Draft One is one of many examples of Axon's commitment to innovating responsibly. Axon conducted a double-blind study to compare the quality between report narratives written with Draft One and those without. Results showed that Draft One performed equal to or better than officer-only report narratives across five dimensions, including completeness, neutrality, objectivity, terminology and coherence. In addition, we partnered with our Ethics & Equity Advisory Council ("EEAC") to rigorously evaluate word choice selection, draft quality and potential racial bias. Input from Axon's EEAC also included setting the default experience to limit report drafts to minor incident types and charge levels, and specifically excluding incidents where arrests took place and for felonies from the default settings. In practice, customers can still adjust from these default settings based on their specific preferences.

Axon VR Training

The Axon mobile app
Axon recognizes the versatile nature of law enforcement duties, which require presence both in the field and at the station. We also recognize the benefit of providing tools to increase officer efficiency, enabling our customers to get more done regardless of where they are. In fact, Axon's 2024 Digital Evidence Trends Report found that 41% of officers return to the station multiple times per shift to review evidence or write reports. The same report also found that 55% of officers desire a mobile app that gives them the ability to review evidence in the field. In response, we have developed the Axon mobile app, which consolidates crucial features of the Axon ecosystem into one mobile platform.

The Axon mobile app is the first mobile app combining both digital evidence and records management into the same user interface. It enhances on-the-go accessibility and efficiency, and improves the experience for each user of our products, individually. Officers can handle evidence workflows and start and complete reports from the field, all without needing to return to the station. The app also includes a dynamic dashboard that provides a clear visual of action items that require attention, and it allows officers to search for, review, request and maintain evidence including evidence categories, identification items, titles and other metadata. Over time, we plan to continue to build even more Axon experiences available in Axon's desktop applications and into simplified mobile applications purpose-built inside this new unified, modern, mobile app.

"The main challenge is trying to keep up with all the digital evidence. You have to try to identify it, retain it and digest it all quickly." — Commander Nicholas Sanders, Albuquerque Police Department

Axon believes better training will play a critical role in achieving our moonshot goal to cut gun-related deaths between police and the public in half by 2033. VR is a core technology powering our approach to help improve officer response and performance through more repetition, better practice in dynamic scenarios and more immersive experiences.

Over the last year, we introduced all-new ergonomically accurate TASER 10, TASER 7 and firearm VR controllers and expanded our training library to include more community engagement and de-escalation training modules. To take VR to the next level, we have now introduced Virtual Reality Based Training ("vRBT") Live-Action, which incorporates 360 degree video immersions, featuring real human actors with realistic emotions and expressions, and vRBT Simulator CGI, which overlays VR training with interactive computer generated imagery ("CGI") elements in 3D.

Now, Axon VR Training and TASER 10 are closely linked, and every TASER master instructor course includes VR training elements. Before these advances, TASER trainees would have limited experience with deploying a live TASER 10 due to budgetary limits on the number of cartridges that could be dedicated to training. VR democratizes TASER training across large and small agencies, enabling our customers to deploy hundreds of TASER 10 cartridges in VR at no incremental cost. In our newly introduced TASER 10 VR Validation Course, each trainee will deploy TASER 10 probes in VR on 40 different targets, which equates to a savings of more than $1,000 in real-world cartridges.

Strategic Ecosystem Expansion

Game-changing acquisition of Dedrone to accelerate next-generation drone solutions
Axon believes robotic security applications through drones and related technologies will play an enormous role in our mission to Protect Life. Today, Axon announced we have entered into a definitive agreement to acquire Dedrone, a global leader in airspace security. The acquisition of Dedrone is subject to customary closing conditions and is expected to close in the second half of 2024.

Dedrone is one of the most widely used and reliable counter-drone systems in the world, protecting the public by ensuring drone technology is used as a force for good. As unauthorized drone activity increases, enhanced airspace awareness and drone defense technology have become essential in ensuring public safety and national security. Dedrone can help rapidly detect, track, identify and, where permitted, mitigate drones and locate their pilots across multiple use cases both in civilian and professional security settings.

Dedrone's technologies are also a key resource to expanding the authorized use of drones as first responders ("DFR") in public safety. DFR programs are designed to deploy drones to a scene in advance of ground units, enhancing situational awareness to improve response strategies, optimizing the allocation of already limited resources and reducing the risk of harm to human officers.

Dedrone is another example of our execution on our investment strategy, which is geared to accelerate our product roadmap and enhance our ecosystem while building our talent base in product categories accretive to our long term growth. Dedrone follows our acquisitions of Sky-Hero and Fusus in the last 12 months and similarly complements our existing portfolio while expanding our product applications across our customer verticals. We estimate Dedrone will add approximately $14 billion to Axon's total addressable market ("TAM"). In total, our acquisitions of Sky-Hero and Fusus and our planned acquisition of Dedrone would expand our TAM by more than 50% over the last year from $50 billion to $77 billion.

Q1 2024 Summary Results

Quarterly revenue of $461 million grew 34% year over year, exceeding our expectations driven by continued strength in Axon Cloud & Services, increasing adoption of TASER 10 driving growth in TASER devices and cartridges, and adoption of Axon Body 4.

Total company gross margin of 56.4% declined 310 basis points year over year driven by an increase in stock-based compensation expenses. Non-GAAP company gross margin of 63.2% increased 330 basis points year over year driven by increased mix from high-margin Axon Cloud & Services revenue and the absence of one-time items related to inventory and other cost adjustments recognized in Q1 2023.

• Increased stock-based compensation expense in our cost of goods sold ("COGS") was related to enhanced equity compensation opportunities provided to employees with income below a certain threshold. This primarily impacted gross margin due to compensation rates for manufacturing and production employees relative to our broader employee base. We expect the total stock-based compensation expense from this program to be approximately $43 million for full year 2024. Axon is proud to set the bar for inclusive equity programs for all employees from the production line to the board room.

Operating profit of $16 million was approximately flat year over year, with higher revenue offset by increased stock-based compensation expenses in our COGS. Operating expenses as a percent of revenue improved to 52.9% as compared to 54.7% in Q1 2023 and included $45 million in stock-based compensation expenses.

• COGS of $201 million, 43.6% of revenue, included $30 million in stock-based compensation expense.
• SG&A expense of $153 million, 33.1% of revenue, included $23 million in stock-based compensation expense.
• R&D expense of $91 million, 19.8% of revenue, included $22 million in stock-based compensation expense.

Net income of $133 million (28.9% net income margin, compared to 13.2% in Q1 2023), or $1.73 per diluted share, supported non-GAAP net income of $89 million (19.3% non-GAAP net income margin), or $1.15 per diluted share. The increase in net income year over year was primarily driven by unrealized gains related to our strategic investments, higher revenue and operating leverage.

Adjusted EBITDA of $109 million increased 67.3% year over year driven by higher revenue and operational leverage.