Axon Enterprise Q3 Earnings Call Highlights

Key Points

• Axon’s Q3 revenue grew 28% to $909 million, but it removed three delayed federal counter-drone deployments—about $130 million in revenue and $200 million in bookings—from its near-term expectations. The company said its full-year growth outlook midpoint remains above 30% and attributed the delays to procurement and installation timing.
• Axon announced a $1.2 billion investment in Skydio, raising its fully diluted ownership to 37% and making it Skydio’s exclusive public safety distributor in the U.S. and Canada.
• Software and services revenue jumped 43% to $437 million, while TASER sales softened; Axon also cut its full-year free cash flow outlook to $350 million–$400 million from $450 million, citing inventory investment.

Axon Enterprise NASDAQ: AXON reported 28% revenue growth in the third quarter, but removed three large federal counter-drone deployments from its near-term expectations as procurement and installation timelines became less certain.

The public safety technology company also announced a $1.2 billion investment in drone maker Skydio, its largest investment to date, and lowered its full-year free cash flow outlook as it builds inventory.

Revenue rose to $909 million from a year earlier, while adjusted earnings before interest, taxes, depreciation and amortization increased more than 33% to $236 million, Chief Operating Officer and Chief Financial Officer Brittany Bagley said. The adjusted EBITDA margin was 25.9%.

Federal Deal Delays Reshape Outlook

Axon expects fourth-quarter revenue of $990 million to $1.01 billion and adjusted EBITDA of approximately $245 million to $250 million. The forecast no longer assumes two federal Dedrone deployments worth about $100 million in revenue, Bagley said. A separate $30 million deployment had been expected in the third quarter.

Together, the three projects represented about $130 million in revenue and $200 million in bookings that Axon had expected in the second half of the year, President Josh Isner said. The company cannot be sure they will come through before year-end.

Isner said the delays were primarily related to timing and procurement, though coordinating hardware from multiple sources also takes time. Large counter-drone deployments can require site preparation, installation, permits and acceptance testing, he said.

Bagley said Axon will include such deals in guidance once it is confident they will ship in the relevant quarter. She said the midpoint of the company’s full-year growth outlook remains above 30%, even without the delayed projects.

“We are not seeing an underlying risk to demand or need for this product,” Bagley said. “It truly is just a timing piece.”

Skydio Investment Expands Drone Partnership

Axon’s additional investment in Skydio increases its fully diluted ownership to 37%. The companies also expanded their commercial partnership, making Axon Skydio’s exclusive public safety distributor in the United States and Canada, CEO and founder Rick Smith said.

Smith described drones as part of a connected system that could link emergency calls, real-time video, body cameras and evidence workflows. Skydio will remain independent, allowing it to focus on autonomous flight technology and opportunities beyond public safety, he said.

Asked whether the arrangement could lead to full ownership, Smith said the companies considered different structures and concluded that the current partnership was best for now. “We’ll see what the future holds,” he said.

Bagley said the investment will be funded with approximately 60% cash and 40% stock. Axon raised $1.15 billion in the convertible market during the quarter, with proceeds intended to add cash to its balance sheet and fund part of the investment.

Software Growth Offsets Softer TASER Sales

Software and services revenue rose 43% year over year to $437 million, approaching half of total revenue. Annual recurring revenue increased 40% to $1.8 billion, while net revenue retention was 126%, Bagley said.

Smith said Axon’s artificial intelligence products have surpassed $100 million in annual recurring revenue. Revenue from platform solutions grew 106% to $125 million, primarily driven by Dedrone, even without the large federal deal expected in the quarter.

TASER revenue declined modestly to $233 million because of lower TASER 7 sales. Bagley said the company expects the category to grow in the fourth quarter and described TASER as a double-digit growth business going forward, without specifying a rate.

Axon also launched TASER Ion and introduced its Body 5 camera, which Bagley said is scheduled to launch in the spring. Smith said the higher-end Body 5 Pro includes a second camera for scanning documents and additional capabilities for AI-assisted interactions.

Guardian, a feature designed to identify potentially escalating situations and alert a real-time operations center, is now generally available, Smith said. He said the company expects fewer external approval steps for Guardian than for its AI-assisted report-writing product, Draft One, because Guardian is primarily used within an agency.

Inventory Spending Weighs on Cash Flow

Axon reduced its full-year free cash flow outlook to $350 million to $400 million from a prior target of $450 million. Bagley attributed the change to additional inventory investment and said the company expects to reach its target inventory levels in the first half of 2027.

Isner said inventory increased by more than $100 million in the third quarter as Axon prepared for demand, particularly for Dedrone, and sought protection against potential supply disruptions. He said the company aims to hold about a year of inventory for core products before shifting to replenishment.

Higher memory costs are also pressuring margins. Bagley said the company expects elevated memory costs to remain a headwind through 2027 and 2028, assuming prices do not rise materially from current levels. Axon plans to address the pressure through product pricing, software growth and operating expense leverage.

About Axon Enterprise (NASDAQ:AXON)

Axon Enterprise, Inc develops technology and connected products for public safety organizations. The company's portfolio includes TASER conducted-energy weapons, body-worn cameras, in-car cameras, and related hardware designed to support law enforcement, corrections, security, and other emergency-response professionals.

Axon also provides cloud-based software for managing digital evidence, records, workflows, real-time operations, investigations, and communications. Its platform is intended to connect hardware, software, and services across the public-safety ecosystem, helping agencies collect, store, analyze, and share operational information.

The company was founded in 1993 as TASER International by Rick Smith and Tom Smith and adopted the name Axon Enterprise in 2017 as it expanded beyond conducted-energy weapons into a broader technology platform.

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