10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

or

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

For the transition period from                      to                     

Commission File Number: 001-16391

Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)

Delaware			86-0741227
(State or other jurisdiction of incorporation or organization)			(I.R.S. Employer Identification No.)
17800 North 85th Street			85255
Scottsdale	,	Arizona
(Address of principal executive offices)			(Zip Code)

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated Filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

The number of shares of the registrant’s common stock outstanding as of October 31, 2019 was 59,340,965.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019

			Page
Special Note Regarding Forward-Looking Statements			ii
PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of September 30, 2019 (Unaudited) and December 31, 2018	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months and Nine Months Ended September 30, 2019 and 2018	2
		Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months and Nine Months Ended September 30, 2019 and 2018	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2019 and 2018	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		24
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		39
	Item 4. Controls and Procedures		39
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings		40
	Item 1A. Risk Factors		40
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		40
	Item 3. Defaults Upon Senior Securities		40
	Item 4. Mine Safety Disclosures		40
	Item 5. Other Information		40
	Item 6. Exhibits		41
	SIGNATURES		42

Special Note Regarding Forward-Looking Statements

This Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements. These forward-looking statements include, without limitation, statements regarding: proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; the impact of pending litigation; our outlook for 2019 with respect to revenue, stock compensation expense, and income tax rate; trends relating to subscription plan programs and revenues; our anticipation that contracts with governmental customers will be fulfilled; expected trends, including the benefits of, research and development investments; the sufficiency of our liquidity and financial resources; that we may repurchase our common stock; expectations about customer behavior; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management’s strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Form 10-K for the year ended December 31, 2018. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The following important factors could cause actual results to differ materially from those in the forward-looking statements: customer purchase behavior, including adoption of our software as a service delivery model; the impact of product mix on projected gross margins; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; changes in the costs of product components and labor; defects in our products; delayed cash collections and possible credit losses due to our subscription model; exposure to international operational risks; our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; loss of customer data, a breach of security or an extended outage, including our reliance on third party cloud-based storage providers; negative media publicity regarding our products; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our product by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and to evolving regulations surrounding privacy and data protection; our ability to integrate acquired businesses; our ability to attract and retain key personnel; and counter-party risks relating to cash balances held in excess of FDIC insurance limits. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. The Annual Report on Form 10-K that we filed with the Securities and Exchange Commission ("SEC") on February 27, 2019 listed various important factors that could cause actual results to differ materially from expected and historical results. These factors are intended as cautionary statements for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Readers can find them under the heading “Risk Factors” in the Report on Form 10-K and in this Report on Form 10-Q, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

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

ii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	202,551		$	349,462
Short-term investments	108,913			—
Accounts and notes receivable, net of allowance of $1,983 and $1,882 as of September 30, 2019 and December 31, 2018, respectively	149,013			130,579
Contract assets, net	33,602			13,960
Inventory	40,666			33,763
Prepaid expenses and other current assets	41,277			30,391
Total current assets	576,022			558,155
Property and equipment, net of accumulated depreciation of $38,470 and $39,885 as of September 30, 2019 and December 31, 2018, respectively	42,592			37,893
Deferred income tax assets, net	23,290			19,347
Intangible assets, net	13,528			15,935
Goodwill	24,876			24,981
Long-term investments	41,391			—
Long-term notes receivable, net of current portion	33,463			40,230
Other assets	37,142			22,999
Total assets	$	792,304		$	719,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	14,638		$	15,164
Accrued liabilities	35,745			41,092
Current portion of deferred revenue	127,160			107,016
Customer deposits	2,294			2,702
Other current liabilities	3,997			37
Total current liabilities	183,834			166,011
Deferred revenue, net of current portion	82,149			74,417
Liability for unrecognized tax benefits	3,443			2,849
Long-term deferred compensation	3,694			3,235
Other long-term liabilities	11,537			5,704
Total liabilities	284,657			252,216
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and December 31, 2018	—			—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 59,320,793 and 58,810,637 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	1			1
Additional paid-in capital	480,747			453,400
Treasury stock at cost, 20,220,227 shares as of September 30, 2019 and December 31, 2018	(155,947		)	(155,947		)
Retained earnings	184,644			171,383
Accumulated other comprehensive loss	(1,798		)	(1,513		)
Total stockholders’ equity	507,647			467,324
Total liabilities and stockholders’ equity	$	792,304		$	719,540

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

1

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net sales from products	$	96,497		$	80,923		$	264,977		$	238,618
Net sales from services	34,340			23,913			94,032			66,659
Net sales	130,837			104,836			359,009			305,277
Cost of product sales	42,445			32,953			120,265			96,474
Cost of service sales	8,223			6,250			24,098			15,566
Cost of sales	50,668			39,203			144,363			112,040
Gross margin	80,169			65,633			214,646			193,237
Operating expenses:
Sales, general and administrative	48,424			39,685			134,678			114,787
Research and development	25,129			21,982			71,976			55,602
Total operating expenses	73,553			61,667			206,654			170,389
Income from operations	6,616			3,966			7,992			22,848
Interest and other income (expense), net	1,820			1,274			5,978			2,242
Income before provision for income taxes	8,436			5,240			13,970			25,090
Provision for (benefit from) income taxes	2,332			(471		)	709			(2,032		)
Net income	$	6,104		$	5,711		$	13,261		$	27,122
Net income per common and common equivalent shares:
Basic	$	0.10		$	0.10		$	0.22		$	0.49
Diluted	$	0.10		$	0.10		$	0.22		$	0.47
Weighted average number of common and common equivalent shares outstanding:
Basic	59,278			58,340			59,128			55,681
Diluted	60,059			59,805			59,938			57,254
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	6,104		$	5,711		$	13,261		$	27,122
Foreign currency translation adjustments	(227		)	(107		)	(285		)	(159		)
Comprehensive income	$	5,877		$	5,604		$	12,976		$	26,963

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

2

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(in thousands, except per share data)

	Common Stock			Additional Paid-in Capital			Treasury Stock				Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares	Amount					Shares	Amount
Balance, December 31, 2018	58,810,637	$	1	$	453,400		20,220,227	$	(155,947	)	$	171,383	$	(1,513	)	$	467,324
Issuance of common stock under employee plans, net	298,649	—		(1,159		)	—	—			—		—			(1,159		)
Stock-based compensation	—	—		7,905			—	—			—		—			7,905
Net income	—	—		—			—	—			6,419		—			6,419
Foreign currency translation adjustments	—	—		—			—	—			—		50			50
Balance, March 31, 2019	59,109,286	1		460,146			20,220,227	(155,947		)	177,802		(1,463		)	480,539
Issuance of common stock under employee plans, net	71,832	—		(869		)	—	—			—		—			(869		)
Stock-based compensation	—	—		8,627			—	—			—		—			8,627
Issuance of common stock for business combination contingent consideration	70,613	—		—			—	—			—		—			—
Net income	—	—		—			—	—			738		—			738
Foreign currency translation adjustments	—	—		—			—	—			—		(108		)	(108		)
Balance, June 30, 2019	59,251,731	1		467,904			20,220,227	(155,947		)	178,540		(1,571		)	488,927
Issuance of common stock under employee plans, net	69,062	—		(1,134		)	—	—			—		—			(1,134		)
Stock-based compensation	—	—		13,977			—	—			—		—			13,977
Net income	—	—		—			—	—			6,104		—			6,104
Foreign currency translation adjustments	—	—		—			—	—			—		(227		)	(227		)
Balance, September 30, 2019	59,320,793	$	1	$	480,747		20,220,227	$	(155,947	)	$	184,644	$	(1,798	)	$	507,647

3

	Common Stock			Additional Paid-in Capital			Treasury Stock						Retained Earnings		Accumulated Other Comprehensive Loss			Total Stockholders’ Equity
	Shares	Amount					Shares		Amount
Balance, December 31, 2017	52,969,869	$	1	$	201,672		20,220,227		$	(155,947	)		$	123,185	$	(1,467	)	$	167,444
Cumulative effect of applying a change in accounting principle	—	—		—			—		—				18,994		—			18,994
Issuance of common stock under employee plans, net	337,214	—		(3,421		)	—		—				—		—			(3,421		)
Stock-based compensation	—	—		4,093			—		—				—		—			4,093
Net income	—	—		—			—		—				12,926		—			12,926
Foreign currency translation adjustments	—	—		—			—		—				—		(707		)	(707		)
Balance, March 31, 2018	53,307,083	1		202,344			20,220,227		(155,947		)		155,105		(2,174		)	199,329
Issuance of common stock	4,645,000	—		233,993			—		—				—		—			233,993
Issuance of common stock for business combination	58,843	—		8,226			—		—				—		—			8,226
Issuance of common stock under employee plans, net	278,687	—		(6,800		)	—	—	—			—	—		—			(6,800		)
Stock-based compensation	—	—		4,954			—	—	—			—	—		—			4,954
Net income	—	—		—			—	—	—			—	8,485		—			8,485
Foreign currency translation adjustments	—	—		—			—		—				—		655			655
Balance, June 30, 2018	58,289,613	1		442,717			20,220,227		(155,947		)		163,590		(1,519		)	448,842
Issuance of common stock under employee plans	130,129	—		(1,039		)	—		—				—		—			(1,039		)
Stock-based compensation	—	—		6,255			—		—				—		—			6,255
Net income	—	—		—			—		—				5,711		—			5,711
Foreign currency translation adjustments	—	—		—			—		—				—		(107		)	(107		)
Balance, September 30, 2018	58,419,742	$	1	$	447,933		20,220,227		$	(155,947	)		$	169,301	$	(1,626	)	$	459,662

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

4

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2019			2018
Cash flows from operating activities:
Net income	$	13,261		$	27,122
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,196			8,226
Loss on disposal and impairment of property and equipment, net	2,408			290
Loss on disposal and abandonment of intangible assets	51			2,103
Stock-based compensation	30,195			15,302
Deferred income taxes	(3,946		)	(2,326		)
Unrecognized tax benefits	594			99
Other noncash, net	2,923			34
Change in assets and liabilities:
Accounts and notes receivable and contract assets	(30,497		)	(51,172		)
Inventory	(6,302		)	9,033
Prepaid expenses and other assets	(11,967		)	(12,081		)
Accounts payable, accrued and other liabilities	(13,528		)	4,306
Deferred revenue	28,476			31,700
Net cash provided by operating activities	19,864			32,636
Cash flows from investing activities:
Purchases of investments	(242,693		)	(4,331		)
Proceeds from maturity/call of investments	92,207			10,658
Purchases of property and equipment	(12,111		)	(6,880		)
Purchases of intangible assets	(328		)	(460		)
Business acquisitions	—			(4,990		)
Net cash used in investing activities	(162,925		)	(6,003		)
Cash flows from financing activities:
Net proceeds from equity offering	—			233,993
Proceeds from options exercised	106			713
Income and payroll tax payments for net-settled stock awards	(3,268		)	(11,973		)
Payment of contingent consideration for a business acquisition	—			(575		)
Net cash provided by (used in) financing activities	(3,162		)	222,158
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(678		)	(381		)
Net increase (decrease) in cash, cash equivalents and restricted cash	(146,901		)	248,410
Cash, cash equivalents and restricted cash, beginning of period	351,027			78,438
Cash, cash equivalents and restricted cash, end of period	$	204,126		$	326,848
Supplemental disclosures:
Cash and cash equivalents	$	202,551		$	324,371
Restricted cash (Note 1)	1,575			2,477
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	204,126		$	326,848
Cash paid for income taxes, net of refunds	$	2,422		$	7,957
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	1,047		$	1,114
Non-cash purchase consideration related to business combinations	$	—		$	12,508
Commission converted to stock-based award	$	314		$	—

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

5

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Organization and Summary of Significant Accounting Policies

Axon Enterprise, Inc. (“Axon,” the “Company,” "we," or "us") is a market-leading provider of law enforcement technology solutions. Our core mission is to protect life. We fulfill that mission through developing hardware and software products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Our headquarters in Scottsdale, Arizona houses our executive management, sales, marketing, certain engineering, manufacturing, and other administrative support functions. We also have a software engineering development center located in Seattle, Washington, and subsidiaries located in Australia, Canada, Finland, Hong Kong, Germany, India, Italy, the Netherlands, the United Kingdom, and Vietnam.

The accompanying unaudited condensed consolidated financial statements include the accounts of Axon Enterprise, Inc. and our wholly owned subsidiaries. All material 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”) 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, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three and nine months ended September 30, 2019 and 2018 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:

• product warranty reserves,

• inventory valuation,

• revenue recognition,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

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

Actual results could differ materially from those estimates.

Segment Information

Our operations are comprised of two reportable segments: the manufacture and sale of conducted electrical weapons ("CEWs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Revenue from our “products” in the Software and Sensors segment are generally from sales of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as "Sensors and Other revenue." Revenue from our “services” in the Software and Sensors segment consist of sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as "Axon Cloud revenue." Within the Software and Sensors segment, we include only revenues and costs attributable to that segment, which costs include: costs of sales for both products and services, direct labor, product management and research and development ("R&D") for products included, or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.

6

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Our Chief Executive Officer, who is the Chief Operating Decision Maker (the “CODM”), is not provided asset information or sales, general, and administrative expense by segment. Reportable segments are determined based on discrete financial information reviewed by the CODM. We organize and review operations based on products and services. We perform an analysis of our reportable segments on at least an annual basis. Additional information related to our business segments is summarized in Note 15.

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2019 and 2018, no individual country outside the U.S. 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, 2019 and 2018, no customer represented more than 10% of total net sales. At September 30, 2019 and December 31, 2018, 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, but not limited to, finished circuit boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components, and off the shelf sub-assemblies from suppliers located in the U.S., Canada, China, Israel, Mexico, Republic of Korea, and Taiwan. Although we currently obtain many of these components from single source suppliers, we own the injection molded component tooling, most of the designs, and the test fixtures used in their production for all custom components. As a result, we believe we could obtain alternative suppliers in most cases without incurring significant production delays. We also strategically hold safety stock levels on custom components to further reduce this risk. For off the shelf components, we believe that in most cases there are readily available alternative suppliers who can consistently meet our needs for these components. We acquire most of our components on a purchase order basis and do not have any significant long-term contracts with 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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units ("RSUs"). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

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,
	2019		2018		2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	6,104	$	5,711	$	13,261	$	27,122
Denominator:
Weighted average shares outstanding	59,278		58,340		59,128		55,681
Dilutive effect of stock-based awards	781		1,465		810		1,573
Diluted weighted average shares outstanding	60,059		59,805		59,938		57,254
Anti-dilutive stock-based awards excluded	12,477		6,793		12,546		6,760
Net income per common share:
Basic	$	0.10	$	0.10	$	0.22	$	0.49
Diluted	$	0.10	$	0.10	$	0.22	$	0.47

Standard Warranties

We warranty our CEWs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will repair or replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold when revenue is recorded for the related product. Future warranty costs are estimated

7

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

based on historical data related to warranty claims on a quarterly basis and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated warranty claims from customers. The warranty reserve is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. The warranty reserve is included in accrued liabilities on the accompanying condensed consolidated balance sheets. 

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

	Nine Months Ended September 30,
	2019			2018
Balance, beginning of period	$	898		$	644
Utilization of accrual	(718		)	(384		)
Warranty expense	891			699
Balance, end of period	$	1,071		$	959

Fair Value Measurements and Financial Instruments

The fair value framework 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 for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. 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, 2019 and December 31, 2018 were comprised of money market funds and, at September 30, 2019, also included agency bonds, corporate bonds, municipal bonds, and U.S. Treasury repurchase agreements. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other assets as of September 30, 2019 and December 31, 2018 was $4.0 million and $3.6 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.

Our financial instruments also include accounts and notes receivable, contract assets, accounts payable and accrued liabilities. As these instruments are generally short-term in nature, their carrying values approximate their fair values on the accompanying condensed consolidated balance sheets.

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Restricted Cash

Restricted cash balances as of September 30, 2019 and December 31, 2018 included $0.9 million of sales proceeds related to long-term contracts with customers, which were included in prepaid expenses and other current assets on our condensed consolidated balance sheets. The proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to our operating accounts. Restricted cash balances as of September 30, 2019 and December 31, 2018 also included $0.7 million related to a performance guarantee for an international customer sales contract, which were included in other assets on our accompanying condensed consolidated balance sheets.

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 circumstances could include, but are not limited to, 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 the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows. During the nine months ended September 30, 2019, we abandoned certain capitalized software related to implementation work on an enterprise resource planning system conversion, resulting in an impairment charge of $1.3 million, which was included in sales, general and administrative expense in the accompanying condensed consolidated statements of operations. During the three months ended September 30, 2019, we abandoned certain planning and site development activities related to our planned new headquarters, resulting in an impairment charge of $0.7 million, which was included in sales, general and administrative expense in the accompanying condensed consolidated statements of operations.

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 perform our annual goodwill and intangible asset impairment tests in the fourth quarter of each year.

Recently Issued Accounting Guidance

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.  Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP. On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840. We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

9

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The adoption had a material impact to our condensed consolidated balance sheet. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. There was no other impact from the adoption. The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

See Note 11 for further disclosures related to Topic 842.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1, 2019 and the adoption had no impact on our condensed consolidated financial statements.

Effective the first quarter of 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as credit quality. We are currently in the process of selecting the appropriate credit loss models for our investments, accounts and notes receivable, and contract assets and evaluating our processes and controls in preparation for the adoption of ASU 2016-13.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Adoption of this ASU is not expected to have a material impact 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 had no effect on the reported results of operations.

10

2. Revenues

Nature of Products and Services

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

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	20,214	$	—	$	20,214	$	—	$	—	$	—
TASER X26P	11,578		—		11,578		17,998		—		17,998
TASER X2	13,241		—		13,241		20,392		—		20,392
TASER Pulse and Bolt	1,132		—		1,132		1,402		—		1,402
Single cartridges	18,901		—		18,901		18,406		—		18,406
Axon Body	—		6,763		6,763		—		4,744		4,744
Axon Flex	—		1,670		1,670		—		1,325		1,325
Axon Fleet	—		4,341		4,341		—		1,809		1,809
Axon Dock	—		3,358		3,358		—		2,178		2,178
Axon Evidence and cloud services	218		34,022		34,240		—		23,915		23,915
TASER Cam	—		534		534		—		717		717
Extended warranties	4,543		4,714		9,257		4,123		3,161		7,284
Other	1,916		3,692		5,608		1,345		3,321		4,666
Total	$	71,743	$	59,094	$	130,837	$	63,666	$	41,170	$	104,836

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	39,466	$	—	$	39,466	$	—	$	—	$	—
TASER X26P	37,832		—		37,832		52,618		—		52,618
TASER X2	40,413		—		40,413		62,686		—		62,686
TASER Pulse and Bolt	2,920		—		2,920		3,849		—		3,849
Single cartridges	57,354		—		57,354		51,763		—		51,763
Axon Body	—		18,820		18,820		—		15,082		15,082
Axon Flex	—		4,517		4,517		—		4,529		4,529
Axon Fleet	—		10,977		10,977		—		6,640		6,640
Axon Dock	—		9,401		9,401		—		7,332		7,332
Axon Evidence and cloud services	363		93,461		93,824		—		64,513		64,513
TASER Cam	—		2,481		2,481		—		2,839		2,839
Extended warranties	13,341		14,064		27,405		11,567		8,521		20,088
Other	6,017		7,582		13,599		5,331		8,007		13,338
Total	$	197,706	$	161,303	$	359,009	$	187,814	$	117,463	$	305,277

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
United States	$	110,809	85	%	$	88,125	84	%	$	298,736	83	%	$	244,806	80	%
Other countries	20,028		15		16,711		16		60,273		17		60,471		20
Total	$	130,837	100	%	$	104,836	100	%	$	359,009	100	%	$	305,277	100	%

11

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, 2019 (in thousands):

	September 30, 2019
Contract assets, net	$	33,635
Contract liabilities (deferred revenue)	209,309
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	83,159

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

	September 30, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	11,677	$	16,633	$	28,310	$	12,797	$	16,847	$	29,644
Software and Sensors	9,899		5,450		15,349		8,273		6,516		14,789
	21,576		22,083		43,659		21,070		23,363		44,433
Hardware:
TASER	4,378		17,601		21,979		9,355		15,598		24,953
Software and Sensors	39,308		27,357		66,665		20,878		24,685		45,563
	43,686		44,958		88,644		30,233		40,283		70,516
Services:
TASER	11		396		407		—		—		—
Software and Sensors	61,887		14,712		76,599		55,713		10,771		66,484
	61,898		15,108		77,006		55,713		10,771		66,484
Total	$	127,160	$	82,149	$	209,309	$	107,016	$	74,417	$	181,433

	September 30, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	16,066	$	34,630	$	50,696	$	22,152	$	32,445	$	54,597
Software and Sensors	111,094		47,519		158,613		84,864		41,972		126,836
Total	$	127,160	$	82,149	$	209,309	$	107,016	$	74,417	$	181,433

Remaining Performance Obligations

As of September 30, 2019, we had approximately $1.13 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 Topic 606 as of September 30, 2019. We expect to recognize between 15% - 20% of this balance over the next twelve months, and generally expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

12

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3. Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, and held-to-maturity investments at September 30, 2019 and December 31, 2018 (in thousands):

	As of September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	80,269	$	—	$	—		$	80,269	$	80,269	$	—	$	—
Level 1:
Money market funds	37,311		—		—			37,311		37,311		—		—
Agency bonds	32,834		4		(6		)	32,832		12,068		2,000		18,766
Subtotal	70,145		4		(6		)	70,143		49,379		2,000		18,766
Level 2:
State and municipal obligations	4,454		1		(1		)	4,454		—		4,454		—
Corporate bonds	127,987		51		(31		)	128,007		2,903		102,459		22,625
U.S. Treasury repurchase agreements	70,000		—		—			70,000		70,000		—		—
Subtotal	202,441		52		(32		)	202,461		72,903		106,913		22,625
Total	$	352,855	$	56	$	(38	)	$	352,873	$	202,551	$	108,913	$	41,391

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	144,095	$	—	$	—	$	144,095	$	144,095	$	—	$	—
Level 1:
Money market funds	205,367		—		—		205,367		205,367		—		—
Total	$	349,462	$	—	$	—	$	349,462	$	349,462	$	—	$	—

We believe unrealized losses on our investments are due to interest rate fluctuations. As these investments are short-term in nature, are expected to be redeemed at par value, and/or because we have the ability and intent to hold these investments to maturity, we do not consider these investments to be other than temporarily impaired as of September 30, 2019.

4. Inventory

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost of raw materials, which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Included in finished goods at September 30, 2019 and December 31, 2018 was $1.4 million and $1.4 million, respectively, of trial and evaluation hardware units. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventory consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Raw materials	$	21,096	$	19,670
Finished goods	19,570		14,093
Total inventory	$	40,666	$	33,763

13

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2019 were as follows (in thousands):

	TASER			Software and Sensors			Total
Balance, beginning of period	$	1,338		$	23,643		$	24,981
Foreign currency translation adjustment	(52		)	(53		)	(105		)
Balance, end of period	$	1,286		$	23,590		$	24,876

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(959	)	$	2,202	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	3,170		(1,268		)	1,902		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	1,006		(532		)	474		1,053		(599		)	454
Customer relationships	4-8 years	3,664		(1,263		)	2,401		3,701		(880		)	2,821
Non-compete agreements	3-4 years	446		(397		)	49		540		(439		)	101
Developed technology	3-7 years	10,660		(5,982		)	4,678		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	1,932		(1,932		)	—		1,928		(1,813		)	115
Total amortizable		24,039		(12,333		)	11,706		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		922					922		958					958
Total not amortizable		1,822					1,822		1,858					1,858
Total intangible assets		$	25,861	$	(12,333	)	$	13,528	$	28,585	$	(12,650	)	$	15,935

Amortization expense of intangible assets for the three and nine months ended September 30, 2019 was $0.8 million and $2.7 million, respectively. Amortization expense of intangible assets for the three and nine months ended September 30, 2018 was $1.6 million and $4.6 million, respectively. Estimated amortization for intangible assets with definite lives for the remaining three months of 2019, the next five years ended December 31, and thereafter, is as follows (in thousands):

2019 Remaining	$	948
2020	3,177
2021	2,862
2022	1,256
2023	962
2024	881
Thereafter	1,620
Total	$	11,706

14

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

6. Other Assets

Other assets consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Cash surrender value of corporate-owned life insurance policies	$	4,020	$	3,596
Deferred commissions (1)	17,920		15,530
Restricted cash	658		661
Operating lease assets	10,592		—
Prepaid expenses, deposits and other	3,952		3,212
Total other assets	$	37,142	$	22,999

⁽¹⁾ Represents the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized consistent with the recognition timing of the revenue for the underlying performance obligations.

7. Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Accrued salaries, benefits and bonus	$	17,058	$	19,063
Accrued professional, consulting and lobbying fees	5,002		4,894
Accrued warranty expense	1,071		898
Accrued income and other taxes	5,143		4,167
Other accrued liabilities	7,471		12,070
Accrued liabilities	$	35,745	$	41,092

8. Income Taxes

We file income tax returns for federal purposes and in many 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, following the tax year to which these filings relate. Our U.S. federal income tax return for fiscal year 2016 is currently under audit by the Internal Revenue Service.

Deferred Tax Assets

Net deferred income tax assets at September 30, 2019, primarily include R&D tax credits, stock-based compensation expense, deferred revenue, accruals and reserves, and net operating losses, partially offset by accelerated depreciation expense and valuation allowance reserve. Our total net deferred tax assets at September 30, 2019 were $23.3 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, 2019, we continue to demonstrate three-year cumulative pre-tax income in the U.S. federal and state tax jurisdictions; however, 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.

15

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of September 30, 2019, we have cumulative pre-tax losses in Australia, the U.K., and Canada, which limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded for these jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and California 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 $6.1 million as of September 30, 2019. In addition, management accrued $0.1 million of interest for estimated uncertain tax positions related to certain federal income tax liabilities. Should the unrecognized benefit of $6.2 million be recognized, our effective tax rate would be favorably impacted. Approximately $2.9 million of the unrecognized tax 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, 2019, after discrete period adjustments, was 5.1%. Before discrete adjustments, the tax rate was 19.6%, which is less than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, the executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m), and an income inclusion from global intangible low-taxed income ("GILTI"), offset by a reduction for foreign-derived intangible income ("FDII") and R&D tax credits. The effective tax rate was favorably impacted by a $3.9 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised during the nine months ended September 30, 2019. This was partially offset by an unfavorable discrete item of $1.7 million related to the write off of certain deferred tax assets related to future stock compensation awards vesting for certain officers for whom deductibility of compensation is limited by IRC Section 162(m) and return to provision adjustments for jurisdictions in which tax returns have been filed.

9. Stockholders’ Equity

Performance-based stock awards

We have issued performance-based stock options and performance-based RSUs, the vesting of which is generally contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based compensation expense and additional paid-in-capital.

For performance-based options with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

CEO Performance Award

On May 24, 2018 (the “Grant Date”), our stockholders approved the Board of Directors’ grant of 6,365,856 stock option awards to Patrick W. Smith, our CEO (the “CEO Performance Award”). The CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational goals (performance conditions) and market capitalization goals (market conditions), assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the CEO Performance Award have a 10-year contractual term and will vest upon certification by the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of the following eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal quarters. Adjusted EBITDA for purposes of the CEO Performance Award

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("Adjusted EBITDA (CEO Performance Award)") is defined as net income (loss) attributable to common stockholders before interest expense, investment interest income, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense.

Eight Separate Revenue Goals (1) (in thousands)	Eight Separate Adjusted EBITDA (CEO Performance Award) Goals (in thousands)
Goal #1, $710,058	Goal #9, $125,000
Goal #2, $860,058	Goal #10, $155,000
Goal #3, $1,010,058	Goal #11, $175,000
Goal #4, $1,210,058	Goal #12, $190,000
Goal #5, $1,410,058	Goal #13, $200,000
Goal #6, $1,610,058	Goal #14, $210,000
Goal #7, $1,810,058	Goal #15, $220,000
Goal #8, $2,010,058	Goal #16, $230,000

⁽¹⁾ In connection with the business acquisition that was completed during the three months ended June 30, 2018, the revenue goals were adjusted for the acquiree's Target Revenue, as defined in the CEO Performance Award agreement.

As of September 30, 2019, the following operational goals were considered probable of achievement:

• Total revenue of $710.1 million

• Adjusted EBITDA (CEO Performance Award) of $125.0 million; and

• Total revenue of $860.1 million

The first two market capitalization goals have been achieved as of September 30, 2019. However, none of the stock options granted under the CEO Performance Award have vested thus far as the operational goals have not yet been achieved as of September 30, 2019. As there are three operational goals considered probable of achievement, we recorded stock-based compensation expense of $10.7 million related to the CEO Performance Award from the Grant Date through September 30, 2019. The number of stock options that would vest related to the three tranches is approximately 1.6 million shares.

As of September 30, 2019, we had $56.9 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7.3 years. As of September 30, 2019, we had unrecognized stock-based compensation expense of $178.3 million for the performance goals that were considered not probable of achievement.

eXponential Stock Performance Plan

On February 12, 2019, our shareholders approved the 2019 Stock Incentive Plan (the “2019 Plan”), which was adopted by the Board of Directors to reserve a sufficient number of shares to facilitate our eXponential Stock Performance Plan (“XSPP”) and grants of eXponential Stock Units (“XSUs”) under the plan. Pursuant to the XSPP, all eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain employees had the opportunity to elect to receive a percentage of the value of their target compensation over the next nine years (2019-2027) in the form of additional XSUs. For employees who elected to receive XSUs, the XSU grants were made as an up front, lump sum grant in January 2019, and are intended to replace that portion of the target compensation they elected to receive in the form of XSUs for the next nine years. Accordingly, their go forward target compensation will be reduced until 2027 by the amount of such compensation that the employees elected to receive in the form of the January 2019 XSU grants. Additional employee awards were granted in February 2019 and September 2019. A total of approximately 5.9 million XSUs were granted in the nine months ended September 30, 2019.

The XSUs are grants of restricted stock units, each with a term of approximately nine years, that vest in 12 equal tranches. Each of the 12 tranches will vest upon certification by the Compensation Committee of the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA (CEO Performance Award) have been met for the previous four consecutive fiscal quarters.

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The XSPP contains an anti-dilution provision, which is used to calculate a maximum number of shares outstanding for purposes of determining achievement of the market capitalization goals whereby the maximum number of shares used to calculate the market capitalization goal is calculated by organically growing the current number of shares outstanding by 3% per year (the "XSU Maximum"). Any shares of Stock issued to Patrick W. Smith upon the exercise of the stock options granted to Mr. Smith under the CEO Performance Award shall increase the XSU Maximum. The XSU Maximum shall also be adjusted for acquisitions, spin-offs or other changes in the number of outstanding shares of common stock, if such changes have a corresponding adjustment on the market capitalization goals.

The market capitalization and operational goals are identical to the CEO Performance Award, except for the number of shares that are used to calculate the market capitalization goals if shares outstanding exceed the XSU Maximum. Additionally, because the grant date is different than that of the CEO Performance Award, the measurement period for market capitalization is not identical.

Stock-based compensation expense associated with XSU awards is recognized over the longer of the expected achievement period for each pair of market capitalization and operational goals, beginning at the point in time when the relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation of each tranche are determined using a Monte Carlo simulation, which is also used as the basis for determining the expected achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-looking financial projections, taking into consideration statistical analysis. Even though no tranches of the XSU awards vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation expense is recognized when an operational goal is considered probable of achievement regardless of whether a market capitalization goal is actually achieved.

The first two market capitalization goals have been achieved as of September 30, 2019. However, none of the XSU tranches have vested thus far as the operational goals have not yet been achieved as of September 30, 2019. As there are three operational goals considered probable of achievement, we recorded stock-based compensation expense of $4.3 million related to the XSU awards from their respective grant dates through September 30, 2019. The number of XSU awards that would vest related to the three tranches is approximately 1.4 million shares.

As of September 30, 2019, we had $57.4 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7.3 years. As of September 30, 2019, we had unrecognized stock-based compensation expense of $131.6 million for the performance goals that were considered not probable of achievement.

Given the complexity of the awards, we utilized Monte Carlo simulations to simulate a range of possible future market capitalizations for the Company over the term of the awards. The average of all iterations of the simulation was used as the basis for the valuation and market capitalization goal derived service period for each tranche. Additionally, we applied an illiquidity discount of between 9.8% and 16.8% to the valuation of XSUs because the awards specify a post-vest holding period of 2.5 years. Certain of the XSU awards specify a post-vest holding period of the longer of 2.5 years or until the next tranche vests. The illiquidity discounts were estimated using the Finnerty model and reduced by the impact of expected payroll and income taxes due upon vesting of the awards, as the related proportion of shares are expected to be sold to satisfy such obligations. We measured the grant date fair value of the XSU awards with the following assumptions: risk-free interest rate of between 1.64% and 2.62%, expected term of between 8.4 and 9.0 years, expected volatility of between 44.12% and 45.47%, and dividend yield of 0.00%.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2019 (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	1,655		$	28.34
Granted	6,476		35.87
Released	(450	)	24.47
Forfeited	(410	)	34.63
Units outstanding, end of period	7,271		34.93		$	412,866

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Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $56.78 per share, multiplied by the number of RSUs outstanding. As of September 30, 2019, there was $99.2 million in unrecognized compensation costs related to RSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 5.16 years. RSUs are released when vesting requirements are met.

During the nine months ended September 30, 2019, we granted 6.5 million RSUs, consisting of 0.5 million service-based RSUs and approximately 6.0 million performance-based RSUs, including 5.9 million XSUs. As of September 30, 2019, the performance criteria had been met for approximately five thousand of the 6.0 million performance-based RSUs outstanding. Certain of the performance-based RSUs outstanding as of September 30, 2019 can vest with a range of shares earned being between 0% and 200% of the targeted shares granted, depending on the final achievement of pre-determined performance criteria as of the vesting date. The amount of RSUs included in the table above related to such grants is the target level. The maximum additional number of performance-based RSUs that could be earned is 0.3 million, which are not included in the table above.

Certain RSUs that vested in the nine months ended September 30, 2019 were net-share settled such that we withheld shares to cover the employees’ tax obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld related to RSUs were approximately 47 thousand and had a value of $3.3 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2019 (number of units 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	6,458		$	28.24
Granted	—		—
Exercised	(25	)	4.23
Expired / terminated	—		—
Options outstanding, end of period	6,433		28.33		8.33	$	183,023
Options exercisable, end of period	67		4.53		1.19	3,506

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of our common stock of $56.78 on September 30, 2019. The intrinsic value of options exercised for the nine months ended September 30, 2019 and 2018 was $1.1 million and $20.5 million, respectively. As of September 30, 2019, total options outstanding included 6.4 million unvested performance-based stock options. Of this total, 1.6 million options relate to tranches of the CEO Performance Award considered probable of achievement.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of products sold and services delivered	$	312	$	93	$	775	$	359
Sales, general and administrative expenses	9,508		3,748		19,130		8,783
Research and development expenses	3,843		2,414		10,290		6,160
Total stock-based compensation expense	$	13,663	$	6,255	$	30,195	$	15,302

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Stock Incentive Plan

In February 2019, our shareholders approved the 2019 Plan authorizing an additional 6.0 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with the legacy stock incentive plans, there are 2.2 million shares available for grant as of September 30, 2019.

Stock Inducement Plan

In September 2019, our Board of Directors adopted the Axon Enterprise, Inc. 2019 Stock Inducement Plan (the “2019 Inducement Plan”) pursuant to which we reserved 500,000 shares of common stock for issuance under the Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employed by us (or following such individuals’ bona fide periods of non-employment by us), as an inducement material to the individuals’ entry into employment with us. The terms and conditions of the 2019 Inducement Plan are substantially similar to our stockholder-approved 2019 Plan. As of September 30, 2019, there were 30,000 shares available for grant under the 2019 Inducement Plan.

Stock Repurchase Plan

In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of our outstanding common stock subject to stock market conditions and corporate considerations. During the nine months ended September 30, 2019 and 2018, no common shares were purchased under the program. As of September 30, 2019, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

10. Line of Credit

We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $10.0 million is available for letters of credit. The credit agreement matures on December 31, 2021 and has an accordion feature which allows for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of additional bank commitments.

At September 30, 2019 and December 31, 2018, there were no borrowings under the line. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. As of September 30, 2019, we had letters of credit outstanding of approximately $3.6 million under the facility and available borrowing of $46.4 million, excluding amounts available under the accordion feature. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.  

We are required to comply with a maximum funded debt to EBITDA ratio of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At September 30, 2019, our funded debt to EBITDA ratio was 0.001 to 1.00.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

11. Leases

Lease Obligations

We determine if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, we use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. The ROU asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives.

We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease components for all asset classes.

Our leases have remaining terms of less than 1 to approximately 4 years, some of which include one or more options to renew for up to 2 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We sublease certain real estate to third parties. Finance leases as of September 30, 2019 were immaterial.

Leases (in thousands)	Classification	September 30, 2019
Assets
Operating lease assets	Other assets	$	10,592
Liabilities
Current
Operating	Other current liabilities	$	3,959
Noncurrent
Operating	Other long-term liabilities	7,687
Total lease liabilities		$	11,646

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,264		$	3,418
Sublease income	Other income	(82		)	(219		)
Net lease expense		$	1,182		$	3,199

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

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NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Nine Months Ended September 30, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,229
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	888
Weighted average remaining lease term:
Operating leases	3.3 years
Weighted average discount rate:
Operating leases	3.4		%

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	1,114	$	(82	)	$	1,032
2020	4,545		(82		)	4,463
2021	3,639		—			3,639
2022	2,638		—			2,638
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	13,109		(164		)	12,945
Less: Amount representing interest						(1,299		)
Present value of lease payments						$	11,646

As of September 30, 2019, we do not have any leases that have not yet commenced.

Disclosures related to periods prior to adoption of Topic 842

Rent expense under all operating leases, including both cancelable and non-cancellable leases, was $4.2 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

12. Commitments and Contingencies

Land Lease Purchase Agreement

On December 13, 2018, we entered into a Purchase and Sale Agreement ("PSA") to purchase a leasehold interest to a parcel of land located in Maricopa County, Arizona for a period of 84 years, on which we intended to construct our new headquarters. On October 10, 2019, we terminated the PSA because we were unable to secure design approval by the Salt River Pima-Maricopa Indian Community. We expect to forfeit our escrow deposit of approximately $0.2 million, and no further amounts are owed to the counterparty under the agreement. In connection with the termination of the PSA, we recorded an impairment charge of $0.7 million, excluding the aforementioned forfeited deposit, related to the abandonment of certain planning and site development activities.

Data Storage Purchase Commitment

In June 2019, we entered into a purchase agreement for cloud data storage with a 3 year term beginning July 1, 2019. The purchase agreement includes a total commitment of $50.0 million, with an up-front prepayment of $15.0 million that was made in July 2019. The current balance of the prepayment is included within prepaid expenses and other current assets on our condensed consolidated balance sheet. Storage fees under this agreement were $3.7 million for the three and nine months ended September 30, 2019, and were recorded in cost of service sales. The remaining purchase commitment at September 30, 2019 was $46.3 million.

Product Litigation

We are currently named as a defendant in eight lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used by law enforcement officers in connection with arrests. 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 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 Litigation

We are a defendant in a litigation matter filed by Digital Ally Inc. (“Digital”) in the District of Kansas alleging patent infringement regarding our Axon Signal technology. Axon was granted summary judgment of non-infringement on June 17, 2019 and judgment was entered in our favor on all of Digital's claims. Digital has appealed the ruling.

We are also a defendant in a consumer class action lawsuit previously filed and dismissed in California in 2018 and now refiled in the District of Nevada on April 9, 2019 (Case No. 3:1-cv-00192) by consumer weapon purchaser Douglas Richey (“Richey”). The case alleges the TASER Pulse, X2 and X26P CEWs have a faulty safety switch based on Richey’s Pulse allegedly discharging inside its neoprene case in a jacket pocket without injury. Any such discharge was likely due to static electricity, as disclosed in our consumer warnings. We will vigorously defend this claim and the propriety of any class certification. Our motion to dismiss is pending.

U.S. Federal Trade Commission Investigation

In June 2018 we received a letter from the U.S. Federal Trade Commission (“FTC”) with respect to its non-public investigation into our acquisition of VIEVU, LLC in May 2018.  The FTC issued a subpoena for certain information and documentation relating to the acquisition on March 21, 2019. We are cooperating with the investigation.

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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. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on 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 September 30, 2019, we have determined that it is not reasonably possible that these 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, 2019, we had outstanding letters of credit of $3.6 million that are expected to expire in May 2020 and September 2021. Additionally, we had $24.6 million of outstanding surety bonds at September 30, 2019, with $1.1 million expiring in 2020, $2.3 million expiring in 2021, $3.2 million expiring in 2022, $7.5 million expiring in 2023 and the remaining $10.5 million expiring in 2024.

13. Related Party Transactions

We subscribe to various cloud-based applications from Salesforce. Bret Taylor, who was a member of our Board of Directors through June 14, 2019, serves as President and Chief Product Officer of Salesforce. We incur costs at different times throughout the year, typically in advance of services being provided, and subsequently amortize these costs ratably to expense as services are provided over the contractual term. The cost to subscribe to various cloud-based hosting arrangements from Salesforce was $0.5 million and $0.4 million for the three months ended September 30, 2019 and 2018, respectively, and $1.4 million and $1.3 million for the nine months ended September 30, 2019 and 2018, respectively. There were no amounts due to Salesforce as of September 30, 2019. Amounts due to Salesforce as of December 31, 2018 were negligible.

14. Employee Benefit Plans

We have a defined contribution 401(k) plan for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum amount allowed by law of their eligible compensation.

We also have a non-qualified deferred compensation plan for certain executives, employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation, including stock-based compensation, received from us. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows for matching and discretionary employer contributions. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are allocated fully to plan participants and we do not guarantee a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in

23

other assets in the condensed consolidated balance sheets; see Note 6 for balances. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of our general creditors.

Contributions to the plans are made by both the employee and us. Our contributions to the 401(k) plan are based on the level of employee contributions and are immediately vested. Future matching contributions to the plans are at our sole discretion.

We also sponsor defined contribution plans in Australia, Finland, and the United Kingdom.

Our matching contributions for all defined contribution plans were $0.9 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively, and $3.5 million and $2.4 million for the nine months ended September 30, 2019 and 2018, respectively.

15. Segment Data

Our operations are comprised of two reportable segments: the manufacture and sale of CEWs, batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the software and sensors business, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Our Chief Executive Officer, who is the CODM, is not provided asset information or sales, general, and administrative expense by segment.

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

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	TASER		Software and Sensors 1		Total		TASER		Software and Sensors		Total
Net sales from products	$	71,424	$	25,073	$	96,497	$	63,666	$	17,257	$	80,923
Net sales from services	319		34,021		34,340		—		23,913		23,913
Net sales	71,743		59,094		130,837		63,666		41,170		104,836
Cost of product sales	26,504		15,941		42,445		19,256		13,697		32,953
Cost of service sales	—		8,223		8,223		—		6,250		6,250
Cost of sales	26,504		24,164		50,668		19,256		19,947		39,203
Gross margin	$	45,239	$	34,930	$	80,169	$	44,410	$	21,223	$	65,633
Research and development	$	3,485	$	21,644	$	25,129	$	4,837	$	17,145	$	21,982

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	TASER		Software and Sensors 1		Total		TASER		Software and Sensors		Total
Net sales from products	$	197,148	$	67,829	$	264,977	$	187,814	$	50,804	$	238,618
Net sales from services	558		93,474		94,032		—		66,659		66,659
Net sales	197,706		161,303		359,009		187,814		117,463		305,277
Cost of product sales	74,044		46,221		120,265		57,480		38,994		96,474
Cost of service sales	—		24,098		24,098		—		15,566		15,566
Cost of sales	74,044		70,319		144,363		57,480		54,560		112,040
Gross margin	$	123,662	$	90,984	$	214,646	$	130,334	$	62,903	$	193,237
Research and development	$	10,284	$	61,692	$	71,976	$	11,816	$	43,786	$	55,602

¹ Cost of service sales for the three and nine months ended September 30, 2019 includes approximately $0.7 million and $1.6 million, respectively, of third party installation costs.

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

The following discussion and analysis of our financial condition as of September 30, 2019, and results of operations for the three and nine months ended September 30, 2019 and 2018, should be read in conjunction with the condensed consolidated financial

24

statements and related notes included in this Report on Form 10-Q and those in our 2018 Annual Report on Form 10-K filed with the SEC on February 27, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Risk Factors” in our 2018 Annual Report on Form 10-K. See also "Special Note Regarding Forward-Looking Statements" on page ii of this Report on Form 10-Q.

Overview

Axon is a market-leading provider of connected public safety technology solutions. Our core mission is to protect life. We fulfill that mission through developing hardware and software products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Our revenues for the three months ended September 30, 2019 were $130.8 million, an increase of $26.0 million, or 24.8%, from the comparable period in the prior year. We had income from operations of $6.6 million compared to $4.0 million for the same period in the prior year. The increase in income from operations was due to the increase in revenues, partially offset by an increase in cost of sales and investments over the past year for additional headcount in research and development and sales, general and administrative functions to support continued and future growth. Gross margins were compressed related to the rollout of our latest generation TASER device. For the three months ended September 30, 2019, we recorded net income of $6.1 million compared to $5.7 million for the comparable period in the prior year.

Our revenues for the nine months ended September 30, 2019 were $359.0 million, an increase of $53.7 million, or 17.6%, from the comparable period in the prior year. We had income from operations of $8.0 million compared to $22.8 million for the same period in the prior year. The decrease in operating results was due to increased cost of sales, selling, general and administrative expenses, and research and development expenses to support continued and future growth. Gross margins were compressed related to the rollout of our latest generation TASER device and increased data storage expenses. For the nine months ended September 30, 2019, we recorded net income of $13.3 million compared to $27.1 million for the comparable period in the prior year.

2019 Outlook

For the year ending December 31, 2019, we expect revenue to be in the range of $500 million to $510 million. Gross margin for the quarter ending December 31, 2019 is expected to decline compared to the quarter ended September 30, 2019, primarily due to the anticipated mix of lower-margin revenue from shipments of Axon Body 3 and TASER 7 cartridges. We expect margin compression on new hardware shipments in anticipation of higher-margin revenue on additional cloud services over time. We expect stock-based compensation expenses to be approximately $41 million for the full year, which is subject to change depending on our assessment of the probability of attaining operational metrics for the CEO Performance Award and XSU awards, and on the expected timing of such attainment. We expect a normalized income tax rate of between 20% and 25%; this rate can fluctuate depending on geography of income and the effects of discrete items, including changes in our stock price.

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Results of Operations

Three Months Ended September 30, 2019 Compared to the Three Months Ended September 30, 2018

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

	Three Months Ended September 30,
	2019				2018
Net sales from products	$	96,497	73.8	%	$	80,923		77.2	%
Net sales from services	34,340		26.2		23,913			22.8
Net sales	130,837		100.0		104,836			100.0
Cost of product sales	42,445		32.4		32,953			31.4
Cost of service sales	8,223		6.3		6,250			6.0
Cost of sales	50,668		38.7		39,203			37.4
Gross margin	80,169		61.3		65,633			62.6
Operating expenses:
Sales, general and administrative	48,424		37.0		39,685			37.8
Research and development	25,129		19.2		21,982			21.0
Total operating expenses	73,553		56.2		61,667			58.8
Income from operations	6,616		5.1		3,966			3.8
Interest and other income (expense), net	1,820		1.4		1,274			1.2
Income before provision for income taxes	8,436		6.5		5,240			5.0
Provision for (benefit from) income taxes	2,332		1.8		(471		)	(0.4	)
Net income	$	6,104	4.7	%	$	5,711		5.4	%

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

	Three Months Ended September 30,
	2019				2018
United States	$	110,809	85	%	$	88,125	84	%
Other countries	20,028		15		16,711		16
Total	$	130,837	100	%	$	104,836	100	%

International revenue increased compared to the prior year comparable period, driven primarily by increased sales in Europe and Africa, which were partially offset by lower sales in Canada and the Asia Pacific region.

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Net Sales

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

	Three Months Ended September 30,								Dollar Change			Percent Change
	2019				2018
TASER segment:
TASER 7	$	20,214	15.4	%	$	—	—	%	$	20,214		*
TASER X26P	11,578		8.8		17,998		17.2		(6,420		)	(35.7	)
TASER X2	13,241		10.1		20,392		19.4		(7,151		)	(35.1	)
TASER Pulse and Bolt	1,132		0.9		1,402		1.3		(270		)	(19.3	)
Single cartridges	18,901		14.4		18,406		17.6		495			2.7
Axon Evidence and cloud services	218		0.2		—		—		218			*
Extended warranties	4,543		3.5		4,123		3.9		420			10.2
Other	1,916		1.5		1,345		1.3		571			42.5
Total TASER segment	71,743		54.8		63,666		60.7		8,077			12.7
Software and Sensors segment:
Axon Body	6,763		5.2		4,744		4.5		2,019			42.6
Axon Flex	1,670		1.3		1,325		1.3		345			26.0
Axon Fleet	4,341		3.3		1,809		1.7		2,532			140.0
Axon Dock	3,358		2.6		2,178		2.1		1,180			54.2
Axon Evidence and cloud services	34,022		26.0		23,915		22.8		10,107			42.3
TASER Cam	534		0.4		717		0.7		(183		)	(25.5	)
Extended warranties	4,714		3.6		3,161		3.0		1,553			49.1
Other	3,692		2.8		3,321		3.2		371			11.2
Total Software and Sensors segment	59,094		45.2		41,170		39.3		17,924			43.5
Total net sales	$	130,837	100.0	%	$	104,836	100.0	%	$	26,001		24.8	%

* Not applicable

Net unit sales for TASER segment products and Software and Sensors segment products were as follows:

	Three Months Ended September 30,		Unit Change		Percent Change
	2019	2018
TASER 7	17,674	—	17,674		*
TASER X26P	10,766	18,842	(8,076	)	(42.9	)
TASER X2	9,819	16,729	(6,910	)	(41.3	)
TASER Pulse and Bolt	3,923	3,750	173		4.6
Cartridges	566,347	598,119	(31,772	)	(5.3	)
Axon Body	22,037	17,622	4,415		25.1
Axon Flex	5,409	3,487	1,922		55.1
Axon Fleet	2,967	1,601	1,366		85.3
Axon Dock	3,724	3,525	199		5.6
TASER Cam	899	1,339	(440	)	(32.9	)

*Not applicable

Net sales for the TASER segment increased 12.7% primarily due to a net increase of $6.4 million in TASER device sales, as well as smaller increases in cartridge and warranty revenue. As expected, we have continued to see a shift to purchases of our latest generation device, TASER 7, from legacy X2 and X26P devices. Lower unit sales of X2 and X26P devices were partially offset by higher average selling prices. Net sales for the three months ended September 30, 2019 included a total of $6.0 million in revenue that was not recognized during the three months ended June 30, 2019 as forecasted due to an inventory shortfall impacting delivery of TASER 7 devices and cartridges.

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Net sales for the Software and Sensors segment increased 43.5% as we continued to add users and associated devices to our network during the three months ended September 30, 2019. The increase in the aggregate number of users resulted in increased Axon Evidence and extended warranty revenues of $10.1 million and $1.6 million, respectively. Increased revenues for Axon Body, Axon Dock, and Axon Fleet reflected a combination of a higher number of units sold and an increase in the average selling prices. We began selling our Axon Body 3 devices during the quarter ended September 30, 2019. An increase in Axon Flex units was partially offset by a decline in the average selling price.

To gain more immediate feedback regarding activity for Software and Sensors products and services, we also review bookings for these products. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales), including contractual optional periods we expect to be exercised, net of cancellations, inclusive of renewals, placed in the relevant fiscal period, regardless of when the products or services ultimately will be provided. Most bookings will be invoiced in subsequent periods. Due to municipal government funding rules, in some cases certain of the future period amounts included in bookings are subject to budget appropriation or other contract cancellation clauses. Although we have entered into contracts for the delivery of products and services in the future and anticipate the contracts will be fulfilled, if agencies do not exercise contractual options, do not appropriate funds in future year budgets, or do enact a cancellation clause, revenue associated with these bookings may not ultimately be recognized, resulting in a future reduction to bookings. Bookings related to our Software and Sensors segment, net of cancellations, were $128.2 million and $92.9 million during the three months ended September 30, 2019 and 2018, respectively, an increase of $35.3 million, or 38.0%.

The chart below illustrates our Software and Sensors segment quarterly bookings for each of the previous six fiscal quarters (in thousands):

Cost of Product and Service Sales

Within the TASER segment, cost of product sales increased to $26.5 million for the three months ended September 30, 2019 from $19.3 million for the same period in 2018. Cost as a percentage of sales increased to 36.9% from 30.2%. The increase in cost of product sales was primarily attributable to the mix of products, with higher cost per unit for TASER 7 handles and cartridges as well as higher depreciation on new production equipment for the TASER 7.

Within the Software and Sensors segment, cost of product and service sales increased to $24.2 million for the three months ended September 30, 2019 from $19.9 million for the same period in 2018. Cost as a percentage of sales decreased to 40.9% from 48.5%. Cost of product sales increased $2.2 million, but decreased as a percentage of sales, reflecting non-recurrence of customer fulfillment costs associated with our acquisition of VIEVU in May 2018. The savings were partially offset by increased freight

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and customs expenses. Cost of service sales increased $2.0 million, but decreased as a percentage of sales, driven by cost efficiencies on higher revenue.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 63.1% from 69.8% for the three months ended September 30, 2019 and 2018, respectively. TASER 7 devices have a lower average selling price per unit than legacy products due to the bundle of products and services included and a higher cost per unit than legacy products. Additionally, gross margin was impacted by trade in credits provided to certain customers purchasing TASER 7 devices.

As a percentage of net sales, gross margin for the Software and Sensors segment increased to 59.1% from 51.5% for the three months ended September 30, 2019 and 2018, respectively. Within the Software and Sensors segment, hardware gross margin was 36.4% for the three months ended September 30, 2019 compared to 20.6% for the same period in 2018, while the service margins were 75.8% and 73.9% during those same periods, respectively.

Sales, General and Administrative Expenses

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

	Three Months Ended September 30,						Dollar Change		Percent Change
	2019			2018
Total sales, general and administrative expenses	$	48,424		$	39,685		$	8,739	22.0
Sales, general, and administrative as a percentage of net sales	37.0		%	37.8		%

Stock-based compensation expense increased $5.8 million in comparison to the prior year comparable period, which was primarily attributable to an increase of $3.3 million in expense related to the CEO Performance Award and expense of $1.5 million related to our XSPP. During the three months ended September 30, 2019, attainment of the third tranche of the CEO Performance Award and XSPP became probable. Accordingly, we recorded expense of $3.2 million for the CEO Performance Award and $0.8 million for the XSPP reflecting the cumulative expense for the third tranche from the grant dates through September 30, 2019. Stock-based compensation expense also increased over the prior year comparable period due to an increase in headcount.

Salaries, benefits and bonus expense increased $1.4 million, primarily due to an increase in headcount. The increase was partially offset by a decline in bonus expense, reflecting lower anticipated attainment for the annual bonus plan, and by a decline in expense for contract labor.

Sales and marketing expenses increased $3.2 million, driven by a $3.3 million increase in commissions tied to higher revenues. The increase in commissions was also driven by higher commission rates for higher value bundled deals, which have continued to increase.

During the three months ended September 30, 2019, we abandoned certain capitalized planning and site development costs related to the site on which we previously intended to construct our new headquarters, resulting in an impairment charge of $0.7 million. During the prior year comparable period, we recorded an impairment charge of $2.0 million related to the abandonment of certain developed technology acquired in a business combination.

Research and Development Expenses

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

	Three Months Ended September 30,						Dollar Change		Percent Change
	2019			2018
Total research and development expenses	$	25,129		$	21,982		$	3,147	14.3
Research and development as a percentage of net sales	19.2		%	21.0		%

The increase in R&D expense was fully attributable to our Software and Sensors segment. Within the TASER segment, R&D expense decreased $1.4 million, due to lower headcount and a decrease in hardware spending, which was higher during the prior year comparable period leading up to the TASER 7 launch. R&D expense for the Software and Sensors segment increased $4.5 million, primarily due to an increase in salaries and benefits, inclusive of stock-based compensation, of $4.5 million. Contributing to the increase was expense of $0.8 million related to our XSPP. During the three months ended September 30, 2019, attainment of the third tranche of the XSPP became probable. Accordingly, we recorded expense of $0.4 million for the XSPP

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reflecting the cumulative expense for the third tranche from the grant dates through September 30, 2019.

We expect R&D expense to continue to increase in absolute dollars as we focus on growing the Software and Sensors segment as we add headcount and additional resources to develop new products and services to further advance our scalable cloud-connected device platform. We believe that these investments will result in an increase in our subscription revenue base, which over time will result in revenue increasing faster than the increase in SG&A expenses and R&D costs, as we reach economies of scale.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was $1.8 million for the three months ended September 30, 2019 compared to $1.3 million for the same period in 2018. The increase was primarily attributable to increased investment interest income on our higher average balance of cash, cash equivalents and investments.

Provision for Income Taxes

The provision for income taxes was $2.3 million for the three months ended September 30, 2019, which was an effective tax rate of 27.6%. Our estimated full year effective income tax rate for 2019, before discrete period adjustments, is 19.6%, which is less than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, executive compensation limited under IRC Section 162(m), and an income inclusion from GILTI, offset by a reduction for FDII and R&D tax credits. The effective tax rate was favorably impacted by a $0.9 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised and the release of a liability due to a lapse in the applicable statute of limitations during the three months ended September 30, 2019. This was offset by an unfavorable discrete item of $1.6 million related to the write off of certain deferred tax assets related to future stock compensation vests for certain officers for whom deductibility of compensation is limited by IRC Section 162(m) and return to provision adjustments for jurisdictions in which tax returns have been filed.

Net Income

Our net income increased by $0.4 million to $6.1 million for the three months ended September 30, 2019 compared to $5.7 million for the same period in 2018. Net income per basic and diluted share was $0.10 for the three months ended September 30, 2019 compared to $0.10 per basic and diluted share for the same period in 2018.

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Three Months Ended September 30, 2019 Compared to the Three Months Ended June 30, 2019

Net Sales

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

	Three Months Ended September 30, 2019				Three Months Ended June 30, 2019				Dollar Change			Percent Change
TASER segment:
TASER 7	$	20,214	15.4	%	$	9,298	8.3	%	$	10,916		117.4	%
TASER X26P	11,578		8.8		10,382		9.2		1,196			11.5
TASER X2	13,241		10.1		14,087		12.5		(846		)	(6.0	)
TASER Pulse and Bolt	1,132		0.9		1,118		1.0		14			1.3
Single cartridges	18,901		14.4		19,293		17.3		(392		)	(2.0	)
Axon Evidence and cloud services	218		0.2		109		0.1		109			100.0
Extended warranties	4,543		3.5		4,482		4.0		61			1.4
Other	1,916		1.5		1,803		1.6		113			6.3
Total TASER segment	71,743		54.8		60,572		54.0		11,171			18.4
Software and Sensors segment:
Axon Body	6,763		5.2		5,612		5.0		1,151			20.5
Axon Flex	1,670		1.3		1,623		1.4		47			2.9
Axon Fleet	4,341		3.3		3,120		2.8		1,221			39.1
Axon Dock	3,358		2.6		2,731		2.4		627			23.0
Axon Evidence and cloud services	34,022		26.0		31,821		28.3		2,201			6.9
TASER Cam	534		0.4		1,044		0.9		(510		)	(48.9	)
Extended warranties	4,714		3.6		4,420		3.9		294			6.7
Other	3,692		2.8		1,419		1.3		2,273			160.2
Total Software and Sensors segment	59,094		45.2		51,790		46.0		7,304			14.1
Total net sales	$	130,837	100.0	%	$	112,362	100.0	%	$	18,475		16.4	%

Net unit sales for TASER segment products and Software and Sensors segment products were as follows:

	Three Months Ended September 30, 2019	Three Months Ended June 30, 2019	Unit Change		Percent Change
TASER 7	17,674	8,135	9,539		117.3	%
TASER X26P	10,766	9,493	1,273		13.4
TASER X2	9,819	9,759	60		0.6
TASER Pulse and Bolt	3,923	3,631	292		8.0
Cartridges	566,347	606,220	(39,873	)	(6.6	)
Axon Body	22,037	20,346	1,691		8.3
Axon Flex	5,409	3,508	1,901		54.2
Axon Fleet	2,967	2,441	526		21.5
Axon Dock	3,724	3,408	316		9.3
TASER Cam	899	1,716	(817	)	(47.6	)

Net sales within the TASER segment increased by approximately $11.2 million or 18.4% as compared to the prior quarter. Sales were negatively impacted by a total of $6.0 million during the three months ended June 30, 2019 due to an inventory shortfall impacting TASER 7 devices and cartridges. Net sales for the three months ended September 30, 2019 included this $6.0 million. A decline in the number of units of our legacy TASER devices was offset by increases in the average selling prices. Revenue for cartridges was also impacted by a decline in the number of units sold, partially offset by an increase in the blended average selling price.

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Within the Software and Sensors segment, net sales increased 14.1% during the three months ended September 30, 2019 as we continued to add users and associated devices to our network. The increase in the aggregate number of users, including on-premise users in secondary international markets, resulted in increased Axon Evidence revenues of $2.2 million. Increased revenues for Axon Body and Axon Fleet reflected a combination of a higher number of units sold and an increase in the average selling prices. We began selling our Axon Body 3 devices during the quarter ended September 30, 2019. Revenue from other products increased $2.3 million compared to the prior quarter reflecting large sales of Signal Sidearm, Axon Commander, and other smaller product lines.

Nine Months Ended September 30, 2019 Compared to the Nine Months Ended September 30, 2018

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

	Nine Months Ended September 30,
	2019				2018
Net sales from products	$	264,977	73.8	%	$	238,618		78.2	%
Net sales from services	94,032		26.2		66,659			21.8
Net sales	359,009		100.0		305,277			100.0
Cost of product sales	120,265		33.5		96,474			31.6
Cost of service sales	24,098		6.7		15,566			5.1
Cost of sales	144,363		40.2		112,040			36.7
Gross margin	214,646		59.8		193,237			63.3
Operating expenses:
Sales, general and administrative	134,678		37.6		114,787			37.6
Research and development	71,976		20.0		55,602			18.2
Total operating expenses	206,654		57.6		170,389			55.8
Income from operations	7,992		2.2		22,848			7.5
Interest and other income, net	5,978		1.7		2,242			0.7
Income before provision for income taxes	13,970		3.9		25,090			8.2
Provision for (benefit from) income taxes	709		0.2		(2,032		)	(0.7	)
Net income	$	13,261	3.7	%	$	27,122		8.9	%

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

	Nine Months Ended September 30,
	2019				2018
United States	$	298,736	83	%	$	244,806	80	%
Other countries	60,273		17		60,471		20
Total	$	359,009	100	%	$	305,277	100	%

International revenue remained consistent with the prior year comparable period, but decreased as a percentage of total revenue. Revenues increased in Europe and Africa, with the increases partially offset by large sales in the prior year period in the Asia Pacific region and in Canada that did not recur in the current period.

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Net Sales

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

	Nine Months Ended September 30,								Dollar Change			Percent Change
	2019				2018
TASER segment:
TASER 7	$	39,466	11.0	%	$	—	—	%	$	39,466		*
TASER X26P	37,832		10.5		52,618		17.2		(14,786		)	(28.1	)
TASER X2	40,413		11.3		62,686		20.5		(22,273		)	(35.5	)
TASER Pulse and Bolt	2,920		0.8		3,849		1.3		(929		)	(24.1	)
Single cartridges	57,354		16.0		51,763		17.0		5,591			10.8
Axon Evidence and cloud services	363		0.1		—		—		363			*
Extended warranties	13,341		3.7		11,567		3.8		1,774			15.3
Other	6,017		1.7		5,331		1.7		686			12.9
Total TASER segment	197,706		55.1		187,814		61.5		9,892			5.3
Software and Sensors segment:
Axon Body	18,820		5.2		15,082		4.9		3,738			24.8
Axon Flex	4,517		1.3		4,529		1.5		(12		)	(0.3	)
Axon Fleet	10,977		3.1		6,640		2.2		4,337			65.3
Axon Dock	9,401		2.6		7,332		2.4		2,069			28.2
Axon Evidence and cloud services	93,461		26.0		64,513		21.2		28,948			44.9
TASER Cam	2,481		0.7		2,839		0.9		(358		)	(12.6	)
Extended warranties	14,064		3.9		8,521		2.8		5,543			65.1
Other	7,582		2.1		8,007		2.6		(425		)	(5.3	)
Total Software and Sensors segment	161,303		44.9		117,463		38.5		43,840			37.3
Total net sales	$	359,009	100.0	%	$	305,277	100.0	%	$	53,732		17.6	%

* Not applicable

Net unit sales for TASER segment products and Software and Sensors segment products were as follows:

	Nine Months Ended September 30,		Unit Change		Percent Change
	2019	2018
TASER 7	34,644	—	34,644		*
TASER X26P	35,244	53,226	(17,982	)	(33.8	)
TASER X2	29,439	52,767	(23,328	)	(44.2	)
TASER Pulse and Bolt	8,807	10,908	(2,101	)	(19.3	)
Cartridges	1,789,084	1,742,207	46,877		2.7
Axon Body	68,231	59,798	8,433		14.1
Axon Flex	12,508	10,461	2,047		19.6
Axon Fleet	7,143	5,537	1,606		29.0
Axon Dock	12,126	13,903	(1,777	)	(12.8	)
TASER Cam	4,356	6,358	(2,002	)	(31.5	)

*Not applicable

Net sales for the TASER segment increased 5.3% primarily as a result of a $5.6 million increase in cartridge revenue, an increase of $1.8 million in warranty revenue, and a net increase of $1.5 million in TASER device sales. Cartridge revenues increased due to both increased unit sales and an increase in average selling price. The decreased unit sales of X2 and X26P were partially offset by higher average selling prices. As expected, we continue to see a shift to purchases of our latest generation device, TASER 7, from legacy X2 and X26P devices.

33

Net sales for the Software and Sensors segment increased 37.3% as we continued to add users and associated devices to our network during the nine months ended September 30, 2019. The increase in the aggregate number of users resulted in increased Axon Evidence and extended warranty revenues of $28.9 million and $5.5 million, respectively. Increased revenues for Axon Body and Axon Fleet reflected a combination of a higher number of units sold and an increase in the average selling price. A decrease in Axon Dock units was offset by an increase in the average selling price.

Cost of Product and Service Sales

Within the TASER segment, cost of product sales increased to $74.0 million for the nine months ended September 30, 2019 from $57.5 million for the same period in 2018. Cost as a percentage of sales increased to 37.5% from 30.6%. The increase in cost of product sales was primarily attributable to the mix of products, with higher cost per unit for TASER 7 handles and cartridges as well as higher depreciation on new production equipment for the TASER 7. Additionally, cost of product sales included approximately $2.3 million in expense for TASER 7 ramp-up and optimization costs related to scrap, obsolete inventory, and higher labor costs.

Within the Software and Sensors segment, cost of product and service sales increased to $70.3 million for the nine months ended September 30, 2019 from $54.6 million for the same period in 2018. Cost as a percentage of sales decreased to 43.6% from 46.4%. Cost of product sales increased $7.2 million primarily driven by the impact of increased units as well as increased freight and customs expenses, but decreased as a percentage of sales, reflecting non-recurrence of customer fulfillment costs associated with our acquisition of VIEVU in May 2018. Cost of service sales increased $8.5 million driven primarily by a $4.1 million increase in third party cloud data storage and compute costs, and by a $3.4 million increase in professional services expense due to both significant Fleet installations during the nine months ended September 30, 2019 and an overall increase following the acquisition of VIEVU in May 2018. In June 2019, we entered into a purchase agreement for cloud data storage with a three year term beginning July 1, 2019. We expect that this agreement, in combination with moving certain data into archive storage, will slow the growth of our future storage and compute costs, despite anticipated increases in the amount of data stored.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 62.5% from 69.4% for the nine months ended September 30, 2019 and 2018, respectively. TASER 7 devices have a lower average selling price per unit than legacy products due to the bundle of products and services included, and a higher cost per unit than legacy products. Additionally, gross margin was impacted by trade in credits provided to certain customers purchasing TASER 7 devices.

As a percentage of net sales, gross margin for the Software and Sensors segment increased slightly to 56.4% from 53.6%. Within the Software and Sensors segment, hardware gross margin was 31.9% for the nine months ended September 30, 2019 compared to 23.2% for the same period in 2018, while the service margins were 74.2% and 76.6% during those same periods, respectively.

Sales, General and Administrative Expenses

SG&A expenses were comprised as follows (dollars in thousands):

	Nine Months Ended September 30,						Dollar Change		Percent Change
	2019			2018
Total sales, general and administrative expenses	$	134,678		$	114,787		$	19,891	17.3
Sales, general, and administrative as a percentage of net sales	37.6		%	37.6		%

Stock-based compensation expense increased $10.3 million in comparison to the prior year comparable period, which was primarily attributable to an increase of $5.6 million in expense related to the CEO Performance Award and expense of $2.8 million related to our XSPP. During the three months ended September 30, 2019, attainment of the third tranche of the CEO Performance Award and XSPP became probable. Accordingly, we recorded expense of $3.2 million for the CEO Performance Award and $0.8 million for the XSPP reflecting the cumulative expense for the third tranche from the grant dates through September 30, 2019. Stock-based compensation expense also increased over the prior year comparable period due to an increase in headcount.

Salaries, benefits and bonus expenses increased $4.0 million primarily due to an increase in headcount. The increase was partially offset by a decline in bonus expense, reflecting lower anticipated attainment for the annual bonus plan, and by a decline in expense for contract labor.

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Sales and marketing expenses increased $7.0 million driven primarily by a $5.9 million increase in commissions tied to higher revenues and increased promotions, sponsorship, and tradeshow expenses primarily related to Axon Accelerate. The increase in commissions was also driven by higher commission rates for higher value bundled deals, which have continued to increase.

Travel expenses increased $1.1 million driven primarily by increased headcount.

Research and Development Expenses

R&D expenses were comprised as follows (dollars in thousands):

	Nine Months Ended September 30,						Dollar Change		Percent Change
	2019			2018
Total research and development expenses	$	71,976		$	55,602		$	16,374	29.4
Research and development as a percentage of net sales	20.0		%	18.2		%

The increase in R&D expense was fully attributable to our Software and Sensors segment. R&D expense for the Software and Sensors segment increased $17.9 million, primarily due to a $15.4 million increase related to salaries and benefits, inclusive of stock-based compensation. Contributing to the increase was expense of $1.4 million related to our XSPP. During the three months ended September 30, 2019, attainment of the third tranche of the XSPP became probable. Accordingly, we recorded expense of $0.4 million for the XSPP reflecting the cumulative expense for the third tranche from the grant dates through September 30, 2019. Within the TASER segment, R&D expense decreased $1.5 million, due to lower headcount and a decrease in hardware spending, which was higher during the prior year comparable period leading up to the TASER 7 launch.

We expect R&D expense to continue to increase in absolute dollars as we focus on growing the Software and Sensors segment as we add headcount and additional resources to develop new products and services to further advance our scalable cloud-connected device platform. We believe that these investments will result in an increase in our subscription revenue base, which over time will result in revenue increasing faster than the increase in SG&A expenses and R&D costs, as we reach economies of scale.

Interest and Other Income (Expense), Net

Interest and other income, net was $6.0 million for the nine months ended September 30, 2019 compared to $2.2 million for the same period in 2018. The increase was primarily attributable to increased investment interest income on our higher average balance of cash, cash equivalents and investments.

Provision for Income Taxes

The provision for income taxes was an expense of $0.7 million for the nine months ended September 30, 2019, which was an effective tax rate of 5.1%. Our estimated full year effective income tax rate for 2019, before discrete period adjustments, is 19.6%, which is less than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, executive compensation limited under IRC Section 162(m), and an income inclusion from GILTI, offset by a reduction for FDII and R&D tax credits. The effective tax rate was favorably impacted by a $3.9 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised during the nine months ended September 30, 2019. This was offset by an unfavorable discrete item of $1.7 million related to the write off of certain deferred tax assets related to future stock compensation vests for certain officers for whom deductibility of compensation is limited by IRC Section 162(m) and return to provision adjustments for jurisdictions in which tax returns have been filed.

Net Income

Our net income decreased by $13.9 million to $13.3 million for the nine months ended September 30, 2019 compared to $27.1 million for the same period in 2018. Net income per basic and diluted share was $0.22 for the nine months ended September 30, 2019 compared to $0.49 per basic share and $0.47 per diluted share for the same period in 2018.

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Non-GAAP Measures

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

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

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

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

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

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

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

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

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

	Three Months Ended									Nine Months Ended
	September 30, 2019			June 30, 2019			September 30, 2018			September 30, 2019			September 30, 2018
Net income	$	6,104		$	738		$	5,711		$	13,261		$	27,122
Depreciation and amortization	2,709			2,687			3,065			8,196			8,226
Interest expense	4			17			16			27			53
Investment interest income	(1,647		)	(1,630		)	(1,256		)	(5,280		)	(1,926		)
Provision for (benefit from) income taxes	2,332			(188		)	(471		)	709			(2,032		)
EBITDA	$	9,502		$	1,624		$	7,065		$	16,913		$	31,443
Adjustments:
Stock-based compensation expense	13,663			8,627			6,255			30,195			15,302
Adjusted EBITDA (CEO Performance Award)	$	23,165		$	10,251		$	13,320		$	47,108		$	46,745

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Liquidity and Capital Resources

Summary

As of September 30, 2019, we had $204.1 million of cash, cash equivalents and restricted cash, a decrease of $146.9 million as compared to December 31, 2018. The decrease in the balance of cash, cash equivalents and restricted cash was primarily attributable to the net purchase of investments of $150.5 million. As of September 30, 2019, we had $202.6 million of cash and cash equivalents, of which $48.6 million was held in foreign locations. Our ongoing sources of cash include cash on hand, investments, and cash flows from operations. In addition, our $50.0 million revolving credit facility is available for additional working capital needs or investment opportunities. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.  

As of September 30, 2019, we had letters of credit outstanding of $3.6 million, leaving the net amount available for borrowing of $46.4 million. The facility matures on December 31, 2021, and has an accordion feature which allows for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of additional bank commitments. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our revolving credit facility. At September 30, 2019 and December 31, 2018, there were no borrowings under the line other than the outstanding letters of credit.

Our agreement with the bank requires us to comply with a maximum funded debt to EBITDA ratio, as defined, of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At September 30, 2019, our funded debt to EBITDA ratio was 0.001 to 1.00.

TASER 60 installment purchase arrangements typically involve amounts invoiced in five equal installments at the beginning of each year of the five-year term. This is in contrast to a traditional CEW sale in which the entire amount being charged for the hardware is invoiced upon shipment. This impacts liquidity in a commensurate fashion, with the cash for the TASER 60 arrangement received in five annual installments rather than up front. It is our strategic intent to shift an increasing amount of our business to a subscription model, to better match the municipal budgeting process of our customers as well as to allow for multiple product offerings to be bundled into existing subscriptions. We carefully considered the cash flow impacts of this strategic shift and regularly revisit our cash flow forecast with the goal of maintaining a comfortable level of liquidity as we introduce commercial offerings in which we incur upfront cash costs to produce and fulfill hardware sales ahead of the cash inflows from our customers. We anticipate, and have prepared for, the majority of our arrangements in both reportable segments to be offered in similar subscription-type offerings over the coming years. With the launch of the TASER 7, which is primarily being sold in subscription offerings, we expect this strategic shift to accelerate.

Based on our strong balance sheet and the fact that we do not have long-term debt at September 30, 2019, we believe financing will be available, both through our existing credit line and possible additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions and other liquidity requirements through at least the next 12 months. We and our Board of Directors may consider repurchases of our common stock from time to time pursuant to our stock repurchase plan. Further repurchases of our common stock would take place on the open market, would be financed with available cash and are subject to market and business conditions.

Cash Flows

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

	Nine Months Ended September 30,
	2019			2018
Net cash provided by operating activities	$	19,864		$	32,636
Net cash used in investing activities	(162,925		)	(6,003		)
Net cash provided by (used in) financing activities	(3,162		)	222,158
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(678		)	(381		)
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(146,901	)	$	248,410

37

Operating activities

Net cash provided by operating activities in the first nine months of 2019 of $19.9 million reflects $13.3 million in net income, non-cash income statement items totaling $40.4 million, and a negative impact on cash of $33.8 million for the net change in operating assets and liabilities. Included in the non-cash items were $8.2 million in depreciation and amortization expense and $30.2 million in stock-based compensation expense. Cash used in operations was impacted by increased accounts and notes receivable and contract assets of $30.5 million, decreased accounts payable, accrued liabilities and other liabilities of $13.5 million, increased inventory of $6.3 million, and increased prepaid expenses and other assets of $12.0 million. The increase in accounts and notes receivable and contract assets was attributable to increased sales over the last several quarters, primarily sales made under subscription plans. The decrease in accounts payable, accrued liabilities and other liabilities was primarily attributable to the timing of payments, and to payments made during 2019 for operating leases following our adoption of Topic 842. The increase in prepaid expenses and other assets was primarily attributable to a $15.0 million prepayment related to a purchase agreement for cloud data storage that commenced in July 2019. Cash provided by operations was positively impacted by various other operating items, including increased deferred revenue of $28.5 million.

Net cash provided by operating activities in the first nine months of 2018 of $32.6 million reflects $27.1 million in net income impacted by the net increase of non-cash income statement items totaling $23.7 million and cash outflows of $18.2 million for the net change in operating assets and liabilities. Included in the non-cash items were $8.2 million in depreciation and amortization expense and $15.3 million in stock-based compensation expense. Increases to operating cash flows consisted primarily of increased deferred revenue of $31.7 million and decreased inventory of $9.0 million. The increase in deferred revenue was primarily driven by increased Software and Sensors services invoiced in advance. Cash used in operations was also impacted by various other operating items, with the most significant component related to increased accounts and notes receivable and contract assets of $51.2 million, primarily related to increased customer balances under our Officer Safety Plan and TASER 60 purchase programs, including adjustments to our opening balance sheet related to our adoption of ASC 606. Cash provided by operations was also impacted by increased accounts payable and accrued liabilities of $4.3 million and decreased inventory of $9.0 million.

Investing activities

We used $162.9 million in investing activities during the first nine months of 2019, which was comprised of $150.5 million for the purchase of investments, net of proceeds, and $12.4 million for the purchase of property and equipment and intangible assets.

We used $6.0 million in investing activities during the first nine months of 2018. Maturities and calls of investments, net of purchases, were $6.3 million. We invested $7.3 million in the purchase of property and equipment and intangible assets in addition to our $5.0 million investment related to the acquisition of VIEVU, LLC.

Financing activities

Net cash used in financing activities was $3.2 million during the first nine months of 2019. During the first nine months of 2019, we paid income and payroll taxes of $3.3 million on behalf of employees who net-settled stock awards during the period, which was partially offset by proceeds from options exercised of $0.1 million.

Net cash generated by financing activities was $222.2 million during the first nine months of 2018 . In May 2018, we completed a public follow-on equity offering that generated net proceeds of $234.0 million which was partially offset by income and payroll taxes of $12.0 million paid by us on behalf of employees who net-settled stock awards during the period.

Off-Balance Sheet Arrangements

The discussion of off-balance sheet arrangements in Note 12 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q is incorporated by reference herein. 

Critical Accounting Estimates

We have identified the following accounting estimates as critical to our business operations and the understanding of our results of operations. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates. The effect of these estimates on our financial condition and results of operations are discussed below.

Stock-Based Compensation

We have historically granted stock-based compensation to key employees and non-employee directors as a means of attracting and retaining highly qualified personnel. Stock-based compensation awards primarily consist of service-based RSUs, performance-based RSUs, and performance-based options. RSUs are classified as equity and measured at the fair market value of the underlying stock at the grant date. We recognize RSU expense using the straight-line attribution method over the requisite service period. We also issue performance-based RSUs, the vesting of which is contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful and timely development and market acceptance of future product introductions. For performance-based RSUs containing only performance conditions, compensation cost is recognized using the graded attribution model over the explicit or implicit service period. For awards containing multiple service, performance or market conditions, and all conditions must be satisfied prior to vesting, compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period, based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based compensation expense and additional paid-in-capital.

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance goals when the achievement of each individual performance goal becomes probable. For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition

38

is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations. Refer to Note 9 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q.

We have granted a total of 13.5 million performance-based awards (options and restricted stock units) of which 12.4 million are outstanding as of September 30, 2019, the vesting of which is contingent upon the achievement of certain performance criteria including the successful development and market acceptance of future product introductions, our future sales targets, operating performance, and market capitalization. These awards will vest and compensation expense will be recognized based on management’s best estimate of the probability of the performance criteria being satisfied using the most currently available projections of future product adoption and operating performance, adjusted at each balance sheet date. Changes in the subjective and probability-based assumptions can materially affect the estimate of the fair value of stock-based compensation and consequently, the related amount recognized in our condensed consolidated statements of operations and comprehensive income.

Leases

We adopted Topic 842 as of January 1, 2019. Refer to Note 1 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q for further discussion about the new standard and its impact on our condensed consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We typically invest in a limited number of financial instruments, consisting principally of investments in money market accounts, certificates of deposit, and corporate and municipal bonds with a typical long-term debt rating of “A” or better by any nationally recognized statistical rating organization, denominated in U.S. dollars. All of our cash equivalents and investments are treated as “held-to-maturity.” Investments in fixed-rate interest-earning instruments carry a degree of interest rate risk as their market value may be adversely impacted due to a rise in interest rates. As a result, we may suffer losses in principal if we sell securities that have declined in market value due to changes in interest rates. However, because we classify our debt securities as “held-to-maturity” based on our intent and ability to hold these instruments to maturity, no gains or losses are recognized due to changes in interest rates. These securities are reported at amortized cost. Based on investment positions as of September 30, 2019, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $0.7 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.

Additionally, we have access to a $50.0 million line of credit borrowing facility which bears interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to EBITDA ratio. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled $3.6 million at September 30, 2019. At September 30, 2019, there was no amount outstanding under the line of credit and the available borrowing under the line of credit was $46.4 million. We have not borrowed any funds under the line of credit since its inception; however; should we need to do so in the future, such borrowings could be subject to adverse or favorable changes in the underlying interest rate.

Exchange Rate Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, in each case compared to the U.S. dollar, related to transactions by our foreign subsidiaries. The majority of our sales to international customers are transacted in U.S. dollars and therefore, are not subject to exchange rate fluctuations on these transactions. However, the cost of our products to our customers increases when the U.S. dollar strengthens against their local currency, and we may have more sales and expenses denominated in foreign currencies in future years which could increase our foreign exchange rate risk. Additionally, intercompany sales to our non-U.S. dollar functional currency international subsidiaries are transacted in U.S. dollars which could increase our foreign exchange rate risk caused by foreign currency transaction gains and losses.

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

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer are responsible for the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of September 30, 2019.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

39

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The discussion under the headings Product Litigation, Other Litigation, and U.S. Federal Trade Commission Investigation in Note 12 of the notes to our condensed consolidated financial statements included in PART I, ITEM 1 of this Report on Form 10-Q is incorporated by reference herein.

Item 1A. Risk Factors

There are no other material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock, except as noted below.

Higher costs or unavailability of materials could adversely affect our financial results.

We depend on certain domestic and international suppliers for the delivery of components used in the assembly of our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or sub-assemblies and reduced control over pricing and timing of delivery of components and sub-assemblies. Specifically, we depend on suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire fabrications and other miscellaneous customer parts for our products. We do not have any significant long-term agreements with any of our suppliers and there is no guarantee that supply will not be interrupted.

Single or sole-source components used in the manufacture of our products may become unavailable or discontinued. Delays caused by industry allocations or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product re-design to ensure quality replacement components. These delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition or results of operations and could injure our reputation.

A significant number of our raw materials or components are comprised of petroleum-based products or incur some form of landed cost associated with transporting the raw materials or components to our facility. Our freight and import costs and the timely delivery of our products could be adversely impacted by a number of factors which could reduce the profitability of our operations, including: higher fuel costs; potential port closures; customs clearance issues; increased government regulation or changes for imports of foreign products into the U.S.; delays created by terrorist attacks or threats, public health issues, national disasters or work stoppages; and other matters. Any interruption of supply for any material components of our products could significantly delay the shipment of our products and have a material adverse effect on our revenues, profitability and financial condition. International or domestic geopolitical or other events, including the imposition of new or increased tariffs and/or quotas by the U.S. government on any of these raw materials or components, could adversely impact the supply and cost of these raw materials or components, and could adversely impact the profitability of our operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

40

Item 6. Exhibits

10.1	Axon Enterprise, Inc. 2019 Stock Inducement Plan (incorporated by reference to Exhibit 99.1 to the registration statement on Form S-8, filed September 23, 2019)
31.1*	Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**	Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	The cover page from the Company's Quarterly Report for the quarter ended September 30, 2019, formatted in Inline XBRL

*    Filed herewith

**    Furnished herewith

41

SIGNATURES

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

AXON ENTERPRISE, INC.
Date:	November 8, 2019
		By:	/s/ PATRICK W. SMITH
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 8, 2019	By:	/s/ JAWAD A. AHSAN
			Chief Financial Officer
			(Principal Financial and
			Accounting Officer)

42

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) or RULE 15d-14(a)

SECURITIES EXCHANGE ACT OF 1934

I, Patrick W. Smith, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 of Axon Enterprise, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 8, 2019	By:	/s/ Patrick W. Smith
			Patrick W. Smith
			Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) or RULE 15d-14(a)

SECURITIES EXCHANGE ACT OF 1934

I, Jawad A. Ahsan, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019 of Axon Enterprise, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	November 8, 2019	By:	/s/ Jawad A. Ahsan
			Jawad A. Ahsan
			Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Axon Enterprise, Inc. (the “Company”) for the quarterly period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick W. Smith, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick W. Smith

Patrick W. Smith

Chief Executive Officer

November 8, 2019

In connection with the Quarterly Report on Form 10-Q of Axon Enterprise, Inc. (the “Company”) for the quarterly period ended September 30, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jawad A. Ahsan, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jawad A. Ahsan

Jawad A. Ahsan

Chief Financial Officer

November 8, 2019

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Other Assets (Tables)

9 Months Ended

Sep. 30, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Assets

Other assets consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Cash surrender value of corporate-owned life insurance policies	$	4,020	$	3,596
Deferred commissions (1)	17,920		15,530
Restricted cash	658		661
Operating lease assets	10,592		—
Prepaid expenses, deposits and other	3,952		3,212
Total other assets	$	37,142	$	22,999

⁽¹⁾ Represents the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized consistent with the recognition timing of the revenue for the underlying performance obligations.

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Revenues (Tables)

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Summary of Revenue by Product and Service Offering and Geography

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

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	20,214	$	—	$	20,214	$	—	$	—	$	—
TASER X26P	11,578		—		11,578		17,998		—		17,998
TASER X2	13,241		—		13,241		20,392		—		20,392
TASER Pulse and Bolt	1,132		—		1,132		1,402		—		1,402
Single cartridges	18,901		—		18,901		18,406		—		18,406
Axon Body	—		6,763		6,763		—		4,744		4,744
Axon Flex	—		1,670		1,670		—		1,325		1,325
Axon Fleet	—		4,341		4,341		—		1,809		1,809
Axon Dock	—		3,358		3,358		—		2,178		2,178
Axon Evidence and cloud services	218		34,022		34,240		—		23,915		23,915
TASER Cam	—		534		534		—		717		717
Extended warranties	4,543		4,714		9,257		4,123		3,161		7,284
Other	1,916		3,692		5,608		1,345		3,321		4,666
Total	$	71,743	$	59,094	$	130,837	$	63,666	$	41,170	$	104,836

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	39,466	$	—	$	39,466	$	—	$	—	$	—
TASER X26P	37,832		—		37,832		52,618		—		52,618
TASER X2	40,413		—		40,413		62,686		—		62,686
TASER Pulse and Bolt	2,920		—		2,920		3,849		—		3,849
Single cartridges	57,354		—		57,354		51,763		—		51,763
Axon Body	—		18,820		18,820		—		15,082		15,082
Axon Flex	—		4,517		4,517		—		4,529		4,529
Axon Fleet	—		10,977		10,977		—		6,640		6,640
Axon Dock	—		9,401		9,401		—		7,332		7,332
Axon Evidence and cloud services	363		93,461		93,824		—		64,513		64,513
TASER Cam	—		2,481		2,481		—		2,839		2,839
Extended warranties	13,341		14,064		27,405		11,567		8,521		20,088
Other	6,017		7,582		13,599		5,331		8,007		13,338
Total	$	197,706	$	161,303	$	359,009	$	187,814	$	117,463	$	305,277

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
United States	$	110,809	85	%	$	88,125	84	%	$	298,736	83	%	$	244,806	80	%
Other countries	20,028		15		16,711		16		60,273		17		60,471		20
Total	$	130,837	100	%	$	104,836	100	%	$	359,009	100	%	$	305,277	100	%

Contract with Customer, Assets and Liabilities

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, 2019 (in thousands):

	September 30, 2019
Contract assets, net	$	33,635
Contract liabilities (deferred revenue)	209,309
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	83,159

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

	September 30, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	11,677	$	16,633	$	28,310	$	12,797	$	16,847	$	29,644
Software and Sensors	9,899		5,450		15,349		8,273		6,516		14,789
	21,576		22,083		43,659		21,070		23,363		44,433
Hardware:
TASER	4,378		17,601		21,979		9,355		15,598		24,953
Software and Sensors	39,308		27,357		66,665		20,878		24,685		45,563
	43,686		44,958		88,644		30,233		40,283		70,516
Services:
TASER	11		396		407		—		—		—
Software and Sensors	61,887		14,712		76,599		55,713		10,771		66,484
	61,898		15,108		77,006		55,713		10,771		66,484
Total	$	127,160	$	82,149	$	209,309	$	107,016	$	74,417	$	181,433

	September 30, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	16,066	$	34,630	$	50,696	$	22,152	$	32,445	$	54,597
Software and Sensors	111,094		47,519		158,613		84,864		41,972		126,836
Total	$	127,160	$	82,149	$	209,309	$	107,016	$	74,417	$	181,433

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2019

Retirement Benefits [Abstract]

Employee Benefit Plans

Employee Benefit Plans

We have a defined contribution 401(k) plan for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum amount allowed by law of their eligible compensation.

We also have a non-qualified deferred compensation plan for certain executives, employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation, including stock-based compensation, received from us. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows for matching and discretionary employer contributions. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are allocated fully to plan participants and we do not guarantee a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in

other assets in the condensed consolidated balance sheets; see Note 6 for balances. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of our general creditors.

Contributions to the plans are made by both the employee and us. Our contributions to the 401(k) plan are based on the level of employee contributions and are immediately vested. Future matching contributions to the plans are at our sole discretion.

We also sponsor defined contribution plans in Australia, Finland, and the United Kingdom.

Our matching contributions for all defined contribution plans were $0.9 million and $0.9 million for the three months ended September 30, 2019 and 2018, respectively, and $3.5 million and $2.4 million for the nine months ended September 30, 2019 and 2018, respectively.

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Revenues - Revenue Performance Obligations (Details) $ in Millions	Sep. 30, 2019 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-10-01 | Minimum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation to be recognized in the next twelve months, percent	15.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-10-01 | Maximum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation to be recognized in the next twelve months, percent	20.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period	12 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: (nil)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation	$ 1,130
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01 | Minimum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, period	5 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01 | Maximum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, period	7 years

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Goodwill and Intangible Assets - Intangible Assets Other than Goodwill (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	$ 1,822	$ 1,858
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	24,039	26,727
Accumulated Amortization	(12,333)	(12,650)
Total	11,706	14,077
Intangible assets, Gross Carrying Amount	25,861	28,585
Intangible assets, Net Carrying Amount	13,528	15,935
TASER trademark
Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	900	900
Patents and trademarks pending
Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	922	958
Domain names
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,161	3,161
Accumulated Amortization	(959)	(732)
Total	$ 2,202	2,429
Domain names | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	5 years
Domain names | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	10 years
Issued patents
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 3,170	2,940
Accumulated Amortization	(1,268)	(1,106)
Total	$ 1,902	1,834
Issued patents | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	4 years
Issued patents | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	15 years
Issued trademarks
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 1,006	1,053
Accumulated Amortization	(532)	(599)
Total	$ 474	454
Issued trademarks | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	3 years
Issued trademarks | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	11 years
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 3,664	3,701
Accumulated Amortization	(1,263)	(880)
Total	$ 2,401	2,821
Customer relationships | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	4 years
Customer relationships | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	8 years
Non-compete agreements
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 446	540
Accumulated Amortization	(397)	(439)
Total	$ 49	101
Non-compete agreements | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	3 years
Non-compete agreements | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	4 years
Developed technology
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 10,660	13,404
Accumulated Amortization	(5,982)	(7,081)
Total	$ 4,678	6,323
Developed technology | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	3 years
Developed technology | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	7 years
Re-acquired distribution rights
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	2 years
Gross Carrying Amount	$ 1,932	1,928
Accumulated Amortization	(1,932)	(1,813)
Total	$ 0	$ 115

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Accrued Liabilities (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018	Sep. 30, 2018	Dec. 31, 2017
Payables and Accruals [Abstract]
Accrued salaries, benefits and bonus	$ 17,058		$ 19,063
Accrued professional, consulting and lobbying fees	5,002		4,894
Accrued warranty expense	1,071		898	$ 959	$ 644
Accrued income and other taxes	5,143		4,167
Other accrued liabilities	7,471		12,070
Accrued liabilities	$ 35,745	$ 39,954	$ 41,092

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Related Party Transactions - Additional Information (Detail) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Related Party Transaction [Line Items]
Outstanding amount due to related parties	$ 0		$ 0
Software Licensing and Subscription | Officer
Related Party Transaction [Line Items]
Quarterly payments	$ 500,000	$ 400,000	$ 1,400,000	$ 1,300,000

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Leases - Lease Expense (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2019
Leases [Abstract]
Operating lease cost	$ 1,264	$ 3,418
Sublease income	(82)	(219)
Net lease expense	$ 1,182	$ 3,199

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Stockholders' Equity - Stock Repurchase Plan - Additional Information (Detail) - USD ($)	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Feb. 28, 2019	Feb. 29, 2016
2019 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for issuance (in shares)			6,000,000.0
Shares available for grant under the plan (in shares)	2,200,000
2016 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding common stock repurchase program authorized amount (up to)				$ 50,000,000.0
Shares repurchased during period (in shares)	0	0
Remaining authorized repurchase amount	$ 16,300,000
2019 Inducement Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for issuance (in shares)	500,000
Shares available for grant under the plan (in shares)	30,000

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Stockholders' Equity - Restricted Stock Units - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended	9 Months Ended
	Jan. 31, 2019	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period over which costs are recognized		7 years 3 months 18 days
Tax payments, for net share settlement of share based award		$ 3,268	$ 11,973
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)		$ 56.78
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense related to non-vested stock options		$ 99,200
Weighted average period over which costs are recognized		5 years 1 month 28 days
Units released due to performance criteria threshold (in shares)		450,000
Number of units outstanding (as a percentage)		7,271,000		1,655,000
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)		6,476,000
Shares withheld, for net share settlement of share based award (in shares)		47,000
Tax payments, for net share settlement of share based award		$ 3,300
Service Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)		500,000
Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)		6,000,000.0
Units released due to performance criteria threshold (in shares)		5,000,000
Number of units outstanding (as a percentage)		6,000,000.0
Maximum additional shares to be issued (in shares)		300,000
eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)	60	5,900,000
Minimum | Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of targeted shares vested		0.00%
Maximum | Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of targeted shares vested		200.00%

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Income Taxes - Additional Information (Detail) $ in Millions	9 Months Ended
	Sep. 30, 2019 USD ($)
Tax Credit Carryforward [Line Items]
Deferred tax assets, net	$ 23.3
Unrecognized tax benefits	6.2
Research and development tax credit studies	$ 2.9
Overall effective tax rate, after discrete period adjustments (as a percentage)	5.10%
Effective tax rate, before discrete period adjustment (as a percentage)	19.60%
Write off of certain deferred tax assets	$ 1.7
Restricted Stock Units (RSUs)
Tax Credit Carryforward [Line Items]
Discrete tax benefit, stock-based compensation	3.9
State Tax
Tax Credit Carryforward [Line Items]
Unrecognized tax benefits recognized during period	6.1
Federal Income Tax
Tax Credit Carryforward [Line Items]
Unrecognized tax benefits recognized during period	$ 0.1

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Line of Credit

9 Months Ended

Sep. 30, 2019

Debt Disclosure [Abstract]

Line of Credit

Line of Credit

We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $10.0 million is available for letters of credit. The credit agreement matures on December 31, 2021 and has an accordion feature which allows for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of additional bank commitments.

At September 30, 2019 and December 31, 2018, there were no borrowings under the line. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. As of September 30, 2019, we had letters of credit outstanding of approximately $3.6 million under the facility and available borrowing of $46.4 million, excluding amounts available under the accordion feature. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.  

We are required to comply with a maximum funded debt to EBITDA ratio of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At September 30, 2019, our funded debt to EBITDA ratio was 0.001 to 1.00.

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Other Assets

9 Months Ended

Sep. 30, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

Other Assets

Other assets consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Cash surrender value of corporate-owned life insurance policies	$	4,020	$	3,596
Deferred commissions (1)	17,920		15,530
Restricted cash	658		661
Operating lease assets	10,592		—
Prepaid expenses, deposits and other	3,952		3,212
Total other assets	$	37,142	$	22,999

⁽¹⁾ Represents the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized consistent with the recognition timing of the revenue for the underlying performance obligations.

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Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 202,551	$ 349,462
Short-term investments	108,913	0
Accounts and notes receivable, net of allowance of $1,983 and $1,882 as of September 30, 2019 and December 31, 2018, respectively	149,013	130,579
Contract assets, net	33,602	13,960
Inventory	40,666	33,763
Prepaid expenses and other current assets	41,277	30,391
Total current assets	576,022	558,155
Property and equipment, net of accumulated depreciation of $38,470 and $39,885 as of September 30, 2019 and December 31, 2018, respectively	42,592	37,893
Deferred income tax assets, net	23,290	19,347
Intangible assets, net	13,528	15,935
Goodwill	24,876	24,981
Long-term investments	41,391	0
Long-term notes receivable, net of current portion	33,463	40,230
Other assets	37,142	22,999
Total assets	792,304	719,540
Current liabilities:
Accounts payable	14,638	15,164
Accrued liabilities	35,745	41,092
Contract with customer, liability, current	127,160	107,016
Other current liabilities	3,997	37
Total current liabilities	183,834	166,011
Deferred revenue, net of current portion	82,149	74,417
Liability for unrecognized tax benefits	3,443	2,849
Long-term deferred compensation	3,694	3,235
Other long-term liabilities	11,537	5,704
Total liabilities	284,657	252,216
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2019 and December 31, 2018	0	0
Common stock, $0.00001 par value; 200,000,000 shares authorized; 59,320,793 and 58,810,637 shares issued and outstanding as of September 30, 2019 and December 31, 2018, respectively	1	1
Additional paid-in capital	480,747	453,400
Treasury stock at cost, 20,220,227 shares as of September 30, 2019 and December 31, 2018	(155,947)	(155,947)
Retained earnings	184,644	171,383
Accumulated other comprehensive loss	(1,798)	(1,513)
Total stockholders’ equity	507,647	467,324
Total liabilities and stockholders’ equity	792,304	719,540
Current portion of deferred revenue
Current liabilities:
Contract with customer, liability, current	127,160	107,016
Customer deposits
Current liabilities:
Contract with customer, liability, current	$ 2,294	$ 2,702

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Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Cash flows from operating activities:
Net income	$ 13,261	$ 27,122
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	8,196	8,226
Loss on disposal and impairment of property and equipment, net	2,408	290
Loss on disposal and abandonment of intangible assets	51	2,103
Stock-based compensation	30,195	15,302
Deferred income taxes	(3,946)	(2,326)
Unrecognized tax benefits	594	99
Other noncash, net	2,923	34
Change in assets and liabilities:
Accounts and notes receivable and contract assets	(30,497)	(51,172)
Inventory	(6,302)	9,033
Prepaid expenses and other assets	(11,967)	(12,081)
Accounts payable, accrued and other liabilities	(13,528)	4,306
Deferred revenue	28,476	31,700
Net cash provided by operating activities	19,864	32,636
Cash flows from investing activities:
Purchases of investments	(242,693)	(4,331)
Proceeds from maturity/call of investments	92,207	10,658
Purchases of property and equipment	(12,111)	(6,880)
Purchases of intangible assets	(328)	(460)
Business acquisitions	0	(4,990)
Net cash used in investing activities	(162,925)	(6,003)
Cash flows from financing activities:
Net proceeds from equity offering	0	233,993
Proceeds from options exercised	106	713
Income and payroll tax payments for net-settled stock awards	(3,268)	(11,973)
Payment of contingent consideration for a business acquisition	0	(575)
Net cash provided by (used in) financing activities	(3,162)	222,158
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(678)	(381)
Net increase (decrease) in cash, cash equivalents and restricted cash	(146,901)	248,410
Cash, cash equivalents and restricted cash, beginning of period	351,027	78,438
Cash, cash equivalents and restricted cash, end of period	204,126	326,848
Supplemental disclosures:
Cash and cash equivalents	202,551	324,371
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	351,027	78,438
Cash paid for income taxes, net of refunds	2,422	7,957
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	1,047	1,114
Non-cash purchase consideration related to business combinations	0	12,508
Commission converted to stock-based award	$ 314	$ 0

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Leases (Tables)

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Balance Sheet Disclosures

Leases (in thousands)	Classification	September 30, 2019
Assets
Operating lease assets	Other assets	$	10,592
Liabilities
Current
Operating	Other current liabilities	$	3,959
Noncurrent
Operating	Other long-term liabilities	7,687
Total lease liabilities		$	11,646

Components of Lease Expense

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,264		$	3,418
Sublease income	Other income	(82		)	(219		)
Net lease expense		$	1,182		$	3,199

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Nine Months Ended September 30, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,229
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	888
Weighted average remaining lease term:
Operating leases	3.3 years
Weighted average discount rate:
Operating leases	3.4		%

Schedule of Future Minimum Rental Payments For Operating Leases

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	1,114	$	(82	)	$	1,032
2020	4,545		(82		)	4,463
2021	3,639		—			3,639
2022	2,638		—			2,638
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	13,109		(164		)	12,945
Less: Amount representing interest						(1,299		)
Present value of lease payments						$	11,646

Lessor, Operating Lease, Payments to be Received, Maturity

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	1,114	$	(82	)	$	1,032
2020	4,545		(82		)	4,463
2021	3,639		—			3,639
2022	2,638		—			2,638
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	13,109		(164		)	12,945
Less: Amount representing interest						(1,299		)
Present value of lease payments						$	11,646

Schedule of Future Minimum Lease Payments for Capital Leases

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

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Organization and Summary of Significant Accounting Policies - Summary of Changes in Estimated Product Warranty Liabilities (Detail) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018
Movement in Standard and Extended Product Warranty Accrual, Increase (Decrease) [Roll Forward]
Balance, beginning of period	$ 898	$ 644
Utilization of accrual	(718)	(384)
Warranty expense	891	699
Balance, end of period	$ 1,071	$ 959

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Revenues - Contract Assets, Contract Liabilities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2019	Dec. 31, 2018
Revenue from Contract with Customer [Abstract]
Contract assets, net	$ 33,635
Contract liabilities (deferred revenue)	209,309	$ 181,433
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$ 83,159

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Stockholders' Equity - Summary of the Company's Stock Options Activity (Detail) - Stock Options $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Options outstanding, beginning of year (in shares) | shares	6,458
Number of options, Granted (in shares) | shares	0
Number of options, Exercised (in shares) | shares	(25)
Number of options, Expired / terminated (in shares) | shares	0
Number of options, Options outstanding, end of year (in shares) | shares	6,433
Number of options, Options exercisable, end of period (in shares) | shares	67
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price, Options outstanding, beginning of year (in dollars per share) | $ / shares	$ 28.24
Weighted average exercise price, Granted (in dollars per share) | $ / shares	0
Weighted average exercise price, Exercised (in dollars per share) | $ / shares	4.23
Weighted average exercise price, Expired / terminated (in dollars per share) | $ / shares	0
Weighted average exercise price, Options outstanding, end of period (in dollars per share) | $ / shares	28.33
Weighted average exercise price, Options exercisable, end of period (in dollars per share) | $ / shares	$ 4.53
Weighted average remaining contractual life, Options outstanding, end of period	8 years 3 months 29 days
Weighted average remaining contractual life, Options exercisable, end of period	1 year 2 months 8 days
Aggregate intrinsic value, Options outstanding, end of period | $	$ 183,023
Aggregate intrinsic value, Options exercisable, end of period | $	$ 3,506

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Shareholders' Equity - CEO Performance Award - Additional Information (Details) $ in Thousands		9 Months Ended
	May 24, 2018 USD ($) tranche shares	Sep. 30, 2019 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
First tranche	$ 2,500,000
Tranche incremental increase	$ 1,000,000
Revenue goal number 1		$ 710,058
Revenue goal number 2		860,058
Revenue goal number 3		1,010,058
Revenue goal number 4		1,210,058
Revenue goal number 5		1,410,058
Revenue goal number 6		1,610,058
Revenue goal number 7		1,810,058
Revenue goal number 8		2,010,058
Adjusted EBITDA goal number 9		125,000
Adjusted EBITDA goal number 10		155,000
Adjusted EBITDA goal number 11		175,000
Adjusted EBITDA goal number 12		190,000
Adjusted EBITDA goal number 13		200,000
Adjusted EBITDA goal number 14		210,000
Adjusted EBITDA goal number 15		220,000
Adjusted EBITDA goal number 16		230,000
Recorded share-based compensation expense		$ 10,700
Number of options expected to vest | shares		1,600,000
Weighted average period over which costs are recognized		7 years 3 months 18 days
Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of vesting tranches | tranche	12
Adjusted EBITDA		$ 125,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance shares authorized (in shares) | shares	6,365,856
Unrecognized share-based compensation cost related to unvested stock option awards, probable of achievement		56,900
Unrecognized share-based compensation cost related to unvested stock option awards, not probable of achievement		178,300
Minimum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total revenue		710,100
Maximum
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total revenue		$ 860,100

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Line of Credit - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Maximum ratio of total liabilities to tangible net worth	2.50
Line of Credit
Debt Instrument [Line Items]
Available borrowing under letter of credit	$ 46,400,000
Line of credit facility, increase (decrease), net	100,000,000.0
Line of credit borrowings	0	$ 0
Letters of credit outstanding amount	$ 3,600,000
Company's leverage ratio	0.001
Unsecured Revolving Line of Credit | Line of Credit
Debt Instrument [Line Items]
Total availability under line of credit agreement	$ 50,000,000.0
Letter of Credit | Line of Credit
Debt Instrument [Line Items]
Available borrowing under letter of credit	$ 10,000,000.0
Minimum | London Interbank Offered Rate (LIBOR) | Line of Credit
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate	1.00%
Maximum | London Interbank Offered Rate (LIBOR) | Line of Credit
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate	1.50%

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Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance on accounts receivable	$ 1,983	$ 1,882
Accumulated depreciation	$ 38,470	$ 39,885
Preferred stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Preferred stock, shares authorized (in shares)	25,000,000	25,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	59,320,793	58,810,637
Common stock, shares outstanding (in shares)	59,320,793	58,810,637
Treasury stock, shares (in shares)	20,220,227	20,220,227

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Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Axon Enterprise, Inc. (“Axon,” the “Company,” "we," or "us") is a market-leading provider of law enforcement technology solutions. Our core mission is to protect life. We fulfill that mission through developing hardware and software products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Our headquarters in Scottsdale, Arizona houses our executive management, sales, marketing, certain engineering, manufacturing, and other administrative support functions. We also have a software engineering development center located in Seattle, Washington, and subsidiaries located in Australia, Canada, Finland, Hong Kong, Germany, India, Italy, the Netherlands, the United Kingdom, and Vietnam.

The accompanying unaudited condensed consolidated financial statements include the accounts of Axon Enterprise, Inc. and our wholly owned subsidiaries. All material 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”) 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, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three and nine months ended September 30, 2019 and 2018 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:

• product warranty reserves,

• inventory valuation,

• revenue recognition,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

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

Actual results could differ materially from those estimates.

Segment Information

Our operations are comprised of two reportable segments: the manufacture and sale of conducted electrical weapons ("CEWs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Revenue from our “products” in the Software and Sensors segment are generally from sales of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as "Sensors and Other revenue." Revenue from our “services” in the Software and Sensors segment consist of sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as "Axon Cloud revenue." Within the Software and Sensors segment, we include only revenues and costs attributable to that segment, which costs include: costs of sales for both products and services, direct labor, product management and research and development ("R&D") for products included, or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.

Our Chief Executive Officer, who is the Chief Operating Decision Maker (the “CODM”), is not provided asset information or sales, general, and administrative expense by segment. Reportable segments are determined based on discrete financial information reviewed by the CODM. We organize and review operations based on products and services. We perform an analysis of our reportable segments on at least an annual basis. Additional information related to our business segments is summarized in Note 15.

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2019 and 2018, no individual country outside the U.S. 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, 2019 and 2018, no customer represented more than 10% of total net sales. At September 30, 2019 and December 31, 2018, 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, but not limited to, finished circuit boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components, and off the shelf sub-assemblies from suppliers located in the U.S., Canada, China, Israel, Mexico, Republic of Korea, and Taiwan. Although we currently obtain many of these components from single source suppliers, we own the injection molded component tooling, most of the designs, and the test fixtures used in their production for all custom components. As a result, we believe we could obtain alternative suppliers in most cases without incurring significant production delays. We also strategically hold safety stock levels on custom components to further reduce this risk. For off the shelf components, we believe that in most cases there are readily available alternative suppliers who can consistently meet our needs for these components. We acquire most of our components on a purchase order basis and do not have any significant long-term contracts with 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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units ("RSUs"). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

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,
	2019		2018		2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	6,104	$	5,711	$	13,261	$	27,122
Denominator:
Weighted average shares outstanding	59,278		58,340		59,128		55,681
Dilutive effect of stock-based awards	781		1,465		810		1,573
Diluted weighted average shares outstanding	60,059		59,805		59,938		57,254
Anti-dilutive stock-based awards excluded	12,477		6,793		12,546		6,760
Net income per common share:
Basic	$	0.10	$	0.10	$	0.22	$	0.49
Diluted	$	0.10	$	0.10	$	0.22	$	0.47

Standard Warranties

We warranty our CEWs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will repair or replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold when revenue is recorded for the related product. Future warranty costs are estimated

based on historical data related to warranty claims on a quarterly basis and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated warranty claims from customers. The warranty reserve is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. The warranty reserve is included in accrued liabilities on the accompanying condensed consolidated balance sheets. 

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

	Nine Months Ended September 30,
	2019			2018
Balance, beginning of period	$	898		$	644
Utilization of accrual	(718		)	(384		)
Warranty expense	891			699
Balance, end of period	$	1,071		$	959

Fair Value Measurements and Financial Instruments

The fair value framework 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 for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. 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, 2019 and December 31, 2018 were comprised of money market funds and, at September 30, 2019, also included agency bonds, corporate bonds, municipal bonds, and U.S. Treasury repurchase agreements. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other assets as of September 30, 2019 and December 31, 2018 was $4.0 million and $3.6 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.

Our financial instruments also include accounts and notes receivable, contract assets, accounts payable and accrued liabilities. As these instruments are generally short-term in nature, their carrying values approximate their fair values on the accompanying condensed consolidated balance sheets.

Restricted Cash

Restricted cash balances as of September 30, 2019 and December 31, 2018 included $0.9 million of sales proceeds related to long-term contracts with customers, which were included in prepaid expenses and other current assets on our condensed consolidated balance sheets. The proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to our operating accounts. Restricted cash balances as of September 30, 2019 and December 31, 2018 also included $0.7 million related to a performance guarantee for an international customer sales contract, which were included in other assets on our accompanying condensed consolidated balance sheets.

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 circumstances could include, but are not limited to, 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 the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows. During the nine months ended September 30, 2019, we abandoned certain capitalized software related to implementation work on an enterprise resource planning system conversion, resulting in an impairment charge of $1.3 million, which was included in sales, general and administrative expense in the accompanying condensed consolidated statements of operations. During the three months ended September 30, 2019, we abandoned certain planning and site development activities related to our planned new headquarters, resulting in an impairment charge of $0.7 million, which was included in sales, general and administrative expense in the accompanying condensed consolidated statements of operations.

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 perform our annual goodwill and intangible asset impairment tests in the fourth quarter of each year.

Recently Issued Accounting Guidance

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.  Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP. On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840. We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

The adoption had a material impact to our condensed consolidated balance sheet. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. There was no other impact from the adoption. The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

See Note 11 for further disclosures related to Topic 842.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1, 2019 and the adoption had no impact on our condensed consolidated financial statements.

Effective the first quarter of 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as credit quality. We are currently in the process of selecting the appropriate credit loss models for our investments, accounts and notes receivable, and contract assets and evaluating our processes and controls in preparation for the adoption of ASU 2016-13.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Adoption of this ASU is not expected to have a material impact 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 had no effect on the reported results of operations.

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Leases

9 Months Ended

Sep. 30, 2019

Leases [Abstract]

Leases

Leases

Lease Obligations

We determine if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, we use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. The ROU asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives.

We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease components for all asset classes.

Our leases have remaining terms of less than 1 to approximately 4 years, some of which include one or more options to renew for up to 2 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We sublease certain real estate to third parties. Finance leases as of September 30, 2019 were immaterial.

Leases (in thousands)	Classification	September 30, 2019
Assets
Operating lease assets	Other assets	$	10,592
Liabilities
Current
Operating	Other current liabilities	$	3,959
Noncurrent
Operating	Other long-term liabilities	7,687
Total lease liabilities		$	11,646

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,264		$	3,418
Sublease income	Other income	(82		)	(219		)
Net lease expense		$	1,182		$	3,199

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Nine Months Ended September 30, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,229
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	888
Weighted average remaining lease term:
Operating leases	3.3 years
Weighted average discount rate:
Operating leases	3.4		%

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	1,114	$	(82	)	$	1,032
2020	4,545		(82		)	4,463
2021	3,639		—			3,639
2022	2,638		—			2,638
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	13,109		(164		)	12,945
Less: Amount representing interest						(1,299		)
Present value of lease payments						$	11,646

As of September 30, 2019, we do not have any leases that have not yet commenced.

Disclosures related to periods prior to adoption of Topic 842

Rent expense under all operating leases, including both cancelable and non-cancellable leases, was $4.2 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

Leases

Leases

Lease Obligations

We determine if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, we use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. The ROU asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives.

We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease components for all asset classes.

Our leases have remaining terms of less than 1 to approximately 4 years, some of which include one or more options to renew for up to 2 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. We sublease certain real estate to third parties. Finance leases as of September 30, 2019 were immaterial.

Leases (in thousands)	Classification	September 30, 2019
Assets
Operating lease assets	Other assets	$	10,592
Liabilities
Current
Operating	Other current liabilities	$	3,959
Noncurrent
Operating	Other long-term liabilities	7,687
Total lease liabilities		$	11,646

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended September 30, 2019			Nine Months Ended September 30, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,264		$	3,418
Sublease income	Other income	(82		)	(219		)
Net lease expense		$	1,182		$	3,199

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Nine Months Ended September 30, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	3,229
Right-of-use assets obtained in exchange for lease liabilities:
Operating leases	888
Weighted average remaining lease term:
Operating leases	3.3 years
Weighted average discount rate:
Operating leases	3.4		%

Future minimum lease payments under non-cancellable leases as of September 30, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	1,114	$	(82	)	$	1,032
2020	4,545		(82		)	4,463
2021	3,639		—			3,639
2022	2,638		—			2,638
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	13,109		(164		)	12,945
Less: Amount representing interest						(1,299		)
Present value of lease payments						$	11,646

As of September 30, 2019, we do not have any leases that have not yet commenced.

Disclosures related to periods prior to adoption of Topic 842

Rent expense under all operating leases, including both cancelable and non-cancellable leases, was $4.2 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

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Accrued Liabilities

9 Months Ended

Sep. 30, 2019

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Accrued salaries, benefits and bonus	$	17,058	$	19,063
Accrued professional, consulting and lobbying fees	5,002		4,894
Accrued warranty expense	1,071		898
Accrued income and other taxes	5,143		4,167
Other accrued liabilities	7,471		12,070
Accrued liabilities	$	35,745	$	41,092

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Revenues - Revenues By Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 130,837	$ 104,836	$ 359,009	$ 305,277
United States
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	110,809	88,125	298,736	244,806
Other countries
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 20,028	$ 16,711	$ 60,273	$ 60,471
Revenue from Contract with Customer | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Concentration risk, percentage	100.00%	100.00%	100.00%	100.00%
Revenue from Contract with Customer | Geographic Concentration Risk | United States
Disaggregation of Revenue [Line Items]
Concentration risk, percentage	85.00%	84.00%	83.00%	80.00%
Revenue from Contract with Customer | Geographic Concentration Risk | Other countries
Disaggregation of Revenue [Line Items]
Concentration risk, percentage	15.00%	16.00%	17.00%	20.00%

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Equity Compensation Goals

Eight Separate Revenue Goals (1) (in thousands)	Eight Separate Adjusted EBITDA (CEO Performance Award) Goals (in thousands)
Goal #1, $710,058	Goal #9, $125,000
Goal #2, $860,058	Goal #10, $155,000
Goal #3, $1,010,058	Goal #11, $175,000
Goal #4, $1,210,058	Goal #12, $190,000
Goal #5, $1,410,058	Goal #13, $200,000
Goal #6, $1,610,058	Goal #14, $210,000
Goal #7, $1,810,058	Goal #15, $220,000
Goal #8, $2,010,058	Goal #16, $230,000

⁽¹⁾ In connection with the business acquisition that was completed during the three months ended June 30, 2018, the revenue goals were adjusted for the acquiree's Target Revenue, as defined in the CEO Performance Award agreement.

Summary of Restricted Stock Unit Activity

The following table summarizes RSU activity for the nine months ended September 30, 2019 (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	1,655		$	28.34
Granted	6,476		35.87
Released	(450	)	24.47
Forfeited	(410	)	34.63
Units outstanding, end of period	7,271		34.93		$	412,866

Summary of the Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2019 (number of units 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	6,458		$	28.24
Granted	—		—
Exercised	(25	)	4.23
Expired / terminated	—		—
Options outstanding, end of period	6,433		28.33		8.33	$	183,023
Options exercisable, end of period	67		4.53		1.19	3,506

Stock-Based Compensation

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of products sold and services delivered	$	312	$	93	$	775	$	359
Sales, general and administrative expenses	9,508		3,748		19,130		8,783
Research and development expenses	3,843		2,414		10,290		6,160
Total stock-based compensation expense	$	13,663	$	6,255	$	30,195	$	15,302

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Organization and Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding and Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2019	Jun. 30, 2019	Mar. 31, 2019	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018	Sep. 30, 2019	Sep. 30, 2018
Numerator for basic and diluted earnings per share:
Net income	$ 6,104	$ 738	$ 6,419	$ 5,711	$ 8,485	$ 12,926	$ 13,261	$ 27,122
Denominator:
Weighted average shares outstanding—basic (in shares)	59,278			58,340			59,128	55,681
Dilutive effect of stock-based awards (in shares)	781			1,465			810	1,573
Diluted weighted average shares outstanding (in shares)	60,059			59,805			59,938	57,254
Anti-dilutive stock-based awards excluded (in shares)	12,477			6,793			12,546	6,760
Net income per common share:
Basic (in dollars per share)	$ 0.10			$ 0.10			$ 0.22	$ 0.49
Diluted (in dollars per share)	$ 0.10			$ 0.10			$ 0.22	$ 0.47

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Cash, Cash Equivalents and Investments (Tables)

9 Months Ended

Sep. 30, 2019

Cash and Cash Equivalents [Abstract]

Summary of Cash, Cash Equivalents and Held-to-Maturity Investments by Type

The following tables summarize our cash, cash equivalents, and held-to-maturity investments at September 30, 2019 and December 31, 2018 (in thousands):

	As of September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	80,269	$	—	$	—		$	80,269	$	80,269	$	—	$	—
Level 1:
Money market funds	37,311		—		—			37,311		37,311		—		—
Agency bonds	32,834		4		(6		)	32,832		12,068		2,000		18,766
Subtotal	70,145		4		(6		)	70,143		49,379		2,000		18,766
Level 2:
State and municipal obligations	4,454		1		(1		)	4,454		—		4,454		—
Corporate bonds	127,987		51		(31		)	128,007		2,903		102,459		22,625
U.S. Treasury repurchase agreements	70,000		—		—			70,000		70,000		—		—
Subtotal	202,441		52		(32		)	202,461		72,903		106,913		22,625
Total	$	352,855	$	56	$	(38	)	$	352,873	$	202,551	$	108,913	$	41,391

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	144,095	$	—	$	—	$	144,095	$	144,095	$	—	$	—
Level 1:
Money market funds	205,367		—		—		205,367		205,367		—		—
Total	$	349,462	$	—	$	—	$	349,462	$	349,462	$	—	$	—

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Segment Data

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Segment Data

Segment Data

Our operations are comprised of two reportable segments: the manufacture and sale of CEWs, batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the software and sensors business, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Our Chief Executive Officer, who is the CODM, is not provided asset information or sales, general, and administrative expense by segment.

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

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	TASER		Software and Sensors 1		Total		TASER		Software and Sensors		Total
Net sales from products	$	71,424	$	25,073	$	96,497	$	63,666	$	17,257	$	80,923
Net sales from services	319		34,021		34,340		—		23,913		23,913
Net sales	71,743		59,094		130,837		63,666		41,170		104,836
Cost of product sales	26,504		15,941		42,445		19,256		13,697		32,953
Cost of service sales	—		8,223		8,223		—		6,250		6,250
Cost of sales	26,504		24,164		50,668		19,256		19,947		39,203
Gross margin	$	45,239	$	34,930	$	80,169	$	44,410	$	21,223	$	65,633
Research and development	$	3,485	$	21,644	$	25,129	$	4,837	$	17,145	$	21,982

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	TASER		Software and Sensors 1		Total		TASER		Software and Sensors		Total
Net sales from products	$	197,148	$	67,829	$	264,977	$	187,814	$	50,804	$	238,618
Net sales from services	558		93,474		94,032		—		66,659		66,659
Net sales	197,706		161,303		359,009		187,814		117,463		305,277
Cost of product sales	74,044		46,221		120,265		57,480		38,994		96,474
Cost of service sales	—		24,098		24,098		—		15,566		15,566
Cost of sales	74,044		70,319		144,363		57,480		54,560		112,040
Gross margin	$	123,662	$	90,984	$	214,646	$	130,334	$	62,903	$	193,237
Research and development	$	10,284	$	61,692	$	71,976	$	11,816	$	43,786	$	55,602

¹ Cost of service sales for the three and nine months ended September 30, 2019 includes approximately $0.7 million and $1.6 million, respectively, of third party installation costs.

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2019

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Accrued salaries, benefits and bonus	$	17,058	$	19,063
Accrued professional, consulting and lobbying fees	5,002		4,894
Accrued warranty expense	1,071		898
Accrued income and other taxes	5,143		4,167
Other accrued liabilities	7,471		12,070
Accrued liabilities	$	35,745	$	41,092

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Other Assets (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Cash surrender value of corporate-owned life insurance policies	$ 4,020		$ 3,596
Deferred commissions	17,920		15,530
Restricted cash	658		661
Operating lease assets	10,592
Prepaid expenses, deposits and other	3,952		3,212
Total other assets	$ 37,142	$ 35,482	$ 22,999

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Revenues - Schedule Of Contract Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Disaggregation of Revenue [Line Items]
Current	$ 127,160	$ 107,016
Long-Term	82,149	74,417
Total	209,309	181,433
TASER
Disaggregation of Revenue [Line Items]
Current	16,066	22,152
Long-Term	34,630	32,445
Total	50,696	54,597
Software and Sensors
Disaggregation of Revenue [Line Items]
Current	111,094	84,864
Long-Term	47,519	41,972
Total	158,613	126,836
Warranty
Disaggregation of Revenue [Line Items]
Current	21,576	21,070
Long-Term	22,083	23,363
Total	43,659	44,433
Warranty | TASER
Disaggregation of Revenue [Line Items]
Current	11,677	12,797
Long-Term	16,633	16,847
Total	28,310	29,644
Warranty | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	9,899	8,273
Long-Term	5,450	6,516
Total	15,349	14,789
Hardware
Disaggregation of Revenue [Line Items]
Current	43,686	30,233
Long-Term	44,958	40,283
Total	88,644	70,516
Hardware | TASER
Disaggregation of Revenue [Line Items]
Current	4,378	9,355
Long-Term	17,601	15,598
Total	21,979	24,953
Hardware | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	39,308	20,878
Long-Term	27,357	24,685
Total	66,665	45,563
Software and Sensors
Disaggregation of Revenue [Line Items]
Current	61,898	55,713
Long-Term	15,108	10,771
Total	77,006	66,484
Software and Sensors | TASER
Disaggregation of Revenue [Line Items]
Current	11	0
Long-Term	396	0
Total	407	0
Software and Sensors | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	61,887	55,713
Long-Term	14,712	10,771
Total	$ 76,599	$ 66,484

XML

Goodwill and Intangible Assets - Schedule of Goodwill (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Goodwill [Roll Forward]
Balance, beginning of period	$ 24,981
Foreign currency translation adjustment	(105)
Balance, end of period	24,876
TASER Weapons
Goodwill [Roll Forward]
Balance, beginning of period	1,338
Foreign currency translation adjustment	(52)
Balance, end of period	1,286
Software and Sensors
Goodwill [Roll Forward]
Balance, beginning of period	23,643
Foreign currency translation adjustment	(53)
Balance, end of period	$ 23,590

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Employee Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Defined Benefit Plan Disclosure [Line Items]
Employee deferrals deemed vested percentage upon contribution			100.00%
Defined contribution plan, cost	$ 0.9	$ 0.9	$ 3.5	$ 2.4
Maximum
Defined Benefit Plan Disclosure [Line Items]
Deferral percentage of base salary (up to)			80.00%
Deferral percentage of other compensation (up to)			100.00%

XML

Leases - Supplemental Cash Flow and Balance Sheet Information (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($)
Cash Flow, Lessee [Abstract]
Operating cash flows from operating leases	$ 3,229
Right-Of-Use Asset Obtained In Exchange For Lease Liability [Abstract]
Operating leases	$ 888
Weighted Average Remaining Lease Term [Abstract]
Operating leases (in years)	3 years 3 months 18 days
Leases, Weighted Average Discount Rate [Abstract]
Operating leases (as a percentage)	3.40%

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Stockholders' Equity - Reported Share-Based Compensation (Detail) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 13,663	$ 6,255	$ 30,195	$ 15,302
Cost of products sold and services delivered
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	312	93	775	359
Sales, general and administrative expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	9,508	3,748	19,130	8,783
Research and development expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 3,843	$ 2,414	$ 10,290	$ 6,160

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Stockholders' Equity - Summary of Restricted Stock Unit Activity (Detail) - Restricted Stock $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Number of Units outstanding, beginning of year (in shares) | shares	1,655
Number of Units, Released (in shares) | shares	(450)
Number of Units, Forfeited (in shares) | shares	(410)
Number of Units outstanding, end of period (in shares) | shares	7,271
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted Average Grant Date Fair Value, Units outstanding, beginning of year (in dollars per share)	$ 28.34
Weighted Average Grant Date Fair Value, Granted (in dollars per share)	35.87
Weighted Average Grant Date Fair Value, Released (in dollars per share)	24.47
Weighted Average Grant Date Fair Value, Forfeited (in dollars per share)	34.63
Weighted Average Grant Date Fair Value, Units outstanding, end of period (in dollars per share)	$ 34.93
Aggregate intrinsic value at end of period | $	$ 412,866

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Segment Data (Tables)

9 Months Ended

Sep. 30, 2019

Segment Reporting [Abstract]

Summary of Operational Information Relative to the Company's Reportable Segments

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

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	TASER		Software and Sensors 1		Total		TASER		Software and Sensors		Total
Net sales from products	$	71,424	$	25,073	$	96,497	$	63,666	$	17,257	$	80,923
Net sales from services	319		34,021		34,340		—		23,913		23,913
Net sales	71,743		59,094		130,837		63,666		41,170		104,836
Cost of product sales	26,504		15,941		42,445		19,256		13,697		32,953
Cost of service sales	—		8,223		8,223		—		6,250		6,250
Cost of sales	26,504		24,164		50,668		19,256		19,947		39,203
Gross margin	$	45,239	$	34,930	$	80,169	$	44,410	$	21,223	$	65,633
Research and development	$	3,485	$	21,644	$	25,129	$	4,837	$	17,145	$	21,982

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	TASER		Software and Sensors 1		Total		TASER		Software and Sensors		Total
Net sales from products	$	197,148	$	67,829	$	264,977	$	187,814	$	50,804	$	238,618
Net sales from services	558		93,474		94,032		—		66,659		66,659
Net sales	197,706		161,303		359,009		187,814		117,463		305,277
Cost of product sales	74,044		46,221		120,265		57,480		38,994		96,474
Cost of service sales	—		24,098		24,098		—		15,566		15,566
Cost of sales	74,044		70,319		144,363		57,480		54,560		112,040
Gross margin	$	123,662	$	90,984	$	214,646	$	130,334	$	62,903	$	193,237
Research and development	$	10,284	$	61,692	$	71,976	$	11,816	$	43,786	$	55,602

¹ Cost of service sales for the three and nine months ended September 30, 2019 includes approximately $0.7 million and $1.6 million, respectively, of third party installation costs.

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Organization and Summary of Significant Accounting Policies - Adjustments to Opening Balance Sheet (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Jan. 01, 2019	Dec. 31, 2018
Assets
Other assets	$ 37,142	$ 35,482	$ 22,999
Total assets	792,304	732,023	719,540
Liabilities and Equity
Accrued liabilities	35,745	39,954	41,092
Other current liabilities	3,997	3,625	37
Total current liabilities	183,834	168,461	166,011
Other long-term liabilities	11,537	15,737	5,704
Total liabilities	284,657	264,699	252,216
Total liabilities and stockholders’ equity	$ 792,304	732,023	$ 719,540
Accounting Standards Update 2016-02
Assets
Other assets		12,483
Total assets		12,483
Liabilities and Equity
Accrued liabilities		(1,138)
Other current liabilities		3,588
Total current liabilities		2,450
Other long-term liabilities		10,033
Total liabilities		12,483
Total liabilities and stockholders’ equity		$ 12,483

XML

Related Party Transactions

9 Months Ended

Sep. 30, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

We subscribe to various cloud-based applications from Salesforce. Bret Taylor, who was a member of our Board of Directors through June 14, 2019, serves as President and Chief Product Officer of Salesforce. We incur costs at different times throughout the year, typically in advance of services being provided, and subsequently amortize these costs ratably to expense as services are provided over the contractual term. The cost to subscribe to various cloud-based hosting arrangements from Salesforce was $0.5 million and $0.4 million for the three months ended September 30, 2019 and 2018, respectively, and $1.4 million and $1.3 million for the nine months ended September 30, 2019 and 2018, respectively. There were no amounts due to Salesforce as of September 30, 2019. Amounts due to Salesforce as of December 31, 2018 were negligible.

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2019	Oct. 31, 2019
Cover page.
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2019
Document Transition Report	false
Entity File Number	001-16391
Entity Registrant Name	Axon Enterprise, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	86-0741227
Entity Address, Address Line One	17800 North 85th Street
Entity Address, City or Town	Scottsdale
Entity Address, State or Province	AZ
Entity Address, Postal Zip Code	85255
City Area Code	480
Local Phone Number	991-0797
Title of 12(b) Security	Common Stock, $0.00001 Par Value
Trading Symbol	AAXN
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		59,340,965
Entity Central Index Key	0001069183
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

Unaudited Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Loss
Beginning balance (in shares) at Dec. 31, 2017		52,969,869		20,220,227
Beginning balance at Dec. 31, 2017	$ 167,444	$ 1	$ 201,672	$ (155,947)	$ 123,185	$ (1,467)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		337,214
Issuance of common stock under employee plans, net	(3,421)		(3,421)
Stock-based compensation	4,093		4,093
Net income	12,926				12,926
Foreign currency translation adjustments	(707)					(707)
Ending balance (in shares) at Mar. 31, 2018		53,307,083		20,220,227
Ending balance at Mar. 31, 2018	199,329	$ 1	202,344	$ (155,947)	155,105	(2,174)
Beginning balance (in shares) at Dec. 31, 2017		52,969,869		20,220,227
Beginning balance at Dec. 31, 2017	167,444	$ 1	201,672	$ (155,947)	123,185	(1,467)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	27,122
Foreign currency translation adjustments	(159)
Ending balance (in shares) at Sep. 30, 2018		58,419,742		20,220,227
Ending balance at Sep. 30, 2018	459,662	$ 1	447,933	$ (155,947)	169,301	(1,626)
Beginning balance (in shares) at Mar. 31, 2018		53,307,083		20,220,227
Beginning balance at Mar. 31, 2018	199,329	$ 1	202,344	$ (155,947)	155,105	(2,174)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock (in shares)		4,645,000
Issuance of common stock	233,993		233,993
Issuance of common stock under employee plans (in shares)		278,687
Issuance of common stock under employee plans, net	(6,800)		(6,800)
Stock-based compensation	4,954		4,954
Issuance of common stock for business combination (in shares)		58,843
Issuance of common stock for business combination	8,226		8,226
Net income	8,485				8,485
Foreign currency translation adjustments	655					655
Ending balance (in shares) at Jun. 30, 2018		58,289,613		20,220,227
Ending balance at Jun. 30, 2018	448,842	$ 1	442,717	$ (155,947)	163,590	(1,519)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		130,129
Issuance of common stock under employee plans, net	(1,039)		(1,039)
Stock-based compensation	6,255		6,255
Net income	5,711				5,711
Foreign currency translation adjustments	(107)					(107)
Ending balance (in shares) at Sep. 30, 2018		58,419,742		20,220,227
Ending balance at Sep. 30, 2018	459,662	$ 1	447,933	$ (155,947)	169,301	(1,626)
Beginning balance (in shares) at Dec. 31, 2018		58,810,637		20,220,227
Beginning balance at Dec. 31, 2018	467,324	$ 1	453,400	$ (155,947)	171,383	(1,513)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		298,649
Issuance of common stock under employee plans, net	(1,159)		(1,159)
Stock-based compensation	7,905		7,905
Net income	6,419				6,419
Foreign currency translation adjustments	50					50
Ending balance (in shares) at Mar. 31, 2019		59,109,286		20,220,227
Ending balance at Mar. 31, 2019	480,539	$ 1	460,146	$ (155,947)	177,802	(1,463)
Beginning balance (in shares) at Dec. 31, 2018		58,810,637		20,220,227
Beginning balance at Dec. 31, 2018	467,324	$ 1	453,400	$ (155,947)	171,383	(1,513)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	13,261
Foreign currency translation adjustments	(285)
Ending balance (in shares) at Sep. 30, 2019		59,320,793		20,220,227
Ending balance at Sep. 30, 2019	507,647	$ 1	480,747	$ (155,947)	184,644	(1,798)
Beginning balance (in shares) at Mar. 31, 2019		59,109,286		20,220,227
Beginning balance at Mar. 31, 2019	480,539	$ 1	460,146	$ (155,947)	177,802	(1,463)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		71,832
Issuance of common stock under employee plans, net	(869)		(869)
Stock-based compensation	8,627		8,627
Issuance of common stock for business combination (in shares)		70,613
Issuance of common stock for business combination	0
Net income	738				738
Foreign currency translation adjustments	(108)					(108)
Ending balance (in shares) at Jun. 30, 2019		59,251,731		20,220,227
Ending balance at Jun. 30, 2019	488,927	$ 1	467,904	$ (155,947)	178,540	(1,571)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		69,062
Issuance of common stock under employee plans, net	(1,134)		(1,134)
Stock-based compensation	13,977		13,977
Net income	6,104				6,104
Foreign currency translation adjustments	(227)					(227)
Ending balance (in shares) at Sep. 30, 2019		59,320,793		20,220,227
Ending balance at Sep. 30, 2019	$ 507,647	$ 1	$ 480,747	$ (155,947)	$ 184,644	$ (1,798)

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Stockholders' Equity

9 Months Ended

Sep. 30, 2019

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Performance-based stock awards

We have issued performance-based stock options and performance-based RSUs, the vesting of which is generally contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based compensation expense and additional paid-in-capital.

For performance-based options with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

CEO Performance Award

On May 24, 2018 (the “Grant Date”), our stockholders approved the Board of Directors’ grant of 6,365,856 stock option awards to Patrick W. Smith, our CEO (the “CEO Performance Award”). The CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational goals (performance conditions) and market capitalization goals (market conditions), assuming continued employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the CEO Performance Award have a 10-year contractual term and will vest upon certification by the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of the following eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal quarters. Adjusted EBITDA for purposes of the CEO Performance Award

("Adjusted EBITDA (CEO Performance Award)") is defined as net income (loss) attributable to common stockholders before interest expense, investment interest income, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense.

Eight Separate Revenue Goals (1) (in thousands)	Eight Separate Adjusted EBITDA (CEO Performance Award) Goals (in thousands)
Goal #1, $710,058	Goal #9, $125,000
Goal #2, $860,058	Goal #10, $155,000
Goal #3, $1,010,058	Goal #11, $175,000
Goal #4, $1,210,058	Goal #12, $190,000
Goal #5, $1,410,058	Goal #13, $200,000
Goal #6, $1,610,058	Goal #14, $210,000
Goal #7, $1,810,058	Goal #15, $220,000
Goal #8, $2,010,058	Goal #16, $230,000

⁽¹⁾ In connection with the business acquisition that was completed during the three months ended June 30, 2018, the revenue goals were adjusted for the acquiree's Target Revenue, as defined in the CEO Performance Award agreement.

As of September 30, 2019, the following operational goals were considered probable of achievement:

• Total revenue of $710.1 million

• Adjusted EBITDA (CEO Performance Award) of $125.0 million; and

• Total revenue of $860.1 million

The first two market capitalization goals have been achieved as of September 30, 2019. However, none of the stock options granted under the CEO Performance Award have vested thus far as the operational goals have not yet been achieved as of September 30, 2019. As there are three operational goals considered probable of achievement, we recorded stock-based compensation expense of $10.7 million related to the CEO Performance Award from the Grant Date through September 30, 2019. The number of stock options that would vest related to the three tranches is approximately 1.6 million shares.

As of September 30, 2019, we had $56.9 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7.3 years. As of September 30, 2019, we had unrecognized stock-based compensation expense of $178.3 million for the performance goals that were considered not probable of achievement.

eXponential Stock Performance Plan

On February 12, 2019, our shareholders approved the 2019 Stock Incentive Plan (the “2019 Plan”), which was adopted by the Board of Directors to reserve a sufficient number of shares to facilitate our eXponential Stock Performance Plan (“XSPP”) and grants of eXponential Stock Units (“XSUs”) under the plan. Pursuant to the XSPP, all eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain employees had the opportunity to elect to receive a percentage of the value of their target compensation over the next nine years (2019-2027) in the form of additional XSUs. For employees who elected to receive XSUs, the XSU grants were made as an up front, lump sum grant in January 2019, and are intended to replace that portion of the target compensation they elected to receive in the form of XSUs for the next nine years. Accordingly, their go forward target compensation will be reduced until 2027 by the amount of such compensation that the employees elected to receive in the form of the January 2019 XSU grants. Additional employee awards were granted in February 2019 and September 2019. A total of approximately 5.9 million XSUs were granted in the nine months ended September 30, 2019.

The XSUs are grants of restricted stock units, each with a term of approximately nine years, that vest in 12 equal tranches. Each of the 12 tranches will vest upon certification by the Compensation Committee of the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA (CEO Performance Award) have been met for the previous four consecutive fiscal quarters.

The XSPP contains an anti-dilution provision, which is used to calculate a maximum number of shares outstanding for purposes of determining achievement of the market capitalization goals whereby the maximum number of shares used to calculate the market capitalization goal is calculated by organically growing the current number of shares outstanding by 3% per year (the "XSU Maximum"). Any shares of Stock issued to Patrick W. Smith upon the exercise of the stock options granted to Mr. Smith under the CEO Performance Award shall increase the XSU Maximum. The XSU Maximum shall also be adjusted for acquisitions, spin-offs or other changes in the number of outstanding shares of common stock, if such changes have a corresponding adjustment on the market capitalization goals.

The market capitalization and operational goals are identical to the CEO Performance Award, except for the number of shares that are used to calculate the market capitalization goals if shares outstanding exceed the XSU Maximum. Additionally, because the grant date is different than that of the CEO Performance Award, the measurement period for market capitalization is not identical.

Stock-based compensation expense associated with XSU awards is recognized over the longer of the expected achievement period for each pair of market capitalization and operational goals, beginning at the point in time when the relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation of each tranche are determined using a Monte Carlo simulation, which is also used as the basis for determining the expected achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-looking financial projections, taking into consideration statistical analysis. Even though no tranches of the XSU awards vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation expense is recognized when an operational goal is considered probable of achievement regardless of whether a market capitalization goal is actually achieved.

The first two market capitalization goals have been achieved as of September 30, 2019. However, none of the XSU tranches have vested thus far as the operational goals have not yet been achieved as of September 30, 2019. As there are three operational goals considered probable of achievement, we recorded stock-based compensation expense of $4.3 million related to the XSU awards from their respective grant dates through September 30, 2019. The number of XSU awards that would vest related to the three tranches is approximately 1.4 million shares.

As of September 30, 2019, we had $57.4 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7.3 years. As of September 30, 2019, we had unrecognized stock-based compensation expense of $131.6 million for the performance goals that were considered not probable of achievement.

Given the complexity of the awards, we utilized Monte Carlo simulations to simulate a range of possible future market capitalizations for the Company over the term of the awards. The average of all iterations of the simulation was used as the basis for the valuation and market capitalization goal derived service period for each tranche. Additionally, we applied an illiquidity discount of between 9.8% and 16.8% to the valuation of XSUs because the awards specify a post-vest holding period of 2.5 years. Certain of the XSU awards specify a post-vest holding period of the longer of 2.5 years or until the next tranche vests. The illiquidity discounts were estimated using the Finnerty model and reduced by the impact of expected payroll and income taxes due upon vesting of the awards, as the related proportion of shares are expected to be sold to satisfy such obligations. We measured the grant date fair value of the XSU awards with the following assumptions: risk-free interest rate of between 1.64% and 2.62%, expected term of between 8.4 and 9.0 years, expected volatility of between 44.12% and 45.47%, and dividend yield of 0.00%.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2019 (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	1,655		$	28.34
Granted	6,476		35.87
Released	(450	)	24.47
Forfeited	(410	)	34.63
Units outstanding, end of period	7,271		34.93		$	412,866

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $56.78 per share, multiplied by the number of RSUs outstanding. As of September 30, 2019, there was $99.2 million in unrecognized compensation costs related to RSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 5.16 years. RSUs are released when vesting requirements are met.

During the nine months ended September 30, 2019, we granted 6.5 million RSUs, consisting of 0.5 million service-based RSUs and approximately 6.0 million performance-based RSUs, including 5.9 million XSUs. As of September 30, 2019, the performance criteria had been met for approximately five thousand of the 6.0 million performance-based RSUs outstanding. Certain of the performance-based RSUs outstanding as of September 30, 2019 can vest with a range of shares earned being between 0% and 200% of the targeted shares granted, depending on the final achievement of pre-determined performance criteria as of the vesting date. The amount of RSUs included in the table above related to such grants is the target level. The maximum additional number of performance-based RSUs that could be earned is 0.3 million, which are not included in the table above.

Certain RSUs that vested in the nine months ended September 30, 2019 were net-share settled such that we withheld shares to cover the employees’ tax obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld related to RSUs were approximately 47 thousand and had a value of $3.3 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2019 (number of units 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	6,458		$	28.24
Granted	—		—
Exercised	(25	)	4.23
Expired / terminated	—		—
Options outstanding, end of period	6,433		28.33		8.33	$	183,023
Options exercisable, end of period	67		4.53		1.19	3,506

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of our common stock of $56.78 on September 30, 2019. The intrinsic value of options exercised for the nine months ended September 30, 2019 and 2018 was $1.1 million and $20.5 million, respectively. As of September 30, 2019, total options outstanding included 6.4 million unvested performance-based stock options. Of this total, 1.6 million options relate to tranches of the CEO Performance Award considered probable of achievement.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2019 and 2018 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2019		2018		2019		2018
Cost of products sold and services delivered	$	312	$	93	$	775	$	359
Sales, general and administrative expenses	9,508		3,748		19,130		8,783
Research and development expenses	3,843		2,414		10,290		6,160
Total stock-based compensation expense	$	13,663	$	6,255	$	30,195	$	15,302

Stock Incentive Plan

In February 2019, our shareholders approved the 2019 Plan authorizing an additional 6.0 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with the legacy stock incentive plans, there are 2.2 million shares available for grant as of September 30, 2019.

Stock Inducement Plan

In September 2019, our Board of Directors adopted the Axon Enterprise, Inc. 2019 Stock Inducement Plan (the “2019 Inducement Plan”) pursuant to which we reserved 500,000 shares of common stock for issuance under the Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employed by us (or following such individuals’ bona fide periods of non-employment by us), as an inducement material to the individuals’ entry into employment with us. The terms and conditions of the 2019 Inducement Plan are substantially similar to our stockholder-approved 2019 Plan. As of September 30, 2019, there were 30,000 shares available for grant under the 2019 Inducement Plan.

Stock Repurchase Plan

In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of our outstanding common stock subject to stock market conditions and corporate considerations. During the nine months ended September 30, 2019 and 2018, no common shares were purchased under the program. As of September 30, 2019, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

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Goodwill and Intangible Assets

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the nine months ended September 30, 2019 were as follows (in thousands):

	TASER			Software and Sensors			Total
Balance, beginning of period	$	1,338		$	23,643		$	24,981
Foreign currency translation adjustment	(52		)	(53		)	(105		)
Balance, end of period	$	1,286		$	23,590		$	24,876

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(959	)	$	2,202	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	3,170		(1,268		)	1,902		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	1,006		(532		)	474		1,053		(599		)	454
Customer relationships	4-8 years	3,664		(1,263		)	2,401		3,701		(880		)	2,821
Non-compete agreements	3-4 years	446		(397		)	49		540		(439		)	101
Developed technology	3-7 years	10,660		(5,982		)	4,678		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	1,932		(1,932		)	—		1,928		(1,813		)	115
Total amortizable		24,039		(12,333		)	11,706		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		922					922		958					958
Total not amortizable		1,822					1,822		1,858					1,858
Total intangible assets		$	25,861	$	(12,333	)	$	13,528	$	28,585	$	(12,650	)	$	15,935

Amortization expense of intangible assets for the three and nine months ended September 30, 2019 was $0.8 million and $2.7 million, respectively. Amortization expense of intangible assets for the three and nine months ended September 30, 2018 was $1.6 million and $4.6 million, respectively. Estimated amortization for intangible assets with definite lives for the remaining three months of 2019, the next five years ended December 31, and thereafter, is as follows (in thousands):

2019 Remaining	$	948
2020	3,177
2021	2,862
2022	1,256
2023	962
2024	881
Thereafter	1,620
Total	$	11,706

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Cash, Cash Equivalents and Investments

9 Months Ended

Sep. 30, 2019

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, and held-to-maturity investments at September 30, 2019 and December 31, 2018 (in thousands):

	As of September 30, 2019
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	80,269	$	—	$	—		$	80,269	$	80,269	$	—	$	—
Level 1:
Money market funds	37,311		—		—			37,311		37,311		—		—
Agency bonds	32,834		4		(6		)	32,832		12,068		2,000		18,766
Subtotal	70,145		4		(6		)	70,143		49,379		2,000		18,766
Level 2:
State and municipal obligations	4,454		1		(1		)	4,454		—		4,454		—
Corporate bonds	127,987		51		(31		)	128,007		2,903		102,459		22,625
U.S. Treasury repurchase agreements	70,000		—		—			70,000		70,000		—		—
Subtotal	202,441		52		(32		)	202,461		72,903		106,913		22,625
Total	$	352,855	$	56	$	(38	)	$	352,873	$	202,551	$	108,913	$	41,391

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Investments		Long-Term Investments
Cash	$	144,095	$	—	$	—	$	144,095	$	144,095	$	—	$	—
Level 1:
Money market funds	205,367		—		—		205,367		205,367		—		—
Total	$	349,462	$	—	$	—	$	349,462	$	349,462	$	—	$	—

We believe unrealized losses on our investments are due to interest rate fluctuations. As these investments are short-term in nature, are expected to be redeemed at par value, and/or because we have the ability and intent to hold these investments to maturity, we do not consider these investments to be other than temporarily impaired as of September 30, 2019.

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Goodwill and Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2019 were as follows (in thousands):

	TASER			Software and Sensors			Total
Balance, beginning of period	$	1,338		$	23,643		$	24,981
Foreign currency translation adjustment	(52		)	(53		)	(105		)
Balance, end of period	$	1,286		$	23,590		$	24,876

Indefinite-Lived Intangible Assets Other than Goodwill

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(959	)	$	2,202	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	3,170		(1,268		)	1,902		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	1,006		(532		)	474		1,053		(599		)	454
Customer relationships	4-8 years	3,664		(1,263		)	2,401		3,701		(880		)	2,821
Non-compete agreements	3-4 years	446		(397		)	49		540		(439		)	101
Developed technology	3-7 years	10,660		(5,982		)	4,678		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	1,932		(1,932		)	—		1,928		(1,813		)	115
Total amortizable		24,039		(12,333		)	11,706		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		922					922		958					958
Total not amortizable		1,822					1,822		1,858					1,858
Total intangible assets		$	25,861	$	(12,333	)	$	13,528	$	28,585	$	(12,650	)	$	15,935

Finite-Lived Intangible Assets Other than Goodwill

Intangible assets (other than goodwill) consisted of the following (in thousands):

		September 30, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(959	)	$	2,202	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	3,170		(1,268		)	1,902		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	1,006		(532		)	474		1,053		(599		)	454
Customer relationships	4-8 years	3,664		(1,263		)	2,401		3,701		(880		)	2,821
Non-compete agreements	3-4 years	446		(397		)	49		540		(439		)	101
Developed technology	3-7 years	10,660		(5,982		)	4,678		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	1,932		(1,932		)	—		1,928		(1,813		)	115
Total amortizable		24,039		(12,333		)	11,706		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		922					922		958					958
Total not amortizable		1,822					1,822		1,858					1,858
Total intangible assets		$	25,861	$	(12,333	)	$	13,528	$	28,585	$	(12,650	)	$	15,935

Estimated Amortization Expense of Intangible Assets

Estimated amortization for intangible assets with definite lives for the remaining three months of 2019, the next five years ended December 31, and thereafter, is as follows (in thousands):

2019 Remaining	$	948
2020	3,177
2021	2,862
2022	1,256
2023	962
2024	881
Thereafter	1,620
Total	$	11,706

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Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Weighted Average Number of Shares Outstanding and Income Per Share

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,
	2019		2018		2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	6,104	$	5,711	$	13,261	$	27,122
Denominator:
Weighted average shares outstanding	59,278		58,340		59,128		55,681
Dilutive effect of stock-based awards	781		1,465		810		1,573
Diluted weighted average shares outstanding	60,059		59,805		59,938		57,254
Anti-dilutive stock-based awards excluded	12,477		6,793		12,546		6,760
Net income per common share:
Basic	$	0.10	$	0.10	$	0.22	$	0.49
Diluted	$	0.10	$	0.10	$	0.22	$	0.47

Summary of Changes in Estimated Product Warranty Liabilities

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

	Nine Months Ended September 30,
	2019			2018
Balance, beginning of period	$	898		$	644
Utilization of accrual	(718		)	(384		)
Warranty expense	891			699
Balance, end of period	$	1,071		$	959

Adjustments to Opening Balance Sheet

The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

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Label	Element	Value
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	$ 2,477,000
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	1,575,000
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	18,994,000
Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ 18,994,000

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Commitments and Contingencies - Additional Information (Detail) $ in Millions		1 Months Ended		3 Months Ended	9 Months Ended
	Dec. 13, 2018 USD ($)	Jul. 31, 2019 USD ($)	Jun. 30, 2019 USD ($)	Sep. 30, 2019 USD ($) lawsuit	Sep. 30, 2019 USD ($) lawsuit
Loss Contingencies [Line Items]
Remaining purchase commitment				$ 46.3	$ 46.3
Number of lawsuits against Company | lawsuit				8	8
Self insurance on product claim				$ 5.0	$ 5.0
Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding				24.6	24.6
Expiring in 2020 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding				1.1	1.1
Expiring in 2021 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding				2.3	2.3
Expiring in 2022 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding				3.2	3.2
Expiring in 2023 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding				7.5	7.5
Expiring in 2024 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding				10.5	10.5
Line of Credit
Loss Contingencies [Line Items]
Letters of credit outstanding amount				3.6	3.6
Data Storage
Loss Contingencies [Line Items]
Purchase commitment period			3 years
Purchase obligation			$ 50.0
Up-front prepayment		$ 15.0
Storage fees				3.7	$ 3.7
Lease Agreements
Loss Contingencies [Line Items]
Finite-lived intangible asset, useful life	84 years
Initial deposit	$ 0.2
Design of New Headquarters
Loss Contingencies [Line Items]
Impairment charges				$ 0.7

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Leases - Balance Sheet (Details) $ in Thousands	Sep. 30, 2019 USD ($)
ASSETS
Operating lease assets, other assets	$ 10,592
Current
Operating lease, current liabilities	3,959
Noncurrent
Operating lease, noncurrent liabilites	7,687
Total lease liabilities	$ 11,646

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Cash, Cash Equivalents, and Investments - Summary of Cash, Cash Equivalents and Held-to-Maturity Investments by Type (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018	Sep. 30, 2018
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	$ 352,855	$ 349,462
Gross Unrealized Gains	56	0
Gross Unrealized Losses	(38)	0
Fair Value	352,873	349,462
Cash and Cash Equivalents	202,551	349,462
Short-term investments	108,913	0
Long-term Investments	41,391	0	$ 41,391
Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	70,145
Gross Unrealized Gains	4
Gross Unrealized Losses	(6)
Fair Value	70,143
Cash and Cash Equivalents	49,379
Short-term investments	2,000
Long-term Investments			18,766
Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	202,441
Gross Unrealized Gains	52
Gross Unrealized Losses	(32)
Fair Value	202,461
Cash and Cash Equivalents	72,903
Short-term investments	106,913
Long-term Investments			22,625
Cash
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	80,269	144,095
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	80,269	144,095
Cash and Cash Equivalents	80,269	144,095
Short-term investments	0	0
Long-term Investments		0	0
Money market funds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	37,311	205,367
Gross Unrealized Gains	0	0
Gross Unrealized Losses	0	0
Fair Value	37,311	205,367
Cash and Cash Equivalents	37,311	205,367
Short-term investments	0	0
Long-term Investments		$ 0	0
Agency bonds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	32,834
Gross Unrealized Gains	4
Gross Unrealized Losses	(6)
Fair Value	32,832
Cash and Cash Equivalents	12,068
Short-term investments	2,000
Long-term Investments			18,766
State and municipal obligations | Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	4,454
Gross Unrealized Gains	1
Gross Unrealized Losses	(1)
Fair Value	4,454
Cash and Cash Equivalents	0
Short-term investments	4,454
Long-term Investments			0
Corporate bonds | Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	127,987
Gross Unrealized Gains	51
Gross Unrealized Losses	(31)
Fair Value	128,007
Cash and Cash Equivalents	2,903
Short-term investments	102,459
Long-term Investments			22,625
U.S. Treasury repurchase agreements | Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	70,000
Gross Unrealized Gains	0
Gross Unrealized Losses	0
Fair Value	70,000
Cash and Cash Equivalents	70,000
Short-term investments	$ 0
Long-term Investments			$ 0

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Goodwill and Intangible Assets Goodwill and Intangible Assets - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense of intangible assets	$ 0.8	$ 1.6	$ 2.7	$ 4.6

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Inventory (Tables)

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventory

Inventory consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Raw materials	$	21,096	$	19,670
Finished goods	19,570		14,093
Total inventory	$	40,666	$	33,763

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Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

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”) 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, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three and nine months ended September 30, 2019 and 2018 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:

• product warranty reserves,

• inventory valuation,

• revenue recognition,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

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

Actual results could differ materially from those estimates.

Use of Estimates

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”) 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, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three and nine months ended September 30, 2019 and 2018 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:

• product warranty reserves,

• inventory valuation,

• revenue recognition,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

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

Actual results could differ materially from those estimates.

Segment Information

Segment Information

Our operations are comprised of two reportable segments: the manufacture and sale of conducted electrical weapons ("CEWs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Revenue from our “products” in the Software and Sensors segment are generally from sales of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as "Sensors and Other revenue." Revenue from our “services” in the Software and Sensors segment consist of sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as "Axon Cloud revenue." Within the Software and Sensors segment, we include only revenues and costs attributable to that segment, which costs include: costs of sales for both products and services, direct labor, product management and research and development ("R&D") for products included, or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.

Our Chief Executive Officer, who is the Chief Operating Decision Maker (the “CODM”), is not provided asset information or sales, general, and administrative expense by segment. Reportable segments are determined based on discrete financial information reviewed by the CODM. We organize and review operations based on products and services. We perform an analysis of our reportable segments on at least an annual basis.

Geographic Information and Major Customers

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2019 and 2018, no individual country outside the U.S. 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, 2019 and 2018, no customer represented more than 10% of total net sales. At September 30, 2019 and December 31, 2018, 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, but not limited to, finished circuit boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components, and off the shelf sub-assemblies from suppliers located in the U.S., Canada, China, Israel, Mexico, Republic of Korea, and Taiwan. Although we currently obtain many of these components from single source suppliers, we own the injection molded component tooling, most of the designs, and the test fixtures used in their production for all custom components. As a result, we believe we could obtain alternative suppliers in most cases without incurring significant production delays. We also strategically hold safety stock levels on custom components to further reduce this risk. For off the shelf components, we believe that in most cases there are readily available alternative suppliers who can consistently meet our needs for these components. We acquire most of our components on a purchase order basis and do not have any significant long-term contracts with component suppliers.

Income per Common Share

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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units ("RSUs"). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

Standard Warranties

Standard Warranties

We warranty our CEWs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will repair or replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold when revenue is recorded for the related product. Future warranty costs are estimated

based on historical data related to warranty claims on a quarterly basis and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated warranty claims from customers. The warranty reserve is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. The warranty reserve is included in accrued liabilities on the accompanying condensed consolidated balance sheets. 

Fair Value of Financial Instruments

Fair Value Measurements and Financial Instruments

The fair value framework 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 for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. 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, 2019 and December 31, 2018 were comprised of money market funds and, at September 30, 2019, also included agency bonds, corporate bonds, municipal bonds, and U.S. Treasury repurchase agreements. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other assets as of September 30, 2019 and December 31, 2018 was $4.0 million and $3.6 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.

Our financial instruments also include accounts and notes receivable, contract assets, accounts payable and accrued liabilities. As these instruments are generally short-term in nature, their carrying values approximate their fair values on the accompanying condensed consolidated balance sheets.

Valuation of Goodwill, Intangibles and Long-lived 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 circumstances could include, but are not limited to, 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 the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the assets over their estimated fair value computed using discounted cash flows. During the nine months ended September 30, 2019, we abandoned certain capitalized software related to implementation work on an enterprise resource planning system conversion, resulting in an impairment charge of $1.3 million, which was included in sales, general and administrative expense in the accompanying condensed consolidated statements of operations. During the three months ended September 30, 2019, we abandoned certain planning and site development activities related to our planned new headquarters, resulting in an impairment charge of $0.7 million, which was included in sales, general and administrative expense in the accompanying condensed consolidated statements of operations.

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 perform our annual goodwill and intangible asset impairment tests in the fourth quarter of each year.

Recently Issued Accounting Guidance

Recently Issued Accounting Guidance

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.  Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP. On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840. We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

The adoption had a material impact to our condensed consolidated balance sheet. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. There was no other impact from the adoption. The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

See Note 11 for further disclosures related to Topic 842.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1, 2019 and the adoption had no impact on our condensed consolidated financial statements.

Effective the first quarter of 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as credit quality. We are currently in the process of selecting the appropriate credit loss models for our investments, accounts and notes receivable, and contract assets and evaluating our processes and controls in preparation for the adoption of ASU 2016-13.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. Adoption of this ASU is not expected to have a material impact on our consolidated financial statements.

Reclassification of Prior Year Presentation

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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Leases - Minimum Lease Payments (Details) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Operating Leases, After Adoption of 842
2019 Remaining	$ 1,114
2020	4,545
2021	3,639
2022	2,638
2023	1,173
2024	0
Thereafter	0
Total minimum lease payments	13,109
Sublease income, After Adoption of 842
2019 Remaining	(82)
2020	(82)
2021	0
2022	0
2023	0
2024	0
Thereafter	0
Total minimum lease payments	(164)
Net, After Adoption of 842
2019 Remaining	1,032
2020	4,463
2021	3,639
2022	2,638
2023	1,173
2024	0
Thereafter	0
Total minimum lease payments	12,945
Less: Amount representing interest	(1,299)
Present value of lease payments	$ 11,646
Operating Leases, Before Adoption of 842
2019		$ 3,670
2020		3,572
2021		2,961
2022		2,001
2023		573
Thereafter		0
Total minimum lease payments		12,777
Capital Leases, Before Adoption of 842
2019		40
2020		36
2021		0
2022		0
2023		0
Thereafter		0
Total minimum lease payments		76
Less: Amount representing interest		(6)
Capital lease obligation		$ 70

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Leases - Narrative (Details) - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2019	Dec. 31, 2018	Dec. 31, 2017
Lessee, Lease, Description [Line Items]
Renewal term	2 years
Termination period	1 year
Rent expense		$ 4.2	$ 2.9
Minimum
Lessee, Lease, Description [Line Items]
Remaining terms	1 year
Maximum
Lessee, Lease, Description [Line Items]
Remaining terms	4 years

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Segment Data - Additional Information (Detail) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2018 USD ($)	Sep. 30, 2019 USD ($) segment	Sep. 30, 2018 USD ($)
Segment Reporting [Abstract]
Number of reportable segments of company | segment			2
Segment Reporting Information [Line Items]
Net sales	$ 130,837	$ 104,836	$ 359,009	$ 305,277
Cost of sales	50,668	39,203	144,363	112,040
Gross margin	80,169	65,633	214,646	193,237
Research and development	25,129	21,982	71,976	55,602
TASER
Segment Reporting Information [Line Items]
Net sales	71,743	63,666	197,706	187,814
Cost of sales	26,504	19,256	74,044	57,480
Gross margin	45,239	44,410	123,662	130,334
Research and development	3,485	4,837	10,284	11,816
Software and Sensors
Segment Reporting Information [Line Items]
Net sales	59,094	41,170	161,303	117,463
Cost of sales	24,164	19,947	70,319	54,560
Gross margin	34,930	21,223	90,984	62,903
Research and development	21,644	17,145	61,692	43,786
Product
Segment Reporting Information [Line Items]
Net sales	96,497	80,923	264,977	238,618
Cost of sales	42,445	32,953	120,265	96,474
Product | TASER
Segment Reporting Information [Line Items]
Net sales	71,424	63,666	197,148	187,814
Cost of sales	26,504	19,256	74,044	57,480
Product | Software and Sensors
Segment Reporting Information [Line Items]
Net sales	25,073	17,257	67,829	50,804
Cost of sales	15,941	13,697	46,221	38,994
Service
Segment Reporting Information [Line Items]
Net sales	34,340	23,913	94,032	66,659
Cost of sales	8,223	6,250	24,098	15,566
Service | TASER
Segment Reporting Information [Line Items]
Net sales	319	0	558	0
Cost of sales	0	0	0	0
Service | Software and Sensors
Segment Reporting Information [Line Items]
Net sales	34,021	23,913	93,474	66,659
Cost of sales	8,223	$ 6,250	24,098	$ 15,566
Service, Installation Costs | Software and Sensors
Segment Reporting Information [Line Items]
Cost of sales	$ 700		$ 1,600

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Inventory (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Inventory, finished goods, trial and evaluation, gross	$ 1,400	$ 1,400
Raw materials	21,096	19,670
Finished goods	19,570	14,093
Total inventory	$ 40,666	$ 33,763

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Goodwill and Intangible assets - Estimated Amortization Expense of Intangible Assets (Detail) - USD ($) $ in Thousands	Sep. 30, 2019	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
2019 Remaining	$ 948
2020	3,177
2021	2,862
2022	1,256
2023	962
2024	881
Thereafter	1,620
Total	$ 11,706	$ 14,077

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Stockholders' Equity - Stock Option Activity - Additional Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Dec. 31, 2018
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 56.78
Total intrinsic value of options exercised	$ 1.1	$ 20.5
Number of options outstanding (in shares)	6,433		6,458
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding (in shares)	6,400
Options related to tranches considered probable of achievement	1,600

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Stockholders' Equity - eXponential Stock Performance Plan (Details) $ in Millions			1 Months Ended	9 Months Ended
	Feb. 12, 2019	May 24, 2018 USD ($) shares	Jan. 31, 2019 shares	Sep. 30, 2019 USD ($) tranche shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
First tranche		$ 2,500.0
Tranche incremental increase		$ 1,000.0
Recorded share-based compensation expense				$ 10.7
Number of options expected to vest | shares				1,600,000
Weighted average period over which costs are recognized				7 years 3 months 18 days
eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares) | shares			60	5,900,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance shares authorized (in shares) | shares		6,365,856
Unrecognized share-based compensation cost related to unvested stock option awards, probable of achievement				$ 56.9
Unrecognized share-based compensation cost related to unvested stock option awards, not probable of achievement				$ 178.3
2019 eXponential Stock Performance Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period over which costs are recognized				7 years 3 months 18 days
2019 eXponential Stock Performance Plan | eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Restricted stock, expiration period	9 years
Performance shares authorized (in shares) | shares				5,900,000
Number of vesting tranches | tranche				12
First tranche				$ 2,500.0
Tranche incremental increase				1,000.0
Recorded share-based compensation expense				$ 4.3
Number of options expected to vest | shares				1,400,000
Post-vest holding period				2 years 6 months
Dividend yield (as a percentage)				0.00%
2019 eXponential Stock Performance Plan | Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized share-based compensation cost related to unvested stock option awards, probable of achievement				$ 57.4
Unrecognized share-based compensation cost related to unvested stock option awards, not probable of achievement				$ 131.6
2019 eXponential Stock Performance Plan | Minimum | eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Liquidity discount (as a percentage)				9.80%
Risk-free interest rate (as a percentage)				1.64%
Expected term				8 years 4 months 24 days
Expected volatility (as a percentage)				44.12%
2019 eXponential Stock Performance Plan | Maximum | eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Liquidity discount (as a percentage)				16.80%
Risk-free interest rate (as a percentage)				2.62%
Expected term				9 years
Expected volatility (as a percentage)				45.47%

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Organization and Summary of Significant Accounting Policies - Additional Information (Detail) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2019 USD ($)	Sep. 30, 2019 USD ($) segment	Dec. 31, 2018 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of reportable segments | segment		2
Warranty period		1 year
Corporate owned life insurance policies fair value	$ 4,020	$ 4,020	$ 3,596
Restricted cash balance	658	658	661
Prepaid Expenses and Other Current Assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Restricted cash balance	900	900	900
Other Current Assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Restricted cash balance	700	$ 700	$ 700
Enterprise Resource Planning System
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impairment charges	1,300
Design of New Headquarters
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Impairment charges	$ 700

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Revenues - Revenues By Products And Service Offerings (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	$ 130,837	$ 104,836	$ 359,009	$ 305,277
TASER 7
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	20,214	0	39,466	0
TASER X26P
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	11,578	17,998	37,832	52,618
TASER X2
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	13,241	20,392	40,413	62,686
TASER Pulse and Bolt
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,132	1,402	2,920	3,849
Single cartridges
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	18,901	18,406	57,354	51,763
Axon Body
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	6,763	4,744	18,820	15,082
Axon Flex
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,670	1,325	4,517	4,529
Axon Fleet
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,341	1,809	10,977	6,640
Axon Dock
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	3,358	2,178	9,401	7,332
Axon Evidence and cloud services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	34,240	23,915	93,824	64,513
TASER Cam
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	534	717	2,481	2,839
Extended warranties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	9,257	7,284	27,405	20,088
Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	5,608	4,666	13,599	13,338
TASER
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	71,743	63,666	197,706	187,814
TASER | TASER 7
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	20,214	0	39,466	0
TASER | TASER X26P
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	11,578	17,998	37,832	52,618
TASER | TASER X2
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	13,241	20,392	40,413	62,686
TASER | TASER Pulse and Bolt
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,132	1,402	2,920	3,849
TASER | Single cartridges
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	18,901	18,406	57,354	51,763
TASER | Axon Body
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
TASER | Axon Flex
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
TASER | Axon Fleet
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
TASER | Axon Dock
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
TASER | Axon Evidence and cloud services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	218	0	363	0
TASER | TASER Cam
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
TASER | Extended warranties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,543	4,123	13,341	11,567
TASER | Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,916	1,345	6,017	5,331
Software and Sensors
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	59,094	41,170	161,303	117,463
Software and Sensors | TASER 7
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
Software and Sensors | TASER X26P
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
Software and Sensors | TASER X2
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
Software and Sensors | TASER Pulse and Bolt
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
Software and Sensors | Single cartridges
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0	0	0
Software and Sensors | Axon Body
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	6,763	4,744	18,820	15,082
Software and Sensors | Axon Flex
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,670	1,325	4,517	4,529
Software and Sensors | Axon Fleet
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,341	1,809	10,977	6,640
Software and Sensors | Axon Dock
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	3,358	2,178	9,401	7,332
Software and Sensors | Axon Evidence and cloud services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	34,022	23,915	93,461	64,513
Software and Sensors | TASER Cam
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	534	717	2,481	2,839
Software and Sensors | Extended warranties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,714	3,161	14,064	8,521
Software and Sensors | Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	$ 3,692	$ 3,321	$ 7,582	$ 8,007

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Income Taxes

9 Months Ended

Sep. 30, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We file income tax returns for federal purposes and in many 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, following the tax year to which these filings relate. Our U.S. federal income tax return for fiscal year 2016 is currently under audit by the Internal Revenue Service.

Deferred Tax Assets

Net deferred income tax assets at September 30, 2019, primarily include R&D tax credits, stock-based compensation expense, deferred revenue, accruals and reserves, and net operating losses, partially offset by accelerated depreciation expense and valuation allowance reserve. Our total net deferred tax assets at September 30, 2019 were $23.3 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, 2019, we continue to demonstrate three-year cumulative pre-tax income in the U.S. federal and state tax jurisdictions; however, 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.

As of September 30, 2019, we have cumulative pre-tax losses in Australia, the U.K., and Canada, which limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded for these jurisdictions. The amount of the deferred tax asset considered realizable, however, could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and California 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 $6.1 million as of September 30, 2019. In addition, management accrued $0.1 million of interest for estimated uncertain tax positions related to certain federal income tax liabilities. Should the unrecognized benefit of $6.2 million be recognized, our effective tax rate would be favorably impacted. Approximately $2.9 million of the unrecognized tax 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, 2019, after discrete period adjustments, was 5.1%. Before discrete adjustments, the tax rate was 19.6%, which is less than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, the executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m), and an income inclusion from global intangible low-taxed income ("GILTI"), offset by a reduction for foreign-derived intangible income ("FDII") and R&D tax credits. The effective tax rate was favorably impacted by a $3.9 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised during the nine months ended September 30, 2019. This was partially offset by an unfavorable discrete item of $1.7 million related to the write off of certain deferred tax assets related to future stock compensation awards vesting for certain officers for whom deductibility of compensation is limited by IRC Section 162(m) and return to provision adjustments for jurisdictions in which tax returns have been filed.

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Inventory

9 Months Ended

Sep. 30, 2019

Inventory Disclosure [Abstract]

Inventory

Inventory

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost of raw materials, which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Included in finished goods at September 30, 2019 and December 31, 2018 was $1.4 million and $1.4 million, respectively, of trial and evaluation hardware units. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventory consisted of the following at September 30, 2019 and December 31, 2018 (in thousands):

	September 30, 2019		December 31, 2018
Raw materials	$	21,096	$	19,670
Finished goods	19,570		14,093
Total inventory	$	40,666	$	33,763

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Revenues

9 Months Ended

Sep. 30, 2019

Revenue from Contract with Customer [Abstract]

Revenues

Revenues

Nature of Products and Services

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

	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	20,214	$	—	$	20,214	$	—	$	—	$	—
TASER X26P	11,578		—		11,578		17,998		—		17,998
TASER X2	13,241		—		13,241		20,392		—		20,392
TASER Pulse and Bolt	1,132		—		1,132		1,402		—		1,402
Single cartridges	18,901		—		18,901		18,406		—		18,406
Axon Body	—		6,763		6,763		—		4,744		4,744
Axon Flex	—		1,670		1,670		—		1,325		1,325
Axon Fleet	—		4,341		4,341		—		1,809		1,809
Axon Dock	—		3,358		3,358		—		2,178		2,178
Axon Evidence and cloud services	218		34,022		34,240		—		23,915		23,915
TASER Cam	—		534		534		—		717		717
Extended warranties	4,543		4,714		9,257		4,123		3,161		7,284
Other	1,916		3,692		5,608		1,345		3,321		4,666
Total	$	71,743	$	59,094	$	130,837	$	63,666	$	41,170	$	104,836

	Nine Months Ended September 30, 2019						Nine Months Ended September 30, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	39,466	$	—	$	39,466	$	—	$	—	$	—
TASER X26P	37,832		—		37,832		52,618		—		52,618
TASER X2	40,413		—		40,413		62,686		—		62,686
TASER Pulse and Bolt	2,920		—		2,920		3,849		—		3,849
Single cartridges	57,354		—		57,354		51,763		—		51,763
Axon Body	—		18,820		18,820		—		15,082		15,082
Axon Flex	—		4,517		4,517		—		4,529		4,529
Axon Fleet	—		10,977		10,977		—		6,640		6,640
Axon Dock	—		9,401		9,401		—		7,332		7,332
Axon Evidence and cloud services	363		93,461		93,824		—		64,513		64,513
TASER Cam	—		2,481		2,481		—		2,839		2,839
Extended warranties	13,341		14,064		27,405		11,567		8,521		20,088
Other	6,017		7,582		13,599		5,331		8,007		13,338
Total	$	197,706	$	161,303	$	359,009	$	187,814	$	117,463	$	305,277

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2019				2018				2019				2018
United States	$	110,809	85	%	$	88,125	84	%	$	298,736	83	%	$	244,806	80	%
Other countries	20,028		15		16,711		16		60,273		17		60,471		20
Total	$	130,837	100	%	$	104,836	100	%	$	359,009	100	%	$	305,277	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, 2019 (in thousands):

	September 30, 2019
Contract assets, net	$	33,635
Contract liabilities (deferred revenue)	209,309
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	83,159

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

	September 30, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	11,677	$	16,633	$	28,310	$	12,797	$	16,847	$	29,644
Software and Sensors	9,899		5,450		15,349		8,273		6,516		14,789
	21,576		22,083		43,659		21,070		23,363		44,433
Hardware:
TASER	4,378		17,601		21,979		9,355		15,598		24,953
Software and Sensors	39,308		27,357		66,665		20,878		24,685		45,563
	43,686		44,958		88,644		30,233		40,283		70,516
Services:
TASER	11		396		407		—		—		—
Software and Sensors	61,887		14,712		76,599		55,713		10,771		66,484
	61,898		15,108		77,006		55,713		10,771		66,484
Total	$	127,160	$	82,149	$	209,309	$	107,016	$	74,417	$	181,433

	September 30, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	16,066	$	34,630	$	50,696	$	22,152	$	32,445	$	54,597
Software and Sensors	111,094		47,519		158,613		84,864		41,972		126,836
Total	$	127,160	$	82,149	$	209,309	$	107,016	$	74,417	$	181,433

Remaining Performance Obligations

As of September 30, 2019, we had approximately $1.13 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 Topic 606 as of September 30, 2019. We expect to recognize between 15% - 20% of this balance over the next twelve months, and generally expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Land Lease Purchase Agreement

On December 13, 2018, we entered into a Purchase and Sale Agreement ("PSA") to purchase a leasehold interest to a parcel of land located in Maricopa County, Arizona for a period of 84 years, on which we intended to construct our new headquarters. On October 10, 2019, we terminated the PSA because we were unable to secure design approval by the Salt River Pima-Maricopa Indian Community. We expect to forfeit our escrow deposit of approximately $0.2 million, and no further amounts are owed to the counterparty under the agreement. In connection with the termination of the PSA, we recorded an impairment charge of $0.7 million, excluding the aforementioned forfeited deposit, related to the abandonment of certain planning and site development activities.

Data Storage Purchase Commitment

In June 2019, we entered into a purchase agreement for cloud data storage with a 3 year term beginning July 1, 2019. The purchase agreement includes a total commitment of $50.0 million, with an up-front prepayment of $15.0 million that was made in July 2019. The current balance of the prepayment is included within prepaid expenses and other current assets on our condensed consolidated balance sheet. Storage fees under this agreement were $3.7 million for the three and nine months ended September 30, 2019, and were recorded in cost of service sales. The remaining purchase commitment at September 30, 2019 was $46.3 million.

Product Litigation

We are currently named as a defendant in eight lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used by law enforcement officers in connection with arrests. 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 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 Litigation

We are a defendant in a litigation matter filed by Digital Ally Inc. (“Digital”) in the District of Kansas alleging patent infringement regarding our Axon Signal technology. Axon was granted summary judgment of non-infringement on June 17, 2019 and judgment was entered in our favor on all of Digital's claims. Digital has appealed the ruling.

We are also a defendant in a consumer class action lawsuit previously filed and dismissed in California in 2018 and now refiled in the District of Nevada on April 9, 2019 (Case No. 3:1-cv-00192) by consumer weapon purchaser Douglas Richey (“Richey”). The case alleges the TASER Pulse, X2 and X26P CEWs have a faulty safety switch based on Richey’s Pulse allegedly discharging inside its neoprene case in a jacket pocket without injury. Any such discharge was likely due to static electricity, as disclosed in our consumer warnings. We will vigorously defend this claim and the propriety of any class certification. Our motion to dismiss is pending.

U.S. Federal Trade Commission Investigation

In June 2018 we received a letter from the U.S. Federal Trade Commission (“FTC”) with respect to its non-public investigation into our acquisition of VIEVU, LLC in May 2018.  The FTC issued a subpoena for certain information and documentation relating to the acquisition on March 21, 2019. We are cooperating with the investigation.

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. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on 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 September 30, 2019, we have determined that it is not reasonably possible that these 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, 2019, we had outstanding letters of credit of $3.6 million that are expected to expire in May 2020 and September 2021. Additionally, we had $24.6 million of outstanding surety bonds at September 30, 2019, with $1.1 million expiring in 2020, $2.3 million expiring in 2021, $3.2 million expiring in 2022, $7.5 million expiring in 2023 and the remaining $10.5 million expiring in 2024.

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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2019	Sep. 30, 2018	Sep. 30, 2019	Sep. 30, 2018
Net sales	$ 130,837	$ 104,836	$ 359,009	$ 305,277
Cost of sales	50,668	39,203	144,363	112,040
Gross margin	80,169	65,633	214,646	193,237
Operating expenses:
Sales, general and administrative	48,424	39,685	134,678	114,787
Research and development	25,129	21,982	71,976	55,602
Total operating expenses	73,553	61,667	206,654	170,389
Income from operations	6,616	3,966	7,992	22,848
Interest and other income (expense), net	1,820	1,274	5,978	2,242
Income before provision for income taxes	8,436	5,240	13,970	25,090
Provision for (benefit from) income taxes	2,332	(471)	709	(2,032)
Net income	$ 6,104	$ 5,711	$ 13,261	$ 27,122
Net income per common and common equivalent shares:
Basic (in dollars per share)	$ 0.10	$ 0.10	$ 0.22	$ 0.49
Diluted (in dollars per share)	$ 0.10	$ 0.10	$ 0.22	$ 0.47
Weighted average number of common and common equivalent shares outstanding:
Basic (in shares)	59,278	58,340	59,128	55,681
Diluted (in shares)	60,059	59,805	59,938	57,254
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 6,104	$ 5,711	$ 13,261	$ 27,122
Foreign currency translation adjustments	(227)	(107)	(285)	(159)
Comprehensive income	5,877	5,604	12,976	26,963
Product
Net sales	96,497	80,923	264,977	238,618
Cost of sales	42,445	32,953	120,265	96,474
Service
Net sales	34,340	23,913	94,032	66,659
Cost of sales	$ 8,223	$ 6,250	$ 24,098	$ 15,566