Interview with Axon President Josh Isner

0:04I think whenever we're talking about ways to incapacitate people more safely, that's universally a positive.

0:17That was Axon President Josh Isner. I'm Motley Fool Producer McClure. Now, Axon is best known for its tasers and body cameras, but Axon is also seeing big success with its software services. Motley Fool analyst Jason Moser recently sat down with Isner to talk about the business of Axon, including Axon's latest quarter, some recent deals, and some big opportunities ahead. Hey, folks, I'm Jason Moser, senior analyst here at The Motley Fool, and I'm excited to talk with the president of Axon Enterprise, Josh Isner. Josh, thanks so much for spending some time with us today. Good to be back, Jason.

0:55Thanks a lot for having me today. Absolutely, absolutely. So let's just kick off with looking back at this most recent quarter, right? There are a lot of great stuff you reported and a lot of interesting stuff going on here. You've got these recent acquisitions of Prepared and Carbine and then this idea of Axon 911. You know, when the deals were first announced, I was like, hmm, I wonder what they've got up their sleeve. And then after the call and after reading the shareholder letter, I was like, oh, OK, I get it. So can you talk about why these deals make sense and ultimately what the strategy for Axon 911 is?

1:32Sure, sure. Well, taking a step back, I think, you know, our mission is to protect life. And one of the ways, one of the opportunities we've identified to do that is in the 911 space. And so usually what happens is a call comes in and then it takes a full two minutes plus for help to get on the way. So as we look at that, that has real downstream effects on our products. Everything from sending a drone there to having an officer on the way with our camera technology and our less lethal tools and so forth. And so as we look at this, we think this has been historically a pretty underserved market by technology, such that with some new, smaller, more nimble kind of AI offerings, we feel like we can deliver a better product that condenses that two minutes to a matter of seconds.

2:22And when you think about it, some will call a 911. one, all the metadata is already moving from their location to the call center. So you know where the person is, you can hear what they're saying. And really, we think that should be enough to get help on the way. But the way it works a lot of times in public safety right now is that call taker is taking notes, is trying to understand what's happening, then they pass over the information to a dispatcher, the dispatcher then has to get in touch with the officer over the radio to get the officer out to the scene. And that's just a long, cumbersome process.

2:53And we think as we move further and further downrange in technology and AI, this is something that metadata comes in, Paul is being analyzed by AI. It's already looking at where the officers are in the field and can already route the officers there pretty seamlessly. And while all that's happened, it can be triggering a drone flight. So you have eyes on the scene faster. We think this is just a very synergistic addition to our workflow, not only where we can save lives, but we can make our customers a lot more efficient with more modern tools. Yeah, I think what I was reading through the letter and I saw sort of the graphic that you all had drawn out sort of the timeline, the process, right?

3:32And there are a lot of participants in that value chain, so to speak. And I think Rick even made mention of this in the call. It's like that old game of telephone where there are just so many opportunities for miscommunication. And I think that to me was what really stood out as like, wow, this really could be something that just crystallizes everything and makes it far more efficient. So I'm excited. You feel like that's going to be something that I think really continues on with your AI vision there at the company. And, you know, in the call, you mentioned that the AI era plan continues to be the fastest booked Axon software product to date.

4:05You said you're on pace for AI bookings to contribute over 10 percent of U.S. state and local bookings for this year. What is driving that? Is there a particular feature in that AI airplane? Or is it just generally the idea that customers are all in with you and the tangible deliverables that you're offering in regard to AI? Yeah, I think it's a few different things. I think there's some trust with our customers for sure. We've been the company that brought the cloud to public safety, brought wearables to public safety, conducted electrical weapons when it was either using pepper spray or a gun.

4:37And so we are a brand that our customers trust in terms of disruptive technologies and making sure they fit the use case and they work well. So I think that's kind of the foundation of how we're able to sell and grow sales. But really beyond that, there's a few products that have become very popular, DraftOne being one of them, which essentially listens to the audio recording of a body cam video and then writes the first draft of the police report for the officer and gets the person about 80 to 90 percent there. So you're editing, you're filling in the blanks, but you're not spending literally half your time on the job writing reports anymore.

5:15And when you can give all our customers that time back, they don't necessarily need to hire as many people at the police force. So, you know, all these vacancies that they have right now kind of go away because your officers are doing what they do best and fighting crime, you know, in their communities. And so we're very, very excited about the AI space and the AI airplane in general. I think one of the things that really plays to our strengths here in the market is this is a market that's just like we're saying about 911. It's traditionally underserved by technology. So there are a lot of these really outdated, lengthy, people intensive workflows.

5:53And when we look at AI, the place where, you know, people fall in love with self-driving cars or drones or, you know, things that are very exciting into the future. But today, the place where you can really get a lot of value out of AI, in my opinion, is much more on the take administrative human activities and hand them over to AI to complete for you. And, you know, there's a lot of those in public safety, given that we've built a lot of trust with our customers and we've been able to delight them with a few of our early AI products. I think that's boded very well for what the future looks like in terms of our AI airplane.

6:27Yeah, I think that makes a lot of sense. It was interesting to me. I saw in regard to draft one, and I guess I didn't think about this initially, but then it made perfect sense. And you got just such positive feedback from actually inside the courtroom, right? Like actually in a court of law, like attorneys, the litigation process, like that was actually cleared. They said, this is really good. It's working. Yeah. It's more than just the speed and the efficiency. It's also the quality of these reports go way up. You know, instead of just writing off a memory or even reviewing the body cam transcript and just kind of selectively putting things in there.

7:00The AI is analyzing the whole transcript and the quality and consistency of those reports is getting better and better and better. It's essentially like having a professional writer looking over your shoulder, writing your reports for you. And, you know, the downstream effects, like you said, are prosecuting attorneys are thrilled with the quality of the reports. It lays out a better picture of what happened for a jury or a judge. So definitely some positive downstream effects there. Absolutely.

7:58Well, we have a question from one of our members. I want to make sure I get this in. Kieran Flynn asked me to ask you if Axon sees similar opportunities in the areas of surveillance and live security monitoring solutions. And Kieran was referring to a specific company called Zedcor. But ultimately, the question is, generally speaking, surveillance and live security monitoring. Is that something that's on your company's radar today or is that an opportunity that you're paying attention to at all? Yeah, it's on our radar. I think the first thing when, you know, that we want to talk about whenever we talked about talk about the concept of taking video in public or surveillance is that we take privacy and the practices around aggregating video very, very seriously.

8:45And, you know, this is a company where we're generally not first to market on some of these products because we'd rather be right. We'd rather have community buy-in. We have a group called our Ethics and Equity Advisory Coalition, our EEAC, that looks at all our products and reviews them to make sure that we're doing things the right way. And these models are rid of bias and all of the things that can kind of be gotchas along the way. So, you know, when we come out with these products, we feel like they're very well thought out and they serve both sides. They serve public safety community and they also serve the actual community where this technology is starting to become more and more present.

9:21For us, that product is called Fusus. And what it does is it combines all of the video cameras that you might have between private enterprises like a 7-Eleven on a corner and city owned cameras. And in a moment of crisis, an operator, whether if it's a convenience store, they can tap in the police to their feed to see what's happening. Or if it's a city owned camera, of course, the police can just get access to that. And we are working on some new technologies around recognizing certain crimes to alert somebody watching to say, hey, you should check out this feed over here and make sure this is something that is not presenting a risk to safety.

9:59And so we are building those products out, but we're doing it in a thoughtful way that at the end of the day will hopefully promote a feeling of safety and buy in from everybody along the list of stakeholders. So that's really important to us. Absolutely. Well, you mentioned enterprise. I think that's a great lead in to the next question here, because over the last several quarters, you've identified a very significant opportunity in the enterprise market. Right. I mean, you're going well beyond just public safety and law enforcement. And so I think when we think about the enterprise opportunity, what are the specific products?

10:35And I know you've got some stuff launching here in the beginning of 2026. So I'm going to let you talk about that a little bit. But what are the products and services that you think will be able to drive the growth in this new vertical? Sure thing. You know, when you ask retail workers, for example, about their experiences at work right now, theft is on the rise and workplace abuse is on the rise. Customers are becoming more and more abusive verbally and physically to retail associates. And so video, just like we've seen in public safety, can be a deterrent to activity like that, to document theft so it can be prosecuted or to hold both people accountable on both sides of the camera to make sure that things aren't escalating and getting out of control.

11:17So we believe that between some of our fixed camera products, like I mentioned, Fusus, but also our new ABW Mini body camera that's specifically built for use cases like retail, we believe those will present tremendous value, will drive workplace abuse down, will drive theft down. In the industry right now, across retail, theft is up like 2 % or 3 % across the market, which might not sound like a big number to a consumer, but that represents billions of dollars in inventory across the industry. And so this is really something that retailers are looking a lot at and saying, hey, if we can bring theft down even incrementally from that, that's real savings for us and these products present a valuable ROI.

12:02And so we're very bullish about this space. We think there's a lot of parallels between some of the things we've seen in public safety and how they can translate to enterprise. And we're very excited about what that's going to look like for the years to come. And I suspect that hardware all then really gets to just ride along with that just tremendous platform you have in evidence.com, right? I mean, you can utilize that evidence.com platform to then manage all of that video content to keep things on the up and up, so to speak. Absolutely true. And we see that a lot with early adopters of our technology.

12:35At first, it's all about the hardware. Hey, I want my camera to look like this, and I want it to do this, this, and this. But over time, users start to understand the hardware is great, and we're very proud of what we build, and it's high quality and market leading. But the real value it unlocks in our solution is all the software and AI workflows. And the relationship between hardware and software in our products is really where the value lies. And so we're very excited to get hardware in the hands of some of these customers so that we can unlock a lot of value for them on the software side. I think that makes a lot of sense.

13:10I wanted to ask you about the less than lethal space. This is something that is, I think, started to come up more and more over the last couple of years. I've seen all these little startups, these companies kind of getting into the space. I mean, one that stands out to me, just I hear the advertisements a lot for Burna, you know, not conducted energy weapons, but like guns. but they're not guns and they shoot like red pepper pellets or whatever it is. But, you know, they they're less than lethal ways for folks to protect themselves at the individual level. We do see certainly law enforcement sort of dipping a toe in that water as well.

13:44What's your take on this less than lethal space? Is that competition for you or does that represent potential opportunity for Axon either to develop something like that or potentially as another tuck in acquisition? Yeah, sure. I think the most important thing is it represents progress. Right. Like in this isn't a statement about guns. We have people who are rabid gun owners at Axon and we have people that have never owned guns. It's not political thing. It's more like, hey, I think everyone would acknowledge if you can accomplish the same outcome without having to blow a hole in somebody, that's better for everyone.

14:15And someone, you know, doesn't die as a result. And the person who pulled the trigger doesn't live with that for the rest of their life. And so I think whenever we're talking about ways to incapacitate people more safely, that's universally a positive. And so we're excited to see more companies in the personal protection space offering alternatives. Certainly, we're excited about our consumer business and some of the products we offer there. But, you know, our products have a special kind of relationship to public safety instances, just because there are a lot of times where without a taser, a police officer would have to take somebody's life.

14:51And so that's really our first focus always is what can we deliver to our public safety customers that gives them the option or opportunity to safely use something else as an alternative to a firearm. And there are going to be times in public safety where that's not possible, but there are definitely times where it is. And we try to mitigate as many of those as we can and certainly welcome more and more options for customers in that space. When Johan Rahl received the letter on Christmas Day, 1776, he put it away to read later. Maybe he thought it was a season's greeting and wanted to save it for the fireside.

15:27But what it actually was, was a warning, delivered to the Hessian colonel, letting him know that General George Washington was crossing the Delaware and would soon attack his forces. The next day, when Raw lost the Battle of Trenton and died from two Colonial Boxing Day musket balls, the letter was found, unopened in his vest pocket. As someone with 15 ,000 unread emails in his inbox, I feel like there's a lesson there. Oh well, this is The Constant, a history of getting things wrong. I'm Mark Chrysler. Every episode, we look at the bad ideas, mistakes, and accidents that misshaped our world. Find us at constantpodcast.com or wherever you get your podcasts.

16:16If I hear one criticism regarding Axon, the investment, right? I mean, I'm talking about our members, investors, shareholders like myself. The only ever criticism I really ever hear is just in regard to stock-based compensation. Companies use it. It's not unique, right? It's certainly a lever that Axon uses today to attract and retain talent. And I think that's the key point there is to remember it's attracting and retaining talent. I mean, it's around 20 % of revenue today, right? And that's not unheard of. I mean, I get it. You're a small company still really kind when you think about it. I mean, from a revenue perspective, at least.

16:51And I mean, attracting that talent, retaining that talent is important. I wonder, though, is there a longer term goal for that number to ultimately come down as the company scales up? You know, I think we look at it more holistically in terms of dilution as a whole, not not buckets between stock based comp and other uses of stock, but more so we want to keep annual dilution under three percent. And like you said, ever since we started to align our company on stock based outcomes and we have this widespread performance plan across Axon where everybody from Rick, our founder, all the way down to folks on the manufacturing lines, they can opt into this plan.

17:30And it is a high risk, high reward plan, but it incentivizes market cap growth, revenue and EBITDA growth. And so these are the things that ultimately, if we get everyone aligned on those principles, those are things that undoubtedly benefit our shareholders more than they cost them. And when you look at the performance of our stock over the last 10 years, we think a big part of that has been everybody on the same page, everybody moving toward the same goals. And when you look at every great sports team in history, one of the things that all of them have is continuity. Their best players come back every year.

18:05I'm a big Patriots fan. We had 20 years of Tom Brady. Then he left and it wasn't as good. And now hopefully we got our next version of Tom and Drake made. Keep the Drake on the team for the long term is what's going to be the thing that unlocks their success. And we look at our company like that, too, for our best players to want to be here for not five years, but for 10 or 15 or 20 plus years. We've got to make things interesting to them and treat them like co-founders in the company where they feel like they really have skin in the game that aligns with our success. And I think it served us really well.

18:39ultimately the combination of having financial goals, but a joint understanding amongst our whole team that it's really our focus on the customer and solving the problems for the customer and aligning toward our mission. Those are the ways that we produce better EBITDA, better revenue, or a higher valuation for our shareholders. And so we've got a really magical thing going, and stock-based comp is a part of it. And I know it's a little atypical, but our company's growth is atypical too, and we believe it's a big part of it. A couple more things before I let you go here real quick. You know, we have a rule breaker database here at the Model 4 where we score thousands of companies based on David Gardner's rule breaker traits, right?

19:19And you'll be happy to know that Axon actually gets a super score in this database of 99 out of 100. And that tells us that Axon is a company that will continue to disrupt and deliver exceptional growth. So my question for you is what is the next great growth frontier for Axon? You know, it's funny, Jason, that we talk about this a lot internally. And it's not just one, like we're big on like, we've made a lot of bets in a lot of places. And we're bullish on a lot of those bets. And it really comes down to a very simple framework. We want to be good at two things at once. We want to be good at selling existing products to new customers.

19:57So that's where we talked about markets like enterprise or our international customers where we've already built products that have good product market fit. And it's about delivering those products to new customers and new buyers. And then on the other side of that coin, we have selling new products to our existing customers. So there it's our core U S public safety ecosystem. And, you know, we're like draft one that we talked about as a good example of that prepared in carbine that are an axon 911. That's a good example of that. And if we do those two things well, it's very resilient because there are some years where, hey, maybe this market's down a little bit, but these other two or three markets have really scaled or this product line didn't work out exactly the way we thought, but we launched four or five products across our markets last year and these other ones are doing great.

20:43And so we're big on making a lot of bets, making sure that we can support them from a scale perspective, from a focus perspective, and then really running hard at them. And I think that mindset has led to a lot of exciting growth. I think we've grown, I want to say, 25 % plus for seven years in a row now. And the last few, it's been 30%. And so we continue to feel really, really good about where the business is headed. And I think it comes down a lot to just that simple framework. Okay. Last question before I let you go. And I have a feeling, I know you're going to answer this, but I've got to try.

21:16We talked about this several quarters back. I know last year, you talked about this massive logistics provider that you signed on. I think you said it was the largest deal ever in company history, and it was on the enterprise side. Did you ever reveal actually the name of that customer? Who was that logistics provider? Great question, Jason. I appreciate it. We are still not quite ready to reveal. We want to get to the point where the entire installation is done and up and running, and we're still a few months out from that. This customer, for example, has 300 ,000 video streams across the world that we're integrating into Fusus.

21:51So you can imagine the type of work and the type of like physical, like we got to go to all these geographies and get all this up and running. And it's a pretty big undertaking. And so one of these days we'll come out with a little more detail on that one, but very, very excited about that. And throughout this year, we've picked up some large logos in the enterprise space as well, both on body cameras and on FUSIS. And, you know, I've said a few times that I think we will have done something really wrong if enterprise doesn't eventually become the biggest part of our business, just as a function of how many users are out there in the enterprise space relative to public safety.

22:27And so it's a space we're really excited about. We're kind of going brick by brick through and pull one foot in front of the other and good things continue to happen there. So we're very excited about that. Well, I absolutely respect that. And, you know, I know I had to try, but we'll leave it there. Josh Isner, the president of Axon Enterprise. Josh, thanks so much for taking the time and look forward to catching up again real soon. Always great to see you, Jason. And I'm sure we'll chat soon. Thanks a lot. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against.

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