AXON ENTERPRISE, INC. Q2 2026 earnings call

Hello everyone, and thank you for joining Axon's executive team today your our second quarter 2026 earnings conference call. Before we get started, I'll note that our remarks today are intended to build upon our most recent shareholder letter and investor materials, which you can find on our investor website at investor.axon.com. During this call, we will discuss our business outlook and make forward-looking statements. These comments are based on our expectations as of today and are not guarantees of future performance.

All forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially, as discussed in our SEC filings. We will also discuss certain non-GAAP financial measures. Descriptions and reconciliations of non-GAAP to GAAP are included in our shareholder letter and available on our investor website. As always, before we kick it over to Rick, we have a quick video to get us started. Let's pull it up.

[Presentation]

All right. Thank you, Erik, and great job to the team. I love those videos they just get me pumped up. Lucky to get to work here. I'd like to thank all of our analysts and investors who are joining us today. As you can see, we had another record quarter. Again, I was just looking at the numbers, 39% wow okay. We had a record quarter, and I could not be more proud of this team. None of this, none of it happens without our customers. You guys are the foundation, and we can't do any of this without you. This morning, my Cybertruck drove me to work.

I sat behind the wheel and never touched it a few years ago, that was a keynote fantasy. Today, it's my commute, I've stopped noticing that's how this goes, right? The impossible becomes remarkable, and then it becomes Tuesday. Two days ago, OpenAI announced an unreleased model had solved 10 open problems in mathematics, problems that the best mathematicians alive have been stuck on for decades, one of them unsolved for at least 27 years.

The compute cost to do all this, to do 10 of these unsolved PhD-career-level problems, was $2,000, or $200 per problem. For many years, the critique was that AI, sure, it could remix human work, but it can't create anything new. Well, that critique is finished a Fields Medalist, which is math's highest prize, it's been called the Nobel of math, said he would have published a comparable result without hesitation, and there are many that said any of these problems might on their own have qualified a human had they solved it for the Fields Medal.

Within a day, a model from another lab had reproduced half of the list, meaning it could solve half those problems on its own. This isn't about one company getting lucky the whole field just crossed a line at once. The cost of an original breakthrough has just collapsed. Why does this belong on an Axon earnings call? Because an idea on a page is not an outcome on a street. Every one of these models perceives the world largely through strokes on a keyboard. When Axon deploys AI, we perceive the world through the largest connected network of sensors in public safety.

Millions of eyes and ears already in the field, already running and built for this moment. The intelligence doesn't replace the person, the human making a decision or making the call, but we hand them a clearer picture of what's happening in the seconds that matter most. Then it does the one thing software alone can never do. It acts. A TASER device can stop a violent incident without taking a life. Drones and robotics let us send a machine where a person would otherwise have to go, and both do the same thing.

They lower the risk for everyone. The officer, the bystander, and the person that the police were sent to stop. Every person is safer. See it, understand it, act on it. This is the chain of events. It's the same chain that drove me to work this morning, right? Software alone can't close it. Hardware alone can't. In public safety, Axon holds every link in this chain. When we changed our name from TASER to Axon, we were very specific about that. An axon is the nerve fiber that carries the signal from the senses to the brain and the decision from the brain back out to the body so it can act.

We didn't pick a name that just sounded good. We picked a description of what we were building, and we've been busy building it. At the edge, sensors can see what's happening, whether it's body cameras, drones, fixed and in-car cameras, license plate readers, 911 AI assistants. Behind them is the largest customer-controlled data repository in public safety. AI and real-time operations can turn these signals into understanding, and then the means to act, TASER devices, drones, communication, training. At the heart of it, of course, is our mission to protect life. This doesn't just add up, it compounds.

Every sensor adds a signal. Every workflow adds context. Every outcome improves the next one. Brookhaven, Georgia shows you exactly what this looks like when you connect it end to end. Drones on the scene in 53 seconds coverage across 96% of their city burglaries down 45%. No single product on the list produces these numbers. The system does. Data shouldn't sit trapped in a silo waiting for someone to find it. It should move securely through the workflows where it does something. A city's cameras to its 911 center, to its officers, to real-time intelligence.

It's evidence to courtroom, a frontline worker in danger to help that arrives in seconds. All of this depends on trust. We've earned that over years of stewarding our customer's data and never treating it as our own. We'll keep deploying this technology responsibly and thoughtfully alongside our customers and their communities, with people at the center of every critical decision. In public safety, power without trust isn't an opportunity, it's a liability. I see this coming together everywhere I look. A few weeks ago, a customer bought body cameras for municipal employees, not for the police, for building inspectors.

A few weeks before that, some of our largest enterprise pilots began putting Axon Body Mini on frontline workers. During the World Cup, our ecosystem supported agencies across North America through one of the most complex public safety missions in the world. Where we sit today, the world is being flooded with intelligence. What's scarce is intelligence connected to the real world, trusted by institutions that depend on it, and aimed at problems that matter. That's what we've spent 30 years building.

There is no company better positioned to benefit from the intelligence explosion than Axon, and through us, our customers and their communities for whom we operationalize this intelligence with physical hardware and thoughtful design and controls to help maximize benefit with appropriate oversight. What an exciting time to be alive, and an even better time to be at Axon. With that, I'd like to turn it over to Josh Isner.

Thanks a lot, Rick, good afternoon, everybody. As Rick said, we can't do any of this without our customers. Every day, our focus is on delighting them, because when we do that well, everything else follows. We also can't do any of this without our team. They have embraced our mission and are working hard every day to deliver outsized societal outcomes. There have been many of those in the last few months, including on the biggest stage in sports. I am so proud of the Dedrone team for their work to support the World Cup.

This was one of the most complex and comprehensive installments we've ever worked on. The expectations were clear. Simultaneous delivery and activation across 11 U.S. host cities, more than 50 additional sites and surrounding areas, international deployments, multiple agencies with very little margin for error. The team executed with incredible precision, I believe this deployment further established Axon as the technology leader in public safety.

Dedrone is delivering tremendous growth, the opportunity continues to expand across state and local public safety, international, federal, enterprise, and corrections. It is also one of the areas where we're investing in most aggressively, the team is earning that investment. This is a business that was still in its infancy just a year ago and is quickly becoming one of our largest product lines, surpassing $100 million in quarterly revenue. Next, I want to give a shout-out to our international team. International bookings came in at roughly three times the prior year in Q2, driven by several large deals.

What's especially exciting is some of our international customers are adopting our newest offerings right alongside our core products. In fact, they may be even moving faster than some of our U.S. customers. Three of our top 5 AI Era Plan deals in the quarter came from international customers. We're also seeing international markets fuel expansion in TASER. In Q2, we won a TASER 10 deal in the Middle East comparable in scale to our largest current U.S. state and local deployment, and another in Europe comparable to a top five U.S. agency deployment.

These are massive opportunities showing up more and more, and we're just starting to scratch the surface. State and local public safety and corrections continues to show strength as well. We signed not one, but two nine-figure agreements with major cities in the quarter. One of those was our largest-ever individual TASER order. We also signed two eight-figure agreements with major state corrections customers. And another groundbreaker, our first full-scope Axon 911 customer.

This customer will deploy a combined Prepared and Carbyne solution to power the call to closure vision we laid out when we announced these acquisitions, committing to that future just months before both deals closed. Lastly, in the U.S., we continue to see more and more customers who bet on other vendors coming to Axon for body camera pain relief. We expect body camera shipments to be up 20%-30% sequentially in Q3 and 15%-20% quarter-over-quarter. The success across markets led to our TASER volume being the highest in a quarter to date.

We've now booked more TASER 10 units than we booked over the lifetime of TASER 7, with a ton of pipeline still in front of us. That may sound crazy for a product category that has been around for three decades. Well, it's real, and it speaks to how much opportunity remains. Next, enterprise we've been talking about this moment for a long time, the point when those early conversations and pilot programs begin converting into meaningful enterprise deployments. That moment is here enterprise bookings were also up about 3x from a year ago, and the volume of opportunities continues to grow.

Last but not least, I'm excited to see our federal business showing a lot of promise. We are engaged in opportunities across the federal civilian space, and the team is executing with intensity as we approach the end of the fiscal year. Federal was part of the story with Dedrone in the World Cup, and we also closed a major deployment of Axon Assistant with a federal agency on our body cameras because they are using them as body cameras.

Just yesterday, we were named one of the participants in the $1.5 billion DHS program for Counter-UAS. I am looking forward to talking more and more about our progress in the federal space. As far as bookings go, every indicator I'm watching looks as good as it ever has. Q2 gross bookings were up 20%. That's on top of nearly 50% bookings growth in Q2 last year. On a five-year normalized basis, which adjusts for contract duration, bookings were up even more, over 30%.

That matters because some of our newer markets, like international and enterprise, sign deals in the 1-to-5-year range, compared to some of the 10-year agreements we sometimes sign with state and local customers. Normalizing for duration gives us a clear view of the underlying demand across markets. As I review the pipeline, I see a clear line of sight to finishing the year in the 30% range of normalized bookings. Before I hand it over, I want to spend a minute on how we're operating internally, because this kind of execution doesn't happen by accident.

A little over a year ago, we began flattening the organization to empower people closest to the work, reducing layers of friction and moving faster. We paired that organizational change with disciplined investment in AI tools for our teams. We didn't rush to deploy every tool or ask people to use AI for the sake of using AI. We rolled it out deliberately, and we focused on where it can make our people more effective. That has evolved into regular hackathons and recognition for teams finding new ways to move faster and spend more time on the work that matters.

We're seeing that operating model pay off in execution. I believe that discipline is a big part of why we've continued to raise our own expectations while navigating supply chain disruptions, higher component costs, and tariffs, all while scaling to meet demand and never missing a beat for our customers. It is coming together nicely the team is earning it the mission is fueling them our customers can see it. We are investing in Axon, and they are investing in Axon as their trusted technology partner. We are a next play organization. We are stacking next plays like never before. With that, I'll turn it over to you, Brittany.

Thanks, Josh. We continue to see the power of the Axon Ecosystem. We're not just one product, but a system that all works together, getting better all the time to solve real problems for our customers. From before a call comes in to during an incident to closing a case, the sensor, software, and data work together. This is what you're seeing in our results. Revenue was $904 million, up 35% year-over-year, marking our 10th consecutive quarter of growth above 30%.

The demand remains broad-based software and services revenue increased 36% year-over-year to $398 million. Axon Evidence remains the backbone of our software business and the secure data foundation powering the vision Rick described. Increasingly, our newer software offerings are also meaningful contributors.

More than one-third of our software revenue now comes from offerings beyond our core Evidence platform, consisting of real-time operations, which includes Fusus, productivity applications, including Records, the AI Era Plan, counter-drone software, and Axon 911. Together, that part of our software business grew roughly 70% year-over-year with the AI Era Plan a true standout, growing almost 700%. These businesses are still in early innings. That breadth is supporting strong expansion within our customer base.

Net revenue retention reached 126%, and annual recurring revenue increased 39% to $1.6 billion. Our software, fed by sensors and enhanced by data, is a core pillar for our customers' workflows. We're enhancing these with AI, and the numbers continue to show that this is sticky and growing. On the devices side, connected devices revenue grew 35% to $507 million, primarily driven by Dedrone, Counter-drone, TASER 10, and Axon Body 4.

Platform solutions revenue grew 123% to $150 million, with Dedrone driving much of that performance. Counter-drone was a new category for Axon added at the end of 2024, and it has quickly become a consistent contributor to our results, validating our acquisition strategy alongside our organic product development. We continue to see strong demand across customer markets and expect the business to continue to scale. TASER 10 remained a standout in the quarter, as Josh highlighted.

Turning to margins, adjusted gross margin was 62.9%, up 130 basis points sequentially. This increase in gross margin was primarily driven by tariff refunds, partially offset by increased mix from newer product offerings, which are still scaling. Adjusted EBITDA was $242 million, or a 26.8% margin. Operating cash flow improved to $20 million from an outflow of $92 million in the prior year.

This resulted in a free cash flow outflow of $1 million and reflected continued efforts around free cash flow conversion while still making substantial inventory investments to support customer demand and reduce supply chain risk as we scale. We continue to have line of sight to strong free cash flow generation consistent with our Q1 guidance of $450 million for the full year, with strong seasonality expected in the fourth quarter.

As we've noted before, we also expect long-term free cash flow conversion to improve from these levels but need to get through this period of inventory investment, which we expect to moderate after this year. Future contracted bookings grew more than 40% year-over-year to $15.1 billion, reflecting the broad-based momentum we're seeing across products and end markets. As Josh mentioned, we continue to feel very good about the momentum we're seeing in the second half of the year.

We're raising our full-year revenue guidance to a range of 32%-34%, 200 basis points above our prior range of 30%-32%. Based on the strong demand pipeline and results in the first half, we expect seasonality similar to last year, where Q4 is our strongest quarter, both in terms of revenue and year-over-year growth. We continue to expect full-year adjusted EBITDA margin of approximately 25.5%. We received a refund in Q2 for tariffs. We are also facing increasing component costs for the year, especially on memory, which leaves our full-year guidance unchanged.

We expect Q3 adjusted EBITDA margin to reflect the impact of those memory costs with no benefit from tariff refunds before we scale margins back in Q4 to these levels to hit our full-year target. We are also thrilled with the performance of our Counter-drone segment. As we scale this and other new businesses rapidly, we are absorbing the mix impact. Over time, these are well worth the investment on the bottom line as well as the top.

There are a lot of moving pieces in our business, we continue to deliver for our customers, our shareholders, and our employees and are very proud of our results this quarter. As you think about a rule of 45, we delivered above 60 and are looking forward to continuing to drive a strong second half of the year. With that, I'll turn it over for questions.

Thanks, team. I think we're all up in gallery view we have our one note today we're going to try to take one question, and then if we have time, we'll come back to everyone around the circle. We're going to start with Meta Marshall at Morgan Stanley.

Great. Thanks so much, congrats on the quarter. I guess, Rick, I wanted to ask, just as customers gain comfort with AI, where are your customers asking you to innovate around? Are there any areas where you're still finding any resistance from customers?

Well, sure. Change is always hard, this is a very risk-averse customer base when it comes to tech. I would say actually some of the new areas we're being asked a lot about are around privacy, data security. I'm sure you all have seen the DeFlock movement, which has some broader anti-surveillance sort of momentum. Now, for me, this feels a bit familiar. Like when TASERs first came out, there was a massive backlash. I view this as sort of the birthing process almost of any new real technology in public safety is going to go through an adjustment period. I would say the critics aren't all wrong.

There have been some mistakes, things that could have been handled better in terms of data privacy and security, a couple high-profile uses where police employees were abusing their access to license plate reader data to do things like track an ex. Those are exactly the sorts of things where I think our approach to data privacy, where we have a critic-based system where we bring in critical thinkers who are going to challenge us early. I think we're about to post a new episode of the Boldly Go podcast with a couple folks off of our EEAC, our Ethics and Equity Advisory Council.

I think that's become a real superpower. Like our customers, when we talk about trust, it's not just hand-wavy. We've hit a point where our trust with our customers is an incredibly valuable and fragile asset. If we break that trust, it would be very damaging to the overall business. If we protect and cherish and continue to earn that trust, it makes our business more durable. I would say we're seeing a significant number of agencies want to come over to Axon and convert from existing license plate readers to us specifically because of the controls and privacy work that we've done around the space.

For example, one of the things we're doing is we'll be building AI tools to watch for anomalous search behavior so that we're watching out for potentially abusive patterns, and people have access to the data. I would say in general, there are places where there's concerns about AI, we just have to be thoughtful and understand those concerns and say, "Look, this is a tool to amplify human ability, not to replace human judgment.

Maybe just to add, I think you asked about where the demand is. I think there's sort of three broad themes that are always present. Number one, this is anything that helps them get response faster, effective, correct response faster. Many of the things you see us talking about anchor on that. Number two is anything that helps save officer time to get them more time back to do their jobs in community. Number three is anything that drives officer and community safety directly. Again, across all of our lines of business, across all of our categories and all the investments you see us do in AI, almost all of them line up directly on those three broad categories.

Great. Thanks so much.

Thank you, Meta. Up next we have Michael Ng at Goldman Sachs.

Hey, good afternoon. Thanks for the question. I just have two as well. First, just on the momentum that you're seeing in Dedrone, counter-drone, maybe you could just talk a little bit about other use cases that you're seeing beyond World Cup. I think it's natural for some people to think that you guys saw some outsized demand because of the event.

What are some of the other private infrastructure, other use case demands that you're seeing on a go-forward basis to give you confidence around that greater than $100 million quarterly revenue run rate? Second, just as a housekeeping item, on professional services within software and services. Historically, we've thought of that as something that is tied very closely to fleet. I would imagine there are much broader use cases for professional services now. Just wondering if you could talk about what drives that use case.

Let me take the first one, then I'll let Kunins take the second one. Look, counter-drone, there's this war going on in the Middle East and the one in Russia where you look at what the Ukrainians have been able to do to these Wildberries warehouses now, they're just decimating that. The Iranians are threatening to go after American infrastructure and data centers. These aren't confined to just tools of war, right? Our customers get it. I think the World Cup was certainly an accelerant. Every data center understands, especially with now some of the rising controversy around data centers, that any disgruntled person with a 3D printer, access to a drone, and the internet could build something that could cause real problems. I think anyone who's prone to gun violence could be prone to drone violence. It's not just us saying that, right?

I think our customers broadly, even in enterprise, we have deployments at CEOs' houses as part of their security protocol. We're seeing it at data centers and corporate campuses. It's at the World Cup now, but I think it's going to be at every Friday Night Football game in five or 10 years. I think the World Cup was certainly a surge, but it's part of just a normalizing acceptance that there's a three-dimensional aspect to safety that we need to be able to police.

I'll add a little bit to that. Michael, thanks for the question. Ultimately, one of the more exciting things about our Dedrone business is, yeah, federal is a piece of it for sure, but we're seeing far more opportunity internationally. I would not necessarily tie much of our Dedrone revenue to one specific event. Those trailers, for example, that we sent to the World Cup, are already being repurposed by the customer for other use cases, we certainly expect the Dedrone demand to endure.

Now, it's important to recognize that these are large revenue shipments of hardware, so quarter to quarter, they can swing a little, but when you add it all up, I don't think it'll look like the World Cup was an outlier. On top of that, as Rick said, right now it's really enterprise, federal, and international as drone mitigation becomes legalized for state and local, again, we view that as another potential surge in demand here. We're feeling really good about Dedrone beyond the World Cup.

Now, second on the professional services. We view this as an enabler to customer happiness, but also customer usage of our products. A couple of years ago, professional services meant show up and deploy body cams or TASER or integrate to a records system and so forth. Now professional services are showing up and starting to build things on site for customers using our AI tools.

Very much like some other companies in some other markets, we really view the opportunity here to start to delight our customers with more and more on-site that could be rapidly built and custom deployed, just as Rick talked about at Axon We ground Axon Gravity. Professional services will certainly be a strategic enabler to more usage and more purchases of products.

Wonderful. Thank you, Rick. Thanks, Josh.

You got it.

Thanks, Mike. Up next, we have Jonathan Ho at William Blair.

Good afternoon. Really appreciate the additional disclosure on your five-year annualized deals. One thing I would like to understand a little bit better is when we commented about the nine-figure deals that you signed with the municipal police, some of these are likely longer term deals. Can you help us understand, first, how much you've really expanded with these customers versus prior deals and what this potentially looks like as you broaden your engagement with the entire customer base? Thank you.

Sure thing. I think it's following a trend that we expect to see in a lot of places, right? It's what we've talked about with this idea that we sell products, we delight the customer, then we earn the right to sell more. Ultimately, I think that's what's happened in those couple large deals, and they are meaningful deployments or expanded deployments of our products. It's not simply a renewal. So, oftentimes there's more hardware and a lot more software in those deals. I think it's something we can start to see internationally, here and there as well, potentially this year.

Ultimately, our bookings, I feel equally good about them as I did at this time and on this call last year. We're very excited to see how we got out of the gate in the first half of the year. I was just at our sales summit all week in Scottsdale here and talking to our state and local team, and the attitude is we're expecting a really massive second half of the year especially, just like last year, a little more weighted toward Q4, but certainly plenty of room for growth. When you add it up, we'll be in the 30% range again for bookings. So, we've got it all in front of us, and now it's time to go do the work.

Thanks, Jonathan. Up next we have Trevor Walsh at Citizens.

Great. Thanks, Erik. Thanks for taking the questions, team. Josh, great to hear about the full-scope Prepared Carbyne deal that you signed. That seems a little bit counter to how you guys set up the go-to-market there in terms of, I think, landing more with the prepared use case of bringing some AI capability then shifting to Carbyne later, which is more of a larger lift and shift of larger systems and databases. Are we seeing maybe an early trend that that's now changing and people are going to go whole kit and caboodle from the outset then follow onto that? If and when they do that full-scope deal, what's the uplift look like, generally speaking, if a customer already has some flavor of maybe an OSP type of bundle? Thank you.

Sure thing. The one thing that's becoming apparent to us is customers are actively looking for alternatives in 911, and we're excited that we're in exactly the right place here to help them by virtue of the Prepared and Carbyne acquisitions. One of the things we did early on, to your question, Trevor, is when we acquired Carbyne, we actually integrated them into Prepared, not into Axon. Now this apparatus is Axon 911, and now we are seeing a little more combination in certain places of the desire to do both of these at once.

That's the beauty of it, right? Some customers are going to be ready for that, but a lot of customers are going to buy one or the other up front with a clear intention of moving away from their current vendors. I am wildly bullish on the 911 space and our ability to win there. The APCO conference was this week, and our Prepared team was telling us how much momentum they're picking up and how universally they're hearing that more alternatives and competition in that market is welcome, and we're excited to compete.

Thanks, Trevor. Up next, we have Joseph Cardoso at J.P. Morgan.