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Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
| ⌧ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the fiscal year ended December 31**, 2023**
or
| ◻ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from ______ to _______
Commission File Number: 001-16391
Axon Enterprise, Inc.
(Exact name of registrant as specified in its charter)
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|---|---|---|
| Delaware | 86-0741227 | |
| (State or other jurisdiction of | | (I.R.S. Employer |
| incorporation or organization) | | Identification No.) |
| | | |
| 17800 North 85th Street | | 85255 |
| Scottsdale**,** Arizona | | (Zip Code) |
| (Address of principal executive offices) | | |
Registrant’s telephone number, including area code:
(480) 991-0797
Securities registered pursuant to Section 12(b) of the Act:
| | | |
|---|---|---|
| Title of each class | Trading Symbol(s) | Name of exchange on which registered |
| Common Stock, $0.00001 par value per share | AXON | The NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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|---|---|---|---|
| Large accelerated filer | ☒ | | Accelerated filer☐ |
| Non-accelerated filer | ☐ | | Smaller reporting company☐ |
| | | | Emerging growth company☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
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. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2023, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $14.3 billion based on the closing sale price as reported on The NASDAQ Global Select Market.
The number of shares of the registrant’s common stock outstanding as of February 23, 2024 was 75,302,832
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for its 2024 Annual Meeting of Shareholders to be prepared and filed with the Securities and Exchange Commission not later than 120 days after December 31, 2023 are incorporated by reference into Part III of this Form 10-K.
AXON ENTERPRISE, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2023
PART I
Statements contained in this Annual Report on Form 10-K that are not historical are “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. This report lists various important factors that could cause actual results to differ materially from historical and expected results. These factors are intended as cautionary statements for investors within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. Readers can find them under the heading “Risk Factors” in this Annual Report on Form 10-K, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 8-K, 10-Q and 10-K reports to the Securities and Exchange Commission (“SEC”). Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.
Risk Factor Summary
The following is only a summary of the principal risks that may materially adversely affect our business, financial condition, results of operations and cash flows. The following should be read in conjunction with the more complete discussion of the risks we face, which are set forth more fully in “Part I. Item 1A. Risk Factors.”
Strategic Risks
| ● | If law enforcement agencies do not continue to purchase and use our products and services, our growth prospects, operating results and financial condition will be materially adversely affected. |
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| ● | If our TASER conducted energy devices (“CEDs”) do not continue to be widely accepted, our growth prospects, operating results and financial condition will be diminished. |
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| ● | 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 affected. |
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| ● | We face risks associated with rapid technological change and new competing products. |
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| ● | Our future success is dependent on our ability to expand sales through direct sales and distributors and our inability to increase direct sales or recruit new distributors would negatively affect our sales. |
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| ● | Negative publicity could adversely impact sales, which could cause our revenues or operating results to decline. |
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| ● | Acquisitions of, or investments in, other products, technologies or businesses could disrupt our business, dilute shareholder value, and adversely affect our operating results. |
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| ● | Our failure to retain executive officers, including Patrick W. Smith, could adversely impact our business. |
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Operational Risks
| ● | Unavailability of materials or higher costs could adversely affect our financial results. |
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| ● | Material adverse developments in domestic and global economic conditions, or the occurrence of other world events, could materially adversely affect our revenue and results of operations. |
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| ● | 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. |
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| ● | Delays in product development schedules could adversely affect our revenues and cash flows. |
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| ● | We expend significant resources in anticipation of a sale and may receive no revenue in return. |
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| ● | Changes in civil forfeiture laws may affect our customers’ ability to purchase our products. |
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| ● | If our security measures or those of our third-party providers, including 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 products and services, and we may incur significant legal and financial exposure and liabilities. |
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| ● | Catastrophic events could materially adversely affect our business, results of operations and/or financial condition. |
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| ● | Uncertainty in the development, deployment and use of artificial intelligence (“AI”) in our products and services, as well as our business more broadly, could adversely affect our business and reputation. |
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| ● | Defects or disruptions in our services could impact demand for our services and subject us to substantial liability. |
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| ● | Defects in our products could reduce demand for our products or result in product recalls and result in a loss of sales, delay in market acceptance and damage to our reputation. |
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| ● | Our international operations expose us to additional risks that could harm our business, operating results and financial condition. |
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| ● | We depend on our ability to attract and retain our key management, sales and technical personnel. |
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| ● | If we fail to comply with federal, state or local regulations applicable to TASER 10, we may be subject to governmental actions or litigation that could materially harm our business. |
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| ● | If we fail to maintain effective internal control over financial reporting or identify a material weakness or significant deficiency, our ability to accurately and timely report our financial condition and results of operations could be adversely affected, investor confidence could diminish, and the value of our common stock may decline. |
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Financial Risks
| ● | An increasing percentage of our revenue is derived from subscription billing arrangements that may result in delayed cash collections and may increase customer credit risk on receivables and contract assets. |
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| ● | Our gross margin is dependent on a number of factors, including our product mix, cost structure and acquisitions we may make, any of which could cause our gross margin to decline. |
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| ● | Software-as-a-Service (“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 results. |
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| ● | Most of our end-user customers are subject to budgetary and political constraints that may delay or prevent sales. |
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| ● | Due to government funding rules, certain of our contracts are subject to various cancellation clauses, which could allow our customers to cancel or not exercise options to renew contracts in the future. |
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| ● | The open bidding process creates uncertainty in predicting future contract awards. |
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| ● | We maintain most of our cash balances, some of which are not insured, at two depository institutions. |
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| ● | Stock transactions may have a material, unpredictable impact on our results of operations and may result in dilution to existing shareholders. |
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| ● | Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies. |
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| ● | Unanticipated changes in our effective tax rate and additional tax liabilities may impact our operating results and financial condition. |
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| ● | Our revenues and operating results may fluctuate unexpectedly, which may cause our stock price to decline. |
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| ● | Our profitability could suffer from declines in fair value or impairment of our investments, including our strategic investments, and could fluctuate if the fair values of our investments increase. |
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Legal and Compliance Risks
| ● | We may face personal injury, wrongful death, product liability and other liability claims that harm our reputation and adversely affect our sales and financial condition. |
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| ● | Other litigation, government inquiries and regulatory actions may subject us to significant costs and judgments and divert management attention from our business. |
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| ● | We have been, and may be in the future, subject to intellectual property infringement and other claims, which could incur substantial litigation costs, result in significant damages awards, inhibit our use of certain technologies, and divert management attention from our business. |
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| ● | If we are unable to protect our intellectual property, the value of our brands and products may decrease and we may lose our competitive market advantage. |
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| ● | We may be unable to enforce patent rights internationally, which may limit our ability to prevent our product features from being used by competitors in some foreign jurisdictions. |
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| ● | The use of open source software in our products, services and technologies may expose us to additional risks and harm our intellectual property. |
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| ● | A variety of new and existing laws and/or interpretations could materially and adversely affect our business. |
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| ● | We are subject to evolving corporate governance and public disclosure regulations and expectations that could expose us to numerous risks. |
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| ● | Our amended and restated bylaws include exclusive forum provisions that could increase costs to bring a claim, discourage claims or limit the ability of our shareholders to bring a claim in a judicial forum viewed by shareholders as more favorable for disputes. |
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Risks Related to our Convertible Notes
| ● | Servicing our debt requires a significant amount of cash, and we may not have sufficient cash flow to pay our substantial debt. |
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| ● | The conditional conversion feature of the Notes, if triggered, may adversely affect our operating results. |
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| ● | Conversion of the Notes may dilute the ownership interest of our shareholders or may otherwise depress the price of our common stock. |
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| ● | Changes in the accounting treatment for the Notes may have a material effect on our reported financial results. |
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| ● | The convertible note hedge and warrant transactions may affect the value of the Notes and our common stock. |
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| ● | We are subject to counterparty risk with respect to the convertible note hedge transactions. |
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