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 March 31, 2026, and results of operations for the three months ended March 31, 2026 and 2025, 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 2025 Annual Report on Form 10-K for the year ended December 31, 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.

Overview

Axon is a technology company that provides integrated hardware and software solutions. Our products and services allow customers across the public and private sector to capture and use critical data to support fully-connected operational workflows. Our trusted network seamlessly integrates software and hardware with a range of connected devices, including TASER energy devices, cameras and sensors, drones and robotics, cloud-based evidence management, records management, real-time operations software, critical incident and emergency response systems, immersive training, and productivity tools – all enhanced by artificial intelligence.

Our revenues for the three months ended March 31, 2026 were $807.3 million, an increase of $203.7 million, or 33.7%, from the three months ended March 31, 2025. We had income from operations of $29.2 million, compared to loss from operations of $8.8 million for the same period in the prior year. Gross margin dollars increased $111.5 million and decreased as a percentage of revenue to 59.1% from 60.6% compared to the three months ended March 31, 2025. Adjusted gross margin decreased to 61.6% for the three months ended March 31, 2026 compared to 63.6% for the same period in the prior year. The decrease in gross margin and adjusted gross margin was primarily driven by global tariffs, a higher mix of Platform Solutions revenue, and higher professional services costs. Operating expenses increased by $73.5 million, reflecting increased headcount and commissions to support business growth and consulting expenses. Net income of $169.3 million included a $30.9 million tax provision, income from strategic investments, net, of $196.6 million, and a net realized and unrealized loss of $5.5 million related to our marketable securities. Net income of $88.0 million for the three months ended March 31, 2025 included net realized and unrealized gains from strategic investments of $167.3 million, offset by a noncash unrealized loss of $23.4 million related to our investment in marketable securities and inducement expense of $28.7 million associated with the early repurchase of a portion of our 2027 Notes.

On February 20, 2026, the Supreme Court determined that tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were unauthorized. The ruling did not provide guidance regarding the recovery of amounts previously remitted. As of March 31, 2026, we have not recorded a benefit for any potential refunds of IEEPA tariffs previously paid, as recovery is not considered probable. We continue to monitor trade policy developments and will reassess the accounting treatment as additional information becomes available.

Table of Conten ts

Results of Operations

Three Months Ended March 31, 2026 Compared to the Three Months Ended March 31, 2025

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


	Three Months Ended March 31,
	2026				2025
Net sales from products	$	452,821	56.1	%	$	340,896	56.5	%
Net sales from services	354,524		43.9		262,737		43.5
Net sales	807,345		100.0		603,633		100.0
Cost of product sales	232,156		28.8		170,181		28.2
Cost of service sales	97,903		12.1		67,713		11.2
Cost of sales	330,059		40.9		237,894		39.4
Gross margin	477,286		59.1		365,739		60.6
Operating expenses:
Selling, general and administrative	259,093		32.1		223,509		37.0
Research and development	188,950		23.4		151,023		25.0
Total operating expenses	448,043		55.5		374,532		62.0
Income (loss) from operations	29,243		3.6		(8,793)		(1.4)
Interest income	10,611		1.3		10,604		1.8
Interest expense	(28,643)		(3.5)		(7,821)		(1.3)
Other income, net	189,010		23.4		114,401		19.0
Income before provision for income taxes	200,221		24.8		108,391		18.1
Provision for income taxes	30,909		3.8		20,411		3.4
Net income	$	169,312	21.0	%	$	87,980	14.7	%

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


	Three Months Ended March 31,
	2026				2025
United States	$	646,527	80	%	$	529,383	88	%
Other countries	160,818		20		74,250		12
Total	$	807,345	100	%	$	603,633	100	%

International revenue increased compared to the prior year March 31, 2025 comparative period, primarily driven by increased sales in our EMEA region.

Table of Conten ts

Net Sales

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


	Three Months Ended March 31,								Dollar Change		Percent Change
	2026				2025
Connected Devices segment:
TASER (1)	$	232,853	28.8	%	$	195,495	32.4	%	$	37,358	19.1	%
Personal Sensors (2)	108,751		13.5		88,405		14.7		20,346		23.0
Platform Solutions (3)	111,217		13.8		56,996		9.4		54,221		95.1
Total Connected Devices segment	452,821		56.1		340,896		56.5		111,925		32.8
Total Software and Services segment	354,524		43.9		262,737		43.5		91,787		34.9
Total net sales	$	807,345	100.0	%	$	603,633	100.0	%	$	203,712	33.7	%

(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 fleet in-car video, interview room, fixed cameras, drones and counter-drone equipment, virtual reality training hardware, and related extended warranties.

Net sales for the Connected Devices segment increased 32.8% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. The increase of $37.4 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $20.3 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $54.2 million increase in Platform Solutions is primarily driven by higher volume for counter-drone equipment and fleet systems.

Net sales for the Software and Services segment increased 34.9% for the three months ended March 31, 2026 compared to the three months ended March 31, 2025. 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 $91.8 million.

Gross Margin

As a percentage of net sales, gross margin for the Connected Devices segment decreased to 48.7% from 50.1% for the three months ended March 31, 2026 and 2025, respectively. Adjusted gross margin for the Connected Devices segment was 50.4% for the three months ended March 31, 2026, compared to 52.8% for the three months ended March 31, 2025. The decrease in gross margin and adjusted gross margin was primarily driven by global tariffs and a higher mix of Platform Solutions revenue.

As a percentage of net sales, gross margin for the Software and Services segment decreased to 72.4% from 74.2% for the three months ended March 31, 2026 and 2025, respectively. Adjusted gross margin for the Software and Services segment decreased to 75.8% for the three months ended March 31, 2026, compared to 77.7% for the three months ended March 31, 2025. The decrease in gross margin and adjusted gross margin was primarily driven by higher professional services costs.

Selling, General and Administrative Expenses

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


	Three Months Ended March 31,				Dollar Change		Percent Change
	2026		2025
Total selling, general and administrative expenses	$	259,093	$	223,509	$	35,584	15.9	%
As a percentage of net sales	32.1%		37.0%

Salaries, benefits and bonus expense increased $10.8 million in comparison to the prior year March 31, 2025 comparable period, primarily attributable to an increase in headcount and higher wages.

Table of Conten ts

Sales and marketing expense increased $10.2 million in comparison to the prior year March 31, 2025 comparable period, primarily attributable to increased commissions.

Other SG&A expenses increased $14.6 million in comparison to the prior year March 31, 2025 comparable period, primarily driven by an increase in professional and consulting expenses of $9.1 million.

Research and Development Expenses

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


	Three Months Ended March 31,						Dollar Change		Percent Change
	2026			2025
Total research and development expenses	$	188,950		$	151,023		$	37,927	25.1	%
As a percentage of net sales	23.4		%	25.0		%

Salaries, benefits and bonus expense increased $21.3 million in comparison to the prior year March 31, 2025 comparable period, which was primarily attributable to an increase in headcount and higher wages.

Other R&D expenses increased $16.6 million in comparison to the prior year March 31, 2025 comparable period, partially driven by an increase in professional and consulting expenses of $6.8 million.

Interest Income (Expense), Net

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


	Three Months Ended March 31,
	2026		2025
Interest income	$	10,611	$	10,604
Interest expense (1)	(28,643)		(7,821)
Total interest income (expense), net	$	(18,032)	$	2,783

(1)Interest expense increased in comparison to the prior year March 31, 2025 comparable period primarily as a result of the issuance of the Senior Notes in March 2025, as discussed further within Note 8.

Other Income, Net

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


	Three Months Ended March 31,
	2026		2025
Income from strategic investments, net (1)	$	196,600	$	167,321
Realized and unrealized loss on marketable securities, net (2)	(5,511)		(23,400)
Loss on foreign currency transactions, net	(2,166)		(803)
Induced conversion of convertible debt	—		(28,666)
Other, net	87		(51)
Other income, net	$	189,010	$	114,401

(1)Reflects the net realized and unrealized income associated with our strategic investments, during the three months ended March 31, 2026 and 2025, as discussed within Note 6.

(2)Reflects the net realized and unrealized loss on marketable securities, during the three months ended March 31, 2026 and 2025, as discussed within Note 3.

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Provision for Income Taxes

The effective tax rate was 15.4%, for the three months ended March 31, 2026, compared to 18.8% for the three months ended March 31, 2025. The decrease in effective tax rate for the quarter was primarily driven by a nontaxable gain on an investment transaction and an increase in pre-tax book income, which reduced the relative impact of other permanent and discrete items.

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


	Three Months Ended March 31,
	2026			2025			Change
Income before provision for income taxes	$	200,221		$	108,391		$	91,830
Provision for income taxes	$	30,909		$	20,411		$	10,498
Effective tax rate	15.4		%	18.8		%

Net Income

We recorded net income of $169.3 million for the three months ended March 31, 2026 compared to net income of $88.0 million for the three months ended March 31, 2025. Net income per basic share was $2.11 for the three months ended March 31, 2026 compared to $1.14 for the three months ended March 31, 2025. Net income per diluted share was $2.05 for the three months ended March 31, 2026 compared to $1.08 for the three months ended March 31, 2025.

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. Our management uses these non-GAAP financial measures in evaluating our operating performance. 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.

Beginning in the quarterly period ended March 31, 2026, we updated the calculation of Adjusted EBITDA to exclude all components of other income (loss), net – primarily resulting in incremental adjustments for foreign currency exchange gains and losses, net and fees incurred related to our Credit Agreement, as we do not consider these adjustments to be representative of our core operating results. For all comparable prior periods presented, our adjustment for other income (loss), net does not include the above incremental items, as the impact of this change on historical periods was determined to be de minimis. Accordingly, other income (loss), net for all comparable prior periods has not been recast and solely reflects adjustment for the impacts of net realized and unrealized gains on strategic investments and marketable securities, net realized gains on previously held minority interests acquired in business combinations and debt inducement expense.

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; all components of other income (loss), net, which is primarily comprised of fair value adjustments and income or losses related to strategic investments and marketable securities, debt inducement expense associated with the early repurchase of a portion of our 2027 Notes, foreign currency exchange gains and losses, net, and fees incurred related to our Credit Agreement; noncash stock-based compensation expense; transaction and integration costs related to strategic investments and acquisitions, including the change in fair value of contingent consideration arrangements; non-recurring severance costs, including employee cash payments, equity, and related benefits; costs (or subsequent recoveries of prior costs) related to certain legal or regulatory matters we consider outside of our core operating activities; mark-to-market adjustments on our non-qualified deferred compensation liabilities; payroll taxes related to Employee XSP vesting; losses incurred as a result of the disposal, abandonment, and impairment of property, equipment and intangible assets, net; and inventory step-up amortization related to acquisitions.
Adjusted gross margin (most comparable GAAP measure: Gross margin) – Gross margin before noncash stock-based compensation expense; amortization of acquired intangible assets; non-recurring severance costs, including employee cash payments, equity, and related benefits; and inventory step-up amortization related to acquisitions.

Table of Conten ts

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.

Table of Conten ts

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


	Three Months Ended
	March 31, 2026		December 31, 2025		March 31, 2025
Net income	$	169,312	$	2,745	$	87,980
Depreciation and amortization	29,346		26,960		19,195
Interest expense	28,643		28,819		7,821
Investment interest income	(10,611)		(17,633)		(10,604)
Provision for (benefit from) income taxes	30,909		(68,982)		20,411
EBITDA	$	247,599	$	(28,091)	$	124,803

Non-GAAP adjustments:
Other (income) loss, net	(189,010)		4,880		(115,255)
Stock-based compensation expense	133,685		184,516		140,239
Transaction costs related to strategic investments and acquisitions	6,488		5,857		2,727
Severance costs (1)	2,049		31,816		—
Litigation and regulatory costs	1,334		1,266		2,049
Non-qualified deferred compensation liability adjustments	(630)		484		—
Payroll taxes related to Employee XSP vesting	115		4,986		—
Loss on disposal, abandonment, and impairment of property, equipment and intangible assets, net	—		629		—
Inventory step-up amortization	—		—		607
Adjusted EBITDA	$	201,630	$	206,343	$	155,170

(1)For the three months ended March 31, 2026, non-recurring severance costs of $2.0 million consisted of stock-based compensation, cash payments and employee benefits.

Adjusted gross margin reconciles to gross margin as follows (in thousands):


	Three Months Ended March 31,
	2026									2025
	Connected Devices			Software and Services			Total			Connected Devices			Software and Services			Total
Gross margin	$	220,665		$	256,621		$	477,286		$	170,715		$	195,024		$	365,739
Stock-based compensation expense	5,775			4,728			10,503			7,476			5,411			12,887
Amortization of acquired intangible assets	1,730			7,236			8,966			1,337			3,626			4,963
Severance costs (1)	146			20			166			—			—			—
Inventory step-up amortization	—			—			—			607			—			607
Adjusted gross margin	$	228,316		$	268,605		$	496,921		$	180,135		$	204,061		$	384,196
Gross margin %	48.7		%	72.4		%	59.1		%	50.1		%	74.2		%	60.6		%
Adjusted gross margin %	50.4		%	75.8		%	61.6		%	52.8		%	77.7		%	63.6		%

(1)For the three months ended March 31, 2026, non-recurring severance costs recorded to cost of service and product sales of $0.2 million consisted of stock-based compensation, cash payments and employee benefits.

Table of Conten ts

Liquidity and Capital Resources

Summary


	March 31, 2026		December 31, 2025		Dollar Change
Cash and cash equivalents	$	458,921	$	1,201,147	$	(742,226)
Available-for-sale investments	260,000		505,417		(245,417)
Total	$	718,921	$	1,706,564	$	(987,643)

Our most significant source of liquidity typically includes funds generated by operating activities and available cash and cash equivalents and short-term investments. As of March 31, 2026, we had $0.5 billion of cash and cash equivalents, a decrease of $742.2 million from December 31, 2025. As of March 31, 2026, we had $260.0 million of available-for-sale investments, a decrease of $245.4 million from December 31, 2025, primarily due to sales and maturities of available-for-sale securities during the period. Refer to Note 3 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

In addition, our Credit Agreement is available for additional working capital needs or investment opportunities. As of March 31, 2026, we had letters of credit outstanding of approximately $8.9 million under the facility and available borrowing of $291.1 million. Refer to Note 8 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

As of March 31, 2026, we have an aggregate of $1.75 billion of Senior Notes outstanding. As of March 31, 2026, none of our subsidiaries guarantee the Senior Notes. Our non-guarantor subsidiaries accounted for approximately 20% of our total revenue for the three months ended March 31, 2026, and approximately 20% and 7% of our total consolidated assets and liabilities (excluding the effect of intercompany transactions), respectively, as of March 31, 2026. Refer to Note 8 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

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):


	Three Months Ended March 31,				Dollar Change
	2026		2025
Operating activities	$	(31,517)	$	25,794	$	(57,311)
Investing activities	(616,937)		(702,217)		85,280
Financing activities	(92,288)		1,313,226		(1,405,514)
Effect of exchange rate changes on cash and cash equivalents	(1,495)		1,192		(2,687)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	(742,237)	$	637,995	$	(1,380,232)

Table of Conten ts

Operating activities

Net cash used in operating activities was $31.5 million for the three months ended March 31, 2026 compared to net cash provided by operating activities of $25.8 million for the three months ended March 31, 2025. The net operating cash outflow for the three months ended March 31, 2026 includes net income of $169.3 million, a net add-back of non-cash income statement items of $5.7 million and a $206.5 million net change in operating assets and liabilities.

Primary drivers of the non-cash items include $134.7 million of stock-based compensation expense for employee equity programs and $30.4 million of depreciation and amortization, partially offset by $191.1 million in fair value adjustments for net realized and unrealized gains and losses on our strategic investments and marketable securities and $18.0 million for deferred income taxes. The realized and unrealized gains on our strategic investments were primarily related to an observable price change for one of our investees. The change in deferred income taxes was primarily driven by investment-related gains and a decrease in R&D capitalization, partially offset by unused R&D credit carryfowards and unvested stock-based compensation.

The change in operating assets and liabilities includes $48.9 million of receivables and contract assets primarily driven by invoice cash collection and increased sales, $215.8 million of inventory and accounts payable primarily driven by commission and bonus payments and advanced raw material purchases for TASER 10 CEDs, counter-drone equipment, and AB4 to support future sales and $40.3 million of deferred revenue.

Investing activities

Net cash used in investing activities was $616.9 million for the three months ended March 31, 2026 compared to $702.2 million for the three months ended March 31, 2025. The net investing cash outflow is primarily driven by our acquisition of Carbyne for $549.7 million, $292.0 million for strategic investments purchases, and $23.1 million for purchases of property and equipment. The cash outflow was partially offset by $249.3 million of proceeds from calls, maturities and sales of available-for-sale and marketable securities investments. The decrease in net cash outflow compared to the prior period is primarily driven by reduced investments in available-for-sale securities, partially offset by the cash paid in the current year for the acquisition of Carbyne.

Financing activities

Net cash used in financing activities was $92.3 million for the three months ended March 31, 2026 compared to net cash provided by financing activities of $1.3 billion for the three months ended March 31, 2025. The financing cash outflow in the current period was primarily driven by $81.1 million of principal payments related to the redemption of our 2027 Notes. Furthermore, we had $10.2 million of income and payroll tax payments made on behalf of employees who net-settled stock awards during the period, as well as $2.0 million which remains unpaid as of three months ended March 31, 2026. The change in financing cash flow compared to the prior period primarily reflects gross proceeds of $1.8 billion from the Senior Note issuance, partially offset by principal payments of $407.5 million related to the induced conversion of our 2027 Notes during the three months ended March 31, 2025.

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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 2025 Annual Report on Form 10-K for the fiscal year ended December 31, 2025. There have been no significant changes to these critical accounting estimates for the three months ended March 31, 2026.

Table of Conten ts

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