AXON ENTERPRISE, INC. [AXON] Filings

10-Q 1 axon-20240930.htm 10-Q axon-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


x			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


o			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________to __________

Commission File Number: 001-16391


			Axon Enterprise, Inc.
			(Exact name of registrant as specified in its charter)


Delaware			86-0741227
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)

17800 North 85th Street
Scottsdale, Arizona			85255
(Address of principal executive offices)			(Zip Code)

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 Par Value	AXON	The NASDAQ Global Select Market

______________________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

The number of shares of the registrant’s common stock outstanding as of November 1, 2024 was 76,254,776.

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AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2024


			Page
Special Note Regarding Forward-Looking Statements			ii

PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements (unaudited)		1
		Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023	1
		Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2024 and 2023	2
		Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2024 and 2023	3
		Condensed Consolidated Statements of Cash Flows for the Nine Months Ended S e ptember 30, 2024 and 2023	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		36
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		51
	Item 4. Controls and Procedures		51
PART II - OTHER INFORMATION			52
	Item 1. Legal Proceedings		52
	Item 1A. Risk Factors		52
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		76
	Item 3. Defaults Upon Senior Securities		76
	Item 4. Mine Safety Disclosures		76
	Item 5. Other Information		76
	Item 6. Exhibits		77
	SIGNATURES		78

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Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements. These forward-looking statements include, without limitation, statements regarding: proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; the impact of pending litigation; strategies and trends relating to subscription plan programs and revenues; statements related to recently completed acquisitions; our anticipation that contracts with governmental customers will be fulfilled; strategies and trends, including the amounts and benefits of, research and development (“R&D”) investments; the sufficiency of our liquidity and financial resources; expectations about customer behavior; the impact on our investment portfolio of changes in interest rates; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management’s strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2023. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The following important factors could cause actual results to differ materially from those in the forward-looking statements: our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; the ability of law enforcement agencies to obtain funding, including based on tax revenues; our ability to design, introduce and sell new products, services or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our ability to win bids through the open bidding process for governmental agencies; our ability to manage our supply chain and avoid production delays, shortages and impacts to expected gross margins; the impacts of inflation, macroeconomic conditions and global events; the impact of catastrophic events or public health emergencies; the impact of stock-based compensation expense, impairment expense, and income tax expense on our financial results; customer purchase behavior, including adoption of our software as a service delivery model; negative media publicity or sentiment regarding our products; the impact of various factors on projected gross margins; defects in, or misuse of, our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including by our third party cloud-based storage providers; exposure to international operational risks; delayed cash collections and possible credit losses due to our subscription model; changes in government regulations in the United States and in foreign markets, especially related to the classification of our products by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives; our ability to integrate acquired businesses; the impact of declines in the fair values or impairment of our investments, including our strategic investments; our ability to attract and retain key personnel; litigation or inquiries and related time and costs; and counter-party risks relating to cash balances held in excess of federally insured limits. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. This Quarterly Report on Form 10-Q lists various important factors that could cause actual results to differ materially from expected and historical results. These factors are intended as cautionary statements for investors within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Readers can find them under the heading “Risk Factors” in this Quarterly Report on Form 10-Q, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission (“SEC”). Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30, 2024		December 31, 2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	695,144	$	598,545
Marketable securities	151,560		77,940
Short-term investments	311,570		644,054
Accounts and notes receivable, net of allowance of $3,292 and $2,392 as of September 30, 2024 and December 31, 2023, respectively	512,662		412,961
Contract assets, net	372,923		287,232
Inventory	272,295		269,855
Prepaid expenses and other current assets	117,592		103,055
Total current assets	2,433,746		2,393,642
Property and equipment, net	235,881		200,533
Deferred tax assets, net	244,317		227,784
Intangible assets, net	81,748		19,539
Goodwill	308,472		57,945
Long-term notes receivable, net	2,898		2,588
Long-term contract assets, net	119,973		84,382
Strategic investments	387,905		231,730
Other long-term assets	190,718		191,031
Total assets	$	4,005,658	$	3,409,174
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	75,590	$	65,852
Accrued liabilities	209,691		193,550
Current portion of deferred revenue	505,008		470,415
Customer deposits	22,234		21,935
Other current liabilities	10,704		9,787
Total current liabilities	823,227		761,539
Deferred revenue, net of current portion	305,414		270,901
Liability for unrecognized tax benefits	20,342		18,049
Long-term deferred compensation	15,605		11,342
Long-term lease liabilities	41,223		33,550
Convertible notes, net	679,483		677,113
Other long-term liabilities	20,528		20,915
Total liabilities	1,905,822		1,793,409
Commitments and contingencies (Note 14)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively	—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 76,084,179 and 75,301,424 shares issued and outstanding as of September 30, 2024, and December 31, 2023, respectively	1		1
Additional paid-in capital	1,588,072		1,347,410
Treasury stock at cost, 20,220,227 shares as of September 30, 2024 and December 31, 2023	(155,947)		(155,947)
Retained earnings	676,830		434,980
Accumulated other comprehensive loss	(9,120)		(10,679)
Total stockholders’ equity	2,099,836		1,615,765
Total liabilities and stockholders’ equity	$	4,005,658	$	3,409,174

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Net sales from products	$	327,900	$	255,055	$	891,087	$	707,563
Net sales from services	216,374		158,223		616,294		422,760
Net sales	544,274		413,278		1,507,381		1,130,323
Cost of product sales	156,167		114,613		450,954		323,808
Cost of service sales	57,360		42,009		160,896		115,054
Cost of sales	213,527		156,622		611,850		438,862
Gross margin	330,747		256,656		895,531		691,461
Operating expenses:
Sales, general and administrative	192,189		122,357		514,228		357,611
Research and development	114,477		76,880		307,008		219,747
Total operating expenses	306,666		199,237		821,236		577,358
Income from operations	24,081		57,419		74,295		114,103
Interest income, net	10,978		10,458		31,134		29,787
Other income (loss), net	44,510		3,852		191,510		(42,569)
Income before provision for income taxes	79,569		71,729		296,939		101,321
Provision for (benefit from) income taxes	12,544		10,420		55,089		(17,401)
Net income	$	67,025	$	61,309	$	241,850	$	118,722
Net income per common and common equivalent shares:
Basic	$	0.89	$	0.82	$	3.20	$	1.61
Diluted	$	0.86	$	0.81	$	3.12	$	1.58
Weighted average number of common and common equivalent shares outstanding:
Basic	75,697		74,826		75,543		73,904
Diluted	78,080		75,952		77,614		75,212
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	67,025	$	61,309	$	241,850	$	118,722
Foreign currency translation adjustments	4,640		(6,799)		1,112		(5,680)
Unrealized gain (loss) on available-for-sale investments	434		656		447		(10)
Comprehensive income	$	72,099	$	55,166	$	243,409	$	113,032

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance, December 31, 2023	75,301,424	$	1	$	1,347,410	20,220,227	$	(155,947)	$	434,980	$	(10,679)	$	1,615,765
Issuance of common stock under employee plans, net	164,747	—		(2,710)		—	—		—		—		(2,710)
Stock-based compensation	—	—		75,115		—	—		—		—		75,115
Issuance of replacement awards in connection with acquisitions	—	—		1,265		—	—		—		—		1,265
Net income	—	—		—		—	—		133,352		—		133,352
Other comprehensive loss, net	—	—		—		—	—		—		(907)		(907)
Balance, March 31, 2024	75,466,171	$	1	$	1,421,080	20,220,227	$	(155,947)	$	568,332	$	(11,586)	$	1,821,880
Issuance of common stock under employee plans, net	107,043	—		(2,185)		—	—		—		—		(2,185)
Stock-based compensation	—	—		74,821		—	—		—		—		74,821
Net income	—	—		—		—	—		41,473		—		41,473
Other comprehensive loss, net	—	—		—		—	—		—		(2,608)		(2,608)
Balance, June 30, 2024	75,573,214	$	1	$	1,493,716	20,220,227	$	(155,947)	$	609,805	$	(14,194)	$	1,933,381
Issuance of common stock under employee plans, net	160,847	—		(17,430)		—	—		—		—		(17,430)
Stock options exercised	350,118	—		10,006		—	—		—		—		10,006
Stock-based compensation	—	—		101,780		—	—		—		—		101,780
Net income	—	—		—		—	—		67,025		—		67,025
Other comprehensive income, net	—	—		—		—	—		—		5,074		5,074
Balance, September 30, 2024	76,084,179	$	1	$	1,588,072	20,220,227	$	(155,947)	$	676,830	$	(9,120)	$	2,099,836


	Common Stock			Additional Paid-in Capital		Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss		Total Stockholders’ Equity
	Shares	Amount				Shares	Amount
Balance, December 31, 2022	71,474,581	$	1	$	1,174,594	20,220,227	$	(155,947)	$	259,197	$	(7,179)	$	1,270,666
Issuance of common stock	154,500	—		33,650		—	—		—		—		33,650
Issuance of common stock under employee plans, net	335,629	—		(34,841)		—	—		—		—		(34,841)
Stock options exercised	1,901,535	—		54,346		—	—		—		—		54,346
Stock-based compensation	—	—		34,350		—	—		—				34,350
Issuance of common stock for business combination contingent consideration	7,817	—		—		—	—		—		—		—
Net income	—	—		—		—	—		45,899		—		45,899
Other comprehensive income, net	—	—		—		—	—		—		1,860		1,860
Balance, March 31, 2023	73,874,062	$	1	$	1,262,099	20,220,227	$	(155,947)	$	305,096	$	(5,319)	$	1,405,930
Issuance of common stock	313,094	—		61,156		—	—		—		—		61,156
Issuance of common stock under employee plans, net	570,357	—		(62,214)		—	—		—		—		(62,214)
Stock options exercised	5,491	—		157		—	—		—		—		157
Stock-based compensation	—	—		31,891		—	—		—		—		31,891
Net income	—	—		—		—	—		11,514		—		11,514
Other comprehensive loss, net	—	—		—		—	—		—		(1,407)		(1,407)
Balance, June 30, 2023	74,763,004	$	1	$	1,293,089	20,220,227	$	(155,947)	$	316,610	$	(6,726)	$	1,447,027
Issuance of common stock	—	—		(101)		—	—		—		—		(101)
Issuance of common stock under employee plans, net	168,693	—		(7,021)		—	—		—		—		(7,021)
Stock-based compensation	—	—		29,987		—	—		—		—		29,987
Net income	—	—		—		—	—		61,309		—		61,309
Other comprehensive loss, net	—	—		—		—	—		—		(6,143)		(6,143)
Balance, September 30, 2023	74,931,697	$	1	$	1,315,954	20,220,227	$	(155,947)	$	377,919	$	(12,869)	$	1,525,058

The accompanying notes are an integral part of these condensed consolidated financial statements.

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AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


	Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	241,850	$	118,722
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Stock-based compensation	251,716		96,228
(Gain) loss on strategic investments and marketable securities, net	(192,158)		42,306
Depreciation and amortization	30,745		12,844
Provision for bad debts and inventory	13,824		5,083
Deferred income taxes	(27,061)		(52,955)
Other noncash items	13,183		8,238
Change in assets and liabilities:
Receivables and contract assets	(226,759)		(186,614)
Inventory	(11,629)		(65,096)
Deferred revenue	56,720		103,386
Accounts payable, accrued and other liabilities	10,243		13,367
Other, net	(2,528)		(46,284)
Net cash provided by operating activities	158,146		49,225
Cash flows from investing activities:
Purchases of investments	(615,414)		(444,685)
Business acquisitions, net of cash acquired	(237,796)		(21,090)
Proceeds from call, maturity, and sale of investments	858,326		461,214
Purchases of property and equipment	(53,984)		(35,624)
Other, net	34		(512)
Net cash (used in) investing activities	(48,834)		(40,697)
Cash flows from financing activities:
Net proceeds from equity offering	—		94,705
Proceeds from options exercised	9,717		54,503
Income and payroll tax payments for net-settled stock awards	(22,325)		(104,076)
Net cash (used in) provided by financing activities	(12,608)		45,132
Effect of exchange rate changes on cash and cash equivalents	75		(1,201)
Net increase in cash and cash equivalents	96,779		52,459
Cash and cash equivalents and restricted cash, beginning of period	600,670		355,552
Cash and cash equivalents and restricted cash, end of period	$	697,449	$	408,011

Supplemental disclosures:
Cash and cash equivalents	$	695,144	$	406,042
Restricted cash (Note 1)	2,305		1,969
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	697,449	$	408,011

Cash paid for income taxes, net of refunds	$	60,670	$	47,689

Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	10,214	$	1,784

The accompanying notes are an integral part of these condensed consolidated financial statements.

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Note 1 - Organization and Summary of Significant Accounting Policies

Axon Enterprise, Inc. (“Axon”, the “Company”, “we”, or “us”) is a market-leading provider of public safety technology solutions. Our mission is to protect life in service of promoting peace, justice and strong institutions.

The accompanying unaudited condensed consolidated financial statements include the accounts of Axon Enterprise, Inc. and our subsidiaries. All intercompany accounts, transactions and profits have been eliminated.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2023, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2023. Our results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

•revenue recognition,

•stock-based compensation,

•business combinations,

•product warranty reserves,

•inventory valuation and related reserves,

•valuation of goodwill, intangible and long-lived assets,

•valuation of strategic investments,

•recognition, measurement and valuation of current and deferred income taxes, and

•recognition and measurement of contingencies and accrued litigation expense.

The Company believes that estimates used in the preparation of these unaudited condensed consolidated financial statements are reasonable; however, actual results could differ materially from those estimates.

Revision of Previously Issued Financial Statements

In preparing the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024, we identified errors in our previously issued financial statements related to our historical conclusions of principal vs. agent accounting of certain reseller arrangements under ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”). The identified errors impacted our previously issued 2021 and 2022 annual financial statements, 2023 quarterly and annual financial statements, and 2024 quarterly financial statements through June 30, 2024. We have made adjustments to the prior period amounts presented in these financial statements accordingly. Additionally, we have made adjustments to correct for other previously identified immaterial errors.

We assessed the materiality of the errors on prior period consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 99, "Materiality," codified in ASC Topic 250, Accounting Changes and Error Corrections. Based on this assessment, we concluded that the error correction is not material to any previously presented interim or annual financial statements. A summary of the revisions to the previously reported financial information is included in Note 19.

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2024 and 2023, no individual country outside the United States represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers. For the three and nine months ended September 30, 2024 and 2023, no customer represented more than 10% of total net sales. At September 30, 2024 and

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December 31, 2023, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

We currently purchase both off-the-shelf and custom components, including finished circuit boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components and sub-assemblies from suppliers located in the United States, Taiwan, Mexico, China, Vietnam and the Republic of Korea. We may source from other countries as well. Although we currently obtain many of these components from single source suppliers, we own substantially all injection molded component tooling, designs and test fixtures used in their production for all custom components. As a result, we believe we could obtain alternative suppliers in most cases. Although we have experienced supply chain disruptions relating to materials and port constraints, we have remained focused on closely managing our supply chain. We continue to bolster our strategic relationships in our supply chain, identifying secondary/alternate sourcing, adjusting build plans accordingly, and building in logistic modes in support of our increasing demand while working to minimize disruption to customers. We acquire most of our components on a purchase order basis and do not currently have significant long-term purchase contracts with most component suppliers.

Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Diluted income per share reflects the potential dilution from outstanding stock options, unvested restricted stock units (“RSUs”), and our 0.50% convertible senior notes due 2027 (the “Notes” or “2027 Notes”). The effects of outstanding stock options, unvested RSUs, our 2027 Notes and warrants to acquire shares of our common stock (the “Warrants” or “2027 Warrants”) are excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive. The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Numerator for basic and diluted earnings per share:
Net income	$	67,025	$	61,309	$	241,850	$	118,722
Denominator:
Weighted average shares outstanding	75,697		74,826		75,543		73,904
Dilutive effect of stock-based awards	1,317		1,126		1,298		1,308
Dilutive effect of 2027 Notes	1,015		—		773		—
Dilutive effect of 2027 Warrants	51		—		—		—
Diluted weighted average shares outstanding	78,080		75,952		77,614		75,212

Net income per common share:
Basic	$	0.89	$	0.82	$	3.20	$	1.61
Diluted	$	0.86	$	0.81	$	3.12	$	1.58

Potentially dilutive securities that are not included in the calculation of diluted net income per share because doing so would be antidilutive are as follows (in thousands):


	Three Months Ended September 30,		Nine Months Ended September 30,
	2024	2023	2024	2023
Stock-based awards	4,574	481	4,620	470
2027 Notes	2,002	3,017	2,244	3,017
2027 Warrants	2,966	3,017	3,017	3,017
Total potentially dilutive securities	9,542	6,515	9,881	6,504

For additional information regarding our 2027 Notes and 2027 Warrants, refer to Note 10.

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Warranty Reserves

We warranty our TASER® brand conducted energy devices (“CEDs”), Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. We estimate and record a liability for standard warranty at the time products are sold. The estimates are based on historical experience and reflect management’s best estimates of costs to be incurred over the warranty period. Adjustments may be required when actual or projected costs differ. Variations in component failure rates, repair costs and the point of failure within the product life cycle are key drivers that impact our periodic re-assessment of the warranty liability.

Revenue related to separately priced extended warranties is initially recorded as deferred revenue at its allocated amount and subsequently recognized as net sales on a straight-line basis over the warranty service period. Costs related to extended warranties are charged to cost of product and service sales when the costs become probable and can be reasonably estimated.

Changes in our estimated product warranty liabilities were as follows (in thousands):


	Nine Months Ended September 30,
	2024		2023
Balance, beginning of period	$	7,374	$	811
Utilization of reserve	(5,007)		(901)
Warranty expense	4,860		3,381
Balance, end of period	$	7,227	$	3,291

Fair Value Measurements and Financial Instruments

We use the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

•Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

•Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices from markets that are not active for assets or liabilities that are identical or similar to the assets or liabilities being measured. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

•Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs that market participants would use in pricing an asset or liability.

We have cash equivalents and investments, which at September 30, 2024 comprised money market funds, U.S. government bonds, term deposits, U.S. Treasury bills, and agency bonds. Cash equivalents and investments at December 31, 2023 also included corporate bonds, commercial paper and U.S. Treasury inflation-protected securities. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Included in the balance of other long-term assets as of September 30, 2024 and December 31, 2023 was $8.6 million and $7.6 million, respectively, related to corporate-owned life insurance policies, which are used to fund our deferred compensation plan. We determine the fair value of insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

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We have an investment in marketable securities, for which changes in fair value are recorded in the condensed consolidated statement of operations as unrealized gain (or loss) on marketable securities, which is included in other income (loss), net.

We have strategic equity investments in various privately held companies as of September 30, 2024 and December 31, 2023. The estimated fair value of the investments was determined based on Level 3 inputs. In determining the estimated fair value of our strategic equity investments in privately held companies, we utilize observable data available to us as discussed further in Note 7.

The fair value of our 2027 Notes is determined based on the closing trading price per $1,000 of the Notes as of the last day of trading for the period. We consider the fair value of the 2027 Notes at September 30, 2024 and December 31, 2023 to be a Level 2 measurement based on the fair value hierarchy. The fair value is primarily affected by the trading price of our common stock and market interest rates.

Our financial instruments also include accounts and notes receivable, accounts payable and accrued liabilities. Due to the short-term nature of these instruments, their fair values approximate their carrying values on the condensed consolidated balance sheet.

Restricted Cash

Restricted cash balances of $2.3 million and $2.1 million as of September 30, 2024 and December 31, 2023, respectively, primarily relate to funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. As of September 30, 2024, approximately $2.2 million was included in prepaid expenses and other current assets on our condensed consolidated balance sheet, with the remainder in other long-term assets.

Valuation of Goodwill, Intangibles and Long-lived Assets

We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives, may warrant revision or that the remaining balance of these assets may not be recoverable. Such events and circumstances could include a change in the product mix, a change in the way products are created, produced or delivered, or a significant change in the way products are branded and marketed. In performing the review for recoverability, we estimate the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition. The amount of impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair values computed using discounted cash flows.

Finite-lived intangible assets and other long-lived assets are amortized over their estimated useful lives. We do not amortize goodwill and intangible assets with indefinite useful lives; rather such assets are required to be tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. We test goodwill and indefinite-lived intangible assets for impairment on an annual basis in the fourth quarter and on an interim basis when certain events and circumstances exist.

Business Combinations

Acquired businesses are included in the consolidated financial statements from the date we gain control of the business. We recognize, separately from goodwill, the identifiable assets acquired and liabilities assumed at their estimated acquisition-date fair values. Our estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, we may record qualifying adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions, tax-related valuation allowances and pre-acquisition contingencies are initially recorded in connection with a business combination as of the acquisition date. We continue to collect information and reevaluate these estimates and assumptions quarterly and record any qualifying adjustments to our preliminary estimates to goodwill provided that we are within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to our condensed consolidated statement of operations.

In the event that we acquire an entity in which we previously held an existing minority ownership interest, the difference between the fair value of the interest as of the acquisition date and the carrying value of the interest is recorded as a gain or loss within other income (loss), net, in the condensed consolidated statement of operations. Preexisting relationships

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subject to termination as a result of consummating an acquisition may require the recognition of a gain or loss upon settlement, which is recognized within income from operations on the condensed consolidated statement of operations. All third-party transaction-related costs are recognized as expense in the period in which they are incurred.

Stock-Based Compensation

On May 10, 2024, our shareholders approved the Axon Enterprise, Inc. 2024 eXponential Stock Plan (the “2024 Employee XSP”). The 2024 Employee XSP includes an approved pool of shares of common stock to be reserved for grants of awards of eXponential Stock Units (“XSUs”) to employees. The grants of XSUs (the “2024 XSUs”) are grants of performance-based RSUs that vest in seven substantially equal tranches. The tranches will vest upon certification by the Compensation Committee of the Board of Directors upon achievement of three independent vesting conditions: (1) stock price goals; (2) operational goals; and (3) minimum service conditions.

Additionally, shareholders approved the grant of the 2024 XSUs to our CEO, Patrick W. Smith (the “2024 CEO Performance Award”). The stock price goals and operational goals under the 2024 CEO Performance Award are identical to those under the 2024 Employee XSP, but Mr. Smith is subject to a longer minimum required service period. Refer to Note 12 for further discussion regarding ongoing progress towards reaching the aforementioned goals.

Recently Issued Accounting Guidance and Disclosure Rules

Standards Not Yet Adopted

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. ASU 2023-07 requires annual and interim disclosures that are expected to improve reportable segment disclosures, primarily through enhanced disclosures about significant segment expenses. The new standard is effective for our Annual Report on Form 10-K for the year ending December 31, 2024, and subsequent interim periods, with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax. The provisions of ASU 2023-09 are effective for our Annual Report on Form 10-K for the year ending December 31, 2025, with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements.

In March 2024, the SEC adopted final rules under SEC Release No. 34-99678 and No. 33-11275, The Enhancement and Standardization of Climate-Related Disclosures for Investors (the “Final Rules”), which will require registrants to provide certain climate-related information in their registration statements and annual reports. The Final Rules require, among other things, disclosure in the notes to the audited financial statements of the effects of severe weather events and other natural conditions, subject to certain thresholds, as well as amounts related to carbon offsets and renewable energy credits or certificates in certain circumstances. The financial statement disclosure requirements of the Final Rules will begin phasing in for the Company for fiscal year 2025. In April 2024, the SEC stayed the effectiveness of the Final Rules pending judicial review. We are currently evaluating the impact of the Final Rules on our consolidated financial statements.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications are not material and had no effect on the reported results of operations.

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Note 2 - Revenues

Nature of Products and Services

The following tables present our revenues by primary product and service offering and reportable segment (in thousands):


	Three Months Ended September 30, 2024						Three Months Ended September 30, 2023
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER Devices (Professional)	$	130,515	$	—	$	130,515	$	86,718	$	—	$	86,718
Cartridges	60,179		—		60,179		54,279		—		54,279
Axon Evidence and Cloud Services	13,861		203,481		217,342		8,975		151,518		160,493
Extended Warranties	9,729		17,306		27,035		8,078		14,046		22,124
Axon Body Cameras and Accessories	—		70,363		70,363		—		52,488		52,488
Axon Fleet Systems	—		23,239		23,239		—		27,336		27,336
Other (1) (2)	7,450		8,151		15,601		4,520		5,320		9,840
Total	$	221,734	$	322,540	$	544,274	$	162,570	$	250,708	$	413,278


	Nine Months Ended September 30, 2024						Nine Months Ended September 30, 2023
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER Devices (Professional)	$	333,815	$	—	$	333,815	$	239,165	$	—	$	239,165
Cartridges	181,792		—		181,792		149,504		—		149,504
Axon Evidence and Cloud Services	40,297		570,222		610,519		25,575		401,281		426,856
Extended Warranties	27,164		48,651		75,815		23,463		40,194		63,657
Axon Body Cameras and Accessories	—		180,592		180,592		—		124,066		124,066
Axon Fleet Systems	—		79,620		79,620		—		99,015		99,015
Other (1) (2)	14,373		30,855		45,228		14,460		13,600		28,060
Total	$	597,441	$	909,940	$	1,507,381	$	452,167	$	678,156	$	1,130,323

(1)TASER segment “Other” includes smaller categories, such as Virtual Reality (“VR”) hardware, weapons training revenue such as revenue associated with our Master Instructor School, and TASER consumer device sales.

(2)Software and Sensors segment “Other” includes revenue from items including Signal Sidearm, Interview Room, Axon Air and other sensors and equipment.

The following table presents our revenues disaggregated by geography (in thousands):


	Three Months Ended September 30,								Nine Months Ended September 30,
	2024				2023				2024				2023
United States	$	482,596	89	%	$	341,767	83	%	$	1,298,775	86	%	$	954,023	84	%
Other countries	61,678		11		71,511		17		208,606		14		176,300		16
Total	$	544,274	100	%	$	413,278	100	%	$	1,507,381	100	%	$	1,130,323	100	%

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Contract Balances

The following table presents our contract assets, contract liabilities and certain information related to these balances as of and for the nine months ended September 30, 2024 (in thousands):


	September 30, 2024
Contract assets, net	$	492,896
Contract liabilities (deferred revenue)	810,422
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	432,411

Contract liabilities (deferred revenue) consisted of the following (in thousands):


	September 30, 2024						December 31, 2023
	Current		Long-Term		Total		Current		Long-Term		Total
Extended Warranty:
TASER	$	15,783	$	18,162	$	33,945	$	14,666	$	18,828	$	33,494
Software and Sensors	20,300		8,749		29,049		22,642		8,165		30,807
	36,083		26,911		62,994		37,308		26,993		64,301
Hardware:
TASER	43,322		32,737		76,059		35,845		29,689		65,534
Software and Sensors	65,067		136,105		201,172		63,299		117,024		180,323
	108,389		168,842		277,231		99,144		146,713		245,857
Services:
TASER	8,510		5,141		13,651		7,832		3,983		11,815
Software and Sensors	352,026		104,520		456,546		326,131		93,212		419,343
	360,536		109,661		470,197		333,963		97,195		431,158
Total	$	505,008	$	305,414	$	810,422	$	470,415	$	270,901	$	741,316


	September 30, 2024						December 31, 2023
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	67,615	$	56,040	$	123,655	$	58,343	$	52,500	$	110,843
Software and Sensors	437,393		249,374		686,767		412,072		218,401		630,473
Total	$	505,008	$	305,414	$	810,422	$	470,415	$	270,901	$	741,316

Remaining Performance Obligations

As of September 30, 2024, we had approximately $7.7 billion of remaining performance obligations, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under ASC 606 as of September 30, 2024. We currently expect to recognize between 15% - 25% of this balance over the next 12 months, and generally expect the remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

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Note 3 - Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, marketable securities and available-for-sale investments at September 30, 2024 and December 31, 2023 (in thousands):


	As of September 30, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities		Short-Term Investments
Cash	$	85,256	$	—	$	—	$	85,256	$	85,256	$	—	$	—

Level 1:
Money market funds	438,408		—		—		438,408		438,408		—		—
U.S. government	140,758		23		(5)		140,776		—		—		140,776
Marketable securities	90,000		61,560		—		151,560		—		151,560		—
Treasury bills	117,880		19		(2)		117,897		48,513