10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2019

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)

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  ý    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  ý    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	ý	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  ý

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	AAXN	The Nasdaq Global Select Market

The number of shares of the registrant’s common stock outstanding as of April 30, 2019 was 59,127,439.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

			Page
Special Note Regarding Forward-Looking Statements			ii
PART I - FINANCIAL INFORMATION
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of March 31, 2019 (Unaudited) and December 31, 2018	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2019 and 2018	2
		Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2019 and 2018	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2019 and 2018	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		21
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		29
	Item 4. Controls and Procedures		29
PART II - OTHER INFORMATION
	Item 1. Legal Proceedings		30
	Item 1A. Risk Factors		30
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		30
	Item 3. Defaults Upon Senior Securities		30
	Item 4. Mine Safety Disclosures		30
	Item 5. Other Information		30
	Item 6. Exhibits		31
	SIGNATURES		32

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; our outlook for 2019 with respect to revenue and income tax rate; trends relating to subscription plan programs and revenues; our anticipation that contracts with governmental customers will be fulfilled; expected trends, including the benefits of, research and development expense; the sufficiency of our liquidity and financial resources; that we may repurchase our common stock; expectations about customer behavior; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; and 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, 2018. 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: customer purchase behavior, including adoption of our software as a service delivery model; delayed cash collections and possible credit losses due to our subscription model; exposure to international operational risks; changes in the costs of product components and labor; defects in our products; the impact of product mix on projected gross margins; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; 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 exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; loss of customer data, a breach of security or an extended outage, including our reliance on third party cloud-based storage providers; negative media publicity regarding our products; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our product by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives and to evolving regulations surrounding privacy and data protection; 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 SEC on February 27, 2019 listed 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 in this 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.

ii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	March 31, 2019			December 31, 2018
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	223,642		$	349,462
Short-term investments	105,312			—
Accounts and notes receivable, net of allowance of $2,355 and $1,882 as of March 31, 2019 and December 31, 2018, respectively	149,096			130,579
Contract assets, net	17,945			13,960
Inventory	37,587			33,763
Prepaid expenses and other current assets	33,340			30,391
Total current assets	566,922			558,155
Property and equipment, net of accumulated depreciation of $41,707and $39,885 as of March 31, 2019 and December 31, 2018, respectively	41,347			37,893
Deferred income tax assets, net	18,770			19,347
Intangible assets, net	15,067			15,935
Goodwill	25,017			24,981
Long-term notes receivable, net of current portion	36,316			40,230
Other assets	35,756			22,999
Total assets	$	739,195		$	719,540
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	9,865		$	15,164
Accrued liabilities	36,348			41,092
Current portion of deferred revenue	110,063			107,016
Customer deposits	3,604			2,702
Other current liabilities	3,914			37
Total current liabilities	163,794			166,011
Deferred revenue, net of current portion	74,784			74,417
Liability for unrecognized tax benefits	3,156			2,849
Long-term deferred compensation	3,675			3,235
Other long-term liabilities	13,247			5,704
Total liabilities	258,656			252,216
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 March 31, 2019 and December 31, 2018	—			—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 59,109,286 and 58,810,637 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	1			1
Additional paid-in capital	460,146			453,400
Treasury stock at cost, 20,220,227 shares as of March 31, 2019 and December 31, 2018	(155,947		)	(155,947		)
Retained earnings	177,802			171,383
Accumulated other comprehensive loss	(1,463		)	(1,513		)
Total stockholders’ equity	480,539			467,324
Total liabilities and stockholders’ equity	$	739,195		$	719,540

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,
	2019			2018
Net sales from products	$	88,089		$	80,974
Net sales from services	27,721			20,241
Net sales	115,810			101,215
Cost of product sales	39,600			32,434
Cost of service sales	7,293			4,320
Cost of sales	46,893			36,754
Gross margin	68,917			64,461
Operating expenses:
Sales, general and administrative	42,892			35,759
Research and development	23,354			15,119
Total operating expenses	66,246			50,878
Income from operations	2,671			13,583
Interest and other income, net	2,313			1,263
Income before provision for income taxes	4,984			14,846
Provision for (benefit from) income taxes	(1,435		)	1,920
Net income	$	6,419		$	12,926
Net income per common and common equivalent shares:
Basic	$	0.11		$	0.24
Diluted	$	0.11		$	0.24
Weighted average number of common and common equivalent shares outstanding:
Basic	58,914			53,119
Diluted	59,751			54,532
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	6,419		$	12,926
Foreign currency translation adjustments	50			(707		)
Comprehensive income	$	6,469		$	12,219

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 per share data)

	Common Stock			Additional Paid-in Capital			Treasury Stock				Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
	Shares	Amount					Shares	Amount
Balance, December 31, 2017	52,969,869	$	1	$	201,672		20,220,227	$	(155,947	)	$	123,185	$	(1,467	)	$	167,444
Cumulative effect of applying a change in accounting principle	—	—		—			—	—			18,994		—			18,994
Issuance of common stock under employee plans	337,214	—		(3,421		)	—	—			—		—			(3,421		)
Stock-based compensation	—	—		4,093			—	—			—		—			4,093
Net income	—	—		—			—	—			12,926		—			12,926
Foreign currency translation adjustments	—	—		—			—	—			—		(707		)	(707		)
Balance, March 31, 2018	53,307,083	$	1	$	202,344		20,220,227	$	(155,947	)	$	155,105	$	(2,174	)	$	199,329
Balance, December 31, 2018	58,810,637	$	1	$	453,400		20,220,227	$	(155,947	)	$	171,383	$	(1,513	)	$	467,324
Issuance of common stock under employee plans	298,649	—		(1,159		)	—	—			—		—			(1,159		)
Stock-based compensation	—	—		7,905			—	—			—		—			7,905
Net income	—	—		—			—	—			6,419		—			6,419
Foreign currency translation adjustments	—	—		—			—	—			—		50			50
Balance, March 31, 2019	59,109,286	$	1	$	460,146		20,220,227	$	(155,947	)	$	177,802	$	(1,463	)	$	480,539

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,
	2019			2018
Cash flows from operating activities:
Net income	$	6,419		$	12,926
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,800			2,411
Loss on disposal and impairment of property and equipment, net	242			34
Loss on disposal and abandonment of intangible assets	18			—
Stock-based compensation	7,905			4,093
Deferred income taxes	577			1,514
Unrecognized tax benefits	307			104
Other noncash, net	896			22
Change in assets and liabilities:
Accounts and notes receivable and contract assets	(21,994		)	(17,060		)
Inventory	(3,936		)	2,408
Prepaid expenses and other assets	(3,152		)	(1,702		)
Accounts payable, accrued and other liabilities	(7,284		)	6,740
Deferred revenue	3,232			6,554
Net cash provided by (used in) operating activities	(13,970		)	18,044
Cash flows from investing activities:
Purchases of investments	(105,322		)	(802		)
Proceeds from maturity/call of investments	—			3,167
Purchases of property and equipment	(5,271		)	(1,063		)
Purchases of intangible assets	(162		)	(34		)
Net cash provided by (used in) investing activities	(110,755		)	1,268
Cash flows from financing activities:
Proceeds from options exercised	100			356
Income and payroll tax payments for net-settled stock awards	(1,259		)	(3,777		)
Net cash used in financing activities	(1,159		)	(3,421		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	67			469
Net increase (decrease) in cash, cash equivalents and restricted cash	(125,817		)	16,360
Cash, cash equivalents and restricted cash, beginning of period	351,027			78,438
Cash, cash equivalents and restricted cash, end of period	$	225,210		$	94,798
Supplemental disclosures:
Cash and cash equivalents	$	223,642		$	92,330
Restricted cash (Note 1)	1,568			2,468
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	225,210		$	94,798
Cash paid for income taxes, net of refunds	$	758		$	63
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	328		$	136

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

4

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 core mission is to protect life. We fulfill that mission through developing hardware and software products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Our headquarters in Scottsdale, Arizona houses our executive management, sales, marketing, certain engineering, manufacturing, and other administrative support functions. We also have a software engineering development center located in Seattle, Washington, and subsidiaries located in Australia, Canada, Finland, Hong Kong, Germany, India, the Netherlands, the United Kingdom, and Vietnam.

The accompanying unaudited condensed consolidated financial statements include the accounts of Axon Enterprise, Inc. and our wholly owned subsidiaries. All material intercompany accounts, transactions, and profits have been eliminated.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three months ended March 31, 2019 and 2018 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,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

• fair values of identified tangible and intangible assets acquired and liabilities assumed in business combinations.

Actual results could differ materially from those estimates.

Segment Information

Our operations are comprised of two reportable segments: the manufacture and sale of conducted electrical weapons ("CEWs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Revenue from our “products” in the Software and Sensors segment are generally from sales of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as "Sensors and Other revenue." Revenue from our “services” in the Software and Sensors segment comprise sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as "Axon Cloud revenue." Within the Software and Sensors segment, we include only revenues and costs attributable to that segment, which costs include: costs of sales for both products and services, direct labor, product management and research and development ("R&D") for products included, or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.

5

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Our Chief Executive Officer, who is the Chief Operating Decision Maker (the “CODM”), is not provided asset information or sales, general, and administrative expense by segment. Reportable segments are determined based on discrete financial information reviewed by the CODM. We organize and review operations based on products and services. We perform an analysis of our reportable segments on at least an annual basis. Additional information related to our business segments is summarized in Note 15.

Geographic Information and Major Customers

For the three months ended March 31, 2019 and 2018, no individual country outside the U.S. represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers.

For the three months ended March 31, 2019 and 2018, no customer represented more than 10% of total net sales. At March 31, 2019 and December 31, 2018, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units ("RSUs"). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

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,
	2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	6,419	$	12,926
Denominator:
Weighted average shares outstanding	58,914		53,119
Dilutive effect of stock-based awards	837		1,413
Diluted weighted average shares outstanding	59,751		54,532
Anti-dilutive stock-based awards excluded	12,125		404
Net income per common share:
Basic	$	0.11	$	0.24
Diluted	$	0.11	$	0.24

Standard Warranties

We warranty our CEWs, 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 on a quarterly basis 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. 

6

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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

	Three Months Ended March 31,
	2019			2018
Balance, beginning of period	$	898		$	644
Utilization of accrual	(123		)	(93		)
Warranty expense	252			8
Balance, end of period	$	1,027		$	559

Fair Value Measurements and Financial Instruments

The fair value framework 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 March 31, 2019 and December 31, 2018 were comprised of money market funds and, at March 31, 2019, also included corporate bonds. 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 March 31, 2019 and December 31, 2018 was $3.9 million and $3.6 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.

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

Restricted Cash

Restricted cash balances as of March 31, 2019 and December 31, 2018 included $0.9 million of sales proceeds related to long-term contracts with customers, which were included in prepaid expenses and other current assets on our condensed consolidated balance sheets. The proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to our operating accounts. Restricted cash balances as of March 31, 2019 and December 31, 2018 also included $0.7 million related to a performance guarantee for an international customer sales contract, which were included in other assets on our accompanying condensed consolidated balance sheets.

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

7

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

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 February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.  Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP. On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840. We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

The adoption had a material impact to our condensed consolidated balance sheet. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. There was no other impact from the adoption. The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

See Note 11 for further disclosures related to Topic 842.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1, 2019 and the adoption had no impact on our condensed consolidated financial statements.

8

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Effective the first quarter of 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as credit quality. We are currently in the process of evaluating the impact of adoption of ASU 2016-13 on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. As ASU 2018-13 only revises disclosure requirements, it is not expected to have a material impact on our condensed consolidated financial statements.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

2. Revenues

Nature of Products and Services

The following table presents our revenues by primary product and service offering (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	9,954	$	—	$	9,954	$	—	$	—	$	—
TASER X26P	15,872		—		15,872		16,474		—		16,474
TASER X2	13,085		—		13,085		23,932		—		23,932
TASER Pulse and Bolt	670		—		670		1,346		—		1,346
Single cartridges	19,160		—		19,160		16,114		—		16,114
Axon Body	—		6,445		6,445		—		5,558		5,558
Axon Flex	—		1,224		1,224		—		1,669		1,669
Axon Fleet	—		3,516		3,516		—		2,116		2,116
Axon Dock	—		3,312		3,312		—		3,035		3,035
Axon Evidence and cloud services	36		27,618		27,654		—		20,241		20,241
TASER Cam	—		903		903		—		1,360		1,360
Extended warranties	4,316		4,930		9,246		3,706		2,490		6,196
Other	2,298		2,471		4,769		1,952		1,222		3,174
Total	$	65,391	$	50,419	$	115,810	$	63,524	$	37,691	$	101,215

9

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

	Three Months Ended March 31,
	2019				2018
United States	$	94,333	81	%	$	77,950	77	%
Other countries	21,477		19		23,265		23
Total	$	115,810	100	%	$	101,215	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, 2019 (in thousands):

	March 31, 2019
Contract assets, net	$	18,257
Contract liabilities (deferred revenue)	184,847
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	31,222

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

	March 31, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	11,821	$	15,770	$	27,591	$	12,797	$	16,847	$	29,644
Software and Sensors	8,779		6,060		14,839		8,273		6,516		14,789
	20,600		21,830		42,430		21,070		23,363		44,433
Hardware:
TASER	3,845		16,091		19,936		9,355		15,598		24,953
Software and Sensors	31,104		24,023		55,127		20,878		24,685		45,563
	34,949		40,114		75,063		30,233		40,283		70,516
Services:
TASER	75		438		513		—		—		—
Software and Sensors	54,439		12,402		66,841		55,713		10,771		66,484
	54,514		12,840		67,354		55,713		10,771		66,484
Total	$	110,063	$	74,784	$	184,847	$	107,016	$	74,417	$	181,433

	March 31, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	15,741	$	32,299	$	48,040	$	22,152	$	32,445	$	54,597
Software and Sensors	94,322		42,485		136,807		84,864		41,972		126,836
Total	$	110,063	$	74,784	$	184,847	$	107,016	$	74,417	$	181,433

Remaining Performance Obligations

As of March 31, 2019, we had approximately $930 million 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 Topic 606 as of March 31, 2019. We expect to recognize between 15% - 20% of this balance over the next twelve months, and expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

10

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

3. Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, and held-to-maturity investments at March 31, 2019 and December 31, 2018 (in thousands):

	As of March 31, 2019
	Amortized Cost		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	123,098	$	—		$	123,098	$	123,098	$	—
Level 1:
Money market funds	83,449		—			83,449		83,449		—
Level 2:
Corporate bonds	122,407		(56		)	122,351		17,095		105,312
Total	$	328,954	$	(56	)	$	328,898	$	223,642	$	105,312

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	144,095	$	—	$	144,095	$	144,095	$	—
Level 1:
Money market funds	205,367		—		205,367		205,367		—
Total	$	349,462	$	—	$	349,462	$	349,462	$	—

We believe unrealized losses on our investments are due to interest rate fluctuations. As these investments are short-term in nature, are expected to be redeemed at par value, and/or because we have the ability and intent to hold these investments to maturity, we do not consider these investments to be other than temporarily impaired as of March 31, 2019.

4. Inventory

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost of raw materials, which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Included in finished goods at March 31, 2019 and December 31, 2018 was $1.3 million and $1.4 million, respectively, of trial and evaluation hardware units. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventory consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Raw materials	$	20,574	$	19,670
Finished goods	17,013		14,093
Total inventory	$	37,587	$	33,763

5. Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2019 were as follows (in thousands):

	TASER		Software and Sensors		Total
Balance, beginning of period	$	1,338	$	23,643	$	24,981
Foreign currency translation adjustment	18		18		36
Balance, end of period	$	1,356	$	23,661	$	25,017

Intangible assets (other than goodwill) consisted of the following (in thousands):

		March 31, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(808	)	$	2,353	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	2,982		(1,158		)	1,824		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	922		(490		)	432		1,053		(599		)	454
Customer relationships	4-8 years	3,717		(1,027		)	2,690		3,701		(880		)	2,821
Non-compete agreements	3-4 years	452		(375		)	77		540		(439		)	101
Developed technology	3-7 years	10,660		(4,889		)	5,771		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	2,031		(2,031		)	—		1,928		(1,813		)	115
Total amortizable		23,925		(10,778		)	13,147		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		1,020					1,020		958					958
Total not amortizable		1,920					1,920		1,858					1,858
Total intangible assets		$	25,845	$	(10,778	)	$	15,067	$	28,585	$	(12,650	)	$	15,935

Amortization expense of intangible assets for the three months ended March 31, 2019 and 2018 was $1.0 million and $1.4 million, respectively. Estimated amortization for intangible assets with definite lives for the remaining nine months of 2019, the next five years ended December 31, and thereafter, is as follows (in thousands):

2019 Remaining	$	2,501
2020	3,293
2021	2,846
2022	1,244
2023	946
2024	862
Thereafter	1,455
Total	$	13,147

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

6. Other Assets

Other assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Cash surrender value of corporate-owned life insurance policies	$	3,919	$	3,596
Deferred commissions (1)	16,141		15,530
Restricted cash	659		661
Operating lease assets	11,659		—
Prepaid expenses, deposits and other	3,378		3,212
Total other long-term assets	$	35,756	$	22,999

⁽¹⁾ Represents assets for the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized consistent with the recognition timing of the revenue for the underlying performance obligations.

7. Accrued Liabilities

Accrued liabilities consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Accrued salaries, benefits and bonus	$	13,993	$	19,063
Accrued professional, consulting and lobbying fees	4,476		4,894
Accrued warranty expense	1,027		898
Accrued income and other taxes	4,392		4,167
Other accrued liabilities	12,460		12,070
Accrued liabilities	$	36,348	$	41,092

8. Income Taxes

We file income tax returns for federal purposes and in many states, as well as in multiple foreign jurisdictions. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three to four years, following the tax year to which these filings relate. Our U.S. federal income tax return for fiscal year 2016 is currently under audit by the Internal Revenue Service.

Deferred Tax Assets

Net deferred income tax assets at March 31, 2019, primarily include R&D tax credits, stock-based compensation expense, deferred revenue, accruals and reserves, and net operating losses, partially offset by accelerated depreciation expense and valuation allowance reserve. Our total net deferred tax assets at March 31, 2019 were $18.8 million.

In preparing our condensed consolidated financial statements, management assesses the likelihood that its deferred tax assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, management considers all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

As of March 31, 2019, we continue to demonstrate three-year cumulative pre-tax income in the U.S. federal and state tax jurisdictions; however, we have Arizona R&D Tax Credits expiring unutilized each year. Therefore, management has concluded that it is more likely than not that our Arizona R&D deferred tax asset will not be realized.

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

As of March 31, 2019, we have cumulative pre-tax losses in Australia, the U.K., and Canada, which limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded for these jurisdictions. The amount of the deferred tax asset considered realizable; however, could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and California income tax purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $5.7 million as of March 31, 2019. In addition, management accrued $0.1 million for estimated uncertain tax positions related to certain federal income tax liabilities. Should the unrecognized benefit of $5.7 million be recognized, our effective tax rate would be favorably impacted. Approximately $2.7 million of the unrecognized tax benefit associated with R&D credits has been netted against the R&D deferred tax asset.

Effective Tax Rate

Our overall effective tax rate for the three months ended March 31, 2019, after discrete period adjustments, was (28.8)%. Before discrete adjustments, the tax rate was 21.1%, which is greater than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m), lobbying fees, and an income inclusion from global intangible low-taxed income ("GILTI"), offset by a reduction for foreign-derived intangible income ("FDII") and R&D tax credits. The effective tax rate was favorably impacted by a $2.7 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised during the three months ended March 31, 2019. This was offset by an unfavorable discrete item of $0.3 million related to the write off of certain deferred tax assets related to future stock compensation vests for certain officers for whom deductibility of compensation is limited by IRC Section 162(m).

9. Stockholders’ Equity

Performance-based stock awards

We have issued performance-based stock options and performance-based RSUs, the vesting of which is generally contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For awards containing multiple service, performance or market conditions, and all conditions must be satisfied prior to vesting, compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period, based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based compensation expense and additional paid-in-capital.

For performance-based options with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

CEO Performance Award

On May 24, 2018 (the “Grant Date”), our stockholders approved the Board of Directors’ grant of 6,365,856 stock option awards to Patrick W. Smith, our CEO (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 CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the CEO Performance Award have a 10-year contractual term and will vest upon certification by the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any

13

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

one of the following eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal quarters. Adjusted EBITDA for purposes of the CEO Performance Award ("Adjusted EBITDA (CEO Performance Award)") is defined as net income (loss) attributable to common stockholders before interest expense, investment interest income, provision (benefit) for income taxes, depreciation and amortization,and stock-based compensation expense.

Eight Separate Revenue Goals (1) (in thousands)	Eight Separate Adjusted EBITDA (CEO Performance Award) Goals (in thousands)
Goal #1, $710,058	Goal #9, $125,000
Goal #2, $860,058	Goal #10, $155,000
Goal #3, $1,010,058	Goal #11, $175,000
Goal #4, $1,210,058	Goal #12, $190,000
Goal #5, $1,410,058	Goal #13, $200,000
Goal #6, $1,610,058	Goal #14, $210,000
Goal #7, $1,810,058	Goal #15, $220,000
Goal #8, $2,010,058	Goal #16, $230,000

⁽¹⁾ In connection with the business acquisition that was completed during the three months ended June 30, 2018, the revenue goals have been adjusted for the acquiree's Target Revenue, as defined in the CEO Performance Award agreement.

As of March 31, 2019, the following operational goals were considered probable of achievement:

• Total revenue of $710.1 million; and

• Adjusted EBITDA (CEO Performance Award) of $125.0 million

The first two market capitalization goals have been achieved as of March 31, 2019. However, none of the stock options granted under the CEO Performance Award have vested thus far as the operational goals have not yet been achieved as of March 31, 2019. As there are two operational goals considered probable of achievement, we recorded stock-based compensation expense of $4.7 million related to the CEO Performance Award from the Grant Date through March 31, 2019. The number of stock options that would vest related to the two tranches is approximately 1.1 million shares.

As of March 31, 2019, we had $40.5 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7.0 years. As of March 31, 2019, we had unrecognized stock-based compensation expense of $200.7 million for the performance goals that were considered not probable of achievement.

eXponential Stock Performance Plan

On February 12, 2019, our shareholders approved the 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 eXponential Stock Performance Plan (“XSPP”) and grants of eXponential Stock Units (“XSUs”) under the plan. Pursuant to the XSPP, all eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain employees had the opportunity to elect to receive a percentage of the value of their target compensation over the next nine years (2019-2027) in the form of additional XSUs. For employees who elected to receive XSUs, the XSU grants were made as an up front, lump sum grant in January 2019, and are intended to replace that portion of the target compensation they elected to receive in the form of XSUs for the next nine years. Accordingly, their go forward target compensation will be reduced until 2027 by the amount of such compensation that the employees elected to receive in the form of the January 2019 XSU grants. A total of approximately 5.2 million XSUs were granted in the three months ended March 31, 2019.

The XSUs are grants of restricted stock units, each with a term of approximately nine years, that vest in 12 equal tranches. Each of the 12 tranches will vest upon certification by the Compensation Committee of the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA (CEO Performance Award) have been met for the previous four consecutive fiscal quarters.

14

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The XSPP contains an anti-dilution provision, which is used to calculate a maximum number of shares outstanding for purposes of determining achievement of the market capitalization goals whereby the maximum number of shares used to calculate the market capitalization goal is calculated by organically growing the current number of shares outstanding by 3% per year (the "XSU Maximum"). Any shares of Stock issued to Patrick W. Smith upon the exercise of the stock options granted to Mr. Smith under the CEO Performance Award shall increase the XSU Maximum. The XSU Maximum shall also be adjusted for acquisitions, spin-offs or other changes in the number of outstanding shares of common stock, if such changes have a corresponding adjustment on the market capitalization goals.

The market capitalization and operational goals are identical to the CEO Performance Award, except for the number of shares that are used to calculate the market capitalization goals if shares outstanding exceed the XSU Maximum. Additionally, because the grant date is different than that of the CEO Performance Award, the measurement period for market capitalization is not identical.

Stock-based compensation expense associated with XSU awards is recognized over the longer of the expected achievement period for each pair of market capitalization and operational goals, beginning at the point in time when the relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation of each tranche are determined using a Monte Carlo simulation which is also is used as the basis for determining the expected achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-looking financial projections, taking into consideration statistical analysis. Even though no tranches of the XSU awards vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation expense is recognized when an operational goal is considered probable of achievement regardless of whether a market capitalization goal is actually achieved.

The first market capitalization goal has been achieved as of March 31, 2019. However, none of the XSU tranches have vested thus far as the operational goals have not yet been achieved as of March 31, 2019. As there are two operational goals considered probable of achievement, we recorded stock-based compensation expense of $0.7 million related to the XSU awards from their respective grant dates through March 31, 2019. The number of XSU awards that would vest related to the two tranches is approximately 0.9 million shares.

As of March 31, 2019, we had $36.8 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7 years. As of March 31, 2019, we had unrecognized stock-based compensation expense of $137.0 million for the performance goals that were considered not probable of achievement.

Given the complexity of the awards, we utilized Monte Carlo simulations to simulate a range of possible future market capitalizations for the Company over the term of the awards. The average of all iterations of the simulation was used as the basis for the valuation and market capitalization goal derived service period for each tranche. Additionally, we applied an illiquidity discount of between 10.0% and 16.8% to the valuation of XSUs because the awards specify a post-vest holding period of 2.5 years. Certain of the XSU awards specify a post-vest holding period of the longer of 2.5 years or until the next tranche vests. The illiquidity discounts were estimated using the Finnerty model and reduced by the impact of expected payroll and income taxes due upon vesting of the awards, as the related proportion of shares are expected to be sold to satisfy such obligations. We measured the grant date fair value of the XSU awards with the following assumptions: risk-free interest rate of between 2.47% and 2.62%, expected term of approximately 9 years, expected volatility of between 44.96% and 45.47%, and dividend yield of 0.00%.

Restricted Stock Units

The following table summarizes RSU activity for the three months ended March 31, 2019 (number of units and aggregate intrinsic value in thousands):

	Number of Units		Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,655		$	28.34
Granted	5,667		34.32
Released	(290	)	20.91
Forfeited	(46	)	34.43
Units outstanding, end of period	6,986		33.47		$	380,123

15

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $54.41 per share, multiplied by the number of RSUs outstanding. As of March 31, 2019, there was $84.9 million in unrecognized compensation costs related to RSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 4.59 years. RSUs are released when vesting requirements are met.

During the three months ended March 31, 2019, we granted 5.7 million RSUs, consisting of 0.3 million service-based RSUs and 5.4 million performance-based RSUs, including 5.2 million XSUs. As of March 31, 2019, the performance criteria had been met for approximately five thousand of the 5.7 million performance-based RSUs outstanding. Certain of the performance-based RSUs outstanding as of March 31, 2019 can vest with a range of shares earned being between 0% and 200% of the targeted shares granted, depending on the final achievement of pre-determined performance criteria as of the vesting date. The amount of RSUs included in the table above related to such grants is the target level. The maximum additional number of performance-based RSUs that could be earned is 0.3 million, which are not included in the table above.

Certain RSUs that vested in the three months ended March 31, 2019 were net-share settled such that we withheld shares with value equivalent to the employees’ minimum statutory obligation 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 15 thousand and had a value of $1.3 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.

Stock Option Activity

The following table summarizes stock option activity for the three months ended March 31, 2019 (number of units and aggregate intrinsic value in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	6,458		$	28.24
Granted	—		—
Exercised	(24	)	4.20
Expired / terminated	—		—
Options outstanding, end of period	6,434		28.33		8.83	$	167,827
Options exercisable, end of period	68		4.54		1.69	3,397

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of our common stock of $54.41 on March 31, 2019. The intrinsic value of options exercised for the three months ended March 31, 2019 and 2018 was $1.0 million and $2.0 million, respectively. As of March 31, 2019, total options outstanding included 6.4 million unvested performance-based stock options. Of this total, 1.1 million options relate to tranches of the CEO Performance Award considered probable of achievement.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation for the three months ended March 31, 2019 and 2018 (in thousands):

	Three Months Ended March 31,
	2019		2018
Cost of products sold and services delivered	$	226	$	141
Sales, general and administrative expenses	4,681		2,304
Research and development expenses	2,998		1,648
Total stock-based compensation	$	7,905	$	4,093

16

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stock Incentive Plan

In February 2019, our shareholders approved the 2019 Plan authorizing an additional 6.0 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with the legacy stock incentive plans, there are 2.2 million shares available for grant as of March 31, 2019.

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 three months ended March 31, 2019 and 2018, no common shares were purchased under the program. As of March 31, 2019, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

10. Line of Credit

We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $10.0 million is available for letters of credit. The credit agreement matures on December 31, 2021 and has an accordion feature which allows for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of additional bank commitments.

At March 31, 2019 and December 31, 2018, there were no borrowings under the line. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. As of March 31, 2019, we had letters of credit outstanding of approximately $3.1 million under the facility and available borrowing of $46.9 million, excluding amounts available under the accordion feature. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.  

We are required to comply with a maximum funded debt to EBITDA ratio of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At March 31, 2019, our funded debt to EBITDA ratio was 0.001 to 1.00.

11. Leases

Lease Obligations

We determine if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, we use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease components for all asset classes.

Our leases have remaining terms of less than 1 to 4 years, some of which include one or more options to renew for up to 2 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.We sublease certain real estate to third parties. Finance leases as of March 31, 2019 were immaterial.

17

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Leases (in thousands)	Classification	March 31, 2019
Assets
Operating lease assets	Other assets	$	11,659
Liabilities
Current
Operating	Other current liabilities	$	3,877
Noncurrent
Operating	Other long-term liabilities	8,897
Total lease liabilities		$	12,774

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended March 31, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,017
Sublease income	Other income	(42		)
Net lease expense		$	975

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Three Months Ended March 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	961
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	84
Weighted average remaining lease term
Operating leases	3.2 years
Weighted average discount rate
Operating leases	3.6		%

18

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	3,419	$	(246	)	$	3,173
2020	4,203		(82		)	4,121
2021	3,325		—			3,325
2022	2,449		—			2,449
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	14,569		(328		)	14,241
Less: Amount representing interest						(1,467		)
Present value of lease payments						$	12,774

As of March 31, 2019, we do not have any leases that have not yet commenced other than the land lease purchase agreement described in Note 12.

Disclosures related to periods prior to adoption of Topic 842

Rent expense under all operating leases, including both cancelable and non-cancelable leases, was $4.2 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

12. Commitments and Contingencies

Land Lease Purchase Agreement

On December 13, 2018, we entered into a Purchase and Sale Agreement ("PSA") to purchase a leasehold interest to a parcel of land located in Maricopa County, Arizona for a period of 84 years, on which we intend to construct our new headquarters. The purchase price of the land lease was $13.1 million. It is also contemplated that we will prepay the rent under the lease in the amount of $10.9 million. The PSA includes a due diligence period, during which we may terminate and forfeit our initial deposit of $0.2 million. On March 4, 2019, we entered into an amendment to the PSA which extended the due diligence period to May 3, 2019. On May 3, 2019, we entered into a second amendment to the PSA which extended the due diligence period to June 28, 2019. The second amendment also revised certain stated approval dates and removed the requirement for an additional deposit originally due at the end of the due diligence period.

Product Litigation

We are currently named as a defendant in seven lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used by law enforcement officers in connection with arrests. While the facts vary from case to case, these product liability claims typically allege defective product design, manufacturing, and/or failure to warn. They seek compensatory and sometimes punitive damages, often in unspecified amounts.

We continue to aggressively defend all product litigation. As a general rule, it is our policy not to settle suspect injury or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to us. Due to the confidential nature of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, we do not identify or comment on specific settlements by case or amount. Based on current information, we do not believe that the outcome of any such legal proceeding will have a material effect on our financial position, results of operations, or cash flows. We are self-insured for the first $5.0 million of any product claim made after 2014. No judgment or settlement has ever exceeded this amount in any products case. We continue to maintain product liability insurance coverage, including an insurance policy fronting arrangement, above our self-insured retention with various limits depending on the policy period.

Other Litigation

We are a defendant in a litigation matter filed by Digital Ally Inc. (“Digital”) in the District of Kansas alleging patent infringement regarding our Axon Signal technology. Digital seeks a judgment of infringement, monetary damages, a permanent injunction, punitive damages and attorneys’ fees and costs. Both fact and expert discovery are complete. The parties filed motions for summary judgment on January 31, 2019 and briefing is now complete. Rulings are not expected before the fourth quarter of 2019. No trial date has been set but, if necessary, is not expected to occur before the first quarter of 2020.

We are vigorously defending this litigation. The case has been substantially narrowed based on (1) the district court’s dismissal of all of Digital’s antitrust claims in January 2017, which ruling was affirmed by the Federal Circuit in May 2018 and the U.S. Supreme Court denied review; (2) the district court’s dismissal of Digital’s ‘292 patent from the litigation with prejudice in March 2018, and Digital’s execution of a covenant not to sue Axon on that patent on existing Axon products; and (3) Digital’s dismissal of certain inconsistent claims in the ‘452 patent, leaving only one independent claim for resolution by the court. We believe the ‘452 patent is both invalid and not infringed, and we do not believe it is probable that we will incur a material loss.

Although we have not yet been served, we are aware that a consumer class action lawsuit previously filed and dismissed in California in 2018 has been refiled in Nevada. The case alleges the TASER Pulse, X2 and X26P CEWs have a faulty safety switch based on Douglas Richey’s Pulse allegedly discharging inside its neoprene case in a jacket pocket without injury. Any such discharge was likely due to static electricity, as disclosed in our consumer warnings. We will vigorously defend this claim and the propriety of any class certification.

U.S. Federal Trade Commission Investigation

In June 2018 we received a letter from the U.S. Federal Trade Commission (“FTC”) with respect to its non-public investigation into our acquisition of VIEVU, LLC in May 2018.  The FTC issued a subpoena for certain information and documentation relating to the acquisition on March 21, 2019. We are cooperating with the investigation.

19

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

General

From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.

Based on our assessment of outstanding litigation and claims as of March 31, 2019, we have determined that it is not reasonably possible that these lawsuits will individually, or in the aggregate, materially affect our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Off-Balance Sheet Arrangements

Under certain circumstances, we use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the installation and integration of Axon cameras and related technologies. Certain of our letters of credit and surety bonds have stated expiration dates with others being released as the contractual performance terms are completed. At March 31, 2019, we had outstanding letters of credit of $3.1 million that are expected to expire in May 2019 and September 2021. Additionally, we had $24.6 million of outstanding surety bonds at March 31, 2019, with $0.4 million expiring in 2019, $0.7 million expiring in 2020, $2.3 million expiring in 2021, $3.2 million expiring in 2022, $7.5 million expiring in 2023 and the remaining $10.5 million expiring in 2024.

13. Related Party Transactions

We subscribe to various cloud-based applications from Salesforce. Bret Taylor, a member of our Board of Directors, serves as President and Chief Product Officer of Salesforce. We incur costs at different times throughout the year, typically in advance of services being provided, and subsequently amortize these costs ratably to expense as services are provided over the contractual term. The cost to subscribe to various cloud-based hosting arrangements from Salesforce and Quip was $0.5 million and $0.4 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, $0.1 million was due to Salesforce for such arrangements. Amounts due to Salesforce as of December 31, 2018 were negligible.

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14. Employee Benefit Plans

We have a defined contribution 401(k) plan for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum amount allowed by law of their eligible compensation.

We also have a non-qualified deferred compensation plan for certain executives, key employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation, including stock-based compensation, received from us. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows for matching and discretionary employer contributions. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are allocated fully to plan participants and we do not guarantee a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in other assets in the condensed consolidated balance sheets. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of our general creditors.

Contributions to the plans are made by both the employee and us. Our contributions to the 401(k) plan are based on the level of employee contributions and are immediately vested. Our matching contributions to the 401(k) and non-qualified deferred compensation plan for the three months ended March 31, 2019 and 2018, were $1.4 million and $0.8 million, respectively. Future matching contributions to the plans are at our sole discretion.

15. Segment Data

Our operations are comprised of two reportable segments: the manufacture and sale of CEWs, batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the software and sensors business, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Our Chief Executive Officer, who is the CODM, is not provided asset information or sales, general, and administrative expense by segment.

Information relative to our reportable segments was as follows (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
Net sales from products	$	65,301	$	22,788	$	88,089	$	63,524	$	17,450	$	80,974
Net sales from services	90		27,631		27,721		—		20,241		20,241
Net sales	65,391		50,419		115,810		63,524		37,691		101,215
Cost of product sales	23,278		16,322		39,600		20,543		11,891		32,434
Cost of service sales	—		7,293		7,293		—		4,320		4,320
Cost of sales	23,278		23,615		46,893		20,543		16,211		36,754
Gross margin	42,113		26,804		68,917		42,981		21,480		64,461
Research and development	3,712		19,642		23,354		2,960		12,159		15,119

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition as of March 31, 2019, and results of operations for the three months ended March 31, 2019 and 2018, should be read in conjunction with the condensed consolidated financial statements and related notes included in this Report on Form 10-Q and those in our 2018 Annual Report on Form 10-K filed with the SEC on February 27, 2019. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors, including but not limited to those described under “Risk Factors” in our 2018 Annual Report on Form 10-K. See also "Special Note Regarding Forward-Looking Statements" on page ii of this Report on Form 10-Q.

Overview

Axon is a market-leading provider of law enforcement technology solutions. Our core mission is to protect life. We fulfill that mission through developing hardware and software products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Our revenues for the three months ended March 31, 2019 were $115.8 million, an increase of $14.6 million, or 14.4%, from the comparable period in the prior year. We had income from operations of $2.7 million compared to $13.6 million for the same period in the prior year. The decrease in operating results was due to an increase in cost of sales as well as investments over the past year for additional headcount in research and development and sales, general and administrative functions to support continued and future growth. Additionally, margins were compressed related to the rollout of our newest TASER device and increased data storage and tariff and customs expenses. We recorded net income of $6.4 million compared to $12.9 million for the comparable period in the prior year.

2019 Outlook

For the year ending December 31, 2019, we expect revenue $485 million to $495 million. We expect stock-based compensation expenses to be approximately $35 million for the full year, which is subject to change depending on our assessment of the probability of attaining operational metrics for the CEO Performance Award and XSU awards, and on the expected timing of such attainment. We expect a normalized income tax rate of between 20% and 25%; this rate can fluctuate depending on geography of income and the effects of discrete items, including changes in our stock price.

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Results of Operations

Three Months Ended March 31, 2019 Compared to the Three Months Ended March 31, 2018

The following table presents data from our condensed consolidated statements of operations as well as the percentage relationship to total net sales of items included in our statements of operations (dollars in thousands):

	Three Months Ended March 31,
	2019					2018
Net sales from products	$	88,089		76.1	%	$	80,974	80.0	%
Net sales from services	27,721			23.9		20,241		20.0
Net sales	115,810			100.0		101,215		100.0
Cost of product sales	39,600			34.2		32,434		32.0
Cost of service sales	7,293			6.3		4,320		4.3
Cost of sales	46,893			40.5		36,754		36.3
Gross margin	68,917			59.5		64,461		63.7
Operating expenses:
Sales, general and administrative	42,892			37.0		35,759		35.3
Research and development	23,354			20.2		15,119		14.9
Total operating expenses	66,246			57.2		50,878		50.2
Income from operations	2,671			2.3		13,583		13.5
Interest and other income, net	2,313			2.0		1,263		1.2
Income before provision for income taxes	4,984			4.3		14,846		14.7
Provision for (benefit from) income taxes	(1,435		)	(1.2	)	1,920		1.9
Net income	$	6,419		5.5	%	$	12,926	12.8	%

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

	Three Months Ended March 31,
	2019				2018
United States	$	94,333	81	%	$	77,950	77	%
Other countries	21,477		19		23,265		23
Total	$	115,810	100	%	$	101,215	100	%

International revenue decreased slightly compared to the prior year comparable period, driven primarily by large sales in the prior year period in the Asia Pacific region that did not recur in the current period.

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Net Sales

Net sales by product line were as follows (dollars in thousands):

	Three Months Ended March 31,								Dollar Change			Percent Change
	2019				2018
TASER segment:
TASER 7	$	9,954	8.6	%	$	—	—	%	$	9,954		*
TASER X26P	15,872		13.7		16,474		16.4		(602		)	(3.7	)
TASER X2	13,085		11.3		23,932		23.6		(10,847		)	(45.3	)
TASER Pulse and Bolt	670		0.6		1,346		1.3		(676		)	(50.2	)
Single cartridges	19,160		16.6		16,114		15.9		3,046			18.9
Axon Evidence and cloud services	36		—		—		—		36			*
Extended warranties	4,316		3.7		3,706		3.7		610			16.5
Other	2,298		2.0		1,952		1.9		346			17.7
Total TASER segment	65,391		56.5		63,524		62.8		1,867			2.9
Software and Sensors segment:
Axon Body	6,445		5.6		5,558		5.5		887			16.0
Axon Flex	1,224		1.1		1,669		1.6		(445		)	(26.7	)
Axon Fleet	3,516		3.0		2,116		2.1		1,400			66.2
Axon Dock	3,312		2.9		3,035		3.0		277			9.1
Axon Evidence and cloud services	27,618		23.7		20,241		20.0		7,377			36.4
TASER Cam	903		0.8		1,360		1.3		(457		)	(33.6	)
Extended warranties	4,930		4.3		2,490		2.5		2,440			98.0
Other	2,471		2.1		1,222		1.2		1,249			102.2
Total Software and Sensors segment	50,419		43.5		37,691		37.2		12,728			33.8
Total net sales	$	115,810	100.0	%	$	101,215	100.0	%	$	14,595		14.4	%

* Not applicable

Net unit sales for TASER device handles and other products and Software and Sensors segment products were as follows:

	Three Months Ended March 31,		Unit Change		Percent Change
	2019	2018
TASER 7	8,835	—	8,835		*
TASER X26P	14,985	15,720	(735	)	(4.7	)
TASER X2	9,861	20,501	(10,640	)	(51.9	)
TASER Pulse and Bolt	1,253	4,000	(2,747	)	(68.7	)
Cartridges	616,517	532,952	83,565		15.7
Axon Body	25,848	21,769	4,079		18.7
Axon Flex	3,591	3,693	(102	)	(2.8	)
Axon Fleet	1,735	1,857	(122	)	(6.6	)
Axon Dock	4,994	5,844	(850	)	(14.5	)
TASER Cam	1,741	3,528	(1,787	)	(50.7	)

*Not applicable

Net sales for the TASER segment increased 2.9% primarily as a result of increased cartridge revenue, partially offset by a net decrease of $2.2 million in TASER device sales. The decreased unit sales of X2 and X26P were partially offset by higher average selling prices. As expected, we have started to see a shift to purchases of our newest device, TASER 7, from legacy X2 and X26P devices. We expect recurring payment plan subscriptions to increase in 2019 as we drive sales of TASER 7, which includes a software subscription with Axon Evidence.

23

Net sales for the Software and Sensors segment increased 33.8% as we continued to add users and associated devices to our network during the three months ended March 31, 2019, resulting in increased revenues. Our aggregate number of users continued to increase, which resulted in increased Axon Evidence and extended warranty revenues of $7.4 million and $2.4 million, respectively. Additionally, we recorded a $1.4 million increase in revenue related to Axon Fleet, primarily driven by increased pricing.

To gain more immediate feedback regarding activity for Software and Sensors products and services, we also review bookings for these products. We consider bookings to be a statistical measure defined as the sales price of orders (not invoiced sales), including contractual optional periods we expect to be exercised, net of cancellations, inclusive of renewals, placed in the relevant fiscal period, regardless of when the products or services ultimately will be provided. Most bookings will be invoiced in subsequent periods. Due to municipal government funding rules, in some cases certain of the future period amounts included in bookings are subject to budget appropriation or other contract cancellation clauses. Although we have entered into contracts for the delivery of products and services in the future and anticipate the contracts will be fulfilled, if agencies do not exercise contractual options, do not appropriate funds in future year budgets, or do enact a cancellation clause, revenue associated with these bookings may not ultimately be recognized, resulting in a future reduction to bookings. Bookings related to our Software and Sensors segment, net of cancellations, were $76.4 million and $97.5 million during the three months ended March 31, 2019 and 2018, respectively, a decrease of $21.1 million, or 21.7%. Bookings for the current quarter reflect typical Q1 seasonality, which we did not experience in Q1 2018 due to a substantial international order. We anticipate that bookings growth will increase when Axon Body 3 begins shipping in Q3 2019.

The chart below illustrates our Software and Sensors segment quarterly bookings for each of the previous six fiscal quarters (in thousands):

Cost of Product and Service Sales

Within the TASER segment, cost of product sales increased to $23.3 million for the three months ended March 31, 2019 from $20.5 million for the same period in 2018. Cost as a percentage of sales increased to 35.6% from 32.3%. The increase in cost of product sales as a percentage of sales was primarily attributable to initial production costs as well as higher depreciation on new production equipment for the TASER 7.

Within the Software and Sensors segment, cost of product and service sales increased to $23.6 million for the three months ended March 31, 2019 from $16.2 million for the same period in 2018. Cost as a percentage of sales increased to 46.8% from 43.0%. Cost of product sales increased $4.4 million primarily driven by the impact of increased units as well as increased freight and customs expenses. Cost of service sales increased $3.0 million driven by a $2.1 million increase in third party cloud costs as well as an increase in professional services following the acquisition of VIEVU in May 2018.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 64.4% from 67.7% for the three months ended March 31, 2019 and 2018, respectively. In addition to the cost impacts noted above, trade-in credits for certain customers purchasing TASER 7 devices negatively impacted gross margin.

24

As a percentage of net sales, gross margin for the Software and Sensors segment decreased to 53.2% from 57.0% for the three months ended March 31, 2019 and 2018, respectively. Within the Software and Sensors segment, hardware gross margin was 28.4% for the three months ended March 31, 2019 compared to 31.9% for the same period in 2018, while the service margins were 73.6% and 78.7% during those same periods, respectively.

Sales, General and Administrative Expenses

Sales, general and administrative ("SG&A) expenses were comprised as follows (dollars in thousands):

	Three Months Ended March 31,						Dollar Change		Percent Change
	2019			2018
Total sales, general and administrative expenses	$	42,892		$	35,759		$	7,133	19.9
Sales, general, and administrative as a percentage of net sales	37.0		%	35.3		%

Stock-based compensation expense increased $2.4 million in comparison to the prior quarter, which was primarily attributable to expense of $1.9 million from the CEO Performance Award and XSUs. Salaries, benefits and bonus expenses increased $2.1 million primarily due to a continued increase in headcount. Sales and marketing expenses increased $0.9 million primarily as a result of higher commissions on increased sales.

Research and Development Expenses

Research and development ("R&D") expenses were comprised as follows (dollars in thousands):

	Three Months Ended March 31,						Dollar Change		Percent Change
	2019			2018
Total research and development expenses	$	23,354		$	15,119		$	8,235	54.5
Research and development as a percentage of net sales	20.2		%	14.9		%

Our Software and Sensors segment was responsible for 91% of the overall increase in R&D expense. Within the TASER segment, R&D expense increased $0.8 million, of which $0.7 million was related to increased stock-based compensation expense and salaries as we continue to invest in personnel allocated to the development of new CEW related technologies. R&D expense for the Software and Sensors segment increased $7.5 million, primarily due to a $6.1 million increase related to salaries and benefits, inclusive of stock-based compensation. We expect R&D expense to continue to increase in absolute dollars as we focus on growing the Software and Sensors segment as we add headcount and additional resources to develop new products and services to further advance our scalable cloud-connected device platform. These investments include Axon Records and computer-aided dispatch software. We believe that these investments will result in an increase in our subscription revenue base, which over time will result in revenue increasing faster than the increase in SG&A expenses and R&D costs, as we reach economies of scale.

Interest and Other Income, Net

Interest and other income, net was $2.3 million for the three months ended March 31, 2019 compared to $1.3 million for the same period in 2018. The increase was primarily attributable to increase investment interest income on our higher balance of cash, cash equivalents and investments.

Provision for Income Taxes

The provision for income taxes was a benefit of $1.4 million for the three months ended March 31, 2019, which was an effective tax rate of (28.8)%. Our estimated full year effective income tax rate for 2019, before discrete period adjustments, is 21.1%, which is greater than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, executive compensation limited under IRC Section 162(m), lobbying fees, and an income inclusion from GILTI, offset by a reduction for FDII and R&D tax credits. The effective tax rate was favorably impacted by a $2.7 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised during the three months ended March 31, 2019. This was offset by an unfavorable discrete item of $0.3 million related to the write off of certain deferred tax assets related to future stock compensation vests for certain officers for whom deductibility of compensation is limited by IRC Section 162(m).

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Net Income

Our net income decreased by $6.5 million to $6.4 million for the three months ended March 31, 2019 compared to $12.9 million for the same period in 2018. Net income per basic and diluted share was $0.11 for the three months ended March 31, 2019 compared to $0.24 per basic and diluted share for the same period in 2018.

Three Months Ended March 31, 2019 Compared to the Three Months Ended December 31, 2018

Net Sales

Net sales by product line were as follows (dollars in thousands):

	Three Months Ended March 31, 2019				Three Months Ended December 31, 2018				Dollar Change			Percent Change
TASER segment:
TASER 7	$	9,954	8.6	%	$	7,358	6.4	%	$	2,596		35.3	%
TASER X26P	15,872		13.7		18,020		15.7		(2,148		)	(11.9	)
TASER X2	13,085		11.3		16,151		14.1		(3,066		)	(19.0	)
TASER Pulse and Bolt	670		0.6		1,333		1.2		(663		)	(49.7	)
Single cartridges	19,160		16.6		16,495		14.4		2,665			16.2
Axon Evidence and cloud services	36		—		—		—		36			*
Extended warranties	4,316		3.7		4,186		3.6		130			3.1
Other	2,298		2.0		1,758		1.5		540			30.7
Total TASER segment	65,391		56.5		65,301		56.9		90			0.1
Software and Sensors segment:
Axon Body	6,445		5.6		6,801		5.9		(356		)	(5.2	)
Axon Flex	1,224		1.1		1,980		1.7		(756		)	(38.2	)
Axon Fleet	3,516		3.0		5,887		5.1		(2,371		)	(40.3	)
Axon Dock	3,312		2.9		3,374		2.9		(62		)	(1.8	)
Axon Evidence and cloud services	27,618		23.7		25,778		22.6		1,840			7.1
TASER Cam	903		0.8		1,032		0.9		(129		)	(12.5	)
Extended warranties	4,930		4.3		3,339		2.9		1,591			47.6
Other	2,471		2.1		1,299		1.1		1,172			90.2
Total Software and Sensors segment	50,419		43.5		49,490		43.1		929			1.9
Total net sales	$	115,810	100.0	%	$	114,791	100.0	%	$	1,019		0.9	%

*Not applicable.

Net unit sales for TASER device handles and other products and Software and Sensors segment products were as follows:

	Three Months Ended March 31, 2019	Three Months Ended December 31, 2018	Unit Change		Percent Change
TASER 7	8,835	5,759	3,076		53.4	%
TASER X26P	14,985	18,597	(3,612	)	(19.4	)
TASER X2	9,861	13,088	(3,227	)	(24.7	)
TASER Pulse and Bolt	1,253	7,490	(6,237	)	(83.3	)
Cartridges	616,517	600,690	15,827		2.6
Axon Body	25,848	26,167	(319	)	(1.2	)
Axon Flex	3,591	5,080	(1,489	)	(29.3	)
Axon Fleet	1,735	3,905	(2,170	)	(55.6	)
Axon Dock	4,994	3,859	1,135		29.4
TASER Cam	1,741	1,952	(211	)	(10.8	)

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Net sales within the TASER segment remained consistent with the prior quarter. Revenues for TASER devices decreased $3.3 million driven by the decrease in unit sales, partially offset by higher average selling prices for X2, X26P, and consumer devices. Trade-in credits for certain customers negatively impacted the average selling price for TASER 7 devices. Cartridge revenue increased primarily due to a higher average selling price, as well as increased units.

Within the Software and Sensors segment, net sales increased 1.9% as we continued to add users to our network, resulting in higher service revenues. Additionally, extended warranty revenue increased driven by the higher number of cameras and docks in the field. The increases were partially offset by a decline in hardware revenues. Unit sales for Axon Body cameras slowed in advance of the release of the new Axon Body 3, which is anticipated in the third quarter of 2019.

Non-GAAP Measures

To supplement our financial results presented in accordance with GAAP, we present the non-GAAP financial measures of EBITDA and Adjusted EBITDA (CEO Performance Award). Our management uses these non-GAAP financial measures in evaluating our performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing our performance, and when planning and forecasting our future periods. A reconciliation of GAAP to the non-GAAP financial measures is presented below.

• EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, taxes, depreciation and amortization.

• Adjusted EBITDA (CEO Performance Award) (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, taxes, depreciation, amortization and non-cash stock-based compensation expense.

Although these non-GAAP financial measures are not consistent with GAAP, management believes investors will benefit by referring to these non-GAAP financial measures when assessing our operating results, as well as when forecasting and analyzing future periods. However, management recognizes that:

• these non-GAAP financial measures are limited in their usefulness and should be considered only as a supplement to our GAAP financial measures;

• these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, our GAAP financial measures;

• these non-GAAP financial measures should not be considered to be superior to our GAAP financial measures; and

• these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not assume that the non-GAAP financial measures presented in this Quarterly Report on Form 10-Q were prepared under a comprehensive set of rules or principles.

EBITDA and Adjusted EBITDA (CEO Performance Award) reconcile to net income as follows (dollars in thousands):

	Three Months Ended
	March 31, 2019			December 31, 2018			March 31, 2018
Net income	$	6,419		$	2,083		$	12,926
Depreciation and amortization	2,800			2,389			2,411
Interest expense	6			33			20
Investment interest income	(2,003		)	(1,076		)	(75		)
Provision for (benefit from) income taxes	(1,435		)	931			1,920
EBITDA	$	5,787		$	4,360		$	17,202
Adjustments:
Stock-based compensation expense	7,905			6,577			4,093
Adjusted EBITDA (CEO Performance Award)	$	13,692		$	10,937		$	21,295

Liquidity and Capital Resources

Summary

As of March 31, 2019, we had $225.2 million of cash, cash equivalents and restricted cash, a decrease of $125.8 million as compared to December 31, 2018. The decrease in the balance of cash, cash equivalents and restricted cash was primarily attributable to the purchase of investments of $105.3 million. As of March 31, 2019, we had $223.6 million of cash and cash equivalents, of which $42.0 million was held in foreign locations. Our ongoing sources of cash include cash on hand, investments, and cash flows from operations. In addition, our $50.0 million revolving credit facility is available for additional working capital needs or investment opportunities. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.  

As of March 31, 2019, we had letters of credit outstanding of $3.1 million, leaving the net amount available for borrowing of $46.9 million. The facility matures on December 31, 2021, and has an accordion feature which allows for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of additional bank commitments. There can be no assurance that we will continue to generate cash flows at or above current levels or that we will be able to maintain our ability to borrow under our revolving credit facility. At March 31, 2019 and December 31, 2018, there were no borrowings under the line other than the outstanding letters of credit.

Our agreement with the bank requires us to comply with a maximum funded debt to EBITDA ratio, as defined, of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At March 31, 2019, our funded debt to EBITDA ratio was 0.001 to 1.00.

TASER 60 installment purchase arrangements typically involve amounts invoiced in five equal installments at the beginning of each year of the five-year term. This is in contrast to a traditional CEW sale in which the entire amount being charged for the hardware is invoiced upon shipment. This impacts liquidity in a commensurate fashion, with the cash for the TASER 60 arrangement received in five annual installments rather than up front. It is our strategic intent to shift an increasing amount of our business to a subscription model, to better match the municipal budgeting process of our customers as well as to allow for multiple product offerings to be bundled into existing subscriptions. We carefully considered the cash flow impacts of this strategic shift and regularly revisit our cash flow forecast with the goal of maintaining a comfortable level of liquidity as we introduce commercial offerings in which we incur upfront cash costs to produce and fulfill hardware sales ahead of the cash inflows from our customers. We anticipate, and have prepared for, the majority of our arrangements in both reportable segments to be offered in similar subscription-type offerings over the coming years. With the launch of the TASER 7, which is primarily being sold in subscription offerings, we expect this strategic shift to accelerate.

Based on our strong balance sheet and the fact that we do not have long-term debt at March 31, 2019, we believe financing will be available, both through our existing credit line and possible additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or at all. We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital requirements, potential acquisitions and other liquidity requirements through at least the next 12 months. We and our Board of Directors may consider repurchases of our common stock from time to time. Further repurchases of our common stock would take place on the open market, would be financed with available cash and are subject to market and business conditions.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities (in thousands):

	Three Months Ended March 31,
	2019			2018
Net cash provided by (used in) operating activities	$	(13,970	)	$	18,044
Net cash provided by (used in) investing activities	(110,755		)	1,268
Net cash used in financing activities	(1,159		)	(3,421		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	67			469
Net increase (decrease) in cash, cash equivalents and restricted cash	$	(125,817	)	$	16,360

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Operating activities

Net cash used in operating activities in the first three months of 2019 of $14.0 million reflects $6.4 million in net income, non-cash income statement items totaling $12.7 million, and cash outflows of $33.1 million for the net change in operating assets and liabilities. Included in the non-cash items were $2.8 million in depreciation and amortization expense and $7.9 million in stock-based compensation expense. Cash used in operations was impacted by increased accounts and notes receivable and contract assets of $22.0 million, decreased accounts payable, accrued liabilities and other liabilities of $7.3 million, increased inventory of $3.9 million, and increased prepaid expenses and other assets of $3.2 million. The increase in accounts and notes receivable and contract assets was attributable to increased sales over the last several quarters, primarily sales made under subscription plans, as well as slower customer collections. The decrease in accounts payable, accrued liabilities and other liabilities was primarily attributable to the timing of payments for our annual bonus plan. Cash used in operations was also impacted by various other operating items, including increased deferred revenue of $3.2 million.

Net cash provided by operating activities in the first three months of 2018 of $18.0 million reflects $12.9 million in net income impacted by the net increase of non-cash income statement items totaling $8.2 million and a decrease of $3.1 million for the net change in operating assets and liabilities. Included in the non-cash items were $2.4 million in depreciation and amortization expense and $4.1 million in stock-based compensation expense, and deferred income tax expense of $1.5 million. Increases to operating cash flows consisted of increased accounts payable, accrued and other liabilities of $6.7 million, which reduced the amount of cash used during the period, along with increased deferred revenue of $6.6 million and decreased inventory of $2.4 million. The increase in deferred revenue was primarily driven by increased software and sensors services invoiced in advance. Cash used in operations was also impacted by various other operating items, with the most significant component related to increased accounts and notes receivable and contract assets of $17.1 million primarily related to increased customer balances under our Officer Safety Plan and TASER 60 purchase programs. Cash used in operations was also impacted by increased prepaid expenses and other assets of $1.7 million which was primarily related to increased deferred commissions balances of $9.3 million partially offset by lower deferred cost of products sold of $1.5 million. Both of these changes were driven by accounting changes related to the adoption of new guidance on revenue recognition.

Investing activities

We used $110.8 million in investing activities during the first three months of 2019, which was comprised of $105.3 million for the purchase of investments and $5.4 million for the purchase of property and equipment and intangible assets.

We generated $1.3 million from investing activities during the first three months of 2018. Maturities and calls of investments, net of purchases, were $2.4 million, which was partially offset by an investment of $1.1 million in the purchase of property and equipment and intangible assets.

Financing activities

Net cash used in financing activities was $1.2 million during the first three months of 2019. During the first three months of 2019, we paid income and payroll taxes of $1.3 million on behalf of employees who net-settled stock awards during the period, which was partially offset by proceeds from options exercised of $0.1 million.

Net cash used in financing activities was $3.4 million during the first three months of 2018. During the first three months of 2018, we paid income and payroll taxes of $3.8 million on behalf of employees who net-settled stock awards during the period, which was partially offset by proceeds from options exercised of $0.4 million.

Off-Balance Sheet Arrangements

The discussion of off-balance sheet arrangements in Note 12 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q is incorporated by reference herein. 

Critical Accounting Estimates

We have identified the following accounting estimates as critical to our business operations and the understanding of our results of operations. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities at the date of our unaudited condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. While we do not believe that a change in these estimates is reasonably likely, there can be no assurance that our actual results will not differ from these estimates. The effect of these estimates on our financial condition and results of operations are discussed below.

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Stock-Based Compensation

We have historically granted stock-based compensation to key employees and non-employee directors as a means of attracting and retaining highly qualified personnel. Stock-based compensation awards primarily consist of service-based RSUs, performance-based RSUs, and performance-based options. RSUs are classified as equity and measured at the fair market value of the underlying stock at the grant date. We recognize RSU expense using the straight-line attribution method over the requisite service period. We also issue performance-based RSUs, the vesting of which is contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful and timely development and market acceptance of future product introductions. For performance-based RSUs containing only performance conditions, compensation cost is recognized using the graded attribution model over the explicit or implicit service period. For awards containing multiple service, performance or market conditions, and all conditions must be satisfied prior to vesting, compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period, based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based compensation expense and additional paid-in-capital.

For performance-based awards, stock-based compensation expense is recognized over the expected performance achievement period of individual performance goals when the achievement of each individual performance goal becomes probable. For performance-based awards with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations. Refer to Note 9 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q.

We have granted a total of 12.9 million performance-based awards (options and restricted stock units) of which 12.0 million are outstanding as of March 31, 2019, the vesting of which is contingent upon the achievement of certain performance criteria including the successful development and market acceptance of future product introductions, our future sales targets, operating performance, and market capitalization. These awards will vest and compensation expense will be recognized based on management’s best estimate of the probability of the performance criteria being satisfied using the most currently available projections of future product adoption and operating performance, adjusted at each balance sheet date. Changes in the subjective and probability-based assumptions can materially affect the estimate of the fair value of stock-based compensation and consequently, the related amount recognized in our condensed consolidated statements of operations and comprehensive income.

Leases

We adopted Topic 842 as of January 1, 2019. Refer to Note 1 of the notes to our condensed consolidated financial statements within this Report on Form 10-Q for further discussion about the new standard and its impact on our condensed consolidated balance sheet.

ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. ROU assets and liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term. We use our estimated incremental borrowing rate, which is derived from information available at the lease commencement date, in determining the present value of lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates.

Our lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. Leases with a term of 12 months or less are not recorded on the balance sheet. Our lease agreements do not contain any residual value guarantees.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

We typically invest in a limited number of financial instruments, consisting principally of investments in money market accounts, certificates of deposit, and corporate and municipal bonds with a typical long-term debt rating of “A” or better by any nationally recognized statistical rating organization, denominated in U.S. dollars. All of our cash equivalents and investments are treated as “held-to-maturity.” Investments in fixed-rate interest-earning instruments carry a degree of interest rate risk as their market value may be adversely impacted due to a rise in interest rates. As a result, we may suffer losses in principal if we sell securities that have declined in market value due to changes in interest rates. However, because we classify our debt securities as “held-to-maturity” based on our intent and ability to hold these instruments to maturity, no gains or losses are recognized due to changes in interest rates. These securities are reported at amortized cost. Based on investment positions as of March 31, 2019, a hypothetical 100 basis point increase in interest rates across all maturities would result in a $0.4 million decline in the fair market value of the portfolio. Such losses would only be realized if we sold the investments prior to maturity.

Additionally, we have access to a $50.0 million line of credit borrowing facility which bears interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to EBITDA ratio. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled $3.1 million at March 31, 2019. At March 31, 2019, there was no amount outstanding under the line of credit and the available borrowing under the line of credit was $46.9 million. We have not borrowed any funds under the line of credit since its inception; however; should we need to do so in the future, such borrowings could be subject to adverse or favorable changes in the underlying interest rate.

Exchange Rate Risk

Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange rates, in each case compared to the U.S. dollar, related to transactions by our foreign subsidiaries. The majority of our sales to international customers are transacted in U.S. dollars and therefore, are not subject to exchange rate fluctuations on these transactions. However, the cost of our products to our customers increases when the U.S. dollar strengthens against their local currency, and we may have more sales and expenses denominated in foreign currencies in future years which could increase our foreign exchange rate risk. Additionally, intercompany sales to our non-U.S. dollar functional currency international subsidiaries are transacted in U.S. dollars which could increase our foreign exchange rate risk caused by foreign currency transaction gains and losses.

To date, we have not engaged in any currency hedging activities. However, we may enter into foreign currency forward and option contracts with financial institutions to protect against foreign exchange risks associated with certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a variety of reasons, including but not limited to the prohibitive economic cost of hedging particular exposures. As such, fluctuations in currency exchange rates could harm our business in the future.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our Chief Executive Officer and Chief Financial Officer are responsible for the evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Our disclosure controls and procedures are designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of March 31, 2019.

Change in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the fiscal quarter ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

29

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The discussion under the headings Product Litigation, Other Litigation, and Federal Trade Commission Investigation in Note 12 of the notes to our condensed consolidated financial statements included in PART I, ITEM 1 of this Report on Form 10-Q is incorporated by reference herein.

Item 1A. Risk Factors

There are no other material changes from the risk factors previously disclosed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2018, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock, except as noted below.

Higher costs or unavailability of materials could adversely affect our financial results.

We depend on certain domestic and international suppliers for the delivery of components used in the assembly of our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an adequate supply of components or sub-assemblies and reduced control over pricing and timing of delivery of components and sub-assemblies. Specifically, we depend on suppliers of sub-assemblies, machined parts, injection molded plastic parts, printed circuit boards, custom wire fabrications and other miscellaneous customer parts for our products. We do not have long-term agreements with any of our suppliers and there is no guarantee that supply will not be interrupted.

Single or sole-source components used in the manufacture of our products may become unavailable or discontinued. Delays caused by industry allocations or obsolescence may take weeks or months to resolve. In some cases, parts obsolescence may require a product re-design to ensure quality replacement components. These delays could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting our financial condition or results of operations and could injure our reputation.

A significant number of our raw materials or components are comprised of petroleum-based products or incur some form of landed cost associated with transporting the raw materials or components to our facility. Our freight and import costs and the timely delivery of our products could be adversely impacted by a number of factors which could reduce the profitability of our operations, including: higher fuel costs; potential port closures; customs clearance issues; increased government regulation or changes for imports of foreign products into the U.S.; delays created by terrorist attacks or threats, public health issues, national disasters or work stoppages; and other matters. Any interruption of supply for any material components of our products could significantly delay the shipment of our products and have a material adverse effect on our revenues, profitability and financial condition. International or domestic geopolitical or other events, including the imposition of new or increased tariffs and/or quotas by the U.S. government on any of these raw materials or components, could adversely impact the supply and cost of these raw materials or components, and could adversely impact the profitability of our operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

None.

Item 5. Other Information

None.

30

Item 6. Exhibits

10.1*	First Amendment to Purchase and Sale Agreement between Axon Enterprise Holding Company and Apex Park at Pima, L.L.C.
10.2*	Second Amendment to Purchase and Sale Agreement between Axon Enterprise Holding Company and Apex Park at Pima, L.L.C.
31.1*	Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*	Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**	Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

*    Filed herewith

**    Furnished herewith

31

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

AXON ENTERPRISE, INC.
Date:	May 10, 2019
		By:	/s/ PATRICK W. SMITH
			Chief Executive Officer
			(Principal Executive Officer)
Date:	May 10, 2019	By:	/s/ JAWAD A. AHSAN
			Chief Financial Officer
			(Principal Financial and
			Accounting Officer)

32

EX-10.1

FIRST AMENDMENT TO AMENDED AND RESTATED

PURCHASE AND SALE AGREEMENT

This FIRST AMENDMENT TO AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT (this "Amendment") is made and entered into effective as of the 4th day of March, 2019, by and between Apex Park at Pima, L.L.C., an Arizona limited liability company and its assignee under the substitute lease (collectively, "Seller") and Axon Enterprise Holding Company, LLC, a Delaware limited liability company ("Buyer").

RECITALS

A.Seller and Buyer entered into that certain Amended and Restated Purchase and Sale Agreement (the "Agreement"), dated December 13, 2018.

B.Seller and Buyer desire to modify and amend the Agreement as set forth in this Amendment on the terms and conditions set forth herein.

C.Capitalized terms not expressly otherwise defined in this Amendment shall have the same meanings as are ascribed to them in the Agreement.

AGREEMENTS

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, Seller and Buyer hereby modify and amend the Agreement and agree as follows:

1.Section 3.1. - Due Diligence Period. Section 3.1. shall be deleted and replaced as follows:

3.1. Due Diligence Period. The "Due Diligence Period" shall commence on the Effective Date and expire on May 3, 2019 (the "Due Diligence Deadline Date").

2.Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

3.Counterparts. This Amendment may be executed in one or more counterparts by the parties hereto and all counterparts taken together shall constitute one and the same document. The parties hereto agree that signature pages from one or more counterparts may be removed from such counterparts and such signature pages may be attached to a single instrument so that the signatures of all parties may be physically attached to a single counterpart hereof.

4.Full Force and Effect. The Agreement, as amended by this Amendment, was fully, duly and properly executed by and on behalf of Seller and Buyer, and is in full force and effect and is binding upon Seller and Buyer.

IN WITNESS WHEREOF, Seller and Buyer have executed and delivered this Amendment as of the day and year second above written.

SELLER:

APEX Park at Pima, L.L.C.,

an Arizona limited liability company

By: Alter Park at Pima, L.L.C.,

a Delaware limited liability company

By: 18-Chai Corp., an Illinois corporation

Its: Manager

By:________________________

Name:________________________

Title:________________________

Date:________________________

BUYER:

AXON ENTERPRISE HOLDING COMPANY, LLC,

a Delaware limited liability company

By:_________________________

Name:________________________

Title:________________________

Date:_________________________

EX-10.2

SECOND AMENDMENT TO AMENDED AND RESTATED

PURCHASE AND SALE AGREEMENT

This SECOND AMENDMENT TO AMENDED AND RESTATED PURCHASE AND SALE AGREEMENT (this "Amendment") is made and entered into effective as of the 3rd day of May 2019, by and between Apex Park at Pima, L.L.C., an Arizona limited liability company and its assignee under the substitute lease (collectively, "Seller") and Axon Enterprise Holding Company, LLC, a Delaware limited liability company ("Buyer").

RECITALS

A.Seller and Buyer entered into that certain Amended and Restated Purchase and Sale Agreement, dated December 13, 2018, as amended by that certain First Amendment to Amended and Restated Purchase and Sale Agreement, dated March 4, 2019 (referred to collectively as the "Agreement").

B.Seller and Buyer desire to modify and amend the Agreement as set forth in this Amendment on the terms and conditions set forth herein.

C.Capitalized terms not expressly otherwise defined in this Amendment shall have the same meanings as are ascribed to them in the Agreement.

AGREEMENTS

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by the parties hereto, Seller and Buyer hereby modify and amend the Agreement and agree as follows:

1.Exhibit A. Exhibit A is hereby deleted and replaced with Exhibit A-1 attached hereto.

2.Exhibit C. Exhibit C is hereby deleted.

3.Section 2.3(a) - Deposit. Section 2.3(a) shall be deleted and replaced as follows:

Buyer has deposited in escrow (the "Escrow") with First American Title Insurance Company ("Title Company"), 2425 E. Camelback Road, Suite 300, Phoenix, Arizona 85016, Attention: Tom Anzaldua ("Escrow Agent") a deposit in the amount of One Hundred Fifty Thousand Dollars and 00/100 ($150,000.00) (the "Deposit"). The Deposit shall be non-refundable to Buyer and released to Seller at Seller's written request to Escrow Agent.

4.Section 3.3(b) - Due Diligence Period. Delete last sentence of Section 3.3(b). The parties acknowledge that the Due Diligence Period will expire on June 28, 2019.

5.Section 4.1 - Community Approval Period. Section 4.1 shall be deleted and replaced as follows:

4.1 Timeframe for Required Community Approvals.

(a) Buyer shall work diligently to obtain Community Approvals (as defined herein in subsection (d)) and shall promptly respond to all requests from the Community and Seller

and make all required submittals in a timely manner. Buyer and Seller intend that all Community Approvals shall be obtained on or before the date that is February 28, 2020 (the "Approval Period").

(b) Buyer shall (i) deliver the DRC Package to Seller no later than June 28, 2019 and (ii) submit the DRC Package to the Community no later than 7 days after Seller's approval of the DRC Package. If Buyer fails to meet either of the foregoing deadlines, Buyer shall pay Seller $75,000.00 within 10 days of the applicable deadline date. Thereafter, Buyer shall pay Seller an additional $75,000.00 for each thirty day period that Buyer fails to comply with the provisions of this subsection (b). Any payments made by Buyer to Seller pursuant to this Section 4.1(b) shall be non-refundable to Buyer and may be released to Seller at Seller's direction. Such amounts shall be applied to the Purchase Price.

(c) Buyer shall deliver written notice to Seller of its receipt of any of the Community Approvals promptly after obtaining the same. Buyer shall have the right to terminate this Agreement for any reason by written notice to the Title Company and Seller at any time prior to obtaining Community Approvals and upon such termination, Seller and Buyer shall have no further obligations under this Agreement, except for Buyer's obligations that survive termination of this Agreement and the Deposit, less all escrow cancellation charges and costs, will be released to Seller (if not previously released to Seller).

(d) For purposes of this Agreement:

i. "Community Approvals" shall mean (i) approval of all dimensional, exterior lighting and signage, and manufacture use variances (as described in the CUP & DRC Package approved by Seller) and the CUP and DRC Package from the Land Management Board and/or any Tribal Council (including, but not limited to, final approval of Approved Manufacturer Liability Limitations Ordinance), (ii) Design Review Committee Approval of Buyer Improvements design, (iii) issuance by the Community of a certified Title Status Report for the Property (iv) Community’s approval of relocation of monument sign (at Buyer’s expense) to location approved by Seller and Buyer and (iv) Lessor, Community and BIA execution of the Substitute Lease in the form attached to this Agreement.

ii. “CUP” means all variances requested by Buyer, including, without limitation, the dimensional, exterior lighting and signage, and manufacture use variances, described in the CUP Package submitted to the Community.

iii. “DRC Package” means the Buyer’s Improvements design (based on the CUP submitted to the Community), the Design Review Application and all documents required by the Community as described in the Design Review Submittal Checklist. The DRC Package may be modified by Buyer pursuant to comments or concerns received from the Community and any such material changes must be submitted and approved by Seller in accordance with the Seller review process set forth in Section 5.4 (b) of this Agreement.

6.Section 5.2 -Design. In the second sentence of Section 5.2, the reference to "325,000 square foot" is removed and replaced with "375,000 square foot".

7.Section 5.4 - CUP & DRC Plans. Section 5.4 is hereby deleted and replaced with the following:

(a) Seller has approved the CUP portion of the CUP & DRC Package and Buyer has submitted the CUP to the Community for review and approval. Buyer shall (i) deliver a preliminary DRC Package to Seller no later than June 28, 2019, and (ii) provided that Seller has timely approved the preliminary DRC Package, submit the updated DRC Package (based on Community approved CUP) to the Community no later than 90 days after the date Community's Council approves the CUP. If Buyer fails to meet either of the foregoing deadlines, Buyer shall pay Seller $50,000 within 10 days of the applicable deadline date. Thereafter, Buyer shall pay Seller an additional $50,000 for each 30-day period that Buyer fails to timely deliver the specified DRC Package. Any payments made by Buyer to Seller pursuant to this Section 5.4 shall be non-refundable to Buyer and may be released to Seller at Seller's direction; provided that all such amounts shall be applied to the Purchase Price at Closing.

(b) Buyer shall deliver a DRC Package to Seller no later than June 28, 2019 and Seller shall then have seven (7) days to review the DRC Package and provide any comments to Buyer. Buyer shall have fourteen (14) days after receiving Seller’s comments to incorporate Seller's comments and resubmit to Seller. This process shall continue until Seller approves the DRC Package. After Seller's approval to the revised DRC Package, Buyer shall have seven (7) days after obtaining Seller’s approval to formally submit the approved DRC Package to the Community. Buyer shall take all necessary action to obtain Community Approvals during the Approval Period as set forth in Section 4. Seller shall be responsible for obtaining approval of the CUP & DRC Package from the Architectural Review Committee of the Association and shall provide Buyer with a letter of approval.

8.Successors and Assigns. This Amendment shall inure to the benefit of and be binding upon the parties hereto and their respective successors and permitted assigns.

9.Counterparts. This Amendment may be executed in one or more counterparts by the parties hereto and all counterparts taken together shall constitute one and the same document. The parties hereto agree that signature pages from one or more counterparts may be removed from such counterparts and such signature pages may be attached to a single instrument so that the signatures of all parties may be physically attached to a single counterpart hereof.

10.Full Force and Effect. The Agreement, as amended by this Amendment, was fully, duly and properly executed by and on behalf of Seller and Buyer and is in full force and effect and is binding upon Seller and Buyer.

IN WITNESS WHEREOF, Seller and Buyer have executed and delivered this Amendment as of the day and year second above written.

SELLER:

APEX Park at Pima, L.L.C.,

an Arizona limited liability company

By: Alter Park at Pima, L.L.C.,

a Delaware limited liability company

By: 18-Chai Corp., an Illinois corporation

Its: Manager

By:________________________

Name:________________________

Title:________________________

Date:________________________

BUYER:

AXON ENTERPRISE HOLDING COMPANY, LLC,

a Delaware limited liability company

By:_________________________

Name:_________________________

Title:_________________________

Date:_________________________

EX-31.1

EXHIBIT 31.1

CERTIFICATION PURSUANT TO

RULE 13a-14(a) or RULE 15d-14(a)

SECURITIES EXCHANGE ACT OF 1934

I, Patrick W. Smith, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 of Axon Enterprise, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 10, 2019	By:	/s/ Patrick W. Smith
			Patrick W. Smith
			Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATION PURSUANT TO

RULE 13a-14(a) or RULE 15d-14(a)

SECURITIES EXCHANGE ACT OF 1934

I, Jawad A. Ahsan, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2019 of Axon Enterprise, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	(a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	(b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	(c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	(d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	(a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	(b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	May 10, 2019	By:	/s/ Jawad A. Ahsan
			Jawad A. Ahsan
			Chief Financial Officer

EX-32

EXHIBIT 32

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Axon Enterprise, Inc. (the “Company”) for the quarterly period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Patrick W. Smith, Chief Executive Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Patrick W. Smith

Patrick W. Smith

Chief Executive Officer

May 10, 2019

In connection with the Quarterly Report on Form 10-Q of Axon Enterprise, Inc. (the “Company”) for the quarterly period ended March 31, 2019 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jawad A. Ahsan, Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Jawad A. Ahsan

Jawad A. Ahsan

Chief Financial Officer

May 10, 2019

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 30, 2019
Document And Entity Information [Abstract]
Entity Registrant Name	AXON ENTERPRISE, INC.
Entity Central Index Key	0001069183
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Emerging Growth Company	false
Entity Small Business	false
Entity Common Stock, Shares Outstanding		59,127,439

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Current assets:
Cash and cash equivalents	$ 223,642	$ 349,462
Short-term investments	105,312	0
Accounts and notes receivable, net of allowance of $2,355 and $1,882 as of March 31, 2019 and December 31, 2018, respectively	149,096	130,579
Contract assets, net	17,945	13,960
Inventory	37,587	33,763
Prepaid expenses and other current assets	33,340	30,391
Total current assets	566,922	558,155
Property and equipment, net of accumulated depreciation of $41,707 and $39,885 as of March 31, 2019 and December 31, 2018, respectively	41,347	37,893
Deferred income tax assets, net	18,770	19,347
Intangible assets, net	15,067	15,935
Goodwill	25,017	24,981
Long-term notes receivable, net of current portion	36,316	40,230
Other assets	35,756	22,999
Total assets	739,195	719,540
Current liabilities:
Accounts payable	9,865	15,164
Accrued liabilities	36,348	41,092
Contract with customer, liability, current	110,063	107,016
Other current liabilities	3,914	37
Total current liabilities	163,794	166,011
Deferred revenue, net of current portion	74,784	74,417
Liability for unrecognized tax benefits	3,156	2,849
Long-term deferred compensation	3,675	3,235
Other long-term liabilities	13,247	5,704
Total liabilities	258,656	252,216
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 March 31, 2019 and December 31, 2018	0	0
Common stock, $0.00001 par value; 200,000,000 shares authorized; 59,109,286 and 58,810,637 shares issued and outstanding as of March 31, 2019 and December 31, 2018, respectively	1	1
Additional paid-in capital	460,146	453,400
Treasury stock at cost, 20,220,227 shares as of March 31, 2019 and December 31, 2018	(155,947)	(155,947)
Retained earnings	177,802	171,383
Accumulated other comprehensive loss	(1,463)	(1,513)
Total stockholders’ equity	480,539	467,324
Total liabilities and stockholders’ equity	739,195	719,540
Current portion of deferred revenue
Current liabilities:
Contract with customer, liability, current	110,063	107,016
Customer deposits
Current liabilities:
Contract with customer, liability, current	$ 3,604	$ 2,702

XML

Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Statement of Financial Position [Abstract]
Allowance on accounts receivable	$ 2,355	$ 1,882
Accumulated depreciation	$ 41,707	$ 39,885
Preferred stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Preferred stock, shares authorized (in shares)	25,000,000	25,000,000
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.00001	$ 0.00001
Common stock, shares authorized (in shares)	200,000,000	200,000,000
Common stock, shares issued (in shares)	59,109,286	58,810,637
Common stock, shares outstanding (in shares)	59,109,286	58,810,637
Treasury stock, shares (in shares)	20,220,227	20,220,227

XML

Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net sales	$ 115,810	$ 101,215
Cost of sales	46,893	36,754
Gross margin	68,917	64,461
Operating expenses:
Sales, general and administrative	42,892	35,759
Research and development	23,354	15,119
Total operating expenses	66,246	50,878
Income from operations	2,671	13,583
Interest and other income, net	2,313	1,263
Income before provision for income taxes	4,984	14,846
Provision for (benefit from) income taxes	(1,435)	1,920
Net income	$ 6,419	$ 12,926
Net income per common and common equivalent shares:
Basic (in dollars per share)	$ 0.11	$ 0.24
Diluted (in dollars per share)	$ 0.11	$ 0.24
Weighted average number of common and common equivalent shares outstanding:
Basic (in shares)	58,914	53,119
Diluted (in shares)	59,751	54,532
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$ 6,419	$ 12,926
Foreign currency translation adjustments	50	(707)
Comprehensive income	6,469	12,219
Product
Net sales	88,089	80,974
Cost of sales	39,600	32,434
Service
Net sales	27,721	20,241
Cost of sales	$ 7,293	$ 4,320

XML

Unaudited Condensed Consolidated Statements of Stockholders' Equity - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)
Beginning balance (in shares) at Dec. 31, 2017		52,969,869		20,220,227
Beginning balance at Dec. 31, 2017	$ 167,444	$ 1	$ 201,672	$ (155,947)	$ 123,185	$ (1,467)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		337,214
Issuance of common stock under employee plans	(3,421)		(3,421)
Stock-based compensation	4,093		4,093
Net income	12,926				12,926
Foreign currency translation adjustments	(707)					(707)
Ending balance (in shares) at Mar. 31, 2018		53,307,083		20,220,227
Ending balance at Mar. 31, 2018	199,329	$ 1	202,344	$ (155,947)	155,105	(2,174)
Beginning balance (in shares) at Dec. 31, 2018		58,810,637		20,220,227
Beginning balance at Dec. 31, 2018	467,324	$ 1	453,400	$ (155,947)	171,383	(1,513)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans (in shares)		298,649
Issuance of common stock under employee plans	(1,159)		(1,159)
Stock-based compensation	7,905		7,905
Net income	6,419				6,419
Foreign currency translation adjustments	50					50
Ending balance (in shares) at Mar. 31, 2019		59,109,286		20,220,227
Ending balance at Mar. 31, 2019	$ 480,539	$ 1	$ 460,146	$ (155,947)	$ 177,802	$ (1,463)

XML

Unaudited Condensed Consolidated Statements of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 6,419	$ 12,926
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	2,800	2,411
Loss on disposal and impairment of property and equipment, net	242	34
Loss on disposal and abandonment of intangible assets	18	0
Stock-based compensation	7,905	4,093
Deferred income taxes	577	1,514
Unrecognized tax benefits	307	104
Other noncash, net	896	22
Change in assets and liabilities:
Accounts and notes receivable and contract assets	(21,994)	(17,060)
Inventory	(3,936)	2,408
Prepaid expenses and other assets	(3,152)	(1,702)
Accounts payable, accrued and other liabilities	(7,284)	6,740
Deferred revenue	3,232	6,554
Net cash provided by (used in) operating activities	(13,970)	18,044
Cash flows from investing activities:
Purchases of investments	(105,322)	(802)
Proceeds from maturity/call of investments	0	3,167
Purchases of property and equipment	(5,271)	(1,063)
Purchases of intangible assets	(162)	(34)
Net cash provided by (used in) investing activities	(110,755)	1,268
Cash flows from financing activities:
Proceeds from options exercised	100	356
Income and payroll tax payments for net-settled stock awards	(1,259)	(3,777)
Net cash used in financing activities	(1,159)	(3,421)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	67	469
Net increase (decrease) in cash, cash equivalents and restricted cash	(125,817)	16,360
Cash, cash equivalents and restricted cash, beginning of period	351,027	78,438
Cash, cash equivalents and restricted cash, end of period	225,210	94,798
Supplemental disclosures:
Cash and cash equivalents	223,642	92,330
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	351,027	78,438
Cash paid for income taxes, net of refunds	758	63
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$ 328	$ 136

XML

Organization and Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Summary of Significant Accounting Policies

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 core mission is to protect life. We fulfill that mission through developing hardware and software products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair and effective justice system.

Our headquarters in Scottsdale, Arizona houses our executive management, sales, marketing, certain engineering, manufacturing, and other administrative support functions. We also have a software engineering development center located in Seattle, Washington, and subsidiaries located in Australia, Canada, Finland, Hong Kong, Germany, India, the Netherlands, the United Kingdom, and Vietnam.

The accompanying unaudited condensed consolidated financial statements include the accounts of Axon Enterprise, Inc. and our wholly owned subsidiaries. All material intercompany accounts, transactions, and profits have been eliminated.

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three months ended March 31, 2019 and 2018 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,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

• fair values of identified tangible and intangible assets acquired and liabilities assumed in business combinations.

Actual results could differ materially from those estimates.

Segment Information

Our operations are comprised of two reportable segments: the manufacture and sale of conducted electrical weapons ("CEWs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Revenue from our “products” in the Software and Sensors segment are generally from sales of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as "Sensors and Other revenue." Revenue from our “services” in the Software and Sensors segment comprise sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as "Axon Cloud revenue." Within the Software and Sensors segment, we include only revenues and costs attributable to that segment, which costs include: costs of sales for both products and services, direct labor, product management and research and development ("R&D") for products included, or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.

Our Chief Executive Officer, who is the Chief Operating Decision Maker (the “CODM”), is not provided asset information or sales, general, and administrative expense by segment. Reportable segments are determined based on discrete financial information reviewed by the CODM. We organize and review operations based on products and services. We perform an analysis of our reportable segments on at least an annual basis. Additional information related to our business segments is summarized in Note 15.

Geographic Information and Major Customers

For the three months ended March 31, 2019 and 2018, no individual country outside the U.S. represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers.

For the three months ended March 31, 2019 and 2018, no customer represented more than 10% of total net sales. At March 31, 2019 and December 31, 2018, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units ("RSUs"). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

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,
	2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	6,419	$	12,926
Denominator:
Weighted average shares outstanding	58,914		53,119
Dilutive effect of stock-based awards	837		1,413
Diluted weighted average shares outstanding	59,751		54,532
Anti-dilutive stock-based awards excluded	12,125		404
Net income per common share:
Basic	$	0.11	$	0.24
Diluted	$	0.11	$	0.24

Standard Warranties

We warranty our CEWs, 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 on a quarterly basis 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):

	Three Months Ended March 31,
	2019			2018
Balance, beginning of period	$	898		$	644
Utilization of accrual	(123		)	(93		)
Warranty expense	252			8
Balance, end of period	$	1,027		$	559

Fair Value Measurements and Financial Instruments

The fair value framework 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 March 31, 2019 and December 31, 2018 were comprised of money market funds and, at March 31, 2019, also included corporate bonds. 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 March 31, 2019 and December 31, 2018 was $3.9 million and $3.6 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.

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

Restricted Cash

Restricted cash balances as of March 31, 2019 and December 31, 2018 included $0.9 million of sales proceeds related to long-term contracts with customers, which were included in prepaid expenses and other current assets on our condensed consolidated balance sheets. The proceeds are held in escrow until certain billing milestones are achieved, and then specified amounts are transferred to our operating accounts. Restricted cash balances as of March 31, 2019 and December 31, 2018 also included $0.7 million related to a performance guarantee for an international customer sales contract, which were included in other assets on our accompanying condensed consolidated balance sheets.

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 February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.  Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP. On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840. We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

The adoption had a material impact to our condensed consolidated balance sheet. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. There was no other impact from the adoption. The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

See Note 11 for further disclosures related to Topic 842.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1, 2019 and the adoption had no impact on our condensed consolidated financial statements.

Effective the first quarter of 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as credit quality. We are currently in the process of evaluating the impact of adoption of ASU 2016-13 on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. As ASU 2018-13 only revises disclosure requirements, it is not expected to have a material impact on our condensed consolidated financial statements.

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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Revenues

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Revenues

Revenues

Nature of Products and Services

The following table presents our revenues by primary product and service offering (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	9,954	$	—	$	9,954	$	—	$	—	$	—
TASER X26P	15,872		—		15,872		16,474		—		16,474
TASER X2	13,085		—		13,085		23,932		—		23,932
TASER Pulse and Bolt	670		—		670		1,346		—		1,346
Single cartridges	19,160		—		19,160		16,114		—		16,114
Axon Body	—		6,445		6,445		—		5,558		5,558
Axon Flex	—		1,224		1,224		—		1,669		1,669
Axon Fleet	—		3,516		3,516		—		2,116		2,116
Axon Dock	—		3,312		3,312		—		3,035		3,035
Axon Evidence and cloud services	36		27,618		27,654		—		20,241		20,241
TASER Cam	—		903		903		—		1,360		1,360
Extended warranties	4,316		4,930		9,246		3,706		2,490		6,196
Other	2,298		2,471		4,769		1,952		1,222		3,174
Total	$	65,391	$	50,419	$	115,810	$	63,524	$	37,691	$	101,215

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

	Three Months Ended March 31,
	2019				2018
United States	$	94,333	81	%	$	77,950	77	%
Other countries	21,477		19		23,265		23
Total	$	115,810	100	%	$	101,215	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, 2019 (in thousands):

	March 31, 2019
Contract assets, net	$	18,257
Contract liabilities (deferred revenue)	184,847
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	31,222

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

	March 31, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	11,821	$	15,770	$	27,591	$	12,797	$	16,847	$	29,644
Software and Sensors	8,779		6,060		14,839		8,273		6,516		14,789
	20,600		21,830		42,430		21,070		23,363		44,433
Hardware:
TASER	3,845		16,091		19,936		9,355		15,598		24,953
Software and Sensors	31,104		24,023		55,127		20,878		24,685		45,563
	34,949		40,114		75,063		30,233		40,283		70,516
Services:
TASER	75		438		513		—		—		—
Software and Sensors	54,439		12,402		66,841		55,713		10,771		66,484
	54,514		12,840		67,354		55,713		10,771		66,484
Total	$	110,063	$	74,784	$	184,847	$	107,016	$	74,417	$	181,433

	March 31, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	15,741	$	32,299	$	48,040	$	22,152	$	32,445	$	54,597
Software and Sensors	94,322		42,485		136,807		84,864		41,972		126,836
Total	$	110,063	$	74,784	$	184,847	$	107,016	$	74,417	$	181,433

Remaining Performance Obligations

As of March 31, 2019, we had approximately $930 million 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 Topic 606 as of March 31, 2019. We expect to recognize between 15% - 20% of this balance over the next twelve months, and expect the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

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Cash, Cash Equivalents and Investments

3 Months Ended

Mar. 31, 2019

Cash and Cash Equivalents [Abstract]

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, and held-to-maturity investments at March 31, 2019 and December 31, 2018 (in thousands):

	As of March 31, 2019
	Amortized Cost		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	123,098	$	—		$	123,098	$	123,098	$	—
Level 1:
Money market funds	83,449		—			83,449		83,449		—
Level 2:
Corporate bonds	122,407		(56		)	122,351		17,095		105,312
Total	$	328,954	$	(56	)	$	328,898	$	223,642	$	105,312

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	144,095	$	—	$	144,095	$	144,095	$	—
Level 1:
Money market funds	205,367		—		205,367		205,367		—
Total	$	349,462	$	—	$	349,462	$	349,462	$	—

We believe unrealized losses on our investments are due to interest rate fluctuations. As these investments are short-term in nature, are expected to be redeemed at par value, and/or because we have the ability and intent to hold these investments to maturity, we do not consider these investments to be other than temporarily impaired as of March 31, 2019.

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Inventory

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventory

Inventory

Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average cost of raw materials, which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing labor and overhead. Included in finished goods at March 31, 2019 and December 31, 2018 was $1.3 million and $1.4 million, respectively, of trial and evaluation hardware units. Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventory consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Raw materials	$	20,574	$	19,670
Finished goods	17,013		14,093
Total inventory	$	37,587	$	33,763

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Goodwill and Intangible Assets

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill for the three months ended March 31, 2019 were as follows (in thousands):

	TASER		Software and Sensors		Total
Balance, beginning of period	$	1,338	$	23,643	$	24,981
Foreign currency translation adjustment	18		18		36
Balance, end of period	$	1,356	$	23,661	$	25,017

Intangible assets (other than goodwill) consisted of the following (in thousands):

		March 31, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(808	)	$	2,353	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	2,982		(1,158		)	1,824		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	922		(490		)	432		1,053		(599		)	454
Customer relationships	4-8 years	3,717		(1,027		)	2,690		3,701		(880		)	2,821
Non-compete agreements	3-4 years	452		(375		)	77		540		(439		)	101
Developed technology	3-7 years	10,660		(4,889		)	5,771		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	2,031		(2,031		)	—		1,928		(1,813		)	115
Total amortizable		23,925		(10,778		)	13,147		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		1,020					1,020		958					958
Total not amortizable		1,920					1,920		1,858					1,858
Total intangible assets		$	25,845	$	(10,778	)	$	15,067	$	28,585	$	(12,650	)	$	15,935

Amortization expense of intangible assets for the three months ended March 31, 2019 and 2018 was $1.0 million and $1.4 million, respectively. Estimated amortization for intangible assets with definite lives for the remaining nine months of 2019, the next five years ended December 31, and thereafter, is as follows (in thousands):

2019 Remaining	$	2,501
2020	3,293
2021	2,846
2022	1,244
2023	946
2024	862
Thereafter	1,455
Total	$	13,147

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Other Assets

3 Months Ended

Mar. 31, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Other Assets

Other Assets

Other assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Cash surrender value of corporate-owned life insurance policies	$	3,919	$	3,596
Deferred commissions (1)	16,141		15,530
Restricted cash	659		661
Operating lease assets	11,659		—
Prepaid expenses, deposits and other	3,378		3,212
Total other long-term assets	$	35,756	$	22,999

⁽¹⁾ Represents assets for the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized consistent with the recognition timing of the revenue for the underlying performance obligations.

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Accrued Liabilities

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued Liabilities

Accrued liabilities consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Accrued salaries, benefits and bonus	$	13,993	$	19,063
Accrued professional, consulting and lobbying fees	4,476		4,894
Accrued warranty expense	1,027		898
Accrued income and other taxes	4,392		4,167
Other accrued liabilities	12,460		12,070
Accrued liabilities	$	36,348	$	41,092

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Income Taxes

3 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

We file income tax returns for federal purposes and in many states, as well as in multiple foreign jurisdictions. Our tax filings remain subject to examination by applicable tax authorities for a certain length of time, generally three to four years, following the tax year to which these filings relate. Our U.S. federal income tax return for fiscal year 2016 is currently under audit by the Internal Revenue Service.

Deferred Tax Assets

Net deferred income tax assets at March 31, 2019, primarily include R&D tax credits, stock-based compensation expense, deferred revenue, accruals and reserves, and net operating losses, partially offset by accelerated depreciation expense and valuation allowance reserve. Our total net deferred tax assets at March 31, 2019 were $18.8 million.

In preparing our condensed consolidated financial statements, management assesses the likelihood that its deferred tax assets will be realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, management considers all available positive and negative evidence, including our operating results, ongoing tax planning and forecasts of future taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is more likely than not that some portion or all of the net deferred tax assets will not be realized. Management exercises significant judgment in determining our provisions for income taxes, our deferred tax assets and liabilities, and our future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred tax assets.

As of March 31, 2019, we continue to demonstrate three-year cumulative pre-tax income in the U.S. federal and state tax jurisdictions; however, we have Arizona R&D Tax Credits expiring unutilized each year. Therefore, management has concluded that it is more likely than not that our Arizona R&D deferred tax asset will not be realized.

As of March 31, 2019, we have cumulative pre-tax losses in Australia, the U.K., and Canada, which limits the ability to consider other subjective evidence, such as projections for future growth. On the basis of this evaluation, a full valuation allowance has been recorded for these jurisdictions. The amount of the deferred tax asset considered realizable; however, could be adjusted in future periods if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for growth.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and California income tax purposes. Management has made the determination that it is more likely than not that the full benefit of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $5.7 million as of March 31, 2019. In addition, management accrued $0.1 million for estimated uncertain tax positions related to certain federal income tax liabilities. Should the unrecognized benefit of $5.7 million be recognized, our effective tax rate would be favorably impacted. Approximately $2.7 million of the unrecognized tax benefit associated with R&D credits has been netted against the R&D deferred tax asset.

Effective Tax Rate

Our overall effective tax rate for the three months ended March 31, 2019, after discrete period adjustments, was (28.8)%. Before discrete adjustments, the tax rate was 21.1%, which is greater than the federal statutory rate, primarily due to state taxes and non-deductible expenses for items such as meals and entertainment, executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m), lobbying fees, and an income inclusion from global intangible low-taxed income ("GILTI"), offset by a reduction for foreign-derived intangible income ("FDII") and R&D tax credits. The effective tax rate was favorably impacted by a $2.7 million discrete tax benefit primarily associated with windfalls related to stock-based compensation for RSUs that vested or stock options that were exercised during the three months ended March 31, 2019. This was offset by an unfavorable discrete item of $0.3 million related to the write off of certain deferred tax assets related to future stock compensation vests for certain officers for whom deductibility of compensation is limited by IRC Section 162(m).

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Stockholders' Equity

3 Months Ended

Mar. 31, 2019

Equity [Abstract]

Stockholders' Equity

Stockholders’ Equity

Performance-based stock awards

We have issued performance-based stock options and performance-based RSUs, the vesting of which is generally contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful and timely development and market acceptance of future product introductions. In addition, certain of the performance RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For awards containing multiple service, performance or market conditions, and all conditions must be satisfied prior to vesting, compensation expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period, based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a reduction to stock-based compensation expense and additional paid-in-capital.

For performance-based options with a vesting schedule based entirely on the attainment of both performance and market conditions, stock-based compensation expense is recognized for each pair of performance and market conditions over the longer of the expected achievement period of the performance and market conditions, beginning at the point in time that the relevant performance condition is considered probable of achievement. The fair value of such awards is estimated on the grant date using Monte Carlo simulations.

CEO Performance Award

On May 24, 2018 (the “Grant Date”), our stockholders approved the Board of Directors’ grant of 6,365,856 stock option awards to Patrick W. Smith, our CEO (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 CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12 vesting tranches of the CEO Performance Award have a 10-year contractual term and will vest upon certification by the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of the following eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal quarters. Adjusted EBITDA for purposes of the CEO Performance Award ("Adjusted EBITDA (CEO Performance Award)") is defined as net income (loss) attributable to common stockholders before interest expense, investment interest income, provision (benefit) for income taxes, depreciation and amortization,and stock-based compensation expense.

Eight Separate Revenue Goals (1) (in thousands)	Eight Separate Adjusted EBITDA (CEO Performance Award) Goals (in thousands)
Goal #1, $710,058	Goal #9, $125,000
Goal #2, $860,058	Goal #10, $155,000
Goal #3, $1,010,058	Goal #11, $175,000
Goal #4, $1,210,058	Goal #12, $190,000
Goal #5, $1,410,058	Goal #13, $200,000
Goal #6, $1,610,058	Goal #14, $210,000
Goal #7, $1,810,058	Goal #15, $220,000
Goal #8, $2,010,058	Goal #16, $230,000

⁽¹⁾ In connection with the business acquisition that was completed during the three months ended June 30, 2018, the revenue goals have been adjusted for the acquiree's Target Revenue, as defined in the CEO Performance Award agreement.

As of March 31, 2019, the following operational goals were considered probable of achievement:

• Total revenue of $710.1 million; and

• Adjusted EBITDA (CEO Performance Award) of $125.0 million

The first two market capitalization goals have been achieved as of March 31, 2019. However, none of the stock options granted under the CEO Performance Award have vested thus far as the operational goals have not yet been achieved as of March 31, 2019. As there are two operational goals considered probable of achievement, we recorded stock-based compensation expense of $4.7 million related to the CEO Performance Award from the Grant Date through March 31, 2019. The number of stock options that would vest related to the two tranches is approximately 1.1 million shares.

As of March 31, 2019, we had $40.5 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7.0 years. As of March 31, 2019, we had unrecognized stock-based compensation expense of $200.7 million for the performance goals that were considered not probable of achievement.

eXponential Stock Performance Plan

On February 12, 2019, our shareholders approved the 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 eXponential Stock Performance Plan (“XSPP”) and grants of eXponential Stock Units (“XSUs”) under the plan. Pursuant to the XSPP, all eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain employees had the opportunity to elect to receive a percentage of the value of their target compensation over the next nine years (2019-2027) in the form of additional XSUs. For employees who elected to receive XSUs, the XSU grants were made as an up front, lump sum grant in January 2019, and are intended to replace that portion of the target compensation they elected to receive in the form of XSUs for the next nine years. Accordingly, their go forward target compensation will be reduced until 2027 by the amount of such compensation that the employees elected to receive in the form of the January 2019 XSU grants. A total of approximately 5.2 million XSUs were granted in the three months ended March 31, 2019.

The XSUs are grants of restricted stock units, each with a term of approximately nine years, that vest in 12 equal tranches. Each of the 12 tranches will vest upon certification by the Compensation Committee of the Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA (CEO Performance Award) have been met for the previous four consecutive fiscal quarters.

The XSPP contains an anti-dilution provision, which is used to calculate a maximum number of shares outstanding for purposes of determining achievement of the market capitalization goals whereby the maximum number of shares used to calculate the market capitalization goal is calculated by organically growing the current number of shares outstanding by 3% per year (the "XSU Maximum"). Any shares of Stock issued to Patrick W. Smith upon the exercise of the stock options granted to Mr. Smith under the CEO Performance Award shall increase the XSU Maximum. The XSU Maximum shall also be adjusted for acquisitions, spin-offs or other changes in the number of outstanding shares of common stock, if such changes have a corresponding adjustment on the market capitalization goals.

The market capitalization and operational goals are identical to the CEO Performance Award, except for the number of shares that are used to calculate the market capitalization goals if shares outstanding exceed the XSU Maximum. Additionally, because the grant date is different than that of the CEO Performance Award, the measurement period for market capitalization is not identical.

Stock-based compensation expense associated with XSU awards is recognized over the longer of the expected achievement period for each pair of market capitalization and operational goals, beginning at the point in time when the relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation of each tranche are determined using a Monte Carlo simulation which is also is used as the basis for determining the expected achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-looking financial projections, taking into consideration statistical analysis. Even though no tranches of the XSU awards vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation expense is recognized when an operational goal is considered probable of achievement regardless of whether a market capitalization goal is actually achieved.

The first market capitalization goal has been achieved as of March 31, 2019. However, none of the XSU tranches have vested thus far as the operational goals have not yet been achieved as of March 31, 2019. As there are two operational goals considered probable of achievement, we recorded stock-based compensation expense of $0.7 million related to the XSU awards from their respective grant dates through March 31, 2019. The number of XSU awards that would vest related to the two tranches is approximately 0.9 million shares.

As of March 31, 2019, we had $36.8 million of total unrecognized stock-based compensation expense for the performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 7 years. As of March 31, 2019, we had unrecognized stock-based compensation expense of $137.0 million for the performance goals that were considered not probable of achievement.

Given the complexity of the awards, we utilized Monte Carlo simulations to simulate a range of possible future market capitalizations for the Company over the term of the awards. The average of all iterations of the simulation was used as the basis for the valuation and market capitalization goal derived service period for each tranche. Additionally, we applied an illiquidity discount of between 10.0% and 16.8% to the valuation of XSUs because the awards specify a post-vest holding period of 2.5 years. Certain of the XSU awards specify a post-vest holding period of the longer of 2.5 years or until the next tranche vests. The illiquidity discounts were estimated using the Finnerty model and reduced by the impact of expected payroll and income taxes due upon vesting of the awards, as the related proportion of shares are expected to be sold to satisfy such obligations. We measured the grant date fair value of the XSU awards with the following assumptions: risk-free interest rate of between 2.47% and 2.62%, expected term of approximately 9 years, expected volatility of between 44.96% and 45.47%, and dividend yield of 0.00%.

Restricted Stock Units

The following table summarizes RSU activity for the three months ended March 31, 2019 (number of units and aggregate intrinsic value in thousands):

	Number of Units		Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,655		$	28.34
Granted	5,667		34.32
Released	(290	)	20.91
Forfeited	(46	)	34.43
Units outstanding, end of period	6,986		33.47		$	380,123

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $54.41 per share, multiplied by the number of RSUs outstanding. As of March 31, 2019, there was $84.9 million in unrecognized compensation costs related to RSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 4.59 years. RSUs are released when vesting requirements are met.

During the three months ended March 31, 2019, we granted 5.7 million RSUs, consisting of 0.3 million service-based RSUs and 5.4 million performance-based RSUs, including 5.2 million XSUs. As of March 31, 2019, the performance criteria had been met for approximately five thousand of the 5.7 million performance-based RSUs outstanding. Certain of the performance-based RSUs outstanding as of March 31, 2019 can vest with a range of shares earned being between 0% and 200% of the targeted shares granted, depending on the final achievement of pre-determined performance criteria as of the vesting date. The amount of RSUs included in the table above related to such grants is the target level. The maximum additional number of performance-based RSUs that could be earned is 0.3 million, which are not included in the table above.

Certain RSUs that vested in the three months ended March 31, 2019 were net-share settled such that we withheld shares with value equivalent to the employees’ minimum statutory obligation 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 15 thousand and had a value of $1.3 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.

Stock Option Activity

The following table summarizes stock option activity for the three months ended March 31, 2019 (number of units and aggregate intrinsic value in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	6,458		$	28.24
Granted	—		—
Exercised	(24	)	4.20
Expired / terminated	—		—
Options outstanding, end of period	6,434		28.33		8.83	$	167,827
Options exercisable, end of period	68		4.54		1.69	3,397

Aggregate intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing market price of our common stock of $54.41 on March 31, 2019. The intrinsic value of options exercised for the three months ended March 31, 2019 and 2018 was $1.0 million and $2.0 million, respectively. As of March 31, 2019, total options outstanding included 6.4 million unvested performance-based stock options. Of this total, 1.1 million options relate to tranches of the CEO Performance Award considered probable of achievement.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation for the three months ended March 31, 2019 and 2018 (in thousands):

	Three Months Ended March 31,
	2019		2018
Cost of products sold and services delivered	$	226	$	141
Sales, general and administrative expenses	4,681		2,304
Research and development expenses	2,998		1,648
Total stock-based compensation	$	7,905	$	4,093

Stock Incentive Plan

In February 2019, our shareholders approved the 2019 Plan authorizing an additional 6.0 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with the legacy stock incentive plans, there are 2.2 million shares available for grant as of March 31, 2019.

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 three months ended March 31, 2019 and 2018, no common shares were purchased under the program. As of March 31, 2019, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

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Line of Credit

3 Months Ended

Mar. 31, 2019

Debt Disclosure [Abstract]

Line of Credit

Line of Credit

We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $10.0 million is available for letters of credit. The credit agreement matures on December 31, 2021 and has an accordion feature which allows for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of additional bank commitments.

At March 31, 2019 and December 31, 2018, there were no borrowings under the line. Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit. As of March 31, 2019, we had letters of credit outstanding of approximately $3.1 million under the facility and available borrowing of $46.9 million, excluding amounts available under the accordion feature. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.  

We are required to comply with a maximum funded debt to EBITDA ratio of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At March 31, 2019, our funded debt to EBITDA ratio was 0.001 to 1.00.

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Leases

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Leases

Leases

Lease Obligations

We determine if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, we use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease components for all asset classes.

Our leases have remaining terms of less than 1 to 4 years, some of which include one or more options to renew for up to 2 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.We sublease certain real estate to third parties. Finance leases as of March 31, 2019 were immaterial.

Leases (in thousands)	Classification	March 31, 2019
Assets
Operating lease assets	Other assets	$	11,659
Liabilities
Current
Operating	Other current liabilities	$	3,877
Noncurrent
Operating	Other long-term liabilities	8,897
Total lease liabilities		$	12,774

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended March 31, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,017
Sublease income	Other income	(42		)
Net lease expense		$	975

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Three Months Ended March 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	961
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	84
Weighted average remaining lease term
Operating leases	3.2 years
Weighted average discount rate
Operating leases	3.6		%

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	3,419	$	(246	)	$	3,173
2020	4,203		(82		)	4,121
2021	3,325		—			3,325
2022	2,449		—			2,449
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	14,569		(328		)	14,241
Less: Amount representing interest						(1,467		)
Present value of lease payments						$	12,774

As of March 31, 2019, we do not have any leases that have not yet commenced other than the land lease purchase agreement described in Note 12.

Disclosures related to periods prior to adoption of Topic 842

Rent expense under all operating leases, including both cancelable and non-cancelable leases, was $4.2 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

Leases

Leases

Lease Obligations

We determine if an arrangement is a lease at inception. Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. Additionally, we use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration to our line of credit as well as publicly available data for instruments with similar characteristics when calculating our incremental borrowing rates. The ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease components for all asset classes.

Our leases have remaining terms of less than 1 to 4 years, some of which include one or more options to renew for up to 2 years, and some of which include options to terminate the leases within 1 year. The exercise of lease renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.We sublease certain real estate to third parties. Finance leases as of March 31, 2019 were immaterial.

Leases (in thousands)	Classification	March 31, 2019
Assets
Operating lease assets	Other assets	$	11,659
Liabilities
Current
Operating	Other current liabilities	$	3,877
Noncurrent
Operating	Other long-term liabilities	8,897
Total lease liabilities		$	12,774

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended March 31, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,017
Sublease income	Other income	(42		)
Net lease expense		$	975

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Three Months Ended March 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	961
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	84
Weighted average remaining lease term
Operating leases	3.2 years
Weighted average discount rate
Operating leases	3.6		%

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	3,419	$	(246	)	$	3,173
2020	4,203		(82		)	4,121
2021	3,325		—			3,325
2022	2,449		—			2,449
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	14,569		(328		)	14,241
Less: Amount representing interest						(1,467		)
Present value of lease payments						$	12,774

As of March 31, 2019, we do not have any leases that have not yet commenced other than the land lease purchase agreement described in Note 12.

Disclosures related to periods prior to adoption of Topic 842

Rent expense under all operating leases, including both cancelable and non-cancelable leases, was $4.2 million and $2.9 million for the years ended December 31, 2018 and 2017, respectively.

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

Commitments and Contingencies

Land Lease Purchase Agreement

On December 13, 2018, we entered into a Purchase and Sale Agreement ("PSA") to purchase a leasehold interest to a parcel of land located in Maricopa County, Arizona for a period of 84 years, on which we intend to construct our new headquarters. The purchase price of the land lease was $13.1 million. It is also contemplated that we will prepay the rent under the lease in the amount of $10.9 million. The PSA includes a due diligence period, during which we may terminate and forfeit our initial deposit of $0.2 million. On March 4, 2019, we entered into an amendment to the PSA which extended the due diligence period to May 3, 2019. On May 3, 2019, we entered into a second amendment to the PSA which extended the due diligence period to June 28, 2019. The second amendment also revised certain stated approval dates and removed the requirement for an additional deposit originally due at the end of the due diligence period.

Product Litigation

We are currently named as a defendant in seven lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CEW was used by law enforcement officers in connection with arrests. While the facts vary from case to case, these product liability claims typically allege defective product design, manufacturing, and/or failure to warn. They seek compensatory and sometimes punitive damages, often in unspecified amounts.

We continue to aggressively defend all product litigation. As a general rule, it is our policy not to settle suspect injury or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to us. Due to the confidential nature of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, we do not identify or comment on specific settlements by case or amount. Based on current information, we do not believe that the outcome of any such legal proceeding will have a material effect on our financial position, results of operations, or cash flows. We are self-insured for the first $5.0 million of any product claim made after 2014. No judgment or settlement has ever exceeded this amount in any products case. We continue to maintain product liability insurance coverage, including an insurance policy fronting arrangement, above our self-insured retention with various limits depending on the policy period.

Other Litigation

We are a defendant in a litigation matter filed by Digital Ally Inc. (“Digital”) in the District of Kansas alleging patent infringement regarding our Axon Signal technology. Digital seeks a judgment of infringement, monetary damages, a permanent injunction, punitive damages and attorneys’ fees and costs. Both fact and expert discovery are complete. The parties filed motions for summary judgment on January 31, 2019 and briefing is now complete. Rulings are not expected before the fourth quarter of 2019. No trial date has been set but, if necessary, is not expected to occur before the first quarter of 2020.

We are vigorously defending this litigation. The case has been substantially narrowed based on (1) the district court’s dismissal of all of Digital’s antitrust claims in January 2017, which ruling was affirmed by the Federal Circuit in May 2018 and the U.S. Supreme Court denied review; (2) the district court’s dismissal of Digital’s ‘292 patent from the litigation with prejudice in March 2018, and Digital’s execution of a covenant not to sue Axon on that patent on existing Axon products; and (3) Digital’s dismissal of certain inconsistent claims in the ‘452 patent, leaving only one independent claim for resolution by the court. We believe the ‘452 patent is both invalid and not infringed, and we do not believe it is probable that we will incur a material loss.

Although we have not yet been served, we are aware that a consumer class action lawsuit previously filed and dismissed in California in 2018 has been refiled in Nevada. The case alleges the TASER Pulse, X2 and X26P CEWs have a faulty safety switch based on Douglas Richey’s Pulse allegedly discharging inside its neoprene case in a jacket pocket without injury. Any such discharge was likely due to static electricity, as disclosed in our consumer warnings. We will vigorously defend this claim and the propriety of any class certification.

U.S. Federal Trade Commission Investigation

In June 2018 we received a letter from the U.S. Federal Trade Commission (“FTC”) with respect to its non-public investigation into our acquisition of VIEVU, LLC in May 2018.  The FTC issued a subpoena for certain information and documentation relating to the acquisition on March 21, 2019. We are cooperating with the investigation.

General

From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters progress over time.

Based on our assessment of outstanding litigation and claims as of March 31, 2019, we have determined that it is not reasonably possible that these lawsuits will individually, or in the aggregate, materially affect our results of operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will not have a material adverse effect on our operating results, financial condition or cash flows.

Off-Balance Sheet Arrangements

Under certain circumstances, we use letters of credit and surety bonds to guarantee our performance under various contracts, principally in connection with the installation and integration of Axon cameras and related technologies. Certain of our letters of credit and surety bonds have stated expiration dates with others being released as the contractual performance terms are completed. At March 31, 2019, we had outstanding letters of credit of $3.1 million that are expected to expire in May 2019 and September 2021. Additionally, we had $24.6 million of outstanding surety bonds at March 31, 2019, with $0.4 million expiring in 2019, $0.7 million expiring in 2020, $2.3 million expiring in 2021, $3.2 million expiring in 2022, $7.5 million expiring in 2023 and the remaining $10.5 million expiring in 2024.

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Related Party Transactions

3 Months Ended

Mar. 31, 2019

Related Party Transactions [Abstract]

Related Party Transactions

Related Party Transactions

We subscribe to various cloud-based applications from Salesforce. Bret Taylor, a member of our Board of Directors, serves as President and Chief Product Officer of Salesforce. We incur costs at different times throughout the year, typically in advance of services being provided, and subsequently amortize these costs ratably to expense as services are provided over the contractual term. The cost to subscribe to various cloud-based hosting arrangements from Salesforce and Quip was $0.5 million and $0.4 million for the three months ended March 31, 2019 and 2018, respectively. As of March 31, 2019, $0.1 million was due to Salesforce for such arrangements. Amounts due to Salesforce as of December 31, 2018 were negligible.

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Employee Benefit Plans

3 Months Ended

Mar. 31, 2019

Retirement Benefits [Abstract]

Employee Benefit Plans

Employee Benefit Plans

We have a defined contribution 401(k) plan for eligible employees, which is qualified under Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred contributions of up to the maximum amount allowed by law of their eligible compensation.

We also have a non-qualified deferred compensation plan for certain executives, key employees and non-employee directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation, including stock-based compensation, received from us. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows for matching and discretionary employer contributions. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan are made upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are allocated fully to plan participants and we do not guarantee a rate of return on deferred balances. Assets related to this plan consist of corporate-owned life insurance contracts and are included in other assets in the condensed consolidated balance sheets. Participants have no rights or claims with respect to any plan assets and any such assets are subject to the claims of our general creditors.

Contributions to the plans are made by both the employee and us. Our contributions to the 401(k) plan are based on the level of employee contributions and are immediately vested. Our matching contributions to the 401(k) and non-qualified deferred compensation plan for the three months ended March 31, 2019 and 2018, were $1.4 million and $0.8 million, respectively. Future matching contributions to the plans are at our sole discretion.

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Segment Data

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Segment Data

Segment Data

Our operations are comprised of two reportable segments: the manufacture and sale of CEWs, batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the software and sensors business, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Our Chief Executive Officer, who is the CODM, is not provided asset information or sales, general, and administrative expense by segment.

Information relative to our reportable segments was as follows (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
Net sales from products	$	65,301	$	22,788	$	88,089	$	63,524	$	17,450	$	80,974
Net sales from services	90		27,631		27,721		—		20,241		20,241
Net sales	65,391		50,419		115,810		63,524		37,691		101,215
Cost of product sales	23,278		16,322		39,600		20,543		11,891		32,434
Cost of service sales	—		7,293		7,293		—		4,320		4,320
Cost of sales	23,278		23,615		46,893		20,543		16,211		36,754
Gross margin	42,113		26,804		68,917		42,981		21,480		64,461
Research and development	3,712		19,642		23,354		2,960		12,159		15,119

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Organization and Summary of Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three months ended March 31, 2019 and 2018 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,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

• fair values of identified tangible and intangible assets acquired and liabilities assumed in business combinations.

Actual results could differ materially from those estimates.

Use of Estimates

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited condensed consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2018, as filed on Form 10-K, with the exception of our adoption of certain accounting pronouncements which we describe below. 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, 2018. The results of operations for the three months ended March 31, 2019 and 2018 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,

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

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

• stock-based compensation,

• recognition and measurement of lease liabilities,

• recognition and measurement of contingencies and accrued litigation expense, and

• fair values of identified tangible and intangible assets acquired and liabilities assumed in business combinations.

Actual results could differ materially from those estimates.

Segment Information

Segment Information

Our operations are comprised of two reportable segments: the manufacture and sale of conducted electrical weapons ("CEWs"), batteries, accessories, extended warranties and other products and services (the “TASER” segment); and the development, manufacture, and sale of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products (collectively, the “Software and Sensors” segment). Revenue from our “products” in the Software and Sensors segment are generally from sales of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as "Sensors and Other revenue." Revenue from our “services” in the Software and Sensors segment comprise sales related to the Axon Cloud, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as "Axon Cloud revenue." Within the Software and Sensors segment, we include only revenues and costs attributable to that segment, which costs include: costs of sales for both products and services, direct labor, product management and research and development ("R&D") for products included, or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.

Our Chief Executive Officer, who is the Chief Operating Decision Maker (the “CODM”), is not provided asset information or sales, general, and administrative expense by segment. Reportable segments are determined based on discrete financial information reviewed by the CODM. We organize and review operations based on products and services. We perform an analysis of our reportable segments on at least an annual basis. Additional information related to our business segments is summarized in Note 15.

Geographic Information and Major Customers

Geographic Information and Major Customers

For the three months ended March 31, 2019 and 2018, 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.

Income per Common Share

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. Potentially dilutive securities include outstanding stock options and unvested restricted stock units ("RSUs"). The dilutive effect of potentially dilutive securities is reflected in diluted earnings per share by application of the treasury stock method. Under the treasury stock method, an increase in the fair market value of our common stock can result in a greater dilutive effect from potentially dilutive securities.

Standard Warranties

Standard Warranties

We warranty our CEWs, 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 on a quarterly basis 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. 

Fair Value of Financial Instruments

Fair Value Measurements and Financial Instruments

The fair value framework 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 March 31, 2019 and December 31, 2018 were comprised of money market funds and, at March 31, 2019, also included corporate bonds. 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 March 31, 2019 and December 31, 2018 was $3.9 million and $3.6 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.

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

Valuation of Goodwill, Intangibles and Long-lived 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 Issued Accounting Guidance

Recently Adopted Accounting Pronouncements

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases (Topic 842), which is intended to increase transparency and comparability among organizations by requiring the recognition of right-of-use (“ROU”) assets and lease liabilities on the balance sheet. In July 2018, the FASB issued additional guidance which provided an additional transition method for adopting the updated guidance.  Most prominent among the changes in the standard is the requirement for lessees to recognize ROU assets and lease liabilities for those leases that were classified as operating leases under previous U.S. GAAP. On January 1, 2019, we adopted Topic 842 by applying the non-comparative modified retrospective method of adoption. Under this method, financial information related to periods prior to adoption will be as originally reported under the then-current standard (Topic 840, Leases).

Results for reporting periods beginning on or after January 1, 2019 are presented under Topic 842, while prior period amounts are not adjusted, and continue to be reported in accordance with our historic accounting under Topic 840. We elected to apply the package of practical expedients to not reassess whether a contract is or contains a lease, lease classification, or initial lease costs for all leases that commenced before the adoption date.

The adoption had a material impact to our condensed consolidated balance sheet. The most significant impact was the recognition of ROU assets and lease liabilities for operating leases, while our accounting for finance leases remained substantially unchanged. There was no other impact from the adoption. The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

See Note 11 for further disclosures related to Topic 842.

In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718), expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. We adopted this standard on January 1, 2019 and the adoption had no impact on our condensed consolidated financial statements.

Effective the first quarter of 2020:

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the estimate of expected credit loss. This ASU will also require enhanced disclosures relating to significant estimates and judgments used in estimating credit losses, as well as credit quality. We are currently in the process of evaluating the impact of adoption of ASU 2016-13 on our condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted, and an entity is also permitted to early adopt any removed or modified disclosures and delay adoption of the additional disclosures until their effective date. As ASU 2018-13 only revises disclosure requirements, it is not expected to have a material impact on our condensed consolidated financial statements.

Reclassification of Prior Year Presentation

Reclassification of Prior Year Presentation

Certain prior year amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on the reported results of operations.

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Organization and Summary of Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2019

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Weighted Average Number of Shares Outstanding and Income Per Share

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,
	2019		2018
Numerator for basic and diluted earnings per share:
Net income	$	6,419	$	12,926
Denominator:
Weighted average shares outstanding	58,914		53,119
Dilutive effect of stock-based awards	837		1,413
Diluted weighted average shares outstanding	59,751		54,532
Anti-dilutive stock-based awards excluded	12,125		404
Net income per common share:
Basic	$	0.11	$	0.24
Diluted	$	0.11	$	0.24

Summary of Changes in Estimated Product Warranty Liabilities

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

	Three Months Ended March 31,
	2019			2018
Balance, beginning of period	$	898		$	644
Utilization of accrual	(123		)	(93		)
Warranty expense	252			8
Balance, end of period	$	1,027		$	559

Adjustments to Opening Balance Sheet

The adjustments to the opening balance sheet were as follows (in thousands):

	December 31, 2018		Impact of Adoption of Topic 842 on Opening Balance Sheet			January 1, 2019
	(As reported)					(As adjusted)
Consolidated Balance Sheet Data:
Other assets	$	22,999	$	12,483		$	35,482
Total assets	719,540		12,483			732,023
						—
Accrued liabilities	41,092		(1,138		)	39,954
Other current liabilities	37		3,588			3,625
Total current liabilities	166,011		2,450			168,461
Other long-term liabilities	5,704		10,033			15,737
Total liabilities	252,216		12,483			264,699
Total liabilities and stockholders' equity	719,540		12,483			732,023

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Revenues (Tables)

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

Summary of Revenue by Product and Service Offering and Geography

The following table presents our revenues by primary product and service offering (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
TASER 7	$	9,954	$	—	$	9,954	$	—	$	—	$	—
TASER X26P	15,872		—		15,872		16,474		—		16,474
TASER X2	13,085		—		13,085		23,932		—		23,932
TASER Pulse and Bolt	670		—		670		1,346		—		1,346
Single cartridges	19,160		—		19,160		16,114		—		16,114
Axon Body	—		6,445		6,445		—		5,558		5,558
Axon Flex	—		1,224		1,224		—		1,669		1,669
Axon Fleet	—		3,516		3,516		—		2,116		2,116
Axon Dock	—		3,312		3,312		—		3,035		3,035
Axon Evidence and cloud services	36		27,618		27,654		—		20,241		20,241
TASER Cam	—		903		903		—		1,360		1,360
Extended warranties	4,316		4,930		9,246		3,706		2,490		6,196
Other	2,298		2,471		4,769		1,952		1,222		3,174
Total	$	65,391	$	50,419	$	115,810	$	63,524	$	37,691	$	101,215

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

	Three Months Ended March 31,
	2019				2018
United States	$	94,333	81	%	$	77,950	77	%
Other countries	21,477		19		23,265		23
Total	$	115,810	100	%	$	101,215	100	%

Contract with Customer, Assets and Liabilities

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, 2019 (in thousands):

	March 31, 2019
Contract assets, net	$	18,257
Contract liabilities (deferred revenue)	184,847
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	31,222

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

	March 31, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	11,821	$	15,770	$	27,591	$	12,797	$	16,847	$	29,644
Software and Sensors	8,779		6,060		14,839		8,273		6,516		14,789
	20,600		21,830		42,430		21,070		23,363		44,433
Hardware:
TASER	3,845		16,091		19,936		9,355		15,598		24,953
Software and Sensors	31,104		24,023		55,127		20,878		24,685		45,563
	34,949		40,114		75,063		30,233		40,283		70,516
Services:
TASER	75		438		513		—		—		—
Software and Sensors	54,439		12,402		66,841		55,713		10,771		66,484
	54,514		12,840		67,354		55,713		10,771		66,484
Total	$	110,063	$	74,784	$	184,847	$	107,016	$	74,417	$	181,433

	March 31, 2019						December 31, 2018
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	15,741	$	32,299	$	48,040	$	22,152	$	32,445	$	54,597
Software and Sensors	94,322		42,485		136,807		84,864		41,972		126,836
Total	$	110,063	$	74,784	$	184,847	$	107,016	$	74,417	$	181,433

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Cash, Cash Equivalents and Investments (Tables)

3 Months Ended

Mar. 31, 2019

Cash and Cash Equivalents [Abstract]

Summary of Cash, Cash Equivalents and Held-to-Maturity Investments by Type

The following tables summarize our cash, cash equivalents, and held-to-maturity investments at March 31, 2019 and December 31, 2018 (in thousands):

	As of March 31, 2019
	Amortized Cost		Gross Unrealized Losses			Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	123,098	$	—		$	123,098	$	123,098	$	—
Level 1:
Money market funds	83,449		—			83,449		83,449		—
Level 2:
Corporate bonds	122,407		(56		)	122,351		17,095		105,312
Total	$	328,954	$	(56	)	$	328,898	$	223,642	$	105,312

	As of December 31, 2018
	Amortized Cost		Gross Unrealized Losses		Fair Value		Cash and Cash Equivalents		Short-Term Investments
Cash	$	144,095	$	—	$	144,095	$	144,095	$	—
Level 1:
Money market funds	205,367		—		205,367		205,367		—
Total	$	349,462	$	—	$	349,462	$	349,462	$	—

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Inventory (Tables)

3 Months Ended

Mar. 31, 2019

Inventory Disclosure [Abstract]

Inventory

Inventory consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Raw materials	$	20,574	$	19,670
Finished goods	17,013		14,093
Total inventory	$	37,587	$	33,763

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Goodwill and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Goodwill

The changes in the carrying amount of goodwill for the three months ended March 31, 2019 were as follows (in thousands):

	TASER		Software and Sensors		Total
Balance, beginning of period	$	1,338	$	23,643	$	24,981
Foreign currency translation adjustment	18		18		36
Balance, end of period	$	1,356	$	23,661	$	25,017

Indefinite-Lived Intangible Assets Other than Goodwill

Intangible assets (other than goodwill) consisted of the following (in thousands):

		March 31, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(808	)	$	2,353	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	2,982		(1,158		)	1,824		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	922		(490		)	432		1,053		(599		)	454
Customer relationships	4-8 years	3,717		(1,027		)	2,690		3,701		(880		)	2,821
Non-compete agreements	3-4 years	452		(375		)	77		540		(439		)	101
Developed technology	3-7 years	10,660		(4,889		)	5,771		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	2,031		(2,031		)	—		1,928		(1,813		)	115
Total amortizable		23,925		(10,778		)	13,147		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		1,020					1,020		958					958
Total not amortizable		1,920					1,920		1,858					1,858
Total intangible assets		$	25,845	$	(10,778	)	$	15,067	$	28,585	$	(12,650	)	$	15,935

Finite-Lived Intangible Assets Other than Goodwill

Intangible assets (other than goodwill) consisted of the following (in thousands):

		March 31, 2019							December 31, 2018
	Useful Life	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount
Amortizable (definite-lived) intangible assets:
Domain names	5-10 years	$	3,161	$	(808	)	$	2,353	$	3,161	$	(732	)	$	2,429
Issued patents	4-15 years	2,982		(1,158		)	1,824		2,940		(1,106		)	1,834
Issued trademarks	3-11 years	922		(490		)	432		1,053		(599		)	454
Customer relationships	4-8 years	3,717		(1,027		)	2,690		3,701		(880		)	2,821
Non-compete agreements	3-4 years	452		(375		)	77		540		(439		)	101
Developed technology	3-7 years	10,660		(4,889		)	5,771		13,404		(7,081		)	6,323
Re-acquired distribution rights	2 years	2,031		(2,031		)	—		1,928		(1,813		)	115
Total amortizable		23,925		(10,778		)	13,147		26,727		(12,650		)	14,077
Not amortizable (indefinite-lived) intangible assets:
TASER trademark		900					900		900					900
Patents and trademarks pending		1,020					1,020		958					958
Total not amortizable		1,920					1,920		1,858					1,858
Total intangible assets		$	25,845	$	(10,778	)	$	15,067	$	28,585	$	(12,650	)	$	15,935

Estimated Amortization Expense of Intangible Assets

Estimated amortization for intangible assets with definite lives for the remaining nine months of 2019, the next five years ended December 31, and thereafter, is as follows (in thousands):

2019 Remaining	$	2,501
2020	3,293
2021	2,846
2022	1,244
2023	946
2024	862
Thereafter	1,455
Total	$	13,147

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Other Assets (Tables)

3 Months Ended

Mar. 31, 2019

Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]

Schedule of Other Assets

Other assets consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Cash surrender value of corporate-owned life insurance policies	$	3,919	$	3,596
Deferred commissions (1)	16,141		15,530
Restricted cash	659		661
Operating lease assets	11,659		—
Prepaid expenses, deposits and other	3,378		3,212
Total other long-term assets	$	35,756	$	22,999

⁽¹⁾ Represents assets for the incremental costs of obtaining contracts with customers, which consist primarily of sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contracts and amortized consistent with the recognition timing of the revenue for the underlying performance obligations.

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Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2019

Payables and Accruals [Abstract]

Accrued Liabilities

Accrued liabilities consisted of the following at March 31, 2019 and December 31, 2018 (in thousands):

	March 31, 2019		December 31, 2018
Accrued salaries, benefits and bonus	$	13,993	$	19,063
Accrued professional, consulting and lobbying fees	4,476		4,894
Accrued warranty expense	1,027		898
Accrued income and other taxes	4,392		4,167
Other accrued liabilities	12,460		12,070
Accrued liabilities	$	36,348	$	41,092

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Stockholders' Equity (Tables)

3 Months Ended

Mar. 31, 2019

Equity [Abstract]

Equity Compensation Goals

Eight Separate Revenue Goals (1) (in thousands)	Eight Separate Adjusted EBITDA (CEO Performance Award) Goals (in thousands)
Goal #1, $710,058	Goal #9, $125,000
Goal #2, $860,058	Goal #10, $155,000
Goal #3, $1,010,058	Goal #11, $175,000
Goal #4, $1,210,058	Goal #12, $190,000
Goal #5, $1,410,058	Goal #13, $200,000
Goal #6, $1,610,058	Goal #14, $210,000
Goal #7, $1,810,058	Goal #15, $220,000
Goal #8, $2,010,058	Goal #16, $230,000

⁽¹⁾ In connection with the business acquisition that was completed during the three months ended June 30, 2018, the revenue goals have been adjusted for the acquiree's Target Revenue, as defined in the CEO Performance Award agreement.

Summary of Restricted Stock Unit Activity

The following table summarizes RSU activity for the three months ended March 31, 2019 (number of units and aggregate intrinsic value in thousands):

	Number of Units		Weighted Average Grant-Date Fair Value		Aggregate Intrinsic Value
Units outstanding, beginning of year	1,655		$	28.34
Granted	5,667		34.32
Released	(290	)	20.91
Forfeited	(46	)	34.43
Units outstanding, end of period	6,986		33.47		$	380,123

Summary of the Stock Option Activity

The following table summarizes stock option activity for the three months ended March 31, 2019 (number of units and aggregate intrinsic value in thousands):

	Number of Options		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (years)	Aggregate Intrinsic Value
Options outstanding, beginning of year	6,458		$	28.24
Granted	—		—
Exercised	(24	)	4.20
Expired / terminated	—		—
Options outstanding, end of period	6,434		28.33		8.83	$	167,827
Options exercisable, end of period	68		4.54		1.69	3,397

Stock-Based Compensation

The following table summarizes the composition of stock-based compensation for the three months ended March 31, 2019 and 2018 (in thousands):

	Three Months Ended March 31,
	2019		2018
Cost of products sold and services delivered	$	226	$	141
Sales, general and administrative expenses	4,681		2,304
Research and development expenses	2,998		1,648
Total stock-based compensation	$	7,905	$	4,093

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Leases (Tables)

3 Months Ended

Mar. 31, 2019

Leases [Abstract]

Balance Sheet Disclosures

Leases (in thousands)	Classification	March 31, 2019
Assets
Operating lease assets	Other assets	$	11,659
Liabilities
Current
Operating	Other current liabilities	$	3,877
Noncurrent
Operating	Other long-term liabilities	8,897
Total lease liabilities		$	12,774

Components of Lease Expense

The components of lease expense were as follows (in thousands):

	Classification	Three Months Ended March 31, 2019
Operating lease expense (1)	Sales, general and administrative expenses (2)	$	1,017
Sublease income	Other income	(42		)
Net lease expense		$	975

⁽¹⁾ Includes short-term leases, which are immaterial.

⁽²⁾ An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.

Other information related to leases was as follows (in thousands, except lease term and discount rate):

	Three Months Ended March 31, 2019
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	961
Right-of-use assets obtained in exchange for lease liabilities
Operating leases	84
Weighted average remaining lease term
Operating leases	3.2 years
Weighted average discount rate
Operating leases	3.6		%

Schedule of Future Minimum Rental Payments For Operating Leases

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	3,419	$	(246	)	$	3,173
2020	4,203		(82		)	4,121
2021	3,325		—			3,325
2022	2,449		—			2,449
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	14,569		(328		)	14,241
Less: Amount representing interest						(1,467		)
Present value of lease payments						$	12,774

Lessor, Operating Lease, Payments to be Received, Maturity

Future minimum lease payments under non-cancellable leases as of March 31, 2019 were as follows (in thousands):

	Operating		Sublease income			Net
2019 Remaining	$	3,419	$	(246	)	$	3,173
2020	4,203		(82		)	4,121
2021	3,325		—			3,325
2022	2,449		—			2,449
2023	1,173		—			1,173
2024	—		—			—
Thereafter	—		—			—
Total minimum lease payments	14,569		(328		)	14,241
Less: Amount representing interest						(1,467		)
Present value of lease payments						$	12,774

Schedule of Future Minimum Lease Payments for Capital Leases

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

Schedule of Future Minimum Rental Payments for Operating Leases

Future minimum lease payments under non-cancelable leases at December 31, 2018, were as follows (in thousands):

	Operating		Capital
2019	$	3,670	$	40
2020	3,572		36
2021	2,961		—
2022	2,001		—
2023	573		—
Thereafter	—		—
Total minimum lease payments	$	12,777	76
Less: Amount representing interest			(6		)
Capital lease obligation			$	70

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Segment Data (Tables)

3 Months Ended

Mar. 31, 2019

Segment Reporting [Abstract]

Summary of Operational Information Relative to the Company's Reportable Segments

Information relative to our reportable segments was as follows (in thousands):

	Three Months Ended March 31, 2019						Three Months Ended March 31, 2018
	TASER		Software and Sensors		Total		TASER		Software and Sensors		Total
Net sales from products	$	65,301	$	22,788	$	88,089	$	63,524	$	17,450	$	80,974
Net sales from services	90		27,631		27,721		—		20,241		20,241
Net sales	65,391		50,419		115,810		63,524		37,691		101,215
Cost of product sales	23,278		16,322		39,600		20,543		11,891		32,434
Cost of service sales	—		7,293		7,293		—		4,320		4,320
Cost of sales	23,278		23,615		46,893		20,543		16,211		36,754
Gross margin	42,113		26,804		68,917		42,981		21,480		64,461
Research and development	3,712		19,642		23,354		2,960		12,159		15,119

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Organization and Summary of Significant Accounting Policies - Additional Information (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) segment	Dec. 31, 2018 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of reportable segments | segment	2
Warranty period	1 year
Corporate owned life insurance policies fair value	$ 3,919	$ 3,596
Restricted cash balance	659	661
Prepaid Expenses and Other Current Assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Restricted cash balance	900	900
Other Current Assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Restricted cash balance	$ 700	$ 700

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Organization and Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding and Income Per Share (Detail) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Numerator for basic and diluted earnings per share:
Net income	$ 6,419	$ 12,926
Denominator:
Weighted average shares outstanding—basic (in shares)	58,914	53,119
Dilutive effect of stock-based awards (in shares)	837	1,413
Diluted weighted average shares outstanding (in shares)	59,751	54,532
Anti-dilutive stock-based awards excluded (in shares)	12,125	404
Net income per common share:
Basic (in dollars per share)	$ 0.11	$ 0.24
Diluted (in dollars per share)	$ 0.11	$ 0.24

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Organization and Summary of Significant Accounting Policies - Summary of Changes in Estimated Product Warranty Liabilities (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Movement in Standard and Extended Product Warranty Accrual, Increase (Decrease) [Roll Forward]
Balance, beginning of period	$ 898	$ 644
Utilization of accrual	(123)	(93)
Warranty expense	252	8
Balance, end of period	$ 1,027	$ 559

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Organization and Summary of Significant Accounting Policies Organization and Summary of Significant Accounting Policies - Adjustments to Opening Balance Sheet (Detail) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Assets
Other assets	$ 35,756	$ 35,482	$ 22,999
Total assets	739,195	732,023	719,540
Liabilities and Equity
Accrued liabilities	36,348	39,954	41,092
Other current liabilities	3,914	3,625	37
Total current liabilities	163,794	168,461	166,011
Other long-term liabilities	13,247	15,737	5,704
Total liabilities	258,656	264,699	252,216
Total liabilities and stockholders’ equity	$ 739,195	732,023	$ 719,540
Accounting Standards Update 2016-02
Assets
Other assets		12,483
Total assets		12,483
Liabilities and Equity
Accrued liabilities		(1,138)
Other current liabilities		3,588
Total current liabilities		2,450
Other long-term liabilities		10,033
Total liabilities		12,483
Total liabilities and stockholders’ equity		$ 12,483

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Revenues - Revenues By Products And Service Offerings (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	$ 115,810	$ 101,215
TASER 7
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	9,954	0
TASER X26P
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	15,872	16,474
TASER X2
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	13,085	23,932
TASER Pulse and Bolt
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	670	1,346
Single cartridges
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	19,160	16,114
Axon Body
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	6,445	5,558
Axon Flex
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,224	1,669
Axon Fleet
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	3,516	2,116
Axon Dock
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	3,312	3,035
Axon Evidence and cloud services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	27,654	20,241
TASER Cam
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	903	1,360
Extended warranties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	9,246	6,196
Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,769	3,174
TASER
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	65,391	63,524
TASER | TASER 7
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	9,954	0
TASER | TASER X26P
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	15,872	16,474
TASER | TASER X2
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	13,085	23,932
TASER | TASER Pulse and Bolt
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	670	1,346
TASER | Single cartridges
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	19,160	16,114
TASER | Axon Body
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
TASER | Axon Flex
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
TASER | Axon Fleet
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
TASER | Axon Dock
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
TASER | Axon Evidence and cloud services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	36	0
TASER | TASER Cam
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
TASER | Extended warranties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,316	3,706
TASER | Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	2,298	1,952
Software and Sensors
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	50,419	37,691
Software and Sensors | TASER 7
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
Software and Sensors | TASER X26P
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
Software and Sensors | TASER X2
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
Software and Sensors | TASER Pulse and Bolt
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
Software and Sensors | Single cartridges
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	0	0
Software and Sensors | Axon Body
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	6,445	5,558
Software and Sensors | Axon Flex
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	1,224	1,669
Software and Sensors | Axon Fleet
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	3,516	2,116
Software and Sensors | Axon Dock
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	3,312	3,035
Software and Sensors | Axon Evidence and cloud services
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	27,618	20,241
Software and Sensors | TASER Cam
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	903	1,360
Software and Sensors | Extended warranties
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	4,930	2,490
Software and Sensors | Other
Revenue, Initial Application Period Cumulative Effect Transition [Line Items]
Revenue from contract with customers	$ 2,471	$ 1,222

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Revenues - Revenues By Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 115,810	$ 101,215
United States
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	94,333	77,950
Other countries
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 21,477	$ 23,265
Revenue from Contract with Customer | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Concentration risk, percentage	100.00%	100.00%
Revenue from Contract with Customer | Geographic Concentration Risk | United States
Disaggregation of Revenue [Line Items]
Concentration risk, percentage	81.00%	77.00%
Revenue from Contract with Customer | Geographic Concentration Risk | Other countries
Disaggregation of Revenue [Line Items]
Concentration risk, percentage	19.00%	23.00%

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Revenues - Contract Assets, Contract Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Revenue from Contract with Customer [Abstract]
Contract asset	$ 18,257
Contract liabilities (deferred revenue)	184,847	$ 181,433
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$ 31,222

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Revenues - Schedule Of Contract Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Disaggregation of Revenue [Line Items]
Current	$ 110,063	$ 107,016
Long-Term	74,784	74,417
Total	184,847	181,433
TASER
Disaggregation of Revenue [Line Items]
Current	15,741	22,152
Long-Term	32,299	32,445
Total	48,040	54,597
Software and Sensors
Disaggregation of Revenue [Line Items]
Current	94,322	84,864
Long-Term	42,485	41,972
Total	136,807	126,836
Warranty
Disaggregation of Revenue [Line Items]
Current	20,600	21,070
Long-Term	21,830	23,363
Total	42,430	44,433
Warranty | TASER
Disaggregation of Revenue [Line Items]
Current	11,821	12,797
Long-Term	15,770	16,847
Total	27,591	29,644
Warranty | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	8,779	8,273
Long-Term	6,060	6,516
Total	14,839	14,789
Hardware
Disaggregation of Revenue [Line Items]
Current	34,949	30,233
Long-Term	40,114	40,283
Total	75,063	70,516
Hardware | TASER
Disaggregation of Revenue [Line Items]
Current	3,845	9,355
Long-Term	16,091	15,598
Total	19,936	24,953
Hardware | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	31,104	20,878
Long-Term	24,023	24,685
Total	55,127	45,563
Software and Sensors
Disaggregation of Revenue [Line Items]
Current	54,514	55,713
Long-Term	12,840	10,771
Total	67,354	66,484
Software and Sensors | TASER
Disaggregation of Revenue [Line Items]
Current	75	0
Long-Term	438	0
Total	513	0
Software and Sensors | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	54,439	55,713
Long-Term	12,402	10,771
Total	$ 66,841	$ 66,484

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Revenues - Revenue Performance Obligations (Details) $ in Millions	Mar. 31, 2019 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2019-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, period	5 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2020-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, period	7 years
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: (nil)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation	$ 930
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: (nil) | Minimum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation to be recognized in the next twelve months, percent	15.00%
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: (nil) | Maximum
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation to be recognized in the next twelve months, percent	20.00%

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Cash, Cash Equivalents, and Investments - Summary of Cash, Cash Equivalents and Held-to-Maturity Investments by Type (Detail) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	$ 328,954	$ 349,462
Gross Unrealized Losses	(56)	0
Fair Value	328,898	349,462
Cash and Cash Equivalents	223,642	349,462
Short-term investments	105,312	0
Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	122,407
Gross Unrealized Losses	(56)
Fair Value	122,351
Cash and Cash Equivalents	17,095
Short-term investments	105,312
Cash
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	123,098	144,095
Gross Unrealized Losses	0	0
Fair Value	123,098	144,095
Cash and Cash Equivalents	123,098	144,095
Short-term investments	0	0
Money market funds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	83,449	205,367
Gross Unrealized Losses	0	0
Fair Value	83,449	205,367
Cash and Cash Equivalents	83,449	205,367
Short-term investments	$ 0	$ 0

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Inventory (Detail) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Inventory Disclosure [Abstract]
Inventory, finished goods, trial and evaluation, gross	$ 1,300	$ 1,400
Raw materials	20,574	19,670
Finished goods	17,013	14,093
Total inventory	$ 37,587	$ 33,763

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Goodwill and Intangible Assets - Schedule of Goodwill (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Goodwill [Roll Forward]
Balance, beginning of period	$ 24,981
Foreign currency translation adjustment	36
Balance, end of period	25,017
TASER Weapons
Goodwill [Roll Forward]
Balance, beginning of period	1,338
Foreign currency translation adjustment	18
Balance, end of period	1,356
Software and Sensors
Goodwill [Roll Forward]
Balance, beginning of period	23,643
Foreign currency translation adjustment	18
Balance, end of period	$ 23,661

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Goodwill and Intangible Assets - Intangible Assets Other than Goodwill (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	$ 1,920	$ 1,858
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	23,925	26,727
Accumulated Amortization	(10,778)	(12,650)
Total	13,147	14,077
Intangible assets, Gross Carrying Amount	25,845	28,585
Intangible assets, Net Carrying Amount	15,067	15,935
TASER trademark
Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	900	900
Patents and trademarks pending
Indefinite-lived Intangible Assets [Line Items]
Not amortized intangible assets, Carrying Amount	1,020	958
Domain names
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	3,161	3,161
Accumulated Amortization	(808)	(732)
Total	$ 2,353	2,429
Domain names | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	5 years
Domain names | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	10 years
Issued patents
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 2,982	2,940
Accumulated Amortization	(1,158)	(1,106)
Total	$ 1,824	1,834
Issued patents | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	4 years
Issued patents | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	15 years
Issued trademarks
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 922	1,053
Accumulated Amortization	(490)	(599)
Total	$ 432	454
Issued trademarks | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	3 years
Issued trademarks | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	11 years
Customer relationships
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 3,717	3,701
Accumulated Amortization	(1,027)	(880)
Total	$ 2,690	2,821
Customer relationships | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	4 years
Customer relationships | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	8 years
Non-compete agreements
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 452	540
Accumulated Amortization	(375)	(439)
Total	$ 77	101
Non-compete agreements | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	3 years
Non-compete agreements | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	4 years
Developed technology
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 10,660	13,404
Accumulated Amortization	(4,889)	(7,081)
Total	$ 5,771	6,323
Developed technology | Minimum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	3 years
Developed technology | Maximum
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	7 years
Re-acquired distribution rights
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible asset, useful life	2 years
Gross Carrying Amount	$ 2,031	1,928
Accumulated Amortization	(2,031)	(1,813)
Total	$ 0	$ 115

XML

Goodwill and Intangible Assets Goodwill and Intangible Assets - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
Amortization expense of intangible assets	$ 1.0	$ 1.4

XML

Goodwill and Intangible assets - Estimated Amortization Expense of Intangible Assets (Detail) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Goodwill and Intangible Assets Disclosure [Abstract]
2019 Remaining	$ 2,501
2020	3,293
2021	2,846
2022	1,244
2023	946
2024	862
Thereafter	1,455
Total	$ 13,147	$ 14,077

XML

Other Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
Deferred Costs, Capitalized, Prepaid, and Other Assets Disclosure [Abstract]
Cash surrender value of corporate-owned life insurance policies	$ 3,919		$ 3,596
Deferred commissions	16,141		15,530
Restricted cash	659		661
Operating lease assets	11,659
Prepaid expenses, deposits and other	3,378		3,212
Total other long-term assets	$ 35,756	$ 35,482	$ 22,999

XML

Accrued Liabilities (Detail) - USD ($) $ in Thousands	Mar. 31, 2019	Jan. 01, 2019	Dec. 31, 2018	Mar. 31, 2018	Dec. 31, 2017
Payables and Accruals [Abstract]
Accrued salaries, benefits and bonus	$ 13,993		$ 19,063
Accrued professional, consulting and lobbying fees	4,476		4,894
Accrued warranty expense	1,027		898	$ 559	$ 644
Accrued income and other taxes	4,392		4,167
Other accrued liabilities	12,460		12,070
Accrued liabilities	$ 36,348	$ 39,954	$ 41,092

XML

Income Taxes - Additional Information (Detail) $ in Millions	3 Months Ended
	Mar. 31, 2019 USD ($)
Tax Credit Carryforward [Line Items]
Deferred tax assets, net	$ 18.8
Unrecognized tax benefits	5.7
Research and development tax credit studies	$ 2.7
Overall effective tax rate, after discrete period adjustments (as a percentage)	(28.80%)
Effective tax rate, before discrete period adjustment (as a percentage)	21.10%
Write off of certain deferred tax assets	$ 0.0
Restricted Stock Units (RSUs)
Tax Credit Carryforward [Line Items]
Discrete tax benefit, stock-based compensation	2.7
State Tax
Tax Credit Carryforward [Line Items]
Unrecognized tax benefits recognized during period	5.7
Federal Income Tax
Tax Credit Carryforward [Line Items]
Unrecognized tax benefits recognized during period	$ 0.1

XML

Shareholders' Equity - CEO Performance Award - Additional Information (Details) $ in Thousands		3 Months Ended
	May 24, 2018 USD ($) tranche shares	Mar. 31, 2019 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
First tranche	$ 2,500,000
Tranche incremental increase	$ 1,000,000
Revenue goal number 1		$ 710,058
Revenue goal number 2		860,058
Revenue goal number 3		1,010,058
Revenue goal number 4		1,210,058
Revenue goal number 5		1,410,058
Revenue goal number 6		1,610,058
Revenue goal number 7		1,810,058
Revenue goal number 8		2,010,058
Adjusted EBITDA goal number 9		125,000
Adjusted EBITDA goal number 10		155,000
Adjusted EBITDA goal number 11		175,000
Adjusted EBITDA goal number 12		190,000
Adjusted EBITDA goal number 13		200,000
Adjusted EBITDA goal number 14		210,000
Adjusted EBITDA goal number 15		220,000
Adjusted EBITDA goal number 16		230,000
Total revenue		710,100
Adjusted EBITDA		125,000
Recorded share-based compensation expense		$ 4,700
Number of options expected to vest | shares		1,100,000
Weighted average period over which costs are recognized		7 years
Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of vesting tranches | tranche	12
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance shares authorized (in shares) | shares	6,365,856
Unrecognized share-based compensation cost related to unvested stock option awards, probable of achievement		$ 40,500
Unrecognized share-based compensation cost related to unvested stock option awards, not probable of achievement		$ 200,700

XML

Stockholders' Equity Stockholders' Equity - eXponential Stock Performance Plan (Details) $ in Millions		1 Months Ended	3 Months Ended
	May 24, 2018 USD ($) shares	Jan. 31, 2019 shares	Mar. 31, 2019 USD ($) tranche shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
First tranche	$ 2,500.0
Tranche incremental increase	$ 1,000.0
Recorded share-based compensation expense			$ 4.7
Number of options expected to vest | shares			1,100,000
Weighted average period over which costs are recognized			7 years
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance shares authorized (in shares) | shares	6,365,856
Unrecognized share-based compensation cost related to unvested stock option awards, probable of achievement			$ 40.5
Unrecognized share-based compensation cost related to unvested stock option awards, not probable of achievement			$ 200.7
2019 eXponential Stock Performance Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period over which costs are recognized			7 years
2019 eXponential Stock Performance Plan | eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance shares authorized (in shares) | shares		5,200,000
Number of vesting tranches | tranche			12
First tranche			$ 2,500.0
Tranche incremental increase			1,000.0
Recorded share-based compensation expense			$ 0.7
Number of options expected to vest | shares			900,000
Post-vest holding period			2 years 6 months
Expected term			9 years
Dividend yield (as a percentage)			0.00%
2019 eXponential Stock Performance Plan | Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized share-based compensation cost related to unvested stock option awards, probable of achievement			$ 36.8
Unrecognized share-based compensation cost related to unvested stock option awards, not probable of achievement			$ 137.0
2019 eXponential Stock Performance Plan | Minimum | eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Liquidity discount (as a percentage)			10.00%
Risk-free interest rate (as a percentage)			2.47%
Expected volatility (as a percentage)			44.96%
2019 eXponential Stock Performance Plan | Maximum | eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Liquidity discount (as a percentage)			16.80%
Risk-free interest rate (as a percentage)			2.62%
Expected volatility (as a percentage)			45.47%

XML

Stockholders' Equity - Summary of Restricted Stock Unit Activity (Detail) - Restricted Stock $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Non-Option Equity Instruments, Outstanding [Roll Forward]
Number of Units outstanding, beginning of year (in shares) | shares	1,655
Units released due to performance criteria threshold (in shares) | shares	(290)
Number of Units, Forfeited (in shares) | shares	(46)
Number of Units outstanding, end of period (in shares) | shares	6,986
Share-based Compensation Arrangement by Share-based Payment Award, Options, Nonvested, Weighted Average Grant Date Fair Value [Abstract]
Weighted Average Grant Date Fair Value, Units outstanding, beginning of year (in dollars per share)	$ 28.34
Weighted Average Grant Date Fair Value, Granted (in dollars per share)	34.32
Weighted Average Grant Date Fair Value, Released (in dollars per share)	20.91
Weighted Average Grant Date Fair Value, Forfeited (in dollars per share)	34.43
Weighted Average Grant Date Fair Value, Units outstanding, end of period (in dollars per share)	$ 33.47
Aggregate intrinsic value at end of period | $	$ 380,123

XML

Stockholders' Equity - Restricted Stock Units - Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Weighted average period over which costs are recognized	7 years
Tax payments, for net share settlement of share based award	$ 1,259	$ 3,777
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 54.41
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Unrecognized stock-based compensation expense related to non-vested stock options	$ 84,900
Weighted average period over which costs are recognized	4 years 7 months 2 days
Units released due to performance criteria threshold (in shares)	290,000
Number of units outstanding (as a percentage)	6,986,000		1,655,000
Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)	5,400,000
Units released due to performance criteria threshold (in shares)	5,000
Number of units outstanding (as a percentage)	5,700,000
Maximum additional shares to be issued (in shares)	300,000
eXponential Stock Units
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)	5,200,000.0
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)	5,667,207.000
Shares withheld, for net share settlement of share based award (in shares)	15,000
Tax payments, for net share settlement of share based award	$ 1,300
Service Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of units, granted (in shares)	300,000.0
Minimum | Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of targeted shares vested	0.00%
Maximum | Performance Based Restricted Stock Unit
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Percentage of targeted shares vested	200.00%

XML

Stockholders' Equity - Summary of the Company's Stock Options Activity (Detail) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options expected to vest	1,100
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Options outstanding, beginning of year (in shares)	6,458
Number of options, Granted (in shares)	0
Number of options, Exercised (in shares)	(24)
Number of options, Expired / terminated (in shares)	0
Number of options, Options outstanding, end of year (in shares)	6,434
Number of options, Options exercisable, end of period (in shares)	68
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Weighted Average Exercise Price [Abstract]
Weighted average exercise price, Options outstanding, beginning of year (in dollars per share) | $ / shares	$ 28.24
Weighted average exercise price, Granted (in dollars per share) | $ / shares	0
Weighted average exercise price, Exercised (in dollars per share) | $ / shares	4.20
Weighted average exercise price, Expired / terminated (in dollars per share) | $ / shares	0.00
Weighted average exercise price, Options outstanding, end of period (in dollars per share) | $ / shares	28.33
Weighted average exercise price, Options exercisable, end of period (in dollars per share) | $ / shares	$ 4.54
Weighted average remaining contractual life, Options outstanding, end of period	8 years 9 months 29 days
Weighted average remaining contractual life, Options exercisable, end of period	1 year 8 months 9 days
Aggregate intrinsic value, Options outstanding, end of period | $	$ 167,827
Aggregate intrinsic value, Options exercisable, end of period | $	$ 3,397

XML

Stockholders' Equity - Stock Option Activity - Additional Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 54.41
Total intrinsic value of options exercised	$ 1.0	$ 2.0
Number of options outstanding (in shares)	6,434		6,458
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding (in shares)	6,400
Options related to tranches considered probable of achievement	1,100

XML

Stockholders' Equity - Reported Share-Based Compensation (Detail) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 7,905	$ 4,093
Cost of products sold and services delivered
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	226	141
Sales, general and administrative expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	4,681	2,304
Research and development expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 2,998	$ 1,648

XML

Stockholders' Equity - Stock Repurchase Plan - Additional Information (Detail) - USD ($)	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Feb. 01, 2019	Feb. 29, 2016
2019 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Additional authorized shares (in shares)	2,200,000.0		6,000,000.0
2016 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Outstanding common stock repurchase program authorized amount (up to)				$ 50,000,000.0
Shares repurchased during period (in shares)	0	0
Stock Repurchase Program, Remaining Authorized Repurchase Amount	$ 16,300,000

XML

Line of Credit - Additional Information (Detail)	3 Months Ended
	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Debt Instrument [Line Items]
Maximum ratio of total liabilities to tangible net worth	2.50
Line of Credit
Debt Instrument [Line Items]
Available borrowing under letter of credit	$ 46,900,000
Line of Credit Facility, Increase (Decrease), Net	100,000,000.0
Line of credit borrowings	0	$ 0
Letters of credit outstanding amount	$ 3,100,000
Company's leverage ratio	0.001
Unsecured Revolving Line of Credit | Line of Credit
Debt Instrument [Line Items]
Total availability under line of credit agreement	$ 50,000,000.0
Letter of Credit | Line of Credit
Debt Instrument [Line Items]
Available borrowing under letter of credit	$ 10,000,000
Minimum | London Interbank Offered Rate (LIBOR) | Line of Credit
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate	1.00%
Maximum | London Interbank Offered Rate (LIBOR) | Line of Credit
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate	1.50%

XML

Leases Leases - Narrative (Details) - USD ($) $ in Millions	3 Months Ended	12 Months Ended
	Mar. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Lessee, Lease, Description [Line Items]
Renewal term	2 years
Termination period	1 year
Rent expense		$ 4.2	$ 2.9
Minimum
Lessee, Lease, Description [Line Items]
Remaining terms	1 year
Maximum
Lessee, Lease, Description [Line Items]
Remaining terms	4 years

XML

Leases Leases - Balance Sheet (Details) $ in Thousands	Mar. 31, 2019 USD ($)
ASSETS
Operating lease assets, other assets	$ 11,659
Current
Operating lease, current liabilities	3,877
Noncurrent
Operating lease, noncurrent liabilites	8,897
Total lease liabilities	$ 12,774

XML

Leases Leases - Lease Expense (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Leases [Abstract]
Operating lease cost	$ 1,017
Sublease income	(42)
Net lease expense	$ 975

XML

Leases Leases - Supplemental Cash Flow and Balance Sheet Information (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)
Cash Flow, Lessee [Abstract]
Operating cash flows from operating leases	$ 961
Right-Of-Use Asset Obtained In Exchange For Lease Liability [Abstract]
Operating leases	$ 84
Weighted Average Remaining Lease Term [Abstract]
Operating leases (in years)	3 years 2 months 3 days
Leases, Weighted Average Discount Rate [Abstract]
Operating leases (as a percentage)	3.60%

XML

Leases Leases - Minimum Lease Payments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Operating Leases, After Adoption of 842
2019 Remaining	$ 3,419
2020	4,203
2021	3,325
2022	2,449
2023	1,173
2024	0
Thereafter	0
Total minimum lease payments	14,569
Sublease income, After Adoption of 842
2019 Remaining	(246)
2020	(82)
2021	0
2022	0
2023	0
2024	0
Thereafter	0
Total minimum lease payments	(328)
Net, After Adoption of 842
2019 Remaining	3,173
2020	4,121
2021	3,325
2022	2,449
2023	1,173
2024	0
Thereafter	0
Lessee, Operating Lease, Liability, Payments, Net Of Sublease Income, Due	14,241
Less: Amount representing interest	(1,467)
Present value of lease payments	$ 12,774
Operating Leases, Before Adoption of 842
2019		$ 3,670
2020		3,572
2021		2,961
2022		2,001
2023		573
Thereafter		0
Total minimum lease payments		12,777
Capital Leases, Before Adoption of 842
2019		40
2020		36
2021		0
2022		0
2023		0
Thereafter		0
Total minimum lease payments		76
Less: Amount representing interest		(6)
Capital lease obligation		$ 70

XML

Commitments and Contingencies - Additional Information (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) lawsuit	Mar. 31, 2018 USD ($)
Loss Contingencies [Line Items]
Purchases of intangible assets	$ 162	$ 34
Prepaid rent under the lease	10,900
Initial deposit	$ 200
Number of lawsuits against Company | lawsuit	7
Self insurance on product claim	$ 5,000
Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	24,600
Expiring in 2019 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	400
Expiring in 2020 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	700
Expiring in 2021 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	2,300
Expiring in 2022 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	3,200
Expiring in 2023 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	7,500
Expiring in 2024 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding	10,500
Line of Credit
Loss Contingencies [Line Items]
Letters of credit outstanding amount	3,100
Lease Agreements
Loss Contingencies [Line Items]
Purchases of intangible assets	$ 13,100

XML

Related Party Transactions - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Related Party Transaction [Line Items]
Outstanding amount due to related parties	$ 0.1
Software Licensing and Subscription | Officer
Related Party Transaction [Line Items]
Quarterly payments	$ 0.5	$ 0.4

XML

Employee Benefit Plans - Additional Information (Detail) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Defined Benefit Plan Disclosure [Line Items]
Employee deferrals deemed vested percentage upon contribution	100.00%
Defined contribution plan, cost	$ 1.4	$ 0.8
Maximum
Defined Benefit Plan Disclosure [Line Items]
Deferral percentage of base salary (up to)	80.00%
Deferral percentage of other compensation (up to)	100.00%

XML

Segment Data - Additional Information (Detail) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($) segment	Mar. 31, 2018 USD ($)
Segment Reporting [Abstract]
Number of reportable segments of company | segment	2
Segment Reporting Information [Line Items]
Net sales	$ 115,810	$ 101,215
Cost of sales	46,893	36,754
Gross margin	68,917	64,461
Research and development	23,354	15,119
TASER
Segment Reporting Information [Line Items]
Net sales	65,391	63,524
Cost of sales	23,278	20,543
Gross margin	42,113	42,981
Research and development	3,712	2,960
Software and Sensors
Segment Reporting Information [Line Items]
Net sales	50,419	37,691
Cost of sales	23,615	16,211
Gross margin	26,804	21,480
Research and development	19,642	12,159
Product
Segment Reporting Information [Line Items]
Net sales	88,089	80,974
Cost of sales	39,600	32,434
Product | TASER
Segment Reporting Information [Line Items]
Net sales	65,301	63,524
Cost of sales	23,278	20,543
Product | Software and Sensors
Segment Reporting Information [Line Items]
Net sales	22,788	17,450
Cost of sales	16,322	11,891
Service
Segment Reporting Information [Line Items]
Net sales	27,721	20,241
Cost of sales	7,293	4,320
Service | TASER
Segment Reporting Information [Line Items]
Net sales	90	0
Cost of sales	0	0
Service | Software and Sensors
Segment Reporting Information [Line Items]
Net sales	27,631	20,241
Cost of sales	$ 7,293	$ 4,320

XML

Label	Element	Value
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	$ 2,468,000
Restricted Cash and Cash Equivalents	us-gaap_RestrictedCashAndCashEquivalents	1,568,000
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	18,994,000
Retained Earnings [Member]
Cumulative Effect of New Accounting Principle in Period of Adoption	us-gaap_CumulativeEffectOfNewAccountingPrincipleInPeriodOfAdoption	$ 18,994,000