Taser maker’s profits soar – as do Mesa’s costs

The Mesa Police Department was an early adopter of on-body video cameras for officers, deploying them on a trial basis in 2012, before many local police forces.

Police leaders say the cameras have enhanced transparency and give the public intimate views of police action, such as when Mesa officers ran into a burning building in December to save a bed-bound woman or when a suspect in March fired a 9 mm handgun at officers from behind a wall.

During its trial run of body cameras, Mesa PD’s internal studies found a 48% reduction in citizen complaints of misconduct when officers wore a camera, and a 75% decline in use of force complaints.

Many assume that the cost of technology decreases over time, but for Mesa PD’s body camera program, that has not been the case.

Mesa’s sole camera vendor for its 10 years of program, Scottsdale-based Axon, formerly known as Taser International, has multiplied the annual fees it collects from the force.

Last month, Mesa City Council signed off on a five-year contract for $2.1 million per year to Axon for services connected with body worn cameras (BWC) and tasers – also called “conducted electrical weapons” (CEW). The measure also allows that annual cost to go to $2.5 million without council approval.

At the full contract value, Mesa would be paying $3,736 every year for each officer’s body camera.

The latest fees are a far cry from the $550,000 in annual fees Mesa paid to Axon under the terms of a 2017 contract for 350 body cameras, video services and tasers. That worked out to $1,571 per officer’s camera.

In 2014, Mesa PD paid Axon about $360,000 annually for 300 body cameras plus services like data storage and tasers.

The department has coupled its Axon taser and body camera contracts since 2017, but itemized breakdowns show that body cameras and services tied to them represent a large majority of the contracts’ values.

With each contract renewal, Mesa has increased the number of cameras it has issued to officers, but the devices themselves represent a small portion of the annual costs.

Total costs are rising out of proportion to the number of devices added to the force.

Under the latest contract, Mesa PD will pay six-figure annual fees for services like video storage and an Axon Investigate software license for managing videos, in addition to the cost of physical cameras.

Record revenue

Axon reported record revenues in 2022, and according to communications with investors, subscriptions and recurring payments like those charged to Mesa PD are part of Axon’s business strategy to grow profits and reach $2 billion in annual revenue in three years.

In its fourth quarter call with investors last year, Chief Financial Officer Brittany Bagley praised “the fantastic job Axon has done selling hardware and subscription bundles.”

“Ninety percent of total revenue in 2022 was tied to a subscription compared to just a few years ago when less than half of revenue was subscription-based,” she said.

Axon, which belongs to the Zacks Security and Safety Services industry, posted revenues of $343.04 million for the quarter ended March 2023, surpassing the Zacks Consensus Estimate by 9.93%. This compares to year-ago revenues of $256.43 million. 

The company has topped consensus revenue estimates four times over the last four quarters. In a December letter to shareholders, Axon reported $353 million in cash and $2.8 billion in total assets, and projects sales of nearly $1.5 billion this year.

Its Axon Cloud data storage service now represents about one third of the company’s business, executives reported.

Axon may live in the public imagination for physical tools like stun guns and body cameras, but the company is angling to become more of a software company – in part because that is profitable.

Axon reported to investors last year that its Axon Cloud business has a “73% gross margin.”

Subscriptions and services beyond just the hardware creates greater opportunities for on-going payments to the company from police departments.

In a press release earlier this month on its latest earnings, Axon highlighted its “annual recurring revenue,” which it says has grown to $500 million per year.

In response to an interview request to discuss the rising costs of Mesa’s body cameras, Axon said it does not comment on customer contracts and referred the Tribune to Mesa PD.

But Axon issued the following statement: “We don’t want cost to be a barrier for public safety, and we do provide different pricing models to meet various agency needs.”

“Axon’s portfolio of products and solutions are robust, and as a result, pricing varies dependent on what an agency purchases. Overall, our pricing strategy reflects the benefit our technology brings to increase efficiencies and provide more effective tools that can ultimately create safer communities.”

“Axon invests the cost back into R&D to keep our technology cutting edge, while bringing new innovations forward that can benefit public safety. Every investment made at Axon is purpose driven in service of our mission.”

Mesa so far can absorb the rising costs of body cameras and data storage, but some police forces are struggling from the high costs of body-worn cameras.

A 2019 report in the Washington Post found that costs for storing data and other expenses were causing many smaller forces to eliminate or scale back body camera programs.

Mesa PD spokesman Det. Richard Encinas said the department sees value in the extra services Axon offers along with its cameras.

He said that being able to collect and store video evidence on Axon’s evidence.com, which is available to police as well as prosecutors and others involved in cases, aids in investigation and prosecution.

Before these storage services were available, officers might be sharing video by burning CDs. 

Also with the upgraded services from Axon, Mesa PD can more easily accept footage from third parties, like store security camera video of a robbery.

“The software additions improve the efficiency of our officers in the field as well as reducing the amount of physical evidence that needs to be stored and handled by the Department,” he said.

Overall, body cameras “are instrumental in the Department’s commitment to transparency with our community.”  

Axon is the leader of the body camera market. After it purchased its main competitor Vievu in 2018, Axon boasted contracts with 43 of the 54 contracts with major police departments in the U.S., Bloomberg reported.

But there are still other body camera makers, notably Motorola, which has been trying to grow its body camera business. There are also an increasing number of data storage providers.

Mesa’s $2.5 million annual contract awarded last month was sole source, meaning it did not go out for bidding.

Asked why this was a sole source contract, the department issued a statement.

“Mesa PD has been using Axon BWCs since 2012 and Axon CEWs since 2011. The Department added Axon Interview Room cameras in 2020. All of these products leverage the same backend Axon infrastructure and it is not practical to change these platforms,” it said.

“Changing any of these devices would result in significant training, data migration, policy changes and access changes for Mesa City Court and the prosecutors. Axon is the only vendor that offers BWC, CEWs and interview room cameras in an integrated solution.”