Axon Q2 earnings recap: growth, margins and valuation

This quarter, Axon delivered its 10th consecutive quarter of revenue growth above 30%, raised full year guidance, and posted the kind of software metrics that would make most SaaS companies jealous. And yet, the stock sold off 15% after earnings.

In this recap, I'll cover everything you need to know from this quarter. Key metrics, management commentary, outlook, the AI and software highlights and much more.

1 - What Axon does

Axon started as TASER, the maker of the conducted energy weapon police carry, and has spent the past decade building outward into what it now calls the operating system for public safety.

The company sells connected hardware, body cameras, drones, counter-drone systems, and TASER devices, alongside a growing software layer that stores and analyzes the data those devices generate, including evidence management, real time operations, and now AI tools like the Draft One report writer and the AI Era Plan.

The business model increasingly resembles a razor and blade setup, where hardware gets a customer into the ecosystem and recurring software subscriptions compound in value as customers add more devices, users, and workflows etc.

2 - Key numbers

Revenue: $904 million, up 35% year over year, the 10th straight quarter above 30% growth
Software & Services revenue: $398 million, up 36% year over year
AI Era Plan revenue: grew nearly 700% year over year
Connected Devices revenue: $507 million, up 35% year over year
Annual recurring revenue: $1.6 billion, up 39% year over year
Net revenue retention: 126%, up from 124% a year ago
Future contracted bookings: $15.1 billion, up 41% year over year
GAAP net income: $29 million, a 3.3% margin, down from $36 million a year ago
Non-GAAP net income: $155 million, down from $179 million a year ago
Adjusted EBITDA: $242 million, a 26.8% margin
Gross margin: 60.4%, flat year over year
Adjusted gross margin: 62.9%, down 40 basis points year over year
Operating cash flow: $20 million, improved from a $92 million outflow a year ago
Free cash flow: negative $1 million

Net debt: $1.1 billion, up $46 million sequentially