Operator:

Hello, everyone, and thank you for joining Axon's executive team today. I hope you've all had a chance to read our shareholder letter released after the market closed, which you can find at investor.axon.com. Our prepared remarks today are meant to build upon the information in that letter. During this call, we will discuss our business outlook and make forward-looking statements. Any forward-looking statements made today are pursuant to and within the meaning of the safe harbor provision of the Private Securities Litigation Reform Act of 1995. These comments are based on our predictions and expectations as of today and are not guarantees of future performance. All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. We discuss these risks in our SEC filings. We will also discuss certain non-GAAP financial measures. A description of each non-GAAP measure and a reconciliation of each non-GAAP measure to the most directly comparable GAAP measure can be found in our shareholder letter as well as on our Investor Relations website. Now turning to our quarterly update. First, we're going to show you a quick video recapping some of our recent announcements from Axon Week in April.

Patrick Smith:

All right. Thanks, Erik. I always enjoy watching those highlight reels, and welcome, everyone, to our first quarter 2025 earnings call. We kicked off another exciting year at Axon just a couple of weeks ago, as we hosted our annual user conference, which is one of my favorite events of the year, as we dedicate a full week to spending time with our customers. And as you can see from that video, we got to show them the many exciting things we've been working on. I believe our work is about far more than technology or results. It's about our mission to protect life. It's about giving those who stand on the front lines of our communities, the tools the tech they need to be safer, faster, smarter and better connected. We envision a society where violence and crime rarely occur because it is simply so unappealing and so well deterred. Each quarter, we're putting TASER 10 in the hands of more people, helping them safely deescalate conflict without escalating to lethal force. We're giving them better training tools alongside while investing to improve efficacy in more and more situations. At the same time, our camera and sensor systems are becoming increasingly connected and exponentially more intelligent with the power of AI. Draft One is helping officers cut back on administrative workloads, so they can focus their attention in the field where it matters. In the field, Axon assistant ensures, they're no longer alone. They have an always available voice-driven, AI assistant, delivering critical information exactly when and where it's needed through hardware that they already have. With Fusus, they also have the support of hundreds of thousands of public and private cameras to provide them another layer of real-time visibility. And now with Axon vehicle intelligence and light posts and outpost. Our tools are delivering actionable insights through licensed play recognition and real-time alerts, available through innovative, flexible form factors. Through our newly launched integrations with Ring and Citizen, we're also helping public safety and the community to work together to help keep their neighborhoods safe, building a critical bridge, all while protecting privacy and the right to choose whether or not you want to participate. As you know, I spend my time thinking about where Axon is going, and part of that is thinking about how we grow. Our new headquarters project is a focus of mine and I'm excited to share that we recently cleared another hurdle with the passing of Arizona Senate Bill 1543 recently signed by the governor. This gets us one step closer to moving forward and one step closer to keeping icon in Arizona. Our efforts around this new legislation are another example of what our unstoppable team can do. I cannot be more proud. Challenging divisive political opposition and obstacles have stood in front of our project for nearly 5 years but our team found a way, and the leadership of Arizona found a way to step up and help us stay here. We don't have everything finalized yet. There are still a few other hurdles to clear. But I wanted to thank our team for everything they've done for this effort, including hundreds of employees who showed up at the Arizona State Capital Building and personally met with and wrote letters to our elected officials to help them see just why we want to lay the foundation for decades of future growth at Axon right here where we started. We will come back to you with more details when we have them and we look forward to updating you on our continued progress. And with that, I'd like to hand over to our President, Josh, to share more about what the team accomplished in the first quarter. Over to you, Josh.

Joshua Isner:

Thanks a lot, Rick, and good afternoon, everybody. As I'm sure you can gather from Rick's comments, we're really proud of everything going on here at Axon. We're ramping our investments to deliver on our vision and our team's ability to execute quarter after quarter has allowed us to do so at an incredible rate for our customers. The start of the year is a great opportunity for our sales and product teams to do just that, to plan and work through customer priorities and see where we can help. I'm proud to say our partnership has never been stronger. This was especially evident coming out of Axon Week, our user conference in April and continues to be evident as we look ahead. Q1 bookings are a great indicator of our momentum. Although seasonally the most modest bookings quarter of the year were off to a fantastic start. A year ago at the end of Q1, I felt like we could have come out of the gate faster and we talked a lot about that throughout 2024. I'm thrilled to say our sales team responded to that message, emulating the sense of urgency and mission orientation that our customers deserve. As a result, we emerged from Q1 with a far stronger outcome and an even more exciting pipeline for the remainder of 2025. We expect another record for annual bookings with a growth rate in the range of what we saw last year. I'm proud of our mentally tough sales team who embraces the fact that pressure is a privilege. More specifically, our pipeline is strong across customer segments, especially with U.S. state and local, who are upgrading to our OSP 10 premium plans and beginning to deploy Draft One. In fact, 5 of our top 10 Q1 domestic deals included OSP 10 premium and 2 included Draft One. Along the same lines, through the first 2 years, TASER 10 orders continue to pace at 2x the rate of adoption of TASER 7. This is our fastest new TASER adoption by a wide margin. And through 1 year, Draft One remains our fastest adopted software product with nearly 30,000 active users across Draft One and our AI Era Plan to date. More than 2x any other product we've launched 1 year in. Turning to our other customer verticals. International bookings are off to a strong start. We're seeing demand in Australia, Latin America, Canada, Asia, the U.K. and Europe, all of which contributed to our top 10 international deals in the quarter. The team delivered a record Q1 booking results, and we have more and more conviction in the growing global pipeline. Additionally, we're seeing strong demand across our emerging verticals, including triple-digit growth in corrections and in Justice. And in enterprise, we're coming off a record deal in Q4 and building a strong pipeline in several key industries. U.S. Federal, as we mentioned in Q4 represents a strong long-term opportunity. While there's a lot of uncertainty within the federal agencies, our solutions are mission-critical and the value we deliver is clear. While Congress discusses reconciliation and a final budget for next year, we'll continue to focus on converting the existing large deals in our federal pipeline. Finally, I'll conclude with a quick note about the current tariff situation, which Brittany can expand upon in more detail. A couple of years ago, our team flagged tariffs and the uncertainty in the South China Sea as reasons to diversify our supply chain and make large but low-risk investments in inventory. I'm proud of Brittany, Josh Goldman and Eric Hurst and our entire operations team for seeing around corners and ensuring we are ready for a climate like this. This, of course, puts us in a better position to serve our amazing customers. That's always the priority, and we're confident in our ability to do that given the quality of our team. With that, we're on to the next play. We'll kick it over to Brittany.

Brittany Bagley:

Thank you, Josh. As Josh and Rick mentioned, we're extremely proud of our results and performance as we deliver for our customers and invest in the future. First quarter revenue of $604 million increased 31% year-over-year, our 13th consecutive quarter over 25%, and we delivered a 25.7% adjusted EBITDA margin with $1.1 billion in ARR. Before I go into the details, you'll notice we updated our segments from TASER and software and sensors, to connected devices and software and services. As we mentioned last quarter, we made this change to better align our segment reporting, given our increasing product diversification. Some previously disclosed margin information will no longer be included in the shareholder letter as a result, but we'll continue to give periodic updates on our earnings calls. Software and Services increased 39% year-over-year to $263 million, driven by continued strength across digital evidence management and premium add-ons, each contributing about half of our overall software growth. We continue to see growing adoption of our premium plans. Approximately 70% of our domestic user base is still on our basic plans and our offerings continue to get better over time, convincing more customers to upgrade. Our NRR also a measure of our existing customers coming back and buying more remained at 123% and supported annual recurring revenue of $1.1 billion, an increase of 34% year-over-year. Connected Devices revenue of $341 million grew 26% year-over-year. This was driven by growth across TASER 10 devices and cartridges, AB4s, which are now included in personal sensors and fleet, counter drone and VR, which are now included in platform solutions. Adjusted gross margin of 63.6% was up 40 basis points year-over-year, largely based on mix shift to software. Adjusted operating expenses of $236 million were up 3% sequentially and down 140 basis points year-over-year. As a result, adjusted EBITDA margin came in ahead of expectations at 25.7%. Part of this leverage was driven by timing of our hiring ramp, and we do expect to continue to ramp investment through the year, especially in our R&D organization. We also expect some impact to the rest of the year from tariffs. As many of you know, we already manufacture our TASER devices in Arizona, but we do have an impact on the supply chain. The team has done a great job ensuring we can be flexible and nimble, and we think we are well positioned to manage through the shifting environment. Based on timing, Q1 had a minimal impact. For the full year, we have offset some of the tariff impact through other cost measures. And overall, we expect a net impact to our adjusted EBITDA margin guidance of approximately 50 basis points for the full year. This is based on where tariffs stand today. We are not planning any price increases to our customers at this point. We review pricing annually, and we'll assess the need heading into next year. Turning to guidance for 2025. We expect revenue in a range of $2.6 billion to $2.7 billion or 27% annual growth at the midpoint. This is up from $2.55 billion to $2.65 billion or 25% growth. Our comfort in raising guidance is based on the strong Q1 bookings performance as well as the pipeline we see for the year and the future contracted bookings of $9.9 billion. On adjusted EBITDA, we continue to target margin of approximately 25% for the year which raises our guidance to $650 million to $675 million from our previous outlook of $640 million to $670 million. Tariffs and exciting R&D investments are factored into this guidance, and we're very pleased to be able to maintain the 25% margin target. Overall, we're delivering another strong quarter in Q1 as well as a healthy outlook for the rest of 2025. This is based on our momentum across a wide range of product categories and end markets. We continue to be long-term focused on -- are investing in the business to deliver for our shareholders and for our customers well into the future. With that, we'll turn it over for questions.

Erik Lapinski:

Thanks, Brittany. All right. We'll take our first question from Andrew Sherman at TD Cowen.

Andrew Sherman:

Great to see the strong cloud numbers. ARR growth was very that drove that strength in the quarter specifically and on Draft One, great to hear, it was 2 of the top 10 deals, the 30,000 seats. It was great to hear an Axon Week. Talk about what pipeline, any kind of pipeline update for Draft One would be great and how you're thinking about this in guidance?

Joshua Isner:

Sure thing. Andrew, good to see you again, and nice to see at Axon Week a couple of weeks ago. In terms of pipeline, I think the result in Q1 was really just a better -- like a result of all the work that went into last year, not only converting on existing pipeline in 2024, but making sure that we had a far more predictable Q1 and driving a lot more activity into Q1 that last year kind of got delayed until Q2 and Q3. And so the team really took it upon themselves to up our game there, and I'm really happy about the way they responded. And in doing so, we built a lot of pipeline for Q2 and beyond as well. And as you mentioned, part of that is the AI Era Plan in Draft One. In terms of expectations setting, I think, the first half of this year is still about making sure that we have identified all the key opportunities in Draft One in the AI Era Plan. And we think in the back half of the year, we'll start to see a lot more of those convert. Now that's not to say AI -- or the Draft One and AI Era Plan haven't been well adopted so far, but relative to what we saw at the end of last year. I think we're in for a far stronger result this year. And really in Q3 and Q4, you should start to kind of assume that will show up in our future contracted bookings.

Brittany Bagley:

Just Andrew, to give you a little color on ARR because thank you for calling that out. It was a really nice number this quarter. It's usually about a quarter off from our bookings. So what you're really seeing come through in ARR was the strong bookings results we had in Q4. So that's driving some of the growth. And then as I mentioned, it's really coming both from new users as well as people adding on some of the more premium subscription pieces. So it's really -- it's a nice healthy growth that we're seeing driving that ARR number.

Andrew Sherman:

Great. One more for you, Josh. The international commentary was great. There were a lot of countries and regions in there, and you said they had a record Q1. So great to see kind of 2 quarters of really strong momentum there. what are kind of the most adopted products? Or is there a trigger point? Or is it go-to-market improvements? Or what's kind of causing that continued inflection up internationally?

Joshua Isner:

Yes. I think it starts with just a little more focus from all of our teams at Axon. I think historically, we've been a very U.S.-focused company. And with the hire of Cameron Brooks a year ago as our Chief Revenue Officer, there's just been far better sponsorship for our international business. and that's trickling down into our product focus, to our go-to-market focus, our services focus and so forth. So the level of execution is really the strongest it's been in international. And on top of that, I think the product adoption is ranging from TASERs to body cam to more and more cloud openness. And so I think our plan is always the same. We've got to win with one product and then earn the right to sell more to the customer through a great customer experience and a lot of value provided through our products and services and that's kind of the playbook we're running internationally, and we're starting to see the fruits of that. .

Erik Lapinski:

Thanks, Andrew. Next, we have Joe Cardoso at JPMorgan.

Joseph Cardoso:

Maybe I just wanted to start off and maybe this is more of a clarification for you, Josh. Based on your prepared remarks. You're sounding pretty bullish on demand, the pipeline, et cetera. However, obviously, there's just persistent concern around the macro just given kind of the current backdrop. So maybe you can just clarify or touch on -- are you seeing any signs in the conversations that you're having with customers that there's these prevailing concerns? Is that showing up in any of the deals that you guys are seeing? And then maybe if you could bifurcate that in conversations with your traditional core base of state and local law enforcement versus kind of the other verticals that you guys are obviously gaining traction with?

Joshua Isner:

Yes, sure. I would say virtually no headwinds in terms of anything macro with U.S. state and local enterprise or international. I think there are little challenges along the way, but I think our team is prepared. We've built a great team to be able to handle challenges like we're seeing in the macro environment right now. So I don't necessarily have a lot of concern in those markets. And in federal, it just is one where right now, it kind of is what it is. We know that until a new budget is passed, and there's more clarity on where the federal civilian customers as well as the DoD will be spending money. Our best strategy is just to focus on the deals that we know are right in front of us. And that's what the team is doing, and some of those deals are very large and very exciting. But there, I'd say the volume of opportunity is a little bit at a standstill just until some of the budgeting and reconciliation stuff gets worked out. But in terms of that impact on our overall bookings, it's minimal, and we're really excited about the rapid growth that we're still seeing in the U.S. and in international and in enterprise.

Joseph Cardoso:

Got it, Clear. And then maybe just a follow-up. I wanted to touch on some of the recent product introductions maybe on the hardware side. Obviously, you disclosed the 2 new fixed mobile hardware products that you guys just kind of put out there. And I guess the crux of my question is just really around -- obviously, you had fusus and that was kind of giving you an entry point in kind of the fixed mobile market there. What was the main drivers in kind of owning the hardware stack there? Was it more of a customer push? Did you not see that you were getting enough traction on deals? Any way you can flesh that out in terms of what drove the kind of the entry there. And I guess the second part of that question is like, is this kind of more of a testing the waters and then you can expand that product set there in terms of addressing other applications? Or I guess, how are you thinking about the opportunity there?

Patrick Smith:

Yes. Let me start with that one. So much like we started with body cameras, and we added fleet cameras to expand our ecosystem deeper. The fleet camera is already a real-time camera in car that does ALPR live streaming video. So this was a natural extension, where one of our advantages like we've got just an awesome imaging team, and we felt we could provide really best-in-class for fixed ALPR, which has been a growing category and especially in the context of Fusus making sure that we had a really great overall experience. This -- we identified this as a very interesting and fast-growing expansion opportunity for us. And one that fits very naturally with all the things we we're already doing in mobile. So why not take that same technology, repackage it and have the best-in-class fixed cameras. And then you layer that on top of then, also this whole works with Axon workflow, where how do we go identify all the different sources of different camera feeds and then find a way to connect them into our ecosystem. And you'll notice I started our keynote, very much focused on the privacy issues. We certainly get it. What we're building is really powerful tech, and we want to be really thoughtful about it as do our partners. I mean each of the partners we brought on stage are the market leaders in their segment. And I think bringing this together to do it the right way, again, with this idea, what we don't want to do is create a surveillance state where we're being tracked everywhere we go. What we do want to create is a state where people who need help or people that are dangerous or vehicles that are wanted for some reason can be quickly identified, primarily so we can get help where it's needed or deter criminal activity. I actually think right now the U.S. is sort of got the -- the balance is completely wrong. When you're incarcerating a ton of people, but your deterrence isn't high enough to stop crime. That's like the worst outcome. I think the best outcome is you deter crime by having a very high probability you're going to get caught such that it just doesn't make sense for people to start to engage. And I think we're seeing a real swing back from post the early pandemic and George Floyd. We saw the pendulum swing very hard against public safety, and there's the decriminalization of shop lifting and retail primes with catastrophic consequences, right? We've seen just city urban centers hollowed out as retailers had to move out of town. We've seen -- they've got to lock up the shampoo and the toothpaste and that's where our partnership with Auror, I think, comes in here really well as well. They're like people realize you have to have fundamental stability and safety and rules that are enforced in society or the little things escalate. And I was shocked to learn as I got to know Auror that the significant majority of retail crimes associated with people who are either part of a criminal network or and/or involved in violent crimes as well. So the sort of the scene from Wayne Misra, where it's a woman trying to steal bread for her children is not and I don't think that's what anybody is talking about. It's when gangs of people rush into a Best Buy, grab TVs and run out in a mob like that is organized criminal activity. So we really looked at this to expand where we can do partners well and where we want to be first party so that we make sure that we've got best-in-class capabilities.

Jeffrey Kunins:

And 2 just really quick things to add on that, Bill, like you mentioned Fusus, this is all about doubling down and going even further above and beyond what with the momentum that has started with Fusus. You've heard both Rick and myself talk before about we're at this unique moment in time where the intersection of real-time crime center, DFR and vehicle intelligence broadly because of the crucial role that vehicle intelligence plays in solving so many crimes, the intersection of all of those 3 and the power that new AI capabilities brings to making them be able to be more powerful and effective than ever is really at the heart of this and making sure that we bring our best foot forward all of 3 legs of that stool, both with what we do ourselves and with what we partner with. And then the second part on responsible AI innovation, as Rick said, that's always been a cornerstone of how we build and what we build from -- if you go back to the beginning when we first laid out and shipped Fleet 3, we were extraordinarily careful and extraordinarily clear in how our view and why we felt compelled to bring ALPR technology ourselves in the first place was to deliver better results for customers with better ethical and responsible design built in from the ground up. And we choose partners like Auror and others that embody that same approach, and you'll see that continue to play out as we go forward.

Erik Lapinski:

Thanks, Joe. Up next, we have Alyssa Shreves at Barclays.

Alyssa Shreves:

Just a quick few ones on Draft One and AI Era Plan. I saw the success with Draft One, but is there any kind of difference in -- with the AI Era Plan penetration versus the early days of OSP I heard the call, it's on Draft One, but it seems like AI Era might be a little bit different. And then I just had a follow-up on that.

Joshua Isner:

Sure thing, Alyssa. Thanks for the question. I'd say Draft One launched a full year before the AI Era Plan. So in terms of just pipeline conversion, Draft One, we just started from a bigger foundation that we're already in the ask councils are working through budgets. I think over the last quarter and then -- and certainly into Q2 as well, after we converted some of those early deals, we're still seeing them come in. But some of the larger ones, like this is the time where we're getting them integrated into our quotes with our customers for the back half of the year, some of the larger police departments will be sponsoring large deployments to their communities and putting those on city council agendas in Q3 and Q4. So I think it's just a matter of Draft One had a faster head start and thus, it's a little more well adopted right now, but we're starting to see more and more Draft One conversations become AI Era Plan conversations and a lot more excitement especially after we announced all of the new inclusions in the AI Era Plan after Axon Week. So I think the future is very, very bright for the AI Era Plan. And again, we'll start to see that really convert in a much bigger way of bookings in the back half of this year.

Alyssa Shreves:

Okay. And then just a quick one on that. How are you guys got longer term kind of thinking about EBITDA target with this kind of growth in Draft One, AI Era given it's kind of all SaaS?

Brittany Bagley:

Yes. I mean I think it's been really nice that software in general, has been a great tailwind to our margins from a gross margin basis. And then I would say, at the same time, we are bringing on new hardware products as well, which are also really exciting. But those will sort of balance out. So I think you've seen over the last year or so, we've had a little bit of a tailwind from software, but we really do have mix factors that you have to consider. We don't have a specific long-term target out there after this year, but obviously, it helped in -- software helped in this quarter. And in general, we're really happy. We're continuing to blend out at that 25% even with tariffs. We'll probably think about longer-term margins as we come up at the end of this year and really think about refreshing what that long-term model looks like for everyone.

Erik Lapinski:

Thanks, Alyssa. Up next, we have Jamie Reynolds at Morgan Stanley.

James Reynolds:

Great. And congrats on the strong results. Maybe just following up on that. I mean as you've layered in some of this newer AI functionality kind of beyond Draft One. Are you seeing sort of increased hurdles from like an adoption standpoint or greater concern from some of those prosecutor type constituents or now that Draft One has been in the market for a year, is that conversation kind of getting easier? And then I have a follow-up.

Patrick Smith:

Let me start on this one. I would say, look, things like the real time frames later like enormous interest, and I haven't really heard any critique of that. Like it's just so powerful for an officer to be able to communicate clearly with somebody in front of them. So we are leading with the productivity enhancements and things that sort of have extremely high benefits with sort of the smallest risk footprint. And as we get into look, things like vehicle intelligence, now you're starting to find vehicles, et cetera, you're going to face a little more maybe opposition from some of the police skeptics there. And there, we just think it's important to make sure that we're -- really feel good that we're winning right, that we're doing this the right way. We've got our ethics framework. We spent a lot of time developing. So there will be, I think, some jurisdictions will be slower to adopt that tend to be a little more skeptical police. And the ones that are more supportive, we'll probably be faster to adopt. But the other thing I would say is the AI Era stuff like a lot of those features like the real-time translator. It's -- I don't think it's fully shipped. We're in like beta with customers now. So it's really just preparing to roll out. So of course, there's also the need to get the stuff out in the hands of customers. They typically want to get some cycles in before they've made a large purchasing commitment.

Brittany Bagley:

And I think the flip side to that, too, though, is like it also gives people more reasons to be excited about AI and to get excited about adopting AI. And so I think we just haven't seen higher enthusiasm from our customers about the whole suite of the AI products we have, and that really encourages them to push to adopt and get over those hurdles. So I actually -- I totally agree, but also, I would call out for you like that the broader the product suite we have, the more the return for them that they see on using it. And so I think that just gives them a lot of momentum to go look at that whole product suite.

Jeffrey Kunins:

Once again, just like Josh was talking about with the Era Plan and the brightness there. the beauty of having a plan that includes everything that we do, not just right now, but over the next 5 years, is it gives any individual agency a pallet of choices. So even if in that particular agency, one particular thing might not yet be for them, at least there's many different ways to stack up the points on the board within the plan for the plan to be a fantastic value for any given customer.

James Reynolds:

Got it. And then maybe just on the drone side, I think a couple of weeks ago, the FAA might have made some improvements to the waiver process specific maybe to DFR. So I guess, how has that changed conversations? And then what do you think we still need to see from a regulatory standpoint to see like broader-based adoption?

Patrick Smith:

So I don't know, Jeff, do you want to talk at all about the more detailed portion? I can tell you that we're definitely seeing DFR go mainstream. And the timing is just really phenomenal. Our partnership with Skydio, are really just now scaling the manufacturing of their docs. And I'd say the DFR limitation is probably somewhat production constrained right now. But in the back half of the year, we really expect that to grow strongly. And Skydio has really become a pretty well-oiled machine at getting waivers, particularly if you're going to fly below 200 feet, where I think Skydios really the only viable solution in that space because they have such solid autonomy and collision avoidance. . And then if you want to come up a little higher into the 200 to 400-foot range, really then pairing it with dedrone helps there. They're the FA wants to see more aerospace awareness, you're more likely to need visual observers or things like high zoom cameras and radar where it's down below 200 feet, there's just less concern about drones being involved in air traffic issues. So Jeff, anything you want to add?

Jeffrey Kunins:

That's pretty good. I think the key is really meaningful step forward with the FAA stuff. Obviously, it's not all the way done, but the changes that really expedited the path to getting these waivers was a very meaningful step forward for the industry. And as Rick said, the key to having the best solution is to arming customers with the full palette of the ability to have what you need to do to fly low and with a lot of autonomy and a lot of capability in a diverse range of situations close to the ground and equally to have access to that fly high. And again, that's why we're investing in the way that we are and think we're bringing by far the broadest and most comprehensive range of options that are moving in lockstep as the regulatory framework keeps unveiling.

Erik Lapinski:

Thank you, Jamie. Up next we have Jordan Lyonnais at Bank of America.

Jordan Lyonnais:

On the federal side, the FY '26 Skydio budget called out a $44 billion increase for DHS. How are you guys thinking about that across verticals? Because it also said they need advanced border security technologies. They need to prep for the World Cup and the Olympics. So where are you guys most excited about that Axon can help?

Joshua Isner:

Yes, for sure. I think on the border bill, there's -- on the border focus, there's a lot of focus on drones and counter drone, which I think we are excited to participate in as well as real-time video, which is kind of what we do at this point. And so I think all the work we've done in the last few years with some of the federal agencies to make body cameras, Evidence.com and live streaming available to them as kind of the precursor to fill in some of the existing blanks around better video in more places, better counter drone solutions and, of course, more drone solutions that are USA made and fit for purpose for the U.S. government. And so, that's where our focus will start. Of course, we're working on a number of deals across the festive agencies and a number of use cases, but specifically for kind of new money coming into the federal government, I think those are really the focal points along the border.

Patrick Smith:

Yes. The -- I would add the real-time translation is going to be hugely beneficial. I had a regional commander for Border Patrol a year ago come to me asking for exactly that capability because they are constantly dealing with people coming across the border, and they have no idea what language they're going to run into. And today, it's a very manual process. you've got a call, get an operator, that operator and a service provider then has to figure out even what the language is and how you pack somebody through who, I think I may have mentioned, but I was -- I was in Norway showing an early prototype -- and 1 of the instructors from Iceland wanted to see if it could work with Icelandic and it was pretty flawless. And Icelandic is one of those languages you don't run into very often. So I'm not as close as Josh to a sort of actual pipeline with the federal government, but I can tell you the fundamental underlying demand, I think the translator is going to be a huge interest for border.

Jordan Lyonnais:

Got it. And then is there anything else that has to get done on the federal side. So things can move quicker. I don't know if Fusus was FedRAMP certified yet or if you guys are starting to see existing dedrone contracts where agencies are jumping into those that might not have been initially thought that it would be for that. But okay, we can procure Body Chem 4 and Draft One now.

Patrick Smith:

That is a great question, particularly on Fusus. Jeff, do you want to give -- I want to make sure to give you an accurate -- we're making progress with Fusus. I don't know what we can say quickly about where we're at.

Jeffrey Kunins:

Yes. I think we can -- the process for all the Fed ramping stuff is you go through, we submit sort of every 6 months or whatever, our updates to our things. the official assessors make their official recommendation that says, yes, this is ready for extension. And then it just takes another couple of months for the formal kind of paperwork approval on the back end. And with fusus we passed that submission stage very, very recently. So we're in the shoot. So Fusus is absolutely FedRAMP-ready. It has been officially recommended by the auditors, and now it just needs to finish the last little bit of certification. So we're very excited about that.

Brittany Bagley:

I would just -- Jordan, I would just add that like I love that you're highlighting some of these opportunities just from a guidance standpoint. As you can imagine, we've been pretty conservative on what we've assumed for the year on federal. So some of these things would be upside and tailwind if they started to happen faster.

Erik Lapinski:

Thanks, Jordan. Up next, we have Trevor Walsh at Citizens.

Trevor Walsh:

Great. You had an interesting stat in the shareholder around the survey that you ran towards the beginning of last year. About 14% of departments are essentially not at full staffing levels. Not necessarily surprise headcount and the hiring of the officers has been a struggle for a while now. And it's pretty clear that AI is going to help in that a little bit to make officers just more productive. But do you guys see any trends around just more broadly than that of departments knowing that they might not be able to get the head count that they want, just shifting that spend to other kind of areas within the department's needs, whether that's technology and that generally helping you guys? Or do you see that as a possibility kind of down the road, if not right now? And then a quick follow-up for Brittany, can you just elaborate on the tariff piece for the kind of second half of the year? And if that's related to kind of the newer things that we're hearing around tariffs? Or is that just more baked in from the April kind of announcements that we've heard?

Patrick Smith:

Let me take the first part. We are absolutely having those conversations. Draft One is the baseline of, hey, if I can spend less time doing administrative work and more time doing police work. We're hearing across the board, things that we can do with technology, even DFR is one of those, right? Hey, if there's calls that we can clear without having to send officers, that means we can focus our manpower on the calls that make more sense. The same thing is true of inbound call handling, like your customers are interested on, hey, are there things we can use with technology to be able to handle noncritical calls, maybe we don't send an officer at all, maybe report them to an AI agent. Translation, historically, there's like multi-minute weights to be able to get a translator during either middle of a critical incident or an inbound call, and those are the sorts of things that across our stack or through our partners, we can begin to turn those things into real time right now. It doesn't need a person at all. It's technology aiding the person or in some cases, we can handle the whole thing over to tech, and we think it's a combination of AI and robotics over the coming years is going to enable us to take on a greater and greater portion of that workload, allowing the human beings to focus on the sort of top end of those incidents that really require a human engagement. And I'd say there's probably at least 50% of the workload of police department that's automatable. And we are seeing that they're open to thinking their budgets that way. I can think of a few conversations we've had where agencies have said, "Hey, I'm understaffed by this many folks. I'm just going to take part of that budget and push it over here and maybe not hire a couple of those."

Brittany Bagley:

Yes. So on tariffs, we factored in everything we know as of like 24 hours before this call. So we're as up to speed as we can be on how we think about guidance for the second half of the year. And then we just bake into the guidance we give you for second half. I would say it continues to move around, obviously. But I think more is certainly known now even than it was a quarter ago. And so I think that allows us to do things like come up with good plans to mitigate as much as we can and manage through as much as we can, which we're obviously trying to do. But our current view is just baked into the guidance.

Erik Lapinski:

Thanks, Trevor. Up next, we have Mike Latimore at Northland.

Mike Latimore:

Great. Yes. Excellent results. In terms of the Enterprise segment, I guess, prior to this quarter, the biggest deal was in enterprise, how is that deployment going? How is the pipeline for enterprise, which products seem to be the most interest? And then on TASER 10 is maybe just elaborate a little bit on manufacturing capacity there. Are you ramping that through year-end?

Brittany Bagley:

Yes. So I'll maybe go in reverse order and then Josh can jump in on enterprise, too. But we are continuing to ramp TASER 10 capacity. I would say we are sort of continuing to ramp TASER 10 capacity as much as we can because we continue to see just great demand for that. So we're ramping it this year. You saw us take our CapEx guidance up a bit. That's us continuing to ramp it into next year so that we continue to meet that demand. From an enterprise standpoint, and I know Josh will jump in, but we continue to be really excited about the pipeline that we're seeing. I think A lot of our products are really relevant to the enterprise segment. But I will say Fusus has been particularly exciting as we've brought them in. That's just really resonating well with our enterprise customers and opening a lot of doors and a lot of really great conversations. Again, I think, obviously, our cameras, as we talk about retail and frontline workers, you could see counter-drone, you could see a whole lot of our portfolio being relevant, but it's a huge market. And so we'll continue to update over time. But there's a lot as we start to fight that off.

Joshua Isner:

Yes. The only other thing I'd add is the Enterprise deployments are hard by nature. We're talking about aggregating hundreds of thousands of video screens to one pane of glass. That's hard work and I'd say we're learning, the deployment is going well. And what we learned here will absolutely make us better in the next 3, 4, 5 of these that we do. And so it's -- the team is doing great work and some new variables when you have enterprise customers relative to government, and we're working through those and feeling good about where we're going to land.

Erik Lapinski:

Thanks, Mike. And up next, we have a new face to our call, Andrew Spinola at UBS. Welcome.

Andrew Spinola:

Just following up or continuing on the Enterprise space. Would you be able to willing to elaborate on the gaming contract that you guys announced? What are you doing there? Is it Fusus centric? Or is there are a few of your other product lines in the mix?

Joshua Isner:

Let's leave it at video for now. There probably are opportunities in gaming for less lethal as well in terms of security, but video between body cameras and Fusus and certainly, a lot of applicability given the amount of money on the line at each one of those sites. And so -- and Andrew, thanks for the patience.

Erik Lapinski:

Thanks, Andrew. We'll kick it to Rick to close this out.

Patrick Smith:

Oh man, we're done already. I was ready for a couple more. I just got to say I'm so proud of the team, and we're just hitting on all cylinders. And it's also really great. You'll see I'm answering less and less of the questions during the call about the operations of the business. And candidly, that's because I've got just such a great team. I've been traveling like a banshee out with customers, having a ball. Have identified a couple more fantastic things that are going to be expanding our product portfolio probably a couple of years out. And it's really great to have a team that you can just rely on that we're all -- we're all running our lanes and the business just runs like a machine, like a very -- like a Ferrari -- no not Ferrari, maybe not as most reliable machine, but a very reliable Ferrari and this thing is just running. And of course, having you guys as sort of helping the investment community understand our business. This is a complex business to understand. We're everything from a media creation house in VR for creating content and managing training content. We do pure software plays like our records business. We do electrical weapons and drones and now counter drone systems. And it's a lot of fun for us to run the business, and we know you keep you pretty busy trying to understand how it all fits together. But I can tell you one thing that just keeps me excited now from a business perspective is we have so many horses that can run here that we're not dependent on any one part of the business. We just got this truly diversified portfolio, but it all works together so seamlessly. And now we're expanding to anybody who needs to interact with law enforcement, right? If you're a business, your security team is to interact with law enforcement. Frankly, if you're a military, you need to interact with your law enforcement as well now, these sorts of hybrid threats that we're now seeing in society, and we're able to start from this kernel of a business we've built around public safety and begin to move out into these next layers. It's just a really exciting strategic time to be at the helm. And so with that, I want to thank you. Josh, you were leaning forward. Do you have anything to add there before we wrap today?

Joshua Isner:

No. You said, well, Rick, thank you.

Patrick Smith:

All right. Thanks, everybody, and we'll see you for -- well, I'm not going to jinx it by predicting. We hope to be back with another good quarter. So we'll see you guys in a few months.

Joshua Isner:

Thanks.