

As we discuss these risks in our SEC filings.

We will also discuss certain non-GAAP financial measures and description of each non-GAAP measure and 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 and also example, one of our customer using products across our ecosystem.

It will be about five minutes.

So you get a chance to take a minute whom and when I'm looking at implementing technology news and excitement about what that technology can do, but I really look at it through a lens of how we can best support our employees in doing a difficult job and making that job just a little bit easier by leveraging the technology that's available to us.

We are a small community located right in the middle of Silicon Valley and have a great relationship with our community.

And we look at ourselves as really being a part of the Campbell community.

We started with Exxon now when we introduced teaser in mid two thousands as we've kind of than that observer from the side of all the amazing things that have been going on, we've started to embrace all the different internal platforms and axle has offered and look at our partnership with Exxon tenants not giving us the opportunity to do some amazing things. one of the is draft one.

And in our testing period, we've already identified or 60% of Officer's report writing time.

Job one has been really great for me.

It's definitely come down my time on operating when I've been in use by HUD, missing Persons Report boost and a shift just taking those reports and they have to be liquidity normally are particularly 30 to 45 minutes to be probably ultimately get it done in under five minutes and actually be able to go home on time that base.

So it's really great and get that report to the detector so they can do there.

Paul, perhaps due to the my position, some my Innovus can be very lengthy cuts downtime.

I find myself doing a five Hour Energy view with a suspect and then I have to now, right this five, our view to into a large SA size very helpful and beneficial to the case where draft one rights of the key points of the interview.

And then I can go and review a draft one has put into tax and I can add add more information to make it more to the point of my investigation.

Jonathan, first responder has made a number of different age and it's kind of hard to pinpoint just one, everything from the nine incident, which present value units to alarm strain, where you might have a residential and commercial lines knowledge on can respond now and give us an idea of what's happening.

Is there any impact?

You know, an alarm sounding has been doing and broken by do we have running from the building Juliana Aguilar where currencies is occurring as usual as we did enhanced situational lanes.

That gives us a better understanding of what we are responding channel suitability for our agency and we use in Toronto, drones and the canine on a call, we're going to be clear as much as we can with the drones first.

And then will you guys into onto surgeries, drones and minor build the antisense is closed?

Or are there areas that drone can't get into the synergy work thesis is giving us a way to put on video feeds that we were never able to get before.

And it's also going to integrate and systems that we already logged into going to give us that ability to streaming body-worn camera footage, in-car camera, Vonage drone footage, traffic cameras, skin Fintur as an opportunity to see part of the solution technology is changing the way we do Law Enforcement Training is not the same of I would highly encourage going towards.

We are all you need is for walls and ceilings and you have a training center of ready-to-go feedback that I'm seeing from officers.

Is there just feeling a lot more comfortable.

We're not a large agency where we're utilizing the teaser every single day real world.

So how do I think what we're doing in training and related to those points and then related back in the training, having the ability to do multiple virtual reality scenarios, prepares them for the real world.

When I look at Exxon, look at the future of law enforcement technology, I want a partner who I can trust who's at the forefront of building new products that is ultimately going to keep our officers safer and our communities safer.

That's why I choose Exxon.

Exxon is a partner whose mission is and Admiral ones that aligns with exactly what we're trying to do.

It all comes together to create an environment that that is giving our officers, the tools necessary to do that day job and the ability to make choices and use of options of other than a gun.

And I am so excited about what the future holds for law enforcement.

And for the Campbell, please department specifically, because I think we're going to be doing.

Some of the change was policing looks like in the future of.

All right.

Thank you, Derek.

And I want to thank all of which are look at it.

I would take all of our shareholders for joining us here today.

So welcome to Actuant'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, the caps we've been working on and the relationships we strive to build with our customers.

These calls 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 spent the majority of my time with our customers and with our product teams, ensuring that we are inventing and focused on the right things in aligning our efforts where our customers need a place 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 AUSCAN, just the big army show, IACPB.

Chiefs 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 because 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.

Aeroplan providing access to an expanding set of solutions.

Our strategy here is twofold.

First, we understand and believe 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.

The AI. is moving with this plan, we get to deliver an ever-changing and expanding offering for drive increased value.

Second, we want to partner with our customers by offering them access to the solutions we have today and those who are building for the future.

We can work together on starting to deliver what they need as technology improves.

It evolves.

We know the best way to win 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.

Hey, I just wanted to many areas that excited me about our business, but it's not the only one through 10 combined with the power of our expanding virtual reality or V.

Our trading portfolio continues to gain traction as a disruptive force to how we de-escalate in difficult situations.

Real-time capabilities enabled with Axon Body for or infuses had advanced response and communication in ways that are finally modernizing public safety communication tools that have been a bit stagnant for decades.

The newer categories like drones in robotics continues to accelerate with our recently closed acquisition of the headroom, which helped enable capital PD., as you saw to gave the first half a approval waiver for 24 seven drone operations as first responder.

To summarize, I'm very sorry, added 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 to our customers who worked tirelessly every day to me, 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 moon shot goal and our mission to protect life, and we're thankful to have you on this journey with us.

And with that, I'll turn it over to Josh.

Is there.

Thanks a lot, Rick.

And good this week, we are participating core element of our culture at Exxon, 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 in on employee training.

To ensure that the color 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 apps on eight emergency response team to work alongside first responders around the clock for 16 days.

Our team that will witness the magnitude of customers' efforts.

First hand out Exxon, 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 there successes.

Understanding.

This is something I've spent a lot of time on and percolates into how we built our team.

When I look at what our team is working on with our customers and 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%.

And our third quarter, this you're growing above 30% of that growth puts us at a level where we are accomplishing in quarters.

What took us years to do on the 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 five year basis.

That's our strongest normalized booking quarter in history outside of Q4 last year.

As this Q4, which has historically been our strongest bookings quarter, we are already executing against the largest pipeline we've ever had expect to post an exceptional and record result again.

Third, what's really encouraging here is that we are seeing strength across the board, our state and local businesses, buyer going on all cylinders led by Jessica Duncan.

In the early interest we are seeing in our Yes, our plan 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 US 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 DHSIRS. and Amtrak.

Looking ahead, we have a clear path to surpass the Q3 bookings again in Q4 for our strongest year yet international bookings came in at near record levels match in Q4 of last year, up 40% sequentially from Q2.

In 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 adjusted segment continued to grow, and we have several Fortune 500 companies conducting retail security trials with Exxon products in the enterprise segment.

As is the case, every Q4, we must do two things.

Well, number one, close out the year with Maxim, some intensity and flawless execution, a number to ensure that we are well prepared to drive a record 2025.

We have a lot of sharp adaptable, an unstoppable teammates that are embracing this change.

I know I say this a lot, but I truly believe Exxon is in the strongest position we've ever been.

We have an immense opportunity ahead to continue to progress, which we will pursue with vigor.

Now I'll pass it over to Brittany to go over everything in more detail for any.

Thank you, Josh.

Next quarter marks two years for me and Exxon and the business has certainly been incredible.

I couldn't be more pleased to share the results of another.

Great.

The 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 at the Palmer.

As Rick and John both talked about the thought process to 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 will drive SAP's.

Okay.

As we get into the details, I am particularly excited that the revenue growth is broad-based in terms of product and customer verticals.

Josh spoke to the strength we're seeing across different customers.

Strength is across our products as well.

For example, our acquisition of PFS has been very positive across a number of our verticals and take their 10 also continues to exceed our expectations on its adoption.

Paseo revenue with a standout in the quarter, growing 36% year over year, strongest growth in our TV segment in more than two years on the back of increased capacity and broad-based demand.

Filing services was up 36% year over year, with software revenue was the primary driver.

Aircard 885 million is up, and our net revenue retention an indicator of growth with our increased to 123%.

Sensors and other revenue was up 18% year over year, with strong demand for Exxon body for partially offset by fleet.

Fleet continues to be very strong product, but given our key timing and customer deployment schedules, we expect it to have interest in hardware revenue quarter to quarter.

Overall, our future contracted revenue estimate that 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 tying back all the commentary we share about bookings.

Bookings are also seasonally strongest place in Q3 and Q4, and as Josh said, are continuing to see that this year with a strong Q4 and Panama adjusted gross margin 63.2% with stable sequentially and up approximately 50 basis points from last year.

Overall, as we have ramped automation and efficiency in our teams are 10 manufacturing, we have stabilized our margin and expect to maintain its approximate levels subject to the usual business mix dynamics.

Adjusted EBITDA margin at 26.7% was a three-year record driven by operating leverage as we did deliver at 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 are certain areas related to the categorization of some of our partner relationships as principal instead of that agent, we concluded that these were not material to any previously issued financial statements.

Our current period.

Reported financial and revised historical financials reflect revenue and expense recognition consistent with the corrections we made in the revision.

Now turning to raise guidance again on both revenue and adjusted EBITDA.

Q4 revenue guidance in that range from 16 to 570 million, representing more than 30% growth in midpoint.

This implies approximately 2.07 billion in full year revenue from greater than 32% annual revenue, up from our prior guidance of two to $2.05 billion or 29.5% growth.

Our adjusted EBITDA guidance for the fourth quarter is a range of 131 million and 135 million or approximately 23.5% adjusted EBITDA margin.

This implies full year adjusted EBITDA of approximately $510 million or 24.6% margin.

Note that Q4 implies lower adjusted EBITDA margins than we were just able to achieve in Q3, which is a result of timing and some of our expenses and also reflects a full quarter of our now closed Dijon acquisition and costs to integrate.

We continue to have conviction in our margin target of 25% for 25, which continues to show nice leverage.

There were full year 24.

Overall, we are very pleased with our progress against the three year targets now for 2025.

We are 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 progress, 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.

Thanks, Brittany.

We can all get up into gallery view.

We'll take our first question from George Notter at Jefferies.

Hey thanks very much and congratulations on the strong result about term draft. one.

I'm curious if you'd give us an update on that.

Your progress in the September quarter there in terms of pipeline, was there any revenue recognition tied to draft one on any single contributions to your ARR?

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 dropped 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 rule, one being the anchor product of RAI. or a 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 seen a major impact on the quarter to quarter results, which as expected due to the SIS accounting last quarter,

I think you guys mentioned $100 million pipeline, I think in six or seven weeks of selling 100 movement.

Is there an update to that number?

It continues to grow, especially after ICP.

So we're again, we're converting some of that pipeline into the new kind of a I ever bundle that were coming out with next year as well.

And again dropped one is really the kind of central driver of interest in that bundle, along with a number of other features were developed right now.

So certainly safe to say that the interest is the most we've seen out of any year one product.

Got one last follow-up and I'll pass it on on where we can land in terms of pricing on on that, I realize it's going to go into the bundle.

I know you guys have been selling and Hana Card to some degree to early customers, and we'd heard price points to 30 and $40 a month.

But is that is that kind of the right zip code in terms of where this is permanent bundle would do would step up to in terms of pricing?

Any sense there?

Sure.

So right now, draft want to own a $65 a month, and it requires transcription.

And on top of that for another 20.

So at 85 a month for just dropped one.

We're looking at the AI. or a bundled price of one 99.

And some other parts of that bundle is expected to be somewhere $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'll that'll be the price has gone into next year.

Thank you for those are the launch features.

Of course, the features in the plan are going to grow rapidly.

Makes sense.

Thanks.

And I would just note that we'll probably you'll hear us talking more and more about the AI. bundle plan and less and less about draft. one is sort of an individual product or an individual data points.

It's really going to, as Josh said, be the anchor product in the new I bundle and will continue to add features there.

But that that's what you'll hear us talking about quarter to quarter.

The threat, of course, on pretty much everything in that plan.

Pure SaaS software additions on top of our overall software are, of course, the new build upon people who have our hardware like cameras and pacers and the like.

But the Aeroplan itself is all good for us.

Thanks, George.

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

Paul, a good afternoon.

I 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?

What sort of has to happen for that to take place?

Thank you.

Direct wanted to start?

No power.

Sorry, I myself on mute.

First, Jonathan's with the headphone listening to another earnings call, the same time, potentially not I'm not I've got a lot of positive pay out.

So yes, we see drove a huge opportunity on the DJO acquisition, we think is a real key part of that because before you can start flying drones without extra human standing around watching them, you've got to be able to see for aerospace and array of sensors can see the aerospace far better than a human on a rooftop.

So part of our process and making the D2 on acquisition was a dual that number one, that it would be a key enabler for DFR. to be able to fly around EUR.

You got to be able to see the aerospace well.

And then the second is that we're going to see increased interest in counter drone capabilities, not just this past week that apparently somebody in Pennsylvania put a bomb on a drone who's going to fly into critical infrastructure, something from we'd be glad to see.

There has not been that much of that kind of activity here in the US, but it's certainly growing all over the world and 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 local cannot interdict the drones themselves.

So degrown is helpful in that case because they will tell you where the pilot is and you can go I'll 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 introduce drones not to get into politics.

My assessment of the shift of the election were coming out of is that that is likely to speed up up launch and potentially including the local ability for law enforcement to interdict drones are I think Sky DO.s partner.

We sort of made a shift with the shipping relationship, the DJ, the Chinese drone manufacture.

We think there's legislation afoot to pass the House of Representatives unanimously that's going to be blocking DJ, long term, frankly, all Chinese drones.

And so we shifted our focus really with Sky DOV turns out is the world leader in autonomy already for drugs that can fly themselves effectively.

So we think between the partnership, the acquisition of D. drone and then some pending legislative changes.

And I would expect within 24 months, we'll see a shifting landscape to our state and local folks can begin using more aggressive counter drone capabilities that we last thing.

I'll say we did a full scale of the world's sort of counter drone providers a few years ago before we selected the drone.

We like the drone strategy.

There 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 stock interdiction effort.

It has given them a good footprint to scale from and then the strategy's been able to plug in other hardware over time as the legal landscape changes.

And then John, I just add two things on Rick's Great summary. one that's been that we're super pumped about is how the market's evolving to think about the real-time Crime Center space and the DFR space together, which we think it's both right and good for agencies and community and plays right into our strengths.

And our differ initiation of the solutions of the combination of uses real-time primes that are deeply connected with all of our other devices and then into the DFR partnership stuff that we're thinking about buying those together.

And that's both great for them to use this technology to keep community and it plays right into all of Exane 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 there.

Do you have to parse out the other day, talk unprompted about the notion of they would love to have an officer or be able to press that watch me button that, you know, we have on our AV for cameras and have that under the right conditions, automatically trigger the dispatch of IDF., our drug to bring health and extra Overwatch for that situation even faster than with any other key members of 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.

Excellent.

And then just a follow-up.

I mean, teaser again, had a very strong on quarter.

We regularly received a question whether the teaser business can sustain this level of growth.

And I just wanted to get a sense for what gives you the confidence that we can continue to see teaser be one of the major drivers of the business or for maybe do you see on your shifting leadership where things like to ask one will start to take over that growth, but over time?

Thank you.

Yes, but they do compete for the top slot.

And it does make me proud that the Old War Horse that stays or can still can still run.

So we had I think we've got so many things that have the opportunity to continue to be disruptive in the growth.

The big one for Taylor, just come back on that to me is really International.

I think we are on the cost, but actually I'm getting tax states for my engineers that are in the lab today, actually working on some pretty cool stuff related details or that we think we have the opportunity in the next couple of years to become the primary weapon internationally.

Now in the US government quite a while culturally because please or deal with somebody guns out in the public.

But in much of the world I got it.

You have a viable high reliability alternative.

And for within that 45 foot range, I was just over the last thing we're working on is putting 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 European government public and I think back to be a real game changer for Taylor.

And I might just add one or two more thoughts there about the question of.

Okay.

Is this sustainable for the business to keep growing in margin in answer is absolutely.

Yes, like were you to a five and then upgrade cycle right now, we continue to see exceptionally strong demand, literally double what it was.

As we've said on previous calls, you know, T7.

And so I certainly a lot of runway ahead to continue to grow the teaser business.

It looked like, as Rick said, the teaser business is going to solve one of the most critical issues in policing over the long term, which is that even counters 10 and in debt either from the civilian or a police officer.

And if we can solve that problem, I still think we're scrap touching the surface of what the teaser business is capable of.

Just from that 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 key there, and that is partly because we got more bang for the teaser business.

So all of that demand just from a growth standpoint, I would say this quarter really stood out and it continues to be across both the tenant in our P7 and legacy handle.

So that was a little bit unique.

But everything reckon Josh said about the long-term trajectory of the power of T10, the ability to sell it into different markets holdover over the long term again.

And congrats on the strong quarter.

Jonathan, up next, we have Michael.

Good afternoon and thank you very much for the question.

I wanted to follow up on a comment made about 24.

I think you said it would be likely a record bookings quarter.

Is that right?

And was a year ago for Q2 bookings in that like $1.7 billion, $1.8 billion range, just to make sure we're thinking about that the right way.

And I think you could talk about some of the visibility and confidence that you have in those things that you mentioned, the federal bookings increasing sequentially international bookings.

Is it AIRZ., you know, the pipeline growth that you've seen coming out of IACP.

Would just love some color around the bookings outlook that you gave for 4Q.

Thank you for sure.

Yes, certainly reiterating that I'm very confident and encouraged here in terms of what we're going to do in Q4.

Bookings are probably won't give you a specific number other than we expected to exceed last quarter.

And I think in the last call, I said the sum of Q3 in 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 and all four of those segments in Q4 and a lot of them such that there's no there's not a it's not like a huge percentage of the bookings would be concentrated on one deal.

We feel really, really good about the foundation and decided to talk in more detail about our Q4 bookings in February.

What what's getting 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, that growth is across the board, you might get a little more from one segment, one quarter and a little more from another segment another quarter.

But really across the business in the devices on the strength today before teaser on the strength turns and days or 10, and then our software on the strength of both our existing software businesses continuing to perform well and then the very bright future and that we think the AI. plan has and will continue to drive software.

And so you'll see a slightly different every quarter.

But as you look long term, you release it expect all three of those pieces to continue driving our growth.

Excellent, thanks.

And if I could follow up on the earlier Taser question, the revenue accounted for six consecutive quarter where Teva has hit a record revenue record.

You talked a little bit about faster than expected adoption.

And I think if we look back the teaser seven, it probably took you, I think, five years to get to 80% to 85% adoption on how much shorter can that be?

And could you just remind us like what's the typical price mix or AST. uplift versus table?

Thank you.

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

Yes, that's right.

Look, I think that would be setting our sights short.

I would say our goal is to transition every key seven and legacy model teaser into a T10.

And we we think we have an opportunity to do that.

I think this this stage of 10 well voltage pagers and incremental improvement over the last one stage of tenants, just a fundamental leap forward in the technology in the de-escalation capabilities in the officer safety features, we really believe that ever a copy will be best served through the teams are set with the age of 10 I'm sorry, and certainly as we go into the next few years here of the details of 10 lifecycle, the primary goal is is upgrade and replacement of the current fleet.

And again, we're very confident in our ability to do that.

Excellent.

Thank you, Josh.

Thank you.

Thanks, Mike, and actually have Joe Cardoso with JP Morgan.

Hi.

Thanks for the question, guys.

I guess maybe just a quick clarification on the bookings and Josh, can you just quickly clarify your comments today?

Are you guys are 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 on?

And I'm just curious if you could just flesh that out a little bit more because it does seem like perhaps here a little bit of pace.

And I just wanted to make sure that I'm not thinking about that incorrectly.

A I'd say about that incorrectly.

Okay.

And then so when you when you're going into the back half of this year, like where you're actually seeing the growth and driving these bookings across the portfolio, is it really all broad base in terms of the entire portfolio?

Are you guys embedding any of the news a I see in that in terms of releases there?

Just curious in terms of like how you're thinking about the drivers and the rank ordering?

And then I have a quick follow-up.

Yes, sure.

Look, I certainly appreciate the question, Joe and Tom, these deals that are going to be closed in Q4 are deals that are generally six to 12 month sales cycle at a minimum right lease.

These things take the full year to come together of territory talking Q1 when bookings are seasonally light.

Traditionally that part of that is the trend, the new products and the new pricing getting their arms around their new book of business as.

And so that's really where the ground work 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, Florida, Texas, all ending on September 30th, you get a lot of sense timber 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 on.

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 for safety plan execution in the state local markets and you know, some large deals and international federal and enterprise that have been coming together over the course of several quarters.

So certainly expect Q4 to really Trump key three in terms of just the absolute dollars and the normalized bookings.

But it's also so the result of a lot of pipeline building that happened throughout the year.

I've got a fairly clear to us.

Thanks.

Appreciate the explanation.

And then maybe a question for Britney.

Just margins are tracking nicely through the year and expanded each quarter and even outperforming kind of your expectations, if I'm remembering the guidance correctly.

So as we look here into the fourth quarter, the guy 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 with different that's driving your expectations for the sequential decline to occur in the fourth quarter itself?

Thanks for the questions.

So we actually had a pretty down hitting our expense targets in 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 to the bottom line, see how the team has been able to escape 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, not everything hits exactly in the quarter after we've been a little bit behind on some of our expense spend.

As we've gone through the first three 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 the drone and some of the integration costs associated with the drought in Q4 now that we have closed that deal.

And then I might just add one more thought on on adjusted EBITDA 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, that it would be very easy to drive up the adjusted EBITDA by mortgaging the future.

And I don't think anyone feels that way right now.

We're still in place of loading up on new opportunities and investing relentlessly.

And then we're just seeing like to bring to set over delivery and a lot more disciplined in SG&A as well.

I think sprinting.

Thanks, Joe.

Appreciate the Questions.

Thanks show up next we have Jamie Reynolds that are Morgan Stanley.

Good afternoon, everyone, and congrats again on the quarter.

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 kind of seeing 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?

It really is broad based.

I think the about Jeff, what was it six months ago?

I just come back from a tech conference.

And so Jeff, we need to pull the emergency brake and take a look at all of our product development plans and look at where a I label new features that weren't even on our visibility listing are going up, but the emergency brake turn the real effect.

Well, no, this is the one where you're in reverse and you pull the break is like the Dukes of Hazard to say that there was it was a pretty big shift.

And for example, one that came out of that.

We also do these AI roundtables what their customer round tables.

But we did was really focused on a I add one thing that became very clear was being able to do real-time translation on a body camera would be just insanely valuable rated at the top of the charge.

Joe, we pivoted Joe, basically these you can imagine like how disruptive is the today's managing like 2,500 engineers I hold on.

We know we've got everything planned deliveries working but literally disrupt everything.

And I think that enabled us to talk about six or seven major eight AI. features by IACP. already.

I'm really proud of, you know, companies in our scale.

It's hard to move like that.

Tom Brady.

So our customers are seeing, again, things that just feel almost magical that are possible with a high and our investment in things like REACRI. ethics Advisory Council to help us do safety testing on things like draft one, just simply running tests to see if you change the rate of the subject, does that pick up any hit local buyers from the global dataset that these models are trained on?

And we did pick up some things like word choice.

If it says the demand you're seeing versus amount left the scene, you can really change the emotional perception of that statement.

And so we did things like tuning down from the word choice severity.

So there are a high rate of the most boring police report.

It can right, because it's a humans jobs out of motion in tone to it.

So anyway, I think that that focus is really rejuvenated interest in the real-time body cameras.

You all may remember a few years ago we had this whole debate about rate.

Should we put a wireless chip U.S. Cellular LTE chip in the camera.

Our customers were telling us they actually not only were they not interested in it.

There were skeptical of it.

We're hearing things they are and what my boss watching the real time and micromanaging me from the field.

And we still think, you know, it may not be don't want to Real's stream real-time video, but there's going to be something they're going to want to do.

And so not only did we decide to put the VLT chip in the camera, we decided to put it in every case, we made a decision not to sell a camera without it because we knew our customers.

If we had a cheaper care, I'm or without the thing they didn't know they need to get to when they would buy.

And there were some short-term pain because our cost of goods crept up and maybe, you know, our customers around these upgrade plans where they get the next camera that we don't get the charge and many more for it.

So eating and $80 price increase on the hopes and dreams that we would find value for that was a bit of a risky bet.

We'll 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 games of some of those bets we've made historically and it's across the portfolio.

I don't think there's any one thing.

That's what makes us just so exciting.

I mean, it makes judge just job so difficult for me because I'm drawing a 1,000 features that Japanese I called out the Slough, slow it down.

We got to like rationalize the sequencing.

And when we're going to be so things have been what are the things that are going to be a delightful to use out of the gate now that aren't going to go over that customer expectations that of course, you Brittany as well, making sure that we're holding the line on how much we're spending on all this stuff, adding to what you thought the Goldilocks and magical, I think about Exxon's flywheel, things like the questions about what's happening with bookings or demand like right now and then everything Rick's talking about the future.

As you know, 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.

Excited meant about their bet on Activa for the long term.

But the bookings that are in this quarter next quarter or about the pipe, as Josh talked about that got that got laid nine months ago and it all connects and that ongoing C-class feeding upon ourselves in a really great virtue Virtu MYSTIC way.

We're super excited about a Jamie, was your question specifically international at all?

Or was that that?

Yes, yes.

I was just kind of what's driving that and preemptive internationalized.

Yes, for sure.

And I think you're going to actually answer the question.

You asked specifically everything's optional, but we might as well as about one as well.

So on on international, as you know, we in searching for new CROs are big priority was upping our game internationally.

And Cameron Brooks has come in really early on this year of hit the ground running and is really just held up our game in terms of the call, would you have 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 that are really good tenant 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 I will start and frankly, just see things come to a more of a Polish level.

And there's still a long way to go huge TAM out there.

Everything's going to take time just due to the fact you're dealing with federal governments and all of these countries, not staying local police forces that are able to operate semi autonomously.

So so it's still there to be a grand, but we really, really believe we're on the right track.

And it's a journey to kind of a team we're building here led by Cameron.

Thank you so much and congrats again, you've got to Rick.

Thanks.

Thanks, Jami.

Up next, we have Jordan Waterman at Bank of America.

Thank you, guys, for taking the question 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 were not the increased emphasis on border security versus tariffs?

Yes.

I appreciate the question, Jordan.

I'd say the first thing that I want to make really clear, like we have a very a political culture at Amazon.

We know we've got to be successful and a Democratic administration as well as a Republican administration.

And we've only 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 is focused primarily on border security.

We're excited about how we can help there in our 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 are driving transparency and delivering disruptive technologies to governments and public safety agencies around the world.

Those are things that are are really not specific to which parties and power.

And we're focused on just delivering the best products we can.

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

It certainly lived in an environment of tariff before or our philosophy is January to be pretty flexible.

We've got multiple sources from a supplier standpoint.

We do or we manufacture our teasers like in the US than it ordinarily beyond component parts that come in.

And so but we'll just work through it and we'll be flexible and and and be nimble as those come through.

And it may seem that they are.

Thank you, guys.

Fixture of naturally have Josh Riley at Needham.

All right.

Thanks for taking my questions.

And maybe just starting off, can you discuss how the FedRAMP status in your position and the I believe the only cloud body cam vendor with the highest level FedRAMP status has been helping you win, you have a federal opportunities?

And how just along with that, Howard, the growth in US federal then I guess relative to the broader business this year, that's significantly above the consolidated growth rate.

I know you don't break it out, but any color there would be helpful.

Yes.

Thanks a lot, Josh.

On the first question regarding federal, look like we've invested a lot and we've put a lot of effort into being a FedRAMP High product in the federal government, no question about that.

And and that's certainly a differentiator for us.

But I would be so bold as to say, even if everybody was on FedRAMP, we're still winning the majority deals and state and local.

We're we're competing against the same companies without FedRAMP.

And so I think it's more of a tribute to the teams, quality, product delivery and the federal teams, phenomenal execution on the sales and more importantly, the support from for our 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 Q4.

We could have a better Q4 than Q3 uncommon because of the end of the budget year at the end of Q2 three.

And so we'll have to see where the dust settles, but certainly exciting double digit growth on federal and a lot of conviction that were on the right path there.

Got it.

That's helpful.

And then just going back to the T their revenues, you know, I think real generally know that that capacity has been increasing sequentially, but maybe just over the next three or four quarters, should we assume that, you know, I know you said that maybe the sequential increases or have you 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 three to five quarters as well?

Thank you.

Yes, for sure.

I mean, you know, we as we talk about capacity, we have both current capacity and handle capacity.

And as you can imagine, we're working to bring both in there that can meet that demand.

We see out there lead times, we do have automation equipment.

So it's not which, you know, we've turned on as much supply immediately as they would like.

And so you can see the result of us getting more supplier in this quarter.

And then again, the growth is particularly impressive this quarter.

I want to temper everyone's expectation on that looking the same every quarter that, yes, we'll keep bringing capacity elements.

We continue to see demand increase.

I often think that entail.

Thanks, Josh.

And next we'll go to the Jeff Osher's fom JMP.

Great.

Thanks for taking the questions.

And it may be a recurring or Josh, kind of high-level one for you.

Circling back to the D drawn or just general DFR opportunity at, can you does that seem to be in your minds and kind of a state and local US domestic kind of initial push?

Or is there international opportunities along the lines there?

And I guess I asked from the standpoint of some seems like that landing or any time on their stage or and or previous models is sort of that kind of the Texas U.S. business.

And it seems to be similar type of path and kind of the international front.

But just curious if there's ways for DFRR. type of use cases to be more again and that type of the spear kind of on the international front with respect to be drawn.

And the other things as we can do or if it does start first just degrown by itself without DFR kind of interest internationally.

I mean, every country in the world is now thinking about how they're going to deal with known threats in the past 24 months.

And in many cases, a deep product, just a great capabilities.

The COD. has brought us new customers to what was the World Cup in Qatar, the NFL stadiums, critical infrastructure and that we're seeing the same thing with fuses.

I mean, both of these acquisitions, these are two big bites for us to take out this closely together, Tom, it's been really impressive how much customer interest there has been in those unit with fuses.

That's really supercharge our enterprise customers.

Enterprises want to be able to work collaboratively with public safety and fuses becomes the backbone of doing that in real time degrown.

We think there's more of 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 Maverick style, drones, critical infrastructure and enterprise there as well.

So I'd say degrown, even on its own is having not only interesting to our existing customers and frankly, probably even more interesting to the new customer sets they're bringing to us.

The DFR is what's making counter drone, especially relevant when I surveying our customers state local, the responses are yes, we're kind of interested in counter drone, but it's not really our mission set today to be now that for us, is more of a future bet that that's going to come on.

Your plate is put, the DFR thing is here.

And now that's where our customers really like about.

If I can use degrown to enable DFR, I want to be able to apply my own drugs, not something I can do today, but I've got to do in this awkward way where I've got people standing of rooftops and it's Canada's manual include GPs, and we make it much safer and less clear to you by putting a data center up there.

So I also am getting interest.

Where was that we had another DFR use case in one of our other markets.

It's not grown as a first responder, but for competitive reasons, I don't want to name with sector.

It is, but this was a non law enforcement sector and they don't need to be flying garages first responder.

But boy, I sure would like to be able to fly drones on automated patrol around their facilities.

And so our partnership with Sky depletion drone, and I'd really come together natural, really for us to be able to service a lot more than just drawn as a first responder for police, if you want to fly a drone without having to have manual human overseer on-site, like we could take that risk.

And it was a partner as well, brings us into potentially new customers in critical infrastructure and elsewhere where we haven't been historically.

Thanks for.

Thanks, Josh.

Next.

We have a Keith Housum from North Coast now.

Good morning, guys.

I know we're running long here sometime make my questions quick just real quick.

Britney, you talk about the impact on our pro forma interconnected pro forma catching up with a T. 10 new capacity.

How much of growth in the quarter, we would you say it was more of a catch-up of capacity yet as a normalized demand?

I would 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 and growth every quarter, we need to bring more capacity on the quarter with a combination of the two.

But I wouldn't say it's not like through backlog or something like that to deliver.

You're just seeing the ability for us to shift more into that demand.

Appreciate it.

And services.

I know services can be lumpy on both the sequential growth in services of about $6 million.

Personal loans has grown sequentially for several years.

If I look at it correctly and it happened in the quarter, how should we think about services going forward?

Yes, great.

Great question.

I think there's two pieces.

And now one, there's a little bit of a lag in that stack as you go through each quarter.

So what we really booked in Q3 will show up in Q4 and still a little bit of what you're seeing in this gap in the quarter.

Sort of, you know what 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 don't the revenue from that doesn't necessarily get captured in our actual number.

Then the other piece that's going on in there that both our software stack and our services business.

And so with some of the deployment of our fleet hardware being down in the quarter that you can see in the fleet number, we actually have 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 steps and what's coming through.

And in the number you're actually seeing the actually had a step down in PS, which is atypical.

Normally PSL is growing and software and it's growing, but because we came down that you're seeing that dynamic fashion.

Ok, operator, I'll turn back over.

Thank you.

Thanks, J.D. Power will trying to get everyone in here.

We will power Baird.

Okay, for us and thank you all.

Congratulations on a new restaurant for our execution.

On the question, probably for brinci of the software and ARR growth continues to be very good.

There was some deceleration there.

I guess if there's any other color impact's going to be aware of there and how to think about modeling that going forward as mid 30s found the right growth rate and what are the puts and takes there?

I mean that we look at that sort of on an average basis, like I think because of the dynamics I just talked about our timing of when bookings come in next quarter, looking at any one quarter is not as good as sort of averaging out over the year.

And the team has things like seasonality playing into that.

So I would say nothing underlying it.

That would change our unit sort of four to six quarter average.

On anything on the staff on ARR growth, on any of that, you're just seeing a little bit of timing and have quarterly lower what's showing up in Q3 as well?

Ricky.

And to what I will show up in Q2 for is really what we're telling you about with strength in Q2 three.

And then what will show up in Q1 will be whatever we deliver in Q4 ramped up just to kind of leave it there.

Thank you.

All know from we have one line of Jeremy Hamblin with Craig-Hallum.

Thanks and congrats on another fantastic quarter.

I want to come back to the teaser just for a second.

Great.

So I think 50% year over year growth on really impressive.

And it sounds like getting great traction on the international front from.

I wanted to see if we could unpack the driver there in itself, sounds like is 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 you are just seeing what the device does versus the prior version on it is a huge step forward from a technology perspective.

But does this make you think that the longer of potential is quite a bit bigger internationally than maybe what you've seen before?

That's part one of my question.

The second part, it actually has to do with cartridge cartridge revenue relative to the growth in teaser was really not that that was it was up, I think maybe about 10% year over year.

And I'm just curious if there were something in particular there why that didn't grow a little bit stronger?

Yes, I can maybe start with territories because that's easy.

And then if John wants to talk more about gene therapy, can most of our IP, their customers are on started about cartridge deployment plan, which smooths out.

How do you see concerns revenue come in.

But we do have international customers who are now on a plan.

And so what you'll see as every now and then our heritage revenue, it is particularly lumpy quarter in the quarter until last quarter, we had some big international come.

Customers come in and place cartridge ordered, and then that didn't repeat this quarter.

So again, looking at a longer trend line of cartridge growth versus last quarter to this quarter.

And then I think the only other thing I can maybe give a little more color on period before I turn it over to Josh, is in our last quarter in his script, Josh talked a bit about how much demand we're seeing for decades or 10 relative cities are seven energy demand is sort of to that.

The paste, we are still seeing really good performance from K. their setup.

And and so part of what you're seeing in this quarter, not only are you getting all of those benefits from case or 10 that we've been talking about, but we do still have customers ordering teaser salmon and some of our other legacy cases are handled and products until that, that sort of combining together, particularly FX result?

Yes.

I'd say it's in part due to interest.

We're getting better that we're building relationships, kind of what the right customers were doing, a better job of explaining and demonstrating the value that teasers Burton complete, both in terms of lives saved, but also in terms of officer, safety increase in workers' comp decreasing and just some of the issues that come along with the absence of teaser deployments.

But I think the bigger thing is just very simple.

We have a phenomenal product market fit with this product, and that's really Credit Direct like our culture.

Customers are for the first time, really seeing that man.

This thing is on track to outperforming a firearm in the field and we've been talking about it for a long time, but for 30 years was only up to two thoughts.

That was still one of the pipe to lower.

We're seeing in the 10 shots and customers are saying, man, you know, the increase distance of 45, the combined with the number of shops 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 state, local or federal or international.

And so I think that's really it's a good sales execution with a product that has a phenomenal product market fit.

Great.

Thanks for all the Question and best wishes.

Thanks, Jeremy.

It was nice to see many of you at ICP.

Thanks for making the trip out there and great to see at the boot.

Thanks, Jeremy, and thanks, everyone.

For us, we'll give it directly close us out.

Right.

So I have two things I want to conclude on. one.

I want to be careful in my previous statement, would I talked about the election results I'm talking about which party one, where on some of the overall political environment, for example, in California, voters approved Proposition 36 that we raised the penalties for shoplifting and certain general shift that manifested in this election swing the pendulum more supportive of public safety in general.

And I would say in our company, we are violently nonpartisan.

We have passionate gun control, advocate and passionate second amendment gun owners who come to meetings to go there and are productive.

And you could say it across all of the divisive issue in Baltics.

And I think Josh, in particular is good and great job from setting the tone from a leadership perspective that we want to be intellectually diverse place 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 and 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.

Then the other thing I wanted to say it was your Brittany two years to explain back via that what you're seeing right now.

I mean, we see a lot of bringing his fingerprints on the P&L.

She really does a great job of just driving both operating and financial rigor of, you know, 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 on would actually go to product.

You could just give you in terms of if it's a great, Rick, this is really the idea.

The idea is to take it from 5G to concrete for Brittany to work with the to make sure we can make this stuff and execute.

And then you, Josh and other key members are Jimmie Johnson has a lifelong Cabot.

Sure.

You'll appreciate that reference.

He's our head coach because I'm just building the team and the people that is the magic pill we're seeing now is we've got these awesome product in our team as we each have their own that through the whole of phenomenal execution, pay your the ownership is part of the.

We appreciate our shareholders.

The analyst who take the time to get to know is 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 that, motivate everybody to come to work excited.

So I would have appreciated a belt a comparison over Jay Johnson, but we'll let that one slide should have made a bet whether I could get that by without comment but tight.

So thanks, everybody.

Thanks to our team.

Those people listening on the phone, what a phenomenal quarter.

And we're really excited to talk to you after the 1st year, but have a fantastic holiday season, you know how your kids and your family, hopefully the world's going to get a little less crazy over the next couple of years than it has been over the last few with what's been happening in the Middle East, Ukraine.

And since you so much violence in the world, right self admittedly was may be too optimistic in May 2017 or 18 book the end of killing the thought there at the end of war with proven sort of the thesis was wrong in terms of timing.

But I do think you mean anybody can do better and we can find ways to deal with threats while minimizing the loss of life.

And we're going to stay.

It's true that mission.

So thanks, everybody.

During the holidays, we'll see you next year.