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 June 30, 2021 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-16391

Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)


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

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

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 Par Value	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 July 30, 2021 was 65,675,685.

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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 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 Form 10-K for the year ended December 31, 2020. 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 that we filed with the Securities and Exchange Commission ("SEC") on February 26, 2021 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)


	June 30,		December 31,
	2021		2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	266,372	$	155,440
Short-term investments		388,895		406,525
Accounts and notes receivable, net of allowance of $1,973 and $2,105 as of June 30, 2021 and December 31, 2020, respectively		201,907		229,201
Contract assets, net		86,561		63,945
Inventory		91,739		89,958
Prepaid expenses and other current assets		45,456		36,883
Total current assets		1,080,930		981,952
Property and equipment, net		119,933		105,494
Deferred tax assets, net		52,387		45,770
Intangible assets, net		7,870		9,448
Goodwill		25,178		25,205
Long-term investments		48,669		90,681
Long-term notes receivable, net of current portion		17,466		22,457
Long-term contract assets, net		31,691		20,099
Strategic investments		58,520		11,711
Other assets		84,244		68,206
Total assets	$	1,526,888	$	1,381,023
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,778	$	24,142
Accrued liabilities		66,908		59,843
Current portion of deferred revenue		186,909		163,959
Customer deposits		4,872		2,956
Other current liabilities		6,404		5,431
Total current liabilities		272,871		256,331
Deferred revenue, net of current portion		113,815		111,222
Liability for unrecognized tax benefits		4,550		4,503
Long-term deferred compensation		5,216		4,732
Deferred tax liability, net		377		649
Other long-term liabilities		32,360		27,331
Total liabilities		429,189		404,768
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 65,674,346 and 63,766,555 shares issued and outstanding as of June 30, 2021 and December 31, 2020, respectively		1		1
Additional paid-in capital		1,179,005		962,159
Treasury stock at cost, 20,220,227 shares as of June 30, 2021 and December 31, 2020		(155,947)		(155,947)
Retained earnings		74,867		169,901
Accumulated other comprehensive income (loss)		(227)		141
Total stockholders’ equity		1,097,699		976,255
Total liabilities and stockholders’ equity	$	1,526,888	$	1,381,023

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 June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Net sales from products	$	156,427	$	98,755	$	297,313	$	206,043
Net sales from services		62,368		42,504		116,501		82,378
Net sales		218,795		141,259		413,814		288,421
Cost of product sales		65,301		43,825		123,917		92,709
Cost of service sales		15,565		9,257		28,615		18,927
Cost of sales		80,866		53,082		152,532		111,636
Gross margin		137,929		88,177		261,282		176,785
Operating expenses:
Sales, general and administrative		177,662		72,293		304,259		135,320
Research and development		53,952		29,560		100,970		55,941
Total operating expenses		231,614		101,853		405,229		191,261
Loss from operations		(93,685)		(13,676)		(143,947)		(14,476)
Interest and other income, net		41,841		1,613		42,426		2,554
Loss before provision for income taxes		(51,844)		(12,063)		(101,521)		(11,922)
Provision for (benefit from) income taxes		(4,727)		18,696		(6,487)		14,763
Net loss	$	(47,117)	$	(30,759)	$	(95,034)	$	(26,685)
Net loss per common and common equivalent shares:
Basic	$	(0.72)	$	(0.51)	$	(1.47)	$	(0.44)
Diluted	$	(0.72)	$	(0.51)	$	(1.47)	$	(0.44)
Weighted average number of common and common equivalent shares outstanding:
Basic		65,166		60,346		64,604		59,977
Diluted		65,166		60,346		64,604		59,977
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net loss	$	(47,117)	$	(30,759)	$	(95,034)	$	(26,685)
Foreign currency translation adjustments		(369)		678		(368)		(1,694)
Comprehensive loss	$	(47,486)	$	(30,081)	$	(95,402)	$	(28,379)

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)
Foreign currency translation adjustments	—		—		—	—		—		—		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)
Foreign currency translation adjustments	—		—		—	—		—		—		(369)		(369)
Balance, June 30, 2021	65,674,346	$	1	$	1,179,005	20,220,227	$	(155,947)	$	74,867	$	(227)	$	1,097,699

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

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)


	Six Months Ended June 30,
	2021		2020
Cash flows from operating activities:
Net loss	$	(95,034)	$	(26,685)
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization		8,582		5,811
Loss on disposal and abandonment of intangible assets		130		113
Loss on disposal and impairment of property and equipment, net		43		1,305
Realized and unrealized gains on strategic investments		(40,855)		—
Stock-based compensation		227,159		54,030
Deferred income taxes		(6,889)		(6,152)
Unrecognized tax benefits		47		612
Other noncash, net		5,760		2,596
Provision for expected credit losses		62		658
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(3,988)		(9,375)
Inventory		(1,848)		(43,271)
Prepaid expenses and other assets		(13,320)		(8,551)
Accounts payable, accrued and other liabilities		(10,381)		16,708
Deferred revenue		25,647		5,224
Net cash provided by (used in) operating activities		95,115		(6,977)
Cash flows from investing activities:
Purchases of investments		(238,288)		(292,597)
Proceeds from call / maturity of investments		294,814		158,670
Proceeds from sale of strategic investments		14,546		—
Purchases of property and equipment		(24,031)		(7,551)
Proceeds from disposal of property and equipment		48		78
Purchases of intangible assets		(143)		(111)
Strategic investments		(20,500)		(4,700)
Net cash provided by (used in) investing activities		26,446		(146,211)
Cash flows from financing activities:
Net proceeds from equity offering		—		306,779
Proceeds from options exercised		—		295
Income and payroll tax payments for net-settled stock awards		(10,312)		(5,767)
Net cash provided by (used in) financing activities		(10,312)		301,307
Effect of exchange rate changes on cash and cash equivalents		(319)		(1,115)
Net increase in cash and cash equivalents		110,930		147,004
Cash and cash equivalents and restricted cash, beginning of period		155,551		172,355
Cash and cash equivalents and restricted cash, end of period	$	266,481	$	319,359

Supplemental disclosures:
Cash and cash equivalents	$	266,372	$	319,253
Restricted cash (Note 1)		109		106
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	266,481	$	319,359

Cash paid for income taxes, net of refunds	$	5,295	$	6,327

Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	571	$	430
Investment purchases in accounts payable, net	$	—	$	10,400

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 14.

Geographic Information and Major Customers / Suppliers

For the three and six months ended June 30, 2021, 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 six months ended June 30, 2021, no customer represented more than 10% of total net sales. At June 30, 2021 and December 31, 2020, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

We currently purchase both off the shelf and custom components, including, but not limited to, finished circuit boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components, and off the shelf sub-assemblies from suppliers located in the U.S., Canada, China, Israel, Republic of Korea, Mexico, Sri Lanka, and Taiwan. Although we currently obtain many of these components from single source suppliers, we own the injection molded component tooling, most of the designs, and the test fixtures used in their production for all custom components. As a result, we believe we could obtain alternative suppliers in most cases without incurring significant production delays. We also strategically hold safety stock levels on custom components to further reduce this risk. For off the shelf components, we believe that in most cases there are readily available alternative suppliers who can consistently meet our needs for these components. We acquire most of our components on a purchase order basis and do not have any significant long-term contracts with component suppliers.

Income per Common Share

Basic income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the periods presented. Diluted income per share reflects the potential dilution from outstanding stock options and unvested restricted stock units. The calculation of the weighted average number of shares outstanding and earnings per share are as follows (in thousands except per share data):


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
Numerator for basic and diluted earnings per share:
Net loss	$	(47,117)	$	(30,759)	$	(95,034)	$	(26,685)
Denominator:
Weighted average shares outstanding		65,166		60,346		64,604		59,977
Dilutive effect of stock-based awards		—		—		—		—
Diluted weighted average shares outstanding		65,166		60,346		64,604		59,977
Anti-dilutive stock-based awards excluded		10,537		12,773		8,950		12,866
Net loss per common share:
Basic	$	(0.72)	$	(0.51)	$	(1.47)	$	(0.44)
Diluted	$	(0.72)	$	(0.51)	$	(1.47)	$	(0.44)

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 repair or replace any defective unit for a fee. Estimated costs for the standard warranty are charged to cost of products sold when revenue is recorded for the related product. Future warranty costs are estimated based on historical data related to warranty claims and this rate is applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or other issue that could result in larger than anticipated warranty claims from customers. The warranty reserve is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience differs from estimates. The warranty reserve is included in accrued liabilities on the accompanying condensed consolidated balance sheets.

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


	Six Months Ended June 30,
	2021		2020
Balance, beginning of period	$	769	$	1,476
Utilization of reserve		(481)		(350)
Warranty expense (benefit)		613		(114)
Balance, end of period	$	901	$	1,012

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.

●

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 June 30, 2021 and December 31, 2020 were comprised of money market funds, certificates of deposit, commercial paper, corporate bonds, municipal bonds, U.S. Government agency bonds, and U.S. Treasury bills. Also included in cash equivalents and investments at December 31, 2020 were U.S. Treasury repurchase agreements and U.S. Treasury inflation-protected securities. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other assets as of June 30, 2021 and December 31, 2020 was $5.1 million and $4.7 million, respectively, related to corporate-owned life insurance policies

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 strategic investments in three unconsolidated affiliates, which are included within other assets. The estimated fair value of the investments was determined based on Level 3 inputs. As of June 30, 2021, management estimated that the fair value of the investments equaled the carrying value.

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 balance sheet.

Restricted Cash

Restricted cash balances as of June 30, 2021 and December 31, 2020 included $0.1 million primarily related to funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately half of the balance was included in prepaid expenses and other current assets on our condensed consolidated balance sheets, with the remainder included in other 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.

Recently Issued Accounting Guidance

Recently Adopted Accounting Pronouncements

In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes. Adoption of this ASU on January 1, 2021 did not have a material impact on our consolidated financial statements.

In January 2020, the FASB issued ASU No. 2020-01, Investments – Equity Securities (Topic 321), Investments – Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force). The guidance clarifies the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities and the ASU on equity method investments. ASU 2016-01 provides companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus impairment, if any, unless an observable transaction for an identical or similar security occurs. ASU 2020-01 clarifies that for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or upon discontinuing the equity method. In addition, the new ASU provides direction that a company should not consider

Table of Contents

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

whether the underlying securities would be accounted for under the equity method or the fair value option when it is determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. Adoption of this ASU on January 1, 2021 did not have a material impact on our consolidated financial statements.

Reclassification of Prior Year Presentation

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

2. Revenues

Nature of Products and Services

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


	Three Months Ended June 30, 2021						Three Months Ended June 30, 2020
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	28,128		—	$	28,128	$	11,588	$	—	$	11,588
TASER X26P		9,569		—		9,569		9,511		—		9,511
TASER X2		16,145		—		16,145		16,832		—		16,832
TASER Pulse		1,701		—		1,701		2,193		—		2,193
Cartridges		46,678		—		46,678		23,772		—		23,772
Axon Body		—		19,927		19,927		—		11,844		11,844
Axon Flex		—		1,088		1,088		—		680		680
Axon Fleet		—		5,247		5,247		—		4,098		4,098
Axon Dock		—		5,509		5,509		—

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Special Note Regarding Forward-Looking Statements			ii

PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Six Months Ended June 30, 2021 and 2020	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Six Months Ended June 30, 2021 and 2020	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		42
	Item 4. Controls and Procedures		42
PART II - OTHER INFORMATION			43
	Item 1. Legal Proceedings		43
	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