Our software business model remains a powerful growth engine. Our customers subscribe to a bundle of our products. And over time, we improved these products and delivered more new features and technology enhancements. Our strong software growth is tied to multiple drivers. We see growth from new customers, who sign new licenses and adopt feature add-ons. We also see many existing customers expanding their needs and growing with us over time. This is a result of our relentless focus on solving customer problems and driving innovation in the ecosystem as Rick discussed. You see that impact in our excellent net revenue retention rate of 122% and ARR growth of 54%. Axon cloud and services revenue is now 36% of total revenue, compared to 31% last year.
We are also seeing our new hardware product launches drive growth in our business. TASER 10 grew more than 50% sequentially, representing healthy demand and our ability to scale to meet that demand. Axon Body 4 made up the majority of our body camera shipments in the quarter and drove our growth in devices along with continued strength in Fleet 3, supporting 45% annual growth in our sensors hardware business. Our third-quarter gross margin of 61.7% exceeded our expectations on a higher mix of software revenue. Relative to last year, we saw our margins mix down slightly on increased TASER 10 revenue, as well as increased revenue from sensors and professional services. We expect this impact to continue in Q4 with margins slightly below Q2 and Q3, on mix.
Turning to operating expenses. We saw some leverage from both R&D and SG&A supporting expansion in our adjusted EBITDA margin. We continue to invest to ensure we are positioned for a multiyear growth opportunity and to support the continued scaling of our business. As I turn to our guidance, you will note our strengthening outlook on both revenue and adjusted EBITDA. We are pleased to increase our outlook again. We expect revenue for the fourth quarter to be in the range of $417 million to $420 million and fourth quarter adjusted EBITDA margin to be approximately 20%. Our Q4 guidance implies an increase in our full-year revenue outlook to approximately $1.55 billion or 30% growth year-over-year, which is up from our prior guidance of $1.51 billion to $1.53 billion or 27% to 29% growth.
Our fourth quarter adjusted EBITDA margin guidance implies a full-year adjusted EBITDA margin expectation of approximately 20.8% or $322 million. This outlook is raised from our prior expectation of approximately 20% adjusted EBITDA margin for the full-year or $302 million to $306 million. Our increased revenue guidance factors and growing demand we are seeing across our product categories, including our premium bundle offerings and the successfully executed launches of TASER 10 and Axon Body 4. For 2024 and beyond, we remain confident in our ability to scale globally to unlock new customer segments and to introduce even more new products that drive highly profitable revenue growth. And with that, I would like to open it up to questions.
A – Andrea James: Thank you. Can we go into gallery view, please?
Unidentified Company Representative: [Technical Difficulty]
Andrea James: Let’s take our first question from Keith Housum at Northcoast. Go ahead, Keith.
Keith Housum: Good morning — good afternoon, guys. Appreciate it. In terms of your guidance for the fourth quarter, you know, level precision that we have traditionally not seen from you guys with the $417 million to $420 million, I guess, perhaps comment on what gives you the, I guess, the level-off of that level of precision today and then what has to happen in order for you guys to perhaps, you know, be at the top end or ups even exceed that guidance?
Brittany Bagley: I think a lot of what you’re seeing is, we’re just coming into our fourth quarter. And so there’s only one quarter left in the year. As we look at that range in terms of what we’re seeing on revenue, it just doesn’t give a particularly wide range as you look back at the full year. So the look at the full year looks more precise and more tight based on what we’re looking at for Q4. And then in terms of, you know, what we’re baking in for Q4 or what we would need to see, it’s really our, you know, estimate looking at our pipeline of customer deals we think we have in the quarter. We have good momentum, as you’ve seen across TASER 10, across Axon Body 4. And so we’re factoring those in as we look at Q4, as well as, you know, we what we think we’ll be able to do from a software standpoint. So again, it’s the best guess. We don’t always know what perfectly, but that’s what we’re looking at as we look at Q4 guidance.
Keith Housum: Great. I appreciate it. I’ll turn it back over. Thanks.
Andrea James: Great, thanks. That’s great. And if you are on this call, we’ve got you. So you can — you don’t have to put your hands up and we will be calling on you in the order that the random number generator selected. Okay, Trevor Walsh at JMP. You are up next.
Trevor Walsh: Great. Thanks, team, for taking my question. Rick, maybe for you or even Josh, feel free to jump in. So I know IACP is a pretty, you know, major event for you guys and large builder of pipeline. What were you just hearing from customers there in terms of, you know, priorities for them both kind of finishing out the year, but then looking into ’24 and where you see budgets sort of going around either a particular product or just a particular use case of what there, you know, if there was anything that kind of stood out in terms of kind of what’s top of mind for customers coming out of that event. Thanks.
Rick Smith: Let me start first. The thing that I heard there was most interesting this year was customers really embracing the full ecosystem. So if I go back maybe three years ago, as we were really scaling, I think we had some customers that were saying, well, jeez, you know, I don’t know how much of my tech stack. I want to put with one vendor like you guys are getting to be a big part of our tech stack and what I heard this year was pretty universally customers not saying that but saying, you know, we can’t wait to deploy dispatch, for example, and these are customers who’ve never seen what we’re doing in dispatch and we’re still in the early innings there. But the feedback was, we’ve had such good luck when we deploy products and technology from Axon.
It all just works so well and the customer services is so good. So that was a really intriguing thing to me to feel that shift in dynamic where customers were just saying, you know, we’ve done enough of this now and it just works so well when we go with you. We — I had several chiefs at pretty big cities say, I would love to just be able to run my whole department on Axon because I trust you guys will deliberate and it will be both excellent and we’ll give me new capabilities, you know, that maybe I have even thought of yet. So that was really a positive general sentiment. Josh, you want to…
Josh Isner: Yes, I’d just add. I think, you know, it was an incredible combination of amazing reception around our newer products, specifically VR, TASER 10 and Axon Records. But then an equally awesome reception to kind of the early showcase products that have not hit the market yet, which gives us a lot of confidence going into the next couple of years here that the things that we will be rolling out have, you know, already, you know, the perception of really good product market fit and should have a lot of demand associated with them. Of course, we’ve got to do a lot on our end to execute well and to make sure we go all the way to the finish line on those products. But that’s always a really exciting thing to see when what you’re building resonates so clearly with our customers.
Rick Smith: The last one, I’d want to add in. Just to go into a little microcosm in terms of the detail was. I think this was the year that VR flipped from sort of conceptually interesting to ready for prime time. You know, we decided to wait for the all-in-one headsets. We didn’t — we did not, you know, want to push out a few years ago when installing VR meant room-based sensors and more complexity. We felt waiting for the all-in-ones was going to mean you could deploy a much greater scale. Now, that meant we had to do a lot of hardware development to make our TASER weapons work in a virtual world and, you know, some of the early things we tried were spaced around hand tracking just using motion sensors and to be honest, that was — we were sort of getting feedback from our customers.
