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 March 31, 2023 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                   

Commission File Number: 001-16391

Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)

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

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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

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

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

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

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

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

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

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

The number of shares of the registrant’s common stock outstanding as of May 5, 2023 was 73,885,305.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023

			Page
Special Note Regarding Forward-Looking Statements			ii
PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2023 and 2022	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		34
	Item 4. Controls and Procedures		35
PART II - OTHER INFORMATION			35
	Item 1. Legal Proceedings		35
	Item 1A. Risk Factors		36
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		57
	Item 3. Defaults Upon Senior Securities		57
	Item 4. Mine Safety Disclosures		57
	Item 5. Other Information		58
	Item 6. Exhibits		59
	SIGNATURES		60

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, 2022. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement 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: our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; the ability of law enforcement agencies to obtain funding, including based on tax revenues; 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 win bids through the open bidding process for governmental agencies; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; the impacts of inflation, macroeconomic conditions and global events; the impact of stock-based 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 or sentiment regarding our products; the impact of product mix on projected gross margins; defects in, or misuse of, 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; litigation or inquiries and related time and costs; 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 following Report 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 below, 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)

	March 31,		December 31,
	2023		2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	263,414	$	353,684
Marketable securities		54,810		39,240
Short-term investments		775,129		581,769
Accounts and notes receivable, net of allowance of $2,029 and $2,176 as of March 31, 2023 and December 31, 2022, respectively		379,887		358,190
Contract assets, net		216,869		196,902
Inventory		220,268		202,471
Prepaid expenses and other current assets		142,319		73,022
Total current assets		2,052,696		1,805,278
Property and equipment, net		172,674		169,843
Deferred tax assets, net		171,122		156,866
Intangible assets, net		11,270		12,158
Goodwill		44,982		44,983
Long-term investments		31,116		156,207
Long-term notes receivable, net		4,467		5,210
Long-term contract assets, net		54,886		45,170
Strategic investments		296,563		296,563
Other long-term assets		168,173		159,616
Total assets	$	3,007,949	$	2,851,894
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	65,988	$	59,918
Accrued liabilities		120,607		155,934
Current portion of deferred revenue		408,061		360,037
Customer deposits		13,961		20,399
Other current liabilities		7,510		6,358
Total current liabilities		616,127		602,646
Deferred revenue, net of current portion		250,366		248,003
Liability for unrecognized tax benefits		16,198		10,745
Long-term deferred compensation		7,983		6,285
Deferred tax liability, net		—		1
Long-term lease liabilities		35,045		37,143
Convertible notes, net		674,724		673,967
Other long-term liabilities		4,511		4,613
Total liabilities		1,604,954		1,583,403
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 March 31, 2023 and December 31, 2022, respectively		—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 73,874,062 and 71,474,581 shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively		1		1
Additional paid-in capital		1,262,099		1,174,594
Treasury stock at cost, 20,220,227 shares as of March 31, 2023 and December 31, 2022		(155,947)		(155,947)
Retained earnings		302,161		257,022
Accumulated other comprehensive loss		(5,319)		(7,179)
Total stockholders’ equity		1,402,995		1,268,491
Total liabilities and stockholders’ equity	$	3,007,949	$	2,851,894

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 March 31,
	2023		2022
Net sales from products	$	219,389	$	176,204
Net sales from services		123,654		80,222
Net sales		343,043		256,426
Cost of product sales		107,584		79,352
Cost of service sales		31,357		21,335
Cost of sales		138,941		100,687
Gross margin		204,102		155,739
Operating expenses:
Sales, general and administrative		116,567		90,129
Research and development		70,927		48,416
Total operating expenses		187,494		138,545
Income from operations		16,608		17,194
Interest and other income, net		25,276		55,299
Income before provision for income taxes		41,884		72,493
Provision for (benefit from) income taxes		(3,255)		17,622
Net income	$	45,139	$	54,871
Net income per common and common equivalent shares:
Basic	$	0.62	$	0.77
Diluted	$	0.61	$	0.76
Weighted average number of common and common equivalent shares outstanding:
Basic		72,638		70,950
Diluted		73,880		72,349
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	45,139	$	54,871
Foreign currency translation adjustments		1,676		(1,072)
Unrealized gain (loss) on available-for-sale investments		184		(489)
Comprehensive income	$	46,999	$	53,310

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, 2022	71,474,581	$	1	$	1,174,594	20,220,227	$	(155,947)	$	257,022	$	(7,179)	$	1,268,491
Issuance of common stock	154,500		—		33,650	—		—		—		—		33,650
Issuance of common stock under employee plans, net	335,629		—		(34,841)	—		—		—		—		(34,841)
Stock options exercised	1,901,535				54,346	—		—		—		—		54,346
Stock-based compensation	—		—		34,350	—		—		—		—		34,350
Issuance of common stock for business combination contingent consideration	7,817		—		—	—		—		—		—		—
Net income	—		—		—	—		—		45,139		—		45,139
Other comprehensive income, net	—		—		—	—		—		—		1,860		1,860
Balance, March 31, 2023	73,874,062	$	1	$	1,262,099	20,220,227	$	(155,947)	$	302,161	$	(5,319)	$	1,402,995

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

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

3

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Three Months Ended March 31,
	2023		2022
Cash flows from operating activities:
Net income	$	45,139	$	54,871
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		6,689		5,755
Amortization of issuance cost		756		—
Coupon interest expense		863		—
Loss on disposal and abandonment of intangible assets		10		40
Loss on disposal and impairment of property, equipment, and other assets, net		146		106
Unrealized gains on strategic investments and marketable securities, net		(15,570)		(55,851)
Stock-based compensation		34,350		25,088
Deferred income taxes		(9,660)		18,029
Unrecognized tax benefits		855		1,365
Bond amortization		(3,890)		159
Noncash lease expense		1,395		1,556
Provision for expected credit losses		28		228
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(50,431)		7,495
Inventory		(15,811)		(14,260)
Prepaid expenses and other assets		(64,348)		(7,074)
Accounts payable, accrued and other liabilities		(37,043)		(9,580)
Deferred revenue		50,199		16,037
Net cash provided by (used in) operating activities		(56,323)		43,964
Cash flows from investing activities:
Purchases of investments		(145,124)		—
Proceeds from call / maturity of investments		81,088		7,200
Purchases of property and equipment		(8,513)		(17,098)
Proceeds from disposal of property and equipment		—		87
Purchases of intangible assets		(125)		(37)
Strategic investments		—		(500)
Net cash used in investing activities		(72,674)		(10,348)
Cash flows from financing activities:
Net proceeds from equity offering		33,650		(71)
Proceeds from options exercised		39,181		—
Income and payroll tax payments for net-settled stock awards		(34,841)		(1,388)
Net cash provided by (used in) financing activities		37,990		(1,459)
Effect of exchange rate changes on cash and cash equivalents		779		(157)
Net increase (decrease) in cash and cash equivalents		(90,228)		32,000
Cash and cash equivalents and restricted cash, beginning of period		355,552		356,438
Cash and cash equivalents and restricted cash, end of period	$	265,324	$	388,438
Supplemental disclosures:
Cash and cash equivalents	$	263,414	$	386,367
Restricted cash (Note 1)		1,910		2,071
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	265,324	$	388,438
Cash paid for income taxes, net of refunds	$	20,936	$	334
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	1,130	$	888
Receivables from options exercised	$	15,165	$	—

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

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Note 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 mission is to protect life in service of promoting peace, justice and strong institutions.

Our headquarters in Scottsdale, Arizona houses our executive management, sales, marketing, certain engineering, manufacturing, finance and other administrative support functions. Our global software hub is located in Seattle, Washington, and we also have subsidiaries and / or offices located in Australia, Canada, Finland, France, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United Kingdom, and Vietnam.

The accompanying unaudited condensed consolidated financial statements include the accounts of Axon Enterprise, Inc. and our 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, 2022, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2022. The results of operations for the three months ended March 31, 2023 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,

● reserve for expected credit loss,

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

● valuation of strategic investments,

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

● stock-based compensation, and

● recognition and measurement of contingencies and accrued litigation expense.

Actual results could differ materially from those estimates.

Segment Information

Our operations comprise two reportable segments: the development, manufacture and sale of fully integrated hardware and cloud-based software solutions that enable law enforcement to capture, securely store, manage, share and analyze video and other digital evidence (collectively, the "Software and Sensors" segment); and the manufacture and sale of conducted electrical devices ("CEDs"), batteries, accessories, extended warranties and other products and services (collectively, the “TASER” segment). In both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes referred to as "Axon Cloud revenue." Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer who is our chief operating decision maker ("CODM"). We organize and review operations based on products and services, and currently there are no operating segments that are aggregated. We perform

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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 months ended March 31, 2023, 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 months ended March 31, 2023, no customer represented more than 10% of total net sales. At March 31, 2023 and December 31, 2022, 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., China, Republic of Korea, Malaysia, Mexico, Sri Lanka, 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 effects of outstanding stock options, unvested restricted stock units, our 2027 convertible senior notes (the “Notes” or “2027 Notes”), and warrants to acquire the number of shares of our common stock (the “Warrants” or “2027 Warrants”) are excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive. The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):

	Three Months Ended March 31,
	2023		2022
Numerator for basic and diluted earnings per share:
Net income	$	45,139	$	54,871
Denominator:
Weighted average shares outstanding		72,638		70,950
Dilutive effect of stock-based awards		1,242		1,399
Diluted weighted average shares outstanding		73,880		72,349
Net income per common share:
Basic	$	0.62	$	0.77
Diluted	$	0.61	$	0.76

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

	Three Months Ended March 31,
	2023		2022
Stock-based awards		1,469		2,942
2027 Notes		3,017		—
2027 Warrants		3,017		—
Total potentially dilutive securities		7,503		2,942

For additional information regarding our convertible senior notes, refer to Note 9.

Standard Warranties

We warranty our CEDs, Axon cameras and certain related accessories from manufacturing defects on a limited basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. 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 on a quarterly basis based on historical data related to warranty claims 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 consolidated balance sheets.

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

	Three Months Ended March 31,
	2023		2022
Balance, beginning of period	$	811	$	2,822
Utilization of reserve		(438)		(1,434)
Warranty expense		2,928		116
Balance, end of period	$	3,301	$	1,504

Fair Value Measurements and Financial Instruments

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

● Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

● Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices 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.

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● 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 March 31, 2023 comprised money market funds, commercial paper, corporate bonds, term deposits, U.S. Government bonds, municipal bonds, agency bonds and U.S. Treasury inflation-protected securities. Cash equivalents and investments at December 31, 2022 also included certificates of deposit and U.S. Treasury bills. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other long-term assets as of March 31, 2023 and December 31, 2022 was $5.1 million and $4.3 million, respectively, related to corporate-owned life insurance policies which are used to fund our deferred compensation plan. We determine the fair value of insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

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

We have strategic investments in eight unconsolidated affiliates as of March 31, 2023. The estimated fair value of the investments was determined based on Level 3 inputs. In determining the estimated fair value of our strategic investments in privately held companies, we utilize observable data available to us as discussed further in Note 6.

We have convertible senior notes, for which the fair value is determined based on the closing trading price per $1,000 of the Notes as of the last day of trading for the period. We consider the fair value of the Notes at March 31, 2023 to be a Level 2 measurement as they are not publicly traded. The fair value of the Notes is primarily affected by the trading price of our common stock and market interest rates.

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

Restricted Cash

Restricted cash balances were $1.9 million as of March 31, 2023 and December 31, 2022, respectively. The balances were primarily related to funds held in an international bank account securing a guarantee and funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately $1.8 million was included in prepaid expenses and other assets on our condensed consolidated balance sheet, with the remainder in other long-term assets.

Valuation of Goodwill, Intangibles and Long-lived Assets

We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives, may warrant revision or that the remaining balance of these assets may not be recoverable. Such 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.

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.

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Reclassification of Prior Year Presentation

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

Note 2 - Revenues

Nature of Products and Services

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

	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER Devices (Professional)	$	67,472	$	—	$	67,472	$	63,164	$	—	$	63,164
Cartridges		46,800		—		46,800		37,825		—		37,825
Axon Evidence and Cloud Services		7,201		118,314		125,515		3,017		79,939		82,956
Extended Warranties		7,670		14,085		21,755		6,679		9,061		15,740
Axon Body Cameras and Accessories		—		38,797		38,797		—		38,517		38,517
Axon Fleet Systems		—		32,972		32,972		—		13,820		13,820
Other (1) (2)		5,139		4,593		9,732		3,675		729		4,404
Total	$	134,282	$	208,761	$	343,043	$	114,360	$	142,066	$	256,426

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

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

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

	Three Months Ended March 31,
	2023				2022
United States	$	290,938	85	%	$	214,214	84	%
Other countries		52,105	15			42,212	16
Total	$	343,043	100	%	$	256,426	100	%

Contract Balances

The following table presents our contract assets, contract liabilities and certain information related to these balances as of and for the three months ended March 31, 2023 (in thousands):

	March 31, 2023
Contract assets, net	$	271,755
Contract liabilities (deferred revenue)		658,427
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period		133,707

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

	March 31, 2023						December 31, 2022
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	13,333	$	18,198	$	31,531	$	14,207	$	17,618	$	31,825
Software and Sensors		28,105		15,467		43,572		26,229		15,338		41,567
		41,438		33,665		75,103		40,436		32,956		73,392
Hardware:
TASER		46,575		16,896		63,471		49,361		12,640		62,001
Software and Sensors		61,554		106,398		167,952		50,426		109,227		159,653
		108,129		123,294		231,423		99,787		121,867		221,654
Services:
TASER		6,016		9,425		15,441		7,637		9,501		17,138
Software and Sensors		252,478		83,982		336,460		212,177		83,679		295,856
		258,494		93,407		351,901		219,814		93,180		312,994
Total	$	408,061	$	250,366	$	658,427	$	360,037	$	248,003	$	608,040

	March 31, 2023						December 31, 2022
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	65,924	$	44,519	$	110,443	$	71,205	$	39,759	$	110,964
Software and Sensors		342,137		205,847		547,984		288,832		208,244		497,076
Total	$	408,061	$	250,366	$	658,427	$	360,037	$	248,003	$	608,040

Remaining Performance Obligations

As of March 31, 2023, we had approximately $4.8 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 Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, as of March 31, 2023. We expect to recognize between 15% - 25% of this balance over the next twelve months, and generally expect the remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

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Note 3 - Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, marketable securities, and available-for-sale investments at March 31, 2023 and December 31, 2022 (in thousands):

	As of March 31, 2023
			Gross		Gross		Cash and
	Amortized		Unrealized		Unrealized		Cash	Marketable	Short-Term	Long-Term
	Cost		Gains		Losses	Fair Value	Equivalents	Securities	Investments	Investments
Cash	$	213,446	$	—