Axon Cuts 2026 Growth Outlook After Dropping $130 Million of Dedrone

The Tip Desk · November 5, 2026 · 3 min read

Third-quarter revenue reached a record $909 million, up 28% year over year, as Software & Services accelerated to 43% growth.

Axon Enterprise (AXON) reported record third-quarter revenue of $909 million, up 28% year over year, after 35% growth to $904 million in the second quarter.

The public-safety technology company said the slower year-over-year pace reflected Connected Devices and the timing of a federal counter-drone contract. It also cut its full-year 2026 revenue outlook to approximately 30% growth, or about $3.61 billion to $3.63 billion, from a prior 32% to 34% range, after excluding three Federal Dedrone deployments totaling about $130 million.

Software & Services was the offset. That segment’s revenue growth accelerated to 43% year over year at $437 million, after 36% growth to $398 million in the prior quarter. The company said growth was driven by users and premium adoption, and that newer offerings — real-time operations, Axon Records, Axon AI, Axon 911 and Dedrone software — collectively reached an annual revenue run rate of nearly $500 million. AI annual recurring revenue surpassed $100 million.

Connected Devices revenue increased 16% year over year to $472 million, after 35% growth to $507 million in the second quarter. The company said growth would have been stronger absent an approximately $30 million Federal Dedrone deployment it had expected to recognize in the quarter. Platform Solutions, inside Connected Devices, rose 106% to $125 million.

Net income was $57 million, or $0.68 a share, compared with a net loss of $2 million, or $0.03 a share, a year earlier. Non-GAAP net income was $144 million, or $1.72 a share. Adjusted EBITDA increased 33% year over year to $236 million, a 25.9% margin. Operating income was $42 million.

Total company gross margin was 56.7%, down from 60.1% a year earlier; Adjusted gross margin was 59.2%. The company attributed the decline to increased counter-drone equipment mix, higher memory costs and scaling of new product categories. Connected Devices gross margin was 43.0%; the sequential drop was attributed primarily to the absence of global tariff refunds recognized in the prior quarter. Software & Services gross margin was 71.4%; software-only gross margin continued to exceed 80%.

Annual recurring revenue grew 40% year over year to $1.75 billion. Net revenue retention was 126%. Future contracted bookings grew 39% year over year to $15.8 billion. New five-year bookings were up 25% year to date.

The company announced a $1.2 billion investment raising its Skydio stake to 37% and an exclusive U.S. and Canada public-safety distribution partnership. Skydio expects about $1 billion of bookings this fiscal year. Axon said deployed Skydio docks through Axon Air have more than doubled year over year.

Operating cash flow was $20 million, compared with $60 million a year earlier, including about $100 million of cash used for inventory. Free cash flow was an outflow of $19 million. Net debt was $1.2 billion, up $182 million sequentially.

Axon expects fourth-quarter revenue of $990 million to $1.01 billion and Adjusted EBITDA of $245 million to $250 million. Implied full-year Adjusted EBITDA is $924 million to $929 million, a 25.6% margin, 10 basis points above prior margin guidance of 25.5%. Full-year free cash flow guidance was cut to $350 million to $400 million from a prior $450 million target, citing about $225 million of expected inventory cash use for the year. Stock-based compensation is now expected at $570 million to $600 million, and CapEx at $130 million to $150 million.