The following discussion and analysis of our financial condition as of June 30, 2026, and results of operations for the three and six months ended June 30, 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 June 30, 2026 were $904.4 million, an increase of $235.9 million, or 35.3%, from the three months ended June 30, 2025. We had income from operations of $46.8 million, compared to loss from operations of $1.0 million for the same period in the prior year. Gross margin dollars increased $142.7 million reflecting consistent percentage of revenue at 60.4%, when compared to the three months ended June 30, 2025. Adjusted gross margin decreased to 62.9% for the three months ended June 30, 2026 compared to 63.3% for the same period in the prior year. The decrease in gross margin and adjusted gross margin was primarily driven by a higher mix of professional services revenue and scaling new product offerings, partially offset by tariff refunds received in the quarter. Operating expenses increased by $94.9 million, primarily reflecting increased headcount and investments in AI and other initiatives to support business growth. Net income of $29.4 million included a $3.3 million tax provision, income from strategic investments, net, of $5.7 million, and a net realized and unrealized gain of $1.1 million related to our marketable securities. Net income of $36.1 million for the three months ended June 30, 2025 included a $75.0 million tax benefit, partially offset by a noncash unrealized loss of $30.9 million related to our marketable securities.
Our revenues for the six months ended June 30, 2026 were $1.7 billion, an increase of $439.6 million, or 34.6%, from the six months ended June 30, 2025. We had income from operations of $76.0 million, compared to loss from operations of $9.8 million for the same period in the prior year. Gross margin dollars increased $254.3 million and decreased as a percentage of revenue to 59.8% from 60.5% compared to the six months ended June 30, 2025. Adjusted gross margin decreased to 62.3% for the six months ended June 30, 2026 compared to 63.4% for the same period in the prior year. The decrease in gross margin and adjusted gross margin was primarily due to a higher mix of professional services revenue and scaling new product offerings, partially offset by tariff refunds received in the quarter. Operating expenses increased by $168.4 million, primarily reflecting increased headcount and investments in AI and other initiatives to support business growth. Net income of $198.7 million included net realized and unrealized gains of $202.3 million related to our strategic investments and a $34.2 million tax provision, partially offset by a noncash unrealized loss of $4.4 million related to our marketable securities. Net income of $124.1 million for the six months ended June 30, 2025 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.
On February 20, 2026, the Supreme Court determined that tariffs imposed under the International Emergency Economic Powers Act (“IEEPA”) were unauthorized. During the three months ended June 30, 2026, we received $47.4 million in refunds. Of this amount, $18.1 million had been previously expensed in 2025 to cost of sales and the remaining is associated with amounts primarily classified as inventory and property and equipment, net, for which the majority would have been expensed in the current year.
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Results of Operations
Three Months Ended June 30, 2026 Compared to the Three Months Ended June 30, 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 June 30,
2026 2025
Net sales from products $ 506,553 56.0 % $ 376,360 56.3 %
Net sales from services 397,836 44.0 292,178 43.7
Net sales 904,389 100.0 668,538 100.0
Cost of product sales 243,861 27.0 193,507 28.9
Cost of service sales 114,081 12.6 71,288 10.7
Cost of sales 357,942 39.6 264,795 39.6
Gross margin 546,447 60.4 403,743 60.4
Operating expenses:
Selling, general and administrative 290,982 32.2 242,212 36.2
Research and development 208,687 23.1 162,567 24.4
Total operating expenses 499,669 55.3 404,779 60.6
Income (loss) from operations 46,778 5.1 (1,036) (0.2)
Interest income 6,815 0.8 23,253 3.5
Interest expense (28,101) (3.1) (28,686) (4.3)
Other income (loss), net 7,192 0.9 (32,414) (4.8)
Income (loss) before provision for income taxes 32,684 3.7 (38,883) (5.8)
Provision for (benefit from) income taxes 3,257 0.4 (75,000) (11.2)
Net income $ 29,427 3.3 % $ 36,117 5.4 %
The following table presents our revenues disaggregated by geography (dollars in thousands):
Three Months Ended June 30,
2026 2025
United States $ 742,307 82 % $ 537,373 80 %
Other countries 162,082 18 131,165 20
Total $ 904,389 100 % $ 668,538 100 %
International revenue increased compared to the prior year June 30, 2025 comparative period, primarily driven by increased sales in our EMEA region.
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Net Sales
Net sales by product line were as follows (dollars in thousands):
Three Months Ended June 30, Dollar Change Percent Change
2026 2025
Connected Devices segment:
TASER (1) $ 261,321 28.9 % $ 216,234 32.3 % $ 45,087 20.9 %
Personal Sensors (2) 95,392 10.5 92,819 13.9 2,573 2.8
Platform Solutions (3) 149,840 16.6 67,307 10.1 82,533 122.6
Total Connected Devices segment 506,553 56.0 376,360 56.3 130,193 34.6
Total Software and Services segment 397,836 44.0 292,178 43.7 105,658 36.2
Total net sales $ 904,389 100.0 % $ 668,538 100.0 % $ 235,851 35.3 %
(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 34.6% for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase of $45.1 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $2.6 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $82.5 million increase in Platform Solutions is primarily driven by higher volume for counter-drone equipment.
Net sales for the Software and Services segment increased 36.2% for the three months ended June 30, 2026 compared to the three months ended June 30, 2025. The increase in the aggregate number of users and growing adoption of our premium solutions by existing customers drove the majority of the increase of $105.7 million.
Gross Margin
As a percentage of net sales, gross margin for the Connected Devices segment increased to 51.9% from 48.6% for the three months ended June 30, 2026 and 2025, respectively. Adjusted gross margin for the Connected Devices segment was 53.4% for the three months ended June 30, 2026, compared to 51.1% for the three months ended June 30, 2025. The increase in gross margin and adjusted gross margin was primarily driven by tariff refunds, partially offset by increased mix to counter-drone equipment.
As a percentage of net sales, gross margin for the Software and Services segment decreased to 71.3% from 75.6% for the three months ended June 30, 2026 and 2025, respectively. Adjusted gross margin for the Software and Services segment decreased to 75.1% for the three months ended June 30, 2026, compared to 78.9% for the three months ended June 30, 2025. The decrease in gross margin and adjusted gross margin was primarily driven by a higher mix of professional services revenue and scaling new product offerings.
Selling, General and Administrative Expenses
SG&A expenses were as follows (dollars in thousands):
Three Months Ended June 30, Dollar Change Percent Change
2026 2025
Total selling, general and administrative expenses $ 290,982 $ 242,212 $ 48,770 20.1 %
As a percentage of net sales 32.2% 36.2%
Salaries, benefits and bonus expense increased $12.0 million in comparison to the prior year June 30, 2025 comparable period, primarily attributable to an increase in headcount.
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Sales and marketing expense increased $8.9 million in comparison to the prior year June 30, 2025 comparable period, primarily attributable to increased commissions.
Other SG&A expenses increased $27.9 million in comparison to the prior year June 30, 2025 comparable period, primarily driven by increased advisory expenses of $8.7 million, increased travel expenses of $5.4 million, and increased technology license expenses of $4.4 million as a result of the continued adoption of AI initiatives.
Research and Development Expenses
R&D expenses were as follows (dollars in thousands):
Three Months Ended June 30, Dollar Change Percent Change
2026 2025
Total research and development expenses $ 208,687 $ 162,567 $ 46,120 28.4 %
As a percentage of net sales 23.1 % 24.3 %
Salaries, benefits and bonus expense increased $20.1 million in comparison to the prior year June 30, 2025 comparable period, which was primarily attributable to an increase in headcount.
Stock-based compensation expense increased $7.2 million in comparison to the prior year June 30, 2025 comparable period, primarily driven by increased headcount.
Other R&D expenses increased $18.8 million in comparison to the prior year June 30, 2025 comparable period, primarily driven by an increase in engineering expenses of $6.2 million and an increase in technology license expenses of $5.1 million as a result of the continued adoption of AI initiatives.
Interest Income (Expense), Net
Interest income (expense), net, was as follows (in thousands):
Three Months Ended June 30,
2026 2025
Interest income $ 6,815 $ 23,253
Interest expense (28,101) (28,686)
Total interest income (expense), net $ (21,286) $ (5,433)
Other Income (Loss), Net
Other income (loss), net, was as follows (in thousands):
Three Months Ended June 30,
2026 2025
Income (loss) from strategic investments, net (1) $ 5,709 $ (1,297)
Realized and unrealized gain (loss) on marketable securities, net (2) 1,075 (30,870)
Gain (loss) on foreign currency transactions, net 577 (413)
Other, net (169) 166
Other income (loss), net $ 7,192 $ (32,414)
(1)Reflects the net realized and unrealized income (loss) associated with our strategic investments, during the three months ended June 30, 2026 and 2025, as discussed within Note 6.
(2)Reflects the net realized and unrealized gain (loss) on marketable securities, during the three months ended June 30, 2026 and 2025, as discussed within Note 3.
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Provision for (Benefit from) Income Taxes
The effective tax rate was 10.0%, for the three months ended June 30, 2026, compared to 192.9% for the three months ended June 30, 2025. The decrease in effective tax rate for the quarter was primarily driven by a less favorable net tax benefit related to stock-based compensation, R&D tax credits and an increase in pre-tax book income, which reduced the relative impact of other permanent and discrete items.
Provision for (benefit from) income taxes and effective tax rates were as follows (dollars in thousands):
Three Months Ended June 30,
2026 2025 Change
Income before provision for income taxes $ 32,684 $ (38,883) $ 71,567
Provision for (benefit from) income taxes $ 3,257 $ (75,000) $ 78,257
Effective tax rate 10.0 % 192.9 %
Net Income
We recorded net income of $29.4 million for the three months ended June 30, 2026 compared to net income of $36.1 million for the three months ended June 30, 2025. Net income per basic share was $0.37 for the three months ended June 30, 2026 compared to $0.46 for the three months ended June 30, 2025. Net income per diluted share was $0.36 for the three months ended June 30, 2026 compared to $0.44 for the three months ended June 30, 2025.
Six Months Ended June 30, 2026 Compared to the Six Months Ended June 30, 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):
Six Months Ended June 30,
2026 2025
Net sales from products $ 959,374 56.0 % $ 717,256 56.4 %
Net sales from services 752,360 44.0 554,915 43.6
Net sales 1,711,734 100.0 1,272,171 100.0
Cost of product sales 476,017 27.8 363,688 28.6
Cost of service sales 211,984 12.4 139,001 10.9
Cost of sales 688,001 40.2 502,689 39.5
Gross margin 1,023,733 59.8 769,482 60.5
Operating expenses:
Selling, general and administrative 550,075 32.1 465,721 36.6
Research and development 397,637 23.3 313,590 24.6
Total operating expenses 947,712 55.4 779,311 61.2
Income (loss) from operations 76,021 4.4 (9,829) (0.7)
Interest income 17,426 1.0 33,857 2.7
Interest expense (56,744) (3.3) (36,507) (2.9)
Other income, net 196,202 11.5 81,987 6.4
Income before provision for income taxes 232,905 13.6 69,508 5.5
Provision for (benefit from) income taxes 34,166 2.0 (54,589) (4.3)
Net income $ 198,739 11.6 % $ 124,097 9.8 %
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The following table presents our revenues disaggregated by geography (dollars in thousands):
Six Months Ended June 30,
2026 2025
United States $ 1,388,834 81 % $ 1,066,756 84 %
Other countries 322,900 19 205,415 16
Total $ 1,711,734 100 % $ 1,272,171 100 %
International revenue increased compared to the prior year June 30, 2025 comparative period, primarily driven by increased sales in our EMEA region.
Net Sales
Net sales by product line were as follows (dollars in thousands):
Six Months Ended June 30, Dollar Change PercentChange
2026 2025
Connected Devices segment:
TASER (1) $ 494,174 28.9 % $ 411,729 32.4 % $ 82,445 20.0 %
Personal Sensors (2) 204,143 11.8 181,224 14.2 22,919 12.6
Platform Solutions (3) 261,057 15.3 124,303 9.8 136,754 110.0
Total Connected Devices segment 959,374 56.0 717,256 56.4 242,118 33.8
Total Software and Services segment 752,360 44.0 554,915 43.6 197,445 35.6
Total net sales $ 1,711,734 100.0 % $ 1,272,171 100.0 % $ 439,563 34.6 %
(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 33.8% for the six months ended June 30, 2026 compared to the six months ended June 30, 2025. The increase of $82.4 million in TASER is primarily driven by higher TASER 10 handle and cartridge volume. Personal Sensors increased $22.9 million on continued adoption of our newest body camera, AB4, and higher warranty revenue from more devices in the field. The $136.8 million increase in Platform Solutions is primarily driven by higher volume for counter-drone equipment.
Net sales for the Software and Services segment increased 35.6% for the six months ended June 30, 2026 compared to the six months ended June 30, 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 $197.4 million.
Gross Margin
As a percentage of net sales, gross margin for the Connected Devices segment increased to 50.4% from 49.3% for the six months ended June 30, 2026 and 2025, respectively. Adjusted gross margin for the Connected Devices segment was 52.0% for the six months ended June 30, 2026, compared to 51.9% for the six months ended June 30, 2025. The increase in gross margin and adjusted gross margin was primarily driven by tariff refunds, partially offset by increased mix to counter-drone equipment.
As a percentage of net sales, gross margin for the Software and Services segment decreased to 71.8% from 75.0% for the six months ended June 30, 2026 and 2025, respectively. Adjusted gross margin for the Software and Services segment decreased to 75.4% for the six months ended June 30, 2026, compared to 78.3% for the six months ended June 30, 2025. The decrease in gross margin and adjusted gross margin was primarily driven by a higher mix of professional services revenue and scaling new product offerings.
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Selling, General and Administrative Expenses
SG&A expenses were as follows (dollars in thousands):
Six Months Ended June 30, Dollar Change Percent Change
2026 2025
Total selling, general and administrative expenses $ 550,075 $ 465,721 $ 84,354 18.1 %
As a percentage of net sales 32.1% 36.6%
Salaries, benefits and bonus expense increased $22.8 million in comparison to the prior year June 30, 2025 comparable period, primarily attributable to an increase in headcount.
Sales and marketing expense increased $19.1 million in comparison to the prior year June 30, 2025 comparable period, primarily attributable to increased commissions.
Other SG&A expenses increased $42.4 million in comparison to the prior year June 30, 2025 comparable period, primarily attributable to increased advisory expenses of $17.8 million and increased travel expenses of $8.0 million.
Research and Development Expenses
R&D expenses were as follows (dollars in thousands):
Six Months Ended June 30, Dollar Change Percent Change
2026 2025
Total research and development expenses $ 397,637 $ 313,590 $ 84,047 26.8 %
As a percentage of net sales 23.2 % 24.6 %
Salaries, benefits and bonus expense increased $41.5 million in comparison to the prior year June 30, 2025 comparable period, which was primarily attributable to an increase in headcount.
Stock-based compensation expense increased $8.6 million in comparison to the prior year June 30, 2025 comparable period, partially attributable to increased headcount.
Other R&D expenses increased $33.9 million in comparison to the prior year June 30, 2025 comparable period, primarily driven by $13.0 million of increased engineering expenses and $6.5 million of increased technology license expenses as a result of the continued adoption of AI initiatives.
Interest Income (Expense), Net
Interest income (expense), net, was as follows (in thousands):
Six Months Ended June 30,
2026 2025
Interest income $ 17,426 $ 33,857
Interest expense (56,744) (36,507)
Total interest income (expense), net $ (39,318) $ (2,650)
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Other Income, Net
Other income (loss), net, was as follows (in thousands):
Six Months Ended June 30,
2026 2025
Income from strategic investments, net (1) $ 202,309 $ 166,024
Realized and unrealized loss on marketable securities, net (2) (4,436) (54,270)
Loss on foreign currency transactions, net (1,589) (1,216)
Induced conversion of convertible debt — (28,666)
Other, net (82) 115
Other income, net $ 196,202 $ 81,987
(1)Reflects the net realized and unrealized income associated with our strategic investments, during the six months ended June 30, 2026 and 2025, as discussed within Note 6.
(2)Reflects the net realized and unrealized loss on marketable securities, during the six months ended June 30, 2026 and 2025, as discussed within Note 3.
Provision for Income Taxes
The effective tax rate was 14.7%, for the six months ended June 30, 2026, compared to (78.5)% for the six months ended June 30, 2025. The increase in effective tax rate for the six months ended June 30, 2026 was primarily driven by a less favorable net tax benefit related to stock-based compensation, R&D tax credits and an increase in pre-tax book income, which reduced the relative impact of other 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,
2026 2025 Change
Income before provision for income taxes $ 232,905 $ 69,508 $ 163,397
Provision for (benefit from) income taxes $ 34,166 $ (54,589) $ 88,755
Effective tax rate 14.7 % (78.5) %
Net Income
We recorded net income of $198.7 million for the six months ended June 30, 2026 compared to net income of $124.1 million for the six months ended June 30, 2025. Net income per basic share was $2.47 for the six months ended June 30, 2026 compared to $1.60 for the six months ended June 30, 2025. Net income per diluted share was $2.41 for the six months ended June 30, 2026 compared to $1.52 for the six months ended June 30, 2025.
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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.
Furthermore, beginning in the quarterly period ended June 30, 2026, we updated the calculation of Adjusted EBITDA and Adjusted Gross Margin to exclude additional jurisdiction-specific compensation-related taxes incurred as a direct result of Employee XSP vesting events. This update expands upon our existing adjustment, which was historically limited to payroll taxes related to Employee XSP vesting events. For all comparable prior periods presented, our adjustment does not include any incremental jurisdiction-specific compensation-related taxes, as the impact of this change on historical periods was determined to be de minimis. Accordingly, compensation taxes related to Employee XSP vesting for all comparable prior periods has not been recast and solely reflects adjustment for payroll taxes incurred.
•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; compensation taxes related to Employee XSP vesting; 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; compensation taxes related to Employee XSP vesting; 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.
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.
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EBITDA and adjusted EBITDA reconcile to net income as follows (in thousands):
Three Months Ended Six Months Ended
June 30, 2026 June 30, 2025 June 30, 2026 June 30, 2025
Net income $ 29,427 $ 36,117 $ 198,739 $ 124,097
Depreciation and amortization 31,615 19,324 60,961 38,519
Interest expense 28,101 28,686 56,744 36,507
Investment interest income (6,815) (23,253) (17,426) (33,857)
Provision for (benefit from) income taxes 3,257 (75,000) 34,166 (54,589)
EBITDA $ 85,585 $ (14,126) $ 333,184 $ 110,677
Non-GAAP adjustments:
Other (income) loss, net (7,192) 32,167 (196,202) (83,088)
Stock-based compensation expense 144,320 139,244 278,005 279,483
Transaction costs related to strategic investments and acquisitions 4,560 2,230 11,048 4,957
Compensation taxes related to Employee XSP vesting 9,417 9,782 9,532 9,782
Litigation and regulatory costs 1,886 774 3,220 2,823
Severance costs (1) 681 — 2,730 —
Non-qualified deferred compensation liability adjustments 2,767 1,561 2,137 1,561
Inventory step-up amortization — — — 607
Adjusted EBITDA $ 242,024 $ 171,632 $ 443,654 $ 326,802
(1)For the three and six months ended June 30, 2026, non-recurring severance costs of $0.7 million and $2.7 million, respectively, consisted of stock-based compensation, cash payments and employee benefits.
Adjusted gross margin reconciles to gross margin as follows (in thousands):
Three Months Ended June 30,
2026 2025
Connected Devices Software and Services Total Connected Devices Software and Services Total
Gross margin $ 262,692 $ 283,755 $ 546,447 $ 182,853 $ 220,890 $ 403,743
Stock-based compensation expense 5,516 5,825 11,341 7,583 4,978 12,561
Amortization of acquired intangible assets 1,729 8,572 10,301 1,333 3,853 5,186
Compensation taxes related to Employee XSP vesting 426 633 1,059 634 854 1,488
Severance costs (1) (25) — (25) — — —
Adjusted gross margin $ 270,338 $ 298,785 $ 569,123 $ 192,403 $ 230,575 $ 422,978
Gross margin % 51.9 % 71.3 % 60.4 % 48.6 % 75.6 % 60.4 %
Adjusted gross margin % 53.4 % 75.1 % 62.9 % 51.1 % 78.9 % 63.3 %
(1)For the three months ended June 30, 2026, non-recurring severance costs recorded to cost of service and product sales consisted of adjustments for cash payments and employee benefits.
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Six Months Ended June 30,
2026 2025
Connected Devices Software and Services Total Connected Devices Software and Services Total
Gross margin $ 483,357 $ 540,376 $ 1,023,733 $ 353,568 $ 415,914 $ 769,482
Stock-based compensation expense 11,291 10,553 21,844 15,059 10,389 25,448
Amortization of acquired intangible assets 3,459 15,808 19,267 2,670 7,479 10,149
Compensation taxes related to Employee XSP vesting 426 633 1,059 634 854 1,488
Severance costs (1) 121 20 141 — — —
Inventory step-up amortization — — — 607 — 607
Adjusted gross margin $ 498,654 $ 567,390 $ 1,066,044 $ 372,538 $ 434,636 $ 807,174
Gross margin % 50.4 % 71.8 % 59.8 % 49.3 % 75.0 % 60.5 %
Adjusted gross margin % 52.0 % 75.4 % 62.3 % 51.9 % 78.3 % 63.4 %
(1)For the six months ended June 30, 2026, non-recurring severance costs recorded to cost of service and product sales consisted of stock-based compensation, cash payments and employee benefits.
Liquidity and Capital Resources
Summary
June 30, 2026 December 31, 2025 Dollar Change
Cash and cash equivalents $ 597,704 $ 1,201,147 $ (603,443)
Available-for-sale investments 75,703 505,417 (429,714)
Total $ 673,407 $ 1,706,564 $ (1,033,157)
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 June 30, 2026, we had $0.6 billion of cash and cash equivalents, a decrease of $603.4 million from December 31, 2025. As of June 30, 2026, we had $75.7 million of available-for-sale investments, a decrease of $429.7 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 June 30, 2026, we had letters of credit outstanding of approximately $9.1 million under the facility and available borrowing of $290.9 million. Refer to Note 8 in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.
As of June 30, 2026, we have an aggregate of $1.75 billion of Senior Notes outstanding. As of June 30, 2026, none of our subsidiaries guarantee the Senior Notes. Our non-guarantor subsidiaries accounted for approximately 20% of our total revenue for the six months ended June 30, 2026, and approximately 21% and 8% of our total consolidated assets and liabilities (excluding the effect of intercompany transactions), respectively, as of June 30, 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.
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Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities (in thousands):
Six Months Ended June 30, Dollar Change
2026 2025
Operating activities $ (11,440) $ (65,910) $ 54,470
Investing activities (465,762) (1,088,749) 622,987
Financing activities (122,618) 1,308,861 (1,431,479)
Effect of exchange rate changes on cash and cash equivalents (3,949) 6,497 (10,446)
Net increase (decrease) in cash and cash equivalents and restricted cash $ (603,769) $ 160,699 $ (764,468)
Operating activities
Net cash used in operating activities was $11.4 million for the six months ended June 30, 2026 compared to net cash used in operating activities of $65.9 million for the six months ended June 30, 2025. The net operating cash outflow for the six months ended June 30, 2026 includes net income of $198.7 million, a net add-back of non-cash income statement items of $176.2 million and a $386.4 million net change in operating assets and liabilities.
Primary drivers of the non-cash items include $278.7 million of stock-based compensation expense for employee equity programs and $62.8 million of depreciation and amortization, partially offset by $197.9 million in fair value adjustments for net realized and unrealized gains and losses on our strategic investments and marketable securities. 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 operating assets and liabilities includes $256.9 million of receivables and contract assets primarily due to increased sales, as well as the timing of invoicing and cash collections, $39.6 million of inventory and accounts payable primarily driven by advanced raw material purchases for TASER 10 CEDs and counter-drone equipment, and $35.3 million of deferred revenue.
Investing activities
Net cash used in investing activities was $465.8 million for the six months ended June 30, 2026 compared to $1.1 billion for the six months ended June 30, 2025. The net investing cash outflow is primarily driven by $551.6 million for business combinations, which is substantially all related to the Carbyne acquisition, $302.8 million for investment purchases, which includes $302.1 million of strategic investments purchases, and $44.2 million for purchases of property and equipment. The cash outflow was partially offset by $434.3 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 $122.6 million for the six months ended June 30, 2026 compared to net cash provided by financing activities of $1.3 billion for the six months ended June 30, 2025. The financing cash outflow in the current period was primarily driven by $140.2 million of income and payroll tax payments made on behalf of employees who net-settled stock awards during the period, as well as $0.3 million which remains unpaid as of the six months ended June 30, 2026. The outflow was further driven by $81.1 million of principal payments related to the redemption of our 2027 Notes. Financing cash inflow for the period includes $100.5 million of net cash proceeds from our ATM equity offering program, considering any unpaid issuance costs as of June 30, 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 six months ended June 30, 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 six months ended June 30, 2026.
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