Axon (AXON) Q2 Revenue Jumps 33%

Recurring software and services revenue surged 39%, and Annual recurring revenue (non-GAAP) reached $1.2 billion. Free cash flow (non-GAAP) reversed to negative, at -$115 million, reflecting investment and working capital build, while hardware margins continued to see pressure.Axon Enterprise (AXON 15.06%), a leader in public safety technology best known for its TASER devices and digital evidence platforms, reported its second quarter results on August 4, 2025. Axon delivered revenue (GAAP) and non-GAAP EPS above analyst estimates, as both product and recurring software revenues continued to grow sharply. Revenue (GAAP) totaled $669 million, beating the $641.02 million consensus, while non-GAAP EPS reached $2.12. Year over year, GAAP revenue grew 33%, and non-GAAP EPS increased 73.8% year over year. Despite this strong top-line and earnings growth, Free cash flow (non-GAAP) turned negative. Net income under U.S. GAAP declined, reflecting higher operating costs, stock compensation, and hardware margin pressure. Overall, The quarter delivered another period of rapid expansion and innovation but saw margin challenges and significant investment-driven cash usage.MetricQ2 2025Q2 2025 EstimateQ2 2024Y/Y ChangeEPS (Non-GAAP)$2.12$1.45$1.2273.8%Revenue (GAAP)$669 million$641.02 million$503 million33.0%Net Income (GAAP)$36 million$41 million(12.2%)Adjusted EBITDA (Non-GAAP)$172 millionN/AN/AFree Cash Flow (Non-GAAP)($115 million)$71 million—262.0% Source: Analyst estimates provided by FactSet. Management expectations based on management's guidance, as provided in Q1 2025 earnings report. Business Overview and Success FactorsAxon focuses on public safety solutions, combining hardware, such as TASER energy devices and body cameras, with cloud-hosted digital evidence management and productivity software. It operates at the intersection of law enforcement, regulatory compliance, and emerging digital technologies, aiming to help agencies modernize their operations and reduce conflict.Central to its business strategy are continuous product innovation, regulatory adaptation, and maximizing customer value through recurring software and service revenues. Investments in research and development (R&D), responsible artificial intelligence (AI) integration, and supply chain flexibility have been recent areas of emphasis. The company’s success depends on broadening its customer base, maintaining high satisfaction, and growing its share in both domestic and international markets.Highlights and Key Developments in the QuarterAxon outperformed on both top and bottom lines, driven by rapid growth in both hardware and software. Total revenue (GAAP) grew 33% year over year, surging past expectations. Software & Services revenue jumped 39%, reaching $292 million. Annual recurring revenue climbed to $1.2 billion (non-GAAP), up 39% from the previous year. Net revenue retention, a metric capturing customer renewals and upsells, reached 124%, reflecting ongoing value and engagement with customers.The company made tangible progress expanding its technology ecosystem. Its digital evidence management suite continued to serve as the backbone for new tools, such as Draft One (an AI-powered productivity tool), real-time translation, and the Redaction Assistant. The Platform Solutions segment, which includes counter-drone hardware, virtual reality (VR) training, and fleet cameras, saw revenue rise 86% to $67 million. This growth highlighted demand for emerging safety tech, including drone deployments, where Axon secured several regulatory waivers and advanced toward important certifications for cloud products used by federal customers.Hardware growth remained robust, as Connected Devices revenue grew 29% to $376 million. TASER, the company’s energy weapon device family, saw revenue rise 19% amid strong uptake for its latest TASER 10 model. Personal Sensors, which include body cameras, posted 24% year-over-year growth. Despite the sales momentum, Hardware gross margins dropped 270 basis points to 48.6%, mainly due to a higher share of lower-margin Platform Solutions sales. The company reported $13 million in stock-based compensation within cost of goods sold, affecting reported margins further.Axon also saw significant international gains, as revenue outside the U.S. reached $131 million, or 20% of total sales, up from 16% in Q2 2024. International revenue advanced 67% year over year, fueled by expansion into Australia, Latin America, Europe, and Asia. Future contracted bookings, a forward indicator of revenue pipeline, came in at $10.7 billion, up 43%. The company noted especially strong enterprise and federal interest, along with progress in public safety and corrections markets.Operating expenses (GAAP) rose sharply, with selling, general, and administrative costs and R&D up from the previous year. Stock-based compensation expense totaled $139 million, 20.8% of revenue (GAAP). Free cash flow (non-GAAP) was -$115 million compared to a positive $71 million in Q2 2024, driven by inventory investment, new facilities, and working capital buildup. Net income under generally accepted accounting principles (GAAP) fell 12.2% year over year to $36 million, as expenses outpaced revenue growth. Gross margin for the total company stood at 60.4% (GAAP), down 40 basis points, while adjusted gross margin (excluding certain non-cash costs) increased 20 basis points to 63.3%.Product Lines and Segment PerformanceTASER devices are Axon’s original less-lethal weapon product line, widely adopted by U.S. law enforcement agencies. The body camera and sensor portfolio (“Personal Sensors”) complements these devices by capturing live events and integrating footage into the digital evidence management platform. The Platform Solutions business encompasses counter-drone systems, vehicle and fleet cameras, and VR-based training products. Premium adoption of cloud-based software products, AI-powered productivity tools like Draft One, and real-time intelligence offerings were key contributors to software revenue strength.Software & Services gross margin rose year over year, thanks to increased adoption of premium subscriptions in digital evidence management, real-time operations, and training modules. Margin headwinds were mostly contained to hardware, as Platform Solutions brought rapid revenue growth at lower profitability. The mix shift between hardware and software will remain a focus for monitoring overall profitability trends going forward.Looking Forward and Management’s OutlookManagement raised its full-year 2025 guidance following strong results. Full-year revenue is now expected in the range of $2.65 billion to $2.73 billion, up from the previous range of $2.60 billion to $2.70 billion. At the midpoint, this represents approximately 29% growth over FY2024. Adjusted EBITDA guidance for the full year was also raised to $665–$685 million, from a prior range of $650–$675 million.Investors should continue to watch trends in free cash flow, stock-based compensation, supply chain costs, and hardware margins. Management has noted its focus on innovation and market expansion, especially internationally and within enterprise customer segments.Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.