Axon: 2Q25 Business Update

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2Q25 Earnings.

Axon reported 2Q25 earnings and the stock was up +17% the next day. Axon’s results marked the 14th consecutive quarter of 25%+ growth and 6th quarter of 30%+ growth. Total revenue growth improved sequentially to +33% y/y from +31% last quarter. Both product and service segments saw continued momentum and adoption.

Net revenue retention increased slightly to 124%, up 100bps, which is the 20th consecutive quarter over 120%, underscoring customer stickiness and their ability to consistently upsell and renew contracts.

It is important to note that in the beginning of the year, Axon updated their operating segment reporting to Connected Devices (which includes TASER, cartridges, body cams, sensors, counter drone, and VR) and Software & Services (Evidence.com, Draft One, and other AI workflow tools).

Their Software & Service Segment continues to be a bright spot for them. Total revenues grew +39% y/y, a 4 point acceleration q/q, but down 10 points from 2Q24 growth rate of +49%. Still, this is phenomenal revenue growth.

Underpinning this growth is new users and the ability to drive Axon’s newest products. CFO Brittany Bagley mentioned that “approximately 70% of our domestic user base is still on our basic plans.” This means Axon has ample opportunity to upgrade them to higher premium plans, which could be a long-term tailwind.

Their Connected Devices Segment saw revenues increase +29% y/y, a 4 point acceleration y/y from +25% the year prior and 7 point increase q/q. Within the segment, TASER revenues grew +19%, driven by TASER 10—their newest version that gives officers more range and 10 shots. Personal Sensors grew +24%, driven by the Axon Body 4. Platform Solutions grew +86% y/y, led by counter-drone and virtual reality. Drones are going to be a be growth avenue for them.

Axon’s ability to garner higher adoption rates for their solutions is a testament to their long-lasting build of trust, obsession over the consumer, and focus on product innovation.

On the call, CEO Rick Smith noted the quick adoption Axon’s solutions are seeing.

With all the positive momentum Axon is seeing across their ecosystem, they raised their 2025 revenue guidance to $2.65bn-$2.73bn, from $2.6bn-$2.7bn, representing an annual revenue growth rate of ~29%.

Product gross margins slipped slightly –1 point to 49% due to lower device margins from strong growth in new hardware products and new markets. However, offsetting this was Software & Services gross margin expanding slightly by 2 points to 76% (the highest since 3Q23). Total gross margin remained steady at 60%.

In the quarter, Axon increased their R&D spend +38% y/y. R&D is now run-rating at 24% of revenues, almost 6 points higher than 2020. Over the same period revenue growth accelerated, despite them now generating as much revenue in a quarter as they used to in a year. With the success of the TASER 10, Axon plans to increase manufacturing capacity. This prompted them to update their capex guide to $170-185mn, up from their previous guidance of $160-180mn

However, revenues have not been translating into cash flows. The nature of recording most revenues from a contract upfront and receiving cash for it over the term, plus ample stock comp has meant tepid free cash flow. After backing out SBC, they burned $250mn this quarter. Investors aren’t complaining though given the growth figures they are putting up.

Business Commentary.

Despite very high penetration (>90%) with the law enforcement departments in the US, they have ample room to expand their relationship with existing customers and grow internationally. On the call, President Joshua Isner called out that the largest deal in Axon’s history occurred in the quarter, “This team took back the record for the largest deal in Axon company history by a wide margin. This contract with a major city department also marked the largest contract we’ve seen in terms of new product bookings, encompassing everything from drones to our AI products.”

Key to growth has been new products categories, which now represents 30% of bookings. AI is a new and big growth lever for them: they closed ~$150mn of bookings for their new AI Era Plan this quarter.

To better understand how officers are using AI, they conducted a survey earlier this year. They noted 6 key findings: 1) Only 14% of law enforcement agencies surveyed reported being fully staffed (more than half were operating at 80% capacity or below.), 2) On average, patrol officers spend just 46% of their time on active policing, 3) Three in four officers said AI will make their jobs easier, improve investigations, and increase overall efficiency, 4) 68% of respondents believe AI can improve resource allocation and help ensure officers are deployed more effectively. 5) 75% of officers agree that AI should offer insights, while final decisions remain with human officers. 6) 84% of officers want more AI-specific training, highlighting a desire to learn how to use AI in the field responsibly.

With the advancement of AI, understaffed agencies are starting to think about allocating more dollars to automation solutions rather than hiring to fill the empty positions.

As Axon develops and expands its product portfolio, per officer spend increases. A few years ago the maximum an agency could spend was <$300 per officer. Now with the expanded portfolio of products, max spend per officer increased to ~$600. As agencies upgrade their plans to a more feature rich offering, growth will continue to follow.

International revenues continue to lap U.S. growth at +67% y/y. One aspect of international growth is that the deals tend to be larger than in the United States. In June, Josh Isner gave us a little more context on this in the quote below.

CEO Rick Smith pointed out the opportunity TASER has in the EU due to wars displacing people and resulting in mass migration, driving the need for more border security. Talking to border security, Rick states in the quote below, that these border agencies are getting overwhelmed and without a defense weapon like TASER that can incapacitate without killing, lethal shootings could rise.

International is expected to continue its growth in the back half of the year. But despite strong growth, geographic mix shift remains relatively unchanged (~80% of revenues in U.S., ~20% of revenues International) due to the fact both U.S. domestic and international revenues continue to grow at healthy rates. Nonetheless, international continues to be an important growth opportunity for Axon.

Another growth opportunity is enterprise. While we were initatially suspect on whether businesses would want to adopt this, it is more common to see retail employees wearing bodycams. In an increasingly litigious world, bodycams are an easy (if not slightly dystopian) way to attribute fault in an incident and have the added positive effect that most people behavior better when they see the cameras. Their Enterprise offering brings Axon’s core technologies (body cam, Axon Cloud, etc.) to non-public safety users such as hospitals, retail, and logistics. In the quarter, they announced the first contract in the gaming space for Enterprise. Since the Enterprise market is larger than the public safety market, it is theoretically a larger TAM. However, the jury is out whether this will be normalized enough that an average employee adorns a Axon Body 4.

Another large opportunity Axon sees is drones. In particular, international markets are seeing growing interest in Dedrone. With the war in Ukraine and in the Middle East, we have seen drones become a more prevalent weapon. The small drones are becoming a big threat vector because it can come from anywhere and easily circumvent traditional defense mechanisms. For instance, stadiums invest a lot in security to screen people for weapons and bombs, but a drone could just go over the top of a open stadium (and if fact that has happened). Dedrone is able to catch aerial activity and coordinate a response as well. Plugging this into the existing Axon platform makes it easy for existing customers to adopt it.

Big picture, Axon continues to execute well and enjoys many tailwinds. Their competitive position is becoming more and more dominant. While their TAMs are certainly large, the question is how long can they put up such strong growth numbers?

At a ~$68bn market cap today, Axon trades at ~28x sales, or assuming a 30% mature margin, 115x earnings. They would need to grow revenues 30% for over 6 years to reach a market multiple. They did 6 quarters of 30%+ consecutive growth, as an investor you have to wonder if they could do another 24. If they could generate $11bn in revenues at a 30% margin that would be NOPAT of about $2.6bn. At a 25x multiple, you get their current market cap of ~$68bn—you could argue that is roughly what the market is pricing in today. So an investor would need to have an opinion that growth thereafter would continue to be strong—supporting a higher multiple—or margins would be better than we assumed.

Below are some notables from the call.

Call Notes.

Product Adoption

  • “demand for new technology from our customers is accelerating, and it’s outpacing even my most optimistic expectations.”
  • “In the past, it could take a few years for our newest products to start seeing meaningful adoption. Often at least the first year took it to fine-tune the application, work through the approval processes and get everything right. Today, we’re watching customers adopt new solutions as a standard faster and in real time. Draft One remains our fastest adopted software solution. TASER 10, our fastest adopted TASER weapon. Axon Body 4, our fastest adopted camera.”
  • “I believe one critical factor enabling this movement is the trust we’ve built with our customers… They’re able to move faster today because they trust we’ll be there with them on the journey and there tomorrow, doing things the right way.”
  • “when you put products in the hands of users and let the users give you feedback and experience them and see the value themselves, there is no amount of sales or marketing or packaging or anything else that compares to that.” -Josh Isner
  • We have the driver of moving customers further up the plan and then actually just having more product offerings that they could come by.

Bookings

  • “we now have line of sight to deliver year-over-year bookings growth in the high 30% range, which would once again put our second half in line with the prior year’s entire campaign.”
  • “We closed almost $150 million of bookings for our AI Era Plan in Q2 alone and over 30% of bookings this quarter came from new product categories.”
  • “Just a few years ago, the maximum an agency could spend with us on a per officer basis was less than $300 a Today, that sits over $600 due to new products, and we saw the per officer bookings in our largest deals push up against that level.”
  • “So we’re very confident we’re going to have a big second half bookings wise.”

Performance

  • “Second quarter revenue of $669 million increased 33% year-over-year, marking our 14th consecutive quarter of over 25% revenue growth.”
  • “the top line growth continues to be driven by software and services. Which grew 39% year-over-year to $292 million. Our ability to win new users and to drive adoption of our newest products underpins this continued growth. Net revenue retention increased to 124% and has been near or above 120% for 20 consecutive quarters.”
  • “Connected Devices. Revenue increased 29% year-over-year to $376 million. This growth was driven by strength across categories, including TASER, which grew 19%, driven by TASER 10. Personal sensors grew 24%, driven by Axon Body 4 and Platform Solutions grew 86%, driven by counter-drone and virtual reality.”
  • “We are raising 2025 revenue guidance to a range of $2.65 billion to $2.73 billion, representing approximately 29% annual growth at the midpoint.”
  • “As we reflect on our Q2 results, the theme continues to be customer obsession.”
  • “we are going to relentlessly invest in R&D every year. Like that’s core to who we are as a company. This is an innovative company with an innovative founder, and we are going to continue to invest in every opportunity we can to pursue our mission and especially when we’re seeing such incredible buying signals from our customers.”
  • “We continue to expect to increase hiring over the remainder of the year, particularly in R&D, as we prioritize investing behind the incredible product road map we’ve talked about as well as in our exciting new markets.”

International

  • “International Bookings: we do expect Q3 and Q4 to be very exciting quarters for our international business. Now look, there’s — we got to go execute and prove it. But certainly, pipeline-wise, we’re pleased with what we’re seeing there.”
  • “one of the things about some of our international deals is they tend to be pretty big deals. So you can see a little bit in quarters where you have a big international deal come in.”
  • “when the acquisition closed is we really believe we can lead with dedrone in some international markets. a nice difference where some of the new products that we’re acquiring, we can get in the door, so to speak, with those and with a lot of interest from a customer. And then when a customer is ready to move to body cameras or less lethal or video aggregation or AI, we’re better positioned to participate in some of those opportunities.”
  • “I just can’t guarantee the mix is going to change all that much, so long as the U.S. keeps going on the path that it is right now”

Drones

  • “The world is suddenly keenly aware that these small drones are the biggest threat vector at scale because anyone can do it. And none of the traditional defense mechanisms, none of our air defense systems are designed around that threat.”

Enterprise

  • “in Enterprise, we signed a contract opening up a major opportunity in the gaming space. It was our first win in that vertical to include our AI products and a clear indicator to me that we’re on the right path.

R&D and Hiring

  • We are going to relentlessly invest in R&D every year. Like that’s core to who we are as a company. This is an innovative company with an innovative founder, and we are going to continue to invest in every opportunity we can to pursue our mission and especially when we’re seeing such incredible buying signals from our customers. We do that at times at the expense of getting — we try to fund that by getting leverage out of SG&A. So or really G&A. Salespeople, we look at where the opportunities are, and those are generally the easiest ones to say yes to because when you’re hiring a salesperson for X dollars and their quota might be $5 million to $10 million a year.

Staffing/Budget Allocation

  • “I’d say there’s probably at least 50% of the workload of a police apartment that’s automatable. And we are seeing that they’re open to thinking their budgets that way. I can think of a few conversations we’ve had where agencies have said, “Hey, I’m understaffed by this many folks. ” I’m just going to take part of that budget and push it over here and maybe not hire a couple of those.” -Rick Smith

Staffing Survey

  • Respondents reported saving between 6 to 12 hours per week on average through the use of Axon AI tools. Importantly, this feedback was gathered prior to the general availability of our AI Era Plan tools and expands on our prior internal analysis, which had shown the opportunity for Draft One to help reduce the nearly 40% of officer time currently spent writing reports.
  • Reported weekly time savings:
    • Draft One: 11 hours
    • Redaction Assistant: 10 hours
    • Auto-Transcribe: 6 hours
    • Priority ranked video audit: 12 hours
    • Transcript keyword search: 6 hours

Key Findings

  • Only 14% of law enforcement agencies surveyed reported being fully staffed; more than half were operating at 80% capacity or below.
  • On average, patrol officers spend just 46% of their time on active policing — roughly equal to the time spent on administrative tasks.
  • Three in four officers said AI will make their jobs easier, improve investigations, and increase overall efficiency.
  • 68% of respondents believe AI can improve resource allocation and help ensure officers are deployed more effectively.
  • 75% of officers agree that AI should offer insights, while final decisions remain with human officers.
  • 84% of officers want more AI-specific training, highlighting a desire to learn how to use AI in the field responsibly.

*At the time of this writing, one or more contributors to this report has a position in AXON. Furthermore, accounts one or more contributors advise on may also have a position in AXON. This may change without notice.