Axon Enterprise, Inc.

Good afternoon. My name is Carmely, and I will be your conference operator today. At this time, I would like to welcome everyone to the ACCENS Q4 2019 earnings call. All lines are in place to unmute to prevent any background noise. After this week's remarks, there will be a question and answer session. At which time, instructions will follow. I will now turn it over to our host for today, Andrea James, VP of Investor Relations and Corporate Strategy. You may begin your conference. During current aid, in the interest of time, the company requests that you limit your questions to one initially and then get back in queue for any follow-ups. I will now turn it over to our host, Ms. Andrea James. You may begin.

Thank you, Kormeli. Hello, everyone. Welcome to Axon's fourth quarter 2019 earnings conference webcast. I'm Andrea, as just introduced. Here in the room in Scottsdale headquarters, we have Axon CEO Rick Smith, President Luke Larson, CFO Jawad Ahsan, and Chief Revenue Officer Josh Isner. And joining us from our global software hub in Seattle is our Chief Product Officer Jeff Cunningham. I hope you've all had a chance to read our shareholder letter, which was released after the market closed. You can find it at investor.axon.com. And for the first time, we've published an ESG addendum, which you can find in the PDF linked on our website. Management's 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. These risks are discussed in our SEC filings. I will now turn the call over to Rick Smith, our Chief Executive Officer.

Thanks, Andrea, and thank you, everyone, for joining us today. I'm incredibly proud of everyone here at Axon for delivering another banner year with strong top and bottom line performance while simultaneously executing on several major product launches. 2019 was the year we planted the flag for our moonshot to make the bullet obsolete with the publication of my book, The End of Killing. Before this decade is out, we will deliver a taser weapon that will outperform a semi-automatic pistol in the effective and reliable incapacitation of a human subject. That will be a game changer. And we've doubled down on our mission to make the justice system more efficient, more transparent, and more equitable. We will leverage the power of artificial intelligence to enhance public safety, but with oversight from our industry-leading AI ethics board to ensure we also cherish and preserve individual rights and privacy in the balance. We are emboldened as we look to the future from our strong base of execution our team delivered this past year. In 2019, we scaled the all-new TASER 7 while implementing significant design improvements in the cartridges. We introduced the industry's first body camera with live streaming, and we went live with Axon Records. We also made significant investments in people and processes to improve future product launches. I told you in August that we had high expectations for Axon Body 3 and were planning for meaningful shipments in Q4. We delivered on that promise. Q4 revenue of $172 million was up 50% year-over-year. reflecting record volume camera shipments. About 75% of our body camera units shipped in Q4 were Axon Body 3. For the full year, we grew revenue 26% to $531 million. It feels great to top a half billion in revenue, but I'm even more focused on what this signifies. Axon products provide real value to our customers and the communities they serve. We're absolutely thrilled that customers are selecting our most meaningful integrated bundles. We're going to keep innovating on behalf of this historically underserved market, and our top line performance demonstrates that our customers are savvy and eager to adopt the latest technology. We're also very pleased with our bottom line performance. In Q4, six additional performance goals in our Exponential Stock Performance Plan for our employees became statistically probable in light of our strengthened future outlook. This did result in a significant catch-up stock compensation expense that affected GAAP net income. Excluding the impact of that, the results are pretty impressive. In Q4, we more than tripled our adjusted EBITDA over last year. And for the full year, adjusted EBITDA grew 43% to $88 million. I would again like to thank you, our shareholders, for approving our Exponential Stock Performance Plan, which aligned the entire company to the same growth goals as my CEO performance plan. I believe the strong performance and increased probability of hitting those goals are the direct result of our implementing the most innovative, widespread incentive program in any public company today. So thank you. We delivered operating leverage in 2019 even with gross margin headwinds as we sell our five-year high-value integrated bundles, which carry a lower gross margin up front but increase in years two through five. So we are successfully selling customers our highest value offerings in a true win-win scenario. But that does create some margin pressure, and we were able to deliver bottom line leverage this year regardless. We've all embraced the practice of being very intentional and strategic with our capital allocation and our R&D investment, and I feel confident that we exited 2019 the strongest we have ever been. Now Luke can talk about how in 2020 we're focused on building for scale.