Axon Enterprise, Inc. — Q3 2026 Earnings Summary

Financial Performance

• Total revenue reached $909 million, a 28% increase year over year.
• Software & Services revenue grew 43% year over year to $437 million.
• Connected Devices revenue increased 16% year over year to $472 million; Platform Solutions within this segment grew 106% to $125 million.
• Net income was $57 million (6.3% net income margin), compared to a net loss of $2 million in the prior-year period.
• Adjusted EBITDA increased 33% year over year to $236 million, representing a 25.9% margin.
• Non-GAAP net income was $144 million (15.8% margin), or $1.72 per diluted share, compared to $103 million (14.5% margin) or $1.24 per diluted share in the prior year.
• Operating income was $42 million, compared to a $2 million loss from operations in the prior-year period.
• Total company gross margin decreased to 56.7% from 60.1% in the prior-year period; Adjusted gross margin was 59.2%, down from 62.7%.
• Operating cash flow was $20 million, down from $60 million in the prior-year period.
• Free cash flow was an outflow of $19 million, compared to an inflow of $33 million in the prior-year period.
• As of September 30, 2026, the company held $1.7 billion in cash, cash equivalents, and short-term investments.
• Outstanding convertible and senior notes totaled $2.9 billion, resulting in a net debt position of $1.2 billion, up $182 million sequentially.
• Annual recurring revenue grew 40% year over year to $1.75 billion.
• Net revenue retention was 126%, consistent with the prior quarter.
• Future contracted bookings grew 39% year over year to $15.8 billion.

Guidance and Future Outlook

• Full-year 2026 revenue growth is expected to be approximately 30%, down from prior expectations of 32% to 34% due to the exclusion of three Federal Dedrone deployments totaling approximately $130 million.
• Full-year 2026 revenue is projected at $3.61 billion to $3.63 billion.
• Full-year 2026 Adjusted EBITDA is projected at $924 million to $929 million, implying a margin of approximately 25.6%.
• Full-year 2026 free cash flow is expected to be $350 million to $400 million, below the prior target of $450 million due to accelerated inventory investment.
• Q4 2026 revenue is expected to range from $990 million to $1.01 billion.
• Q4 2026 Adjusted EBITDA is expected to range from $245 million to $250 million.
• Full-year 2026 stock-based compensation is expected to be $570 million to $600 million.
• Full-year 2026 Capital Expenditures are expected to be $130 million to $150 million.
• The company expects to fulfill approximately 20% to 25% of future contracted bookings over the next 12 months.

Business Segments and Product Lines

• Newer software offerings (real-time operations, Axon Records, Axon AI, Axon 911, and Dedrone software) collectively reached an annual revenue run rate of nearly $500 million, more than doubling from the prior year.
• AI annual recurring revenue surpassed $100 million.
• AI bookings were up over 50% year to date.
• New five-year bookings were up 25% year to date.
• Significant new bookings included a $258 million AI Era Plan and body camera expansion with a state Department of Corrections, a $115 million OSP 10 Premium and AI Era Plan agreement with a state Department of Corrections, and a $40 million OSP 10 Premium and Axon Fleet 3 Advanced expansion with a major metro police department.
• Product launches included Axon Body 5 (featuring 25x more processing power, 20% longer battery life, and 4K video), TASER Ion (a pocket-sized device with a 45-foot range), and Axon Guardian (field intelligence software).
• Axon Body 5 features improved connectivity for 5G networks and optional front-facing speakers for real-time translation.
• TASER Ion includes four individually deployed probes, a green laser, and built-in LED light.
• Dedrone software and hardware deployments continue to scale, though timing of large Federal deployments creates quarter-to-quarter revenue variability.

Market and Competitive Landscape

• Axon holds an exclusive public safety distribution partnership with Skydio in the U.S. and Canada.
• Deployed Skydio docks through Axon Air more than doubled year over year.
• The company views "Drone as First Responder" (DFR) as becoming the new standard of response.
• Demand remains broad across the business, with Software & Services growth accelerating.
• The company notes that hardware-heavy counter-drone deployments can create greater variability in revenue timing compared to software.

Risks and Challenges

• Revenue timing variability is driven by the scale and hardware nature of Federal Dedrone deployments.
• Gross margin compression is driven by an increased mix of counter-drone equipment, higher memory costs, and scaling of new product categories.
• Free cash flow is impacted by strategic inventory investments totaling approximately $100 million in the quarter and $225 million for the full year.
• Forward-looking statements are subject to risks including potential delays in closing the Skydio investment, litigation, government contract cancellations, funding availability for law enforcement agencies, supply chain disruptions, and changes in government regulations.
• The company faces risks related to the fair value of strategic investments and marketable securities.

Management Commentary and Tone

• Management expressed high conviction entering the fourth quarter, stating the long-term position is stronger than ever with a broader portfolio and deeper customer relationships.
• The company announced the largest single investment in its history: a $1.2 billion investment in Skydio, increasing ownership to 37%.
• Management noted that demand keeps building, with customers deploying more Axon products in more markets.
• Lee Bercaw, Retired Tampa Police Chief, commented on the potential for AI to give officers valuable time back and improve communication.
• The reduction in full-year guidance was attributed to three specific large Federal Dedrone deployments totaling $130 million, which management stated would have resulted in nearly 500 basis points higher growth if realized.

Other Key Points

• Axon entered into an exclusive public safety distribution partnership with Skydio in the U.S. and Canada.
• The $1.2 billion investment in Skydio takes Axon's fully diluted ownership to 37%.
• Axon acts as a direct channel partner for Skydio, recognizing revenue on a net basis in Software & Services.
• Skydio expects about $1 billion of bookings for the current fiscal year.
• Inventory investment totaled approximately $100 million in the quarter to support product availability and supply chain resilience.
• The company expects the strategic inventory investment to moderate after the first quarter of 2027.
• Axon's long-term goal includes bringing superintelligence capabilities across the public safety workflow through products like Axon Gravity.