Axon Enterprise (AXON) 10-K risk factor changes: FY2020 vs FY2019

[removed: We] [added: We] are materially dependent on acceptance of our products by law enforcement markets, both domestic and international.

If law enforcement agencies do not continue to purchase and use our products, our revenues will be adversely [removed: affected.][added: affected.]

[removed: We] [added: We] substantially depend on sales of our TASER CEDs, and if these products do not continue to be widely accepted, our growth prospects will be [removed: diminished.][added: diminished.]

In the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017,] [added: 2018,] we derived a significant portion of our revenues from sales of TASER [removed: CED] brand devices and related cartridges, and expect to depend on sales of these products for a significant portion of our revenue for the foreseeable future.

[removed: If] [added: If] we are unable to design, introduce, sell and deploy new products or new product features successfully, our business and financial results could be adversely [removed: affected.][added: affected.]

These products include, but are not limited to, Axon [removed: Body 3, Axon Aware, Axon] Records, Axon [removed: Dispatch,] [added: Respond,] and future generations of the TASER CED and Axon [removed: Fleet.][added: Body Cameras.]

We are devoting significant resources to develop and deploy our cloud-based productivity and [removed: communication software-as-a-service ("SaaS")] [added: real-time operations SaaS] solutions, which we intend to broadly deploy to a large number of customers.

If we are unable to develop scalable solutions that can consistently be configured for customers with minimal effort, or if we are unable to build out a professional services team that can consistently configure our products to meet the requirements of large numbers of customers in a timely and cost-effective manner, our ability to broadly scale our cloud-based productivity and [removed: communication] [added: real-time operations] SaaS solutions could be negatively impacted, and our deployment costs could negatively impact our operating results.

[removed: Delays] [added: Delays] in product development schedules may adversely affect our revenues and cash [removed: flows.][added: flows.]

[removed: We] [added: We] face risks associated with rapid technological change and new competing [removed: products.][added: products.]

The technology associated with law enforcement devices [added: and software] is receiving significant attention and is rapidly evolving.

[removed: Higher] [added: Higher] costs or unavailability of materials could adversely affect our financial [removed: results.][added: results.]

Specifically, we depend on suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire fabrications and other miscellaneous customer parts for our [removed: products.]

[removed: We do not] [added: Although we] have [removed: any significant] [added: and are implementing additional] long-term agreements with [removed: any] [added: strategic suppliers to mitigate the risk] of [added: supply continuity, there remains risk across] our [removed: suppliers] [added: supply chain while we extend our supplier contract program,] and there is no guarantee that supply will not be interrupted.

Our freight and import costs and the timely delivery of our products could be adversely impacted by a number of factors which could reduce the profitability of our operations, including: higher fuel costs; potential port closures; customs clearance issues; increased government regulation or [added: regulatory] changes for imports of foreign products into the U.S.; delays created by terrorist attacks or threats, public health issues, national disasters or work stoppages; and other matters.

International or domestic geopolitical or other events, including the imposition of new or increased tariffs and/or quotas by the U.S. government on any of these raw materials or [removed: components,] [added: components and other government trade policies,] could adversely impact the supply and cost of these raw materials or components, and could adversely impact the profitability of our operations.

[removed: To] [added: To] the extent demand for our products increases, our future success will be dependent upon our ability to manage our growth and to increase manufacturing production capacity, which may be accomplished by the implementation of customized manufacturing automation [removed: equipment.][added: equipment.]

[removed: Our] [added: Our] future success is dependent on our ability to expand sales through [removed: distributors and] direct sales and [added: distributors and] our inability to [removed: recruit new distributors or] increase direct sales [added: or recruit new distributors] would negatively affect our [removed: sales.][added: sales.]

Our distribution strategy is to pursue sales through multiple channels with an emphasis on [removed: independent distributors and] direct [removed: sales.][added: sales and independent distributors.]

We are [removed: also] focusing on direct sales to larger agencies through our regional sales managers and our inability to grow sales to these agencies in this manner could adversely affect our sales.

[removed: We] [added: We] expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no revenue in [removed: return.][added: return.]

[removed: An] [added: An] increasing percentage of our revenue is derived from subscription billing arrangements which may result in delayed cash collections and may increase customer credit risk on receivables and contract [removed: assets.][added: assets.]

While we [added: record an estimate of expected credit losses and] perform ongoing [removed: credit evaluations] [added: reviews] of [removed: our customers' financial condition,] [added: trade accounts receivables,] if we become aware of information related to the creditworthiness of a major customer, or if future actual default rates on receivables in general differ from those currently anticipated, we may have to adjust our [removed: allowance for doubtful accounts,] [added: expected credit loss reserve,] which could adversely affect our business, financial condition or operating results.

[removed: We] [added: We] may experience a decline in gross margins due to a shift in product sales from CEDs to software and sensors products and services which may continue to carry a lower gross [removed: margin.][added: margin.]

[removed: SaaS] [added: SaaS] revenue for Axon Evidence is recognized over the terms of the contracts, which may be several years, and, as such, trends in new business may not be immediately reflected in our operating [removed: results.][added: results.]

[removed: Most] [added: Most] of our end-user customers are subject to budgetary and political constraints that may delay or prevent [removed: sales.][added: sales.]

There can be no assurance that the [removed: economic and] [added: economic,] budgeting [added: or political] issues will not worsen and adversely impact sales of our products.

[removed: Some government agency orders may also be canceled or] substantially delayed due to budgetary, political or other scheduling delays, which frequently occur in connection with the acquisition of products by such agencies, and such cancellations may accelerate or be more severe than we have experienced historically.

[removed: Due] [added: Due] to municipal government funding rules, certain of our contracts are subject to appropriation, termination for convenience, or similar cancellation clauses, which could allow our customers to cancel or not exercise options to renew contracts in the [removed: future.][added: future.]

[removed: Changes] [added: Changes] in civil forfeiture laws may affect our customers’ ability to purchase our [removed: products.][added: products.]

[removed: If] [added: If] our security measures or those of our third-party cloud storage providers are breached and unauthorized access is obtained to customers’ data or our data, our network, data centers and service may be perceived as not being secure, customers may curtail or stop using our service and we may incur significant legal and financial exposure and [removed: liabilities.][added: liabilities.]

Third parties may attempt to fraudulently induce employees or customers into disclosing sensitive information such as [removed: user names,] [added: usernames,] passwords or other information in order to gain access to our data or our customers’ data.

[added: Although we have] developed systems and processes that are designed to protect our data and user data, to prevent data loss, and to prevent or detect security breaches, we cannot assure that such measures will provide absolute security, and we may incur significant costs in protecting against or remediating cyber-attacks.

[removed: Defects] [added: Defects] or disruptions in our services could impact demand for our services and subject us to substantial [removed: liability.][added: liability.]

Interruptions in our service, or loss or corruption of digital evidence, may reduce our revenue, cause us to issue credits or pay penalties, cause customers to [added: file litigation against us, cause customers to] terminate their [removed: subscriptions and adversely affect our renewal rates and our ability to attract new customers.]

[removed: Defects] [added: Defects] in our products could reduce demand for our products and result in a loss of sales, delay in market acceptance and damage to our [removed: reputation.][added: reputation.]

[removed: A] [added: A] variety of new and existing laws and/or interpretations could materially and adversely affect our [removed: business.][added: business.]

[removed: We] [added: As detailed in “Business – Government Regulation,” we] are subject to a variety of laws and regulations in the United States and abroad that involve matters central to our business, including privacy, data protection and personal information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data retention and deletion, electronic contracts and other communications, competition, consumer protection, telecommunications, product liability, taxation, labor and employment, economic or other trade prohibitions or sanctions, securities law compliance, and online payment services.

[removed: *TASER] [added: _TASER] and Axon [removed: devices*][added: Devices_]

For our TASER products, we rely on the opinions of the U.S. Bureau of Alcohol, Tobacco, Firearms and Explosives, including the determination that a device that [removed: has] [added: does not expel] projectiles [removed: propelled] by the [removed: release of compressed gas in place] [added: action] of [removed: the expanding gases from ignited gunpowder] [added: an explosive] is not classified as a firearm.

_Strategic Risks_

Our future success depends upon our ability to retain executive officers, specifically Patrick W.

_Operational Risks_

In March 2020 the World Health Organization declared coronavirus (or “COVID-19”) a global pandemic.

This contagious disease outbreak, which has continued to spread throughout the United States and world, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn.

As an essential provider of products and services for law enforcement and other first responders, we remain focused on protecting the health and well-being of our employees while assuring the continuity of our business operations.

COVID-19-related risks that may affect our operations and financial results include, but are not limited to:

| | ● | Manufacturing disruptions at our Scottsdale headquarters or at our suppliers; |

| --- | --- | --- |

| | ● | A change in our classification as an essential business that impairs our ability to continue operating; |

| --- | --- | --- |

| | ● | Economic slowdowns that negatively affect municipal and state tax collections and put pressure on law enforcement budgets that in turn increases the risk that our customers will be unable to appropriate funds for existing or future contracts with us; this could also affect customer demand and ability to pay, cause decreases in sales, and negatively impact the realizability of our accounts and notes receivable and contract assets |

| --- | --- | --- |

| | ● | Existing and potential increased costs relating to personal protective equipment, which we are sourcing for our employees and customers; |

| --- | --- | --- |

| | ● | Costs incurred to shut down and decontaminate our facilities if the virus is detected |

| --- | --- | --- |

| | ● | Extended illness, incapacitation or death of key personnel or executives; |

| --- | --- | --- |

| | ● | Ongoing governmental mandates to shutdown factories or limit travel and the movement of people that causes interruptions to our business, supply chain or extended supply chain; |

| --- | --- | --- |

| | ● | Compounding risk from continued surges in infections around the world, including in the U.S.; and |

| --- | --- | --- |

| | ● | Additional airline bankruptcies or further reduction in very limited global freight capacity that causes interruptions to our supply chain or extended supply chain |

| --- | --- | --- |

We are continuously monitoring our operations and intend to take appropriate actions to mitigate the risks arising from the COVID-19 pandemic, but there can be no assurances that we will be successful in doing so.

products.

For example, other industries are experiencing a significant shortage of semiconductors in their supply chains.

We are tracking second-and third-level constraints and have taken steps to mitigate the potential impacts by building in buffers in our raw materials inventory and ensuring our suppliers have adequate access to raw material levels aligned to our forecasts.

Disruptions in the semi-conductor supply chain could cause a disruption in our ability to make our products.

In particular, the implementation of tariffs and trade restrictions as well as changes in trade policies between the U.S. and China may have an adverse effect on our supply chain from a sourcing and cost perspective.

We source certain raw materials from China, as do some of our suppliers.

While we have actively implemented programs to increase buffer inventory levels as well as transition from China along with secondary sources of raw materials outside of China, future actions or events could result in a material adverse effect on our revenues, profitability and financial condition.

subscriptions and adversely affect our renewal rates and our ability to attract new customers.

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

may incur additional costs or need to make operational changes as we adapt to potentially divergent regulatory frameworks.

In addition, our arrangements with our distributors are generally short-term.

The increased focus on direct sales compared to sales through distribution is dependent on our ability to sell into the states or foreign jurisdictions that have established distributor relationships.

See, for example, “Litigation - Product Litigation” in Note 9 of our consolidated financial statements included in Part II, Item 8 of this report.

Although we have

Axon devices using lithium batteries are subject to US-DOT/UN 38.3 for transportation, and all our products containing hazardous chemicals require an additional safety data sheet following Occupational Safety and Health Administration ("OSHA") recommendation.

We follow IEC 62133 for our rechargeable battery packs, UL 1642 for cells, and IEC 60950 (soon to be replaced by IEC 62368) for our wireless and docks devices.

Compliance with government regulations could increase our operations and product costs and impact our future financial results.

As of December 31, 2019, the possession of stun guns by the general public, including our CEDs, is prohibited in Hawaii and Rhode Island.

Some cities and municipalities also prohibit private citizen possession or use of our CED products.

In the U.S., the Federal Communications Commission (“FCC”) regulates spectrum use by non-federal entities and federal entities.

Similarly, countries around the world have one or more regulatory bodies that define and implement the rules for use of radio spectrum and electromagnetic interference, pursuant to their respective national laws.

The FCC regulates not only the "intentional radiation" of radio transmitters, but also the "unintentional radiation" of noise from all sorts of electrical equipment.

The FCC regulations appear in title 47 of the United States Code of Federal Regulations (47CFR).The current Axon products use Bluetooth, WiFi and/or LTE radio technologies.

With the integration of LTE technologies, it is required to apply for the approval of private certifications such as CTIA, required by FirstNet and other operators.

In particular, environmental legislation within the European Union ("EU") may increase our cost of doing business internationally and impact our revenues from EU countries as we comply with and implement these requirements.

The EU has published Directives on the restriction of certain hazardous substances in electronic and electrical equipment (the “RoHS Directive”) and on electronic and electrical waste management (the “WEEE Directive”).

The RoHS Directive restricts the use of a number of substances, including lead.

The WEEE Directive directs members of the EU to enact laws, regulations, and administrative provisions to ensure that producers of electric and electronic equipment are financially responsible for the collection, recycling, treatment and environmentally responsible disposal of certain products sold into the EU.

In addition, the EU has defined a regulation for Registration, Evaluation, Authorization and Restriction of Chemicals (the “REACH Regulation”) that places responsibility on industry to manage the risks from chemicals contained in products and to provide safety information about such substances.

Manufacturers and importers are required to gather information on the properties of the chemical substances in their products, which will allow their safe handling.

Starting January 5, 2021, companies supplying products containing substances of very high concern as identified by the EU on the EU market have to submit information on these products to the European Chemicals Agency.

The information in their database is then made available to waste operators and consumers.

We continue to monitor the impact of specific registration and compliance activities required by the RoHS, WEEE Directives, and REACH Regulation.

For example, in 2016, the EU and the U.S. agreed to an alternative transfer framework for data transferred from the EU to the U.S., called the Privacy Shield, but this new framework is subject to an annual review that could result in changes to our obligations and also may be challenged by national regulators or private parties.

Proposed or new legislation and regulations could also significantly affect our business.

There currently are a number of proposals pending before federal, state, and foreign legislative and regulatory bodies.

In addition, the European General Data Protection Regulation ("GDPR") took effect in May 2018 and applies to all of our products

and services that provide service in Europe.

The GDPR includes operational requirements for companies that receive or process personal data of residents of the EU that are different than those previously in place in the EU.

In addition, the GDPR includes significant penalties for non-compliance.

Similarly, there are a number of legislative proposals in the U.S., at both the federal and state level, that could impose new obligations in areas affecting our business, such as liability for copyright infringement by third parties.

Currently, we are a defendant in a patent litigation matter filed by Digital Ally Inc. (“Digital”) in the District of Kansas alleging patent infringement regarding our Axon Signal technology.

K.

We believe the patent in question is both invalid and not infringed.

However, if Digital ultimately succeeds in their appeal, the outcome could have an adverse effect on our results of operations in the period in which a liability is recognized and on our cash flows for the period in which any damages are paid.

For additional discussion of this matter, refer to Note 9 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.

| | |

| --- | --- |

If our goodwill or intangible assets become impaired, we may be required to record a significant charge to earnings.

We acquire other companies and intangible assets and may not realize all the economic benefit from those acquisitions, which could cause an impairment of goodwill or intangibles.

Our MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K, including Part I, Item 1A: “Risk [removed: Factors”; Part II, Item 6: “Selected Financial Data”;] [added: Factors”] and Part II, Item 8: “Financial Statements and Supplementary Data.” The various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this filing.

This section discusses our results of operations for the year ended December 31, [removed: 2019] [added: 2020] as compared to the year ended December 31, [removed: 2018.][added: 2019.]

For a discussion and analysis of the year ended December 31, [removed: 2018,] [added: 2019,] compared to the same period in [removed: 2017] [added: 2018] please refer to [removed: Management's] [added: Management’s] Discussion and Analysis of Financial Condition and Results of Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, [removed: 2018,] [added: 2019,] filed with the SEC on February 27, [removed: 2019.][added: 2020.]

[removed: Overview][added: Overview]

Axon is a global network of devices, [removed: apps, training] [added: apps] and people that helps public safety personnel become smarter and safer.

[removed: Our] [added: With a mission of protecting life, our] technologies give law enforcement the confidence, focus and time they need to protect their communities.

Our revenues for the year ended December 31, [removed: 2019] [added: 2020] were [removed: $530.9] [added: $681.0] million, an increase of [removed: $110.8] [added: $150.1] million, or [removed: 26.4%,] [added: 28.2%,] from the prior year.

We had a loss from operations of [removed: $6.4] [added: $14.2] million compared to [removed: income from operations of $24.8] [added: $6.4] million in the prior year.

[removed: Additionally, expenses for the year ended December 31, 2019 reflected $51.6] million in [removed: incremental stock-based compensation] expense related to the CEO Performance Award and XSPP.

For the year ended December 31, [removed: 2019,] [added: 2020,] we recorded net [removed: income] [added: loss] of [removed: $0.9] [added: $1.7] million compared to [removed: $29.2] [added: net income of $0.9] million for the prior year.

For the year ending December 31, [removed: 2020,] [added: 2021,] we expect revenue of [removed: $615] [added: $740] million to [removed: $625] [added: $780] million.

We anticipate that revenue for the three months ending March 31, [removed: 2020] [added: 2021] will reflect approximately [removed: 13%] [added: 12%] growth as compared to the three months ended March 31, [removed: 2019.][added: 2020.]

In late 2019, [removed: a novel strain of coronavirus] [added: COVID-19] was first detected in Wuhan, China.

[removed: Results] [added: Results] of [removed: Operations][added: Operations]

| [added: ​] | [added: ​ |] Year Ended December 31, | | | | | | | | | | | [removed: | |]

| Net sales from products | [removed: $] | [removed: 399,474] [added: $] | [added: 500,250] | | [removed: 75.3] [added: 73.5] | % | [added: ​] | $ | [removed: 327,635 |] [added: 399,474] | | [removed: 78.0] [added: 75.3] | % |

| Net sales from services | [removed: 131,386 |] [added: ​] | | [added: 180,753] | [removed: 24.7] | [removed: %] [added: 26.5] | [added: ​] | [removed: 92,433] [added: ​] | | [added: 131,386] | | [removed: 22.0] [added: 24.7] | [removed: %] [added: ​] |

| Net sales | [removed: 530,860] [added: ​] | | [added: 681,003] | | 100.0 | [removed: % |] [added: ​] | [removed: 420,068] [added: ​] | | [added: 530,860] | | 100.0 | [removed: %] [added: ​] |

| Cost of product sales | [removed: 190,683 |] [added: ​] | | [added: 224,131] | [removed: 35.9] | [removed: %] [added: 32.9] | [added: ​] | [removed: 139,337] [added: ​] | | [added: 190,683] | | [removed: 33.2] [added: 35.9] | [removed: %] [added: ​] |

| Cost of service sales | [removed: 32,891 |] [added: ​] | | [added: 40,541] | [removed: 6.2] | [removed: %] [added: 6.0] | [added: ​] | [removed: 22,148] [added: ​] | | [added: 32,891] | | [removed: 5.3] [added: 6.2] | [removed: %] [added: ​] |

| Cost of sales | [removed: 223,574 |] [added: ​] | | [added: 264,672] | [removed: 42.1] | [removed: %] [added: 38.9] | [added: ​] | [removed: 161,485] [added: ​] | | [added: 223,574] | | [removed: 38.5] [added: 42.1] | [removed: %] [added: ​] |

| Gross margin | [removed: 307,286 |] [added: ​] | | [added: 416,331] | [removed: 57.9] | [removed: %] [added: 61.1] | [added: ​] | [removed: 258,583] [added: ​] | | [added: 307,286] | | [removed: 61.5] [added: 57.9] | [removed: %] [added: ​] |

| Operating expenses: | [removed: |] [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] | [added: ​] |

| Sales, general and administrative | [removed: 212,959 |] [added: ​] | | [added: 307,286] | [removed: 40.1] | [removed: %] [added: 45.1] | [added: ​] | [removed: 156,886] [added: ​] | | [added: 212,959] | | [removed: 37.3] [added: 40.1] | [removed: %] [added: ​] |

| Research and development | [removed: 100,721 |] [added: ​] | | [added: 123,195] | [removed: 19.0] | [removed: %] [added: 18.1] | [added: ​] | [removed: 76,856] [added: ​] | | [added: 100,721] | | [removed: 18.3] [added: 19.0] | [removed: %] [added: ​] |

| Total operating expenses | [removed: 313,680 |] [added: ​] | | [added: 430,481] | [removed: 59.1] | [removed: %] [added: 63.2] | [added: ​] | [removed: 233,742] [added: ​] | | [added: 313,680] | | [removed: 55.6] [added: 59.1] | [removed: %] [added: ​] |

| Income (loss) from operations | [removed: (6,394 |] [added: ​] | [removed: )] | [added: (14,150)] | [removed: (1.2] | [removed: )%] [added: (2.1)] | [added: ​] | [removed: 24,841] [added: ​] | | [added: (6,394)] | | [removed: 5.9] [added: (1.2)] | [removed: %] [added: ​] |

| Interest and other income, net | [removed: 8,464 |] [added: ​] | | [added: 7,859] | [removed: 1.6] | [removed: %] [added: 1.1] | [added: ​] | [removed: 3,263] [added: ​] | | [added: 8,464] | | [removed: 0.8] [added: 1.6] | [removed: %] [added: ​] |

| Income [added: (loss)] before provision for income taxes | [removed: 2,070 |] [added: ​] | | [added: (6,291)] | [removed: 0.4] | [removed: %] [added: (1.0)] | [added: ​] | [removed: 28,104] [added: ​] | | [added: 2,070] | | [removed: 6.7] [added: 0.4] | [removed: %] [added: ​] |

| Provision [removed: (benefit)] for [added: (benefit from)] income taxes | [removed: 1,188 |] [added: ​] | | [added: (4,567)] | [removed: 0.2] | [removed: %] [added: (0.7)] | [added: ​] | [removed: (1,101] [added: ​] | | [removed: )] [added: 1,188] | | [removed: (0.3] [added: 0.2] | [removed: )%] [added: ​] |

| Net income [added: (loss)] | [removed: $] | [removed: 882] [added: $] | [added: (1,724)] | | [removed: 0.2] [added: (0.3)] | % | [added: ​] | $ | [removed: 29,205 |] [added: 882] | | [removed: 7.0] [added: 0.2] | % |

| United States | [removed: $] | [removed: 446,100] [added: $] | [added: 535,079] | | [removed: 84.0] [added: 79] | % | [added: ​] | $ | [removed: 335,310 |] [added: 446,100] | | [removed: 79.8] [added: 84] | % |

| Total | [removed: $] [added: ​] | [removed: 530,860] [added: $] | [added: 281,661] | [added: ​] | 100.0 | % | [removed: |] $ | [removed: 420,068] [added: 249,199] | [added: ​] | [added: 100.0] | [added: % | $ | 530,860 | ​ |] 100.0 | % |

Our operations are comprised of two reportable segments: the manufacture and sale of CEDs, batteries, accessories and extended warranties and other products and services (collectively, the “TASER” segment); and [removed: the development, manufacture, and sale of] software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products, and services (collectively, the "Software and Sensors" segment).

[removed: For] [added: For] the Years Ended December [removed: 31, 2019 and 2018][added: 31, 2020 and 2019]

[removed: Net Sales][added: Net Sales]

Net sales by product line were as follows for the years ended December 31, [removed: 2019] [added: 2020] and [removed: 2018] [added: 2019] (dollars in thousands):

| [added: ​] | [added: ​ |] Year Ended December 31, | | | | | | | | | | [removed: | | | |] Dollar [removed: Change] | | | [removed: |] Percent [removed: Change] | |

| TASER segment: | | [removed: | | | |] [added: ​] | | | | | [added: ​] | | | | | [added: ​] | | | | [added: ​] |

| Axon Evidence and cloud services | [removed: 704 | | | | 0.1] [added: ​] | [removed: %] | [added: 2,935] | [removed: —] | [added: 0.4] | [added: ​] | | [removed: —] [added: 704] | [removed: %] | [added: 0.1] | [removed: 704] [added: ​] | | [added: 2,231] | | [removed: *] [added: 316.9] | [added: ​] |

Our products impact every aspect of a public safety officer’s day-to-day experience with the goal of helping everyone get home safe.

The higher loss from operations was primarily the result of increased stock compensation expense for our CEO Performance Award and XSPP awards and an increase in legal expenses.

Remaining cost increases were primarily attributable to the increase in unit sales and an increase in headcount.

These cost increases were largely offset by higher revenue and improved gross margin.

2021 Outlook

We anticipate capital expenditures of approximately $65 million to $70 million in 2021, including approximately $25 million in support of capacity expansion and automation of TASER device and cartridge manufacturing, approximately $20 million for development of our planned new manufacturing and office facility in Scottsdale, Arizona, and the remainder on investments to support our continued growth.

COVID-19

In March 2020 the World Health Organization declared COVID-19 a global pandemic.

This contagious disease outbreak, which has continued to spread throughout the United States and world, has adversely affected workforces, economies, and financial markets globally, leading to an economic downturn.

As an essential provider of products and services for law enforcement and other first responders, we remain focused on protecting the health and wellbeing of our employees while assuring the continuity of our business operations.

In response to the pandemic, Axon has taken a number of actions:

_Customer support:_

| | ● | Free access to Axon Citizen cloud software to all public law enforcement agencies in 2020 to enable social distancing; |

| --- | --- | --- |

| | ● | A partnership with the National Police Foundation to provide personal protective equipment (“PPE”) for first responders; |

| --- | --- | --- |

| | ● | An online support center for our customers, www.axon.com/covid-19-support-center; and |

| --- | --- | --- |

| | ● | Our annual Axon Accelerate user conference was held virtually in late August 2020. |

| --- | --- | --- |

_Employee safety and manufacturing:_

| | ● | Curbed all non-essential travel at the beginning of March; |

| --- | --- | --- |

| | ● | We continue to allow for a remote work model for the majority of our office staff, with medical screening for any employees who do work in our offices; and |

| --- | --- | --- |

| | ● | Mitigating contamination risk in our facilities through staggered shifts, the use of PPE, increased distancing, cleaning standards that exceed CDC guidance, and paying or subsidizing certain high-risk employees while they stay at home. |

| --- | --- | --- |

_Supply chain:_

| | ● | We previously took steps to diversify our supply chain and global manufacturing footprint, which have positioned us well to manage through the pandemic. Thus far, we have been able to produce and ship our critical core products with little to no interruption. |

| --- | --- | --- |

| | ● | We have proactively built up a safety stock of raw and finished goods inventory aligned to our strategic model to help meet strong product demand while also preparing us to stagger factory work schedules. We continue to adjust strategic inventory levels based on areas of risk to mitigate potential supply disruptions. |

| --- | --- | --- |

| | ● | In light of our broad geographic supplier base both domestic and international, we are continuously monitoring our supply chain to manage through potential impacts, finding alternate sources as well as shipping / logistic options as available or working with foreign regulators to ensure that our suppliers can provide parts. |

| --- | --- | --- |

_Shareholder engagement:_

| | ● | We have pivoted our shareholder engagement to a virtual format. |

| --- | --- | --- |

| | o | Our annual meeting was held virtually on May 29, 2020, and we anticipate holding our 2021 annual meeting virtually; |

| --- | --- | --- |

| | o | We completed a follow-on equity offering in June 2020 for which all related marketing was conducted virtually; and |

Our products impact every aspect of an officer's day-to-day experience.

Our core mission is to protect life.

We fulfill that mission through developing hardware and software products that advance our long term vision of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Gross margins were compressed related to the rollout of our latest generation TASER device and increased data storage expenses, partially offset by higher margins for Software & Sensors devices.

Increased cost of sales, selling, general and administrative expenses, and research and development expenses to support continued and future growth also contributed to the decline in operating results.

The decline in operating results was partially offset by a $4.3 million increase in interest income.

2020 Outlook

We anticipate that the timing of 2020 revenue will reflect a similar distribution as in 2019.

We expect a normalized income tax rate of between 20% and 25%; this rate can fluctuate depending on geography of income and the effects of discrete items, including changes in our stock price.

Following the outbreak of this virus, the Chinese government has quarantined certain affected regions and certain travel restrictions have been imposed.

Our operations team is closely monitoring the potential impact to our supply chain.

At this time we have successfully managed through the current impacts.

Our operations team has some flexibility to adapt to the changing situation; however, if the situation further deteriorates or the outbreak results in further travel restriction on both supply and demand, these impacts could affect our full year guidance.

| | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 2019 | | | | | | | 2018 | | | | | |

| Other Countries | 84,760 | | | | 16.0 | % | | 84,758 | | | | 20.2 | % |

International revenue in 2019 remained consistent with 2018.

Lower sales in Canada and the Asia Pacific region were offset by increased sales in Europe and Africa.

| | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | 2019 | | | | | | | 2018 | | | | | | | | | | | | |

| TASER 7 | $ | 56,652 | | | 10.7 | % | | $ | 7,358 | | | 1.8 | % | | $ | 49,294 | | | 669.9 | % |

| TASER X26P | 52,524 | | | | 9.9 | % | | 70,638 | | | | 16.8 | % | | (18,114 | | ) | | (25.6 | )% |

| TASER X2 | 55,920 | | | | 10.5 | % | | 78,837 | | | | 18.8 | % | | (22,917 | | ) | | (29.1 | )% |

| TASER Pulse and Bolt | 4,089 | | | | 0.8 | % | | 5,182 | | | | 1.2 | % | | (1,093 | | ) | | (21.1 | )% |

| Cartridges | 85,987 | | | | 16.2 | % | | 68,258 | | | | 16.3 | % | | 17,729 | | | | 26.0 | % |

| Extended warranties | 18,074 | | | | 3.4 | % | | 15,753 | | | | 3.8 | % | | 2,321 | | | | 14.7 | % |

| Other | 7,711 | | | | 1.5 | % | | 7,089 | | | | 1.7 | % | | 622 | | | | 8.8 | % |

| TASER segment | 281,661 | | | | 53.1 | % | | 253,115 | | | | 60.4 | % | | 28,546 | | | | 11.3 | % |

| Axon Body | 44,039 | | | | 8.3 | % | | 21,883 | | | | 5.2 | % | | 22,156 | | | | 101.2 | % |

| Axon Flex | 5,928 | | | | 1.1 | % | | 6,509 | | | | 1.5 | % | | (581 | | ) | | (8.9 | )% |

| Axon Dock | 20,449 | | | | 3.9 | % | | 10,706 | | | | 2.5 | % | | 9,743 | | | | 91.0 | % |

| TASER Cam | 3,104 | | | | 0.6 | % | | 3,871 | | | | 0.9 | % | | (767 | | ) | | (19.8 | )% |

| Extended warranties | 19,188 | | | | 3.6 | % | | 11,860 | | | | 2.8 | % | | 7,328 | | | | 61.8 | % |

| Other | 10,044 | | | | 1.9 | % | | 9,306 | | | | 2.2 | % | | 738 | | | | 7.9 | % |

| Total net sales | $ | 530,860 | | | 100.0 | % | | $ | 420,068 | | | 100.0 | % | | $ | 110,792 | | | 26.4 | % |

| | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| TASER 7 | 49,221 | | | 5,759 | | | 43,462 | | | 754.7 | % |

[removed: Interest] [added: Interest] Rate [removed: Risk][added: Risk]

As a result, we may suffer losses in principal if we sell securities that have declined in market value due to changes in [removed: interest rates.]

Based on investment positions as of December 31, [removed: 2019,] [added: 2020,] a hypothetical 100 basis point increase in interest rates across all maturities would result in a [removed: $0.8] [added: $1.7] million decline in the fair market value of the portfolio.

Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled [added: $6.1 million at December 31, 2020.]

At December 31, [removed: 2019,] [added: 2020,] there was no amount outstanding under the line of credit, and the available borrowing under the line of credit was [removed: $47.3] [added: $43.9] million.

[removed: Exchange] [added: Exchange] Rate [removed: Risk][added: Risk]

The majority of our sales to international customers are transacted in [removed: U.S. dollars] [added: foreign currencies] and [removed: therefore,] [added: therefore] are [removed: not] subject to exchange rate fluctuations on these transactions.

[removed: However, the] [added: The] cost of our products to our customers increases when the U.S. dollar strengthens against their local currency, and we may have more sales and expenses denominated in foreign currencies in future years which could increase our foreign exchange rate risk.

interest rates.

$2.7 million at December 31, 2019.

Our global software hub is located in Seattle, Washington, and we also have subsidiaries and / or offices located in Australia, Canada, Finland, [added: Germany,] Hong Kong, [removed: Germany,] India, Italy, the Netherlands, the United Kingdom, and Vietnam.

[removed: Overview][added: Overview]

We fulfill this mission through developing hardware and software products that advance our [removed: long term vision] [added: long-term strategic goals] of a) obsoleting the bullet, b) reducing social conflict, [removed: and] c) enabling a fair and effective justice [removed: system.][added: system, and d) building for racial equity, diversity, and inclusion.]

In [removed: addition,] [added: 2019,] we [removed: are expanding our] [added: added] sales [removed: force] [added: personnel] to [removed: support sales into law-enforcement-adjacent] [added: capture law enforcement-adjacent] markets, [removed: to include] [added: such as] the U.S. federal government and military, [removed: U.S.] [added: domestic] and international departments of [removed: corrections (prisons),] [added: corrections,] and the fire and emergency medical services markets.

| [removed: 1.] | [removed: TASER: Axon is the market leader in the development, manufacture and sale of conducted energy weapons ("CEWs"), also known as conducted energy devices ("CEDs"), which we sell under our brand name, TASER.] [added: ● | TASER devices:] Research has shown that [removed: the] TASER [removed: device is] [added: devices are] the most effective less-than-lethal force option, with the lowest likelihood of injury to officers and assailants. Since our inception in 1993, [removed: the] TASER [removed: has] [added: devices have] been adopted by a majority of U.S. police departments and [removed: is] [added: are] used daily to help keep communities safe. [added: The cloud-connected TASER CED (TASER 7) is our newest device. We also sell TASER devices to consumers for personal protection.] |

| [added: |] 2. | Software and Sensors: [removed: Axon is the market leader in on-officer body (Axon Body and Flex) and in-car (Axon Fleet) cameras as well as cloud-based digital evidence management software (Evidence.com).] We develop, manufacture and sell fully integrated hardware and cloud-based software solutions that enable law enforcement to capture, securely store, manage, share and analyze video and other digital evidence. [removed: Of the 69 largest metropolitan area police departments in the U.S., 47 are on the Axon Network.] |

[removed: Axon’s] [added: Axon] products are generally cloud-connected, designed to drive better outcomes and customer experiences, and sold via [added: mutually reinforcing integrated] bundles.

[removed: - De-escalation:] [added: | | 1. | TASER:] We develop smart [removed: weapons and] [added: devices,] tools [added: and services] that support public safety officers in de-escalating situations, avoiding or minimizing use of force. [added: These tools include: |]

[removed: well as] [added: | | ● | VR and Training: We offer] a suite of [removed: Augmented Reality and Virtual Reality ("AR/VR")] [added: virtual reality ("VR")] training services for [removed: law enforcement,] [added: public safety,] delivered through our Axon Academy training platform. [added: To obsolete bullets, we intend to drive training and adoption of best practices in modern policing. |]

[added: | | ● | Digital Evidence Management:] Axon Evidence addresses the challenges presented by growing amounts of digital evidence via closed circuit television video, body worn camera video, in-car camera video, [added: Internet of Things sensors] and citizen-captured digital [removed: evidence, making] [added: evidence. We make] it easy to store, manage, redact and share [added: evidence] on one platform. [added: Axon Evidence is the world’s largest cloud-hosted public safety data repository of public safety video data and other types of digital evidence. Products include: |]

[added: | | o |] Axon Records, an emerging [removed: product, is a] cloud-based report-writing [removed: software] tool that [removed: takes a disruptive modern approach to displace legacy] [added: modernizes] records management systems ("RMS") by putting body camera video at the heart of [removed: the] incident [removed: record.][added: records. |]

[removed: Axon Records includes] [added: | | o |] Axon Standards, a [removed: radically simpler approach to] use-of-force reporting [added: module] that can be easily adopted alongside [removed: a traditional] [added: an agency’s legacy] RMS before [removed: upgrading to] [added: an agency adopts] the [removed: full service.][added: rest of Axon Records. |]

[added: | | o |] Axon Performance [removed: helps agencies] to [added: help agencies] ensure [removed: that] officers are adhering to [removed: agency policies,] [added: policies] and provides [removed: them the] analytics [removed: to demonstrate] [added: on] the effectiveness of [removed: their] body-worn camera programs. [added: |]

[removed: - Communications:] [added: | | ● | Real Time Operations.] We are developing [added: decision-making and] communication tools that support real-time situational awareness through the sharing of information across myriad media, including voice, messaging, location mapping, and intelligence and evidence sharing. [added: Products include: |]

[removed: Products include Axon Aware, which allows agencies to know the GPS location of their officers and what those officers are experiencing through live video streaming, and Axon] [added: | | o | Respond for] Dispatch, [removed: which is] a computer-aided dispatch ("CAD") [removed: product that is] [added: solution] designed to empower everyone in public safety [removed: who is] involved in incident response: dispatchers, call takers, command staff, patrol officers, firefighters and medical personnel. [added: |]

[removed: Sales] [added: Sales] and [removed: Distribution][added: Distribution: Who We Sell To and Where We Deliver]

No customer represented more than 10% of total net sales for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] or [removed: 2017.][added: 2018.]

Our primary customer market is [removed: US] [added: U.S.] law enforcement.

Of the approximately 18,000 law enforcement agencies in the [removed: US,] [added: U.S.,] we have a customer relationship with approximately 17,000.

Internationally, we began focusing on a direct sales strategy in 2017, and [removed: in 2018 and 2019] we [added: have] made significant investments [added: over the past three years] in building out our international direct sales force, particularly in [removed: the United Kingdom,] [added: Asia, Australia,] Europe, [removed: Australia] and [removed: New Zealand.][added: South America.]

[removed: Manufacturing] [added: _Manufacturing] and Supply [removed: Chain][added: Chain_]

We provide limited [removed: manufacturer's] [added: manufacturer’s] warranties on our CEDs and Axon [removed: devices.][added: devices, and customers also have the option to purchase extended warranties.]

[removed: Competition][added: Competition]

[removed: *De-escalation — TASER] [added: _TASER] for Law Enforcement, Corrections and Private Security [removed: Markets:*] [added: Markets:_] Our CEDs compete with a variety of other less-lethal alternatives to firearms, including rubber bullets or rubber baton rounds, pepper spray, mace, traditional stun guns, hand-held remote restraint devices involving a tether, laser dazzlers that cause temporary blindness, stun grenades, long-range acoustic devices, police batons and night sticks.

[removed: The design maturity of the TASER platform, as well as our] development and sale of a two-shot device, are also key competitive differentiators.

[removed: *De-escalation — TASER] [added: _TASER] for [removed: Private Citizen Market:*] [added: Personal Safety:_] In the private citizen market, [removed: these] [added: TASER] devices [removed: primarily] compete with [removed: firearms, but also] [added: firearms and] with other [removed: less lethal] [added: less-than-lethal] self-defense options such as [added: stun guns and] pepper [removed: spray] [added: spray-based products including pepper guns] and [removed: stun guns.][added: miniature spray cans.]

[removed: The primary] [added: Other] competitive factors [removed: in this market] include a device’s cost, effectiveness, [removed: safety and] [added: safety,] ease of [removed: use.][added: use, and available training options.]

The TASER StrikeLight competes in the flashlight category, in which there are dozens, if not hundreds, of competitors, including tactical flashlight providers [removed: such as SureFire, 5.11 Tactical, Blackhawk, Maglite,] [added: with] and [removed: many more.][added: without stun-gun capabilities.]

[removed: *Sensors] [added: _Sensors] — Connected Cameras and Digital Evidence Management [removed: Software:*] [added: Software:_] The body-worn camera and in-car [removed: video] [added: video/ALPR] market is highly competitive.

Our competition includes Motorola [removed: Solutions and] [added: Solutions,] WatchGuard, [added: Edesix, and Vigilant, all three of] which Motorola purchased in 2019, [added: Utility Associates, Getac,] Panasonic Corp., Reveal Media, [removed: L3 Mobile-Vision,] Coban Technologies, [added: L3 Mobile-Vision,] Digital Ally, [removed: Getac, Utility Associates, Intrensic,] [added: Visual Labs, Intresnsic, LLC, as well as] Safety [removed: Vision] [added: Vision, Rekor,] and [removed: Visual Labs.][added: Genetec.]

The market for software solutions to improve public safety agency workflows is [added: both] highly fragmented and highly competitive.

Our cloud-based digital evidence management system, Axon Evidence, competes with both cloud-based platforms and on-premises based systems designed by third-parties or [removed: in-house] [added: developed internally] by an agency's technology staff.

[removed: *Productivity] [added: _Productivity] and [removed: Communications] [added: Real-Time Operations] — RMS and [removed: CAD:*] [added: CAD:_] The RMS and CAD markets are highly competitive and highly fragmented.

We have identified more than 50 [removed: incumbent] software providers, including Motorola Solutions, Tyler Technologies, Central Square Technologies (formerly Superion, TriTech and Aptean), Northrop Grumman, Hexagon [added: AB, Niche Technology Inc., Caliber Public Safety (parent, Harris Systems USA), Saab, SOMA Global, RapidDeploy, Sopra Steria, and Mark 43 Inc. In addition, not all law enforcement agencies use software for report writing — some still use paper.]

[removed: Seasonality][added: Seasonality]

[removed: Intellectual Property][added: _Intellectual Property_]

As of December 31, [removed: 2019,] [added: 2020,] we hold [removed: 183] [added: 223] U.S. patents, [removed: 75] [added: 89] U.S. registered trademarks, [removed: 127] [added: 137] international patents, and [removed: 313] [added: 333] international registered trademarks, and also have numerous [removed: patents] [added: patent] and [removed: trademarks] [added: trademark applications] pending.

We are constantly innovating across all of our platforms, including on the TASER platform, and in [removed: the next few years expect to file] [added: 2020, we filed] more patent applications related to TASER 7 alone than there are TASER patents expiring [added: in the next few years] due to age.

We have the exclusive rights to many Internet domain names, primarily including “TASER.com”, “Axon.com”, “Axon.net”, “Evidence.com” and “Axon.io.” [added: We also vigorously protect our intellectual property, including trademarks, patents and trade secrets against third-party infringement.]

The breakdown of our full-time employees by department was as follows: [removed: 249] [added: 260] direct manufacturing employees, [removed: 408] [added: 475] research and development employees, [removed: 401] [added: 458] administrative and manufacturing support employees and [removed: 265] [added: 517] employees within sales, marketing, communications and training.

Our research & development (“R&D”) investments support continuous innovation on behalf of our customers.

Our financial strategy is to build highly recurring, highly profitable businesses.

| | ● | What we build - Technologies to assist officers in de-escalating events, devices, digital evidence management systems, productivity software, real-time operations software and services, and virtual reality training services |

| --- | --- | --- |

| | ● | Who we sell to - State and local police departments, U.S. federal agencies, justice and court systems, fire departments and emergency medical services providers, consumers, and commercial enterprises such as private security firms and transportation services |

| --- | --- | --- |

| | ● | Where we deliver – U.S., Asia-Pacific (“APAC”); Europe, the Middle East, and Africa (“EMEA”) and the Americas |

| --- | --- | --- |

| | 1. | TASER: Axon is the market leader in the development, manufacture and sale of conducted energy devices ("CEDs"), which we sell under our brand name, TASER. |

| --- | --- | --- |

| --- | --- | --- |

Key Product Category Revenue Drivers: What We Offer

Our key revenue drivers belong to three broad product categories:

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

| | 2. | Sensors: Axon devices address many needs, including transparency, real-time situational awareness, and capturing evidence accurately and integrating with software workflows. Product categories within sensors include: |

| --- | --- | --- |

| | ● | Axon Body cameras, including Axon Body 3, an LTE-enabled camera with Global Positioning System ("GPS") capability and support for real-time awareness via our software. Our body cameras also include the Axon Flex sunglasses-or-brim-mounted camera. |

| --- | --- | --- |

| | ● | Axon Fleet in-car camera systems. We are investing in automated license plate reading (“ALPR”), which uses artificial intelligence (“AI”) to read license plates to apprehend criminals, find missing children, and recover stolen vehicles. We believe a key differentiator is that our AI-powered system is being built from the ground up using an ethical design and privacy-centric framework. |

| --- | --- | --- |

| | ● | Axon Air is Axon's unmanned aircraft program, which allows agencies to ingest data captured on drone devices directly into Axon Evidence. Axon Air is an important tool to help improve officer safety, provide tactical support, and manage evidence. |

| --- | --- | --- |

| | ● | Our sensors network works with our software to help to automatically ensure cameras are on when they are supposed to be on and send alerts within the network, including Signal Sidearm sensors that detect when a firearm has been removed from a holster, sensors that detect when a TASER device is unholstered or armed, when a vehicle lightbar is activated, or the vehicle door opens, and we are introducing new signal activation events based on location and dispatching. |

| --- | --- | --- |

| | 3. | Software: Axon is building a suite of cloud-based, software-as-a-service (“SaaS”) solutions that integrate with our sensors and TASER devices to benefit customers and drive annual recurring revenue, which totaled $221.3 million(a) as of December 31, 2020. Our SaaS solutions can be best trisected into: |

| --- | --- | --- |

| --- | --- | --- |

| | o | Axon Evidence (Evidence.com) for managing, sharing and storing video, as well as hosting all types of digital evidence. |

| --- | --- | --- |

| --- | --- | --- |

| | o | Redaction Assistant to enable agencies to quickly redact videos using AI. |

| --- | --- | --- |

| | (a) | _Monthly recurring license, integration, warranty, and storage revenue annualized._ |

| --- | --- | --- |

| | ● | Productivity: Our productivity suite of tools is designed to reduce the time officers spend on administrative tasks and give command staff tools to make data-driven decisions. Our productivity-enhancing products include: |

| --- | --- | --- |

| --- | --- | --- |

| --- | --- | --- |

Our growth strategy includes heavy R&D investment to support continuous innovation on behalf of law enforcement customers.

In these markets, we seek to increasingly drive adoption of integrated product bundles that generate recurring revenue and cash flow.

The Axon Network is a mutually reinforcing suite — the more subscribers we attract, the more value we can offer.

More value delivered drives user adoption, which generates data for collaborative sharing, real-time communications, and improving product performance with artificial intelligence ("AI") training.

| | |

| --- | --- |

Guiding Product Principles

Our solutions are organized into four categories:

These tools include the cloud-connected TASER CED (TASER 7) as

To obsolete firearms and bullets, we intend to not only develop more effective TASER devices over time but also drive training and adoption of the best practices in modern policing.

- Sensors: Our digital evidence management software, Axon Evidence, supports our network of cloud-connected cameras and sensors.

Axon Evidence is the world’s largest cloud-hosted data repository of law enforcement video data and other types of electronic evidence.

Axon is also driving innovation in the body camera category through developing solutions that do more than collect, store and manage video.

In September 2019, we began shipping Axon Body 3, a camera with an LTE antenna and a Global Positioning System ("GPS") chip, which supports real-time awareness.

- Productivity: Our productivity suite of tools is designed to reduce time spent on paperwork.

Redaction Assistant enables agencies to redact videos in a fraction of the time through the use of artificial intelligence ("AI").

In 2019, we added sales personnel to capture law enforcement-adjacent markets, such as the US federal government and military, U.S. and international departments of corrections, and the fire and emergency medical services markets.

We also compete with consumer wearable camera makers including GoPro and Garmin.

AB, Niche Technology Inc., Caliber Public Safety (parent, Harris Systems USA), Saab, Sopra Steria, and Mark 43 Inc. In addition, not all law enforcement agencies use software for report writing — some still use paper.

Environmental Regulation

We are subject to environmental laws and regulations, including restrictions on the presence of certain substances in electronic products.

Refer to Section 1A, Risk Factors under the heading “A variety of new and existing laws and/or interpretations could materially and adversely affect our business.”

Employees

As of December 31, 2019, we had 1,323 full-time employees and 593 temporary employees.

Of the 593 temporary employees, nearly 70% worked in direct manufacturing roles.

into or otherwise a part of this Annual Report on Form 10-K.

See discussion of litigation in Note [removed: 9] [added: 10] to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K, which discussion is incorporated by reference herein.

| [removed: ☒] [added: ⌧] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the fiscal year ended December 31, [removed: 2019][added: 2020]

| [removed: ☐] [added: ◻] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |

For the transition period [removed: from to][added: from ______ to _______]

Commission File Number: [removed: 001-16391][added: 001-16391​]

[removed: | Axon Enterprise, Inc. |][added: AXON ENTERPRISE, INC.]

[removed: |] (Exact name of registrant as specified in its charter) [removed: |]

| Delaware | | [removed: | | |] 86-0741227 |

| (State or other jurisdiction of [removed: incorporation or organization)] | [removed: | | |] [added: ​] | (I.R.S. Employer [removed: Identification No.)] |

| 17800 North 85th Street | [removed: | | |] [added: ​] | 85255 |

| [removed: Scottsdale | , |] [added: Scottsdale,] Arizona | [removed: |] [added: ​] | [added: (Zip Code)] |

| (Address of principal executive offices) | [removed: | | |] [added: ​] | [removed: (Zip Code)] [added: ​] |

| Common Stock, $0.00001 par value per share | [removed: AAXN] [added: AXON] | The NASDAQ Global Select Market |

See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting [removed: company”] [added: company,”] and “emerging growth company” in Rule 12b-2 of the Exchange Act.

| Large accelerated filer | [removed: |] ☒ | [added: ​] | Accelerated [removed: filer | | ☐] [added: filer☐] |

| Non-accelerated filer | [removed: |] ☐ | [added: ​] | Smaller reporting [removed: company | | ☐] [added: company☐] |

| [removed: |] [added: ​] | [added: ​] | [added: ​] | Emerging growth [removed: company | | ☐] [added: company☐] |

As of June 30, [removed: 2019,] [added: 2020,] the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately [removed: $3.737] [added: $6.126] billion based on the closing sale price as reported on [removed: the] [added: The] NASDAQ Global Select Market.

The number of shares of the registrant’s common stock outstanding as of February 18, [removed: 2020] [added: 2021] was [removed: 59,528,200.][added: 63,783,849.]

Parts of the registrant’s definitive proxy statement for its [removed: 2020] [added: 2021] annual meeting of stockholders to be prepared and filed with the Securities and Exchange Commission not later than 120 days after December 31, [removed: 2019] [added: 2020] are incorporated by reference into Part III of this Form 10-K.

[removed: INDEX] [added: INDEX] TO ANNUAL REPORT ON FORM [removed: 10-K][added: 10-K]

[removed: FOR] [added: FOR] THE YEAR ENDED DECEMBER [removed: 31, 2019][added: 31, 2020]

| [added: ​] | [PART [removed: I](#sB67EE9971A8B5AF7A54472B389162729)] [added: I](#PARTI_648037)] | [added: |] Page |

| [Item [removed: 1.](#sC3308B3476365CFF82AC0C53D6BF4F21)] [added: 1.](#Item1Business_844260)] | [removed: [Business](#sC3308B3476365CFF82AC0C53D6BF4F21)] [added: [Business](#Item1Business_844260)] | [removed: [4](#sC3308B3476365CFF82AC0C53D6BF4F21)] [added: ​] | [added: 4 |]

| [Item [removed: 1A.](#sD9235E13ACFB5D0AAC5D72BE74C3289C)] [added: 1A.](#Item1ARiskFactors_991490)] | [Risk [removed: Factors](#sD9235E13ACFB5D0AAC5D72BE74C3289C)] [added: Factors](#Item1ARiskFactors_991490)] | [removed: [8](#sD9235E13ACFB5D0AAC5D72BE74C3289C)] [added: ​] | [added: 12 |]

| [Item [removed: 1B.](#s24C6EEDA3AF95EE7881AB3A676F29E2C)] [added: 1B.](#Item1BUnresolvedStaffComments_129436)] | [Unresolved Staff [removed: Comments](#s24C6EEDA3AF95EE7881AB3A676F29E2C)] [added: Comments](#Item1BUnresolvedStaffComments_129436)] | [removed: [21](#s24C6EEDA3AF95EE7881AB3A676F29E2C)] [added: ​] | [added: 25 |]

| [Item [removed: 2.](#sDD8B6E1D33D955B3AB50FB7CE1937A55)] [added: 2.](#Item2Properties_797324)] | [removed: [Properties](#sDD8B6E1D33D955B3AB50FB7CE1937A55)] [added: [Properties](#Item2Properties_797324)] | [removed: [22](#sDD8B6E1D33D955B3AB50FB7CE1937A55)] [added: ​] | [added: 25 |]

| [Item [removed: 3.](#s93217A01D8DB5287B5BC10851D4E786E)] [added: 3.](#Item3LegalProceedings_457143)] | [Legal [removed: Proceedings](#s93217A01D8DB5287B5BC10851D4E786E)] [added: Proceedings](#Item3LegalProceedings_457143)] | [removed: [22](#s93217A01D8DB5287B5BC10851D4E786E)] [added: ​] | [added: 25 |]

| [Item [removed: 4.](#s72EF98E39BAB5D468A763D4C6F108738)] [added: 4.](#Item4MineSafetyDisclosures_619104)] | [Mine Safety [removed: Disclosures](#s72EF98E39BAB5D468A763D4C6F108738)] [added: Disclosures](#Item4MineSafetyDisclosures_619104)] | [removed: [22](#s72EF98E39BAB5D468A763D4C6F108738)] [added: ​] | [added: 25 |]

[removed: | | [PART II](#s659C55E0F49E573190A73B5707D5BE3E) | |][added: PART I]

| [Item [removed: 5.](#s18332F472E9A56AB95602D02C9DC0925)] [added: 5.](#Item5MarketforRegistrantsCommonEquityRel)] | [Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity [removed: Securities](#s18332F472E9A56AB95602D02C9DC0925)] [added: Securities](#Item5MarketforRegistrantsCommonEquityRel)] | [removed: [23](#s18332F472E9A56AB95602D02C9DC0925)] [added: ​] | [added: 26 |]

| [Item [removed: 6.](#sB741E30363DC5D66A4937A5174ED5788)] [added: 6.](#Item6SelectedFinancialData_44868)] | [Selected Financial [removed: Data](#sB741E30363DC5D66A4937A5174ED5788)] [added: Data](#Item6SelectedFinancialData_44868)] | [removed: [25](#sB741E30363DC5D66A4937A5174ED5788)] [added: ​] | [added: 27 |]

| [Item [removed: 7.](#sDAB00E2EE7845494A0CF75BC73827057)] [added: 7.](#Item7ManagementsDiscussionandAnalysisofF)] | [Management’s Discussion and Analysis of Financial Condition and Results of [removed: Operations](#sDAB00E2EE7845494A0CF75BC73827057)] [added: Operations](#Item7ManagementsDiscussionandAnalysisofF)] | [removed: [26](#sDAB00E2EE7845494A0CF75BC73827057)] [added: ​] | [added: 28 |]

| [Item [removed: 7A.](#sFE3B6385BEE959D899CF81EC4955CDD8)] [added: 7A.](#Item7AQuantitativeandQualitativeDisclosu)] | [Quantitative and Qualitative Disclosures About Market [removed: Risk](#sFE3B6385BEE959D899CF81EC4955CDD8)] [added: Risk](#Item7AQuantitativeandQualitativeDisclosu)] | [removed: [43](#sFE3B6385BEE959D899CF81EC4955CDD8)] [added: ​] | [added: 45 |]

| [Item [removed: 8.](#sE42F711E2FEE5684A0491FD948A031C3)] [added: 8.](#Item8FinancialStatementsandSupplementary)] | [Financial Statements and Supplementary [removed: Data](#sE42F711E2FEE5684A0491FD948A031C3)] [added: Data](#Item8FinancialStatementsandSupplementary)] | [removed: [45](#sE42F711E2FEE5684A0491FD948A031C3)] [added: ​] | [added: 47 |]

| [Item [removed: 9.](#sAD9A908982E95AC88D2E74E35D991838)] [added: 9.](#Item9ChangesinandDisagreementsWithAccoun)] | [Changes in and Disagreements With Accountants on Accounting and Financial [removed: Disclosure](#sAD9A908982E95AC88D2E74E35D991838)] [added: Disclosure](#Item9ChangesinandDisagreementsWithAccoun)] | [removed: [88](#sAD9A908982E95AC88D2E74E35D991838)] [added: ​] | [added: 91 |]

| [Item [removed: 9A.](#sCA15576660445EF69E3A1554B3B0867C)] [added: 9A.](#Item9AControlsandProcedures_674546)] | [Controls and [removed: Procedures](#sCA15576660445EF69E3A1554B3B0867C)] [added: Procedures](#Item9AControlsandProcedures_674546)] | [removed: [88](#sCA15576660445EF69E3A1554B3B0867C)] [added: ​] | [added: 91 |]

| [Item [removed: 9B.](#s93D3DC9B385F5CCB93973D6CB8C73B90)] [added: 9B.](#Item9BOtherInformation_873177)] | [Other [removed: Information](#s93D3DC9B385F5CCB93973D6CB8C73B90)] [added: Information](#Item9BOtherInformation_873177)] | [removed: [90](#s93D3DC9B385F5CCB93973D6CB8C73B90)] [added: ​] | [added: 93 |]

| [added: ​] | [PART [removed: III](#s0A719113BBBC5A0CA0739601208B0FD3)] [added: III](#PARTIII_598328)] | [added: ​] | [added: ​ |]

| [Item [removed: 10.](#sB6FEF0A738515392B6F1574C6E3F43C5)] [added: 10.](#Item10DirectorsExecutiveOfficersandCorpo)] | [Directors, Executive Officers and Corporate [removed: Governance](#sB6FEF0A738515392B6F1574C6E3F43C5)] [added: Governance](#Item10DirectorsExecutiveOfficersandCorpo)] | [removed: [90](#sB6FEF0A738515392B6F1574C6E3F43C5)] [added: ​] | [added: 93 |]

| ​ | ​ | ​ |

| incorporation or organization) | ​ | Identification No.) |

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report.

| ​ | ​ | ​ | ​ |

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| ​ | [PART II](#PARTII_824184) | ​ | ​ |

| ​ | [PART IV](#PARTIV_881307) | ​ | ​ |

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| | [PART IV](#s366374DBAD1557D0B897F6BAA0080400) | |

PART I

The following important factors could cause actual results to differ materially from those in the forward-looking statements: our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; the impact of stock 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; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; negative media publicity regarding our products; the impact of product mix on projected gross margins; defects in our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including our reliance on 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 U.S. and in foreign markets, especially related to the classification of our product by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and to evolving regulations surrounding privacy and data protection; our ability to integrate acquired businesses; our ability to attract and retain key personnel; and counter-party risks relating to cash balances held in excess of FDIC insurance limits.

We also lease premises in Phoenix, Arizona; Scottsdale, Arizona; [added: Charlotte, North Carolina;] Topsfield, Massachusetts; Seattle, Washington; Melbourne, Australia; Sydney, Australia; Toronto, Canada; Daventry, England; London, England; Tampere, Finland; Frankfurt, Germany; Mumbai, India; [added: Rome, Italy;] Amsterdam, Netherlands; and Ho Chi Minh City, Vietnam.

In September 2020, we purchased a parcel of land located in Scottsdale, Arizona on which we intend to construct a new manufacturing and office facility.

[removed: PART II][added: PART II]

[removed: Market Information][added: Market Information]

Our common stock is quoted under the symbol [removed: “AAXN”] [added: “AXON”] on The NASDAQ Global Select Market.

[removed: Holders][added: Holders]

As of December 31, [removed: 2019,] [added: 2020,] there were [removed: 241] [added: 229] holders of record of our common stock.

[removed: Dividends][added: Dividends]

[removed: Issuer] [added: Issuer] Purchases of Equity [removed: Securities][added: Securities]

During the year ended December 31, [removed: 2019,] [added: 2020,] no common shares were purchased under the program.

As of December 31, [removed: 2019 and 2018,] [added: 2020,] $16.3 million remained available under the plan for future purchases.

[removed: Stock] [added: Stock] Performance [removed: Graph][added: Graph]

The following stock performance graph compares the performance of our common stock to the NASDAQ Composite [removed: Index and the] [added: Index,] Russell 3000 [added: Index, S&P 500 Index, and Russell 2000] Index.

The graph covers the period from December 31, [removed: 2014] [added: 2015] to December 31, [removed: 2019.][added: 2020.]

The graph assumes that the value of the investment in our stock and in each index was $100 at December 31, [removed: 2014,] [added: 2015,] and that all dividends were reinvested.

[removed: ][added: ]

| [removed: | 2014 | |] [added: ​] | | 2015 | | | [removed: |] 2016 | | | [removed: |] 2017 | | | [removed: |] 2018 | | | [removed: |] 2019 | | | [added: 2020 | |]

​

We are transitioning from the Russell 3000 Index to the Russell 2000 Index, and adding the S&P 500 Index, based on the increase in our market capitalization.

| ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Axon Enterprise, Inc. | ​ | $ | 100.00 | ​ | $ | 140.20 | ​ | $ | 153.27 | ​ | $ | 253.04 | ​ | $ | 423.83 | ​ | $ | 708.68 |

| NASDAQ Composite | ​ | ​ | 100.00 | ​ | ​ | 108.87 | ​ | ​ | 141.13 | ​ | ​ | 137.12 | ​ | ​ | 187.44 | ​ | ​ | 271.64 |

| Russell 3000 | ​ | ​ | 100.00 | ​ | ​ | 112.74 | ​ | ​ | 136.56 | ​ | ​ | 129.40 | ​ | ​ | 169.54 | ​ | ​ | 204.95 |

| S&P 500 | ​ | ​ | 100.00 | ​ | ​ | 111.96 | ​ | ​ | 136.40 | ​ | ​ | 130.42 | ​ | ​ | 171.49 | ​ | ​ | 203.04 |

| Russell 2000 | ​ | ​ | 100.00 | ​ | ​ | 121.31 | ​ | ​ | 139.08 | ​ | ​ | 123.76 | ​ | ​ | 155.35 | ​ | ​ | 186.36 |

| | | | | | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| Axon Enterprise, Inc. | $ | 100.00 | | | $ | 65.29 | | | $ | 91.54 | | | $ | 100.08 | | | $ | 165.22 | | | $ | 276.74 | |

| NASDAQ Composite | 100.00 | | | | 106.96 | | | | 116.45 | | | | 150.96 | | | | 146.67 | | | | 200.49 | | |

| Russell 3000 | 100.00 | | | | 100.48 | | | | 113.27 | | | | 137.21 | | | | 130.02 | | | | 170.35 | | |

Not applicable.

The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto, and with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The statement of operations data for the years ended December 31, 2019, 2018 and 2017, and the balance sheet data as of December 31, 2019 and 2018, have been derived from, and should be read in conjunction with, our audited consolidated financial statements and the notes thereto included herein.

The statement of operations data for the years ended December 31, 2016 and 2015, and the balance sheet data as of December 31, 2017, 2016 and 2015, is derived from our historical audited consolidated financial statements and the notes thereto which are not included in this Annual Report on Form 10-K.

Dollars are in thousands, except per share amounts.

| | | | | | | | | | | | | | | | | | | | |

| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |

| | For the Year Ended December 31, | | | | | | | | | | | | | | | | | | |

| | 2019 | | | | 2018 | | | | 2017 | | | | 2016 | | | | 2015 | | |

| Statements of Operations Data: | | | | | | | | | | | | | | | | | | | |

| Net sales (1) | $ | 530,860 | | | $ | 420,068 | | | $ | 343,798 | | | $ | 268,245 | | | $ | 197,892 | |

| Gross margin | 307,286 | | | | 258,583 | | | | 207,088 | | | | 170,536 | | | | 128,647 | | |

| Income (loss) from operations (2) (3) | (6,394 | | ) | | 24,841 | | | | 13,023 | | | | 31,851 | | | | 35,335 | | |

| Net income (3) (4) | 882 | | | | 29,205 | | | | 5,207 | | | | 17,297 | | | | 19,933 | | |

| Diluted earnings per share (3) (4) | $ | 0.01 | | | $ | 0.50 | | | $ | 0.10 | | | $ | 0.32 | | | $ | 0.36 | |

| | As of December 31, | | | | | | | | | | | | | | | | | | |

| Balance Sheet Data: | | | | | | | | | | | | | | | | | | | |

| Working capital (5) (6) | $ | 423,525 | | | $ | 392,144 | | | $ | 97,242 | | | $ | 99,192 | | | $ | 123,269 | |

| Total assets (5) (6) | 845,639 | | | | 719,540 | | | | 338,112 | | | | 278,163 | | | | 229,881 | | |

| Total current liabilities (7) | 195,566 | | | | 166,011 | | | | 107,950 | | | | 78,039 | | | | 38,140 | | |

| Total stockholders’ equity (3) (5) (6) (8) | 543,495 | | | | 467,324 | | | | 167,444 | | | | 150,888 | | | | 157,004 | | |

(1) Amounts for the years ended December 31, 2017, 2016, and 2015 have not been adjusted under the modified retrospective method of adoption of Accounting Standards Codification Topic 606, Revenue from Contracts from Customers ("Topic 606"), and are presented consistent with the prior period amounts reported under ASC 605.

(2) Reflects the impact of increased spending on research and development and selling, general and administrative expenses to support growth.

(3) Reflects the impact of $51.6 million and $3.3 million in stock compensation expense related to the CEO Performance Award and XSPP for the years ended December 31, 2019 and 2018, respectively.

(4) Includes the favorable impact of a $5.0 million, $8.9 million, and $1.8 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for restricted stock units ("RSUs") that vested or stock options that were exercised during the years ended December 31, 2019, 2018, and 2017, respectively.

Includes tax expense of $8.0 million for the year ended December 31, 2017 related to the enactment of the Tax Cuts and Jobs Act.

(5) In May 2018, we sold 4,645,000 shares of our common stock, which included 645,000 shares pursuant to the full exercise of the underwriters' option to purchase additional shares, in an underwritten public offering at a price of $53.00 per share, which resulted in gross proceeds of $246.2 million.

Net proceeds after deducting fees, commissions, and other expenses related to the offering were $234.0 million.

(6) In 2016 and 2015, we used cash and cash equivalents to repurchase approximately $33.7 million and $7.6 million, respectively, of our common shares.

(7) Reflects the impact of higher deferred revenue resulting from shifting an increasing amount of our business to a subscription model.

(8) We recorded a net increase in stockholders’ equity (retained earnings) of $19.0 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606 on contracts that were not complete as of that date.

| [Consolidated Balance Sheets as of December 31, [removed: 2019] [added: 2020] and [removed: 2018](#s801C9BB26E8751239EB640DA851FEFC9)] [added: 2019](#CONSOLIDATEDBALANCESHEETS_305970)] | [added: ​] | [removed: [46](#s801C9BB26E8751239EB640DA851FEFC9)] [added: 48] |

| [Consolidated Statements of Operations and Comprehensive Income [added: (Loss)] for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#s38C339F1DA925817B3DF2BD516A109D9)] [added: 2018](#CONSOLIDATEDSTATEMENTSOFOPERATIONSANDCOM)] | [added: ​] | [removed: [47](#s38C339F1DA925817B3DF2BD516A109D9)] [added: 49] |

| [Consolidated Statements of [removed: Stockholders'] [added: Stockholders’] Equity for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#s0280A89C7783542E880D7C11ACE8DEEF)] [added: 2018](#CONSOLIDATEDSTATEMENTSOFSTOCKHOLDERSEQUI)] | [added: ​] | [removed: [48](#s0280A89C7783542E880D7C11ACE8DEEF)] [added: 50] |

| [Consolidated Statements of Cash Flows for the years ended December 31, [removed: 2019, 2018] [added: 2020, 2019] and [removed: 2017](#sBF2E7AFF5D7B5DE2A4902B368E1D832E)] [added: 2018](#CONSOLIDATEDSTATEMENTSOFCASHFLOWS_558214)] | [added: ​] | [removed: [49](#sBF2E7AFF5D7B5DE2A4902B368E1D832E)] [added: 51] |

| [Notes to Consolidated Financial [removed: Statements](#sD0A8E078B6D65C3AAC7CFF99C7671D2B)] [added: Statements](#a1OrganizationandSummaryofSignificantAcc)] | [added: ​] | [removed: [50](#sD0A8E078B6D65C3AAC7CFF99C7671D2B)] [added: 52] |

| [Report of Grant Thornton LLP, Independent Registered Public Accounting [removed: Firm](#s77E9CD3395085DF7A64C928FC1A7E9D0)] [added: Firm](#REPORTOFINDEPENDENTREGISTEREDPUBLICACCOU)] | [added: ​] | [removed: [85](#s77E9CD3395085DF7A64C928FC1A7E9D0)] [added: 88] |

[removed: AXON] [added: AXON] ENTERPRISE, [removed: INC.][added: INC.]

[removed: CONSOLIDATED] [added: CONSOLIDATED] BALANCE [removed: SHEETS][added: SHEETS]

| [added: ​] | [added: |] December 31, | | [removed: | |] [added: ​] | [added: December 31,] | |

| [added: ​] | [removed: 2019] | [added: 2020] | | | [removed: 2018] [added: 2019] | | [added: ​] | [added: 2018 | |]

| ASSETS | | [removed: |] [added: ​] | | | [added: ​] | |

| Current assets: | | [removed: |] [added: ​] | | | [added: ​] | |

| Cash and cash equivalents | [added: ​ |] $ | [removed: 172,250] [added: 155,440] | [added: ​] | [added: $] | [added: 172,250 | ​ |] $ | 349,462 | [removed: |]

| Short-term investments | [removed: 178,534 |] [added: ​] | | [added: 406,525] | [removed: —] [added: ​] | | [added: 178,534] |

| Accounts and notes receivable, net of allowance of [removed: $1,567] [added: $2,105] and [removed: $1,882] [added: $1,567] as of December 31, [removed: 2019] [added: 2020] and [removed: 2018,] [added: December 31, 2019] respectively | [removed: 146,878 |] [added: ​] | | [added: 229,201] | [removed: 130,579] [added: ​] | | [added: 146,878] |

| Contract assets, net | [removed: 47,718 | | | | 13,960] [added: ​] | [added: $] | [added: 84,044] |

| Inventory | [removed: 38,845 |] [added: ​] | | [added: 89,958] | [removed: 33,763] [added: ​] | | [added: 38,845] |

| Prepaid expenses and other current assets | [removed: 34,866 |] [added: ​] | | [added: 36,883] | [removed: 30,391] [added: ​] | | [added: 34,866] |

| Property and equipment, net | [removed: 43,770 |] [added: ​] | | [added: 105,494] | [removed: 37,893] [added: ​] | | [added: 43,770] |

| Deferred tax assets, net | [removed: 27,688 |] [added: ​] | | [added: 45,770] | [removed: 19,347] [added: ​] | | [added: 27,688] |

| Intangible assets, net | [removed: 12,771 |] [added: ​] | | [added: 9,448] | [removed: 15,935] [added: ​] | | [added: 12,771] |

| Goodwill | [removed: 25,013 |] [added: ​] | | [added: 25,205] | [removed: 24,981] [added: ​] | | [added: 25,013] |

| Long-term investments | [removed: 45,499 |] [added: ​] | | [added: 90,681] | [removed: —] [added: ​] | | [added: 45,499] |

| Long-term notes receivable, net of current portion | [removed: 31,598 | | | | 40,230] [added: ​] | | [added: 477] |

| Total assets | [removed: $] [added: ​] | [removed: 845,639] [added: $] | [added: 1,381,023] | [added: ​] | $ | [removed: 719,540 |] [added: 845,639] |

| LIABILITIES AND STOCKHOLDERS’ EQUITY | [removed: |] [added: ​] | | | [added: ​] | | |

| Current liabilities: | [removed: |] [added: ​] | | | [added: ​] | | |

| Accounts payable | [removed: $] [added: ​] | [removed: 25,874] [added: $] | [added: 24,142] | [added: ​] | $ | [removed: 15,164 |] [added: 25,874] |

| Accrued liabilities | [removed: 45,001 |] [added: ​] | | [added: 59,843] | [removed: 41,092] [added: ​] | | [added: 45,001] |

| Current portion of deferred revenue | [removed: 117,864 |] [added: ​] | | [added: 163,959] | [removed: 107,016] [added: ​] | | [added: 117,864] |

| Customer deposits | [removed: 2,974 |] [added: ​] | | [added: 2,956] | [removed: 2,702] [added: ​] | | [added: 2,974] |

| Other current liabilities | [removed: 3,853 |] [added: ​] | | [added: 5,431] | [removed: 37] [added: ​] | | [added: 3,853] |

| Total current liabilities | [removed: 195,566 |] [added: ​] | | [added: 256,331] | [removed: 166,011] [added: ​] | | [added: 195,566] |

| Deferred revenue, net of current portion | [removed: 87,936 |] [added: ​] | | [added: 111,222] | [removed: 74,417] [added: ​] | | [added: 87,936] |

| Liability for unrecognized tax benefits | [removed: 3,832 |] [added: ​] | | [added: 4,503] | [removed: 2,849] [added: ​] | | [added: 3,832] |

| Long-term deferred compensation | [removed: 3,936 |] [added: ​] | | [added: 4,732] | [removed: 3,235] [added: ​] | | [added: 3,936] |

| Deferred tax [removed: liability,] [added: liabilities,] net | [removed: 354 |] [added: ​] | [added: ​] | [added: 649] | [removed: —] [added: ​] | [added: ​] | [added: 354] |

| Other long-term liabilities | [removed: 10,520 |] [added: ​] | | [added: 27,331] | [removed: 5,704] [added: ​] | | [added: 10,520] |

| Total liabilities | [removed: 302,144 |] [added: ​] | | [added: 404,768] | [removed: 252,216] [added: ​] | | [added: 302,144] |

| Commitments and contingencies (Note [removed: 9) |] [added: 10)] | [added: ​] | | | [added: ​] | | |

| ​ | ​ | ​ |

| ​ | ​ | ​ | ​ | ​ | ​ | ​ |

| ​ | ​ | *​* | | ​ | ​ | ​ |

| Contract assets, net | ​ | | 63,945 | ​ | | 38,102 |

| Total current assets | ​ | | 981,952 | ​ | | 609,475 |

| Long-term notes receivable, net | ​ | | 22,457 | ​ | | 31,598 |

| Long-term contract assets, net | ​ | ​ | 20,099 | ​ | ​ | 9,644 |

| Other assets | ​ | | 79,917 | ​ | | 40,181 |

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AXON ENTERPRISE, INC.

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| ​ | | ​ | | ​ | ​ | | ​ | ​ | | ​ | | ​ | ​ | | ​ | ​ | | Accumulated | | | ​ | ​ |

| ​ | ​ | ​ | ​ | ​ | ​ | ​ | Additional | | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | ​ | Other | | ​ | Total | |

| ​ | ​ | Shares | ​ | Amount | | ​ | Capital | | ​ | Shares | ​ | Amount | | ​ | Earnings | | ​ | Income (Loss) | | ​ | Equity | |

| Issuance of common stock | ​ | 3,450,000 | ​ | ​ | — | ​ | ​ | 306,779 | ​ | — | ​ | | — | ​ | | — | ​ | | — | ​ | | 306,779 |

| Issuance of common stock for business combination contingent consideration and related tax effects | ​ | 70,613 | ​ | ​ | — | ​ | ​ | 1,050 | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | — | ​ | ​ | 1,050 |

| Net income (loss) | | — | ​ | | — | ​ | | — | | — | ​ | | — | ​ | | (1,724) | ​ | | — | ​ | | (1,724) |

| Balance, December 31, 2020 | | 63,766,555 | ​ | $ | 1 | ​ | $ | 962,159 | | 20,220,227 | ​ | $ | (155,947) | ​ | $ | 169,901 | ​ | $ | 141 | ​ | $ | 976,255 |

AXON ENTERPRISE, INC.

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| Net income (loss) | ​ | $ | (1,724) | ​ | $ | 882 | ​ | $ | 29,205 |

| Provision for expected credit losses | ​ | ​ | 1,302 | ​ | ​ | — | ​ | ​ | — |

| Investments in unconsolidated affiliates | ​ | ​ | (7,068) | ​ | ​ | — | ​ | ​ | — |

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1.

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| | ● | reserve for expected credit losses |

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Land is not depreciated.

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intangible assets may warrant revision or that the remaining balance of these assets, including intangible assets with indefinite lives, may not be recoverable.

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| Total current assets | 619,091 | | | | 558,155 | | |

| Other assets | 40,209 | | | | 22,999 | | |

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| | Shares | | | Amount | | | | | Shares | | | Amount | | | | | | | | | | | | | | | | | |

| Balance, December 31, 2016 | 52,325,251 | | | $ | 1 | | | $ | 187,656 | | | 20,220,227 | | | $ | (155,947 | ) | | $ | 118,275 | | | $ | 903 | | | $ | 150,888 | |

| Purchase accounting adjustments to goodwill | — | | | | — | | | | (23 | | ) |

1.

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| • | fair values of identified tangible and intangible assets acquired and liabilities assumed in business combinations. |

Restricted cash balances as of December 31, 2018 included $0.9 million of sales proceeds related to long-term contracts with customers, which were included in prepaid expenses and other current assets on our consolidated balance sheets.

The proceeds were held in escrow until certain billing milestones were

achieved, and then specified amounts were transferred to our operating accounts.

Restricted cash balances as of December 31, 2018 also included $0.7 million related to a performance guarantee for an international customer sales contract, which were included in other assets on our accompanying consolidated balance sheets.

amounts of the assets over their estimated fair value computed using discounted cash flows.

During the year ended December 31, 2017, we abandoned certain developed technology acquired in a business combination resulting in an impairment charge of $1.0 million which was included in research and development expense in the accompanying consolidated statements of operations and comprehensive income, and recorded within the Software and Sensors Segment.

Revenue is recognized net of allowances for returns and any taxes collected from customers, which are subsequently remitted to governmental taxing authorities.

Management performs ongoing credit evaluations of its customers’ financial condition, and maintains an allowance for doubtful accounts.

This allowance represents management’s best estimate and application of judgment considering a number of factors, including third-party credit reports, actual payment history, cash discounts, customer-specific financial information and broader market and economic trends and conditions.

| Balance, January 1 | $ | 898 | | | $ | 644 | | | $ | 780 | |

We sell some of our products through a network of unaffiliated distributors.

We also sell directly to customers.

components, and off the shelf sub-assemblies from suppliers located in the U.S., Canada, China, Israel, Mexico, Republic of Korea, and Taiwan.

We acquire most of our components on a purchase order basis and do not have any significant long-term contracts with component suppliers.

Historically, we have calculated the fair value of stock options using the Black-Scholes-Merton option pricing valuation model, which incorporates various assumptions including expected volatility, expected life, expected dividends and risk-free interest rates.

| Volatility | | 47.71% |

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet.

In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.

Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP.

On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption.

Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840.

We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

The adoption had a material impact to our consolidated balance sheet.

[removed: Evaluation] [added: Evaluation] of Disclosure Controls and [removed: Procedures][added: Procedures]

Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and [removed: reported] [added: reported,] within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

[removed: Management] [added: Management] Report on Internal Control over Financial [removed: Reporting][added: Reporting]

Management has assessed the effectiveness of our internal control over financial reporting as of December 31, [removed: 2019] [added: 2020] based on criteria set forth in [removed: *Internal] [added: _Internal] Control - Integrated [removed: Framework*] [added: Framework_] issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework).

As a result of this assessment, management concluded that, as of December 31, [removed: 2019,] [added: 2020,] our internal control over financial reporting was effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

[removed: Changes] [added: Changes] in Internal Control over Financial [removed: Reporting][added: Reporting]

There was no change in our internal control over financial reporting during the fiscal quarter ended December 31, [removed: 2019,] [added: 2020,] that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

[removed: REPORT] [added: REPORT] OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING [removed: FIRM][added: FIRM]

[removed: Opinion] [added: Opinion] on internal control over financial [removed: reporting][added: reporting]

We have audited the internal control over financial reporting of Axon Enterprise, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in the 2013 [removed: *Internal] [added: _Internal] Control-Integrated [removed: Framework*] [added: Framework_] issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, [removed: 2019,] [added: 2020,] based on criteria established in the 2013 [removed: *Internal] [added: _Internal] Control-Integrated [removed: Framework*] [added: Framework_] issued by COSO.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31, [removed: 2019,] [added: 2020,] and our report dated February [removed: 27, 2020] [added: 25, 2021] expressed an unqualified opinion on those financial statements.