Item 1. Financial Statements

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Item 1. Financial Statements

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


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

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

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

(unaudited)


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

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

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

(unaudited)


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


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

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

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)


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

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

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

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

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

Note 1 - Organization and Summary of Significant Accounting Policies

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

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

Basis of Presentation and Use of Estimates

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

revenue recognition,
stock-based compensation,
business combinations,
product warranty reserves,
inventory valuation and related reserves,
valuation of goodwill, intangible and long-lived assets,
valuation of strategic investments,
recognition, measurement and valuation of current and deferred income taxes, and
recognition and measurement of contingencies and accrued litigation expense.

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

Revision of Previously Issued Financial Statements

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

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

Geographic Information and Major Customers / Suppliers

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

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

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

Income per Common Share

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


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

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

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


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

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

Warranty Reserves

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

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

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


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

Fair Value Measurements and Financial Instruments

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

Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.
Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices from markets that are not active for assets or liabilities that are identical or similar to the assets or liabilities being measured. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.
Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs that market participants would use in pricing an asset or liability.

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

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

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

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

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

Restricted Cash

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

Valuation of Goodwill, Intangibles and Long-lived Assets

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

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

Business Combinations

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

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

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

Stock-Based Compensation

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

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

Recently Issued Accounting Guidance and Disclosure Rules

Standards Not Yet Adopted

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

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

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

Reclassification of Prior Year Presentation

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

Note 2 - Revenues

Nature of Products and Services

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


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


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

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

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

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


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

Contract Balances

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


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

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


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


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

Remaining Performance Obligations

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

Note 3 - Cash, Cash Equivalents and Investments

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


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

Level 1:
Money market funds	438,408		—		—		438,408		438,408		—		—
U.S. government	140,758		23		(5)		140,776		—		—		140,776
Marketable securities	90,000		61,560		—		151,560		—		151,560		—
Treasury bills	117,880		19		(2)		117,897		48,513		—		69,384
Agency bonds	104,780		—		(13)		104,767		104,767		—		—
Subtotal	891,826		61,602		(20)		953,408		591,688		151,560		210,160
Level 2:
Term deposits	119,610		—		—		119,610		18,200		—		101,410
Subtotal	119,610		—		—		119,610		18,200		—		101,410
Total	$	1,096,692	$	61,602	$	(20)	$	1,158,274	$	695,144	$	151,560	$	311,570

As of September 30, 2024, we had $159.7 million of available-for-sale investments with unrealized losses, of which none have been in a continuous unrealized loss position for 12 months or longer. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.

Acquired common stock is recorded as marketable securities in the condensed consolidated balance sheets and its fair value is adjusted every reporting period. Changes in fair value are recorded in the condensed consolidated statement of operations as unrealized gain (or loss) on marketable securities, which is included in other income (loss), net. During the three and nine months ended September 30, 2024, we recorded an unrealized gain on marketable securities of $44.0 million and $73.6 million, respectively. We recorded an unrealized gain on marketable securities of $4.1 million and $29.6 million, respectively, for the same periods in the prior year.


	As of December 31, 2023
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Marketable Securities		Short-Term Investments
Cash	$	406,743	$	—	$	—	$	406,743	$	406,743	$	—	$	—

Level 1:
Money market funds	1,470		—		—		1,470		1,470		—		—
Agency bonds	222,057		2		(174)		221,885		101,635		—		120,250
U.S. government	238,747		120		(237)		238,630		—		—		238,630
Treasury bills	148,063		28		—		148,091		88,697		—		59,394
Marketable securities	90,000		—		(12,060)		77,940		—		77,940		—
Subtotal	700,337		150		(12,471)		688,016		191,802		77,940		418,274
Level 2:
Term deposits	128,205		—		—		128,205		—		—		128,205
Corporate bonds	80,646		8		(165)		80,489		—		—		80,489
Treasury inflation-protected securities	2,635		—		(5)		2,630		—		—		2,630
Commercial paper	14,456		—		—		14,456		—		—		14,456
Subtotal	225,942		8		(170)		225,780		—		—		225,780
Total	$	1,333,022	$	158	$	(12,641)	$	1,320,539	$	598,545	$	77,940	$	644,054

As of December 31, 2023, we had $420.4 million of available-for-sale investments with unrealized losses. Of this amount, $138.8 million had been in a continuous unrealized loss position for 12 months or longer, with total gross unrealized losses of $0.3 million. We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.

Note 4 - Expected Credit Losses

We are exposed to credit losses primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable, contract assets, notes receivable and off-balance sheet exposures is developed using historical collection experience, published or estimated credit default rates for entities that represent our customer base, current and future economic and market conditions, and a review of the current status of customers’ trade accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution, payment confirmation, consideration of customers’ financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible. We review receivables for U.S. and international customers separately to better reflect different published credit default rates and economic and market conditions.

The following table provides a roll-forward of the allowance for expected credit losses for finance receivables and off-balance sheet exposures. The expected credit losses for receivables are deducted from the amortized cost basis of accounts receivable, contract assets and notes receivable to present the net amount expected to be collected (in thousands):


	Nine Months Ended September 30, 2024
	United States		Other countries		Total
Balance, beginning of period	$	3,369	$	597	$	3,966
Provision for expected credit losses	2,606		216		2,822
Amounts written off charged against the allowance	(700)		(84)		(784)
Other, including foreign currency translation	—		14		14
Balance, end of period	$	5,275	$	743	$	6,018

As of September 30, 2024 and December 31, 2023, the allowance for expected credit losses for each type of customer receivable and off-balance sheet exposures were as follows (in thousands):


	September 30, 2024		December 31, 2023
Accounts receivable and notes receivable, current	$	3,292	$	2,392
Contract assets, net	2,678		1,516
Long-term notes receivable, net of current portion	48		44
Other current liabilities	—		14
Total allowance for expected credit losses on customer receivables	$	6,018	$	3,966

Note 5 - Inventory

Inventories are stated at the lower of cost or realizable values. Cost of inventories is determined on the first-in, first-out basis. Additional provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. These provisions are based on management’s best estimate after considering historical demand, projected future demand, inventory purchase commitments, industry and market trends and conditions among other factors. We evaluate inventory costs for abnormal costs due to excess production capacity and treat such costs as period costs.

Inventory consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Raw materials	$	100,526	$	104,112
Finished goods	171,769		165,743
Total inventory	$	272,295	$	269,855

Note 6 – Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2024 were as follows (in thousands):


	TASER		Software and Sensors		Total
Balance, beginning of period	$	2,984	$	54,961	$	57,945
Goodwill acquired	—		250,653		250,653
Purchase accounting adjustments	—		(364)		(364)
Foreign currency translation adjustments	(14)		252		238
Balance, end of period	$	2,970	$	305,502	$	308,472

Intangible assets (other than goodwill) consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):


		September 30, 2024						December 31, 2023
	Useful Life	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Developed technology	3 ‑ 8 years	$	82,531	$	(21,478)	$	61,053	$	29,402	$	(16,562)	$	12,840
Customer relationships	4 ‑ 10 years	18,649		(3,730)		14,919		5,530		(3,620)		1,910
Trademarks	3 ‑ 15 years	3,214		(1,312)		1,902		1,333		(817)		516
Issued patents	5 ‑ 25 years	3,019		(1,553)		1,466		3,222		(1,707)		1,515
Domain names	3 ‑ 10 years	3,043		(2,357)		686		3,043		(2,128)		915
Non-compete agreements	3 ‑ 4 years	—		—		—		448		(448)		—
Total amortizable intangible assets		110,456		(30,430)		80,026		42,978		(25,282)		17,696
Non-amortizable (indefinite-lived) intangible assets:
Trademarks		1,068		—		1,068		1,068		—		1,068
Patents and trademarks pending		654		—		654		775		—		775
Total non-amortizable intangible assets		1,722		—		1,722		1,843		—		1,843
Total intangible assets		$	112,178	$	(30,430)	$	81,748	$	44,821	$	(25,282)	$	19,539

Amortization expense of intangible assets for the three and nine months ended September 30, 2024 was $3.8 million and $10.7 million, respectively. Amortization expense of intangible assets for the three and nine months ended September 30, 2023 was $1.3 million and $3.2 million, respectively. Estimated amortization for intangible assets with definite lives for the remaining three months of 2024, the next five years ended December 31, and thereafter, is as follows (in thousands):


2024 remaining	$	3,840
2025	12,536
2026	12,341
2027	11,400
2028	11,289
2029	11,105
Thereafter	17,515
Total	$	80,026

Note 7 - Strategic Investments

Strategic investments include equity and debt investments in a number of non-public technology driven companies. We account for strategic equity investments under the ASC 321 measurement alternative for equity securities without readily determinable fair values, as there are no quoted market prices for the investments. The investments are measured at cost less impairment, adjusted for observable price changes and are assessed for impairment whenever events or changes in circumstances indicate that the fair value may be less than its carrying value.

For the debt security strategic investment, we have elected to account for this investment and the associated embedded derivatives utilizing the fair value option. Unrealized changes in fair value for the entire hybrid instrument are recorded within

other income (loss), net in the condensed consolidated statement of operations. The debt security is recorded as a strategic investment within the long-term assets section of the condensed consolidated balance sheet.

In conjunction with certain of our strategic investments, we have the ability to commit additional capital over time through warrants and call options; for some investments, the exercisability and exercise prices are conditional on the achievement of certain performance metrics.

The following tables provide a roll-forward of the balance of strategic investments (in thousands):


	Three Months Ended September 30, 2024										Three Months Ended September 30, 2023
	Equity investments		Warrants		Call options		Debt investments		Total		Equity investments		Warrants		Call options		Total
Balance, beginning of period	$	340,108	$	2,356	$	13,033	$	7,637	$	363,134	$	215,945	$	459	$	17,233	$	233,637
Investments	24,322		—		—		—		24,322		4,099		1,176		—		5,275
Fair value adjustments:
Unrealized gains	—		—		—		449		449		—		—		—		—
Unrealized losses and impairments	—		—		—		—		—		—		(113)		—		(113)
Exercises	—		—		—		—		—		1,500		—		—		1,500
Balance, end of period	$	364,430	$	2,356	$	13,033	$	8,086	$	387,905	$	221,544	$	1,522	$	17,233	$	240,299


	Nine Months Ended September 30, 2024										Nine Months Ended September 30, 2023
	Equity investments		Warrants		Call options		Debt investments		Total		Equity investments		Warrants		Call options		Total
Balance, beginning of period	$	212,996	$	1,501	$	17,233	$	—	$	231,730	$	277,676	$	1,654	$	17,233	$	296,563
Investments	93,450		—		—		7,500		100,950		15,016		1,176		—		16,192
Fair value adjustments:
Realized gains	45,162		—		21		—		45,183		—		—		—		—
Realized losses	—		—		(2,870)		—		(2,870)		—		—		—		—
Unrealized gains	74,784		855		—		586		76,225		—		—		—		—
Unrealized losses and impairments	—		—		—		—		—		(72,648)		(1,308)		—		(73,956)
Exercises	(61,962)		—		(1,351)		—		(63,313)		1,500		—		—		1,500
Balance, end of period	$	364,430	$	2,356	$	13,033	$	8,086	$	387,905	$	221,544	$	1,522	$	17,233	$	240,299

In January 2024, we acquired the remaining outstanding stock of a strategic investment. Our existing interest had a fair value at acquisition date of $63.3 million, which resulted in a net non-taxable gain of $42.3 million related to the existing strategic equity investment and call option. For additional information on the business combination, refer to Note 17.

Additionally, as a result of an observable price change for a separate strategic investee, we recognized an unrealized gain of $75.6 million for the strategic investment and related warrants in other income (loss), net on our condensed consolidated statement of operations during the nine months ended September 30, 2024.

For the debt security strategic investment, we recognized an unrealized gain of $0.6 million for the entire hybrid instrument in other income (loss), net on our condensed consolidated statement of operations during the nine months ended September 30, 2024.


	Inception to date
	Equity investments		Warrants		Call options		Debt investments		Total
Investments	$	217,948	$	4,222	$	17,233	$	7,500	$	246,903
Fair value adjustments:
Realized gains	57,474		—		21		—		57,495
Realized losses	—		—		(2,870)		—		(2,870)
Unrealized gains	149,601		29,928		—		586		180,115
Unrealized losses and impairments	(82,304)		(1,705)		—		—		(84,009)
Exercises	36,257		(30,089)		(1,351)		—		4,817
Sales	(14,546)		—		—		—		(14,546)
Balance, end of period	$	364,430	$	2,356	$	13,033	$	8,086	$	387,905

Note 8 - Variable Interest Entities

We evaluate our investments and other significant relationships to determine whether any investee is a variable interest entity (“VIE”). If we conclude that an investee is a VIE, we evaluate our power to direct the activities of the investee, our obligation to absorb the expected losses of the investee and our right to receive the expected residual returns of the investee to determine whether we are the primary beneficiary of the investee. If we are the primary beneficiary of a VIE, we will consolidate such entity and reflect the non-controlling interest of other beneficiaries of that entity.

We determine whether we are the primary beneficiary of a VIE by performing an analysis that principally considers:

The VIE’s purpose, design, and risks the VIE was designed to create and pass through to its variable interest holders;
The VIE’s capital structure;
The terms between the VIE and its variable interest holders and other parties involved with the VIE; and
Related party affiliations.

As of September 30, 2024 and December 31, 2023, the unconsolidated non-public VIEs in which we hold variable interests were as follows (in thousands):


			September 30, 2024						December 31, 2023
Carrying value of variable interest - assets (1)			$	28,073					$	4,986

(1)Balance reflects the maximum exposure to loss, which is limited to the carrying value of the interest.

The primary purpose of our U.S-based, unconsolidated VIE investments is to create strategic partnerships with market-leading providers of law enforcement technology solutions. We present all variable interests in unconsolidated VIEs as strategic investments within the long-term assets section of the condensed consolidated balance sheet.

We have provided financial support to the unconsolidated VIEs in exchange for investments in debt and preferred equity securities as well as warrants and call options that give us the ability to commit additional capital over time. Financial support provided to the unconsolidated VIEs is used to continue to finance their operations.

Note 9 - Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2024 and December 31, 2023 (in thousands):


	September 30, 2024		December 31, 2023
Accrued salaries, commissions, benefits and bonus	$	103,566	$	125,636
Accrued income and other taxes	27,911		5,784
Accrued inventory in transit	11,428		12,197
Accrued professional, consulting and lobbying fees	10,870		7,377
Accrued warranty expense	7,227		7,374
Other accrued expenses	48,689		35,182
Accrued liabilities	$	209,691	$	193,550

Note 10 – Convertible Senior Notes

2027 Notes

In December 2022, we issued $690.0 million aggregate principal amount of our 2027 Notes in a private offering, which aggregate principal amount included the exercise in full of the initial purchasers’ option to purchase up to an additional $90.0 million principal amount of the Notes. The Notes mature on December 15, 2027 and bear interest at a fixed rate of 0.50% per annum, payable semiannually in arrears on June 15 and December 15 of each year, beginning on June 15, 2023. The effective interest rate for the Notes was 0.99% and included interest payable and amortization of debt issuance cost. On or after December 22, 2025, we may redeem for cash all or any portion of the notes in accordance with the optional redemption terms of the convertible debt agreement.

If we undergo a fundamental change (as defined in the indenture governing the Notes), holders may require us to repurchase for cash all or any portion of their Notes at a fundamental change repurchase price equal to 100% of the principal amount of the Notes to be repurchased, plus accrued and unpaid interest, if any, up to but excluding the fundamental change repurchase date. In addition, following certain corporate events or if we issue a notice of redemption, it will increase the conversion rate for holders who elect to convert their Notes in connection with such corporate event or during the relevant redemption period.

The following table summarizes the carrying value of the Notes (in thousands):


	September 30, 2024		December 31, 2023
Principal	$	690,000	$	690,000
Unamortized debt issuance costs	(10,517)		(12,887)
Convertible notes carrying amount, net	$	679,483	$	677,113

We consider the fair value of the Notes to be a Level 2 measurement. The estimated fair value of the Notes at September 30, 2024 and December 31, 2023 is based on the closing trading price per $1,000 of the Notes as of the last day of trading for each period as follows (in millions):


			September 30, 2024						December 31, 2023
2027 Notes			$	1,239.8					$	873.3

Interest expense related to the Notes was as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Contractual interest expense	$	862	$	863	$	2,588	$	2,588
Amortization of debt issuance costs	803		797		2,368		2,328
Total interest expense	$	1,665	$	1,660	$	4,956	$	4,916

Note Hedge

To reduce the impact of potential economic dilution upon conversion of the Notes, we entered into a convertible note hedge transaction (the “Note Hedge” or “2027 Note Hedge”) with certain investment banks, with respect to our common stock, concurrently with the issuance of the 2027 Notes.


			Purchase Price						Shares Purchased
2027 Note Hedge			$	194,994					3,016,680

The Note Hedge covers shares of our common stock at a strike price per share that corresponds to the initial conversion price of the respective Notes, subject to adjustment, and is exercisable upon conversion of the Notes. If exercised, we may elect to receive cash, shares of our common stock, or a combination of cash and shares. We have accounted for the aggregate amount of purchase price for the Note Hedge as a reduction to additional paid-in capital. The Note Hedge will expire upon the maturity of the Notes. The Note Hedge is intended to reduce the potential economic dilution upon conversion of the Notes in the event that the market value per share of our common stock at the time of exercise is greater than the conversion price of the Notes. The Note Hedge is a separate transaction and is not part of the terms of the Notes. Holders of the Notes do not have any rights with respect to the Note Hedge. The Note Hedge does not impact earnings per share, as it was entered into to offset any dilution from the Notes. As of September 30, 2024, 3,016,680 shares remain subject to the Note Hedge.

Note Warrants


			Proceeds						Shares						Strike Price						First Expiration
2027 Warrants			$	124,269					3,016,680						$	338.86					March 15, 2028

Separately, we entered into Warrant transactions with certain investment banks, whereby we sold Warrants to acquire, subject to adjustment, the number of shares of our common stock shown in the table above. If the average market value per share of our common stock on each expiration date exceeds the strike price of the Warrants expiring on that day, such Warrants would have a dilutive effect on our earnings per share to the extent we report net income. According to the terms of the Warrants, the Warrants will be automatically exercised over a 60-trading day period beginning on the first expiration date as set forth above.

Note 11 - Income Taxes

We file income tax returns for federal purposes and in most states, as well as in multiple foreign jurisdictions. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three to four years, but can be up to ten years in some jurisdictions following the tax year to which these filings relate.

Deferred Tax Assets

Net deferred income tax assets at September 30, 2024, primarily include R&D capitalization net of amortization, deferred revenue, convertible debt net of amortization, accruals and reserves, and stock-based compensation expense, partially offset by accelerated depreciation expense, amortization of intangibles, unrealized gains on certain investments, and valuation allowance reserves. Our total net deferred tax assets at September 30, 2024 were $244.3 million.

In preparing our condensed consolidated financial statements, management assesses the likelihood that its deferred tax assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, management considers all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction-by-jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

As of September 30, 2024, management continues to believe the positive evidence from projected future earnings outweighs the negative evidence and a valuation allowance is only needed on specific deferred tax assets. We have concluded that a valuation allowance is necessary against unrealized investment losses as well as transaction costs incurred in connection with certain investments. Additionally, we have Arizona R&D tax credits expiring unutilized each year; therefore, management has concluded that it is more likely than not that our Arizona R&D deferred tax asset will not be realized, and a valuation allowance has been recorded against this net asset.

In Australia, we have determined that sufficient deferred tax liabilities will reverse in order to realize all assets except one long-lived intangible where there is not an expectation that the asset may be realized. Therefore, we continue to recognize a partial valuation allowance for Australia.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state income tax purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $27.4 million as of September 30, 2024. Should the unrecognized benefit of $27.4 million be recognized, our effective tax rate would be favorably impacted. Approximately $6.8 million of the unrecognized tax benefit, net of federal benefit, associated with R&D credits has been netted against the R&D deferred tax asset.

Effective Tax Rate

Our overall effective tax rate for the nine months ended September 30, 2024, after discrete period adjustments, was 18.6%. Before discrete adjustments, the estimated annual effective tax rate was 23.3%, which differs from the federal statutory rate due to the impact of state taxes net of federal benefit and executive compensation limitation under IRC Section 162(m) on projected pre-tax income for the year, partially offset by R&D tax credits and a net gain related to an investment transaction not recognized for tax. The effective tax rate was favorably impacted by a net $13.0 million discrete tax benefit associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested, in addition to non-qualified stock options that were exercised during the nine months ended September 30, 2024.

Note 12 - Stockholders’ Equity

2024 Employee XSP and 2024 CEO Performance Award

On May 10, 2024, our shareholders approved the 2024 Employee XSP. The 2024 Employee XSP includes an approved pool of 4.5 million shares of common stock to be reserved for grants of XSU awards to employees under the 2024 Employee XSP. A total of approximately 3.8 million 2024 XSUs were granted in the nine months ended September 30, 2024. The 2024 XSUs are grants of performance-based RSUs that vest in seven substantially equal tranches. The tranches will vest upon certification by the Compensation Committee of the Board of Directors upon achievement of three independent vesting conditions, described in the following table:


	Operational Goals(1) (in millions)						Stock Price Goal				Minimum Service Requirement
Tranche	Revenue			Adj. EBITDA						Employee XSP		CEO Award		Goal Expiration
1	$	1,834	or	$	393	and	$	247.40	and		June 2025		December 2028		December 31, 2026
2	2,293		or	508		and	309.25		and		December 2025		December 2028		December 31, 2027
3	2,866		or	655		and	386.56		and		June 2026		December 2029		December 31, 2028
4	3,583		or	845		and	483.20		and		December 2026		December 2029		December 31, 2029
5	4,479		or	1,088		and	604.00		and		June 2027		December 2030		December 31, 2030
6	5,599		or	1,400		and	755.00		and		December 2027		December 2030		December 31, 2031
7	6,999		or	1,750		and	943.75		and		June 2028		December 2030		December 31, 2032

(1) Operational goals are measured, as of any date, for the previous four consecutive fiscal quarters, beginning with the Company's first full fiscal quarter ending after the fiscal quarter in which the grant date occurred

Additionally, shareholders approved the 2024 CEO Performance Award to grant 679,102 shares of the 2024 XSUs to our CEO, Patrick W. Smith. The stock price goals and operational goals under the 2024 CEO Performance Award are identical to those under the 2024 Employee XSP, but Mr. Smith is subject to a longer minimum required service period.

Stock-based compensation expense associated with the 2024 XSU awards is recognized over the requisite service period, which is considered the longest explicit, implicit or derived service period for each respective tranche. We utilized Monte Carlo simulations to evaluate a range of possible future stock price goals over the term of the awards at each of the respective grant dates. The median of all iterations of the simulation was used as the basis for the derived service period for each tranche.

We measured the grant date fair value of each tranche using a Monte Carlo simulation with the following assumptions: risk-free interest rate of 4.3% - 4.5%, expected volatility of 41.4% – 41.5%, expected term of 8.6 years, and dividend yield of 0.0%. We utilized a blended volatility assumption, equally weighting both historical volatility and implied volatility, resulting in a weighted-average expected volatility of 41.4%. An illiquidity discount is considered in our estimate of the fair value of shares during post-vesting holding periods. The mandatory post-vesting holding periods for 2024 XSU awards will lapse on the earlier of (i) December 31, 2030, or (ii) the date that a subsequent tranche vests and settles. Therefore, the illiquidity discount is dependent upon projected tranche vesting dates, determined via the Monte Carlo simulation. This simulation is based on a subjective assessment of our forward-looking financial projections, taking into consideration statistical analysis.

Even though no tranche with respect to either the 2024 Employee XSP or the 2024 CEO Performance Award vests unless the stock price goal, operational goal and corresponding minimum service condition are achieved, stock-based compensation expense is recognized when an operational goal is considered probable of attainment regardless of the achievement of the stock price and minimum service conditions. As of September 30, 2024, we consider some of the tranches probable and will recognize the expense ratably over their respective expected vesting periods. This may result in volatility and higher upfront expense recognition and is subject to change based on periodic probability assessments.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2024 (number of units and aggregate intrinsic value in thousands):


	Number of Units	Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,615	$	193.09
Granted	595	269.18
Released	(488)	185.33
Forfeited	(128)	202.01
Units outstanding, end of period	1,594	$	223.16	$	636,869

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $399.60 per share, multiplied by the number of RSUs outstanding. As of September 30, 2024, there was $252.7 million in unrecognized compensation costs related to RSUs under our stock plans for awards that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 2.2 years. RSUs are settled when vesting requirements are met.

On January 2, 2024, we granted an aggregate of 0.4 million RSUs to employees whose compensation was under a specified threshold. The RSUs generally vest in five annual installments from March 2024 through March 2028. For the nine months ended September 30, 2024, there was $38.3 million of stock compensation expense related to these RSUs that was primarily recorded within cost of product and service sales.

Performance Stock Units

The following table summarizes PSU activity for the nine months ended September 30, 2024 (number of units and aggregate intrinsic value in thousands):


	Number of Units	Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	394	$	201.61
Granted	4,517	240.07
Released	(11)	149.49
Forfeited	(345)	232.01
Units outstanding, end of period	4,555	$	237.57	$	1,820,338

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $399.60 per share, multiplied by the number of PSUs outstanding. As of September 30, 2024, there was $585.0 million in unrecognized compensation expense related to PSUs under our stock plans for awards that are expected to vest. Of the balance, there was $579.5 million of total unrecognized stock-based compensation expense related to XSP for performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 3.7 years.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2024 (number of options and aggregate intrinsic value in thousands):


	Number of Options	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	531	$	28.58
Granted	—	—
Exercised	(350)	28.58
Expired / terminated	—	—
Options outstanding and exercisable, end of period	181	$	28.58	3.41	$	67,085

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock options and the closing stock price on the last trading day of the period ended September 30, 2024, which was $399.60 per share.

Of the total stock options exercised during the nine months ended September 30, 2024, 0.2 million shares were immediately sold to cover the exercise price and the option holder’s tax obligation for the applicable income and other employment taxes.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023 (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2024		2023		2024		2023
Cost of product sales and service sales	$	10,123	$	1,687	$	48,235	$	4,685
Sales, general and administrative expenses	55,248		12,886		117,036		43,232
Research and development expenses	36,409		15,414		86,445		48,311
Total stock-based compensation expense	$	101,780	$	29,987	$	251,716	$	96,228

Stock Incentive Plan

In May 2024, our shareholders approved the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan (the “Amended 2022 Plan”) authorizing an additional 2.2 million shares, plus remaining available shares under prior plans, for issuance under the Amended 2022 Plan. Combined with the shares of our common stock available under our legacy stock incentive plans, there are 3.7 million shares of our common stock available for grant under the Amended 2022 Plan as of September 30, 2024.

At-The-Market Equity Offering

We participate in an “at-the-market” equity offering program (the “ATM”), pursuant to which we are authorized to sell up to a total of approximately 2.0 million shares of our common stock. As of September 30, 2024, there were approximately 2.0 million shares remaining. There were no issuances under the ATM during the nine months ended September 30, 2024.

Note 13 - Line of Credit

In December 2022, we entered into a credit agreement that provides for a senior unsecured multi-currency revolving credit facility (the “Credit Agreement”) in an aggregate principal amount of up to $200.0 million, $30.0 million of which is available for the issuance of letters of credit. 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 2027 Notes unless the 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, in each lender’s sole discretion.

As of September 30, 2024, no amounts were drawn under the Credit Agreement and outstanding letters of credit totaled $8.2 million. 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 expense, taxes, depreciation and amortization ratio, which for the purposes of the Credit Agreement excludes investment interest income. “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.

We are required to comply with a net leverage ratio, defined as consolidated total indebtedness to EBITDA, and a consolidated interest coverage ratio, defined as EBITDA to consolidated interest expense. As of September 30, 2024, we are in compliance with the associated covenants under the Credit Agreement.

Note 14 - Commitments and Contingencies

Product Litigation

As a manufacturer of weapons and other law enforcement tools used in high-risk field environments, we are often the subject of products liability litigation concerning the use of our products. We are currently named as a defendant in one such lawsuit in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CED was used by law enforcement officers in connection with arrests or training. While the facts vary from case to case, these product liability claims typically allege defective product design, manufacturing, and/or failure to warn. They seek compensatory and sometimes punitive damages, often in unspecified amounts.

We continue to aggressively defend all product litigation. As a general rule, it is our policy not to settle suspect injury or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to us. Due to the confidential nature of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, we do not identify or comment on specific settlements by case or amount. Based on current information, we do not believe that the outcome of any such legal proceeding will have a material effect on our financial position, results of operations or cash flows. We are self-insured for the first $5.0 million of any product claim made after 2014. No judgment or settlement has ever exceeded this amount in any products liability case. We continue to maintain product liability insurance coverage, including an insurance policy fronting arrangement, above our self-insured retention with various limits depending on the policy period.

Other Matters

Despite the FTC’s dismissal of its administrative enforcement complaint against Axon without consent decree or other condition in October 2023, other parties continue to allege that Axon’s May 2018 acquisition of an insolvent body-worn camera competitor, Vievu LLC (“Vievu”), was anticompetitive. Two purported antitrust lawsuits based largely on the FTC’s unproven allegations are pending in the District of New Jersey (Case No. 3:23-cv-7182) and District of Arizona (Case No. 2:24-cv-01869-SMB). Axon denies all allegations of anticompetitive or other misconduct and is vigorously defending the cases. Axon has also received a request for information from the Pennsylvania Office of Attorney General regarding this same consummated Vievu transaction. Axon is cooperating with the investigation to resolve any concerns of the Commonwealth.

General

From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.

Based on our assessment of outstanding litigation and claims as of the date of these financial statements, we have determined that it is not reasonably possible that these losses, if any, from lawsuits will individually, or in the aggregate, materially affect our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the

resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Off-Balance Sheet Arrangements

Under certain circumstances, we use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the installation and integration of Axon cameras and related technologies. Certain of our letters of credit and surety bonds have stated expiration dates with others being released as the contractual performance terms are completed. At September 30, 2024, we had outstanding letters of credit issued under our credit facility of $8.2 million that are expected to expire through 2025. We also had outstanding letters of credit of $0.1 million that do not draw against our credit facility. Additionally, we had $13.6 million of outstanding surety bonds as of September 30, 2024, with expiration dates ranging through 2029.

Note 15 – Accumulated Other Comprehensive Income (Loss)

The following tables reflect the changes in accumulated other comprehensive income (loss), net of tax (in thousands):


	Unrealized Gains (Losses) on Available-for-Sale Investments		Foreign Currency Translation		Total
Balance, December 31, 2023	$	(399)	$	(10,280)	$	(10,679)
Other comprehensive loss	(106)		(801)		(907)
Balance, March 31, 2024	$	(505)	$	(11,081)	$	(11,586)
Other comprehensive income (loss)	119		(2,727)		(2,608)
Balance, June 30, 2024	$	(386)	$	(13,808)	$	(14,194)
Other comprehensive income	434		4,640		5,074
Balance, September 30, 2024	$	48	$	(9,168)	$	(9,120)


	Unrealized Gains (Losses) on Available-for-Sale Investments		Foreign Currency Translation		Total
Balance, December 31, 2022	$	(1,251)	$	(5,928)	$	(7,179)
Other comprehensive income	184		1,676		1,860
Balance, March 31, 2023	$	(1,067)	$	(4,252)	$	(5,319)
Other comprehensive loss	(850)		(557)		(1,407)
Balance, June 30, 2023	$	(1,917)	$	(4,809)	$	(6,726)
Other comprehensive income (loss)	656		(6,799)		(6,143)
Balance, September 30, 2023	$	(1,261)	$	(11,608)	$	(12,869)

Note 16 - Segment Data

Our operations comprise two reportable segments: the development, manufacture and sale of 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 (collectively, the “Software and Sensors” segment); and the manufacture and sale of our CEDs, batteries, accessories, extended warranties and other products and services (collectively, the “TASER” segment). In both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes referred to as “Axon Cloud revenue.”

Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer, who is our chief operating decision maker (“CODM”). We organize and review operations based on products and services, and currently there are no operating segments that are aggregated. We perform an analysis of our reportable segments at least annually.

During the nine months ended September 30, 2024, the segment measure of profit and loss used by the CODM was changed from gross margin to adjusted gross margin, defined as gross margin before stock-based compensation expense and amortization of acquired intangible assets. This change in segment measure allows the CODM to better assess operating results over time and is consistent with how the CODM evaluates our businesses. Accordingly, we have updated our segment disclosure for the three and nine months ended September 30, 2023 to conform to the new presentation.

Information relative to our reportable segments was as follows (in thousands):


	Three Months Ended September 30,
	2024		2023
TASER segment net sales	$	221,734	$	162,570
Software and Sensors segment net sales	322,540		250,708
Total consolidated net sales	$	544,274	$	413,278

TASER adjusted gross margin	$	139,632	$	102,151
Software and Sensors adjusted gross margin	204,258		157,147
Total segment adjusted gross margin	$	343,890	$	259,298
Stock-based compensation expense	10,123		1,687
Amortization of acquired intangible assets	3,020		955
Gross margin	$	330,747	$	256,656
Sales, general and administrative	192,189		122,357
Research and development	114,477		76,880
Interest income, net	10,978		10,458
Other income (loss), net	44,510		3,852
Income (loss) before provision for (benefit from) income taxes	$	79,569	$	71,729


	Nine Months Ended September 30,
	2024		2023
TASER segment net sales	$	597,441	$	452,167
Software and Sensors segment net sales	909,940		678,156
Total consolidated net sales	$	1,507,381	$	1,130,323

TASER adjusted gross margin	$	374,072	$	280,875
Software and Sensors adjusted gross margin	577,992		417,460
Total segment adjusted gross margin	$	952,064	$	698,335
Stock-based compensation expense	48,235		4,685
Amortization of acquired intangible assets	8,298		2,189
Gross margin	$	895,531	$	691,461
Sales, general and administrative	514,228		357,611
Research and development	307,008		219,747
Interest income, net	31,134		29,787
Other income (loss), net	191,510		(42,569)
Income before provision for income taxes	$	296,939	$	101,321

Note 17 – Business Acquisitions

Fusus, LLC.

On January 31, 2024, we acquired the remaining 79.7% interest in Fusus, LLC (“Fusus”), a global leader in real-time crime center technology, for total consideration transferred of approximately $241.3 million, subject to customary adjustments (the “step acquisition”). The acquisition expands our ability to aggregate live video, data and sensor feeds, which enhances situational awareness and investigative capabilities for our customers in public safety, education and enterprise. Total transaction costs related to the acquisition were $0.3 million and $4.6 million for the three and nine months ended September 30, 2024, respectively. These transaction costs were expensed as incurred in sales, general and administrative expenses (“SG&A”) in our condensed consolidated statements of operations.

Our existing 20.3% interest had a fair value at the acquisition date of $63.3 million, which resulted in a non-taxable gain of $42.3 million recorded in other income (loss), net in our condensed consolidated statement of operations. Prior to the step acquisition, the fair value of the previously held investment was determined using Level 3 valuation techniques, which include inputs to the valuation methodology that are considered unobservable and significant to the fair value measurement.

The purchase price allocation is subject to revision during the measurement period, which is expected to be completed in the fourth quarter of 2024. Based on the purchase price allocation, we recorded $250.1 million of goodwill, $72.9 million of identifiable intangible assets, and other net liabilities assumed of $7.8 million, excluding deferred taxes. We recorded a net deferred tax liability of $10.5 million.

With the assistance of third-party valuation experts, we calculated the fair values of intangible assets using the multi-period excess earnings method for the acquired developed technology and the with and without method for customer relationships. The weighted average amortization period of the acquired intangible assets was 7.5 years.

The goodwill generated from the acquisition is primarily attributable to synergies that are expected to be achieved from the integration of the business and is not deductible for tax purposes. Following the acquisition, the consolidated results of Fusus are included in the Company’s Software and Sensors operating segment.

Note 18 - Subsequent Event

In October 2024, we acquired the remaining outstanding stock of Dedrone Holdings, Inc. ("Dedrone"), a global leader in air space security, for approximately $400 million, subject to customary purchase price adjustments. This acquisition will be recorded to our Software and Sensors segment, and it represents alignment to our mission and positions us to accelerate the next generation of drone and air space solutions. Prior to this transaction, we had an approximately 20% ownership interest in Dedrone. This transaction is considered a “step acquisition” under GAAP whereby our ownership interest in Dedrone held

before the acquisition is required to be remeasured to fair value at the date of the acquisition. We expect to recognize a gain on our previously held strategic equity investment as a result of this transaction in the fourth quarter of 2024.

Due to the proximity of the closing date of the acquisition of the remaining interest in Dedrone to the date of this filing, the initial accounting for the acquisition is not yet complete. Transaction costs related to the acquisition were approximately $7.5 million for the nine months ended September 30, 2024. These transaction costs were expensed as incurred in SG&A in our condensed consolidated statements of operations.

Note 19 - Revision of Prior Period Financial Statements

As discussed in Note 1, in preparing the condensed consolidated financial statements as of and for the three and nine months ended September 30, 2024, we identified errors in our previously issued financial statements related to our historical conclusions of principal vs. agent accounting of certain reseller arrangements under ASC 606 and concluded they were not material to any previously issued financial statements. The identified errors impacted our previously issued 2021 and 2022 annual financial statements, 2023 quarterly and annual financial statements, and 2024 quarterly financial statements through June 30, 2024. We have made adjustments to the prior period amounts presented in these financial statements accordingly. Additionally, we have made adjustments to correct for other previously identified immaterial errors.

The following tables reflect the impact of the revision to the specific line items presented in our previously reported (a) consolidated balance sheet as of December 31, 2023; (b) consolidated statements of operations and comprehensive income for the years ended December 31, 2023, December 31, 2022, and December 31, 2021, and for the quarterly periods ended June 30, 2024, March 31, 2024, December 31, 2023, and September 30, 2023; (c) consolidated statements of cash flows for the years ended December 31, 2023 and December 31, 2022, and for the year to date periods ended June 30, 2024, March 31, 2024, September 30, 2023; and (d) consolidated statements of stockholder's equity for the quarterly periods ending December 31, 2022 through June 30, 2024.

Consolidated Balance Sheet

(in thousands)


As of December 31, 2023	As Reported		Revision		As Revised

Accounts and notes receivable, net of allowance of $2,392 as of December 31, 2023	$	417,690	$	(4,729)	$	412,961
Contract assets, net	275,779		11,453		287,232
Prepaid expenses and other current assets	112,786		(9,731)		103,055
Total current assets	2,396,649		(3,007)		2,393,642
Deferred tax assets, net	229,513		(1,729)		227,784
Long-term contract assets, net	77,710		6,672		84,382
Other long-term assets	220,638		(29,607)		191,031
Total assets	3,436,845		(27,671)		3,409,174
Accounts payable	88,326		(22,474)		65,852
Accrued liabilities	188,230		5,320		193,550
Current portion of deferred revenue	491,691		(21,276)		470,415
Total current liabilities	799,969		(38,430)		761,539
Deferred revenue, net of current portion	281,852		(10,951)		270,901
Other long-term liabilities	2,936		17,979		20,915
Total liabilities	1,824,811		(31,402)		1,793,409
Retained earnings	431,249		3,731		434,980
Total stockholders’ equity	1,612,034		3,731		1,615,765
Total liabilities and stockholders’ equity	$	3,436,845	$	(27,671)	$	3,409,174

Consolidated Statements of Operations and Comprehensive Income

(in thousands, except per share data)


Three Months Ended June 30, 2024	As Reported		Revision		As Revised

Net sales from products	$	295,185	$	(2,422)	$	292,763
Net sales from services	208,914		1,559		210,473
Net sales	504,099		(863)		503,236
Cost of product sales	145,154		(2,527)		142,627
Cost of service sales	55,210		(757)		54,453
Cost of sales	200,364		(3,284)		197,080
Gross margin	303,735		2,421		306,156
Sales, general and administrative	169,427		1,537		170,964
Total operating expenses	270,861		1,537		272,398
Income from operations	32,874		884		33,758
Income before provision for income taxes	50,590		884		51,474
Provision for (benefit from) income taxes	9,793		208		10,001
Net income	$	40,797	$	676	$	41,473
Net income per common and common equivalent shares - Basic	$	0.54	$	0.01	$	0.55
Comprehensive income	$	38,189	$	676	$	38,865

There was no impact on disclosed diluted income per common and common equivalent shares for the three months ended June 30, 2024.


Six Months Ended June 30, 2024	As Reported		Revision		As Revised

Net sales from products	$	567,233	$	(4,046)	$	563,187
Net sales from services	397,602		2,318		399,920
Net sales	964,835		(1,728)		963,107
Cost of product sales	296,852		(2,065)		294,787
Cost of service sales	104,202		(666)		103,536
Cost of sales	401,054		(2,731)		398,323
Gross margin	563,781		1,003		564,784
Sales, general and administrative	322,096		(57)		322,039
Total operating expenses	514,627		(57)		514,570
Income from operations	49,154		1,060		50,214
Income before provision for income taxes	216,310		1,060		217,370
Provision for (benefit from) income taxes	42,295		250		42,545
Net income	$	174,015	$	810	$	174,825
Net income per common and common equivalent shares - Basic	$	2.31	$	0.01	$	2.32
Net income per common and common equivalent shares - Diluted	$	2.25	$	0.01	$	2.26
Comprehensive income	$	170,500	$	810	$	171,310


Three Months Ended March 31, 2024	As Reported		Revision		As Revised

Net sales from products	$	272,048	$	(1,624)	$	270,424
Net sales from services	188,688		759		189,447
Net sales	460,736		(865)		459,871
Cost of product sales	151,698		462		152,160
Cost of service sales	48,992		91		49,083
Cost of sales	200,690		553		201,243
Gross margin	260,046		(1,418)		258,628
Sales, general and administrative	152,669		(1,594)		151,075
Total operating expenses	243,766		(1,594)		242,172
Income from operations	16,280		176		16,456
Income before provision for income taxes	165,720		176		165,896
Provision for (benefit from) income taxes	32,502		42		32,544
Net income	$	133,218	$	134	$	133,352
Comprehensive income	$	132,311	$	134	$	132,445

There was no impact on disclosed basic and diluted income per common and common equivalent shares for the three months ended March 31, 2024.


Three Months Ended December 31, 2023	As Reported		Revision		As Revised

Net sales from products	$	258,405	$	(1,966)	$	256,439
Net sales from services	173,737		200		173,937
Net sales	432,142		(1,766)		430,376
Cost of product sales	125,664		(1,764)		123,900
Cost of service sales	42,591		(107)		42,484
Cost of sales	168,255		(1,871)		166,384
Gross margin	263,887		105		263,992
Sales, general and administrative	137,106		167		137,273
Total operating expenses	221,078		167		221,245
Income from operations	42,809		(62)		42,747
Income before provision for income taxes	55,802		(62)		55,740
Provision for (benefit from) income taxes	(1,469)		148		(1,321)
Net income	$	57,271	$	(210)	$	57,061
Comprehensive income	$	59,461	$	(210)	$	59,251

There was no impact on disclosed basic and diluted income per common and common equivalent shares for the three months ended December 31, 2023.


Year Ended December 31, 2023	As Reported		Revision		As Revised

Net sales from products	$	967,711	$	(3,709)	$	964,002
Net sales from services	595,680		1,017		596,697
Net sales	1,563,391		(2,692)		1,560,699
Cost of product sales	450,718		(3,010)		447,708
Cost of service sales	157,291		247		157,538
Cost of sales	608,009		(2,763)		605,246
Gross margin	955,382		71		955,453
Sales, general and administrative	496,874		(1,990)		494,884
Total operating expenses	800,593		(1,990)		798,603
Income from operations	154,789		2,061		156,850
Income before provision for income taxes	155,000		2,061		157,061
Provision for (benefit from) income taxes	(19,227)		505		(18,722)
Net income	$	174,227	$	1,556	$	175,783
Net income per common and common equivalent shares - Basic	$	2.35	$	0.02	$	2.37
Net income per common and common equivalent shares - Diluted	$	2.31	$	0.02	$	2.33
Comprehensive income	$	170,727	$	1,556	$	172,283


Three Months Ended September 30, 2023	As Reported		Revision		As Revised

Net sales from products	$	256,443	$	(1,388)	$	255,055
Net sales from services	157,158		1,065		158,223
Net sales	413,601		(323)		413,278
Cost of product sales	116,278		(1,665)		114,613
Cost of service sales	42,051		(42)		42,009
Cost of sales	158,329		(1,707)		156,622
Gross margin	255,272		1,384		256,656
Sales, general and administrative	123,279		(922)		122,357
Total operating expenses	200,159		(922)		199,237
Income from operations	55,113		2,306		57,419
Income before provision for income taxes	69,423		2,306		71,729
Provision for (benefit from) income taxes	10,026		394		10,420
Net income	$	59,397	$	1,912	$	61,309
Net income per common and common equivalent shares - Basic	$	0.79	$	0.03	$	0.82
Net income per common and common equivalent shares - Diluted	$	0.78	$	0.03	$	0.81
Comprehensive income	$	53,254	$	1,912	$	55,166


Nine Months Ended September 30, 2023	As Reported		Revision		As Revised

Net sales from products	$	709,306	$	(1,743)	$	707,563
Net sales from services	421,943		817		422,760
Net sales	1,131,249		(926)		1,130,323
Cost of product sales	325,054		(1,246)		323,808
Cost of service sales	114,700		354		115,054
Cost of sales	439,754		(892)		438,862
Gross margin	691,495		(34)		691,461
Sales, general and administrative	359,768		(2,157)		357,611
Total operating expenses	579,515		(2,157)		577,358
Income from operations	111,980		2,123		114,103
Income before provision for income taxes	99,198		2,123		101,321
Provision for (benefit from) income taxes	(17,758)		357		(17,401)
Net income	$	116,956	$	1,766	$	118,722
Net income per common and common equivalent shares - Basic	$	1.58	$	0.03	$	1.61
Net income per common and common equivalent shares - Diluted	$	1.56	$	0.02	$	1.58
Comprehensive income	$	111,266	$	1,766	$	113,032


Year Ended December 31, 2022	As Reported		Revision		As Revised

Net sales from products	$	801,388	$	(4,211)	$	797,177
Net sales from services	388,547		1,419		389,966
Net sales	1,189,935		(2,792)		1,187,143
Cost of product sales	363,219		(2,310)		360,909
Cost of service sales	98,078		2,043		100,121
Cost of sales	461,297		(267)		461,030
Gross margin	728,638		(2,525)		726,113
Sales, general and administrative	401,575		(2,245)		399,330
Total operating expenses	635,385		(2,245)		633,140
Income from operations	93,253		(280)		92,973
Income before provision for income taxes	196,518		(280)		196,238
Provision for (benefit from) income taxes	49,379		(71)		49,308
Net income	$	147,139	$	(209)	$	146,930
Comprehensive income	$	141,277	$	(209)	$	141,068

There was no impact on disclosed income per common and common equivalent shares for the year ended December 31, 2022.


Year Ended December 31, 2021	As Reported		Revision		As Revised

Net sales from products	$	608,525	$	(1,629)	$	606,896
Net sales from services	254,856		3,886		258,742
Net sales	863,381		2,257		865,638
Cost of product sales	260,098		(2,452)		257,646
Cost of service sales	62,373		(103)		62,270
Cost of sales	322,471		(2,555)		319,916
Gross margin	540,910		4,812		545,722
Sales, general and administrative	515,007		(162)		514,845
Total operating expenses	709,033		(162)		708,871
Income from operations	(168,123)		4,974		(163,149)
Income before provision for income taxes	(141,375)		4,974		(136,401)
Provision for (benefit from) income taxes	(81,357)		1,295		(80,062)
Net income	$	(60,018)	$	3,679	$	(56,339)
Net income per common and common equivalent shares - Basic	$	(0.91)	$	0.06	$	(0.85)
Net income per common and common equivalent shares - Diluted	$	(0.91)	$	0.06	$	(0.85)
Comprehensive income	$	(61,476)	$	3,679	$	(57,797)

Consolidated Statements of Stockholders' Equity

(in thousands)


	As Reported				Revision				As Revised
	Retained Earnings		Total Stockholders’ Equity		Retained Earnings		Total Stockholders’ Equity		Retained Earnings		Total Stockholders’ Equity

Balance, December 31, 2022	$	257,022	$	1,268,491	$	2,175	$	2,175	$	259,197	$	1,270,666
Net income	45,139		45,139		760		760		45,899		45,899
Balance, March 31, 2023	$	302,161	$	1,402,995	$	2,935	$	2,935	$	305,096	$	1,405,930
Net income	12,420		12,420		(906)		(906)		11,514		11,514
Balance, June 30, 2023	$	314,581	$	1,444,998	$	2,029	$	2,029	$	316,610	$	1,447,027
Net income	59,397		59,397		1,912		1,912		61,309		61,309
Balance, September 30, 2023	$	373,978	$	1,521,117	$	3,941	$	3,941	$	377,919	$	1,525,058
Net income	57,271		57,271		(210)		(210)		57,061		57,061
Balance, December 31, 2023	$	431,249	$	1,612,034	$	3,731	$	3,731	$	434,980	$	1,615,765
Net income	133,218		133,218		134		134		133,352		133,352
Balance, March 31, 2024	$	564,467	$	1,818,015	$	3,865	$	3,865	$	568,332	$	1,821,880
Net income	40,797		40,797		676		676		41,473		41,473
Balance, June 30, 2024	$	605,264	$	1,928,840	$	4,541	$	4,541	$	609,805	$	1,933,381

Consolidated Statements of Cash Flows

(in thousands)


Six Months Ended June 30, 2024	As Reported		Revision		As Revised

Cash flows from operating activities:
Net income	$	174,015	$	810	$	174,825
Provision for bad debts and inventory	2,241		8,843		11,084
Change in assets and liabilities:
Receivables and contract assets	(60,513)		(16,579)		(77,092)
Inventory	(8,116)		(8,843)		(16,959)
Deferred revenue	(12,067)		3,568		(8,499)
Accounts payable, accrued and other liabilities	(43,071)		(461)		(43,532)
Other - net	(4,252)		12,662		8,410