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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 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

ScottsdaleArizona

85255

(Address of principal executive offices)

(Zip Code)

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.00001 Par Value

AXON

The Nasdaq Global Select Market

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

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

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

Large accelerated filer

Accelerated filer

Non-accelerated Filer

Smaller reporting company

Emerging growth company

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

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

The number of shares of the registrant’s common stock outstanding as of November 3, 2023 was 74,933,831.

Table of Contents

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 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 September 30, 2023 (Unaudited) and December 31, 2022

1

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022

2

Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022

3

Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 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

38

Item 4. Controls and Procedures

39

PART II - OTHER INFORMATION

40

Item 1. Legal Proceedings

40

Item 1A. Risk Factors

40

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

Table of Contents

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, 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, 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 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 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 (“ATF”); our ability to integrate acquired businesses; the impact of declines or increases in the fair value or impairment of our investments, including our strategic investments; our ability to enforce patent rights internationally; the use of open source software in our operations; 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. 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)

    

September 30, 

December 31, 

2023

2022

(Unaudited)

ASSETS

 

  

 

  

Current assets:

 

  

 

  

Cash and cash equivalents

$

406,042

$

353,684

Marketable securities

68,850

39,240

Short-term investments

 

715,688

 

581,769

Accounts and notes receivable, net of allowance of $2,144 and $2,176 as of September 30, 2023 and December 31, 2022, respectively

 

442,830

 

358,190

Contract assets, net

 

260,523

 

196,902

Inventory

 

260,119

 

202,471

Prepaid expenses and other current assets

 

103,789

 

73,022

Total current assets

 

2,257,841

 

1,805,278

Property and equipment, net

 

186,957

 

169,843

Deferred tax assets, net

 

213,831

 

156,866

Intangible assets, net

 

20,324

 

12,158

Goodwill

 

57,344

 

44,983

Long-term investments

 

 

156,207

Long-term notes receivable, net

 

4,381

 

5,210

Long-term contract assets, net

78,663

45,170

Strategic investments

240,299

296,563

Other long-term assets

 

194,543

 

159,616

Total assets

$

3,254,183

$

2,851,894

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current liabilities:

 

  

 

  

Accounts payable

$

90,035

$

59,918

Accrued liabilities

 

146,940

 

155,934

Current portion of deferred revenue

 

454,891

 

360,037

Customer deposits

 

16,469

 

20,399

Other current liabilities

 

9,492

 

6,358

Total current liabilities

 

717,827

 

602,646

Deferred revenue, net of current portion

 

270,082

 

248,003

Liability for unrecognized tax benefits

 

18,938

 

10,745

Long-term deferred compensation

 

9,148

 

6,285

Deferred tax liability, net

2,467

1

Long-term lease liabilities

 

35,329

 

37,143

Convertible notes, net

676,315

673,967

Other long-term liabilities

 

2,960

 

4,613

Total liabilities

 

1,733,066

 

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 September 30, 2023 and December 31, 2022, respectively

 

 

Common stock, $0.00001 par value; 200,000,000 shares authorized; 74,931,697 and 71,474,581 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively

 

1

 

1

Additional paid-in capital

 

1,315,954

 

1,174,594

Treasury stock at cost, 20,220,227 shares as of September 30, 2023 and December 31, 2022

 

(155,947)

 

(155,947)

Retained earnings

 

373,978

 

257,022

Accumulated other comprehensive loss

 

(12,869)

 

(7,179)

Total stockholders’ equity

 

1,521,117

 

1,268,491

Total liabilities and stockholders’ equity

$

3,254,183

$

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

(in thousands, except per share data)

Three Months Ended September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

Net sales from products

$

256,443

$

210,398

$

709,306

$

586,653

Net sales from services

 

157,158

 

101,356

 

421,943

 

267,140

Net sales

 

413,601

 

311,754

 

1,131,249

 

853,793

Cost of product sales

 

116,278

 

93,724

 

325,054

 

260,578

Cost of service sales

 

42,051

 

24,773

 

114,700

 

70,256

Cost of sales

 

158,329

 

118,497

 

439,754

 

330,834

Gross margin

 

255,272

 

193,257

 

691,495

 

522,959

Operating expenses:

 

  

 

  

 

  

 

  

Sales, general and administrative

 

123,279

 

102,023

 

359,768

 

287,157

Research and development

 

76,880

 

59,127

 

219,747

 

165,090

Total operating expenses

 

200,159

 

161,150

 

579,515

 

452,247

Income from operations

 

55,113

 

32,107

 

111,980

 

70,712

Interest and other income (loss), net

 

14,310

 

(11,249)

 

(12,782)

 

91,076

Income before provision for income taxes

 

69,423

 

20,858

 

99,198

 

161,788

Provision for (benefit from) income taxes

 

10,026

 

8,727

 

(17,758)

 

43,824

Net income

$

59,397

$

12,131

$

116,956

$

117,964

Net income per common and common equivalent shares:

 

  

 

  

 

  

 

  

Basic

$

0.79

$

0.17

$

1.58

$

1.66

Diluted

$

0.78

$

0.17

$

1.56

$

1.63

Weighted average number of common and common equivalent shares outstanding:

 

  

 

  

 

  

 

  

Basic

 

74,826

 

71,107

 

73,904

 

71,033

Diluted

 

75,952

 

72,525

 

75,212

 

72,386

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

Net income

$

59,397

$

12,131

$

116,956

$

117,964

Foreign currency translation adjustments

 

(6,799)

 

(2,275)

 

(5,680)

 

(5,513)

Unrealized gain (loss) on available-for-sale investments

656

(326)

(10)

(976)

Comprehensive income

$

53,254

$

9,530

$

111,266

$

111,475

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

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AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

    

    

    

    

    

    

    

Accumulated

    

Additional

Other

Total

Common Stock

Paid-in

Treasury Stock

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Shares

Amount

Earnings

Loss

Equity

Balance, December 31, 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

Issuance of common stock

313,094

61,156

61,156

Issuance of common stock under employee plans, net

 

570,357

(62,214)

 

(62,214)

Stock options exercised

5,491

157

157

Stock-based compensation

 

31,891

 

31,891

Net income

 

 

12,420

12,420

Other comprehensive loss, net

 

 

(1,407)

(1,407)

Balance, June 30, 2023

 

74,763,004

$

1

$

1,293,089

 

20,220,227

$

(155,947)

$

314,581

$

(6,726)

$

1,444,998

Issuance of common stock

(101)

(101)

Issuance of common stock under employee plans, net

 

168,693

 

(7,021)

 

 

 

 

 

(7,021)

Stock-based compensation

 

 

 

29,987

 

 

 

 

 

29,987

Net income

 

 

 

 

 

 

59,397

 

 

59,397

Other comprehensive loss, net

 

 

 

 

 

 

 

(6,143)

 

(6,143)

Balance, September 30, 2023

 

74,931,697

$

1

$

1,315,954

 

20,220,227

$

(155,947)

$

373,978

$

(12,869)

$

1,521,117

    

    

    

    

    

    

    

    

    

Accumulated

    

Additional

Other

Total

Common Stock

Paid-in

Treasury Stock

Retained

Comprehensive

Stockholders’

Shares

Amount

Capital

Shares

Amount

Earnings

Loss

Equity

Balance, December 31, 2021

    

70,896,856

$

1

$

1,095,229

 

20,220,227

$

(155,947)

$

109,883

$

(1,317)

$

1,047,849

Issuance of common stock

(70)

(70)

Issuance of common stock under employee plans, net

 

99,802

(1,388)

 

(1,388)

Stock-based compensation

 

25,088

 

25,088

Net income

 

54,871

 

54,871

Other comprehensive loss, net

 

(1,561)

(1,561)

Balance, March 31, 2022

 

70,996,658

$

1

$

1,118,859

 

20,220,227

$

(155,947)

$

164,754

$

(2,878)

$

1,124,789

Issuance of common stock

(4)

(4)

Issuance of common stock under employee plans, net

 

81,041

(931)

 

(931)

Stock-based compensation

 

21,162

 

21,162

Net income

 

50,962

 

50,962

Other comprehensive loss, net

 

(2,327)

 

(2,327)

Balance, June 30, 2022

 

71,077,699

1

1,139,086

 

20,220,227

(155,947)

215,716

(5,205)

1,193,651

Issuance of common stock under employee plans, net

73,971

(72)

(72)

Stock-based compensation

 

28,204

 

28,204

Net income

 

12,131

 

12,131

Other comprehensive loss, net

 

(2,601)

 

(2,601)

Balance, September 30, 2022

 

71,151,670

$

1

$

1,167,218

 

20,220,227

$

(155,947)

$

227,847

$

(7,806)

$

1,231,313

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

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Table of Contents

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

Nine Months Ended September 30, 

    

2023

    

2022

Cash flows from operating activities:

 

  

 

  

Net income

$

116,956

$

117,964

Adjustments to reconcile net income to net cash provided by operating activities:

 

  

 

  

Stock-based compensation

 

96,228

 

74,454

Deferred income taxes

(53,311)

30,349

Unrealized loss (gain) on strategic investments and marketable securities, net

42,306

 

(92,498)

Depreciation and amortization

22,587

 

18,171

Bond amortization

 

(12,071)

 

(61)

Noncash lease expense

 

4,890

 

4,997

Unrecognized tax benefits

 

4,302

 

3,519

Amortization of debt issuance cost

2,328

Coupon interest expense

 

1,073

Other noncash items

(1,140)

2,659

Change in assets and liabilities:

 

 

Accounts and notes receivable and contract assets

 

(182,468)

 

(115,046)

Inventory

 

(59,564)

 

(66,267)

Prepaid expenses and other assets

 

(64,608)

 

(17,871)

Accounts payable, accrued and other liabilities

 

13,423

28,684

Deferred revenue

 

118,294

115,187

Net cash provided by operating activities

 

49,225

 

104,241

Cash flows from investing activities:

 

  

Purchases of investments

 

(426,993)

(194,142)

Proceeds from call, maturity, and sale of investments

 

461,214

 

15,485

Exercise of warrants of strategic investments

 

(6,555)

Purchases of property and equipment

 

(35,624)

(44,218)

Proceeds from disposal of property and equipment

67

226

Purchases of intangible assets

 

(579)

 

(193)

Strategic investments

 

(17,692)

(70,500)

Business acquisition, net of cash acquired

(21,090)

 

(2,104)

Net cash used in investing activities

 

(40,697)

 

(302,001)

Cash flows from financing activities:

 

  

Net proceeds from equity offering

94,705

(74)

Proceeds from options exercised

 

54,503

 

Income and payroll tax payments for net-settled stock awards

 

(104,076)

 

(2,391)

Net cash provided by (used in) financing activities

 

45,132

 

(2,465)

Effect of exchange rate changes on cash and cash equivalents

 

(1,201)

 

(6,783)

Net increase (decrease) in cash and cash equivalents

 

52,459

 

(207,008)

Cash and cash equivalents and restricted cash, beginning of period

 

355,552

 

356,438

Cash and cash equivalents and restricted cash, end of period

$

408,011

$

149,430

Supplemental disclosures:

 

  

 

  

Cash and cash equivalents

$

406,042

$

147,711

Restricted cash (Note 1)

 

1,969

 

1,719

Total cash, cash equivalents and restricted cash shown in the statements of cash flows

$

408,011

$

149,430

Cash paid for income taxes, net of refunds

$

47,689

$

7,503

Non-cash transactions

 

  

 

  

Property and equipment purchases in accounts payable and accrued liabilities

$

1,784

$

1,244

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, 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, 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 and nine months ended September 30, 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 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, 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 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. 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

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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 and nine months ended September 30, 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 and nine months ended September 30, 2023, no customer represented more than 10% of total net sales. At September 30, 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 United States, 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 previously experienced supply chain disruptions relating to materials and port constraints, we continue to manage potential logistical interruptions. We remain 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 2027 convertible senior notes (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 September 30, 

Nine Months Ended September 30, 

    

2023

    

2022

    

2023

    

2022

Numerator for basic and diluted earnings per share:

 

  

 

  

 

  

 

  

Net income

$

59,397

$

12,131

$

116,956

$

117,964

Denominator:

 

  

 

  

 

  

 

  

Weighted average shares outstanding

 

74,826

 

71,107

 

73,904

 

71,033

Dilutive effect of stock-based awards

 

1,126

 

1,418

 

1,308

 

1,353

Diluted weighted average shares outstanding

 

75,952

 

72,525

 

75,212

 

72,386

Net income per common share:

 

 

 

  

 

  

Basic

$

0.79

$

0.17

$

1.58