Axon
AXON · NasdaqOperating 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.
Q2 FY2026, the quarter to Jun 30, 2026 · 10-Q filed Aug 6, 2026
- Operating margin
- 5.2%
- Net income
- $29.4M
- Free cash flow, quarter
- -$972.0K
Largest source of revenue: Software and Services, 44.0% of the total.
Where Axon's money goes
- 01
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.
Why it matters
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.1
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".1
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%.1
AnalysisThe 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.
- 02
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.
Why it matters
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.1
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.1
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 $0.44.1
AnalysisThe 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.
- 03
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.
Why it matters
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%.1
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.1
AnalysisBody 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.
- 04
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.
Why it matters
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.1
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.1
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.1
AnalysisA 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.
Sources
- 1.Axon 10-Q for the period to 2026-06-30 (the filing), Aug 6, 2026, read Nov 2, 2026
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Growth, profit and margin
Revenue went from $86.9M in FY2010 to $2.8B in FY2025, the operating margin from -5.9% to -2.2%, over 15 years.
- Revenue$2.8B
- Operating income-$62.1M
- Operating margin-2.2%
- Period
- Q2 FY2026
- Revenue
- $904.4M
- Operating income
- $46.8M
- Operating margin
- 5.2%
- Net income
- $29.4M
- Free cash flow
- -$972.0K
Does the profit turn into cash?
Q2 FY2026: free cash flow of -$972.0K against net income of $29.4M in the quarter.
- Operating cash flow$211.3M
- Capital expenditure$136.3M
- Free cash flow$75.1M
- Net income$124.7M
Capital expenditure is drawn below the axis as cash out. Cash conversion is operating cash flow over net income, shown in the tooltip for years with a profit.
Financial data and sources
How the revenue mix has shifted
Each breakdown the filing reports, as shares of revenue, for every period it restates.
Revenues - Revenues by Products and Service Offerings (Details). The filing restates this breakdown for 1 period.
Click a member to isolate it across the years shown.
The figures
Margins, cash and growth for the period, each with what it was computed from.
Where revenue comes from
Every breakdown the filing reports for the period, with each item's share.
Revenue streams
| Software and Services | $397.8M | 44.0% |
| Taser | $261.3M | 28.9% |
| Platform Solutions | $149.8M | 16.6% |
| Personal Sensors | $95.4M | 10.5% |
Segments
| Connected Devices | $506.6M | 56.0% |
| Software and Services | $397.8M | 44.0% |
What it costs
The cost lines beneath operating income, each as a share of revenue, then the operating result.
Costs are reported by function: what it cost to make what was sold, then the expenses of selling, developing and administering.
| Cost line | Q2 FY2026 | Of revenue | Source |
|---|---|---|---|
| Cost of sales | $357.9M | 39.6% | Source10-Q, us-gaap:CostOfGoodsAndServicesSold, as reported in the 10-Q filed 2026-08-06 |
| Income (loss) from operations | $46.8M | 5.2% | Source10-Q, us-gaap:OperatingIncomeLoss, as reported in the 10-Q filed 2026-08-06 |
The statements, as filed
The income statement, cash flow statement and balance sheet in the company's own order and words. Every line links to the filing.
Income statement25 lines, as presented in the 10-Q
Cash flow statement6 lines, as presented in the 10-Q
Year to date, as a quarterly filing reports it.
Balance sheet40 lines, as presented in the 10-Q
About this data
- Source
- Axon 10-Q, accession 0001628280-26-053646, filed Aug 6, 2026, read on Nov 2, 2026.
- History
- From the SEC's XBRL company facts, the value from the latest filing that stated each period.
- Reading
- Paragraphs marked Analysis are CXProWealth's reading; everything else is the filing's own numbers and words, or a cited source.
- Version
- methodology business-lens-1.0 · schema 1.2.0 · run business-lens-2026-11-02
What holds Axon's model up, and what could bend it
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%.
The detail
Software and Services covers cloud-based evidence management, records management and real-time operations software. The filing attributes most of its growth to "the increase in the aggregate number of users and growing adoption of our premium solutions by existing customers". Its share of sales rose 0.29 points to 44.0%.1
AnalysisEach camera and device in the field adds data that has to live in Axon's software, and moving case evidence and retraining officers makes that system costly to replace. The advantage holds as long as new devices keep adding users and existing customers keep buying premium features.
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.
The detail
The TASER line counts handles, cartridges and related extended warranties. Sales rose 20.9% to $261.3M, and the filing attributes the increase to higher handle and cartridge volume. Its share of sales fell 3.45 points as Platform Solutions grew faster, but it remains the largest single line.1
AnalysisCartridges are used in training and in the field, so each handle sold creates later purchases that do not need a new customer. That makes the line steadier than a one-time hardware sale.
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%.
The detail
In the annual history, revenue rose from $420.1M to $2.78B. Gross margin never fell below 57.9% of revenue across those years and was 59.7% in the latest full year. This quarter it was 60.4%, the same as a year earlier.1
AnalysisHolding gross margin while moving into new hardware categories and services suggests buyers pay for the connected system, not for a device alone. The pressure points the filing names this quarter are counter-drone mix and professional services, so this is the margin to watch as those lines grow.
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.
The detail
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 quarterly report says there have been no significant changes to the risk factors in the annual report.1
AnalysisMost buyers are government agencies, so revenue already counted in backlog depends on budgets that legislatures approve. A slower appropriation cycle would show up first as delayed sales rather than as lost customers.
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.
The detail
In the annual history, operating income was $156.9M in one year, $58.5M the next and a $62.1M loss in the latest full year, while revenue kept rising, to $2.78B. Gross margin stayed between 59.6% and 61.2% across those three years.1
This quarter, the filing attributes higher operating expenses to "increased headcount and investments in AI and other initiatives to support business growth", including technology license costs for AI initiatives in both selling and research budgets.1
AnalysisThe swings in operating income have come from the expense line, not from gross margin. If hiring and AI spending step up again faster than sales, the operating margin gained this quarter can reverse, as it has before.
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.
The detail
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. It generally does not settle such cases and self-insures each claim up to a retention. A purported class action by municipalities alleges its purchase of the body camera maker Vievu was anticompetitive, although the FTC dismissed its own complaint.1
Patent suits target drone technology at its Dedrone business and the emergency call technology of Carbyne, acquired this year, and both seek injunctive relief. Axon denies infringement and says it does not expect current litigation to have a material effect.1
AnalysisInjunctions matter more than damages here: a ruling that stopped sales of a drone or emergency-call product would slow the strategy of selling new products to agencies Axon already serves.
Sources
- 1.Axon 10-Q for the period to 2026-06-30 (the filing), Aug 6, 2026, read Nov 2, 2026
Axon, further in
Member research, then your own questions on ChatGPT.
What could change the outlook
What Axon's numbers depend on from here, read from the filing: the conditions behind this period's margins and growth, and where a change would show first.
- What has to hold for the operating margin to stay positive
Which costs drove past swings in Axon's operating income, how this quarter differs, and what the expense and financing lines need to do for profit to keep pace with sales.
- When Axon's reported profit becomes cash
How multiyear public contracts, invoicing timing and inventory builds shape the gap between earnings and operating cash flow, and the signs that collections are catching up.
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Have a question about Axon?
Explore its profit drivers, competitive edge, risks, or your own investment and business questions with CXProWealth on ChatGPT.
- Why did Axon's net income fall this quarter while its operating income turned positive?
- Could Axon's counter-drone sales become recurring like TASER cartridges, and what would that do to its hardware gross margin?
- Why is Axon's operating cash flow lagging its net income, and what would show that collections are catching up?
Business Lens describes Axon from its own filings with the SEC. It is not a view on its shares, a target, or advice to buy, sell or hold anything; figures are as filed and may be restated by the company later. The filing, the dates and the version are under the financial data above.