Axon Enterprise Q2 Earnings Call Highlights

Key Points

• Axon reported strong Q2 growth: Revenue rose 35% year over year to $904 million, prompting the company to raise its full-year revenue growth outlook to 32%–34% while maintaining its approximately 25.5% adjusted EBITDA margin target.
• Software and recurring revenue continued to accelerate: Software and services revenue increased 36% to $398 million, annual recurring revenue grew 39% to $1.6 billion, and net revenue retention reached 126%. Newer offerings, including AI Era Plan, Records, Fusus and Axon 911, grew roughly 70% collectively.
• Dedrone strengthened Axon’s counter-drone opportunity: The business surpassed $100 million in quarterly revenue and helped drive a 123% increase in platform solutions revenue. Axon’s participation in a potential $1.5 billion DHS counter-drone program could support further growth, although the company has not estimated its likely share.

Axon Enterprise NASDAQ: AXON reported second-quarter revenue of $904 million, up 35% from a year earlier, as growth across software, connected devices and counter-drone offerings extended the company’s streak of quarterly revenue growth above 30% to 10 consecutive quarters.

During the company’s earnings call, Axon said demand remained broad-based across state and local public safety, international markets, enterprise customers and federal opportunities. The company raised its full-year revenue growth outlook to 32% to 34%, from a previous range of 30% to 32%, while maintaining its expectation for an adjusted EBITDA margin of approximately 25.5%.

Software and Recurring Revenue Expand

Software and services revenue rose 36% year over year to $398 million. While Axon Evidence remained the foundation of the software business, the company said more than one-third of software revenue now came from offerings beyond its core evidence-management platform.

Those newer offerings include real-time operations products such as Fusus, productivity applications including Records, the AI Era Plan, counter-drone software and Axon 911. Collectively, those businesses grew roughly 70% from the prior year, according to Brittany, while the AI Era Plan grew nearly 700%.

Annual recurring revenue increased 39% to $1.6 billion, and net revenue retention reached 126%. Future contracted bookings rose more than 40% year over year to $15.1 billion.

“We’re enhancing these with AI, and the numbers continue to show that this is sticky and growing,” Brittany said of the company’s software offerings.

Counter-Drone Business Becomes Major Contributor

Connected devices revenue increased 35% to $507 million, driven primarily by Dedrone counter-drone products, TASER 10 and Axon Body 4 cameras. Platform solutions revenue climbed 123% to $150 million, with Dedrone responsible for much of that growth.

Josh Isner said Dedrone, which supported security operations at World Cup venues across 11 U.S. host cities and more than 50 surrounding sites, has rapidly developed into one of Axon’s largest product lines. The business surpassed $100 million in quarterly revenue, he said.

Management said the World Cup deployment was not expected to represent a one-time demand event. The company cited counter-drone opportunities across international markets, federal agencies and enterprise customers, including data centers, corporate campuses and private security applications.

Axon was also named among participants in a $1.5 billion Department of Homeland Security counter-unmanned aircraft systems program. Isner said it was not yet clear how much of that program Axon could capture, but he said the selection validated the company’s offering and could support broader sales activity.

Rick said the counter-drone market is developing quickly as drone threats evolve. Axon intends to combine its own sensors and software with partnerships across hardware providers, including technologies for detection and potential drone mitigation.

Bookings, International Sales and Major Customer Deals

Second-quarter gross bookings increased 20% year over year, following nearly 50% bookings growth in the same quarter last year. On a five-year normalized basis, which adjusts longer-term contracts down to a common five-year duration, bookings grew more than 30%.

Isner said Axon has visibility toward finishing the year with normalized bookings growth in the 30% range. The company began disclosing the normalized figure because contract lengths vary more widely as enterprise and international business grows. Enterprise contracts commonly run about three years, management said, while some state and local contracts can extend to 10 years.

International bookings were roughly three times the prior-year level in the second quarter, supported by several large deals. Three of Axon’s five largest AI Era Plan deals in the quarter came from international customers. The company also secured TASER 10 orders in the Middle East and Europe that management described as comparable in scale to major U.S. deployments.

In U.S. public safety and corrections, Axon signed two nine-figure agreements with major cities, including its largest individual TASER order to date. It also signed two eight-figure contracts with state corrections customers.

The company said it landed its first full-scope Axon 911 customer, which will use a combined Prepared and Carbyne solution. Isner said customers are increasingly seeking alternatives in the 911 market, with some adopting Prepared or Carbyne individually and others pursuing both systems at once.

Body Cameras, AI and Privacy

Axon expects body-camera shipments to rise 20% to 30% sequentially in the third quarter, followed by 15% to 20% quarter-over-quarter growth. Isner attributed the outlook principally to broad public-safety demand, including renewals, expansions and customers migrating from other providers.

Axon Body Mini is generating enterprise interest, with several trials underway, though Isner said the product was not expected to be a major contributor to the near-term body-camera shipment outlook. He said the company is initially deploying hundreds of units in some enterprise trials, with the potential for larger expansions after customers gain experience with the platform.

Management also addressed concerns around AI, surveillance, privacy and data security. Rick said customers are asking for safeguards as they adopt new technology, particularly amid broader public debate over license-plate readers and surveillance tools.

He said Axon is building AI tools intended to identify anomalous search behavior that could indicate improper access to data. Rick characterized AI as a tool to amplify human capabilities rather than replace human judgment.

Margins and Cash Flow Outlook

Adjusted gross margin was 62.9%, up 130 basis points sequentially, primarily due to tariff refunds. The benefit was partly offset by a greater mix of newer products that are still scaling. Adjusted EBITDA totaled $242 million, representing a 26.8% margin.

Operating cash flow improved to $20 million from an outflow of $92 million a year earlier. Free cash flow was negative $1 million as Axon continued to invest in inventory to support customer demand and reduce supply-chain risk.

The company reaffirmed its expectation for $450 million in full-year free cash flow, with substantial seasonality anticipated in the fourth quarter. Brittany said inventory investment is expected to moderate after this year, supporting improved long-term cash-flow conversion.

For the third quarter, Axon expects adjusted EBITDA margin to be affected by higher memory component costs and no tariff-refund benefit. The company expects margins to recover in the fourth quarter sufficiently to meet its full-year target.

About Axon Enterprise (NASDAQ:AXON)

Axon Enterprise, Inc develops technology and weapons systems for public safety and law enforcement agencies, combining hardware, software and cloud services. The company's hardware portfolio includes conducted energy weapons (commonly known as TASER devices), body-worn cameras and in-car camera systems. Axon pairs these devices with a suite of connected products and accessories designed to capture, store and manage field evidence.

Beyond hardware, Axon operates a subscription-based software platform for digital evidence management, evidence review and records management.

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