Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition as of June 30, 2025, and results of operations for the three and six months ended June 30, 2025 and 2024, should be read in conjunction with the unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes in our amended 2024 Annual Report on Form 10-K/A for the year ended December 31, 2024, filed with the SEC on May 7, 2025. The discussion includes references to non-GAAP financial measures, such as adjusted gross margin, which supplement our GAAP results by providing additional insight into our financial and operational performance. For definitions and reconciliations of these non-GAAP measures to the most directly comparable GAAP measures, refer to “Non-GAAP Measures” within this Quarterly Report on Form 10-Q. This discussion also contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Part II, Item 1A. Risk Factors.” See also “Special Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.

Overview

Axon is a technology leader in global public safety. Our moonshot goal is to cut gun-related deaths between police and the public in the United States in half by 2033. Axon is building the public safety operating system of the future by integrating a suite of hardware devices and cloud software solutions that not only revolutionize modern policing but also cater to federal agencies, corrections, justice and enterprise-level security needs. Axon’s suite includes cloud-hosted digital evidence management solutions, productivity and real-time operations software, body cameras, in-car cameras, TASER energy devices, drone and robotic security, and training solutions. Our financial results are reported in two reportable segments, Connected Devices and Software and Services.

Our revenues for the three months ended June 30, 2025 were $668.5 million, an increase of $165.3 million, or 32.8%, from the three months ended June 30, 2024. We had loss from operations of $1.0 million, compared to income from operations of $33.8 million for the same period in the prior year. Gross margin dollars increased $97.6 million and decreased as a percentage of revenue to 60.4% from 60.8% compared to the three months ended June 30, 2024. The decrease was primarily driven by higher stock-based compensation expense in the current period. Excluding the impacts of stock-based compensation expense, acquired intangibles amortization in cost of goods sold, and payroll taxes related to 2024 Employee XSP vesting, adjusted gross margin increased to 63.3% for the three months ended June 30, 2025 compared to 63.1% for the three months ended June 30, 2024. Operating expenses increased by $132.4 million, reflecting increased headcount to support business growth and stock-based compensation expense. Net income of $36.1 million included a $75.0 million tax benefit, partially offset by a noncash unrealized loss of $30.9 million related to our marketable securities. Net income of $41.5 million for the three months ended June 30, 2024 included a noncash unrealized gain of $7.8 million on our investment in marketable securities.

Our revenues for the six months ended June 30, 2025 were $1.3 billion, an increase of $309.1 million, or 32.1%, from the six months ended June 30, 2024. We had loss from operations of $9.8 million, compared to income from operations of $50.2 million for the same period in the prior year. Gross margin dollars increased $204.7 million and increased as a percentage of revenue to 60.5% from 58.6% compared to the six months ended June 30, 2024. Excluding the impacts of stock-based compensation expense, acquired intangibles amortization in cost of goods sold, and payroll taxes related to 2024 Employee XSP vesting, adjusted gross margin increased to 63.4% for the six months ended June 30, 2025 compared to 63.1% for the same period in the prior year, primarily due to higher software revenue mix. Operating expenses increased by $264.7 million, reflecting increased headcount to support business growth and stock-based compensation expense. Net income of $124.1 million included net realized and unrealized gains of $166.0 million related to our strategic investments and a $54.6 million tax benefit, partially offset by a noncash unrealized loss of $54.3 million related to our marketable securities and inducement expense of $28.7 million associated with the early repurchase of a portion of our 2027 Notes, as discussed further within Note 10. Net income of $174.8 million for the six months ended June 30, 2024 included a realized gain of $42.3 million related to our acquisition in Fusus, an unrealized gain of $75.8 million related to a strategic investment, and a noncash unrealized gain of $29.6 million on our investment in marketable securities.

Certain prior period amounts previously reported on our consolidated financial statements have been revised to correct for immaterial errors, as described in Note 1 and Note 18 to our consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Results of Operations

Three Months Ended June 30, 2025 Compared to the Three Months Ended June 30, 2024

The following table presents data from our consolidated statements of operations and comprehensive income as well as the percentage relationship to total net sales of items included in our consolidated statements of operations and comprehensive income (dollars in thousands):


	Three Months Ended June 30,
	2025				2024
Net sales from products	$	376,360	56.3	%	$	292,763	58.2	%
Net sales from services	292,178		43.7		210,473		41.8
Net sales	668,538		100.0		503,236		100.0
Cost of product sales	193,507		28.9		142,627		28.3
Cost of services sales	71,288		10.7		54,453		10.8
Cost of sales	264,795		39.6		197,080		39.2
Gross margin	403,743		60.4		306,156		60.8
Operating expenses:
Selling, general and administrative	242,212		36.2		170,964		34.0
Research and development	162,567		24.4		101,434		20.2
Total operating expenses	404,779		60.6		272,398		54.1
Income (loss) from operations	(1,036)		(0.2)		33,758		6.7
Interest income	23,253		3.5		11,653		2.3
Interest expense	(28,686)		(4.3)		(1,871)		(0.4)
Other income (loss), net	(32,414)		(4.8)		7,934		1.6
Income (loss) before provision for income taxes	(38,883)		(5.8)		51,474		10.2
Provision for (benefit from) income taxes	(75,000)		(11.2)		10,001		2.0
Net income	$	36,117	5.4	%	$	41,473	8.2	%

The following table presents our revenues disaggregated by geography (dollars in thousands):


	Three Months Ended June 30,
	2025				2024
United States	$	537,373	80	%	$	424,638	84	%
Other countries	131,165		20		78,598		16
Total	$	668,538	100	%	$	503,236	100	%

International revenue increased compared to the prior year June 30, 2024 comparative period, primarily driven by increased sales in our Americas region.

Net Sales

Net sales by product line were as follows (dollars in thousands):


	Three Months Ended June 30,								Dollar Change		Percent Change
	2025				2024
Connected Devices segment:
TASER (1)	$	216,234	32.3	%	$	181,548	36.1	%	$	34,686	19.1	%
Personal Sensors (2)	92,819		13.9		75,113		14.9		17,706		23.6
Platform Solutions (3)	67,307		10.1		36,102		7.2		31,205		86.4
Total Connected Devices segment	376,360		56.3		292,763		58.2		83,597		28.6
Total Software and Services segment	292,178		43.7		210,473		41.8		81,705		38.8
Total net sales	$	668,538	100.0	%	$	503,236	100.0	%	$	165,302	32.8	%

(1)'TASER' includes TASER handles, cartridges and related extended warranties.

(2)'Personal Sensors' primarily includes body cameras and accessories, signal sidearm, and related extended warranties.

(3)'Platform Solutions' primarily includes interview room, fleet in-car video, fixed cameras, drones and counter-drone equipment, virtual reality training hardware, and related extended warranties.

Net sales for the Connected Devices segment increased 28.6% for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024. The increase of $34.7 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $17.7 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $31.2 million increase in Platform Solutions is primarily driven by higher volume for counter-drone equipment.

Net sales for the Software and Services segment increased 38.8% for the three months ended June 30, 2025 as compared to the three months ended June 30, 2024. The increase in the aggregate number of users and growing adoption of our premium add-on features by existing customers drove the majority of the increase of $81.7 million.

Gross Margin

As a percentage of net sales, gross margin for the Connected Devices segment decreased to 48.6% from 51.3% for the three months ended June 30, 2025 and 2024, respectively. Adjusted gross margin for the Connected Devices segment, which excludes stock-based compensation expense, acquired intangibles amortization, and payroll taxes related to 2024 Employee XSP vesting, was 51.1% for the three months ended June 30, 2025, compared to 53.4% for the three months ended June 30, 2024. The decrease in both measures was primarily driven by an increased mix from Platform Solutions.

As a percentage of net sales, gross margin for the Software and Services segment increased to 75.6% from 74.1% for the three months ended June 30, 2025 and 2024, respectively. Adjusted gross margin for the Software and Services segment, which excludes stock-based compensation expense, acquired intangibles amortization, and payroll taxes related to 2024 Employee XSP vesting, increased to 78.9% for the three months ended June 30, 2025, compared to 76.6% for the three months ended June 30, 2024. The increase in both measures was primarily driven by higher software mix.

Selling, General and Administrative Expenses

SG&A expenses were comprised as follows (dollars in thousands):


	Three Months Ended June 30,				Dollar Change		Percent Change
	2025		2024
Total selling, general and administrative expenses	$	242,212	$	170,964	$	71,248	41.7	%
As a percentage of net sales	36.2%		34.0%

Stock-based compensation expense increased $33.6 million in comparison to the prior year June 30, 2024 comparable period, which was primarily related to the 2024 Employee XSP and the 2024 CEO Performance Award that were approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.

Salaries, benefits and bonus expense increased $22.5 million in comparison to the prior year June 30, 2024 comparable period, which was primarily attributable to an increase in headcount and higher wages.

Sales and marketing expense increased $6.3 million in comparison to the prior year June 30, 2024 comparable period, which was primarily attributable to increased commissions and in-person events.

Research and Development Expenses

R&D expenses were comprised as follows (dollars in thousands):


	Three Months Ended June 30,						Dollar Change		Percent Change
	2025			2024
Total research and development expenses	$	162,567		$	101,434		$	61,133	60.3	%
As a percentage of net sales	24.3		%	20.2		%

Stock-based compensation expense increased $26.8 million in comparison to the prior year June 30, 2024 comparable period, which was primarily related to the 2024 Employee XSP that was approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.

Salaries, benefits and bonus expense increased $18.9 million in comparison to the prior year June 30, 2024 comparable period, which was primarily attributable to an increase in headcount and higher wages.

Interest Income (Loss), Net

Interest income (loss), net, was as follows (in thousands):


	Three Months Ended June 30,
	2025		2024
Interest income	$	23,253	$	11,653
Interest expense (1)	(28,686)		(1,871)
Total interest income (loss), net	$	(5,433)	$	9,782

(1)Interest expense increased in comparison to the prior year June 30, 2024 comparable period primarily as a result of the issuance of the Senior Notes in March 2025, as discussed further within Note 10.

Other Income (Loss), Net

Other income (loss), net, was as follows (in thousands):


	Three Months Ended June 30,
	2025		2024
Realized and unrealized gain (loss) on fair value adjustments of strategic investments, net	$	(1,297)	$	158
Unrealized gain (loss) on marketable securities, net (1)	(30,870)		7,830
Loss on foreign currency transactions, net	(413)		(35)
Other, net	166		(19)
Other income (loss), net	$	(32,414)	$	7,934

(1)Reflects the unrealized loss on marketable securities during the three months ended June 30, 2025, as discussed within Note 3.

Provision for (Benefit from) Income Taxes

The effective tax rate was 192.9%, for the three months ended June 30, 2025, compared to 19.4% for the three months ended June 30, 2024. The 2025 tax benefit is driven by the favorable impact of stock-based compensation and R&D tax credits. These were partially offset by higher tax expense related to the executive compensation limitation under IRC Section 162(m) and increased unrecognized tax benefits.

Provision for (benefit from) income taxes and effective tax rates were as follows (dollars in thousands):


	Three Months Ended June 30,
	2025			2024			Change
Income (loss) before provision for income taxes	$	(38,883)		$	51,474		$	(90,357)
Provision for (benefit from) income taxes	(75,000)			10,001			(85,001)
Effective tax rate	192.9		%	19.4		%

Net Income

We recorded net income of $36.1 million for the three months ended June 30, 2025 compared to net income of $41.5 million for the three months ended June 30, 2024. Net income per basic share was $0.46 for the three months ended June 30, 2025 compared to $0.55 net income per basic share for the three months ended June 30, 2024. Net income per diluted share was $0.44 for the three months ended June 30, 2025 compared to $0.53 net income per diluted share for the three months ended June 30, 2024.

Six Months Ended June 30, 2025 Compared to the Six Months Ended June 30, 2024


	Six Months Ended June 30,
	2025				2024
Net sales from products	$	717,256	56.4	%	$	563,187	58.5	%
Net sales from services	554,915		43.6		399,920		41.5
Net sales	1,272,171		100.0		963,107		100.0
Cost of product sales	363,688		28.6		294,787		30.6
Cost of services sales	139,001		10.9		103,536		10.8
Cost of sales	502,689		39.5		398,323		41.4
Gross margin	769,482		60.5		564,784		58.6
Operating expenses:
Selling, general and administrative	465,721		36.6		322,039		33.4
Research and development	313,590		24.6		192,531		20.0
Total operating expenses	779,311		61.2		514,570		53.4
Income (loss) from operations	(9,829)		(0.7)		50,214		5.2
Interest income	33,857		2.7		23,783		2.5
Interest expense	(36,507)		(2.9)		(3,627)		(0.4)
Other income (loss), net	81,987		6.4		147,000		15.3
Income before provision for income taxes	69,508		5.5		217,370		22.6
Provision for (benefit from) income taxes	(54,589)		(4.3)		42,545		4.4
Net income	$	124,097	9.8	%	$	174,825	18.2	%

The following table presents our revenues disaggregated by geography (dollars in thousands):


	Six Months Ended June 30,
	2025				2024
United States	$	1,066,756	84	%	$	816,179	85	%
Other countries	205,415		16		146,928		15
Total	$	1,272,171	100	%	$	963,107	100	%

International revenue increased compared to the prior year June 30, 2024 comparative period, primarily driven by increased sales in our Americas region.

Net Sales

As a result of the Segment Realignment, we have updated and recast our disaggregated revenue categories. Net sales by product line were as follows (dollars in thousands):


	Six Months Ended June 30,								Dollar Change		Percent Change
	2025				2024
Connected Devices segment:
TASER (1)	$	411,729	32.4	%	$	346,147	35.9	%	$	65,582	18.9	%
Personal Sensors (2)	181,224		14.2		143,113		14.9		38,111		26.6
Platform Solutions (3)	124,303		9.8		73,927		7.7		50,376		68.1
Total Connected Devices segment	717,256		56.4		563,187		58.5		154,069		27.4
Total Software and Services segment	554,915		43.6		399,920		41.5		154,995		38.8
Total net sales	$	1,272,171	100.0	%	$	963,107	100.0	%	$	309,064	32.1	%

(1)'TASER' includes TASER handles, cartridges and related extended warranties.

(2)'Personal Sensors' primarily includes body cameras and accessories, signal sidearm, and related extended warranties.

(3)'Platform Solutions' primarily includes interview room, fleet in-car video, fixed cameras, drones and counter-drone equipment, virtual reality training hardware, and related extended warranties.

Net sales for the Connected Devices segment increased 27.4% for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024. The increase of $65.6 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $38.1 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $50.4 million increase in Platform Solutions is primarily driven by higher volume for counter-drone equipment and virtual reality training.

Net sales for the Software and Services segment increased 38.8% for the six months ended June 30, 2025 as compared to the six months ended June 30, 2024. The increase in the aggregate number of users and growing adoption of our premium add-on features by existing customers drove the majority of the increase of $155.0 million.

Gross Margin

As a percentage of net sales, gross margin for the Connected Devices segment increased to 49.3% from 47.7% for the six months ended June 30, 2025 and 2024, respectively. The increase was primarily due to higher stock-based compensation expense for the six months ended June 30, 2024. Adjusted gross margin for the Connected Devices segment, which excludes stock-based compensation expense, acquired intangibles amortization, and payroll taxes related to 2024 Employee XSP vesting, was 51.9% for the six months ended June 30, 2025, compared to 53.8% for the six months ended June 30, 2024. The decrease is primarily driven by increased mix from Platform Solutions.

As a percentage of net sales, gross margin for the Software and Services segment increased to 75.0% from 74.1% for the six months ended June 30, 2025 and 2024, respectively. Adjusted gross margin for the Software and Services segment, which excludes stock-based compensation expense, acquired intangibles amortization, and payroll taxes related to 2024 Employee XSP vesting, increased to 78.3% for the six months ended June 30, 2025, compared to 76.4% for the six months ended June 30, 2024. The increase was primarily driven by higher software mix.

Selling, General and Administrative Expenses

SG&A expenses were comprised as follows (dollars in thousands):


	Six Months Ended June 30,				Dollar Change		Percent Change
	2025		2024
Total selling, general and administrative expenses	$	465,721	$	322,039	$	143,682	44.6	%
As a percentage of net sales	36.6%		33.4%

Stock-based compensation expense increased $81.7 million in comparison to the prior year June 30, 2024 comparable period, which was primarily related to the 2024 Employee XSP and the 2024 CEO Performance Award that were approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.

Salaries, benefits and bonus expense increased $35.7 million in comparison to the prior year June 30, 2024 comparable period, which was primarily attributable to an increase in headcount and higher wages.

Sales and marketing expense increased $9.5 million in comparison to the prior year June 30, 2024 comparable period, which was primarily attributable to increased commissions and in-person events.

Research and Development Expenses

R&D expenses were comprised as follows (dollars in thousands):


	Six Months Ended June 30,						Dollar Change		Percent Change
	2025			2024
Total research and development expenses	$	313,590		$	192,531		$	121,059	62.9	%
As a percentage of net sales	24.6		%	20.0		%

Stock-based compensation expense increased $60.5 million in comparison to the prior year June 30, 2024 comparable period, which was primarily related to the 2024 Employee XSP that was approved by shareholders in the 2024 Annual Meeting of Shareholders and increased headcount.

Salaries, benefits and bonus expense increased $34.7 million in comparison to the prior year June 30, 2024 comparable period, which was primarily attributable to an increase in headcount and higher wages.

Interest Income (Loss), Net

Interest income (loss), net, was as follows (in thousands):


	Six Months Ended June 30,
	2025		2024
Interest income	$	33,857	$	23,783
Interest expense (1)	(36,507)		(3,627)
Total interest income (loss), net	$	(2,650)	$	20,156

Other Income, Net

Other income, net, was as follows (in thousands):


	Six Months Ended June 30,
	2025		2024
Realized and unrealized gain on fair value adjustments of strategic investments, net	$	166,024	$	118,089
Unrealized gain (loss) on marketable securities, net (1)	(54,270)		29,610
Gain (loss) on foreign currency transactions, net	(1,216)		53
Induced conversion of convertible debt (2)	(28,666)		—
Other, net	115		(752)
Other income, net	$	81,987	$	147,000

(1)Reflects the unrealized loss on marketable securities during the six months ended June 30, 2025, as discussed within Note 3.

(2)Reflects the inducement expense associated with the early repurchase of a portion of our 2027 Notes in the first quarter of 2025, as discussed further within Note 10.

Provision for (Benefit from) Income Taxes

The effective tax rate is (78.5)% for the six months ended June 30, 2025, compared to 19.6% for the six months ended June 30, 2024. The change is attributable to the favorable impact of stock-based compensation and R&D tax credits. These were partially offset by higher tax expense related to the executive compensation limitation under IRC Section 162(m), increased unrecognized tax benefits, and the absence of a prior year gain related to an investment transaction not recognized for tax. The overall change in the effective tax rate also reflects the impact of lower pre-tax book income in the current period, which magnifies the relative effect of permanent and discrete items.

Provision for (benefit from) income taxes and effective tax rates were as follows (dollars in thousands):


	Six Months Ended June 30,
	2025			2024			Change
Income (loss) before provision for income taxes	$	69,508		$	217,370		$	(147,862)
Provision for (benefit from) income taxes	$	(54,589)		$	42,545		$	(97,134)
Effective tax rate	(78.5)		%	19.6		%

Net Income

We recorded net income of $124.1 million for the six months ended June 30, 2025 compared to net income of $174.8 million for the six months ended June 30, 2024. Net income per basic share was $1.60 for the six months ended June 30, 2025 compared to $2.32 net income per basic share for the six months ended June 30, 2024. Net income per diluted share was $1.52 for the six months ended June 30, 2025 compared to $2.26 net income per diluted share for the six months ended June 30, 2024.

Non-GAAP Measures

We utilize certain non-GAAP financial measures such as EBITDA, adjusted EBITDA, and adjusted gross margin as defined below to enhance understanding of our financial results and related measures. We have adjusted for expenses that we believe are not indicative of our core operating results, including stock-based compensation expense and amortization of acquired intangible assets. To improve comparability, prior periods have been conformed to the current period presentation. Our management uses these non-GAAP financial measures in evaluating our operating performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.

EBITDA (most comparable GAAP measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation and amortization.
Adjusted EBITDA (most comparable GAAP measure: Net income) – Earnings before interest expense; investment interest income; income taxes; depreciation; amortization; noncash stock-based compensation expense; fair value adjustments related to strategic investments, marketable securities, and mark-to-market on our non-qualified deferred compensation liabilities; debt inducement expense associated with the early repurchase of a portion of our 2027 Notes; transaction and integration costs related to strategic investments and acquisitions, including the change in fair value of contingent consideration arrangements; inventory step-up amortization related to acquisitions; certain litigation costs and recoveries related to (1) antitrust cases we consider to be non-recurring and outside of our core operating results and (2) litigation matters for acquired companies that were unresolved at the date of the acquisition; payroll taxes related to 2024 Employee XSP vesting; and other unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance (listed in the tables below).
Adjusted gross margin (most comparable GAAP measure: Gross margin) – Gross margin before noncash stock-based compensation expense, amortization of acquired intangible assets, inventory step-up amortization related to acquisitions, and payroll taxes related to 2024 Employee XSP vesting.

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing our operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to our GAAP financial measures;
these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, our GAAP financial measures;
these non-GAAP financial measures should not be considered to be superior to our GAAP financial measures; and
these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q were prepared under a comprehensive set of rules or principles.

EBITDA and adjusted EBITDA reconcile to net income as follows (in thousands):


	Three Months Ended June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Net income	$	36,117	$	41,473	$	124,097	$	174,825
Depreciation and amortization	19,324		13,000		38,519		24,564
Interest expense	28,686		1,871		36,507		3,627
Investment interest income	(23,253)		(11,653)		(33,857)		(23,783)
Provision for (benefit from) income taxes	(75,000)		10,001		(54,589)		42,545
EBITDA	$	(14,126)	$	54,692	$	110,677	$	221,778

Non-GAAP adjustments:
Stock-based compensation expense	139,244		74,821		279,483		149,936
Unrealized and realized losses (gains) on investments and marketable securities, net	33,728		(7,967)		(110,193)		(105,386)
Realized gains on previously held minority interests acquired in business combinations, net	—		(21)		—		(42,313)
Debt inducement expense	—		—		28,666		—
Transaction costs related to strategic investments and acquisitions	2,230		4,136		4,957		10,493
Inventory step-up amortization	—		—		607		—
Litigation costs and related recoveries	774		—		2,823		224
Payroll taxes related to 2024 Employee XSP vesting	9,782		—		9,782		—
Adjusted EBITDA	$	171,632	$	125,661	$	326,802	$	234,732

As a result of the Segment Realignment, we have recast adjusted gross margin for the three and six months ended June 30, 2024 to conform to the new presentation. Adjusted gross margin reconciles to gross margin as follows (in thousands):


	Three Months Ended June 30,
	2025									2024
	Connected Devices			Software and Services			Total			Connected Devices			Software and Services			Total
Gross margin	$	182,853		$	220,890		$	403,743		$	150,136		$	156,020		$	306,156
Stock-based compensation expense	7,583			4,978			12,561			5,883			2,634			8,517
Amortization of acquired intangible assets	1,333			3,853			5,186			351			2,639			2,990
Payroll taxes related to 2024 Employee XSP vesting	634			854			1,488			—			—			—
Adjusted gross margin	$	192,403		$	230,575		$	422,978		$	156,370		$	161,293		$	317,663
Gross margin %	48.6		%	75.6		%	60.4		%	51.3		%	74.1		%	60.8		%
Adjusted gross margin %	51.1		%	78.9		%	63.3		%	53.4		%	76.6		%	63.1		%


	Six Months Ended June 30,
	2025									2024
	Connected Devices			Software and Services			Total			Connected Devices			Software and Services			Total
Gross margin	$	353,568		$	415,914		$	769,482		$	268,400		$	296,384		$	564,784
Stock-based compensation expense	15,059			10,389			25,448			33,710			4,402			38,112
Amortization of acquired intangible assets	2,670			7,479			10,149			676			4,602			5,278
Inventory step-up amortization	607			—			607			—			—			—
Payroll taxes related to 2024 Employee XSP vesting	634			854			1,488			—			—			—
Adjusted gross margin	$	372,538		$	434,636		$	807,174		$	302,786		$	305,388		$	608,174
Gross margin %	49.3		%	75.0		%	60.5		%	47.7		%	74.1		%	58.6		%
Adjusted gross margin %	51.9		%	78.3		%	63.4		%	53.8		%	76.4		%	63.1		%

Liquidity and Capital Resources

Summary


	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

Our most significant source of liquidity continues to be funds generated by operating activities and available cash and cash equivalents and short-term investments. As of June 30, 2025, we had $615.5 million of cash and cash equivalents, an increase of $160.7 million from December 31, 2024. Refer below for further discussions related to the change in cash and cash equivalents. As of June 30, 2025, we had $1.5 billion of available-for-sale investments, an increase of $1.1 billion from December 31, 2024 primarily as a result of investment activity following the issuance of the Senior Notes in March 2025. Refer to Note 10 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details on the issuance.

In addition, our Credit Agreement is available for additional working capital needs or investment opportunities. The Credit Agreement provides for a senior unsecured multi-currency revolving credit facility in an aggregate principal amount of up to $300.0 million, $50.0 million of which is available for the issuance of letters of credit. As of June 30, 2025, and December 31, 2024, respectively, no amounts were drawn under the Credit Agreement. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. As of June 30, 2025, we had letters of credit outstanding of approximately $8.9 million under the facility and available borrowing of $291.1 million. Refer to Note 13 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details related to our Credit Agreement and outstanding letters of credit.

As of June 30, 2025, we have an aggregate of $1.75 billion of Senior Notes outstanding. As of June 30, 2025, none of our subsidiaries guarantee the Senior Notes. Our non-guarantor subsidiaries accounted for approximately 14% of our total revenue for the six months ended June 30, 2025, and approximately 19% and 6% of our total consolidated assets and liabilities (excluding the effect of intercompany transactions), respectively, as of June 30, 2025. Refer to Note 10 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details related to our Senior Notes.

Furthermore, during the six months ended June 30, 2025, we sold 250,000 shares of our common stock under our ATM. We generated approximately $185.8 million in aggregate gross proceeds from sales under the ATM. We recorded aggregate net proceeds of $183.6 million in additional paid-in capital after deducting related expenses, including commissions to the sales agent and issuance costs of $2.2 million. Refer to Note 12 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details related to our ATM.

We believe we have access to additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements, including capital expenditures, working capital requirements, potential acquisitions or investments, income and payroll tax payments for net-settled stock awards, and other liquidity requirements through at least the next 12 months.

Going forward, we expect to continue to be an opportunistic issuer of debt securities and may issue new debt securities from time to time to fund our growth or refinance future debt maturities, among other things. In addition, from time to time, we may acquire our debt securities through open market purchases, redemptions, privately negotiated transactions, tender offers, exchange offers or otherwise, upon such terms and at such prices as we may from time to time determine, for cash or other consideration.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):


	Six Months Ended June 30,				Dollar Change
	2025		2024
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
Effect of exchange rate changes on cash and cash equivalents	6,497		(2,086)		8,583
Net increase (decrease) in cash and cash equivalents and restricted cash	$	160,699	$	(32,061)	$	192,760

Operating activities

Net cash provided by (used in) operating activities was $(65.9) million for the first six months of 2025, compared to $66.8 million for the six months ended June 30, 2024. The $(132.7) million change is due to the following (in thousands): 


	Six Months Ended June 30,				Dollar Change
	2025		2024
Net income	$	124,097	$	174,825	$	(50,728)
Stock-based compensation	279,483		149,936		129,547
Fair value adjustments on strategic investments and marketable securities, net	(111,754)		(147,699)		35,945
Deferred income taxes	(70,065)		(7,755)		(62,310)
Debt inducement expense	28,666		—		28,666
Inventory and accounts payable	(26,923)		(60,491)		33,568
Receivables and contract assets	(212,833)		(77,092)		(135,741)
Deferred revenue	(51,143)		(8,499)		(42,644)
Other, net	(25,438)		43,600		(69,038)
Net cash provided by (used in) operating activities	$	(65,910)	$	66,825	$	(132,735)

Net cash provided by operating activities for the six months ended June 30, 2025 consisted of net income of $124.1 million, a net add-back of non-cash income statement items of $188.5 million and a $378.5 million net change in operating assets and liabilities. Primary drivers of the non-cash items include stock-based compensation expense for employee equity programs, debt inducement expense related to the induced conversion for our 2027 Notes, fair value adjustments for the net realized and unrealized gains and losses on our strategic investments and marketable securities, and deferred income taxes. The realized and unrealized gains on our strategic investments and related warrants were primarily related to an observable price change and subsequent sale of one of our strategic investments. The change in receivables and contract assets was primarily due to increased sales, as well as the timing of invoicing and cash collections. The change in inventory and accounts payable was primarily due to advanced raw material purchases for Axon Body 4 and TASER 10 CEDs to support future sales. The change in deferred income taxes was primarily driven by a reduction in unrealized investment gains and the realization of previously unrealized investment gains. The change in other, net is primarily driven by supplier prepayments, receivables for income tax and interest in connection with our Senior Notes.

Investing activities

Net cash used in investing activities was $1.1 billion for the six months ended June 30, 2025 compared to $91.9 million for the six months ended June 30, 2024. The net investing cash outflow is primarily driven by $1.8 billion of investment purchases, including $1.5 billion for short-term investments and $244.3 million for strategic investments, and $47.8 million for purchases of property and equipment. The cash outflow was partially offset by $416.0 million of proceeds from calls, maturities and sales of available-for-sale investments and $340.7 million of proceeds from the sale of strategic investments. The increase in net cash outflow compared to prior period is primarily driven by greater available-for-sale and strategic investment activity in the current period, partially offset by the decrease in cash paid for business acquisitions.

Financing activities

Net cash provided by financing activities was $1.3 billion for the six months ended June 30, 2025 compared to cash used by financing activities of $4.9 million for the six months ended June 30, 2024. The financing cash inflow was partially driven by gross proceeds of $1.8 billion from the Senior Notes issuance and net proceeds of $184 million from our ATM equity offering program. The proceeds were partially offset by $407.5 million of principal payments related to the induced conversion for our 2027 Notes, $24.7 million of transaction costs related to the induced conversion, debt issuance, and revolver modifications, and payments totaling $192.8 million for income and payroll taxes on behalf of employees who net-settled stock awards during the period. The increase in income and payroll tax payments in the period is largely driven by the vesting of Tranche 1 of the 2024 Employee XSP program vesting.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operation is based on our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates.

Our critical accounting estimates are discussed in our amended 2024 Annual Report on Form 10-K/A for the fiscal year ended December 31, 2024. There have been no significant changes to these critical accounting estimates for the six months ended June 30, 2025. Refer to Note 1 in Part I, Item 1 of this Quarterly Report on Form 10-Q for any additional details regarding our significant accounting policies.

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