AXON ENTERPRISE, INC.

Previous wording

The following discussion and analysis of our financial condition as of September 30, 2025, and results of operations for the three and nine months ended September 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.

Current wording

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.

Previous wording

Our revenues for the three months ended September 30, 2025 were $710.6 million, an increase of $166.4 million, or 30.6%, from the three months ended September 30, 2024. We had loss from operations of $2.1 million, compared to income from operations of $24.1 million for the same period in the prior year. Gross margin dollars increased $96.6 million and decreased as a percentage of revenue to 60.1% from 60.8% compared to the three months ended September 30, 2024. Adjusted gross margin decreased to 62.7% for the three months ended September 30, 2025 compared to 63.2% for the same period in the prior year, primarily driven by global tariffs and a higher mix of Platform Solutions revenue, partially offset by Software and Services. Operating expenses increased by $122.8 million, reflecting increased headcount to support business growth and stock-based compensation expense. Net loss of $2.2 million included a $17.9 million tax provision, net realized and unrealized gains of$14.6 million related to our strategic investments, and a net realized and unrealized gain of $8.3 million related to our marketable securities. Net income of $67.0 million for the three months ended September 30, 2024 included a noncash unrealized gain of $44.0 million on our investment in marketable securities.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Net sales for the Connected Devices segment increased 23.6% for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024. The increase of $34.3 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $18.0 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $25.1 million increase in Platform Solutions is primarily driven by higher volume for counter-drone equipment, virtual reality training, and fleet systems.

Current wording

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.

Previous wording

Net sales for the Software and Services segment increased 41.1% for the three months ended September 30, 2025 as compared to the three months ended September 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 $88.9 million.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Sales and marketing expense increased $5.1 million in comparison to the prior year September 30, 2024 comparable period, which was primarily attributable to increased commissions.

Current wording

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

Previous wording

Other SG&A expenses increased $18.4 million in comparison to the prior year September 30, 2024 comparable period, primarily driven by an increase in professional and consulting expenses of $12.0 million and an increase in travel expenses of $4.0 million.

Current wording

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.

Previous wording

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

Current wording

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

Previous wording

Other R&D expenses increased $21.1 million in comparison to the prior year September 30, 2024 comparable period, partially driven by an increase in professional and consulting expenses of $9.2 million.

Current wording

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.

Previous wording

(1)Reflects the net realized and unrealized loss on marketable securities during the nine months ended September 30, 2025, as discussed within Note 3.

Current wording

(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.

Previous wording

(1)Reflects the net realized and unrealized gain on marketable securities, during the three months ended September 30, 2025, as discussed within Note 3.

Current wording

(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.

Previous wording

We recorded net loss of $2.2 million for the three months ended September 30, 2025 compared to net income of $67.0 million for the three months ended September 30, 2024. Net income (loss) per basic share was $(0.03) for the three months ended September 30, 2025 compared to $0.89 for the three months ended September 30, 2024. Net income (loss) per diluted share was $(0.03) for the three months ended September 30, 2025 compared to $0.86 for the three months ended September 30, 2024.

Current wording

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.

Previous wording

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.

Current wording

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.

Previous wording

•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; costs (or subsequent recoveries of prior costs) related to certain legal or regulatory matters we consider outside of our core operating activities; losses incurred as a result of the disposal, abandonment, and impairment of property, equipment and intangible assets; payroll taxes related to 2024 Employee XSP vesting and 2018 CEO Performance Award option exercises; and other unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance (listed in the tables below).

Current wording

•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.

Previous wording

•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.

Current wording

•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.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

Our most significant source of liquidity continues to be funds generated by operating activities and available cash andcash equivalents and short-term investments. As of September 30, 2025, we had $1.4 billion of cash and cash equivalents, an increase of $969.0 million from December 31, 2024. Refer below for further discussions related to the change in cash and cash equivalents. As of September 30, 2025, we had $952.8 million of available-for-sale investments, an increase of $619.6 million 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.

Current wording

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.

Previous wording

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 September 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 September 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.

Current wording

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.

Previous wording

As of September 30, 2025, we have an aggregate of $1.75 billion of Senior Notes outstanding. As of September 30, 2025, none of our subsidiaries guarantee the Senior Notes. Our non-guarantor subsidiaries accounted for approximately 13% of our total revenue for the nine months ended September 30, 2025, and approximately 9% and 5% of our total consolidated assets and liabilities (excluding the effect of intercompany transactions), respectively, as of September 30, 2025. Refer to Note 10 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Current wording

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.

Previous wording

We believe we have access to additional fina ncing. 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.

Current wording

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.

Previous wording

Net cash used in operating activities was $5.9 million for the nine months ended September 30, 2025 compared to net cash provided by operating activities of $158.1 million for thenine months ended September 30, 2024. The net operating cash outflow for the nine months ended September 30, 2025 includes net income of $121.9 million, a net add-back of non-cash income statement items of $346.9 million and a $474.7 million net change in operating assets and liabilities.

Current wording

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.

Previous wording

Primary drivers of the non-cash items include $425.6 million of stock-based compensation expense for employee equity programs, $28.6 million of debt inducement expense related to the induced conversion for our 2027 Notes and $56.2 million of depreciation and amortization, partially offset by $134.6 million in fair value adjustments for net realized and unrealized gains and losses on our strategic investments and marketable securities and $53.7 million for 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 for one of our strategic investments and a liquidation event for a separate strategic investment. The change in deferred income taxes was primarily driven by a reduction and realization of previously unrealized investment gains, partially offset by the deduction of certain previously capitalized R&D costs as a result of OBBBA.

Current wording

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.

Previous wording

The change in operating assets and liabilities includes $366.1 million of receivables and contract assets primarily driven by increased sales and the timing of invoicing and cash collections, $13.4 million of inventory and accounts payable primarily driven by advanced raw material purchases for Axon Body 4 and TASER 10 CEDs to support future sales, $116.7 million of prepaid expenses and other assets primarily driven by supplier prepayments, receivables for income tax, and commissions as bookings continue to grow, and $21.6 million of deferred revenue.

Current wording

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.

Previous wording

Net cash used in investing activities was $498.5 million for the nine months ended September 30, 2025 compared to $48.8 million for the nine months ended September 30, 2024. The net investing cash outflow is primarily driven by $2.0 billion of investment purchases, including $1.8 billion for short-term investments and $249.1 million for strategic investments, and $74.5 million for purchases of property and equipment. The cash outflow was partially offset by $1.3 billion of proceeds from calls, maturities and sales of available-for-sale and marketable securities investments and $376.7 million of proceeds from the sale and liquidation 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.

Current wording

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.

Previous wording

Net cash provided by financing activities was $1.5 billion for the nine months ended September 30, 2025 compared to cash used in financing activities of $12.6 million for the nine months ended September 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 $362.2 million from our ATM equity offering program. The proceeds were partially offset by $407.5 million of principal payments related to the conversions for our 2027 Notes, $26.9 million of transaction costs related to the induced conversion, debt issuance, and revolver modifications, and payments totaling $209.6 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.

Current wording

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.

Previous wording

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 nine months ended September 30, 2025.

Current wording

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.