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, 2020 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 30, 2020 was 63,549,898.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

			Page
Special Note Regarding Forward-Looking Statements			ii
PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2020 and 2019	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2020 and 2019	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2020 and 2019	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		29
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		44
	Item 4. Controls and Procedures		45
PART II - OTHER INFORMATION			46
	Item 1. Legal Proceedings		46
	Item 1A. Risk Factors		46
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		46
	Item 3. Defaults Upon Senior Securities		47
	Item 4. Mine Safety Disclosures		47
	Item 5. Other Information		47
	Item 6. Exhibits		48
	SIGNATURES		49

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: the impact of the COVID-19 pandemic; proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; expected costs relating to the FTC litigation; the impact of pending litigation; strategies and trends relating to subscription plan programs and revenues; our anticipation that contracts with governmental customers will be fulfilled; strategies and 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; the impact on our investment portfolio of changes in interest rates; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management’s strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Form 10-K for the year ended December 31, 2019. 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: the potential global impacts of the COVID-19 pandemic; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; the impact of stock compensation expense, impairment expense, and income tax expense on our financial results; customer purchase behavior, including adoption of our software as a service delivery model; negative media publicity regarding our products; the impact of product mix on projected gross margins; defects in our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including our reliance on third party cloud-based storage providers; exposure to international operational risks; delayed cash collections and possible credit losses due to our subscription model; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our products 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 28, 2020 and this Quarterly Report on Form 10-Q list 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,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	176,000	$	172,250
Short-term investments		330,914		178,534
Accounts and notes receivable, net of allowance of $1,787 and $1,567 as of September 30, 2020 and December 31, 2019, respectively		172,803		146,878
Contract assets, net		63,105		38,102
Inventory		97,610		38,845
Prepaid expenses and other current assets		35,421		34,866
Total current assets		875,853		609,475
Property and equipment, net		102,718		43,770
Deferred tax assets, net		39,773		27,688
Intangible assets, net		10,260		12,771
Goodwill		25,012		25,013
Long-term investments		120,615		45,499
Long-term notes receivable, net of current portion		22,611		31,598
Long-term contract assets, net		15,019		9,644
Other assets		67,288		40,181
Total assets	$	1,279,149	$	845,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	22,441	$	25,874
Accrued liabilities		74,114		45,001
Current portion of deferred revenue		154,731		117,864
Customer deposits		2,132		2,974
Other current liabilities		5,137		3,853
Total current liabilities		258,555		195,566
Deferred revenue, net of current portion		87,733		87,936
Liability for unrecognized tax benefits		4,406		3,832
Long-term deferred compensation		4,150		3,936
Deferred tax liability, net		560		354
Other long-term liabilities		28,592		10,520
Total liabilities		383,996		302,144
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 63,548,081 and 59,497,759 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively		1		1
Additional paid-in capital		908,584		528,272
Treasury stock at cost, 20,220,227 shares as of September 30, 2020 and December 31, 2019		(155,947)		(155,947)
Retained earnings		144,067		172,265
Accumulated other comprehensive loss		(1,552)		(1,096)
Total stockholders’ equity		895,153		543,495
Total liabilities and stockholders’ equity	$	1,279,149	$	845,639

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 (LOSS)

(in thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Net sales from products	$	120,091	$	96,497	$	326,134	$	264,977
Net sales from services		46,351		34,340		128,729		94,032
Net sales		166,442		130,837		454,863		359,009
Cost of product sales		57,798		42,445		150,507		120,265
Cost of service sales		10,404		8,223		29,331		24,098
Cost of sales		68,202		50,668		179,838		144,363
Gross margin		98,240		80,169		275,025		214,646
Operating expenses:
Sales, general and administrative		74,443		48,424		209,763		134,678
Research and development		29,246		25,129		85,187		71,976
Total operating expenses		103,689		73,553		294,950		206,654
Income (loss) from operations		(5,449)		6,616		(19,925)		7,992
Interest and other income, net		2,040		1,820		4,594		5,978
Income (loss) before provision for income taxes		(3,409)		8,436		(15,331)		13,970
Provision for (benefit from) income taxes		(2,536)		2,332		12,227		709
Net income (loss)	$	(873)	$	6,104	$	(27,558)	$	13,261
Net income (loss) per common and common equivalent shares:
Basic	$	(0.01)	$	0.10	$	(0.45)	$	0.22
Diluted	$	(0.01)	$	0.10	$	(0.45)	$	0.22
Weighted average number of common and common equivalent shares outstanding:
Basic		63,496		59,278		61,159		59,128
Diluted		63,496		60,059		61,159		59,938
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	(873)	$	6,104	$	(27,558)	$	13,261
Foreign currency translation adjustments		1,238		(227)		(456)		(285)
Comprehensive income (loss)	$	365	$	5,877	$	(28,014)	$	12,976

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 share data)

											Accumulated
				Additional							Other		Total
	Common Stock			Paid-in		Treasury Stock			Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Earnings		Loss		Equity
Balance, December 31, 2019	59,497,759	$	1	$	528,272	20,220,227	$	(155,947)	$	172,265	$	(1,096)	$	543,495
Cumulative effect of applying a change in accounting principle, net of tax	—		—		—	—		—		(640)		—		(640)
Issuance of common stock under employee plans, net	315,404		—		(5,162)	—		—		—		—		(5,162)
Stock-based compensation	—		—		20,195	—		—		—		—		20,195
Net income	—		—		—	—		—		4,074		—		4,074
Foreign currency translation adjustments	—		—		—	—		—		—		(2,372)		(2,372)
Balance, March 31, 2020	59,813,163		1		543,305	20,220,227		(155,947)		175,699		(3,468)		559,590
Issuance of common stock	3,450,000		—		306,779	—		—		—		—		306,779
Issuance of common stock under employee plans, net	134,571		—		(310)	—		—		—		—		(310)
Stock-based compensation	—		—		33,835	—		—		—		—		33,835
Issuance of common stock for business combination contingent consideration	70,613		—		—	—		—		—		—		—
Net income (loss)	—		—		—	—		—		(30,759)		—		(30,759)
Foreign currency translation adjustments	—		—		—	—		—		—		678		678
Balance, June 30, 2020	63,468,347		1		883,609	20,220,227		(155,947)		144,940		(2,790)		869,813
Issuance of common stock under employee plans, net	79,734		—		(1,119)	—		—		—		—		(1,119)
Stock-based compensation	—		—		26,094	—		—		—		—		26,094
Net income (loss)	—		—		—	—		—		(873)		—		(873)
Foreign currency translation adjustments	—		—		—	—		—		—		1,238		1,238
Balance, September 30, 2020	63,548,081	$	1	$	908,584	20,220,227	$	(155,947)	$	144,067	$	(1,552)	$	895,153

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

3

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (CONT’D)

(in thousands, except share data)

											Accumulated
				Additional							Other		Total
	Common Stock			Paid-in		Treasury Stock			Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Earnings		Loss		Equity
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)
Issuance of common stock for business combination contingent consideration	70,613		—		—	—		—		—		—		—
Stock-based compensation	—		—		8,627	—		—		—		—		8,627
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	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

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,
	2020		2019
Cash flows from operating activities:
Net income (loss)	$	(27,558)	$	13,261
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		8,944		8,196
Loss on disposal and abandonment of intangible assets		252		51
Loss on disposal and impairment of property and equipment, net		1,429		2,408
Stock-based compensation		80,124		30,195
Deferred income taxes		(11,670)		(3,946)
Unrecognized tax benefits		573		594
Other noncash, net		4,573		2,923
Provision for expected credit losses		776		—
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(48,551)		(30,497)
Inventory		(59,371)		(6,302)
Prepaid expenses and other assets		(4,822)		(11,967)
Accounts payable, accrued and other liabilities		25,365		(13,528)
Deferred revenue		34,099		28,476
Net cash provided by operating activities		4,163		19,864
Cash flows from investing activities:
Purchases of investments		(516,687)		(242,693)
Proceeds from call / maturity of investments		287,199		92,207
Purchases of property and equipment		(66,023)		(12,111)
Proceeds from disposal of property and equipment		94		—
Purchases of intangible assets		(177)		(328)
Investment in unconsolidated affiliate		(4,700)		—
Net cash used in investing activities		(300,294)		(162,925)
Cash flows from financing activities:
Net proceeds from equity offering		306,779		—
Proceeds from options exercised		295		106
Income and payroll tax payments for net-settled stock awards		(6,886)		(3,268)
Net cash provided by (used in) financing activities		300,188		(3,162)
Effect of exchange rate changes on cash and cash equivalents		(303)		(678)
Net increase (decrease) in cash and cash equivalents		3,754		(146,901)
Cash and cash equivalents and restricted cash, beginning of period		172,355		351,027
Cash and cash equivalents and restricted cash, end of period	$	176,109	$	204,126
Supplemental disclosures:
Cash and cash equivalents	$	176,000	$	202,551
Restricted cash (Note 1)		109		1,575
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	176,109	$	204,126
Cash paid for income taxes, net of refunds	$	7,678	$	2,422
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	1,734	$	1,047
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, 2019, 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, 2019. The results of operations for the three months and nine months ended September 30, 2020 and 2019 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,

● expected credit loss reserves,

● 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 devices ("CEDs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment);

6

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products, and services (collectively, the “Software and Sensors” segment). In both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes referred to as "Axon Cloud revenue."  

Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer who is our chief operating decision maker ("CODM"). We organize and review operations based on products and services, and currently there are no operating segments that are aggregated. We perform an analysis of our reportable segments at least annually. 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, 2020 and 2019, 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, 2020 and 2019, no customer represented more than 10% of total net sales. At September 30, 2020 and December 31, 2019, 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., Australia, Canada, China, Germany, Japan, Mexico, 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. Diluted income per share reflects the potential dilution from outstanding stock options and unvested restricted stock units. The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):

7

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Numerator for basic and diluted earnings per share:
Net income (loss)	$	(873)	$	6,104	$	(27,558)	$	13,261
Denominator:
Weighted average shares outstanding		63,496		59,278