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I saw the following weekly chart of AXON and was like: Let’s take a peek here.
AXON Enterprise, Inc - Weekly Chart
The beautiful negative divergence aside, what does AXON do? Heard about Tasers? Yeah, these are the guys. AXON’s main reporting segments are:
TASER - includes TASER handles, cartridges, and related extended warranties.
Personal Sensors - primarily includes body cameras and accessories, signal sidearm, and related extended warranties.
Platform Solutions - primarily includes interview room, fleet in-car video, fixed cameras, drones, and counter-drone equipment, virtual reality training hardware, and related extended warranties.
Software and Services segment - Some AI, document and evidence management, etc.
What is impressive about AXON is its 10-year revenue growth (CAGR) of 29.3%. Now, with AI catching the fascination of investors, anything and everything that has the remotest possibility of leveraging AI has seen its stock go ballistic, even if they are just using plain old rules engines or collating data and making it presentable. I have been through this conversation recently while discussing PLTR, so I will not regurgitate.
However, to help you appreciate where we are in the cycle, let me highlight a recent event. LULU recently hired a Chief AI Officer. These accounts with massive followers on X and ultra bullish on PLTR started laughing at LULU and wondered why LULU needed an AI Officer.
In any event, circling back to AXON. I take a dim view of companies that have poor or lax financial controls. Earlier this year, AXON had to file an amended 10K to restate earnings and fix a critical balance sheet error. While the earnings restatements were immaterial, the balance sheet restatement was certainly not. $690 million 2027 Senior Convertible Notes became current last year, but were shown as long-term liabilities instead of current liabilities. Now, the management argues that it didn’t impact the overall assets and liabilities, but it sure did force them to hedge the notes to avoid a major dilution. Total Purchase Price: $195 million.
These days, not many people seem to care about poor financial controls. SMCI has still not fixed its issues and is still listed, and guess what? AXON has not fixed the issues either. Consider the following statements from the recent 10Q.
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2025 due to a material weakness in our internal control over financial reporting related to revenue recognitionas disclosed in Part II, Item 9A of our amended 2024 Annual Report on Form 10-K/A for the year ended December 31, 2024.
While we have taken steps to implement our remediation plans (revenue recognition), the material weakness cannot be considered remediated until the necessary controls have been designed and implemented and the controls have operated for a sufficient period of time and management has concluded, through testing, that the controls are operating effectively.
During the second quarter of 2025, we completed the testing of these control activities and determined they have been appropriately designed and operated effectively for a sufficient period of time to conclude that the previously identified material weakness (related to senior notes) has been remediated as of June 30, 2025.
Source: AXON Q2 10Q PDF Pages 50-51
In short, they fixed the controls around the senior notes, supposedly, but the revenue recognition controls have still not been fixed. I am not sure how any investor can even believe anything they report. Moving along.
Inventory
AXON - Inventory; Source: Q2 10Q Note 5
With lower Raw Materials and Work in Progress, it is pretty much a signal that either demand is slowing down or stuff isn’t moving as fast as they expect. Also, wth “Days Inventory Outstanding” of 404 days, AXON risks inventory write-downs. Now consider the following statement from the Q2 earnings call.
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. Dedrone, Fusus and the AI Era Plan are also being deployed faster than we've seen with prior new technologies while laying the groundwork for future innovations coming over the horizon.
This doesn’t square with the inventory situation, and also, the “Days Inventory Outstanding” has not improved materially.
Operating Performance
AXON - Quarterly Income Statement Highlights
AXON’s YoY quarterly revenue growth has been a solid 30+% for the last 14 quarters. Even when one looks sequentially, the recent quarter has shown an improvement, and generally, the management commentary is positive. Gross Margins are steady and healthy. Now, the question is, do you believe the numbers? Moving along.
The company is operationally weak. No operating profit for the last three quarters. All the net income is coming from non-operating income or from the treatment of income tax provisions. The following is important to note with regard to the tax provisioning volatility and the factors driving it.
The overall effective tax rate for the three months ended June 30, 2025 was 192.9%, significantly higher than the federal statutory rate, due to a shift to pre-tax book loss for the quarter. This shift magnifies the impact of permanent and discrete items, which in combination with a tax benefit for the three month period, results in a positive rate. In addition, the major drivers are a result of the favorable impacts of stock-based compensation and research and development (“R&D”) tax credits partially offset by executive compensation limitation under Internal Revenue Code (“IRC”) Section 162(m), and an increase in uncertain tax positions. The effective tax rate was favorably impacted by a $56.7 million tax benefit related to stock-based compensation for stock awards that vested during the three months ended June 30, 2025.
By comparison, our overall effective tax rate for the three months ended June 30, 2024 was 19.4%.
Source: 2025 Q2 10Q PDF Page 25
AXON has $354.7 million for deferred tax assets as of June 30, 2025. So, it has lots of room to use it when required. Don’t you love GAAP?
Now, coming to the operating cash flow. Cash from operations was negative in Q2 and for the six months ended June 30, 2025. Refer to Q2 10Q PDF page 47 for full details. However, the biggest hits were from the 2027 senior note fiasco and higher receivables due to higher sales. Now, if one were to back out the stock-based compensation (SBC), AXON’s cash from operations becomes nonexistent for 2024 and earlier. Should one back out the SBC? That is one debate I will stay away from here.
Verdict
AXON projects its global Total Addressable Market (TAM) at $129 billion (Refer to Slide 16 in the Q2 earnings presentation). LTM revenue is $2.39 billion. US state and local TAM is $15 billion. So, AXON has only got less than 15% of that market. The opportunity for AXON is immense globally; however, at this time, given what we have discussed, do I need to even give a verdict? Avoid.
Until next time, have fun!!!