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 revenue grew 106% year over year to $125 million.
• Net income was $57 million, compared to a net loss of $2 million in the prior-year period.
• Adjusted EBITDA increased 33% year over year to $236 million.
• Operating income was $42 million, compared to a loss from operations of $2 million in the prior-year period.
• Total company gross margin was 56.7%, down from 60.1% in the prior-year period; Adjusted gross margin was 59.2%, down from 62.7%.
• Operating cash flow was $20 million, compared to $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.
• Cash, cash equivalents, and short-term investments totaled $1.7 billion as of September 30, 2026.
• Outstanding convertible and senior notes were $2.9 billion, resulting in a net debt position of $1.2 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 to be between $3.61 billion and $3.63 billion.
• Full-year 2026 Adjusted EBITDA is projected to be between $924 million and $929 million, representing a margin of approximately 25.6%.
• Full-year 2026 free cash flow is expected to be between $350 million and $400 million.
• Full-year 2026 stock-based compensation expense is expected to be between $570 million and $600 million.
• Full-year 2026 Capital Expenditures (CapEx) are expected to be between $130 million and $150 million.
• Fourth-quarter 2026 revenue guidance is $990 million to $1.01 billion.
• Fourth-quarter 2026 Adjusted EBITDA guidance is $245 million to $250 million.

Business Segments and Product Lines:

• Software & Services gross margin was 71.4% for the quarter; Adjusted gross margin was 75.0%.
• Connected Devices gross margin was 43.0% for the quarter; Adjusted gross margin was 44.6%.
• New five-year bookings were up 25% year to date.
• AI bookings were up over 50% year to date; AI annual recurring revenue (ARR) surpassed $100 million.
• Annual recurring revenue grew 40% year over year to $1.75 billion.
• Net revenue retention was 126%.
• Future contracted bookings grew 39% year over year to $15.8 billion.
• New product launches include Axon Body 5 (body camera), TASER Ion (less-lethal device), and Axon Guardian (field intelligence software).
• Dedrone software and other newer software offerings collectively reached an annual revenue run rate of nearly $500 million.
• Deployed Skydio docks through Axon Air more than doubled year over year.

Market and Competitive Landscape:

• Axon announced a $1.2 billion investment in Skydio, increasing its ownership stake to 37%.
• Axon entered into an exclusive public safety distribution partnership with Skydio in the U.S. and Canada.
• Skydio expects approximately $1 billion of bookings for the current fiscal year.
• Demand remains broad with accelerating growth in Software & Services and newer business segments.
• The company expects millions of flying robots to reshape American life in the coming years.

Risks and Challenges:

• Gross margin decreases were driven by an increased mix of counter-drone equipment, higher memory costs, and scaling of new product categories.
• Connected Devices growth was impacted by the delayed timing of an approximately $30 million Federal Dedrone deployment expected in the quarter.
• Full-year revenue guidance was reduced by approximately $130 million due to three large Federal Dedrone deployments no longer expected in 2026.
• Free cash flow targets were modestly below prior targets due to an accelerated strategic inventory investment of approximately $100 million in the quarter.
• Future contracted bookings include contracts with termination or other clauses that are not otherwise included in remaining performance obligations.

Management Commentary and Tone:

• Management expressed high conviction entering the fourth quarter, stating Axon's long-term position is stronger than ever.
• The company noted it is on pace to deliver another record year with four consecutive years of growth above 30%.
• Management highlighted that demand is broad and newer businesses are becoming meaningful contributors to results.
• Lee Bercaw, Retired Tampa Police Chief, commented on the potential for AI to give officers valuable time back and improve communication.
• Management expects the strategic inventory investment to moderate after the first quarter of 2027.

Other Key Points:

• Axon's investment in Skydio represents the largest single investment in the company's history.
• The strategic investment in Skydio is expected to close subject to conditions.
• Axon acts as a direct channel partner for Skydio, with revenue recognized on a net basis in Software & Services.
• Significant customer wins included a $258 million AI Era Plan and body camera expansion with a state Department of Corrections and a $115 million OSP 10 Premium agreement with another state Department of Corrections.
• Inventory increased significantly, with a $100 million investment in strategic inventory to support product availability and supply chain resilience.
• The company reported a net debt position of $1.2 billion, up $182 million sequentially.