Stockholders' Equity

9 Months Ended

Sep. 30, 2023

Stockholders' Equity

Stockholders' Equity

Note 11 - Stockholders’ Equity

CEO Performance Award

On May 24, 2018, our stockholders approved the Board of Directors’ grant of 6,365,856 stock options to Patrick W. Smith, our Chief Executive Officer (the “CEO Performance Award”). The CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational goals (performance conditions) and market capitalization goals (market conditions), assuming continued employment either as the Chief Executive Officer or as both Executive Chairman and Chief Product Officer and service through each attainment date.

As of September 30, 2023, all 12 market capitalization and operational goals have been achieved and certified by the Compensation Committee of the Board of Directors (the “Compensation Committee”). As a result, 6.4 million stock options have been certified by the Compensation Committee and vested. As all 12 operational goals have been achieved, we recorded stock-based compensation expense of $246.0 million related to the CEO Performance Award. No stock-based compensation expense was recorded related to the CEO Performance Award for the three months ended September 30, 2023.

eXponential Stock Performance Plan

On February 12, 2019, our shareholders approved the Axon Enterprise, Inc. 2019 Stock Incentive Plan (the “2019 Plan”), which was adopted by the Board of Directors to reserve a sufficient number of shares to facilitate our XSPP and grants of eXponential Stock Units (“XSUs”) under the 2019 Plan.

As of September 30, 2023, all 12 market capitalization and operational goals have been achieved and certified by the Compensation Committee. We recorded stock-based compensation expense of $199.4 million related to the XSU awards from their respective grant dates through September 30, 2023. As of September 30, 2023, we had $0.5 million of total unrecognized stock-based compensation expense, which will be recognized over a weighted-average period of 0.2 years. The unrecognized expense is related to certain awards that have not yet vested due to their minimum service requirement.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2023 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,565	$	145.38
Granted	464		203.71
Released	(371)		118.04
Forfeited	(104)		155.25
Units outstanding, end of period	1,554		168.67	$	309,283

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $198.99 per share, multiplied by the number of RSUs outstanding. As of September 30, 2023, there was $193.8 million in unrecognized compensation costs related to RSUs under our stock plans for awards that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 2.1 years. RSUs are released when vesting requirements are met.

Certain RSUs that vested in the nine months ended September 30, 2023 were net-share settled such that we withheld shares to cover the employees’ tax obligations for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld related to RSUs were approximately 17,000 and had a value of $3.3 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Performance Stock Units

The following table summarizes PSU activity, inclusive of XSUs, for the nine months ended September 30, 2023 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,369	$	43.43
Granted	171		187.74
Released	(1,222)		36.60
Forfeited	(43)		27.52
Units outstanding, end of period	275		166.05	$	54,768

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $198.99 per share, multiplied by the number of PSUs outstanding. As of September 30, 2023, there was $22.6 million in unrecognized compensation costs related to PSUs under our stock plans for awards that are expected to vest. We expect to recognize the cost related to the PSUs over a weighted average period of 4.8 years. PSUs are released when vesting requirements are met.

Certain PSUs that vested in the nine months ended September 30, 2023 were net-share settled such that we withheld shares to cover the employees’ tax obligations for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld related to PSUs were 0.5 million and had a value of $100.8 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2023 (number of options and aggregate intrinsic value in thousands):

				Weighted
		Weighted		Average
	Number	Average		Remaining
	of	Exercise		Contractual	Aggregate
	Options	Price		Life (years)	Intrinsic Value
Options outstanding, beginning of year	2,438	$	28.58
Granted	—		—
Exercised	(1,907)		28.58
Expired / terminated	—		—
Options outstanding and exercisable, end of period	531		28.58	4.41	$	90,476

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock options and the closing stock price on the last trading day of the period ended September 30, 2023, which was $198.99.

Of the total stock options exercised during the nine months ended September 30, 2023, 0.9 million shares were immediately sold to cover the exercise price and the option holder’s tax obligation for the applicable income and other employment taxes.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2023 and 2022 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Cost of product sales and service sales	$	1,687	$	1,157	$	4,685	$	3,331
Sales, general and administrative expenses		12,886		14,268		43,232		35,860
Research and development expenses		15,414		12,779		48,311		35,263
Total stock-based compensation expense	$	29,987	$	28,204	$	96,228	$	74,454

Stock Incentive Plan

In May 2022, our shareholders approved the Axon Enterprise, Inc. 2022 Stock Incentive Plan (the “2022 Plan”) authorizing an additional 2.5 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with our 2019 Plan and other legacy stock incentive plans, there are 2.3 million shares available for grant as of September 30, 2023.

Stock Repurchase Plan

In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of our outstanding common stock subject to stock market conditions and corporate considerations. During the nine months ended September 30, 2023 and 2022, no common shares were purchased under the program. As of September 30, 2023, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

At-the-Market equity offering

During the nine months ended September 30, 2023, we sold 467,594 shares of our common stock under our “at-the-market” equity offering program (the “ATM”). We generated approximately $96.4 million in aggregate gross proceeds from sales under the ATM. Aggregate net proceeds from the ATM were $94.7 million after deducting related expenses, including commissions to the sales agent and issuance costs of $1.7 million.

We may sell up to a total of 3.0 million shares of our common stock under the ATM, with 2.0 million shares remaining as of September 30, 2023. The ATM expires on April 20, 2024. We intend to use the net proceeds from this offering program for general corporate purposes, which may include, among other things, providing capital to satisfy a portion of the tax obligations related to the vesting and settlement of stock compensation awards granted to our executive officers and other employees under our stock plans, to support our growth, and to acquire or invest in product lines, products, services, technologies or facilities.