# How Axon makes money

CXProWealth Business Lens · Axon (AXON) · Q2 FY2026

Read from the 10-Q for the period 2026-04-01 to 2026-06-30, filed 2026-08-06 with the SEC (accession 0001628280-26-053646): https://www.sec.gov/Archives/edgar/data/1069183/000162828026053646/

Business Lens explains how a company earns, spends and keeps its money, from its own filings. It is insight and context, never a view on the shares, a target, or advice. Figures are raw units as filed; percentages are percentage points.

## Headline figures

- Revenue: $904.4M (+49.8% on the year)
- Operating income: $46.8M (operating margin 5.2%)
- Net income: $29.4M (net margin 3.3%)
- Gross margin: 60.4%
- Free cash flow: -$972.0K (-0.1% of revenue)
- Cash conversion (operating cash flow / net income): 0.68x
- Capital expenditure: 2.3% of revenue

## Where the money goes (Q2 FY2026)

- Taser → Net sales: $261.3M
- Personal Sensors → Net sales: $95.4M
- Platform Solutions → Net sales: $149.8M
- Software and Services → Net sales: $397.8M
- Net sales → Cost of sales: $357.9M
- Net sales → Gross margin: $546.4M
- Gross margin → Total operating expenses: $499.7M
- Total operating expenses → Research and development: $208.7M
- Total operating expenses → Selling, general and administrative: $291.0M
- Gross margin → Income (loss) from operations: $46.8M
- Income (loss) from operations → Interest expense: $28.1M
- Income (loss) from operations → Income (loss) before provision for income taxes: $18.7M
- Other income (loss), net → Income (loss) before provision for income taxes: $7.2M
- Interest income → Income (loss) before provision for income taxes: $6.8M
- Income (loss) before provision for income taxes → Provision for (benefit from) income taxes: $3.3M
- Income (loss) before provision for income taxes → Net income: $29.4M

## Where the revenue comes from

### Products and services (Revenues - Revenues by Products and Service Offerings (Details))

| Member | Value | Share |
|---|---:|---:|
| Software and Services | $397.8M | 44.0% |
| Taser | $261.3M | 28.9% |
| Platform Solutions | $149.8M | 16.6% |
| Personal Sensors | $95.4M | 10.5% |

The members sum to total revenue.

### Segments (Revenues - Revenues by Products and Service Offerings (Details))

| Member | Value | Share |
|---|---:|---:|
| Connected Devices | $506.6M | 56.0% |
| Software and Services | $397.8M | 44.0% |

The members sum to total revenue.

## Income statement, as filed

| Line | Q2 FY2026 | Of revenue |
|---|---:|---:|
| Net sales | $904.4M | 100% |
|   Net sales from products | $506.6M | 56.0% |
|   Net sales from services | $397.8M | 44.0% |
| Cost of sales | $357.9M | 39.6% |
|   Net sales from products | $243.9M | 27.0% |
|   Net sales from services | $114.1M | 12.6% |
| **Gross margin** | $546.4M | 60.4% |
| Selling, general and administrative | $291.0M | 32.2% |
| Research and development | $208.7M | 23.1% |
| **Total operating expenses** | $499.7M | 55.2% |
| **Income (loss) from operations** | $46.8M | 5.2% |
| Interest income | $6.8M | 0.8% |
| Interest expense | ($28.1M) | 3.1% |
| Other income (loss), net | $7.2M | 0.8% |
| **Income (loss) before provision for income taxes** | $32.7M | 3.6% |
| Provision for (benefit from) income taxes | $3.3M | 0.4% |
| **Net income** | $29.4M | 3.3% |
| Basic (in dollars per share) | $0 | 0.0% |
| Diluted (in dollars per share) | $0 | 0.0% |
| Basic (in shares) | 80,573,000 |  |
| Diluted (in shares) | 82,541,000 |  |
| **Net income** | $29.4M | 3.3% |
| Foreign currency translation adjustments | -$5.1M | 0.6% |
| Unrealized gain (loss) on available-for-sale investments | $0 | 0.0% |
| **Comprehensive income** | $24.3M | 2.7% |

## History

| Period | Revenue | Operating income | Net income | Operating cash flow | Capital expenditure | Free cash flow |
|---|---:|---:|---:|---:|---:|---:|
| FY2009 | — | -$79.2K | -$1.1K | $10.1M | $13.7M | -$3.6M |
| FY2010 | $86.9M | -$5.1M | -$4.4M | $731.5K | $4.0M | -$3.3M |
| FY2011 | $90.0M | -$10.9M | -$7.0M | $17.3M | $1.9M | $15.4M |
| FY2012 | $114.8M | $22.5M | $14.7M | $26.5M | $1.3M | $25.2M |
| FY2013 | $137.8M | $27.9M | $18.2M | $32.4M | $1.8M | $30.6M |
| FY2014 | $164.5M | $32.5M | $19.9M | $35.4M | $2.5M | $32.9M |
| FY2015 | $197.9M | $35.3M | $19.9M | $46.4M | $6.0M | $40.4M |
| FY2016 | $268.2M | $31.9M | $17.3M | $21.1M | $5.0M | $16.2M |
| FY2017 | $343.8M | $13.0M | $5.2M | $18.5M | $10.4M | $8.1M |
| FY2018 | $420.1M | $24.8M | $29.2M | $63.9M | $11.1M | $52.7M |
| FY2019 | $530.9M | -$6.4M | $882.0K | $65.7M | $15.9M | $49.7M |
| FY2020 | $681.0M | -$14.2M | -$1.7M | $38.5M | $72.6M | -$34.1M |
| FY2021 | $863.4M | -$168.1M | -$60.0M | $124.5M | $49.9M | $74.6M |
| FY2022 | $1.2B | $93.0M | $146.9M | $235.4M | $55.8M | $179.6M |
| FY2023 | $1.6B | $156.9M | $175.8M | $189.3M | $59.6M | $129.6M |
| FY2024 | $2.1B | $58.5M | $377.0M | $408.3M | $78.8M | $329.5M |
| FY2025 | $2.8B | -$62.1M | $124.7M | $211.3M | $136.3M | $75.1M |

Latest trend (the newest full year against the year before; a reading, not a forecast):

- Revenue: +33.5% (year before +33.4%): steady
- Operating income: -206.0% (year before -62.7%): slowing
- Net income: -66.9% (year before +114.5%): slowing
- Free cash flow: -77.2% (year before +154.2%): slowing

## Key insights

### Operating costs fell to 91.4% of gross margin from 100.3%

Sales rose 35.3% and operating costs 23.4%, so last year's small operating loss became $46.8M of operating income on a steady 60.4% gross margin.

Gross margin was $546.4M, 60.4% of $904.4M in sales, the same share as a year earlier. Operating expenses were $499.7M, up 23.4%, against sales growth of 35.3%. Selling, general and administrative costs fell to 32.2% of sales, down 4.06 points, and research and development to 23.1%, down 1.24 points. Operating income was $46.8M, a 5.2% operating margin, against a small operating loss a year earlier. _(from the filing)_
The flat gross margin hides two opposite moves. The filing says the hardware segment's margin rose, "primarily driven by tariff refunds, partially offset by increased mix to counter-drone equipment", while the software segment's margin fell on "a higher mix of professional services revenue and scaling new product offerings". _(from the filing)_
The filing attributes the rise in operating expenses to "increased headcount and investments in AI and other initiatives to support business growth". Research and development, at $208.7M, grew 28.4%, faster than selling, general and administrative costs at 20.1%. _(from the filing)_
The tariff refunds follow a court ruling rather than a lasting change in cost, so part of this quarter's hardware margin may not repeat. The operating gain rests mostly on expenses growing more slowly than sales, and that is the part to follow across quarters. _(analysis)_

### Interest expense equals 60.1% of the new operating income

Interest income fell 70.7% to $6.8M while interest expense held at $28.1M, so net income dropped 18.5% to $29.4M despite the operating turn.

Interest expense was $28.1M, against $28.7M a year earlier. Interest income fell 70.7% to $6.8M from $23.3M. Interest income covered 24.3% of interest expense, against 81.1% a year earlier. Net income came to 62.9% of operating income. _(from the filing)_
Over the half year, cash and cash equivalents fell as the company paid for the Carbyne acquisition and bought strategic investments, and available-for-sale investments were sold or matured. Less cash on hand earns less interest, while the interest on the senior notes does not shrink with it. _(from the filing)_
The prior-year quarter's net income of $36.1M rested on a $75.0M tax benefit, set against a $38.9M pre-tax loss. This quarter carried a $3.3M tax provision on $32.7M of pre-tax income, an effective rate of 10.0%. Diluted earnings per share were $0.36, against $0.44. _(from the filing)_
The comparison flatters the prior year. The fall in net income reflects a tax benefit that did not recur and a financing cost that no longer has interest income to offset it, rather than a weaker business. The operating line is the cleaner read of the quarter. _(analysis)_

### Counter-drone demand lifts Platform Solutions past body cameras

Platform Solutions grew 122.6% to $149.8M, overtaking body camera sales of $95.4M, which grew 2.8%, as counter-drone equipment reshaped the hardware mix.

Platform Solutions, which covers in-car video, fixed cameras, drones and counter-drone equipment, grew 122.6% to $149.8M and rose 6.5 points to 16.6% of sales. The filing names the cause: "higher volume for counter-drone equipment". Personal Sensors, the body camera line, grew 2.8% to $95.4M and lost 3.34 points of share, to 10.5%. _(from the filing)_
The shift carries a cost in margin. The filing says the hardware segment's gross margin rose on tariff refunds, "partially offset by increased mix to counter-drone equipment", so it presents the growing counter-drone share as a drag on that margin. _(from the filing)_
Body cameras anchor Axon's software business, because each camera feeds the evidence system. Counter-drone equipment has not yet shown the same pull on recurring software. Whether these orders repeat, and whether they bring service contracts behind them, decides if this is a lasting line or a run of large orders. _(analysis)_

### Operating cash flow of $20.1M did not cover capital spending

Operating cash flow was 68.2% of net income and fell short of $21.0M of capital spending, leaving free cash flow at minus $0.97M.

Operating cash flow was $20.1M and capital spending $21.0M, so free cash flow was minus $0.97M, or minus 0.1% of sales. Operating cash flow equalled 68.2% of net income. _(from the filing)_
For the half year, the filing ties the gap to receivables and contract assets that grew "primarily due to increased sales, as well as the timing of invoicing and cash collections", and to inventory built through "advanced raw material purchases" for TASER devices and counter-drone equipment. _(from the filing)_
The prior-year quarter was weaker: operating cash flow was minus $91.7M and free cash flow minus $114.7M. The direction improved, even though cash still trails reported profit. _(from the filing)_
A company billing government agencies on multiyear contracts and stocking parts ahead of demand can report profit before it collects cash. The test is whether collections catch up with invoicing in later quarters, not whether a single quarter is negative. _(analysis)_

### Competitive edge

- **Software grows faster than the devices that open accounts** Software and Services grew 36.2% to $397.8M, 44.0% of sales, ahead of TASER at 20.9% and body cameras at 2.8%.
- **Each TASER handle brings repeat cartridge sales** TASER was the largest line at $261.3M, 28.9% of sales, up 20.9%, and the filing credits both handle and cartridge volume.
- **Gross margin never fell below 57.9% as revenue scaled** Across the annual history, revenue rose from $420.1M to $2.78B while gross margin never fell below 57.9%, and this quarter it held at 60.4%.

### What to watch

- **Public budgets set the pace of contracted revenue** Much of Axon's revenue is contracted years ahead, but the filing says it remains subject to delayed deployments, budget appropriation and cancellation clauses.
- **Spending waves have erased operating profit before** Annual operating income fell from $156.9M to a $62.1M loss two years later as spending rose, so this quarter's margin needs sales to keep outrunning costs.
- **TASER use and past deals keep Axon in court** Axon faces product liability suits over TASER use, an antitrust class action over a past acquisition, and patent suits seeking injunctions against its drone and emergency-call technology.

## Investor view

**Axon's operating costs grew slower than its sales, turning last year's operating loss into a 5.2% operating margin**

### How it makes money

Axon sells to public safety agencies through two segments. Connected Devices, the hardware, brought in $506.6M of the quarter's $904.4M in sales, or 56.0%: TASER energy devices, body cameras (Personal Sensors), and Platform Solutions, which covers in-car video, fixed cameras, drones and counter-drone equipment. Software and Services, the cloud-based evidence management, records management and real-time operations software, brought in $397.8M, or 44.0%. _(from the filing)_
TASER is the largest single line at $261.3M, 28.9% of sales, up 20.9% on the prior-year quarter. The line counts handles, cartridges and related extended warranties, and the filing credits the growth to higher volume of both handles and cartridges. Each handle in the field is used with cartridges, so the line carries repeat purchases as well as new devices. _(from the filing)_
Software and Services grew 36.2% to $397.8M. The filing attributes most of the increase to "the increase in the aggregate number of users and growing adoption of our premium solutions by existing customers". Revenue in this segment rises two ways: more users, and more spent per existing customer. _(from the filing)_
Much of the revenue is contracted years ahead. The filing expects to recognize its remaining performance obligations over about the next decade, "subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses". The usual customer is a government buyer, and its budget sets the pace at which that backlog becomes sales. _(from the filing)_

### What shifted

Platform Solutions more than doubled, up 122.6% to $149.8M, and its share of sales rose 6.5 points to 16.6%. The filing names the cause: "higher volume for counter-drone equipment". Personal Sensors, the body camera line, grew 2.8% to $95.4M and lost 3.34 points of share. TASER's share fell 3.45 points to 28.9% even as its sales grew 20.9%. _(from the filing)_
Operating expenses rose 23.4% while sales rose 35.3%. Selling, general and administrative costs fell to 32.2% of sales, down 4.06 points, and research and development to 23.1%, down 1.24 points. Operating expenses used 91.4% of gross margin, against 100.3% a year earlier, which is how last year's small operating loss became $46.8M of operating income. _(from the filing)_
Gross margin held at 60.4% of sales, but the filing describes two opposite moves underneath it. Connected Devices margin rose, "primarily driven by tariff refunds, partially offset by increased mix to counter-drone equipment". Software and Services margin fell, "primarily driven by a higher mix of professional services revenue and scaling new product offerings". _(from the filing)_
Net income fell 18.5% to $29.4M while operating income rose, because of items below the operating line. Interest income dropped 70.7% to $6.8M as cash and investments were drawn down, while interest expense of $28.1M equalled 60.1% of operating income. The tax line swung from a $75.0M benefit to a $3.3M provision, an effective rate of 10.0%. Diluted earnings per share were $0.36, against $0.44. _(from the filing)_
Operating cash flow was $20.1M, 68.2% of net income, and did not cover $21.0M of capital spending. For the half year, the filing ties the gap to receivables and contract assets that grew "primarily due to increased sales, as well as the timing of invoicing and cash collections", and to inventory built through "advanced raw material purchases" for TASER devices and counter-drone equipment. _(from the filing)_

### Risks in the filing

The quarterly report says there have been no significant changes to the risk factors in the annual report and points back to it. Its notes still name concrete exposures. Contracted future revenue is "subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses": a government customer's budget can delay or end revenue already counted in backlog. _(from the filing)_
Product liability. As "a manufacturer of weapons and other law enforcement tools used in high-risk field environments", Axon is often sued over TASER use in arrests or training, with claims of wrongful death or injury. Its stated policy is generally not to settle such cases, and it self-insures each claim up to a retention before insurance applies. It does not expect current cases to have a material effect. _(from the filing)_
Litigation tied to deals and technology. A purported antitrust class action brought by municipalities claims that its acquisition of the body camera maker Vievu was anticompetitive, although the FTC dismissed its own complaint. Separate patent suits target drone technology at its Dedrone business and the emergency call technology of Carbyne, acquired this year. Both seek injunctive relief, and Axon denies infringement. _(from the filing)_
Funding and trade. The company carries senior notes and says it expects to remain "an opportunistic issuer of debt securities", while noting there is "no assurance that such funding will be available on terms acceptable to us, or at all". Tariffs are a cost outside its control: refunds followed a Supreme Court ruling that certain tariffs were unauthorized, and they lifted this quarter's hardware margin. _(from the filing)_
Of these, the funding exposure is the one already visible in this quarter's income statement. Interest income fell as cash went into the Carbyne purchase and strategic investments, while interest on the senior notes did not, so financing turned into a net cost that takes a large slice of operating income. The litigation risks, on the company's own reading, do not yet show in the numbers. _(analysis)_

## Founder view: mechanisms

### Devices open software accounts

Axon sells hardware that creates data (body camera video, TASER logs, drone footage) and the software where that data has to live once captured. The device is the point of entry; the software is where the relationship deepens. Each camera in the field makes the evidence system harder to replace, because switching means moving case evidence and retraining every officer. _(analysis)_

### Consumables behind the handle

A TASER handle is used with cartridges, so every device sold creates future purchases tied to training and field use. Reporting handles, cartridges and extended warranties as one line shows the design: repeat revenue that does not need a new customer. _(analysis)_

### Costs grow slower than sales

With gross margin roughly fixed, profit comes from operating costs growing more slowly than revenue. Axon spends heavily on research and selling ahead of revenue. In quarters when sales run ahead of that spending, the gap falls straight through to operating income; when spending steps up, it eats the margin. _(analysis)_

### Adjacent products to the same buyer

Once an agency buys TASER devices and cameras, Axon sells it the next tool through the same relationship: in-car video, drones, counter-drone systems, emergency communications. Acquisitions such as Carbyne and Prepared add emergency response software that sits next to the existing evidence and records products, so each new product reaches a buyer Axon already serves. _(analysis)_

## Member research

Signed-in members read, on the page: what Axon's numbers depend on from here, and the playbook behind each mechanism (what needs scale, what transfers, how to test it, the metric that would show it).

## Sources

- Axon 10-Q for the period to 2026-06-30: https://www.sec.gov/Archives/edgar/data/1069183/000162828026053646/ (2026-08-06)

Methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02 · as of 2026-11-02