Core Viewpoint - The article discusses the importance of understanding market dynamics and the potential implications for investment strategies in the current economic environment [1]. Group 1: Market Dynamics - The current economic landscape is characterized by volatility, which presents both challenges and opportunities for investors [1]. - Analysts emphasize the need for a thorough analysis of market trends to identify potential investment opportunities [1]. Group 2: Investment Strategies - Companies are encouraged to adopt flexible investment strategies that can adapt to changing market conditions [1]. - The importance of diversification in investment portfolios is highlighted as a means to mitigate risks associated with market fluctuations [1].

Group 1 - The long-term outlook for Axon Enterprise is positive, with significant stock price appreciation following the second-quarter report [1][3] - Axon reported a 33% year-over-year revenue growth in Q2, reaching $669 million, marking the 14th consecutive quarter of growth exceeding 25% [4][5] - The company has a substantial market opportunity, with management targeting a $129 billion market, while currently generating $2.4 billion in trailing-12-month revenue [8] Group 2 - Future contracted bookings reached $10.7 billion, up 43% year-over-year, indicating strong future revenue growth potential [9][10] - Despite impressive growth, Axon's net income decreased by 12% in Q2 due to increased stock-based compensation, totaling $139 million for the quarter [11] - The stock trades at nearly 30 times sales, the highest valuation in two decades, necessitating continued robust growth to justify this valuation [15][16]

Core Insights - Axon Enterprise's shares surged by 16.41% on August 5, 2025, closing at a 52-week high of $867.12, driven by strong investor confidence and a robust second-quarter earnings report [1][2] - The company's adjusted earnings per share (EPS) of $2.12 significantly exceeded analyst expectations of approximately $1.54, highlighting its financial strength [2][3] - Institutional investors are recognizing Axon's successful transition from a hardware-focused company to a vital public safety software platform, indicating a long-term strategic execution [4] Financial Performance - Axon's Software & Services segment has become the primary growth driver, with revenue increasing by 39% year over year, compared to a 29% growth in the Connected Devices segment [5][6] - The company's Annual Recurring Revenue (ARR) reached $1.2 billion, reflecting a 39% increase, providing visibility into future performance [13] - Axon achieved a Net Revenue Retention (NRR) of 124%, indicating strong customer retention and revenue growth from existing clients [13] Market Position and Strategy - Axon's strategic pivot towards a subscription-based model is generating more stable and predictable revenue compared to one-time hardware sales [5][7] - Approximately 70% of Axon's law enforcement customers are still on basic software plans, presenting a significant opportunity for upselling to higher-margin software tiers [9] - The company is expanding its ecosystem by integrating AI tools and targeting new markets, including international, federal, and private sectors [10] Valuation and Analyst Ratings - Following the recent stock rally, Axon trades at a high price-to-earnings (P/E) ratio of 213.28, reflecting its reclassification as a high-growth platform company [11][12] - Analysts have responded positively, with Craig-Hallum upgrading the stock from Hold to Buy and Bank of America raising its price target to $1,000 per share [3][4]

Core Viewpoint - Axon Enterprise (AXON) is experiencing solid improvements in earnings estimates, which may lead to continued short-term price momentum for the stock [1][2]. Estimate Revisions - The rising trend in estimate revisions reflects growing analyst optimism regarding Axon's earnings prospects, which is expected to positively impact its stock price [2]. - For the current quarter, Axon is projected to earn $1.54 per share, indicating a year-over-year increase of +6.2%. The Zacks Consensus Estimate has risen by 12% over the last 30 days, with no negative revisions [6]. - For the full year, the expected earnings per share is $6.44, representing a year-over-year change of +8.4%. The trend for current-year estimates is also positive, with two estimates moving higher and no negative revisions [7]. Zacks Rank - Axon has achieved a Zacks Rank 1 (Strong Buy) due to favorable estimate revisions, which is a reliable rating tool that helps investors capitalize on earnings estimate trends [8]. - Stocks with Zacks Rank 1 (Strong Buy) and 2 (Buy) have historically outperformed the S&P 500 [8]. Stock Performance - Over the past four weeks, Axon shares have increased by 7.2%, indicating investor confidence in the company's earnings growth prospects [9].

Core Insights - Axon Enterprise (AXON) and Palantir Technologies (PLTR) have experienced significant stock price increases, with AXON up over 40% year-to-date and PLTR surging more than 130% [1][2] - Both companies have reported strong Q2 results, driven by increased public safety and defense spending [3][8] Axon Enterprise Highlights - Axon reported Q2 sales of $668.54 million, a nearly 33% year-over-year increase, surpassing estimates of $642.98 million by 4% [3] - This marks the 14th consecutive quarter of revenue growth above 25%, with broad demand across its portfolio, including AI services and drones [4] - Q2 earnings per share (EPS) were $2.12, exceeding expectations of $1.54 by 37% and up 76% from $1.20 in the prior period [5] - Axon has exceeded the Zacks EPS Consensus for 33 consecutive quarters, with an average earnings surprise of 25.87% over the last four quarters [5] Palantir Technologies Highlights - Palantir achieved its first billion-dollar quarter with Q2 sales of $1 billion, a 48% increase from $678.13 million a year ago, driven by strong demand for its AI platform [8] - The company secured a $10 billion contract with the U.S. Army, contributing to its growth [8] - Q2 EPS was $0.16, up from $0.09 in the comparative quarter and exceeding expectations of $0.14 [9] - Palantir has exceeded the Zacks EPS Consensus for 11 consecutive quarters, with an average earnings surprise of 13.17% over the last four quarters [10] Full-Year Guidance Updates - Axon raised its fiscal 2025 revenue guidance to $2.65-$2.73 billion, up from $2.6-$2.7 billion, and adjusted EBITDA guidance to $665-$685 million [12] - Palantir increased its FY25 revenue forecast to $4.142 billion-$4.15 billion, up from $3.89 billion-$3.9 billion, with commercial revenue expected to exceed $1 billion [13] Valuation Insights - Axon trades at a price-to-sales (P/S) ratio of 25X, while Palantir's P/S ratio is significantly higher at 104X, indicating Axon may offer better value at current levels [15] - Axon's profitability and earnings estimate revisions suggest it is a more sound investment compared to Palantir, which may not offer much fundamental value after its recent rally [18]

Financial Performance - Axon Enterprise shares reached a record high [1] - The company reported better-than-expected results [1] Outlook - Axon Enterprise issued a rosy outlook [1] Industry Focus - The company is a public safety technology company [1]

Core Insights - Axon Enterprise's stock increased by 14% following the company's earnings report, which exceeded Wall Street's expectations and led to an upward revision of its revenue guidance due to strong demand for security solutions [1] Group 1: Financial Performance - The company reported robust demand for its security solutions, with CEO Rick Smith stating that customer demand for new technology is accelerating beyond expectations [1] - Axon has raised its revenue guidance for the year to a range of $2.65 billion to $2.73 billion, an increase from the previous guidance of $2.60 billion to $2.70 billion [1]

Core Insights - Axon Enterprise, Inc. reported strong second-quarter 2025 results with adjusted earnings of $2.12 per share, exceeding estimates by $0.58, and a year-over-year increase of 73.8% despite rising costs [2][11] - Total revenues reached $668.5 million, surpassing the consensus estimate of $643 million, marking a 33% year-over-year growth driven by demand for TASER 10, Axon Body 4, and counter-drone equipment [3][11] Business Segment Performance - **Connected Devices**: Revenues increased by 28.6% year over year to $376.4 million, driven by demand for TASER 10 devices and Axon Body 4. The adjusted gross margin decreased to 51.1% from 53.4% [5] - **Software & Services**: Revenues rose 38.8% year over year to $292.2 million, supported by an increase in users and premium software adoption. The adjusted gross margin improved to 78.9% from 76.6% [6] Margin Profile - Cost of sales increased by 11.3% year over year to $264.8 million, while total operating expenses climbed 8.1% to $404.8 million. The adjusted gross margin slightly increased to 63.3% from 63.1% [7] Balance Sheet & Cash Flow - As of the end of Q2 2025, cash and cash equivalents stood at $615.5 million, up from $454.8 million at the end of 2024. Long-term lease liabilities increased to $43.6 million [8] - The company reported a negative adjusted free cash flow of $113.7 million in the first half of 2025, compared to a positive $39.3 million in the prior-year period [9] Outlook for 2025 - Axon raised its revenue guidance for 2025 to a range of $2.65-$2.73 billion, indicating approximately 29% year-over-year growth. Adjusted EBITDA is expected to be between $665-$685 million, implying a margin of about 25% [12][11] - Capital expenditures are projected to be between $170 million and $185 million, focusing on R&D, capacity expansion, and new product development [13]

[Special Note Regarding Forward-Looking Statements](index=4&type=section&id=Special%20Note%20Regarding%20Forward-Looking%20Statements) This section highlights the nature of forward-looking statements, their inherent risks, and the company's policy on updates - The report contains forward-looking statements subject to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995, indicating future expectations, beliefs, intentions, and strategies[9](index=9&type=chunk) - Achievement of future results is subject to risks, uncertainties, and potentially inaccurate assumptions, with actual results potentially differing materially from anticipated outcomes due to factors detailed in Part II, Item 1A ('Risk Factors')[10](index=10&type=chunk) - The company undertakes no obligation to publicly update forward-looking statements, except as required by law, and advises consulting further disclosures in Form 8-K, 10-Q, and 10-K reports filed with the SEC[11](index=11&type=chunk) [PART I - FINANCIAL INFORMATION](index=5&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the company's unaudited financial statements, management's analysis, market risk disclosures, and internal controls [Item 1. Financial Statements (unaudited)](index=5&type=section&id=Item%201.%20Financial%20Statements%20(unaudited)) This section presents Axon's unaudited consolidated financial statements for Q2 2025, detailing financial position, performance, cash flows, and key accounting notes, including prior period revisions [Consolidated Balance Sheets](index=6&type=section&id=Consolidated%20Balance%20Sheets) This section presents Axon's consolidated balance sheets, detailing assets, liabilities, and equity at specific reporting dates Consolidated Balance Sheet Highlights (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Change (2025 vs 2024) | | :-------------------------------- | :------------ | :---------------- | :-------------------- | | Total Assets | $6,215,256 | $4,474,588 | +$1,740,668 | | Total Liabilities | $3,482,856 | $2,146,923 | +$1,335,933 | | Total Stockholders' Equity | $2,732,400 | $2,327,665 | +$404,735 | | Cash and cash equivalents | $615,496 | $454,844 | +$160,652 | | Short-term investments | $1,471,304 | $333,235 | +$1,138,069 | | Current portion of notes payable, net | $279,247 | $680,289 | -$401,042 | | Long-term notes payable, net | $1,728,575 | — | +$1,728,575 | [Consolidated Statements of Operations and Comprehensive Income](index=8&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Income) This section presents Axon's consolidated statements of operations and comprehensive income, outlining revenue, expenses, and net income Consolidated Statements of Operations Highlights (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net sales | $668,538 | $503,236 | $1,272,171 | $963,107 | | Gross margin | $403,743 | $306,156 | $769,482 | $564,784 | | Income (loss) from operations | $(1,036) | $33,758 | $(9,829) | $50,214 | | Net income | $36,117 | $41,473 | $124,097 | $174,825 | | Basic EPS | $0.46 | $0.55 | $1.60 | $2.32 | | Diluted EPS | $0.44 | $0.53 | $1.52 | $2.26 | - Net sales increased by **32.8%** for the three months ended June 30, 2025, and by **32.1%** for the six months ended June 30, 2025, compared to the prior year periods[17](index=17&type=chunk) - The company reported a **loss from operations** for both the three and six months ended June 30, 2025, contrasting with income from operations in the prior year periods[17](index=17&type=chunk) [Consolidated Statements of Stockholders' Equity](index=9&type=section&id=Consolidated%20Statements%20of%20Stockholders'%20Equity) This section details changes in Axon's stockholders' equity, including common stock, additional paid-in capital, and retained earnings Consolidated Stockholders' Equity Highlights (in thousands, except share data) | Metric | December 31, 2024 | March 31, 2025 | June 30, 2025 | | :-------------------------------- | :---------------- | :------------- | :------------ | | Common Stock Shares Outstanding | 76,619,331 | 77,848,148 | 78,503,041 | | Additional Paid-in Capital | $1,689,781 | $1,829,755 | $1,964,953 | | Retained Earnings | $812,014 | $899,994 | $936,111 | | Total Stockholders' Equity | $2,327,665 | $2,555,853 | $2,732,400 | - Total stockholders' equity increased by **$404.7 million** from December 31, 2024, to June 30, 2025, primarily due to increases in additional paid-in capital and retained earnings[19](index=19&type=chunk) - Issuance of common stock under employee plans and stock-based compensation significantly contributed to the increase in additional paid-in capital[19](index=19&type=chunk) [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents Axon's consolidated statements of cash flows, categorizing cash movements from operating, investing, and financing activities Consolidated Statements of Cash Flows Highlights (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (2025 vs 2024) | | :--------------------------------------- | :----------------------------- | :----------------------------- | :-------------------- | | Net cash provided by (used in) operating activities | $(65,910) | $66,825 | $(132,735) | | Net cash used in investing activities | $(1,088,749) | $(91,905) | $(996,844) | | Net cash provided by (used in) financing activities | $1,308,861 | $(4,895) | +$1,313,756 | | Net increase (decrease) in cash and cash equivalents | $160,699 | $(32,061) | +$192,760 | - Operating activities shifted from providing **$66.8 million** in cash in H1 2024 to using **$65.9 million** in H1 2025, primarily due to changes in net income, stock-based compensation, and working capital[21](index=21&type=chunk) - Investing activities saw a significant increase in cash outflow, largely driven by **$1.8 billion** in investment purchases, including short-term and strategic investments[21](index=21&type=chunk) - Financing activities generated substantial cash inflow of **$1.3 billion** in H1 2025, mainly from the issuance of Senior Notes and an ATM equity offering, partially offset by convertible debt repurchases and tax payments for stock awards[21](index=21&type=chunk) [Condensed Notes to Consolidated Financial Statements](index=11&type=section&id=Condensed%20Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to Axon's unaudited consolidated financial statements, explaining significant accounting policies and specific financial items [Note 1 - Organization and Summary of Significant Accounting Policies](index=11&type=section&id=Note%201%20-%20Organization%20and%20Summary%20of%20Significant%20Accounting%20Policies) This note describes Axon's business and outlines the significant accounting policies used in preparing the financial statements - Axon Enterprise, Inc. is a public safety technology solutions provider, with a mission to protect life and promote peace, justice, and strong institutions[22](index=22&type=chunk) - The unaudited consolidated financial statements are prepared in accordance with SEC rules and GAAP, with certain information condensed or omitted, and include normal recurring adjustments[23](index=23&type=chunk) - The company identified and corrected immaterial errors in previously issued financial statements related to principal vs. agent accounting for reseller arrangements under ASC 606, impacting prior periods[25](index=25&type=chunk)[27](index=27&type=chunk) - Axon realigned its business into two reportable segments: Connected Devices and Software and Services, recasting prior period disclosures to conform to the new presentation[32](index=32&type=chunk) [Note 2 - Revenues](index=16&type=section&id=Note%202%20-%20Revenues) This note details Axon's revenue recognition policies and provides a breakdown of net sales by segment, product offering, and geography Revenue by Segment and Product Offering (in thousands) | Product/Service | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | **Connected Devices** | | | | | | TASER | $216,234 | $181,548 | $411,729 | $346,147 | | Personal Sensors | $92,819 | $75,113 | $181,224 | $143,113 | | Platform Solutions | $67,307 | $36,102 | $124,303 | $73,927 | | Total Connected Devices | $376,360 | $292,763 | $717,256 | $563,187 | | **Software and Services** | $292,178 | $210,473 | $554,915 | $399,920 | | **Total Net Sales** | $668,538 | $503,236 | $1,272,171 | $963,107 | Revenue by Geography (in thousands) | Geography | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | United States | $537,373 (80%) | $424,638 (84%) | $1,066,756 (84%) | $816,179 (85%) | | Other countries | $131,165 (20%) | $78,598 (16%) | $205,415 (16%) | $146,928 (15%) | | Total | $668,538 (100%) | $503,236 (100%) | $1,272,171 (100%) | $963,107 (100%) | - As of June 30, 2025, Axon had approximately **$7.8 billion** in remaining performance obligations, with **20%-25%** expected to be recognized over the next 12 months and the remainder over the following ten years[49](index=49&type=chunk) [Note 3 - Cash, Cash Equivalents and Investments](index=18&type=section&id=Note%203%20-%20Cash,%20Cash%20Equivalents%20and%20Investments) This note provides a breakdown of Axon's cash, cash equivalents, and investment portfolio, including unrealized gains and losses Cash, Cash Equivalents, and Investments (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $615,496 | $454,844 | | Short-term investments | $1,471,304 | $333,235 | | Marketable securities | $144,000 | $198,270 | | Total | $2,230,800 | $986,349 | - During the three and six months ended June 30, 2025, the company recorded an **unrealized loss on marketable securities of $30.9 million and $54.3 million**, respectively, compared to gains in the prior year[51](index=51&type=chunk) - As of June 30, 2025, **$358.2 million** of available-for-sale debt investments had unrealized losses, but the company does not intend to sell them before recovery of amortized cost[50](index=50&type=chunk) [Note 4 - Expected Credit Losses](index=19&type=section&id=Note%204%20-%20Expected%20Credit%20Losses) This note details Axon's allowance for expected credit losses on receivables and contract assets, and its roll-forward activity Allowance for Expected Credit Losses (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :------------------------------------------ | :------------ | :---------------- | | Accounts receivable and notes receivable, current | $3,479 | $3,322 | | Contract assets, net | $3,091 | $2,239 | | Long-term notes receivable, net of current portion | $48 | $48 | | Total allowance for expected credit losses | $6,618 | $5,609 | Roll-forward of Allowance for Expected Credit Losses (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Balance, beginning of period | $5,609 | $3,966 | | Provision for expected credit losses | $4,411 | $2,241 | | Amounts written off charged against allowance | $(3,402) | $(470) | | Balance, end of period | $6,618 | $5,752 | [Note 5 - Inventory](index=21&type=section&id=Note%205%20-%20Inventory) This note provides a breakdown of Axon's inventory composition, including raw materials, work-in-process, and finished goods Inventory Composition (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :--------------- | :------------ | :---------------- | | Raw materials | $114,933 | $86,840 | | Work-in-process | $8,933 | $6,230 | | Finished goods | $184,626 | $172,246 | | Total inventory | $308,492 | $265,316 | - Total inventory increased by **$43.2 million** from December 31, 2024, to June 30, 2025, primarily driven by increases in raw materials and finished goods[57](index=57&type=chunk) [Note 6 – Goodwill and Intangible Assets](index=21&type=section&id=Note%206%20%E2%80%93%20Goodwill%20and%20Intangible%20Assets) This note details Axon's goodwill and intangible assets, including carrying amounts by segment and amortization expense Goodwill Carrying Amount by Segment (in thousands) | Segment | Beginning Balance (Dec 31, 2024) | Goodwill Acquired | Purchase Accounting Adjustments | Foreign Currency Translation Adjustments | Ending Balance (June 30, 2025) | | :---------------- | :------------------------------- | :---------------- | :------------------------------ | :--------------------------------------- | :----------------------------- | | Connected Devices | $46,674 | $4,733 | $(285) | $383 | $51,505 | | Software and Services | $710,164 | — | $(2,307) | $2,883 | $710,740 | | Total | $756,838 | $4,733 | $(2,592) | $3,266 | $762,245 | Intangible Assets (in thousands) | Category | June 30, 2025 Net Carrying Amount | December 31, 2024 Net Carrying Amount | | :-------------------------------- | :-------------------------------- | :------------------------------------ | | Amortizable intangible assets | $135,274 | $132,485 | | Non-amortizable intangible assets | $27,314 | $42,672 | | Total intangible assets | $162,588 | $175,157 | - Amortization expense for intangible assets increased significantly, from **$3.9 million** (Q2 2024) to **$6.7 million** (Q2 2025) and from **$6.9 million** (H1 2024) to **$13.3 million** (H1 2025)[60](index=60&type=chunk) [Note 7 - Strategic Investments](index=22&type=section&id=Note%207%20-%20Strategic%20Investments) This note outlines Axon's strategic investments, including non-marketable equity and debt securities, warrants, and call options Strategic Investments Carrying Value (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Non-marketable equity securities | $374,948 | $319,598 | | Warrants | $6,617 | $4,368 | | Call options | $11,600 | — | | Non-marketable debt securities | $10,335 | $8,584 | | Total strategic investments | $403,500 | $332,550 | - During H1 2025, Axon acquired an additional **$215.1 million** in equity interests in an existing strategic investee[63](index=63&type=chunk) - The company recognized a **$167.4 million gain** from an observable price change and sold certain interests for **$340.7 million** in cash, realizing **$320.8 million** in previously unrealized gains during H1 2025[64](index=64&type=chunk) [Note 8 - Variable Interest Entities](index=25&type=section&id=Note%208%20-%20Variable%20Interest%20Entities) This note discusses Axon's evaluation of variable interest entities (VIEs) and its investments in unconsolidated non-public VIEs Unconsolidated Non-Public VIEs (in thousands) | Metric | June 30, 2025 | December 31, 2024 | | :---------------------------------- | :------------ | :---------------- | | Carrying value of variable interest - assets | $24,876 | $25,171 | - Axon evaluates investments to determine if they are Variable Interest Entities (VIEs) and assesses if it is the primary beneficiary for consolidation purposes[69](index=69&type=chunk) - The primary purpose of unconsolidated U.S.-based VIE investments is to create strategic partnerships with market-leading public safety technology providers[71](index=71&type=chunk) [Note 9 - Accrued Liabilities](index=27&type=section&id=Note%209%20-%20Accrued%20Liabilities) This note provides a detailed breakdown of Axon's accrued liabilities, including commissions, bonuses, interest, and other expenses Accrued Liabilities (in thousands) | Category | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | Accrued commissions | $45,156 | $88,237 | | Accrued bonus | $35,719 | $59,780 | | Accrued interest | $33,101 | $134 | | Accrued salaries and benefits | $31,131 | $25,233 | | Accrued purchases for agent sales | $20,873 | $6,728 | | Accrued inventory in transit | $19,470 | $13,101 | | Accrued income and other taxes | $12,702 | $27,863 | | Accrued cloud hosting fees | $11,229 | $10,673 | | Accrued warranty expense | $10,876 | $8,284 | | Accrued consulting and IT fees | $6,705 | $7,846 | | Other accrued expenses | $38,870 | $31,314 | | Total accrued liabilities | $265,832 | $279,193 | - Total accrued liabilities decreased by **$13.4 million** from December 31, 2024, to June 30, 2025, primarily due to decreases in accrued commissions, bonus, and income taxes, partially offset by a significant increase in accrued interest[73](index=73&type=chunk) [Note 10 – Notes Payable, Net](index=28&type=section&id=Note%2010%20%E2%80%93%20Notes%20Payable,%20Net) This note details Axon's notes payable, including the issuance of new Senior Notes and the repurchase of existing convertible debt Notes Payable, Net (in thousands) | Note Type | June 30, 2025 | December 31, 2024 | | :-------------------------- | :------------ | :---------------- | | 2030 Notes | $1,000,000 | — | | 2033 Notes | $750,000 | — | | 2027 Notes | $282,547 | $690,000 | | Total principal | $2,032,547 | $690,000 | | Unamortized debt issuance costs | $(24,725) | $(9,711) | | Total carrying amount | $2,007,822 | $680,289 | | Less: current portion | $(279,247) | $(680,289) |\ | Long-term notes payable, net | $1,728,575 | — | - In March 2025, Axon issued **$1.0 billion** in 2030 Notes (6.125% interest) and **$750.0 million** in 2033 Notes (6.250% interest), generating **$1.73 billion** in net proceeds[76](index=76&type=chunk) - In March 2025, Axon repurchased approximately **$407.5 million** of its 2027 Notes for cash and common stock, resulting in a **$28.7 million** induced conversion expense[85](index=85&type=chunk) - The 2027 Notes, due December 2027, were classified as current liabilities as of June 30, 2025, and December 31, 2024, due to conversion conditions being met[75](index=75&type=chunk) [Note 11 - Income Taxes](index=34&type=section&id=Note%2011%20-%20Income%20Taxes) This note explains Axon's income tax provision, effective tax rates, and deferred tax assets, highlighting factors influencing tax outcomes Effective Tax Rate and Provision for Income Taxes (in thousands) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Income (loss) before provision for income taxes | $(38,883) | $51,474 | $69,508 | $217,370 | | Provision for (benefit from) income taxes | $(75,000) | $10,001 | $(54,589) | $42,545 | | Effective tax rate | 192.9% | 19.4% | (78.5)% | 19.6% | - The effective tax rate for Q2 2025 was **192.9%** (vs. 19.4% in Q2 2024) and **(78.5)%** for H1 2025 (vs. 19.6% in H1 2024), primarily influenced by a shift to pre-tax book loss, favorable impacts of stock-based compensation, and R&D tax credits[91](index=91&type=chunk)[93](index=93&type=chunk) - Deferred tax assets increased from **$301.9 million** (Dec 31, 2024) to **$354.7 million** (June 30, 2025), mainly due to the capitalization of R&D costs under IRC Section 174[95](index=95&type=chunk) [Note 12 - Stockholders' Equity](index=34&type=section&id=Note%2012%20-%20Stockholders'%20Equity) This note details changes in Axon's stockholders' equity, including stock plans, restricted stock units, and stock-based compensation expense - Shareholders approved the 2024 Employee eXponential Stock Plan (XSP) with **4.5 million shares** reserved, and the 2024 CEO Performance Award of **679,102 XSUs**, both with stock price, operational, and service vesting conditions[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) Restricted Stock Unit (RSU) Activity (in thousands) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Units outstanding, beginning of year | 1,684 | 1,615 | | Granted | 44 | 551 | | Released | (328) | (279) | | Forfeited | (54) | (68) | | Units outstanding, end of period | 1,346 | 1,819 | | Aggregate intrinsic value at period-end | $1,114,570 | $535,066 | Stock-based Compensation Expense (in thousands) | Category | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cost of product and service sales | $12,561 | $8,517 | $25,448 | $38,112 | | Selling, general and administrative | $72,187 | $38,633 | $143,534 | $61,788 | | Research and development | $54,496 | $27,671 | $110,501 | $50,036 | | Total stock-based compensation expense | $139,244 | $74,821 | $279,483 | $149,936 | - During H1 2025, Axon sold **250,000 shares** under its 'at-the-market' equity offering program, generating **$183.6 million** in net proceeds, with approximately **1.7 million shares** remaining available[107](index=107&type=chunk)[108](index=108&type=chunk) [Note 13 - Line of Credit](index=37&type=section&id=Note%2013%20-%20Line%20of%20Credit) This note describes Axon's revolving credit facility, including its capacity, available borrowing, and compliance with covenants - In March 2025, Axon amended its Credit Agreement, increasing the revolving credit facility by **$100.0 million** to **$300.0 million** (with an accordion feature up to **$400.0 million**) and extending the maturity date to March 11, 2030[111](index=111&type=chunk) - As of June 30, 2025, no amounts were drawn under the Credit Agreement, with **$8.9 million** in outstanding letters of credit and **$291.1 million** in available borrowing[113](index=113&type=chunk) - The company is in compliance with the net leverage ratio and consolidated interest coverage ratio covenants under the Credit Agreement[114](index=114&type=chunk) [Note 14 - Commitments and Contingencies](index=39&type=section&id=Note%2014%20-%20Commitments%20and%20Contingencies) This note outlines Axon's legal commitments and contingencies, including product liability lawsuits, antitrust actions, and surety bonds - Axon is a defendant in product liability lawsuits alleging wrongful death or personal injury related to TASER CED use, which it aggressively defends[115](index=115&type=chunk)[116](index=116&type=chunk) - The company is self-insured for the first **$5.0 million** of any product claim made after 2014 and maintains product liability insurance coverage above this retention[116](index=116&type=chunk) - Other legal matters include an antitrust class action related to the Vievu LLC acquisition and a patent infringement suit against Dedrone (acquired by Axon) by Airspace Systems, Inc[117](index=117&type=chunk)[118](index=118&type=chunk) - As of June 30, 2025, Axon had **$8.9 million** in outstanding letters of credit under its credit facility and **$21.9 million** in outstanding surety bonds[122](index=122&type=chunk) [Note 15 – Accumulated Other Comprehensive Income (Loss)](index=41&type=section&id=Note%2015%20%E2%80%93%20Accumulated%20Other%20Comprehensive%20Income%20(Loss)) This note details the components of Axon's accumulated other comprehensive income (loss), including unrealized investment gains/losses and foreign currency translation Accumulated Other Comprehensive Income (Loss) (in thousands) | Category | December 31, 2024 | March 31, 2025 | June 30, 2025 | | :-------------------------------- | :---------------- | :------------- | :------------ | | Unrealized (Losses) Gains on Available-for-Sale Investments | $(30) | $(154) | $(81) | | Foreign Currency Translation | $(18,154) | $(17,796) | $(12,637) | | Total | $(18,184) | $(17,950) | $(12,718) | - Accumulated other comprehensive loss improved from **$(18.2) million** at December 31, 2024, to **$(12.7) million** at June 30, 2025, primarily due to favorable foreign currency translation adjustments[123](index=123&type=chunk) [Note 16 - Segment Data](index=42&type=section&id=Note%2016%20-%20Segment%20Data) This note provides financial data by Axon's reportable segments, Connected Devices and Software and Services, including adjusted gross margin Adjusted Gross Margin by Segment (in thousands) | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Connected Devices | $192,403 | $156,370 | $372,538 | $302,786 | | Software and Services | $230,575 | $161,293 | $434,636 | $305,388 | | Total Adjusted Gross Margin | $422,978 | $317,663 | $807,174 | $608,174 | Adjusted Gross Margin Percentage by Segment | Segment | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Connected Devices | 51.1% | 53.4% | 51.9% | 53.8% | | Software and Services | 78.9% | 76.6% | 78.3% | 76.4% | | Total Adjusted Gross Margin | 63.3% | 63.1% | 63.4% | 63.1% | - Adjusted gross margin for Connected Devices decreased due to an increased mix from Platform Solutions, while Software and Services saw an increase driven by a higher software mix[124](index=124&type=chunk) [Note 17 – Business Combinations](index=43&type=section&id=Note%2017%20%E2%80%93%20Business%20Combinations) This note details Axon's recent business combinations, including the acquisitions of Fusus, LLC and Dedrone, and related goodwill - On January 31, 2024, Axon acquired the remaining **79.7%** interest in Fusus, LLC for approximately **$241.3 million**, recognizing **$249.9 million** of goodwill and **$72.9 million** of identifiable intangible assets[127](index=127&type=chunk) - On October 1, 2024, Axon acquired the remaining **79.8%** interest in Dedrone for approximately **$391.1 million**, recording **$447.9 million** of goodwill and **$100.5 million** of identifiable intangible assets[129](index=129&type=chunk)[131](index=131&type=chunk) - Goodwill recognized from both Fusus and Dedrone acquisitions has been reallocated between the Connected Devices and Software and Services segments due to the Segment Realignment[128](index=128&type=chunk)[132](index=132&type=chunk) [Note 18 - Revision of Prior Period Financial Statements](index=44&type=section&id=Note%2018%20-%20Revision%20of%20Prior%20Period%20Financial%20Statements) This note explains the revisions made to Axon's prior period financial statements to correct immaterial errors in revenue recognition - Axon revised previously reported financial statements for Q2 and H1 2024 to correct immaterial errors related to principal vs. agent accounting under ASC 606[133](index=133&type=chunk) Impact of Revisions on Q2 2024 Consolidated Statements of Operations (in thousands) | Metric | As Reported | Adjustments | As Revised | | :------------------------------------ | :---------- | :---------- | :--------- | | Net sales | $504,099 | $(863) | $503,236 | | Gross margin | $303,735 | $2,421 | $306,156 | | Income from operations | $32,874 | $884 | $33,758 | | Net income | $40,797 | $676 | $41,473 | Impact of Revisions on H1 2024 Consolidated Statements of Operations (in thousands) | Metric | As Reported | Adjustments | As Revised | | :------------------------------------ | :---------- | :---------- | :--------- | | Net sales | $964,835 | $(1,728) | $963,107 | | Gross margin | $563,781 | $1,003 | $564,784 | | Income from operations | $49,154 | $1,060 | $50,214 | | Net income | $174,015 | $810 | $174,825 | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Axon's financial condition and results for Q2 2025, covering revenue, operating performance, liquidity, and non-GAAP measures [Overview](index=47&type=section&id=Overview) This section provides a high-level summary of Axon's mission and key financial highlights for the reporting periods - Axon is a technology leader in global public safety, aiming to halve gun-related deaths between police and the public in the U.S. by 2033, by integrating hardware and cloud software solutions[140](index=140&type=chunk) Key Financial Highlights (in millions) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Revenues | $668.5 | $503.2 | $1,272.2| $963.1 | | Operating Income (Loss) | $(1.0) | $33.8 | $(9.8) | $50.2 | | Net Income | $36.1 | $41.5 | $124.1 | $174.8 | - Gross margin as a percentage of revenue decreased slightly in Q2 2025 (**60.4%** vs **60.8%**) but increased in H1 2025 (**60.5%** vs **58.6%**), with adjusted gross margin showing increases in both periods[141](index=141&type=chunk)[142](index=142&type=chunk) - Operating expenses significantly increased in both periods due to higher headcount and stock-based compensation[141](index=141&type=chunk)[142](index=142&type=chunk) [Results of Operations](index=48&type=section&id=Results%20of%20Operations) Axon experienced strong net sales growth across both Connected Devices and Software and Services segments for the three and six months ended June 30, 2025. However, operating income declined, primarily due to increased operating expenses, particularly stock-based compensation and R&D. Net income was also impacted by significant interest expense from new debt and unrealized losses on marketable securities, partially offset by strategic investment gains and tax benefits [Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024](index=48&type=section&id=Three%20Months%20Ended%20June%2030,%202025%20Compared%20to%20the%20Three%20Months%20Ended%20June%2030,%202024) This section compares Axon's financial results for the second quarter of 2025 against the same period in 2024 Net Sales by Segment (Q2 YoY, in thousands) | Segment | Q2 2025 | Q2 2024 | Dollar Change | Percent Change | | :-------------------------- | :------ | :------ | :------------ | :------------- | | Connected Devices | $376,360| $292,763| $83,597 | 28.6% | | Software and Services | $292,178| $210,473| $81,705 | 38.8% | | Total Net Sales | $668,538| $503,236| $165,302 | 32.8% | - TASER sales increased by **19.1%** (**$34.7 million**) driven by higher TASER 10 handle and cartridge volume. Personal Sensors grew **23.6%** (**$17.7 million**) due to AB4 body camera adoption and warranty revenue. Platform Solutions surged **86.4%** (**$31.2 million**) from increased counter-drone equipment volume[145](index=145&type=chunk) - SG&A expenses increased by **$71.2 million** (**41.7%**), and R&D expenses increased by **$61.1 million** (**60.3%**), primarily due to higher stock-based compensation and increased headcount[149](index=149&type=chunk)[152](index=152&type=chunk) - Interest expense significantly increased from **$1.9 million** in Q2 2024 to **$28.7 million** in Q2 2025, mainly due to the issuance of Senior Notes in March 2025[154](index=154&type=chunk) - Other income (loss), net, shifted from a gain of **$7.9 million** in Q2 2024 to a loss of **$32.4 million** in Q2 2025, primarily due to an unrealized loss on marketable securities[155](index=155&type=chunk) [Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024](index=52&type=section&id=Six%20Months%20Ended%20June%2030,%202025%20Compared%20to%20the%20Six%20Months%20Ended%20June%2030,%202024) This section compares Axon's financial results for the first six months of 2025 against the same period in 2024 Net Sales by Segment (H1 YoY, in thousands) | Segment | H1 2025 | H1 2024 | Dollar Change | Percent Change | | :-------------------------- | :------ | :------ | :------------ | :------------- | | Connected Devices | $717,256| $563,187| $154,069 | 27.4% | | Software and Services | $554,915| $399,920| $154,995 | 38.8% | | Total Net Sales | $1,272,171| $963,107| $309,064 | 32.1% | - TASER sales increased by **18.9%** (**$65.6 million**), Personal Sensors by **26.6%** (**$38.1 million**), and Platform Solutions by **68.1%** (**$50.4 million**) in H1 2025[161](index=161&type=chunk) - SG&A expenses increased by **$143.7 million** (**44.6%**), and R&D expenses increased by **$121.1 million** (**62.9%**), primarily due to higher stock-based compensation and increased headcount[166](index=166&type=chunk)[168](index=168&type=chunk) - Interest expense rose from **$3.6 million** in H1 2024 to **$36.5 million** in H1 2025, driven by the issuance of Senior Notes[170](index=170&type=chunk) - Other income, net, decreased from **$147.0 million** in H1 2024 to **$82.0 million** in H1 2025, impacted by an unrealized loss on marketable securities and debt inducement expense, despite significant strategic investment gains[171](index=171&type=chunk) [Non-GAAP Measures](index=57&type=section&id=Non-GAAP%20Measures) Axon utilizes non-GAAP financial measures like EBITDA, Adjusted EBITDA, and Adjusted Gross Margin to provide additional insights into its financial and operational performance, excluding non-core operating results such as stock-based compensation and amortization of acquired intangibles. These measures are used by management for performance evaluation and forecasting - Non-GAAP measures are used to enhance understanding of financial results by adjusting for expenses not indicative of core operating results, such as stock-based compensation and amortization of acquired intangible assets[176](index=176&type=chunk) EBITDA and Adjusted EBITDA Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :------------------------------------ | :------ | :------ | :------ | :------ | | Net income | $36,117 | $41,473 | $124,097| $174,825| | EBITDA | $(14,126)| $54,692 | $110,677| $221,778| | Adjusted EBITDA | $171,632| $125,661| $326,802| $234,732| Adjusted Gross Margin Reconciliation (in thousands) | Metric | Q2 2025 | Q2 2024 | H1 2025 | H1 2024 | | :-------------------------- | :------ | :------ | :------ | :------ | | Gross margin | $403,743| $306,156| $769,482| $564,784| | Adjusted gross margin | $422,978| $317,663| $807,174| $608,174| | Adjusted gross margin % | 63.3% | 63.1% | 63.4% | 63.1% | [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) Axon's liquidity is primarily driven by operating activities, cash, cash equivalents, and short-term investments. The company significantly increased its cash and investments in H1 2025, largely due to the issuance of Senior Notes and an ATM equity offering. While operating activities used cash, financing activities provided substantial funds, ensuring sufficient capital for anticipated requirements [Summary](index=59&type=section&id=Summary) This section summarizes Axon's liquidity position, including cash, investments, and available credit, and its ability to meet future cash requirements Liquidity Summary (in thousands) | Metric | June 30, 2025 | December 31, 2024 | Dollar Change | | :-------------------------- | :------------ | :---------------- | :------------ | | Cash and cash equivalents | $615,496 | $454,844 | $160,652 | | Available-for-sale investments | $1,471,304 | $333,235 | $1,138,069 | | Total | $2,086,800 | $788,079 | $1,298,721 | - The increase in available-for-sale investments is primarily a result of investment activity following the issuance of Senior Notes in March 2025[180](index=180&type=chunk) - Axon has access to a **$300.0 million** revolving credit facility (expandable to **$400.0 million**), with **$291.1 million** available for borrowing as of June 30, 2025[181](index=181&type=chunk) - The company believes its funding sources are sufficient to meet cash requirements for at least the next 12 months, including capital expenditures, working capital, and potential acquisitions[184](index=184&type=chunk) [Cash Flows](index=61&type=section&id=Cash%20Flows) This section details Axon's cash flow activities from operations, investing, and financing for the reporting periods Cash Flow Summary (in thousands) | Activity | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Dollar Change | | :--------------------------------------- | :----------------------------- | :----------------------------- | :------------ | | Operating activities | $(65,910) | $66,825 | $(132,735) | | Investing activities | $(1,088,749) | $(91,905) | $(996,844) | | Financing activities | $1,308,861 | $(4,895) | $1,313,756 | - Operating cash flow shifted to a net outflow of **$65.9 million** in H1 2025, primarily due to changes in net income, stock-based compensation, fair value adjustments, and working capital changes[188](index=188&type=chunk) - Investing activities resulted in a **$1.1 billion** net cash outflow, driven by **$1.8 billion** in investment purchases, partially offset by proceeds from investment sales[189](index=189&type=chunk) - Financing activities generated **$1.3 billion** in cash, mainly from Senior Notes issuance and equity offering, partially offset by convertible debt payments and tax payments for stock awards[190](index=190&type=chunk) [Critical Accounting Estimates](index=63&type=section&id=Critical%20Accounting%20Estimates) This section highlights the significant estimates and assumptions used in preparing Axon's consolidated financial statements - The preparation of consolidated financial statements requires significant estimates and assumptions, which are evaluated on an ongoing basis[192](index=192&type=chunk) - No significant changes to critical accounting estimates were made for the six months ended June 30, 2025, as detailed in the amended 2024 Annual Report on Form 10-K/A[193](index=193&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=64&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section discusses Axon's exposure to market risks, specifically interest rate risk and exchange rate risk. The company's investment portfolio is sensitive to interest rate changes, and its international operations are subject to foreign currency fluctuations, which could impact financial results [Interest Rate Risk](index=64&type=section&id=Interest%20Rate%20Risk) This section discusses Axon's exposure to interest rate fluctuations on its investment portfolio and variable-rate debt - Axon's investment portfolio, primarily in money market accounts, certificates of deposit, and corporate/municipal bonds, is subject to interest rate risk[195](index=195&type=chunk) - A hypothetical **100 basis point increase** in interest rates would result in a **$1.9 million** decline in the fair market value of the investment portfolio as of June 30, 2025[195](index=195&type=chunk) - The **$300.0 million** line of credit bears interest at Term SOFR plus a spread, exposing future borrowings to interest rate fluctuations, though no amounts were outstanding as of June 30, 2025[196](index=196&type=chunk) [Exchange Rate Risk](index=64&type=section&id=Exchange%20Rate%20Risk) This section discusses Axon's exposure to foreign currency exchange rate fluctuations on its international sales and operations - Axon's results are subject to fluctuations from changes in foreign currency exchange rates, particularly for international sales transacted in foreign currencies[197](index=197&type=chunk) - A strengthening U.S. dollar can increase product costs for international customers or adversely affect the U.S. dollar value of foreign currency denominated sales and earnings[197](index=197&type=chunk) - The company has not engaged in currency hedging activities to date but may do so in the future to protect against foreign exchange risks[198](index=198&type=chunk) [Item 4. Controls and Procedures](index=64&type=section&id=Item%204.%20Controls%20and%20Procedures) This section addresses the effectiveness of Axon's disclosure controls and procedures and internal control over financial reporting. While a previously identified material weakness related to convertible debt classification has been remediated, a material weakness in revenue recognition remains, with ongoing remediation efforts [Evaluation of Disclosure Controls and Procedures](index=64&type=section&id=Evaluation%20of%20Disclosure%20Controls%20and%20Procedures) Axon's CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2025, due to a material weakness in internal control over financial reporting related to revenue recognition[199](index=199&type=chunk) [Remediation Efforts to Address the Material Weakness Related to Revenue Recognition](index=65&type=section&id=Remediation%20Efforts%20to%20Address%20the%20Material%20Weakness%20Related%20to%20Revenue%20Recognition) This section details Axon's ongoing efforts to remediate the identified material weakness in revenue recognition controls - Management is actively executing a remediation plan for the revenue recognition material weakness, including designing and implementing control activities for periodic assessment of revenue accounting policies and additional monitoring controls for existing and new revenue streams[200](index=200&type=chunk) - The material weakness cannot be considered remediated until controls have operated effectively for a sufficient period and management concludes their effectiveness through testing[200](index=200&type=chunk) [Remediation of Previously Identified Material Weakness Related to the 2027 Notes](index=65&type=section&id=Remediation%20of%20Previously%20Identified%20Material%20Weakness%20Related%20to%20the%202027%20Notes) This section describes the successful remediation of a prior material weakness concerning the classification of the 2027 Notes - Axon successfully remediated a previously identified material weakness related to the presentation of the 2027 Notes between current and long-term liabilities as of June 30, 2025[201](index=201&type=chunk)[202](index=202&type=chunk) - Remediation involved designing and implementing control activities to periodically monitor contingent conversion provisions within the 2027 Notes indenture and new debt arrangements[202](index=202&type=chunk) [Changes in Internal Control Over Financial Reporting](index=65&type=section&id=Changes%20in%20Internal%20Control%20Over%20Financial%20Reporting) This section reports on any material changes in Axon's internal control over financial reporting during the quarter - There have been no changes in internal control over financial reporting during the quarter ended June 30, 2025, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[203](index=203&type=chunk) [PART II - OTHER INFORMATION](index=65&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=65&type=section&id=Item%201.%20Legal%20Proceedings) This section incorporates by reference the discussion of legal proceedings from Note 14 to the consolidated financial statements, which details product liability litigation, antitrust class actions, and patent infringement suits Axon is currently involved in - The discussion of legal proceedings is incorporated by reference from Note 14 of the consolidated financial statements[205](index=205&type=chunk) [Item 1A. Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) This section outlines various risks that could materially adversely affect Axon's business, financial condition, results of operations, and cash flows. These risks are categorized into strategic, operational, financial, legal and compliance, and indebtedness-related factors, emphasizing the potential for unpredictable impacts on the company's performance and stock price [Risk Factor Summary](index=65&type=section&id=Risk%20Factor%20Summary) This section provides an overview of the key strategic, operational, financial, legal, and indebtedness-related risks facing Axon - Axon's business is highly dependent on the acceptance of its products and services by law enforcement agencies globally, particularly CEDs, and failure to maintain this acceptance would adversely affect financial results[207](index=207&type=chunk)[215](index=215&type=chunk)[216](index=216&type=chunk) - Operational risks include challenges in managing growth, supply chain disruptions, rapid technological change, cybersecurity breaches, and the development and deployment of AI technologies[208](index=208&type=chunk)[210](index=210&type=chunk) - Financial risks encompass fluctuations in gross margin, delayed cash collections from subscription models, budgetary constraints of government customers, and the impact of stock transactions and foreign currency changes[209](index=209&type=chunk)[210](index=210&type=chunk) - Legal and compliance risks include product liability claims, intellectual property infringement, evolving regulatory landscapes (including AI and firearms), and corporate governance expectations[211](index=211&type=chunk)[213](index=213&type=chunk) - Risks related to indebtedness involve significant cash requirements for debt obligations, potential dilution from convertible notes, counterparty risk in hedge transactions, and restrictive covenants[212](index=212&type=chunk)[213](index=213&type=chunk) [Strategic Risks](index=70&type=section&id=Strategic%20Risks) This section details risks related to Axon's business strategy, product acceptance, technological changes, brand reputation, and acquisitions - Axon's success heavily relies on the continued acceptance of its products, especially Conducted Energy Devices (CEDs), by law enforcement agencies; a decrease in demand or acceptance would materially harm its business[215](index=215&type=chunk)[216](index=216&type=chunk) - Failure to successfully design, introduce, sell, and deploy new products or features, particularly scalable SaaS solutions, in a timely and cost-effective manner could adversely affect business and financial results[219](index=219&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk)[222](index=222&type=chunk) - The company faces risks from rapid technological change, new competing products (especially in AI and machine learning), and the need to keep pace with evolving security standards, which could render existing products obsolete[223](index=223&type=chunk) - Negative publicity regarding the Axon brand, products, or industry, whether merited or not, could damage reputation, reduce sales, and adversely affect financial results[227](index=227&type=chunk)[228](index=228&type=chunk)[229](index=229&type=chunk) - Acquisitions or investments in other products, technologies, or businesses may disrupt operations, dilute shareholder value, and fail to realize anticipated benefits due to integration difficulties, unforeseen costs, or regulatory hurdles[230](index=230&type=chunk)[231](index=231&type=chunk)[233](index=233&type=chunk)[234](index=234&type=chunk) [Operational Risks](index=78&type=section&id=Operational%20Risks) This section outlines risks associated with Axon's day-to-day operations, including supply chain, global economy, product development, cybersecurity, and AI - Unavailability of materials or higher costs from domestic and international suppliers, especially for single-source components like those for TASER 10 CEDs, could adversely affect financial results and production capacity[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk) - Global economic conditions, including inflation, interest rate volatility, and geopolitical tensions, could adversely affect revenue and operations by impacting customer demand, budgets, and supply chains[247](index=247&type=chunk) - Delays in product development schedules for CEDs, devices, sensors, and software, or failure to meet evolving customer needs, could adversely affect revenues, cash flows, and competitive position[249](index=249&type=chunk)[250](index=250&type=chunk) - Security breaches of Axon's or third-party providers' systems could lead to unauthorized data access, service disruptions, reputational damage, and significant legal and financial liabilities[252](index=252&type=chunk)[253](index=253&type=chunk)[256](index=256&type=chunk) - Uncertainty in the development, deployment, and use of AI in products and services, including potential defects, biases, and evolving regulatory landscapes, could adversely affect business and reputation[261](index=261&type=chunk)[262](index=262&type=chunk)[263](index=263&type=chunk)[265](index=265&type=chunk)[266](index=266&type=chunk)[267](index=267&type=chunk) - Failure to maintain effective internal control over financial reporting, particularly the material weakness related to revenue recognition, may adversely affect financial reporting accuracy, investor confidence, and stock value[284](index=284&type=chunk)[285](index=285&type=chunk) [Financial Risks](index=90&type=section&id=Financial%20Risks) This section discusses risks impacting Axon's financial performance, such as revenue recognition, gross margin, customer budgets, cash management, and tax liabilities - An increasing portion of revenue from subscription billing arrangements may result in delayed cash collections and increased customer credit risk on receivables and contract assets[290](index=290&type=chunk)[291](index=291&type=chunk) - Gross margin can fluctuate due to changes in product mix, cost structure, acquisitions, increased warranty costs, and raw material expenses, leading to unpredictability in operating results[292](index=292&type=chunk)[294](index=294&type=chunk) - Revenue for SaaS products is recognized over multi-year contract terms, which may delay the reflection of new business in operating results and make current trends not immediately apparent[293](index=293&type=chunk) - Most end-user customers are government agencies subject to budgetary and political constraints, which can delay or prevent sales, result in contract cancellations, or lead to non-renewal[296](index=296&type=chunk)[298](index=298&type=chunk) - Axon holds the majority of its cash balances, some uninsured, at three depository institutions, exposing it to potential losses if these institutions fail[303](index=303&type=chunk)[304](index=304&type=chunk) - Unanticipated changes in effective tax rates and additional tax liabilities, influenced by statutory rates, geographic earnings, and tax law changes, could adversely affect operating results and financial condition[312](index=312&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk)[315](index=315&type=chunk)[316](index=316&type=chunk) [Legal and Compliance Risks](index=96&type=section&id=Legal%20and%20Compliance%20Risks) This section covers legal and regulatory risks, including product liability, intellectual property, open-source software, and evolving laws - Axon faces personal injury, wrongful death, and product liability claims related to the use of its CED products, which could result in significant judgments, legal expenses, and reputational harm[320](index=320&type=chunk)[321](index=321&type=chunk)[323](index=323&type=chunk) - The company is subject to intellectual property infringement claims, which could lead to substantial litigation costs, damages, and restrictions on technology use, especially as it enters new markets and uses AI tools[326](index=326&type=chunk)[327](index=327&type=chunk) - Inability to protect intellectual property, due to inadequate measures, varying international laws, or genericness claims (e.g., 'TASER' trademark), could decrease brand value and competitive advantage[328](index=328&type=chunk)[329](index=329&type=chunk)[330](index=330&type=chunk)[331](index=331&type=chunk) - The use of open-source software may expose Axon to risks, including requirements to publicly disclose proprietary source code or unfavorable licensing terms, harming intellectual property rights[333](index=333&type=chunk) - Evolving U.S. federal, state, local, and foreign laws and regulations (e.g., privacy, data protection, AI, firearms) can impose significant compliance costs, delay product development, and lead to civil or criminal liability[334](index=334&type=chunk)[335](index=335&type=chunk)[336](index=336&type=chunk) [Risks Related to our Indebtedness](index=101&type=section&id=Risks%20Related%20to%20our%20Indebtedness) This section details risks associated with Axon's debt obligations, including cash requirements, conversion features, and restrictive covenants - Fulfilling debt obligations requires significant cash resources, and failure to generate sufficient cash flow could necessitate asset sales, debt restructuring, or additional equity, potentially leading to default[344](index=344&type=chunk) - The conditional conversion features of the 2027 Notes could adversely affect liquidity if holders elect to convert, requiring cash settlement, and may impact net working capital if classified as current liabilities[345](index=345&type=chunk)[346](index=346&type=chunk) - Conversion of the 2027 Notes may dilute shareholder ownership and could depress the common stock price, especially if settled with shares or if market participants engage in short selling[347](index=347&type=chunk)[348](index=348&type=chunk) - The 2027 Note Hedge and Warrant transactions, and related hedging activities by counterparties, may impact the value of the 2027 Notes and common stock, with unpredictable effects[349](index=349&type=chunk)[350](index=350&type=chunk)[351](index=351&type=chunk) - Axon is exposed to counterparty risk with respect to the 2027 Note Hedge transactions, as a default by an option counterparty could lead to adverse tax consequences and greater stock dilution[352](index=352&type=chunk)[353](index=353&type=chunk)[354](index=354&type=chunk) - Indebtedness contains restrictive covenants that could limit operational flexibility, hinder strategic transactions, and adversely affect common stock value[355](index=355&type=chunk)[356](index=356&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=103&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds were reported for the period[357](index=357&type=chunk) [Item 3. Defaults Upon Senior Securities](index=105&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section indicates that there were no defaults upon senior securities during the reporting period - No defaults upon senior securities were reported for the period[359](index=359&type=chunk) [Item 4. Mine Safety Disclosures](index=105&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section confirms that there are no mine safety disclosures to report - No mine safety disclosures were reported for the period[360](index=360&type=chunk) [Item 5. Other Information](index=105&type=section&id=Item%205.%20Other%20Information) This section provides details on Rule 10b5-1 trading arrangements adopted or terminated by directors and officers during the three months ended June 30, 2025, including the number of securities to be sold Rule 10b5-1 Trading Arrangements by Directors and Officers (Q2 2025) | Name and Title | Action | Date of Adoption or Termination | Expiration Date | Aggregate Number of Securities to be Sold | | :------------------------------------------ | :----------- | :------------------------------ | :-------------- | :---------------------------------------- | | Patrick Smith, Chief Executive Officer | Termination | May 12, 2025 | October 20, 2028| 150,000 | | Joshua Isner, President | Adoption | August 21, 2024 | December 31, 2025| 33,393 | | Patrick Smith, Chief Executive Officer | Adoption | May 12, 2025 | August 10, 2027 | 240,000 | | Brittany Bagley, Chief Operating Officer and Chief Financial Officer | Adoption | June 16, 2025 | December 31, 2025| 10,000 | - One Rule 10b5-1 trading arrangement for Joshua Isner was inadvertently omitted from a prior quarterly report[365](index=365&type=chunk) [Item 6. Exhibits](index=105&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including corporate governance documents, certifications, and XBRL-related files - Exhibits include the Amended and Restated Certificate of Incorporation, Bylaws, Principal Executive and Financial Officer Certifications (Rule 13a-14(a) and 18 U.S.C. Section 1350), and Inline XBRL documents[364](index=364&type=chunk) [SIGNATURES](index=108&type=section&id=SIGNATURES) This section confirms the official signing of the report by Axon's principal executive and financial officers - The report is duly signed on behalf of Axon Enterprise, Inc. by Patrick Smith, Chief Executive Officer, and Brittany Bagley, Chief Operating Officer and Chief Financial Officer, on August 4, 2025[369](index=369&type=chunk)[371](index=371&type=chunk)

Core Insights - Axon Enterprise reported a revenue of $668.54 million for the quarter ended June 2025, reflecting a year-over-year increase of 32.6% and surpassing the Zacks Consensus Estimate by 3.98% [1] - The company's EPS for the quarter was $2.12, significantly higher than the $1.20 reported in the same quarter last year, resulting in an EPS surprise of 37.66% compared to the consensus estimate of $1.54 [1] Financial Performance Metrics - Annual recurring revenue reached $1,183.00 million, exceeding the three-analyst average estimate of $1,148.53 million [4] - Net Sales from Products amounted to $376.36 million, surpassing the average estimate of $364.23 million and showing a year-over-year increase of 27.5% [4] - Net Sales from Services were reported at $292.18 million, exceeding the average estimate of $282.58 million, with a year-over-year growth of 39.9% [4] - Net Sales from Connected Devices - TASER totaled $216.23 million, slightly below the average estimate of $222.91 million [4] - Net Sales from Connected Devices - Platform Solutions reached $67.31 million, significantly above the average estimate of $48.92 million [4] - Net Sales from Software and Services were $292.18 million, exceeding the average estimate of $283.88 million [4] - Overall Net Sales from Connected Devices were $376.36 million, slightly above the average estimate of $366.46 million [4] - Net Sales from Connected Devices - Personal Sensors were reported at $92.82 million, below the average estimate of $94.64 million [4] Stock Performance - Over the past month, Axon shares have returned -6.7%, contrasting with the Zacks S&P 500 composite's +0.6% change [3] - The stock currently holds a Zacks Rank 2 (Buy), indicating potential for outperformance in the near term [3]