AXON -- Q4 FY25 Earnings Review

Analyst: Bear (PaulWBryant) Original: 2026-02-25 | Refreshed: 2026-04-28 (post Axon Week 2026 + multiple compression) Quarter: Q4 FY25 (Dec 2025) | Reported: Feb 24, 2026 Sources: Q4 FY25 press release, shareholder letter, investor deck, scout brief, Atlas refresh, prior stock analysis

April 28, 2026 Refresh — Where We Are Now

Two months after the print, three things have happened that change my action even if they don't change my thesis:

1. The stock has come in hard. AXON is at ~$403, down ~33% over 90 days and ~54% off the $886 52-week high. EV/TTM Rev compressed from ~14x at the print to ~11.7x. Nothing in reported fundamentals deteriorated during this window. This is multiple compression in a high-multiple growth name during a broader de-rate.
2. Axon Week 2026 (April 7-10, Nashville) delivered. Three product launches lined up with what the Q4 letter promised: Axon Vision (real-time AI on live video, native ALPR/object-detect), expanded Axon Assistant (CJIS-compliant, ecosystem-wide), and Axon 911 cloud-native EOC. The "transformative AI roadmap" was not vapor.
3. Sell-side action is mixed-to-constructive. TD Cowen reiterated Buy with $825 PT (April 15) post-pullback. Average analyst PT $758. No company-specific bad news has surfaced. The drawdown is a sentiment story, not a fundamental one.

I wrote two months ago: "I'd initiate at 4-5% now, with a plan to add toward 6-8% on the next quarter if [GM stabilizes, SBC trends to 18%, growth holds 30%+, stock stays below $500]." The stock is at $403. Q1 FY26 reports in early May. The risk profile has improved on price, but my qualitative gates (GM, SBC) are not yet verified for Q1. I am not pre-positioning above 5% on price alone.

Updated action: Hold initiation in the 4-5% band. If Q1 FY26 confirms (a) revenue growth holding 30%+, (b) adj GM stable >61%, (c) SBC tracking to FY26 guide (~17% of revenue), I add toward 7-8% even if the stock has rallied off the lows. If Q1 misses on growth or shows further GM compression below 60% adj, I trim back to 3% pending visibility. The drawdown improves the entry, but I don't want enthusiasm getting ahead of conviction.

I could be wrong on this. If Q1 prints another 38%+ revenue quarter and the market re-rates back to 14-15x, I will have left money on the table by waiting. I am willing to take that trade-off — Bear's framework rewards confirmation over anticipation, and the multi-year build is what matters.

Prior Beliefs (going into Feb 24 print)

1. Revenue: I expected $770M+ based on guidance of $750-755M and Axon's beat-and-raise pattern. Base case 3-5% beat.
2. ARR: Expected continued growth in the 35-40% range. I was watching net new ARR closely after four consecutive quarters of deceleration ($116M → $69M).
3. Gross margins: Expected continued pressure. 63% adjusted blended already below my 70% threshold. Tariffs were a known headwind.
4. SBC: Expected ~$145-150M, consistent with recent run rate. My #1 concern going in.
5. Guidance: Expected FY26 guide in the 25-30% range.
6. FCF: Expected $150M+ — Q4 is seasonally Axon's best.

Positioning at print: Watchlist. Sold in Sep 2024. Three days before the print I wrote I'd consider 3-6% after Q4.

Updated Beliefs — The Numbers vs. My Expectations

The Earnings Table (8 Quarters)

| | Q1 FY24 | Q2 FY24 | Q3 FY24 | Q4 FY24 | Q1 FY25 | Q2 FY25 | Q3 FY25 | Q4 FY25 | | | Mar-24 | Jun-24 | Sep-24 | Dec-24 | Mar-25 | Jun-25 | Sep-25 | Dec-25 | |---|---|---|---|---|---|---|---|---| | Revenue ($m) | 461 | 504 | 544 | 575 | 604 | 669 | 711 | 797 | | YoY % | 34% | 35% | 32% | 33% | 31% | 33% | 31% | **39%** | | QoQ % | 6.6% | 9.4% | 8.0% | 5.7% | 5.0% | 10.8% | 6.3% | **12.1%** | | ARR ($m) | 825 | 850 | 885 | 1,001 | 1,104 | 1,183 | 1,252 | 1,347 | | ARR YoY % | 50% | 44% | 36% | 37% | 34% | 39% | 41% | 35% | | Net New ARR ($m) | 93 | 25 | 35 | 116 | 103 | 79 | 69 | **95** | | NRR % | 122% | 122% | 123% | 123% | 123% | 124% | 124% | **125%** | | FCB ($B) | 7.0 | 7.4 | 7.7 | 10.1 | 9.9 | 10.7 | 11.4 | 14.4 | | S&S Rev ($m) | 189 | 211 | 216 | 245 | 263 | 292 | 305 | **343** | | S&S % Total | 41% | 42% | 40% | 43% | 44% | 44% | 43% | 43% | | Adj GM % | 63.2% | 62.5% | 63.2% | 63.2% | 63.6% | 63.3% | 62.7% | **61.1%** | | GAAP GM % | 56.2% | 60.9% | 60.8% | 60.1% | 60.6% | 60.4% | 60.1% | **57.9%** | | Adj EBITDA % | 23.6% | 24.5% | 26.7% | 24.6% | 25.7% | 25.7% | 24.9% | **25.9%** | | GAAP Op Margin | 3.5% | 6.5% | 4.4% | -2.7% | -1.5% | -0.1% | -0.3% | **-6.3%** | | FCF ($m) | -32 | 75 | 68 | 225 | 1 | 111 | 33 | 155 | | SBC ($m) | 75 | 75 | 102 | 131 | 140 | 139 | 146 | 209 | | SBC % Rev | 16.3% | 14.9% | 18.7% | 22.8% | 23.2% | 20.8% | 20.6% | 26.2% |

Key Observations

1. Revenue Reacceleration Is Real

38.5% YoY in Q4 is the highest in 12 quarters (excluding the COVID-comp Q2 FY22). After seven quarters of steady 31-33% growth, the business broke out. Sequential growth of 12.1% ($86M incremental) is the largest single-quarter sequential add in company history.

In other words, this is not a company running out of steam at scale. At a $3.2B run rate, 39% YoY is remarkable. Q1 FY26 will tell us how much of that is sustainable step-up vs. Q4 seasonal/pull-forward — bookings strength argues mostly the former.

2. Bookings Numbers Are Extraordinary

The real headline isn't revenue — it's what's coming:

• Annual bookings: $7.4B, +46% YoY
• FCB: $14.4B, +43% YoY — $3.0B sequential add, a record by a wide margin
• International bookings exceeded $1B annually for the first time
• FCB fulfillment guide: 20-25% over next 12 months = $2.88-3.60B, brackets the FY26 revenue guide

$14.4B in contracted future revenue at a $2.8B revenue base is over 5 years of backlog. The numbers have to match the theory, and these numbers say the demand curve is steepening, not flattening.

3. Net New ARR Reversed

$116M → $103M → $79M → 69M → **95M**. Four quarters of deceleration broke. Combined with NRR expanding to a record 125%, the software flywheel is healthy. The canary is singing again.

4. Gross Margin Compression Is the New #1 Concern

This is where the quarter gets complicated.

• GAAP gross margin: 57.9% — below 60% for the first time since Q1 FY24. -220bps YoY, -220bps QoQ.
• Adjusted gross margin: 61.1% — -210bps YoY, -160bps QoQ.

Three drivers: (1) tariff costs, (2) Platform Solutions mix within Connected Devices (lower margin), (3) Axon 911 integration deliveries (lower-margin work). Software & Services adj GM remains strong at 76.7%, but even that dipped from 78.9%.

My blended GM threshold is 70%. Axon was already below at 63%. Now it's at 61%. The gap is widening, not narrowing. The software mix shift has to accelerate to overcome this — and at 43% S&S mix, that inflection is still 2-3 years away. This replaces SBC as my #1 watch item.

5. SBC Hit a New High — But Context Matters

$209M Q4 SBC (26.2% of revenue) looks terrible. In context:

• ~$24M severance (non-recurring)
• ~$32M total non-recurring charges
• Underlying run rate closer to $175-180M

FY25 total SBC ~$579M. FY26 guide 590 − 620M(includes 230M Employee XSP plan). On FY26 revenue ~$3.5B that's ~17% — a meaningful improvement from 21% in FY25. The 2028 target of <2.5% annual dilution (vs ~2.2% current) shows management is starting to address this. "Starting to address" and "fixed" are very different things. I'll give credit when the trend confirms.

GAAP operating margin -6.3% is the worst in three years. Five consecutive quarters of GAAP operating losses. This is the cost of the SBC structure.

6. FY26 Guidance and 2028 Targets

FY26 guide 27-30% growth ($3.53-3.61B). Ceiling at 30% is notable — first time 30% has been a ceiling rather than a floor. Conservative or structural? Pattern says conservative. Axon has beaten FY guidance by $100-130M annually for three consecutive years. I'd expect actual FY26 closer to $3.65-3.75B.

The 2028 targets are the new data point: ~$6B revenue, 28% Adj EBITDA, 60% Adj FCF conversion, <2.5% annual dilution. From $2.8B FY25 to 6BFY28impliesa292B by 2025, 25% margin) by a wide margin.

7. International Is Inflecting

International was 19.1% of Q4 revenue (up from ~14% a year ago). International bookings exceeded $1B annually for the first time. Two large European cloud deployments are in delivery. The bear case for years was "Axon can't scale outside the US." The data is starting to argue otherwise.

8. New Product Vectors — Now Validated by Axon Week

April 7-10 Axon Week in Nashville delivered the products promised in the Q4 letter:

• Axon Vision — real-time AI on live video, alerts on critical activity, integrates with nearby cameras for verification. Native ALPR/object-detect from inside the Axon ecosystem — directly competes with Flock from a position of integration advantage.
• Axon Assistant (expanded) — CJIS-compliant, ecosystem-wide, BOLO/case-research/coordination workflows. ~500 customers in year 1. Bernalillo County Sheriff's Office publicly used Assistant translation to de-escalate a traffic stop — concrete adoption.
• Axon 911 — cloud-native EOC infrastructure post-Carbyne close.

Plus: Axon Body Mini (enterprise launch mid-2026, first true non-public-safety vector), and the corrections vertical (largest single-customer booking in company history). This is an expanding TAM story.

Prior Beliefs / Updated Beliefs Summary

Net assessment: The quarter was significantly better than I expected on top line and leading indicators. Gross margin compression is the negative surprise. SBC had a bad optic but the forward trajectory is improving. Two months later, the post-print drawdown improves the risk profile without changing the underlying business case.

Valuation Snapshot

I don't anchor to DCFs. I anchor to: is the multiple compatible with durable 30%+ growth and elite leading indicators? At 11.7x EV/TTM rev with FCB at $14.4B and a credible $6B/28% 2028 path, the answer is yes — even allowing for further multiple compression in a continued growth-stock de-rate.

Position Action

At the print (Feb 25): "I'd initiate at 4-5% now, with a plan to add toward 6-8% on next quarter if GM stabilizes, SBC trends to 18%, revenue holds 30%+, stock stays below $500."

Today (April 28): Stock at $403 — well below the $500 condition. Q1 FY26 not yet reported. Price condition is met; operational conditions are not yet verified.

Decision: Stay at the 4-5% initiation level into Q1 FY26 (early May 2026 print). The drawdown does not justify pre-positioning above the original target — Bear's framework is "conviction built over time," not "buy harder when the stock falls."

Q1 FY26 watch checklist:

• Revenue YoY ≥30% (anything <28% is a warning)
• Adj GM stable >61%, ideally back toward 62%
• SBC ratio stepping toward 17% (excluding any new one-offs)
• ARR sequential add ≥$80M (Q4's $95M was the bounce)
• Carbyne and Prepared revenue contribution disclosed
• FY26 guide raise (pattern says yes)

If checklist passes: Add toward 7-8%. If stock has re-rated meaningfully off the $403 lows, accept that and add anyway — the multi-year story warrants conviction.

If checklist fails on GM or growth: Trim back to 3% pending visibility. Material weakness remediation status is a hard gate — any revenue restatement would be devastating.

The gross margin compression remains the one thing giving me pause. Below-60% GAAP gross margins on a hardware-heavy company is not where I typically invest. But the software business underneath has 77% margins and is growing 40%. The installed base economics are simply different from a pure-play SaaS company, and I've made my peace with that.

I would not go above 8% until SBC demonstrates a sustained downward trend as a percentage of revenue and adj GM stops compressing. Management says the right things. I need to see it in the numbers.

I could be wrong. Maybe the Q4 revenue spike pulled forward Q1. Maybe gross margins compress further if tariffs escalate. Maybe the Employee XSP plan re-inflates SBC. But I've watched this company for three years, and the execution track record earns the benefit of the doubt.

Thesis Status

Intact, leaning Strengthening. The Q4 print was elite on revenue, bookings, ARR reversal, international inflection, and new product vectors. Axon Week 2026 validated the AI roadmap. Gross margin compression and SBC are the structural counterweights that prevent full "Strengthening" — but neither is thesis-breaking.

The $14.4B FCB and credible $6B 2028 target provide a multi-year roadmap. If management delivers — and their track record says they will — this is a $55-75B market cap company within 3 years. At today's $32B market cap, that math is doing some of the work that the Q1 print needs to confirm.

Risks to Monitor

1. Gross margin trajectory — Does adj GM stabilize above 61% or continue compressing? #1 watch item.
2. SBC as % of revenue — Trending toward 17% in FY26 as guided?
3. Q4 revenue sustainability — Was 39% YoY a one-time spike, or does Q1 FY26 hold 30%+?
4. Tariff durability — If tariffs stay elevated, hardware GM remains pressured.
5. M&A integration — Four simultaneous integrations (Prepared, Carbyne, Fusus, Dedrone).
6. Material weakness remediation — Still outstanding through Q4 FY25.
7. Multiple compression continuation — At 11.7x still a premium asset; further growth-stock de-rate could keep AXON pressured regardless of fundamentals.

Decision-Spec Citation

Per Bear's decision-spec: "Conviction built over time. Don't let enthusiasm get ahead of conviction." The 33% drawdown is tempting; the operational checklist for Q1 FY26 is the gate. Hold initiation at 4-5%, add to 7-8% only on Q1 confirmation. Cash discipline preserved.

Bear