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, 2022 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-16391

Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)


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

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

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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


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

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

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

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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated Filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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

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

The number of shares of the registrant’s common stock outstanding as of November 4, 2022 was 71,165,354.

Table of Contents

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; 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 amounts and benefits of, research and development investments; the sufficiency of our liquidity and financial resources; expectations about customer behavior; the impact on our investment portfolio of changes in interest rates; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management’s strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021. 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 by our 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; 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 for the year ended December 31, 2021 that we filed with the Securities and Exchange Commission ("SEC") on February 25, 2022 lists 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 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.

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PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)


	September 30,		December 31,
	2022		2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	147,711	$	356,332
Marketable securities		35,280		72,180
Short-term investments		194,627		14,510
Accounts and notes receivable, net of allowance of $2,273 and $2,203 as of September 30, 2022 and December 31, 2021, respectively		418,308		320,819
Contract assets, net		168,673		180,421
Inventory		173,046		108,688
Prepaid expenses and other current assets		68,054		56,540
Total current assets		1,205,699		1,109,490
Property and equipment, net		164,160		138,457
Deferred tax assets, net		96,355		127,193
Intangible assets, net		13,039		15,470
Goodwill		44,819		43,592
Long-term investments		28,536		31,232
Long-term notes receivable, net		8,462		11,256
Long-term contract assets, net		48,388		29,753
Strategic investments		290,329		83,520
Other long-term assets		110,643		98,247
Total assets	$	2,010,430	$	1,688,210
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	50,193	$	32,220
Accrued liabilities		112,766		103,707
Current portion of deferred revenue		246,446		265,591
Customer deposits		15,317		10,463
Other current liabilities		6,801		6,540
Total current liabilities		431,523		418,521
Deferred revenue, net of current portion		313,823		185,721
Liability for unrecognized tax benefits		7,317		3,797
Long-term deferred compensation		5,369		5,679
Deferred tax liability, net		1		811
Long-term lease liabilities		16,311		20,440
Other long-term liabilities		4,773		5,392
Total liabilities		779,117		640,361
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, 2022 and December 31, 2021, respectively		—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 71,151,670 and 70,896,856 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		1		1
Additional paid-in capital		1,167,218		1,095,229
Treasury stock at cost, 20,220,227 shares as of September 30, 2022 and December 31, 2021		(155,947)		(155,947)
Retained earnings		227,847		109,883
Accumulated other comprehensive loss		(7,806)		(1,317)
Total stockholders’ equity		1,231,313		1,047,849
Total liabilities and stockholders’ equity	$	2,010,430	$	1,688,210

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

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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,
	2022		2021		2022		2021
Net sales from products	$	210,398	$	165,803	$	586,653	$	463,116
Net sales from services		101,356		66,186		267,140		182,687
Net sales		311,754		231,989		853,793		645,803
Cost of product sales		93,724		71,336		260,578		195,253
Cost of service sales		24,773		16,086		70,256		44,701
Cost of sales		118,497		87,422		330,834		239,954
Gross margin		193,257		144,567		522,959		405,849
Operating expenses:
Sales, general and administrative		102,023		99,295		287,157		403,554
Research and development		59,127		42,382		165,090		143,352
Total operating expenses		161,150		141,677		452,247		546,906
Income (loss) from operations		32,107		2,890		70,712		(141,057)
Interest and other income (expense), net		(11,249)		(5,530)		91,076		36,896
Income (loss) before provision for income taxes		20,858		(2,640)		161,788		(104,161)
Provision for (benefit from) income taxes		8,727		(51,164)		43,824		(57,651)
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Net income (loss) per common and common equivalent shares:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$	0.17	$	0.67	$	1.63	$	(0.71)
Weighted average number of common and common equivalent shares outstanding:
Basic		71,107		66,192		71,033		65,139
Diluted		72,525		72,441		72,386		65,139
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Foreign currency translation adjustments		(2,275)		(793)		(5,513)		(1,161)
Unrealized losses on available-for-sale investments		(326)		—		(976)		—
Comprehensive income (loss)	$	9,530	$	47,731	$	111,475	$	(47,671)

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

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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, 2021	70,896,856	$	1	$	1,095,229	20,220,227	$	(155,947)	$	109,883	$	(1,317)	$	1,047,849
Issuance of common stock	—		—		(70)	—		—		—		—		(70)
Issuance of common stock under employee plans, net	99,802		—		(1,388)	—		—		—		—		(1,388)
Stock-based compensation	—		—		25,088	—		—		—		—		25,088
Net income	—		—		—	—		—		54,871		—		54,871
Other comprehensive loss, net	—		—		—	—		—		—		(1,561)		(1,561)
Balance, March 31, 2022	70,996,658	$	1	$	1,118,859	20,220,227	$	(155,947)	$	164,754	$	(2,878)	$	1,124,789
Issuance of common stock			—		(4)	—		—		—		—		(4)
Issuance of common stock under employee plans, net	81,041		—		(931)	—		—		—		—		(931)
Stock-based compensation	—		—		21,162	—		—		—		—		21,162
Net income	—		—		—	—		—		50,962		—		50,962
Other comprehensive loss, net	—		—		—	—		—		—		(2,327)		(2,327)
Balance, June 30, 2022	71,077,699	$	1	$	1,139,086	20,220,227	$	(155,947)	$	215,716	$	(5,205)	$	1,193,651
Issuance of common stock under employee plans, net	73,971		—		(72)	—		—		—		—		(72)
Stock-based compensation	—		—		28,204	—		—		—		—		28,204
Net income	—		—		—	—		—		12,131		—		12,131
Other comprehensive loss, net	—		—		—	—		—		—		(2,601)		(2,601)
Balance, September 30, 2022	71,151,670	$	1	$	1,167,218	20,220,227	$	(155,947)	$	227,847	$	(7,806)	$	1,231,313

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

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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		Income (Loss)		Equity
Balance, December 31, 2020	63,766,555	$	1	$	962,159	20,220,227	$	(155,947)	$	169,901	$	141	$	976,255
Issuance of common stock under employee plans, net	906,536		—		(7,045)	—		—		—		—		(7,045)
Stock-based compensation	—		—		89,610	—		—		—		—		89,610
Net loss	—		—		—	—		—		(47,917)		—		(47,917)
Other comprehensive income, net	—		—		—	—		—		—		1		1
Balance, March 31, 2021	64,673,091	$	1	$	1,044,724	20,220,227	$	(155,947)	$	121,984	$	142	$	1,010,904
Issuance of common stock under employee plans, net	1,001,255		—		(3,268)	—		—		—		—		(3,268)
Stock-based compensation	—		—		137,549	—		—		—		—		137,549
Net loss	—		—		—	—		—		(47,117)		—		(47,117)
Other comprehensive loss, net	—		—		—	—		—		—		(369)		(369)
Balance, June 30, 2021	65,674,346		1		1,179,005	20,220,227		(155,947)		74,867		(227)		1,097,699
Issuance of common stock	577,956		—		105,615	—		—		—		—		105,615
Issuance of common stock under employee plans, net	1,325,566		—		(172,204)	—		—		—		—		(172,204)
Stock-based compensation	—		—		35,062	—		—		—		—		35,062
Net income	—		—		—	—		—		48,524		—		48,524
Other comprehensive loss, net	—		—		—	—		—		—		(793)		(793)
Balance, September 30, 2021	67,577,868	$	1	$	1,147,478	20,220,227	$	(155,947)	$	123,391	$	(1,020)	$	1,113,903

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

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AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)


	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	117,964	$	(46,510)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		18,171		13,420
Purchase accounting adjustments to goodwill		58		—
Loss on disposal and abandonment of intangible assets		68		130
Loss on disposal and impairment of property, equipment, and other assets, net		1,964		74
Realized and unrealized gains on strategic investments and marketable securities, net		(92,498)		(34,195)
Stock-based compensation		74,454		262,221
Deferred income taxes		30,349		(58,893)
Unrecognized tax benefits		3,519		77
Bond amortization		(61)		4,606
Noncash lease expense		4,997		4,087
Provision for expected credit losses		569		615
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(115,046)		(118,094)
Inventory		(66,267)		(3,154)
Prepaid expenses and other assets		(17,871)		(28,906)
Accounts payable, accrued and other liabilities		28,684		28,528
Deferred revenue		115,187		87,558
Net cash provided by operating activities		104,241		111,564
Cash flows from investing activities:
Purchases of investments		(194,142)		(362,479)
Proceeds from call / maturity of investments		15,485		499,172
Exercise of warrants of strategic investments		(6,555)		—
Proceeds from sale of strategic investments		—		14,546
Purchases of property and equipment		(44,218)		(36,501)
Proceeds from disposal of property and equipment		226		31
Purchases of intangible assets		(193)		(157)
Strategic investments		(70,500)		(20,500)
Business acquisition, net of cash acquired		(2,104)		(700)
Net cash provided by (used in) investing activities		(302,001)		93,412
Cash flows from financing activities:
Net proceeds from equity offering		(74)		105,615
Income and payroll tax payments for net-settled stock awards		(2,391)		(182,517)
Net cash used in financing activities		(2,465)		(76,902)
Effect of exchange rate changes on cash and cash equivalents		(6,783)		(1,827)
Net increase (decrease) in cash and cash equivalents		(207,008)		126,247
Cash and cash equivalents and restricted cash, beginning of period		356,438		155,551
Cash and cash equivalents and restricted cash, end of period	$	149,430	$	281,798

Supplemental disclosures:
Cash and cash equivalents	$	147,711	$	281,691
Restricted cash (Note 1)		1,719		107
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	149,430	$	281,798

Cash paid for income taxes, net of refunds	$	7,503	$	5,016

Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	1,244	$	1,211

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

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 16.

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2022, 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, 2022, no customer represented more than 10% of total net sales. At September 30, 2022 and December 31, 2021, 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, Republic of Korea, Malaysia, Mexico, Taiwan, and Vietnam. We may source from other countries as well. 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. Although we have experienced supply chain disruptions relating to materials and port constraints, we have remained focused on closely managing our supply chain. We continue to bolster our strategic relationships in our supply chain, identifying secondary/alternate sourcing, adjusting build plans accordingly, and building in logistic modes in support of our increasing demand while working to minimize disruption to customers. We acquire most of our components on a purchase order basis and do not currently have significant long-term purchase contracts with most component suppliers.

Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Diluted income per share reflects the potential dilution from outstanding stock options 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):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Denominator:
Weighted average shares outstanding		71,107		66,192		71,033		65,139
Dilutive effect of stock-based awards		1,418		6,249		1,353		—
Diluted weighted average shares outstanding		72,525		72,441		72,386		65,139
Anti-dilutive stock-based awards excluded		2,977		3,481		2,952		8,920
Net income (loss) per common share:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$

			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, 2022 (Unaudited) and December 31, 2021	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2022 and 2021	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2022 and 2021	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		41
	Item 4. Controls and Procedures		42
PART II - OTHER INFORMATION			42
	Item 1. Legal Proceedings		42
	Item 1A. Risk Factors		43
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
	Item 3. Defaults Upon Senior Securities		43
	Item 4. Mine Safety Disclosures		43
	Item 5. Other Information		43
	Item 6. Exhibits		44
	SIGNATURES		45