Axon Trims Its Year for Slipped Federal Drone Deals and Bets $1.2 Billion on Skydio

Axon cut its full-year growth outlook on Thursday after three federal counter-drone deployments slipped out of 2026.

Axon reported third-quarter revenue of $908.6 million, up 28% year over year, a record the company rounds to $909 million. The growth still missed analyst expectations, and adjusted profit of $1.72 a share fell short of the $1.88 Wall Street expected, according to LSEG data reported by Reuters.

Reported net income was $57 million, or $0.68 a share, swinging from a net loss of $2 million a year earlier. Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) rose 33% to $236 million.

Software accelerated; the hardware calendar did not

Software & Services revenue rose 43% to $437 million, and annual recurring revenue grew 40% to $1.75 billion. Net revenue retention, the share of existing customers' spending Axon keeps and expands, held at 126%.

Connected Devices revenue rose 16% to $472 million, and Platform Solutions, a component of Connected Devices, more than doubled to $125 million. Growth would have been stronger without a federal deployment of about $30 million that the company had expected to book in the quarter.

The mix cost margin. Total gross margin fell to 56.7% from 60.1% a year earlier, which the company attributed to more counter-drone equipment, higher memory costs and newer products still scaling.

Free cash flow was an outflow of $19 million, against an inflow of $33 million a year earlier. The company put about $100 million into strategic inventory during the quarter to protect product availability.

Three deployments explain the whole cut

The trimmed outlook rests on three Federal Dedrone deployments totaling about $130 million of revenue. Dedrone is Axon's counter-drone business, which detects and tracks unauthorized drones for government customers.

About $30 million was expected in the third quarter and two further deployments totaling $100 million in the fourth. None of the three is now expected in 2026, and the company presents the shortfall as timing rather than cancellation, without giving a new date.

Full-year revenue guidance is now $3.61 billion to $3.63 billion, growth of about 30%, down from a prior outlook of 32% to 34%. Had the deployments remained on pace, growth would have been nearly five percentage points higher, the company said.

Fourth-quarter guidance carries the same gap: revenue of $990 million to $1.01 billion and adjusted EBITDA of $245 million to $250 million. Full-year adjusted EBITDA is guided to $924 million to $929 million, and free cash flow to $350 million to $400 million, down from a $450 million target.

The largest investment in Axon's history

On the same day, Axon announced an additional $1.2 billion investment in Skydio, the largest single investment in its history. The deal lifts Axon's fully diluted ownership to about 37% from about 15% at September 30, at a $5.2 billion pre-money valuation for Skydio.

The filing puts the cash share at about 60%, roughly $720 million, with the rest in Axon stock. A first purchase of 25 million Skydio shares for about $254.9 million closed on Thursday, and the remaining transactions are expected to close in the fourth quarter of 2026 and the first quarter of 2027.

Axon also becomes Skydio's exclusive distributor for public safety in the United States and Canada. Skydio expects about $1 billion of bookings this fiscal year and serves more than 1,500 public safety customers.

Axon estimates the Drone as First Responder market at about $13 billion across the two countries. Drones in that program reach scenes before officers on about 80% of deployed calls, the announcement said.

"Within a decade, millions of drones will be working across America," Axon founder and chief executive Rick Smith said in the announcement. "Axon is taking a major stake in one of the most valuable categories in tech, and Skydio stays free to move fast."

Cash and short-term investments stood at $1.7 billion on September 30, against $2.9 billion of convertible and senior notes. The Skydio commitment is therefore a balance-sheet decision as much as a product one: Axon is spending into the same drone market whose federal timing just cost it a guidance cut.

Investors priced the slip first

Shares slumped about 14% to $329 in extended trading after the report, Reuters reported. That is an after-hours snapshot following a regular session already hit by Thursday's broad market rout, not a settled post-earnings close.

What remains unknown

Whether the $130 million of Dedrone revenue lands in 2027. Axon says the deployments are no longer expected in 2026 and gives no new timing, so a delay and a quieter cancellation cannot yet be distinguished.

The final mix of the Skydio consideration. The filing describes about 60% cash subject to settlement of the transactions, and caps new Axon shares for the deal at 19.99% of those outstanding before the first closing.

What the larger Skydio stake does to Axon's own earnings. The announcement does not say how the stake will be accounted for, and Skydio's profitability is not disclosed.

What to watch next

The remaining Skydio closings, expected in the fourth quarter of 2026 and the first quarter of 2027, and the final cash-and-stock mix they settle on.

Friday's first regular-session close, which replaces the after-hours snapshot as the settled market verdict on the print.

Any federal Dedrone award or schedule that shows the $130 million moving into 2027, and the fourth-quarter print against guidance of $990 million to $1.01 billion.