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, 2024 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 1, 2024 was 75,467,220.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

			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, 2024 (Unaudited) and December 31, 2023	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2024 and 2023	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2024 and 2023	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		36
	Item 4. Controls and Procedures		37
PART II - OTHER INFORMATION			37
	Item 1. Legal Proceedings		37
	Item 1A. Risk Factors		38
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		63
	Item 3. Defaults Upon Senior Securities		63
	Item 4. Mine Safety Disclosures		63
	Item 5. Other Information		64
	Item 6. Exhibits		64
	SIGNATURES		65

Special Note Regarding Forward-Looking Statements

This Quarterly 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; statements related to recently completed acquisitions; our anticipation that contracts with governmental customers will be fulfilled; strategies and trends, including the amounts and benefits of, research and development (“R&D”) 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, 2023. 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, services 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 catastrophic events or public health emergencies; 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 various factors 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 United States 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; the impact of declines in the fair values or impairment of our investments, including our strategic investments; 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 federally insured 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. This Quarterly Report on Form 10-Q 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 this Quarterly 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 Securities and Exchange Commission (“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)

	March 31,		December 31,
	2024		2023
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	403,870	$	598,545
Marketable securities		99,720		77,940
Short-term investments		560,186		644,054
Accounts and notes receivable, net of allowance of $2,298 and $2,392 as of March 31, 2024 and December 31, 2023, respectively		476,764		417,690
Contract assets, net		266,172		275,779
Inventory		271,318		269,855
Prepaid expenses and other current assets		123,677		112,786
Total current assets		2,201,707		2,396,649
Property and equipment, net		209,166		200,533
Deferred tax assets, net		208,861		229,513
Intangible assets, net		89,419		19,539
Goodwill		308,470		57,945
Long-term notes receivable, net		2,397		2,588
Long-term contract assets, net		88,209		77,710
Strategic investments		295,497		231,730
Other long-term assets		212,470		220,638
Total assets	$	3,616,196	$	3,436,845
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	82,075	$	88,326
Accrued liabilities		127,415		188,230
Current portion of deferred revenue		516,404		491,691
Customer deposits		21,979		21,935
Other current liabilities		9,601		9,787
Total current liabilities		757,474		799,969
Deferred revenue, net of current portion		293,878		281,852
Liability for unrecognized tax benefits		18,610		18,049
Long-term deferred compensation		14,700		11,342
Long-term lease liabilities		32,546		33,550
Convertible notes, net		677,895		677,113
Other long-term liabilities		3,078		2,936
Total liabilities		1,798,181		1,824,811
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, 2024 and December 31, 2023, respectively		—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 75,466,171 and 75,301,424 shares issued and outstanding as of March 31, 2024, and December 31, 2023, respectively		1		1
Additional paid-in capital		1,421,080		1,347,410
Treasury stock at cost, 20,220,227 shares as of March 31, 2024 and December 31, 2023		(155,947)		(155,947)
Retained earnings		564,467		431,249
Accumulated other comprehensive loss		(11,586)		(10,679)
Total stockholders’ equity		1,818,015		1,612,034
Total liabilities and stockholders’ equity	$	3,616,196	$	3,436,845

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 March 31,
	2024		2023
Net sales from products	$	272,048	$	219,389
Net sales from services		188,688		123,654
Net sales		460,736		343,043
Cost of product sales		151,698		107,584
Cost of service sales		48,992		31,357
Cost of sales		200,690		138,941
Gross margin		260,046		204,102
Operating expenses:
Sales, general and administrative		152,669		116,567
Research and development		91,097		70,927
Total operating expenses		243,766		187,494
Income from operations		16,280		16,608
Interest income, net		10,374		9,666
Other income, net		139,066		15,610
Income before provision for income taxes		165,720		41,884
Provision for (benefit from) income taxes		32,502		(3,255)
Net income	$	133,218	$	45,139
Net income per common and common equivalent shares:
Basic	$	1.77	$	0.62
Diluted	$	1.73	$	0.61
Weighted average number of common and common equivalent shares outstanding:
Basic		75,355		72,638
Diluted		77,132		73,880
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	133,218	$	45,139
Foreign currency translation adjustments		(801)		1,676
Unrealized gain (loss) on available-for-sale investments		(106)		184
Comprehensive income	$	132,311	$	46,999

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, 2023	75,301,424	$	1	$	1,347,410	20,220,227	$	(155,947)	$	431,249	$	(10,679)	$	1,612,034
Issuance of common stock under employee plans, net	164,747		—		(2,710)	—		—		—		—		(2,710)
Stock-based compensation	—		—		75,115	—		—		—		—		75,115
Issuance of replacement awards in connection with acquisitions	—		—		1,265	—		—		—		—		1,265
Net income	—		—		—	—		—		133,218		—		133,218
Other comprehensive loss, net	—		—		—	—		—		—		(907)		(907)
Balance, March 31, 2024	75,466,171		1		1,421,080	20,220,227		(155,947)		564,467		(11,586)	$	1,818,015

											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

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,
	2024		2023
Cash flows from operating activities:
Net income	$	133,218	$	45,139
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Gain on strategic investments and marketable securities, net		(97,419)		(15,570)
Stock-based compensation		75,115		34,350
Gain on remeasurement of previously held minority interest, net		(42,292)		—
Deferred income taxes		20,670		(9,660)
Depreciation and amortization		11,564		6,689
Bond amortization		(4,990)		(3,890)
Noncash lease expense		1,795		1,395
Amortization of debt issuance cost		782		756
Unrecognized tax benefits		544		855
Other noncash items		461		1,047
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(51,132)		(50,431)
Inventory		(710)		(15,811)
Prepaid expenses and other assets		2		(64,348)
Accounts payable, accrued and other liabilities		(84,289)		(37,043)
Deferred revenue		20,743		50,199
Net cash used in operating activities		(15,938)		(56,323)
Cash flows from investing activities:
Purchases of investments		(241,457)		(145,124)
Proceeds from call, maturity, and sale of investments		330,472		81,088
Purchases of property and equipment		(16,194)		(8,513)
Proceeds from disposal of property and equipment		34		—
Purchases of intangible assets		—		(125)
Strategic investments		(9,128)		—
Business acquisition, net of cash acquired		(237,771)		—
Net cash used in investing activities		(174,044)		(72,674)
Cash flows from financing activities:
Net proceeds from equity offering		—		33,650
Proceeds from options exercised		—		39,181
Income and payroll tax payments for net-settled stock awards		(2,710)		(34,841)
Net cash provided by (used in) financing activities		(2,710)		37,990
Effect of exchange rate changes on cash and cash equivalents		(1,978)		779
Net decrease in cash and cash equivalents		(194,670)		(90,228)
Cash and cash equivalents and restricted cash, beginning of period		600,670		355,552
Cash and cash equivalents and restricted cash, end of period	$	406,000	$	265,324
Supplemental disclosures:
Cash and cash equivalents	$	403,870	$	263,414
Restricted cash (Note 1)		2,130		1,910
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	406,000	$	265,324
Cash paid for income taxes, net of refunds	$	1,413	$	20,936
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	1,406	$	1,130
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 public safety technology solutions. Our mission is to protect life in service of promoting peace, justice and strong institutions.

Our headquarters in Scottsdale, Arizona and our software hub in Seattle, Washington house the majority of our in-person employees located in the United States, including members of our executive management team, and sales, marketing, certain engineering, manufacturing, finance and other administrative support functions. We also have subsidiaries and / or offices located in Australia, Belgium, 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” or “GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2023, as filed on Form 10-K. In the opinion of management, these unaudited condensed consolidated financial statements contain all material adjustments, consisting only of normal recurring adjustments, necessary to fairly state our financial position, results of operations and cash flows for the periods presented and the presentations and disclosures herein are adequate when read in conjunction with our Form 10-K for the year ended December 31, 2023. Our results of operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

● product warranty reserves,

● inventory valuation,

● revenue recognition,

● reserve for expected credit losses,

● 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,

● business combinations, and

● recognition and measurement of contingencies and accrued litigation expense.

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

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 energy 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.”

5

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 months ended March 31, 2024 and March 31, 2023, no individual country outside the United States represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers. For the three months ended March 31, 2024 and March 31, 2023, no customer represented more than 10% of total net sales. At March 31, 2024 and December 31, 2023, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

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

Income per Common Share

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

	Three Months Ended March 31,
	2024		2023
Numerator for basic and diluted earnings per share:
Net income	$	133,218	$	45,139
Denominator:
Weighted average shares outstanding		75,355		72,638
Dilutive effect of stock-based awards		1,243		1,242
Dilutive effect of 2027 Notes		534		—
Diluted weighted average shares outstanding		77,132		73,880
Net income per common share:
Basic	$	1.77	$	0.62
Diluted	$	1.73	$	0.61

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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,
	2024		2023
Stock-based awards		308		1,469
2027 Notes		2,483		3,017
2027 Warrants		3,017		3,017
Total potentially dilutive securities		5,808		7,503

For additional information regarding our 2027 Notes, refer to Note 9.

Warranty Reserves

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. The company estimates and records a liability for standard warranty at the time products are sold. The estimates are based on historical experience and reflect management’s best estimates of costs to be incurred over the warranty period. Adjustments may be required when actual or projected costs differ. Variations in component failure rates, repair costs and the point of failure within the product life cycle are key drivers that impact our periodic re-assessment of the warranty liability.

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

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

	Three Months Ended March 31,
	2024		2023
Balance, beginning of period	$	7,374	$	811
Utilization of reserve		(2,207)		(438)
Warranty expense		1,119		2,928
Balance, end of period	$	6,286	$	3,301

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, 2024 comprised money market funds, corporate bonds, term deposits, U.S. government bonds, agency bonds and U.S. Treasury bills. Cash equivalents and investments at December 31, 2023 also included commercial paper and U.S. Treasury inflation-protected securities. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Debt investments are classified as available-for-sale and realized gains and losses are recorded using the specific identification method. Included in the balance of other long-term assets as of March 31, 2024 and December 31, 2023 was $8.1 million and $7.6 million, respectively, related to corporate-owned life insurance policies, which are used to fund our deferred compensation plan. We determine the fair value of insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

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

We have strategic investments in various unconsolidated affiliates as of March 31, 2024. 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 7.

The fair value of our 2027 Notes is determined based on the closing trading price per $1,000 of the Notes as of the last day of trading for the period. We consider the fair value of the Notes at March 31, 2024 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 of $2.1 million as of March 31, 2024 and December 31, 2023, respectively, primarily relate to funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. As of March 31, 2024, approximately $2.0 million was included in prepaid expenses and other assets on our consolidated balance sheet, with the remainder in other long-term assets.

Valuation of Goodwill, Intangibles and Long-lived Assets

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

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

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Business Combinations

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

In the event that we acquire an entity in which we previously held an existing ownership interest, the difference between the fair value of the interest as of the acquisition date and the carrying value of the interest is recorded as a gain or loss within other income, net, in the consolidated statement of operations. Preexisting relationships subject to termination as a result of consummating an acquisition may require the recognition of a gain or loss upon settlement, which is recognized within income (loss) from operations on the consolidated statement of operations. All third-party transaction-related costs are recognized as expense in the period in which they are incurred.

Recently Issued Accounting Guidance and Disclosure Rules

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

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

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

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.

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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, 2024						Three Months Ended March 31, 2023
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER Devices (Professional)	$	98,676		—	$	98,676	$	67,472	$	—	$	67,472
Cartridges		56,198		—		56,198		46,800		—		46,800
Axon Evidence and Cloud Services		12,221		175,458		187,679		7,201		118,314		125,515
Extended Warranties		8,526		18,474		27,000		7,670		14,085		21,755
Axon Body Cameras and Accessories		—		51,205		51,205		—		38,797		38,797
Axon Fleet Systems		—		28,387		28,387		—		32,972		32,972
Other (1) (2)		3,127		8,464		11,591		5,139		4,593		9,732
Total	$	178,748	$	281,988	$	460,736	$	134,282	$	208,761	$	343,043

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

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

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

	Three Months Ended March 31,
	2024				2023
United States	$	392,406	85	%	$	290,938	85	%
Other countries		68,330	15			52,105	15
Total	$	460,736	100	%	$	343,043	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, 2024 (in thousands):

	March 31, 2024
Contract assets, net	$	354,381
Contract liabilities (deferred revenue)		810,282
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period		186,485

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

	March 31, 2024						December 31, 2023
	Current		Long-Term		Total		Current		Long-Term		Total
Extended Warranty:
TASER	$	14,877	$	18,802	$	33,679	$	14,773	$	18,828	$	33,601
Software and Sensors		34,396		15,980		50,376		33,940		16,036		49,976
		49,273		34,782		84,055		48,713		34,864		83,577
Hardware:
TASER		54,368		33,613		87,981		42,464		29,689		72,153
Software and Sensors		61,353		117,808		179,161		62,635		117,024		179,659
		115,721		151,421		267,142		105,099		146,713		251,812
Services:
TASER		11,808		2,183		13,991		7,939		3,983		11,922
Software and Sensors		339,602		105,492		445,094		329,940		96,292		426,232
		351,410		107,675		459,085		337,879		100,275		438,154
Total	$	516,404	$	293,878	$	810,282	$	491,691	$	281,852	$	773,543

	March 31, 2024						December 31, 2023
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	81,053	$	54,598	$	135,651	$	65,176	$	52,500	$	117,676
Software and Sensors		435,351		239,280		674,631		426,515		229,352		655,867
Total	$	516,404	$	293,878	$	810,282	$	491,691	$	281,852	$	773,543

Remaining Performance Obligations

As of March 31, 2024, we had approximately $7.0 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, 2024. We currently expect to recognize between 15% - 25% of this balance over the next 12 months, and generally expect the remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

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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, 2024 and December 31, 2023 (in thousands):

As of March 31, 2024
	Gross	Gross	Cash and