Axon Enterprise 10-Q 2023-06-30

Filed 2023-08-08. 7 sections, 284K characters. Original on sec.gov · Markdown · JSON

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-16391


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


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

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

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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


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

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ 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.


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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the registrant’s common stock outstanding as of August 4, 2023 was 74,759,989.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

			Page
Special Note Regarding Forward-Looking Statements			ii

PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Six Months Ended June 30, 2023 and 2022	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Six Months Ended June 30, 2023 and 2022	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		37
	Item 4. Controls and Procedures		38
PART II - OTHER INFORMATION			38
	Item 1. Legal Proceedings		38
	Item 1A. Risk Factors		39
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		61
	Item 3. Defaults Upon Senior Securities		61
	Item 4. Mine Safety Disclosures		61
	Item 5. Other Information		61
	Item 6. Exhibits		62
	SIGNATURES		63

Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements. These forward-looking statements include, without limitation, statements regarding: proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; the impact of pending litigation; strategies and trends relating to subscription plan programs and revenues; statements related to recently completed acquisitions; our anticipation that contracts with governmental customers will be fulfilled; strategies and trends, including the amounts and benefits of, research and development investments; the sufficiency of our liquidity and financial resources; expectations about customer behavior; the impact on our investment portfolio of changes in interest rates; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management’s strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2022. 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

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition as of June 30, 2023, and results of operations for the three and six months ended June 30, 2023 and 2022, should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes in our 2022 Annual Report on Form 10-K filed with the SEC on February 28, 2023. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Item 1A. Risk Factors.” See also “Special Note Regarding Forward-Looking Statements” on page ii of this Quarterly Report on Form 10-Q.

Overview

Axon is a technology leader in global public safety. Our moonshot goal is to cut gun-related deaths between police and the public by 50% before 2033. Axon is building the public safety operating system of the future by integrating a suite of hardware devices and cloud software solutions that lead modern policing. Axon’s suite includes TASER energy devices, body-worn cameras, in-car cameras, cloud-hosted digital evidence management solutions, productivity software and real-time operations capabilities. Axon’s growing global customer base includes first responders across international, federal, state, and local law enforcement, fire, corrections, and emergency medical services, as well as the justice sector, commercial enterprises, and consumers.

Our revenues for the three months ended June 30, 2023 were $374.6 million, an increase of $89.0 million, or 31.2%, from the comparable period in the prior year. We had income from operations of $40.3 million compared to $21.4 million for the same period in the prior year. Gross margin dollars increased $58.2 million and increased as a percentage of revenue to 62.0% from 60.9% compared to the three months ended June 30, 2022, reflecting favorable product mix of higher margin software revenue, partially offset by manufacturing overhead and scale inefficiencies associated with the TASER 10 launch. Operating expenses increased $39.3 million, reflecting an increase in salaries, benefits, and bonus expense and increases in sales, marketing, and commissions expense, as well as an increase in stock-based compensation expense. Net income of $12.4 million included a noncash unrealized gain of $10.0 million on our investment in CLBT and a noncash unrealized impairment loss of $71.9 million, net, related to a strategic investment and related warrants. Net income of $51.0 million for the comparable period in the prior year included net unrealized gains of $59.7 million related to observable price changes for our existing investments and related warrants and an unrealized loss of $11.7 million on our investment in CLBT.

Our revenues for the six months ended June 30, 2023 were $717.6 million, an increase of $175.6 million, or 32.4%, from the comparable period in the prior year. We had income from operations of $56.9 million compared to $38.6 million for the same period in the prior year. Gross margin dollars increased $106.5 million and remained flat as a percentage of revenue compared to the six months ended June 30, 2022. Operating expenses increased $88.3 million, reflecting an increase in salaries, benefits, and bonus expense and increases in sales, marketing, and commissions expense, as well as an increase in stock-based compensation expense. For the six months ended June 30, 2023, we recorded net income of $57.6 million, which reflected a noncash unrealized gain of $25.6 million on our investment in CLBT and a noncash unrealized impairment loss of $71.9 million, net, related to a strategic investment and related warrants. Net income of $105.8 million for the comparable period in the prior year included net unrealized gains of $130.1 million related to observable price changes for our existing investments and related warrants and an unrealized loss of $26.3 million on our investment in CLBT.

Results of Operations

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

The following table presents data from our condensed consolidated statements of operations as well as the percentage relationship to total net sales of items included in our statements of operations (dollars in thousands):


	Three Months Ended June 30,
	2023				2022
Net sales from products	$	233,474	62.3	%	$	200,051	70.0	%
Net sales from services		141,131	37.7			85,562	30.0
Net sales		374,605	100.0			285,613	100.0
Cost of product sales		101,192	27.0			87,502	30.6
Cost of service sales		41,292	11.0			24,148	8.5
Cost of sales		142,484	38.0			111,650	39.1
Gross margin		232,121	62.0			173,963	60.9
Operating expenses:
Sales, general and administrative		119,922	32.0			95,005	33.3
Research and development		71,940	19.2			57,547	20.2
Total operating expenses		191,862	51.2			152,552	53.5
Income from operations		40,259	10.8			21,411	7.4
Interest and other income (loss), net		(52,368)	(14.0)			47,026	16.5
Income (loss) before provision for income taxes		(12,109)	(3.2)			68,437	23.9
Provision for (benefit from) income taxes		(24,529)	(6.5)			17,475	6.1
Net income	$	12,420	3.3	%	$	50,962	17.8	%

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


	Three Months Ended June 30,
	2023				2022
United States	$	321,921	86	%	$	228,446	80	%
Other countries		52,684	14			57,167	20
Total	$	374,605	100	%	$	285,613	100	%

International revenue decreased compared to the prior year comparable period, primarily driven by decreased sales in our Asia-Pacific (“APAC”) region, which benefitted from large hardware and cartridge orders during the prior year comparable period.

Net Sales

Net sales by product line were as follows (dollars in thousands):


	Three Months Ended June 30,								Dollar		Percent
	2023				2022				Change		Change
TASER segment:
TASER Devices (Professional)	$	84,975	22.7	%	$	70,313	24.6	%	$	14,662	20.9	%
Cartridges		48,425	12.9			49,845	17.5			(1,420)	(2.8)
Axon Evidence and Cloud Services		8,494	2.3			3,720	1.3			4,774	128.3
Extended Warranties		7,715	2.0			7,459	2.6			256	3.4
Other (1)		4,801	1.3			4,249	1.5			552	13.0
Total TASER segment		154,410	41.2			135,586	47.5			18,824	13.9
Software and Sensors segment:
Axon Body Cameras and Accessories		32,781	8.8			33,938	11.9			(1,157)	(3.4)
Axon Fleet Systems		35,960	9.6			15,881	5.5			20,079	126.4
Axon Evidence and Cloud Services		132,102	35.3			81,911	28.7			50,191	61.3
Extended Warranties		15,166	4.0			12,498	4.4			2,668	21.3
Other (2)		4,186	1.1			5,799	2.0			(1,613)	(27.8)
Total Software and Sensors segment		220,195	58.8			150,027	52.5			70,168	46.8
Total net sales	$	374,605	100.0	%	$	285,613	100.0	%	$	88,992	31.2	%

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

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

Net sales for the TASER segment increased 13.9% for the three months ended June 30, 2023 as compared to the prior year quarter, primarily due to an increase of $14.7 million in TASER devices (professional) revenue. The increase in TASER devices (professional) revenue primarily related to our next generation product, TASER 10, which began shipping in the first quarter of 2023. Net sales for Axon Evidence and cloud services also increased $4.8 million in the quarter due to an increase of software revenue tied to our VR solution and TASER devices. Partially offsetting the increase in TASER segment revenue was a $1.4 million decrease year over year in cartridge revenue due to several large international cartridge orders delivered in the second quarter of 2022. Fluctuations in cartridge revenue are generally attributable to customers who are not on cartridge subscriptions plans and periodically purchase in bulk.

Net sales for the Software and Sensors segment increased 46.8% for the three months ended June 30, 2023 as compared to the prior year quarter as we continued to add users and associated devices to our network. The increase in the aggregate number of users and the revenue per user drove the majority of the increase in Axon Evidence and cloud services revenue of $50.2 million. The $20.1 million increase in Axon Fleet systems revenue was primarily driven by higher unit sales as we continue to see strong demand since the release of Fleet 3 in 2021. An increase in cameras, docks and Fleet systems in the field drove the $2.7 million increase in extended warranties, as most of those devices are sold with extended warranties.

We consider total company future contracted revenues a forward-looking performance indicator. As of June 30, 2023, we had approximately $5.2 billion of total company future contracted revenue, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. We expect to recognize between 15% - 25% of this balance over the next twelve months, and expect the remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 60.5% from 64.3% for the three months ended June 30, 2023 and 2022, respectively. The decrease is primarily due to the introduction of our next generation device, TASER 10, and increased manufacturing overhead.

As a percentage of net sales, gross margin for the Software and Sensors segment increased to 63.0% from 57.9% for the three months ended June 30, 2023 and 2022, respectively. Within the Software and Sensors segment, hardware gross margin increased to 52.9% for the three months ended June 30, 2023 compared to 42.9% for the same period in 2022 due to a decrease in manufacturing overhead allocation, an improvement in Fleet 3 gross margins due to efficiencies from better fixed cost absorption, and a favorable non-recurring cost adjustment. Service margins decreased slightly to 69.7% for the three months ended June 30, 2023 from 70.4% for the same period in 2022 due to a higher mix of lower margin professional services revenue.

Sales, General and Administrative Expenses

Sales, general and administrative (“SG&A”) expenses were comprised as follows (dollars in thousands):


	Three Months Ended June 30,						Dollar		Percent
	2023			2022			Change		Change
Total sales, general and administrative expenses	$	119,922		$	95,005		$	24,917	26.2	%
Sales, general, and administrative as a percentage of net sales		32.0	%		33.3	%

Salaries, benefits, and bonus expense increased $13.8 million in comparison to the prior year comparable period. An increase of $11.4 million in salaries, benefits, and bonus expense was attributable to an increase in headcount and higher wages. Additionally, $2.4 million was attributed to payroll taxes related to the vesting of two tranches of the XSPP in May 2023 and payroll taxes for CEO option exercises completed during the quarter ended June 30, 2023.

Stock-based compensation expense increased $6.3 million in comparison to the prior year comparable period, which was primarily attributable to an increase of $5.9 million in expense related to the XSPP, partially offset by a $2.9 million decrease related to the CEO Performance Award. The increase in stock-based compensation expense related to XSPP was due to the attainment of the 11th and 12th market capitalization goals in April 2023. Also contributing to the total increase in stock-based compensation expense was the expense reversal of $3.3 million related to employee forfeitures during the prior year comparable period.

Sales commissions increased $6.0 million in comparison to the prior year comparable period, tied to higher revenue.

Research and Development Expenses

Research and development (“R&D”) expenses were comprised as follows (dollars in thousands):



	Three Months Ended June 30,						Dollar		Percent
	2023			2022			Change		Change
Total research and development expenses	$	71,940		$	57,547		$	14,393	25.0	%
Research and development as a percentage of net sales		19.2	%		20.2	%

Within the TASER segment, R&D expense increased $1.1 million comparable to the same period prior year. The increase is attributable to headcount growth driving increases in compensation, benefits and bonus expense.

R&D expense for the Software and Sensors segment increased $13.3 million, reflecting an increase of $7.8 million in salaries, benefits, and bonus expense due to higher headcount and increased wages. Additionally, there was a $3.4 million increase related to stock-based compensation expense, primarily related to increased headcount. Internal cloud

storage costs also increased $1.3 million related to product development. Professional and consulting expenses increased $0.9 million primarily related to the launch of Axon Body 4, which began shipping in the second quarter of 2023.

Interest and Other Income, Net

Interest and other income (loss), net was a loss of $52.4 million for the three months ended June 30, 2023, compared to income of $47.0 million for the same period in 2022. During the second quarter of 2023, we recorded a net unrealized impairment loss of $71.9 million for an existing strategic investment and related warrants and interest expense of $1.7 million primarily related to our 2027 Notes, partially offset by an unrealized gain of $10.0 million related to our investment in CLBT and interest income of $11.3 million on our available-for-sale securities. For additional information regarding our 2027 Notes, refer to Note 9 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. During the three months ended June 30, 2022, we recorded a net unrealized gain of $59.7 million related to the exercise of warrants in one of our strategic investees and observable price changes for our existing investments and related warrants, as well as an unrealized loss of $11.7 million on marketable securities related to our investment in CLBT.

Provision for Income Taxes

The provision for income taxes was a benefit of $24.5 million for the three months ended June 30, 2023, which was an effective tax rate of 202.6%. Our estimated annual effective income tax rate for 2023, before discrete period adjustments, is 16.0%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits and decrease in valuation allowance offset by the executive compensation limitation under Internal Revenue Code (“IRC”) Section 162(m) and an increase in unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $21.0 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested during the three months ended June 30, 2023, primarily attributed to the vesting of the final three tranches of XSPP in May 2023.

Net Income

We recorded net income of $12.4 million for the three months ended June 30, 2023 compared to net income of $51.0 million for the same period in 2022. Net income per basic share was $0.17 for the three months ended June 30, 2023 compared to $0.72 net income per basic share for the same period in 2022. Net income per diluted share was $0.16 for the three months ended June 30, 2023 compared to $0.71 net income per diluted share for the same period in 2022.

Three Months Ended June 30, 2023 Compared to the Three Months Ended March 31, 2023

Net Sales

Net sales by product line were as follows (dollars in thousands):


	Three Months Ended				Three Months Ended				Dollar		Percent
	June 30, 2023				March 31, 2023				Change		Change
TASER segment:
TASER Devices (Professional)	$	84,975	22.7	%	$	67,472	19.7	%	$	17,503	25.9	%
Cartridges		48,425	12.9			46,800	13.6			1,625	3.5
Axon Evidence and Cloud Services		8,494	2.3			7,201	2.1			1,293	18.0
Extended Warranties		7,715	2.0			7,670	2.2			45	0.6
Other (1)		4,801	1.3			5,139	1.5			(338)	(6.6)
Total TASER segment		154,410	41.2			134,282	39.1			20,128	15.0
Software and Sensors segment:
Axon Body Cameras and Accessories		32,781	8.8			38,797	11.3			(6,016)	(15.5)
Axon Fleet Systems		35,960	9.6			32,972	9.6			2,988	9.1
Axon Evidence and Cloud Services		132,102	35.3			118,314	34.5			13,788	11.7
Extended Warranties		15,166	4.0			14,085	4.1			1,081	7.7
Other (2)		4,186	1.1			4,593	1.4			(407)	(8.9)
Software and Sensors segment		220,195	58.8			208,761	60.9			11,434	5.5
Total net sales	$	374,605	100.0	%	$	343,043	100.0	%	$	31,562	9.2	%

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

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

Net sales within the TASER segment increased by approximately $20.1 million or 15.0% as compared to the prior quarter, primarily due to an increase in the units of TASER devices. The increase in TASER devices revenue is primarily attributable to our next generation device, TASER 10, which began shipping in the first quarter of 2023. Axon Evidence and cloud services also increased $1.3 million tied to software revenue for our TASER devices and VR hardware.

Within the Software and Sensors segment, net sales increased $11.4 million or 5.5% during the three months ended June 30, 2023 compared to the prior quarter. The increase in the aggregate number of users drove the majority of the increase in Axon Evidence and cloud services revenue of $13.8 million. Axon Fleet revenue increased $3.0 million as demand for Fleet 3 drove higher unit sales. Partially offsetting the increases in the Software and Sensors segment is a decrease of $6.0 million of Axon Body cameras and accessories revenue due to decreased units driven by anticipated demand for Axon Body 4, which began shipping at the end of the second quarter of 2023.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022


	Six Months Ended June 30,
	2023				2022
Net sales from products	$	452,863	63.1	%	$	376,255	69.4	%
Net sales from services		264,785	36.9			165,784	30.6
Net sales		717,648	100.0			542,039	100.0
Cost of product sales		208,776	29.1			166,854	30.8
Cost of service sales		72,649	10.1			45,483	8.4
Cost of sales		281,425	39.2			212,337	39.2
Gross margin		436,223	60.8			329,702	60.8
Operating expenses:
Sales, general and administrative		236,489	33.0			185,134	34.2
Research and development		142,867	19.9			105,963	19.5
Total operating expenses		379,356	52.9			291,097	53.7
Income from operations		56,867	7.9			38,605	7.1
Interest and other income (loss), net		(27,092)	(3.8)			102,325	18.9
Income before provision for income taxes		29,775	4.1			140,930	26.0
Provision for (benefit from) income taxes		(27,784)	(3.9)			35,097	6.5
Net income	$	57,559	8.0	%	$	105,833	19.5	%

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


	Six Months Ended June 30,
	2023				2022
United States	$	612,859	85	%	$	442,660	82	%
Other Countries		104,789	15			99,379	18
Total	$	717,648	100	%	$	542,039	100	%

International revenue increased compared to the prior year comparable period, and decreased as a percentage of total revenue. The increase is primarily attributable to increased sales in our Americas region, partially offset by decreased sales in our APAC region, which benefitted from large hardware and cartridge orders during the prior year comparable period.

Net Sales

Net sales by product line were as follows (dollars in thousands):


	Six Months Ended June 30,								Dollar		Percent
	2023				2022				Change		Change
TASER segment:
TASER Devices (Professional)	$	152,447	21.2	%	$	133,477	24.6	%	$	18,970	14.2	%
Cartridges		95,225	13.3			87,670	16.2			7,555	8.6
Axon Evidence and Cloud Services		15,695	2.2			6,737	1.2			8,958	133.0
Extended Warranties		15,385	2.1			14,138	2.6			1,247	8.8
Other (1)		9,940	1.4			7,924	1.5			2,016	25.4
Total TASER segment		288,692	40.2			249,946	46.1			38,746	15.5
Software and Sensors segment:
Axon Body Cameras and Accessories		71,578	10.0			72,455	13.3			(877)	(1.2)
Axon Fleet Systems		68,932	9.6			29,701	5.5			39,231	132.1
Axon Evidence and Cloud Services		250,416	34.9			161,850	29.9			88,566	54.7
Extended Warranties		29,251	4.1			21,559	4.0			7,692	35.7
Other (2)		8,779	1.2			6,528	1.2			2,251	34.5
Total Software and Sensors segment		428,956	59.8			292,093	53.9			136,863	46.9
Total net sales	$	717,648	100.0	%	$	542,039	100.0	%	$	175,609	32.4

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

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

Net sales for the TASER segment increased $38.8 million or 15.5% during the six months ended June 30, 2023, primarily due to an increase of $19.0 million in TASER devices and $7.6 million in cartridge revenue. We released our next generation device, TASER 10, in the first quarter of 2023 and have begun to see a shift to the next generation device from our legacy devices. The increase in cartridges revenue is attributable to product mix as we shift from legacy handles to our next generation devices, which have a higher cartridge attachment rate. The increase in revenue from Axon Evidence and cloud services of $9.0 million was driven by an increase in TASER software and VR revenue. Other revenue increased $2.0 million due to higher training revenue.

Net sales for the Software and Sensors segment increased $136.9 million or 46.9% during the six months ended June 30, 2023 as we continued to add users and associated devices to our network. The increase in the aggregate number of users drove the majority of the increase in Axon Evidence revenue of $88.6 million, as well as increases in professional services revenue from Fleet installations. The $39.2 million increase in Axon Fleet systems revenue was primarily driven by higher unit sales as we continue to see strong demand for Fleet 3. An increase in cameras, docks and Fleet systems in the field drove the $7.7 million increase in extended warranties, as most of those devices are sold with extended warranties. Demand for Interview Room drove the $2.3 million increase in other revenue.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 61.3% from 64.4% for the six months ended June 30, 2023 and 2022, respectively. The decrease is primarily due to the introduction of our next generation device, TASER 10, and increased manufacturing overhead as well as nonrecurring inventory reserves incurred in the first quarter of 2023.

As a percentage of net sales, gross margin for the Software and Sensors segment increased to 60.5% from 57.8% for the six months ended June 30, 2023 and 2022, respectively. Within the Software and Sensors segment, hardware gross margin was 45.4% for the six months ended June 30, 2023 compared to 41.7% for the same period in 2022, while the service margin was 71.3% during each of those same periods. Hardware gross margin increased due to a decrease in

manufacturing overhead allocation, an improvement in Fleet 3 gross margins due to efficiencies from better fixed cost absorption, and a favorable non-recurring cost adjustment. Service margin remained flat due to a higher mix of lower margin professional services revenue, offset by savings on cloud hosting costs.

Sales, General and Administrative Expenses

Sales, general and administrative expenses were comprised as follows (dollars in thousands):


	Six Months Ended June 30,						Dollar		Percent
	2023			2022			Change		Change
Total sales, general and administrative expenses	$	236,489		$	185,134		$	51,355	27.7	%
Sales, general, and administrative as a percentage of net sales		33.0	%		34.2	%

Salaries, benefits, and bonus expense increased $31.2 million in comparison to the prior year comparable period. An increase of $22.4 million in salaries, benefits, and bonus expense was attributable to an increase in headcount and higher wages. Additionally, $8.8 million was attributed to payroll taxes related to the vesting of three tranches of our XSPP and payroll taxes for CEO option exercises completed during the six months ended June 30, 2023.

Sales and marketing and travel expenses increased $11.0 million in comparison to the prior year comparable period. The increase was primarily driven by a $7.7 million increase in sales commissions tied to increased revenue. Additionally, expense related to trade shows and seminars increased $2.4 million as we hosted our inaugural public safety training conference TASERCON in January 2023, announcing the launch of TASER 10. Travel expense also increased $1.4 million impacted by higher travel costs per trip.

Stock-based compensation expense increased $8.8 million in comparison to the prior year comparable period, which was primarily attributable to the vesting of three tranches of the XSPP and two tranches of the CEO Performance Award during the six months ended June 30, 2023. Also contributing to increased stock-based compensation expense is increased headcount.

Research and Development Expenses

Research and development expenses were comprised as follows (dollars in thousands):


	Six Months Ended June 30,						Dollar		Percent
	2023			2022			Change		Change
Total research and development expenses	$	142,867		$	105,963		$	36,904	34.8	%
R&D expenses as a percentage of net sales		19.9	%		19.5	%

Within the TASER segment, R&D expense increased $7.2 million in comparison to the prior year comparable period. An increase of $4.2 million in salaries, benefits and bonus expense and $2.4 million related to stock-based compensation expense reflected higher headcount.

R&D expense for the Software and Sensors segment increased $29.7 million, reflecting an increase of $16.4 million in salaries, benefits, and bonus expense due to higher headcount and increased wages. Additionally, there was an increase of $8.1 million in stock-based compensation expense related to the vesting of three tranches of the XSPP during the six months ended June 30, 2023 and to increased headcount. Internal cloud storage costs also increased $2.2 million related to product development. Professional and consulting expenses increased $1.6 million primarily related to the launch of Axon Body 4, which began shipping in the second quarter of 2023.

Interest and Other Income, Net

Interest and other income (loss), net was a loss of $27.1 million for the six months ended June 30, 2023, compared to income of $102.3 million for the same period in 2022. During the first half of 2023, we recorded a net unrealized

impairment loss of $71.9 million for an existing strategic investment and related warrants and interest expense of $3.5 million primarily related to our 2027 Notes, partially offset by an unrealized gain of $25.6 million related to our investment in CLBT and investment income of $21.9 million on our available-for-sale securities. For additional information regarding our 2027 Notes, refer to Note 9 to the condensed consolidated financial statements included in this Quarterly Report on Form 10-Q. For the six months ended June 30, 2022, we recorded an unrealized gain of $130.1 million related to observable price changes for our existing investments and related warrants and the exercise of warrants in one of our strategic investees, which was partially offset in part by a $26.3 million unrealized loss on marketable securities related to our investment in CLBT.

Provision for Income Taxes

The provision for income taxes was a benefit of $27.8 million for the six months ended June 30, 2023, which was an effective tax rate of (93.3%). Our estimated annual effective income tax rate for 2023, before discrete period adjustments, is 16.0%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits and a decrease in valuation allowance offset by the executive compensation limitation under IRC Section 162(m) and an increase in unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $33.9 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs and PSUs that vested during the six months ended June 30, 2023, primarily attributed to the vesting of the final three tranches of XSPP in March and May 2023.

Net Income

We recorded net income of $57.6 million for the six months ended June 30, 2023 compared net income of $105.8 million for the same period in 2022. Net income per basic share was $0.78 for the six months ended June 30, 2023 compared to net income per basic share of $1.49 per basic share for the same period in 2022. Net income per diluted share was $0.77 for the six months ended June 30, 2023 compared to net income per diluted share of $1.46 per diluted share for the same period in 2022.

Non-GAAP Measures

To supplement our financial results presented in accordance with GAAP, we present the non-GAAP financial measures of EBITDA and Adjusted EBITDA. Our management uses these non-GAAP financial measures in evaluating our performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.

	●	EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, taxes, depreciation and amortization.

	●	Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, taxes, depreciation, amortization and non-cash stock-based compensation expense.

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing our operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

	●	these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to our GAAP financial measures;

	●	these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, our GAAP financial measures;

	●	these non-GAAP financial measures should not be considered to be superior to our GAAP financial measures; and

	●	these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q were prepared under a comprehensive set of rules or principles.

EBITDA and Adjusted EBITDA reconciles to net income as follows (in thousands):


	Three Months Ended						Six Months Ended
	June 30,		March 31,		June 30,		June 30,		June 30,
	2023		2023		2022		2023		2022
Net income	$	12,420	$	45,139	$	50,962	$	57,559	$	105,833
Depreciation and amortization		7,480		6,689		6,210		14,169		11,965
Interest expense		1,737		1,724		3		3,461		11
Investment interest (income) loss		(11,400)		(11,390)		584		(22,790)		930
Provision for (benefit from) income taxes		(24,529)		(3,255)		17,475		(27,784)		35,097
EBITDA	$	(14,292)	$	38,907	$	75,234	$	24,615	$	153,836

Non-GAAP adjustments:
Stock-based compensation expense		31,891		34,350		21,162		66,241		46,250
Unrealized loss (gain) on strategic investments and marketable securities, net		61,912		(15,570)		(47,985)		46,342		(103,836)
Transaction costs related to strategic investments and acquisitions		455		843		964		1,298		1,835
Loss on disposal and abandonment of intangible assets, property, equipment and other assets, net		24		156		91		180		237
Costs related to FTC litigation		1		—		291		1		295
Payroll taxes related to XSPP vesting and CEO Award option exercises		2,368		6,392		—		8,760		—
Adjusted EBITDA	$	82,359	$	65,078	$	49,757	$	147,437	$	98,617

Liquidity and Capital Resources

Summary

As of June 30, 2023, we had $474.2 million of cash and cash equivalents, an increase of $120.5 million as compared to December 31, 2022. Cash and cash equivalents and investments totaled $1.08 billion, representing a decrease of $7.0 million from December 31, 2022.

Our most significant source of liquidity continues to be funds generated by operating activities and available cash and cash equivalents and short-term investments. In addition, our $200.0 million revolving credit facility is available for additional working capital needs or investment opportunities. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. Advances under the line of credit bear interest at Term SOFR plus 1.25 to 1.75% per year determined in accordance with a pricing grid based on our net debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio. “SOFR” is defined as a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York or a successor administrator of the secured overnight financing rate.

As of June 30, 2023, we had letters of credit outstanding of $7.4 million, leaving the net amount available for borrowing of $192.6 million. The credit agreement will mature on the earlier of December 15, 2027 or the date that is six months prior to the stated maturity date of the 0.50% convertible senior notes due 2027 unless such Notes have been

redeemed, repurchased, converted or defeased in full. Additionally, the credit agreement has an accordion feature which allows for an increase in the total line of credit up to $300.0 million, subject to each lender’s sole discretion. At June 30, 2023 and December 31, 2022, there were no borrowings under the line.

There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our revolving credit facility.

Our agreement with the bank requires us to comply with a net leverage ratio, defined as consolidated total indebtedness to EBITDA, of no greater than 3.50 to 1.00 based upon a trailing four fiscal quarter period. At June 30, 2023, our net leverage ratio was 0.45 to 1.00. Additionally, we must comply with a consolidated interest coverage ratio, defined as EBITDA to consolidated interest expense, of no less than 3.50 to 1.00 based upon a trailing four fiscal quarter end. We are compliant with the consolidated interest coverage ratio, which is not meaningful for the period ended June 30, 2023.

Based on our strong balance sheet at June 30, 2023 and successful convertible senior notes offering completed during 2022, we believe financing will be available, both through our existing credit line and possible additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions or investments, income and payroll tax payments for net-settled stock awards, and other liquidity requirements through at least the next 12 months. We and our Board of Directors may consider repurchases of our common stock. Further repurchases of our common stock would take place on the open market, would be financed with available cash and are subject to authorization as well as market and business conditions.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):


	Six Months Ended June 30,
	2023		2022
Operating activities	$	(13,667)	$	63,340
Investing activities		81,256		(198,786)
Financing activities		52,254		(2,393)
Effect of exchange rate changes on cash and cash equivalents		806		(3,910)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	120,649	$	(141,749)

Operating activities

Net cash used in operating activities in the first six months of 2023 of $13.7 million reflects net income of $57.6 million, non-cash income statement items totaling $89.9 million, and a decrease of $161.2 million for the net change in operating assets and liabilities. Included in the non-cash items were a decrease of $37.6 million in deferred income taxes, an $8.0 million decrease in bond amortization, a net unrealized loss of $46.3 million related to strategic investments and marketable securities, $66.2 million in stock-based compensation expense, net, and $14.2 million in depreciation and amortization expense. Cash provided by operations was favorably impacted by increased deferred revenue of $69.9 million, which was primarily attributable to increased sales where the customer is invoiced before performance occurs. Offsetting this activity was an increase of accounts and notes receivables and contract assets of $102.2 million, an increase in prepaid expenses and other assets of $49.3 million, an increase of $43.6 million in inventory, and a decrease in accounts payable, accrued and other liabilities of $36.0 million. The increase in accounts and notes receivable and contract assets was due to increased sales and timing of satisfied performance obligations compared to customer payments of accounts receivable. The increase in prepaid expenses and other assets was attributable to an increase in deferred commissions related to increased bookings, as well as higher deferred cost of goods sold related to increased sales of Axon Air and Fleet. Inventory increases were a result of advance purchases to support future sales. The decrease in accounts payable, accrued and other liabilities was driven primarily by lower commissions payable and by the timing of the annual bonus payout.

Net cash provided by operating activities in the first six months of 2022 of $63.3 million reflects net income of $105.8 million, non-cash income statement items totaling $11.6 million, and a decrease of $30.9 million for the net change in operating assets and liabilities. Included in the non-cash items were $46.3 million in stock-based compensation expense, a decrease of $26.1 million in deferred income taxes, net, $12.0 million in depreciation and amortization expense, and a $130.1 million gain on the change in fair value of strategic investments, offset by an unrealized loss of $26.3 million on marketable securities. Cash provided by operations was favorably impacted by increased deferred revenue of $74.6 million, which was primarily attributable to increased sales. Additionally, accounts payable, accrued and other liabilities increased $24.6 million due to an increase in accounts payable due to the timing of invoice payments. Offsetting this activity was an increase of accounts and notes receivables and contract assets of $80.2 million, an increase of $47.1 million in inventory, and an increase in prepaid expenses and other assets of $2.7 million. The increase in accounts and notes receivable and contract assets is due to increased sales and timing of satisfied performance obligations compared to customer payments of accounts receivable. The increase of inventory was primarily driven by the proactive buildup of raw materials required to meet future demand and an increased revenue forecast. The increase in prepaid expenses and other assets was driven by an increase of deferred commissions related to increased bookings.

Investing activities

Cash provided by investing activities during the first six months of 2023 was $81.3 million. Cash inflows from investing activities included $135.0 million of proceeds from calls, maturities and sales of available-for-sale investments, net of purchases. The outflows from investing activities included $31.9 million for a business acquisition and strategic investments and $21.6 million for purchases of property and equipment, net of proceeds.

We used $198.8 million in investing activities during the first six months of 2022. Cash outflows from investing activities included $61.5 million for new strategic minority investments, $6.6 million for the exercise price of warrants related to our strategic investments, and $2.1 million for a business acquisition. The outflows also included $98.8 million for available-for-sale investments, net of proceeds. Property and equipment purchases totaled $29.8 million, net of proceeds.

Financing activities

Net cash provided by financing activities was $52.3 million during the first six months of 2023 and was primarily attributable to net proceeds of $94.8 million received from our ATM offering and $54.5 million from the exercise of stock options where shares were sold to cover the exercise price. Partially offsetting the cash inflows was a payment of $97.1 million for income and payroll taxes on behalf of employees who net-settled stock awards during the period, primarily related to the vesting of three tranches of the XSPP.

Net cash used in financing activities was $2.4 million during the first six months of 2022 and was primarily attributable to the payment of income and payroll taxes on behalf of employees who net-settled stock awards during the period.

Off-Balance Sheet Arrangements

The discussion under the heading off-balance sheet arrangements in Note 13 of the notes to our condensed consolidated financial statements within this Quarterly Report on Form 10-Q is incorporated by reference herein.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operation is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates.

Our significant accounting policies are discussed in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no significant changes to these policies for the six months ended June 30, 2023.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We typically invest in a limited number of financial instruments, consisting principally of investments in money market accounts, certificates of deposit, corporate and municipal bonds with a typical long-term debt rating of “A” or better by any nationally recognized statistical rating organization, denominated in U.S. dollars. All of our cash equivalents and investments are treated as “available-for-sale”. We report available-for-sale investments at fair value as of each balance sheet date and record any unrealized gains or losses within accumulated other comprehensive income (loss) as a component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other income (expense), net within the condensed consolidated statements of operations. When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the consolidated statements of operations. Credit losses are recognized through the use of an allowance for credit losses account in the condensed consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If we have the intent to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the condensed consolidated statements of operations. Based on investment positions as of June 30, 2023, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $2.7 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.

Additionally, we have access to a $200.0 million line of credit borrowing facility which bears interest at SOFR plus 1.25 to 1.75% per year determined in accordance with a pricing grid based on our net leverage ratio and consolidated interest coverage ratio. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled $7.4 million at June 30, 2023. At June 30, 2023, there was no amount outstanding under the line of credit, and the available borrowing under the line of credit was $192.6 million. We have not borrowed any funds under the line of credit since its inception; however; should we need to do so in the future, such borrowings could be subject to adverse or favorable changes in the underlying interest rate.

Exchange Rate Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, in each case compared to the U.S. dollar, related to transactions by our foreign subsidiaries. The majority of our sales to international customers are transacted in foreign currencies and therefore are subject to exchange rate fluctuations on these transactions. 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. Additionally, intercompany sales to our non-U.S. dollar functional currency international subsidiaries are transacted in U.S. dollars which could increase our foreign exchange rate risk caused by foreign currency transaction gains and losses.

To date, we have not engaged in any currency hedging activities. However, we may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to the prohibitive economic cost of hedging particular exposures. As such, fluctuations in currency exchange rates could harm our business in the future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer are responsible for the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. 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 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. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that because a material weakness exists in our internal control over financial reporting, as further described below, our disclosure controls and procedures were not effective as of June 30, 2023.

Specifically, during the year ended December 31, 2022, we identified a material weakness in our internal controls stemming from control deficiencies with respect to the risks of understatement of software and services revenue and overstatement of deferred revenue. This material weakness in internal control over financial reporting resulted from a failure to effectively manage the migration of triggering events for certain software and services performance obligations during the quote-to-cash phase of the implementation of our Enterprise Resource Planning (“ERP”) and related systems in 2021. Additionally, there were limited instances of invoicing errors resulting from ineffective change management of the quote-to-cash systems implementation. The manual business processes for tracking open software and services performance obligations and for monitoring billing events were not sufficiently robust to prevent the errors. The related business processes and account reconciliation detective controls were not designed to operate with a sufficient degree of precision to identify these errors on a timely basis. These deficiencies resulted in immaterial understatements of revenue that accumulated over time and were corrected in the fourth quarter of 2022 as disclosed in Note 1 of the consolidated financial statements in Part II, Item 8 of the Annual Report on Form 10-K filed February 28, 2023.

To remediate the material weakness described above, we are designing and implementing new business processes and automation of integrations between our systems as well as enhancing our reconciliation controls and monitoring procedures to properly ensure transactions are identified and recorded timely and accurately.

We are in the process of documenting, assessing and testing the necessary changes in our internal control over financial reporting as part of our efforts to comply with Section 404 of the Sarbanes-Oxley Act.

The material weaknesses will not be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. As remediation has not yet been completed and tested, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were not effective as of June 30, 2023 at a level that provides reasonable assurance as of the last day of the period covered by this report.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The discussion under the headings Product Litigation and U.S. Federal Trade Commission Litigation in Note 13 of the notes to our condensed consolidated financial statements included within this Quarterly Report on Form 10-Q is incorporated by reference herein.

Item 1A. Risk Factors

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 risk factors we face, which are set forth more fully in “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 conditions will be materially adversely affected.

	●	If our TASER CEDs do not continue to be widely accepted, our growth prospects will be diminished.

	●	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.

	●	We face risks associated with rapid technological change and new competing products.

	●	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.

	●	Acquisitions of, or investments in, other companies, products, or technologies could disrupt our business, dilute stockholder value, and adversely affect our operating results.

	●	Our failure to retain executive officers, including Patrick W. Smith, could adversely impact our business.

Operational Risks

	●	Unavailability of materials or higher costs could adversely affect our financial results.

	●	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.

	●	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.

	●	Delays in product development schedules could adversely affect our revenues and cash flows.

	●	We expend significant resources in anticipation of a sale and may receive no revenue in return.

	●	Changes in civil forfeiture laws may affect our customers’ ability to purchase our products.

	●	Catastrophic events could materially adversely affect our business, results of operations and/or financial condition.

	●	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, customers may curtail or stop using our service and we may incur significant legal and financial exposure and liabilities.

	●	Defects or disruptions in our services could impact demand for our services and subject us to substantial liability.

	●	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.

	●	Our international operations expose us to additional risks that could adversely affect our business.

	●	We depend on our ability to attract and retain our key management, sales and technical personnel.

	●	If we fail to comply with federal, state or local regulations applicable to TASER 10 we may be subject to governmental actions or litigation which could materially harm our business.

	●	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.

Financial Risks

	●	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 assets.

	●	We may experience a decline in gross margins due to a shift in product sales to software and sensors products and services which may continue to carry a lower gross margin than that of TASER devices.

	●	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.

	●	Most of our end-user customers are subject to budgetary and political constraints that may delay or prevent sales.

	●	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.

	●	The open bidding process creates uncertainty in predicting future contract awards.

	●	We maintain most of our cash balances, some of which are not insured, at two depository institutions.

	●	Stock transactions may have a material, unpredictable impact on our results of operations and may result in dilution to existing shareholders.

	●	Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local currencies.

	●	Unanticipated changes in our effective tax rate and additional tax liabilities may impact our operating results.

	●	Our revenues and operating results may fluctuate unexpectedly, which may cause our stock price to decline.

	●	Our profitability could suffer from declines in fair value or impairment of our investments, including our strategic investments, and could fluctuate if the fair value of our investments increases.

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.

	●	Other litigation, government inquiries and regulatory actions may subject us to significant costs and judgments and divert management attention from our business.

	●	We have been and may be subject to intellectual property infringement and other claims, which could incur substantial litigation costs, result in significant damage awards, inhibit our use of certain technologies, and divert management attention from our business.

	●	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.

	●	We may be limited in our ability to enforce patent rights internationally to only those jurisdictions in which our patent applications have been granted.

| | ● | A variety of new and existing laws and/or interpretations could materia

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Item 5. Other Information

The table below describes the contracts, instructions or written plans for the purchase or sale of securities adopted by our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act) during the three months ended June 30, 2023, that are intended to satisfy the affirmative defense conditions of Rule 10b5-1(c).

Certain of our officers or directors have made, and may from time to time make, elections to have shares withheld or sold to cover withholding taxes or pay the exercise price of options, which may be designed to satisfy the affirmative defense conditions of Rule 10b5-1 under the Exchange Act or may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).

No other Rule 10b5-1 trading arrangements or “non-Rule 10b5-1 trading arrangements” (as defined by S-K Item 408(c)) were entered into, modified, or terminated by our directors or officers during such period.


Name and Title		Adoption Date		Expiration Date	Aggregate Number of Securities to be Sold
Julie A. Cullivan, Director		June 10, 2023		June 7, 2024	1,986

Item 6. Exhibits



3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the
		Quarterly Report on Form 10-Q, filed August 9, 2022)
3.2		Bylaws, as amended and restated (incorporated by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q, filed August 9, 2022)
31.1*		Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*		Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**		Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, formatted in Inline XBRL

+Management contract or compensatory plan or arrangement

Filed herewith

** Furnished herewith

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AXON ENTERPRISE, INC.

Date:	August 8, 2023
		By:	/s/ PATRICK W. SMITH
			Chief Executive Officer
			(Principal Executive Officer)

Date:	August 8, 2023	By:	/s/ BRITTANY BAGLEY
			Chief Operating Officer and Chief Financial Officer
			(Principal Financial and
			Accounting Officer)