Axon (NASDAQ: AXON) reported fiscal Q2 2026 revenue of $904.4 million, up 35.3% from $668.5 million a year earlier, while diluted EPS fell to $0.36 from $0.44. Revenue growth was broad across both operating segments, adjusted EBITDA rose 41% to $242.0 million, and operating cash flow turned positive. Axon also raised its full-year revenue growth outlook to 32%-34%.

Core earnings data

Revenue growth translated into higher gross profit and a return to GAAP operating profitability. Total gross margin held at 60.4%, as improved Connected Devices profitability offset lower Software & Services margins. Adjusted gross margin slipped 40 basis points to 62.9%.

Net income and EPS declined despite the operating improvement because Q2 2025 included a $75.0 million income tax benefit. Axon generated $32.7 million of pre-tax income this quarter, compared with a $38.9 million pre-tax loss a year earlier, but recorded a $3.3 million tax provision rather than the prior-year benefit.

Business and segment performance

Both segments expanded by about 35%, but their margin trends moved in opposite directions. Software & Services faced a greater mix of professional services and costs associated with scaling newer offerings, while Connected Devices benefited from tariff refunds.

Software & Services growth reflected new users and greater adoption of premium products, including Axon Fusus, the AI Era Plan and Axon 911. AI Era revenue grew nearly 700%, although Axon did not disclose its dollar contribution. Software-only gross margin remained above 80%, but the broader segment margin was diluted by professional services and investment in newer products.

Connected Devices growth was driven by Dedrone, TASER 10 and Axon Body 4. Platform Solutions revenue more than doubled to $149.8 million from $67.3 million, while Dedrone revenue surpassed $100 million. TASER revenue reached $261.3 million, compared with $216.2 million a year earlier.

Demand indicators also continued to expand. International and enterprise bookings each approximately tripled, and five-year normalized new contract bookings grew more than 30% year over year.

Axon expects to fulfill 20%-25% of future contracted bookings over the next 12 months, with the remainder generally fulfilled over the following ten years. This measure includes contracts with certain termination or optional clauses and should not be treated as recognized GAAP revenue.

Cash flow improved, but working capital remained a constraint

Operating cash flow improved to $20.1 million from a $91.7 million outflow, primarily because of higher EBITDA. Free cash flow was nearly breakeven at a $1.0 million outflow, compared with a $114.7 million outflow in Q2 2025.

Inventory investment and the timing of customer billing and collections limited cash generation. Inventory increased to $486.6 million at June 30 from $341.8 million at the end of 2025, while contract assets rose to $751.0 million from $582.6 million over the same period.

Axon received $47 million in cash tariff refunds. Of that amount, $18 million related to expenses recognized in 2025, while the remainder was associated mainly with inventory and property and equipment, most of which otherwise would have been expensed during 2026. The refunds supported operating income, Connected Devices margins and adjusted EBITDA, but the company did not isolate their exact contribution to Q2 earnings.

Stock-based compensation remained a significant difference between GAAP and adjusted results. Axon recorded approximately $144.0 million of stock-based compensation during the quarter, which is excluded from adjusted EBITDA along with other specified items.

At quarter-end, Axon reported $685 million in cash, cash equivalents and short-term investments. Senior notes had a principal balance of approximately $1.8 billion, leaving the company with net debt of $1.1 billion, up $46 million sequentially.

2026 guidance

Axon increased its full-year revenue growth range by two percentage points at both ends, supported by future contracted bookings and its expanding pipeline. The company maintained its adjusted EBITDA margin and stock-based compensation outlooks.

Axon also expects 2026 capital expenditures of $160-$190 million for long-term R&D projects, capacity expansion, global facilities and product development. That range excludes costs associated with a new headquarters.

Risks investors should monitor

• Margin durability: Connected Devices margins benefited from tariff refunds, while Software & Services margins declined as professional services increased and newer products scaled. The sustainability of overall margin performance depends on these underlying trends.
• Working-capital demands: Inventory and contract assets increased from year-end, leaving free cash flow slightly negative despite higher adjusted EBITDA.
• Large non-GAAP adjustments: Quarterly stock-based compensation was approximately $144 million, creating a substantial gap between GAAP operating income and adjusted EBITDA.
• Booking conversion: The $15.1 billion future contracted bookings balance supports long-term visibility, but much of it is scheduled beyond the next 12 months and may include termination, optional-period or modification clauses.

Summary

Axon’s Q2 2026 results combined broad-based revenue growth with higher operating income, improved cash flow and an increased full-year revenue outlook. ARR, retention and contracted bookings indicated continued demand, while Platform Solutions and premium software adoption were notable growth drivers. The main areas to monitor are software margin pressure, the extent to which tariff-related benefits recur, working-capital conversion and the large difference between GAAP and adjusted profitability.

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