10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                   

Commission File Number: 001-16391

Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)

Delaware	86-0741227
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
17800 North 85th Street
Scottsdale,  Arizona	85255
(Address of principal executive offices)	(Zip Code)

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

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

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

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.00001 Par Value	AXON	The Nasdaq Global Select Market

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

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

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

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated Filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

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

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

The number of shares of the registrant’s common stock outstanding as of November 4, 2022 was 71,165,354.

AXON ENTERPRISE, INC.

INDEX TO QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2022

			Page
Special Note Regarding Forward-Looking Statements			ii
PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the Three Months and Nine Months Ended September 30, 2022 and 2021	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months and Nine Months Ended September 30, 2022 and 2021	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	5
		Notes to Unaudited Condensed Consolidated Financial Statements	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		41
	Item 4. Controls and Procedures		42
PART II - OTHER INFORMATION			42
	Item 1. Legal Proceedings		42
	Item 1A. Risk Factors		43
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43
	Item 3. Defaults Upon Senior Securities		43
	Item 4. Mine Safety Disclosures		43
	Item 5. Other Information		43
	Item 6. Exhibits		44
	SIGNATURES		45

Special Note Regarding Forward-Looking Statements

This Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs, intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-harbor provided by the Private Securities Litigation Reform Act of 1995. From time to time, we also provide forward-looking statements in other materials we release to the public as well as verbal forward-looking statements. These forward-looking statements include, without limitation, statements regarding: proposed products and services and related development efforts and activities; expectations about the market for our current and future products and services; the impact of pending litigation; strategies and trends relating to subscription plan programs and revenues; our anticipation that contracts with governmental customers will be fulfilled; strategies and trends, including the amounts and benefits of, research and development investments; the sufficiency of our liquidity and financial resources; expectations about customer behavior; the impact on our investment portfolio of changes in interest rates; our potential use of foreign currency forward and option contracts; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance; statements of management’s strategies, goals and objectives and other similar expressions; as well as the ultimate resolution of financial statement items requiring critical accounting estimates, including those set forth in our Annual Report on Form 10-K for the year ended December 31, 2021. Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The following important factors could cause actual results to differ materially from those in the forward-looking statements: the potential global impacts of the COVID-19 pandemic; our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; our ability to design, introduce and sell new products or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our ability to manage our supply chain and avoid production delays, shortages, and impacts to expected gross margins; the impact of stock compensation expense, impairment expense, and income tax expense on our financial results; customer purchase behavior, including adoption of our software as a service delivery model; negative media publicity regarding our products; the impact of product mix on projected gross margins; defects in our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including by our third party cloud-based storage providers; exposure to international operational risks; delayed cash collections and possible credit losses due to our subscription model; changes in government regulations in the U.S. and in foreign markets, especially related to the classification of our products by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives; our ability to integrate acquired businesses; our ability to attract and retain key personnel; and counter-party risks relating to cash balances held in excess of FDIC insurance limits. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. The Annual Report on Form 10-K for the year ended December 31, 2021 that we filed with the Securities and Exchange Commission ("SEC") on February 25, 2022 lists various important factors that could cause actual results to differ materially from expected and historical results. These factors are intended as cautionary statements for investors within the meaning of Section 21E of the Exchange Act and Section 27A of the Securities Act. Readers can find them under the heading “Risk Factors” in the Report on Form 10-K, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

Except as required by law, we undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise. You are advised, however, to consult any further disclosures we make on related subjects in our Form 10-Q, 8-K and 10-K reports to the SEC. Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.

ii

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

AXON ENTERPRISE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30,		December 31,
	2022		2021
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	147,711	$	356,332
Marketable securities		35,280		72,180
Short-term investments		194,627		14,510
Accounts and notes receivable, net of allowance of $2,273 and $2,203 as of September 30, 2022 and December 31, 2021, respectively		418,308		320,819
Contract assets, net		168,673		180,421
Inventory		173,046		108,688
Prepaid expenses and other current assets		68,054		56,540
Total current assets		1,205,699		1,109,490
Property and equipment, net		164,160		138,457
Deferred tax assets, net		96,355		127,193
Intangible assets, net		13,039		15,470
Goodwill		44,819		43,592
Long-term investments		28,536		31,232
Long-term notes receivable, net		8,462		11,256
Long-term contract assets, net		48,388		29,753
Strategic investments		290,329		83,520
Other long-term assets		110,643		98,247
Total assets	$	2,010,430	$	1,688,210
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	50,193	$	32,220
Accrued liabilities		112,766		103,707
Current portion of deferred revenue		246,446		265,591
Customer deposits		15,317		10,463
Other current liabilities		6,801		6,540
Total current liabilities		431,523		418,521
Deferred revenue, net of current portion		313,823		185,721
Liability for unrecognized tax benefits		7,317		3,797
Long-term deferred compensation		5,369		5,679
Deferred tax liability, net		1		811
Long-term lease liabilities		16,311		20,440
Other long-term liabilities		4,773		5,392
Total liabilities		779,117		640,361
Commitments and contingencies (Note 13)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		—		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 71,151,670 and 70,896,856 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		1		1
Additional paid-in capital		1,167,218		1,095,229
Treasury stock at cost, 20,220,227 shares as of September 30, 2022 and December 31, 2021		(155,947)		(155,947)
Retained earnings		227,847		109,883
Accumulated other comprehensive loss		(7,806)		(1,317)
Total stockholders’ equity		1,231,313		1,047,849
Total liabilities and stockholders’ equity	$	2,010,430	$	1,688,210

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 (LOSS)

(in thousands, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net sales from products	$	210,398	$	165,803	$	586,653	$	463,116
Net sales from services		101,356		66,186		267,140		182,687
Net sales		311,754		231,989		853,793		645,803
Cost of product sales		93,724		71,336		260,578		195,253
Cost of service sales		24,773		16,086		70,256		44,701
Cost of sales		118,497		87,422		330,834		239,954
Gross margin		193,257		144,567		522,959		405,849
Operating expenses:
Sales, general and administrative		102,023		99,295		287,157		403,554
Research and development		59,127		42,382		165,090		143,352
Total operating expenses		161,150		141,677		452,247		546,906
Income (loss) from operations		32,107		2,890		70,712		(141,057)
Interest and other income (expense), net		(11,249)		(5,530)		91,076		36,896
Income (loss) before provision for income taxes		20,858		(2,640)		161,788		(104,161)
Provision for (benefit from) income taxes		8,727		(51,164)		43,824		(57,651)
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Net income (loss) per common and common equivalent shares:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$	0.17	$	0.67	$	1.63	$	(0.71)
Weighted average number of common and common equivalent shares outstanding:
Basic		71,107		66,192		71,033		65,139
Diluted		72,525		72,441		72,386		65,139
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Foreign currency translation adjustments		(2,275)		(793)		(5,513)		(1,161)
Unrealized losses on available-for-sale investments		(326)		—		(976)		—
Comprehensive income (loss)	$	9,530	$	47,731	$	111,475	$	(47,671)

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

2

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

											Accumulated
				Additional							Other		Total
	Common Stock			Paid-in		Treasury Stock			Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Earnings		Loss		Equity
Balance, December 31, 2021	70,896,856	$	1	$	1,095,229	20,220,227	$	(155,947)	$	109,883	$	(1,317)	$	1,047,849
Issuance of common stock	—		—		(70)	—		—		—		—		(70)
Issuance of common stock under employee plans, net	99,802		—		(1,388)	—		—		—		—		(1,388)
Stock-based compensation	—		—		25,088	—		—		—		—		25,088
Net income	—		—		—	—		—		54,871		—		54,871
Other comprehensive loss, net	—		—		—	—		—		—		(1,561)		(1,561)
Balance, March 31, 2022	70,996,658	$	1	$	1,118,859	20,220,227	$	(155,947)	$	164,754	$	(2,878)	$	1,124,789
Issuance of common stock			—		(4)	—		—		—		—		(4)
Issuance of common stock under employee plans, net	81,041		—		(931)	—		—		—		—		(931)
Stock-based compensation	—		—		21,162	—		—		—		—		21,162
Net income	—		—		—	—		—		50,962		—		50,962
Other comprehensive loss, net	—		—		—	—		—		—		(2,327)		(2,327)
Balance, June 30, 2022	71,077,699	$	1	$	1,139,086	20,220,227	$	(155,947)	$	215,716	$	(5,205)	$	1,193,651
Issuance of common stock under employee plans, net	73,971		—		(72)	—		—		—		—		(72)
Stock-based compensation	—		—		28,204	—		—		—		—		28,204
Net income	—		—		—	—		—		12,131		—		12,131
Other comprehensive loss, net	—		—		—	—		—		—		(2,601)		(2,601)
Balance, September 30, 2022	71,151,670	$	1	$	1,167,218	20,220,227	$	(155,947)	$	227,847	$	(7,806)	$	1,231,313

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

3

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(in thousands, except share data)

											Accumulated
				Additional							Other		Total
	Common Stock			Paid-in		Treasury Stock			Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Earnings		Income (Loss)		Equity
Balance, December 31, 2020	63,766,555	$	1	$	962,159	20,220,227	$	(155,947)	$	169,901	$	141	$	976,255
Issuance of common stock under employee plans, net	906,536		—		(7,045)	—		—		—		—		(7,045)
Stock-based compensation	—		—		89,610	—		—		—		—		89,610
Net loss	—		—		—	—		—		(47,917)		—		(47,917)
Other comprehensive income, net	—		—		—	—		—		—		1		1
Balance, March 31, 2021	64,673,091	$	1	$	1,044,724	20,220,227	$	(155,947)	$	121,984	$	142	$	1,010,904
Issuance of common stock under employee plans, net	1,001,255		—		(3,268)	—		—		—		—		(3,268)
Stock-based compensation	—		—		137,549	—		—		—		—		137,549
Net loss	—		—		—	—		—		(47,117)		—		(47,117)
Other comprehensive loss, net	—		—		—	—		—		—		(369)		(369)
Balance, June 30, 2021	65,674,346		1		1,179,005	20,220,227		(155,947)		74,867		(227)		1,097,699
Issuance of common stock	577,956		—		105,615	—		—		—		—		105,615
Issuance of common stock under employee plans, net	1,325,566		—		(172,204)	—		—		—		—		(172,204)
Stock-based compensation	—		—		35,062	—		—		—		—		35,062
Net income	—		—		—	—		—		48,524		—		48,524
Other comprehensive loss, net	—		—		—	—		—		—		(793)		(793)
Balance, September 30, 2021	67,577,868	$	1	$	1,147,478	20,220,227	$	(155,947)	$	123,391	$	(1,020)	$	1,113,903

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

4

AXON ENTERPRISE, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine Months Ended September 30,
	2022		2021
Cash flows from operating activities:
Net income (loss)	$	117,964	$	(46,510)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		18,171		13,420
Purchase accounting adjustments to goodwill		58		—
Loss on disposal and abandonment of intangible assets		68		130
Loss on disposal and impairment of property, equipment, and other assets, net		1,964		74
Realized and unrealized gains on strategic investments and marketable securities, net		(92,498)		(34,195)
Stock-based compensation		74,454		262,221
Deferred income taxes		30,349		(58,893)
Unrecognized tax benefits		3,519		77
Bond amortization		(61)		4,606
Noncash lease expense		4,997		4,087
Provision for expected credit losses		569		615
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(115,046)		(118,094)
Inventory		(66,267)		(3,154)
Prepaid expenses and other assets		(17,871)		(28,906)
Accounts payable, accrued and other liabilities		28,684		28,528
Deferred revenue		115,187		87,558
Net cash provided by operating activities		104,241		111,564
Cash flows from investing activities:
Purchases of investments		(194,142)		(362,479)
Proceeds from call / maturity of investments		15,485		499,172
Exercise of warrants of strategic investments		(6,555)		—
Proceeds from sale of strategic investments		—		14,546
Purchases of property and equipment		(44,218)		(36,501)
Proceeds from disposal of property and equipment		226		31
Purchases of intangible assets		(193)		(157)
Strategic investments		(70,500)		(20,500)
Business acquisition, net of cash acquired		(2,104)		(700)
Net cash provided by (used in) investing activities		(302,001)		93,412
Cash flows from financing activities:
Net proceeds from equity offering		(74)		105,615
Income and payroll tax payments for net-settled stock awards		(2,391)		(182,517)
Net cash used in financing activities		(2,465)		(76,902)
Effect of exchange rate changes on cash and cash equivalents		(6,783)		(1,827)
Net increase (decrease) in cash and cash equivalents		(207,008)		126,247
Cash and cash equivalents and restricted cash, beginning of period		356,438		155,551
Cash and cash equivalents and restricted cash, end of period	$	149,430	$	281,798
Supplemental disclosures:
Cash and cash equivalents	$	147,711	$	281,691
Restricted cash (Note 1)		1,719		107
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	$	149,430	$	281,798
Cash paid for income taxes, net of refunds	$	7,503	$	5,016
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$	1,244	$	1,211

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

5

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 - Organization and Summary of Significant Accounting Policies

Axon Enterprise, Inc. (“Axon,” the “Company,” "we," or "us") is a market-leading provider of law enforcement technology solutions. Our 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, finance and other administrative support functions. Our global software hub is located in Seattle, Washington, and we also have subsidiaries and / or offices located in Australia, Canada, Finland, France, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United Kingdom, and Vietnam.

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

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) 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, 2021, 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, 2021. The results of operations for the three months and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

● product warranty reserves,

● inventory valuation,

● revenue recognition,

● reserve for expected credit loss,

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

● valuation of strategic investments,

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

● stock-based compensation, and

● recognition and measurement of contingencies and accrued litigation expense.

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 devices ("CEDs"), batteries, accessories, extended warranties and other products and services (collectively, 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, and services (collectively, the “Software and Sensors” segment). In both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon

6

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes referred to as "Axon Cloud revenue."  

Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer who is our chief operating decision maker ("CODM"). We organize and review operations based on products and services, and currently there are no operating segments that are aggregated. We perform an analysis of our reportable segments at least annually. Additional information related to our business segments is summarized in Note 16.

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2022, no individual country outside the U.S. represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers. For the three and nine months ended September 30, 2022, no customer represented more than 10% of total net sales. At September 30, 2022 and December 31, 2021, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

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

Income per Common Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Denominator:
Weighted average shares outstanding		71,107		66,192		71,033		65,139
Dilutive effect of stock-based awards		1,418		6,249		1,353		—
Diluted weighted average shares outstanding		72,525		72,441		72,386		65,139
Anti-dilutive stock-based awards excluded		2,977		3,481		2,952		8,920
Net income (loss) per common share:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$	0.17	$	0.67	$	1.63	$	(0.71)

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Standard Warranties

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

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

	Nine Months Ended September 30,
	2022		2021
Balance, beginning of period	$	2,822	$	769
Utilization of reserve		(1,988)		(582)
Warranty expense		161		1,176
Balance, end of period	$	995	$	1,363

Fair Value Measurements and Financial Instruments

We use the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

● Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

● Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

● Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs that market participants would use in pricing an asset or liability.

We have cash equivalents and investments, which at September 30, 2022 were comprised of money market funds, commercial paper, corporate bonds, municipal bonds, U.S. Government agency bonds, and U.S. Treasury bills. Cash equivalents and investments at December 31, 2021 were comprised of money market funds, corporate bonds, municipal bonds, and U.S. Government agency bonds. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other long-term assets as of September 30, 2022 and December 31, 2021

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was $4.0 million and $5.3 million, respectively, related to corporate-owned life insurance policies which are used to fund our deferred compensation plan. We determine the fair value of insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

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

We have strategic investments in eight unconsolidated affiliates as of September 30, 2022. The estimated fair value of the investments was determined based on Level 3 inputs. In determining the estimated fair value of our strategic investments in privately held companies, we utilize observable data available to us as discussed further in Note 7.

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

Restricted Cash

Restricted cash balances as of September 30, 2022 were $1.7 million primarily related to funds held in an international bank account securing a guarantee and funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately $1.6 million was included in prepaid expenses and other assets on our condensed consolidated balance sheet, with the remainder in other long-term assets. Restricted cash balances as of December 31, 2021 included $0.1 million primarily related to funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately half of the balance was included in prepaid expenses and other current assets on our condensed consolidated balance sheet, with the remainder included in other long-term assets.

Valuation of Goodwill, Intangibles and Long-lived Assets

We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives, may warrant revision or that the remaining balance of these assets may not be recoverable. Such 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 November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832). The guidance improves the transparency of government assistance accounting as it requires business entities to disclose transactions that involve government assistance received if the transactions were accounted for by applying a grant or contribution accounting model by analogy. The ASU is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-10 on January 1, 2022 and will

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apply the disclosure requirement prospectively to all transactions within the scope of the amendments that are reflected in the financial statements at the date of the initial application along with new transactions that are entered into after the date of initial application. Adoption of this ASU did not have a material impact on our consolidated financial statements.

Reclassification of Prior Year Presentation

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

Note 2 - Revenues

Nature of Products and Services

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

	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	65,951	$	—	$	65,951	$	50,641		—	$	50,641
TASER X26P		5,897		—		5,897		9,086		—		9,086
TASER X2		8,298		—		8,298		10,078		—		10,078
TASER Consumer devices		1,702		—		1,702		967		—		967
Cartridges		46,475		—		46,475		39,313		—		39,313
Axon Body		—		35,427		35,427		—		20,862		20,862
Axon Flex		—		687		687		—		1,488		1,488
Axon Fleet		—		10,139		10,139		—		6,063		6,063
Axon Dock		—		4,830		4,830		—		6,460		6,460
Axon Evidence and cloud services		5,125		96,814		101,939		2,711		63,272		65,983
Extended warranties		7,290		14,511		21,801		6,099		8,983		15,082
Other		4,145		4,463		8,608		2,596		3,370		5,966
Total	$	144,883	$	166,871	$	311,754	$	121,491	$	110,498	$	231,989

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	169,457	$	—	$	169,457	$	112,760		—	$	112,760
TASER X26P		27,715		—		27,715		28,618		—		28,618
TASER X2		16,451		—		16,451		39,001		—		39,001
TASER Consumer devices		5,085		—		5,085		4,873		—		4,873
Cartridges		134,145		—		134,145		116,409		—		116,409
Axon Body		—		92,603		92,603		—		60,545		60,545
Axon Flex		—		2,637		2,637		—		3,481		3,481
Axon Fleet		—		39,840		39,840		—		15,073		15,073
Axon Dock		—		18,159		18,159		—		18,889		18,889
Axon Evidence and cloud services		11,862		258,664		270,526		5,809		175,933		181,742
Extended warranties		21,428		36,070		57,498		17,602		24,632		42,234
Other		8,686		10,991		19,677		7,946		14,232		22,178
Total	$	394,829	$	458,964	$	853,793	$	333,018	$	312,785	$	645,803

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
United States	$	264,644	85	%	$	192,756	83	%	$	707,304	83	%	$	518,050	80	%
Other countries		47,110	15			39,233	17			146,489	17			127,753	20
Total	$	311,754	100	%	$	231,989	100	%	$	853,793	100	%	$	645,803	100	%

Contract Balances

The following table presents our contract assets, contract liabilities and certain information related to these balances as of and for the nine months ended September 30, 2022 (in thousands):

	September 30, 2022
Contract assets, net	$	217,061
Contract liabilities (deferred revenue)		560,269
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period		228,278

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

	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	15,031	$	19,349	$	34,380	$	21,257	$	4,766	$	26,023
Software and Sensors		22,357		17,825		40,182		23,175		18,137		41,312
		37,388		37,174		74,562		44,432		22,903		67,335
Hardware:
TASER		21,263		38,948		60,211		12,944		28,727		41,671
Software and Sensors		37,972		109,947		147,919		34,862		81,223		116,085
		59,235		148,895		208,130		47,806		109,950		157,756
Services:
TASER		4,648		9,655		14,303		2,701		3,482		6,183
Software and Sensors		145,175		118,099		263,274		170,652		49,386		220,038
		149,823		127,754		277,577		173,353		52,868		226,221
Total	$	246,446	$	313,823	$	560,269	$	265,591	$	185,721	$	451,312

	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	40,942	$	67,952	$	108,894	$	36,902	$	36,975	$	73,877
Software and Sensors		205,504		245,871		451,375		228,689		148,746		377,435
Total	$	246,446	$	313,823	$	560,269	$	265,591	$	185,721	$	451,312

Remaining Performance Obligations

As of September 30, 2022, we had approximately $3.73 billion of remaining performance obligations, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, as of September 30, 2022. We expect to recognize between 15% - 20% of this balance over the next twelve months, and generally expect the

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remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Note 3 - Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, marketable securities, and available-for-sale investments at September 30, 2022 and December 31, 2021 (in thousands):

	As of September 30, 2022
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Marketable		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Securities		Investments		Investments
Cash	$	94,638	$	—	$	—	$	94,638	$	94,638	$	—	$	—	$	—
Level 1:
Money market funds		6,982		—		—		6,982		6,982		—		—		—
Agency bonds		68,072		6		(69)		68,009		28,000		—		35,763		4,246
Treasury bills		55,520		2		(162)		55,360		14,999		—		40,361		—
Marketable securities		90,000		—		(54,720)		35,280		—		35,280		—		—
Subtotal		220,574		8		(54,951)		165,631		49,981		35,280		76,124		4,246
Level 2:
State and municipal obligations		6,935		—		(54)		6,881		—		—		6,881		—
Corporate bonds		75,412		6		(1,233)		74,185		2,096		—		47,799		24,290
Commercial paper		64,819		—		—		64,819		996		—		63,823		—
Subtotal		147,166		6		(1,287)		145,885		3,092		—		118,503		24,290
Total	$	462,378	$	14	$	(56,238)	$	406,154	$	147,711	$	35,280	$	194,627	$	28,536

As of September 30, 2022, we had $136.3 million of available-for-sale investments with unrealized losses.

During the year ended December 31, 2021, we acquired 9,000,000 shares of common stock of Cellebrite DI Ltd (“CLBT”) with a fair value of $90.0 million. The CLBT common stock is recorded as marketable securities in the accompanying condensed consolidated balance sheets and its fair value is adjusted every reporting period. Changes in fair value are recorded in the condensed consolidated statement of operations as unrealized gain or (loss) on marketable securities, which is included in interest and other income (expense), net. During the three and nine months ended September 30, 2022, we recorded an unrealized loss on marketable securities of $10.6 million and $36.9 million, respectively, relating to CLBT.

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	As of December 31, 2021
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Marketable		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Securities		Investments		Investments
Cash	$	353,488	$	—	$	—	$	353,488	$	353,488	$	—	$	—	$	—
Level 1:
Money market funds		2,844		—		—		2,844		2,844		—		—		—
Agency bonds		10,700		4		—		10,704		—		—		10,704		—
Marketable securities		90,000		—		(17,820)		72,180		—		72,180		—		—
Subtotal		103,544		4		(17,820)		85,728		2,844		72,180		10,704		—
Level 2:
State and municipal obligations		2,570		—		(5)		2,565		—		—		1,400		1,165
Corporate bonds		32,748		1		(276)		32,473		—		—		2,406		30,067
Subtotal		35,318		1		(281)		35,038		—		—		3,806		31,232
Total	$	492,350	$	5	$	(18,101)	$	474,254	$	356,332	$	72,180	$	14,510	$	31,232

Note 4 - Expected Credit Losses

We are exposed to credit losses primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable, notes receivable, and contract assets is developed using historical collection experience, published or estimated credit default rates for entities that represent our customer base, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible.

We review receivables for U.S. and international customers separately to better reflect different published credit default rates and economic and market conditions.

The following table provides a roll-forward of the allowance for expected credit losses that is deducted from the amortized cost basis of accounts receivable, notes receivable, and contract assets to present the net amount expected to be collected (in thousands):

	Nine Months Ended September 30, 2022
	United States		Other countries		Total
Balance, beginning of period	$	3,171	$	178	$	3,349
Provision for expected credit losses		254		315		569
Amounts written off charged against the allowance		(382)		-		(382)
Other, including foreign currency translation		-		(3)		(3)
Balance, end of period	$	3,043	$	490	$	3,533

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As of September 30, 2022 and December 31, 2021, the allowance for expected credit losses for each type of customer receivable was as follows (in thousands):

	September 30,		December 31,
	2022		2021
Accounts receivable and notes receivable, current	$	2,273	$	2,203
Contract assets, net		1,120		1,010
Long-term notes receivable, net of current portion		140		136
Total allowance for expected credit losses on customer receivables	$	3,533	$	3,349

Note 5 - Inventory

Inventories are stated at the lower of cost, determined on the first-in, first-out (“FIFO”) basis, or net realizable value, net of an inventory valuation allowance. We use a standard cost methodology to determine the cost basis for its inventories. Costs include allocations for materials, labor, and overhead. All variances between actual costs and standard costs are apportioned to inventory and cost of goods sold based upon inventory turnover. We evaluate inventory on a quarterly basis for obsolete or slow-moving items to ascertain if the recorded allowance is reasonable and adequate. Additional provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value.

Inventory consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Raw materials	$	61,921	$	38,267
Finished goods		111,125		70,421
Total inventory	$	173,046	$	108,688

Note 6 – Property and Equipment

Property and equipment consisted of the following (in thousands):

	Estimated
	Useful Life	September 30, 2022		December 31, 2021
Land	N/A	$	51,612	$	54,868
Building and leasehold improvements	3-39 years		26,860		25,712
Production equipment	3-5 years		56,237		54,090
Computers, equipment and software	3-5 years		23,478		15,343
Furniture and office equipment	3-5 years		7,511		6,838
Vehicles	5 years		3,746		2,932
Capitalized internal software development costs	3-5 years		14,198		12,200
Construction-in-process	N/A		53,262		25,258
Total cost			236,904		197,241
Less: Accumulated depreciation			(72,744)		(58,784)
Property and equipment, net		$	164,160	$	138,457

Construction-in-process includes $25.6 million and $12.4 million related to the development of our new campus at September 30, 2022 and December 31, 2021, respectively.

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Note 7 - Strategic Investments

Strategic investments include investments in a number of non-public technology-driven companies. We account for strategic investments under the ASC 321 measurement alternative for equity securities without readily determinable fair values, as there are no quoted market prices for the investments. The investments are measured at cost less impairment, adjusted for observable price changes and are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

In conjunction with certain of our strategic investments, we have the ability to commit additional capital over time through warrants and call options; for some investments, the exercisability and exercise prices are conditional on the achievement of certain performance metrics.

The following tables provide a roll-forward of the balance of strategic investments (in thousands):

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
	Strategic investments		Warrants			Call options	Total		Strategic investments		Warrants			Total
Balance, beginning of period	$	80,775	$	2,745	$	—	$	83,520	$	9,500	$	2,211	$	11,711
Investments		53,164		459		17,233		70,856		20,500		—		20,500
Observable price changes (1)		40,784		28,539		—		69,323		40,321		534		40,855
Exercises		96,719		(30,089)		—		66,630		—		—		—
Sales		—		—		—		—		(14,546)		—		(14,546)
Balance, end of period	$	271,442	$	1,654	$	17,233	$	290,329	$	55,775	$	2,745	$	58,520

	Inception to date
	Strategic investments		Warrants			Call options	Total
Investments	$	105,732	$	3,047	$	17,233	$	126,012
Observable price changes (1)		83,537		28,696		—		112,233
Exercises		96,719		(30,089)		—		66,630
Sales		(14,546)		—		—		(14,546)
Balance, end of period	$	271,442	$	1,654	$	17,233	$	290,329

(1) Includes a realized gain of $12.3 million for the nine months ended September 30, 2021.

During the three months ended September 30, 2022, we made minority, non-controlling investments totaling $8.8 million in a drone company and a biometrics sensor company. Both investments included multiple financial instruments.  

During the nine months ended September 30, 2022, certain of our strategic investees issued new equity to us and/or other investors. These events represented observable price changes for our existing investments and related warrants, resulting in unrealized gains of $70.4 million and unrealized losses of $1.1 million. Additionally, we exercised warrants in one of our strategic investees for a total exercise price of $6.6 million, resulting in an unrealized gain of $60.1 million that was recognized in earnings for the nine months ended September 30, 2022. The estimated fair value of the investments were calculated using valuation techniques that included both observable and unobservable inputs. This estimated fair value reflects a value that was lower than the issue per share of the new equity issued by the strategic investees because of different characteristics of the newly issued equity instruments compared to our existing investments. The valuation techniques included both Level 2 and Level 3 inputs as defined by ASC Topic 820.

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Note 8 - Variable Interest Entities

We evaluate our investments and other significant relationships to determine whether any investee is a variable interest entity (“VIE”). If we conclude that an investee is a VIE, we evaluate our power to direct the activities of the investee, our obligation to absorb the expected losses of the investee and our right to receive the expected residual returns of the investee to determine whether we are the primary beneficiary of the investee. If we are the primary beneficiary of a VIE, we consolidate such entity and reflects the non-controlling interest of other beneficiaries of that entity.

We determine whether we are the primary beneficiary of a VIE by performing an analysis that principally considers:

● The VIE’s purpose, design, and risks the VIE was designed to create and pass through to its variable interest holders;

● The VIE’s capital structure;

● The terms between the VIE and its variable interest holders and other parties involved with the VIE; and

● Related-party affiliations.

The table below presents a summary of the nonconsolidated VIEs in which we hold variable interests:

	September 30, 2022		December 31, 2021
Total nonconsolidated variable interest entities:
Carrying value of variable interest - assets	$	5,296	$	895
Carrying value of variable interest - liabilities		—		—
Maximum exposure to loss:
Non-public equity (1)		5,296		895
Total	$	5,296	$	895

⁽¹⁾ The maximum exposure to loss is limited to the carrying value of the interest.

In the table above:

● The nature of our variable interest is described in the row under maximum exposure to loss.

● Our exposure to the obligations of the VIE is limited to our interest in the entity.

The primary purpose of our U.S-based, nonconsolidated VIE investments is to create strategic partnerships within market-leading providers of law enforcement technology solutions. We present all variable interests in unconsolidated VIEs as strategic investments within the long-term assets section of the condensed consolidated balance sheet.

We have provided financial support to the nonconsolidated VIEs in exchange for preferred equity as well as warrants and call options that give us the ability to commit additional capital overtime. Financial support provided to the nonconsolidated VIEs is used to continue to finance their operations. We have no explicit or implicit arrangements to provide additional financial support to the VIEs and we have no liabilities to the VIEs as of September 30, 2022 and December 31, 2021.

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Note 9 - Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Accrued salaries, benefits and bonus	$	69,058	$	62,425
Accrued professional, consulting and lobbying fees		3,918		7,152
Accrued warranty expense		995		2,822
Accrued income and other taxes		3,871		3,736
Accrued inventory in transit		11,081		9,945
Other accrued expenses		23,843		17,627
Accrued liabilities	$	112,766	$	103,707

Note 10 - 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, but can be up to ten years in some jurisdictions following the tax year to which these filings relate. We have been previously notified that an income tax audit may commence for Axon Public Safety Southeast Asia LLC, our entity in Vietnam; however, there has been no audit activity to date.

Deferred Tax Assets

Net deferred income tax assets at September 30, 2022, primarily include R&D tax credits, stock-based compensation expense, deferred revenue, accruals and reserves, R&D capitalization, net of amortization and net operating losses, partially offset by accelerated depreciation expense, unrealized investment gains, and valuation allowance reserve. Our total net deferred tax assets at September 30, 2022 were $96.4 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 provision 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 September 30, 2022, management continues to believe the positive evidence from projected future earnings outweighs the negative evidence and a valuation allowance is not needed beyond the following items further described. We have concluded that a valuation allowance is necessary against unrealized investment losses and related costs incurred in connection with certain investments. Additionally, we do 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, and a valuation allowance has been recorded against this net asset.

In Australia, we have determined that sufficient deferred tax liabilities will reverse in order to realize all assets except one long-lived intangible where there is not an expectation that the asset may be realized. Therefore, we continue to recognize a partial valuation allowance for Australia.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state 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 $20.3 million as of

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September 30, 2022. Should the unrecognized benefit of $20.3 million be recognized, our effective tax rate would be favorably impacted. Approximately $12.0 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 nine months ended September 30, 2022, after discrete period adjustments, was 27.1%. Before discrete adjustments, the tax rate was 28.0%, which differs from the federal statutory rate, primarily due to the impact of R&D tax credits offset by the executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m) and an increase in valuation allowance and unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $1.4 million discrete tax benefit primarily associated with net windfalls related to stock-based compensation for restricted stock units (“RSUs”) and performance stock units (“PSUs”) that vested during the nine months ended September 30, 2022.

Note 11 - 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 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, 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 attainment 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 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 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, interest

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and other income (such as dividends) earned on investments in marketable securities, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense.

Revenue Goal (1) (in thousands)	Achievement Status	Adjusted EBITDA (in thousands)	Achievement Status
Goal #1, $710,058	Achieved	Goal #1, $125,000	Achieved
Goal #2, $860,058	Achieved	Goal #2, $155,000	Achieved
Goal #3, $1,010,058	Achieved	Goal #3, $175,000	Achieved
Goal #4, $1,210,058	Probable	Goal #4, $190,000	Achieved
Goal #5, $1,410,058	Not Applicable	Goal #5, $200,000	Achieved
Goal #6, $1,610,058	Not Applicable	Goal #6, $210,000	Achieved
Goal #7, $1,810,058	Not Applicable	Goal #7, $220,000	Achieved
Goal #8, $2,010,058	Not Applicable	Goal #8, $230,000	Achieved

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

Stock-based compensation expense associated with the CEO Performance Award 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 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 CEO Performance Award 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. Stock-based compensation represents a non-cash expense and is recorded in sales, general, and administrative operating expense on our consolidated statements of operations and comprehensive income.

The first ten market capitalization goals have been achieved as of September 30, 2022. As of September 30, 2022, 5.3 million stock options have been certified by the Compensation Committee and vested. The eleventh market capitalization goal has not yet been attained, though the related operational goal was achieved as of September 30, 2022. As twelve operational goals have been achieved or are considered probable of achievement, we recorded stock-based compensation expense of $240.0 million related to the CEO Performance Award from the grant date through September 30, 2022. The number of stock options that would vest related to the remaining unvested tranches is approximately 1.1 million shares. As of September 30, 2022, we had $6.0 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 0.4 years.

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. Initial awards under the plan were granted in January 2019, with additional employee awards granted since that date.

The XSUs are grants of Restricted Stock Units (“RSUs”), 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

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consecutive fiscal quarters. Beginning with the quarter ended June 30, 2021, new XSU grants are divided into a reduced number of tranches depending on employee eligibility and current market capitalization attainment.

The XSPP contains an anti-dilution provision incorporated into the plan based on shareholder feedback, which affects the calculation of the market capitalization goals in the plan. The plan defines a maximum number of shares outstanding that may be used in the calculation of the market capitalization goals (the “XSU Maximum”). If the actual number of shares outstanding exceeds the XSU Maximum guardrail, then the lower pre-defined number of shares in the XSU Maximum, rather than the higher actual number of shares outstanding, is used to calculate market capitalization for the determination of the market capitalization goals in the XSPP, which, together with the operational goals, determines whether XSUs vest for participating employees.

The XSU Maximum is defined as the actual number of shares outstanding on the original XSU grant date of January 2, 2019, increased by a 3% annual rate over the term of the XSPP and by shares issued upon the exercise of CEO Performance Award options. The XSU Maximum is also 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.

New shares issued for any other reasons, including shares issued upon vesting of XSUs, RSUs, and Performance Stock Units (“PSUs”) as well as shares issued to raise capital through equity issuances or in other transactions, do not increase the XSU Maximum.

The market capitalization and operational goals are identical to the CEO Performance Award, but a different number of shares is 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. As of September 30, 2022, actual shares outstanding exceeded the XSU Maximum. Accordingly, market capitalization as calculated for the purposes of achieving additional goals uses the lower XSU Maximum share amount rather than actual shares outstanding.

The first nine market capitalization goals have been achieved as of September 30, 2022. The tenth and eleventh market capitalization goals have not yet been attained, though the related operational goals were achieved as of September 30, 2021 and September 30, 2022, respectively. As all twelve operational goals have been achieved or are considered probable of achievement, we recorded stock-based compensation expense of $183.2 million related to the XSU awards from their respective grant dates through September 30, 2022. The number of XSU awards that would vest related to the remaining three tranches is approximately 1.2 million shares. As of September 30, 2022, we had $15.5 million of total unrecognized stock-based compensation expense, which will be recognized over a weighted-average period of 1.4 years.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,115	$	133.40
Granted	625		113.42
Released	(240)		93.14
Forfeited	(128)		136.22
Units outstanding, end of period	1,372		131.08	$	158,838

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Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $115.75 multiplied by the number of RSUs outstanding. As of September 30, 2022, there was $126.9 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 2.1 years. RSUs are released when vesting requirements are met.

Certain RSUs that vested in the nine months ended September 30, 2022 were net-share settled such that we withheld shares to cover the employees’ tax 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 seven thousand and had a value of $0.9 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Performance Stock Units

The following table summarizes PSU activity, inclusive of XSUs, for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,499	$	39.86
Granted	142		102.60
Released	(36)		122.83
Forfeited	(180)		34.15
Units outstanding, end of period	1,425		44.72	$	164,980

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $115.75 per share, multiplied by the number of PSUs outstanding. As of September 30, 2022, there was $22.4 million in unrecognized compensation costs related to PSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the PSUs over a weighted average period of 1.4 years. PSUs are released when vesting requirements are met.

As of September 30, 2022, the performance criteria had been met for approximately forty-two thousand of the 1.4 million PSUs outstanding.

Certain PSUs that vested in the nine months ended September 30, 2022 were net-share settled such that we withheld shares to cover the employees’ tax obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld related to PSUs were approximately twelve thousand and had a value of $1.5 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.

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Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

				Weighted
		Weighted		Average
	Number	Average		Remaining
	of	Exercise		Contractual	Aggregate
	Options	Price		Life (years)	Intrinsic Value
Options outstanding, beginning of year	2,438	$	28.58
Granted	—		—
Exercised	—		—
Expired / terminated	—		—
Options outstanding, end of period	2,438		28.58	5.41	$	212,517
Options exercisable, end of period	1,377		28.58	5.41		120,031

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 $115.75 on September 30, 2022. There were no options exercised for the nine months ended September 30, 2022. As of September 30, 2022, total options outstanding included 1.1 million unvested performance-based stock options, which relate to the CEO Performance Award and are probable of achievement.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of product sales and service sales	$	1,157	$	1,112	$	3,331	$	4,439
Sales, general and administrative expenses		14,268		25,969		35,860		211,073
Research and development expenses		12,779		7,981		35,263		46,709
Total stock-based compensation expense	$	28,204	$	35,062	$	74,454	$	262,221

Stock Incentive Plan

In May 2022, our shareholders approved the Axon Enterprise, Inc. 2022 Stock Incentive Plan (the “2022 Plan”) authorizing an additional 2.5 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with the 2019 Plan and other legacy stock incentive plans, there are 3.2 million shares available for grant as of September 30, 2022.

Stock Inducement Plan

In September 2022, our Board of Directors adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022 Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employed by us (or following such individuals’ bona fide periods of non-employment by us), as an inducement material to the individuals’ entry into employment with us. The terms and conditions of the 2022 Inducement Plan are substantially similar to our 2019 Stock Inducement Plan. There are approximately 0.1 million shares available for grant as of September 30, 2022.

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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 and nine months ended September 30, 2022 and 2021, no common shares were purchased under the program. As of September 30, 2022, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

At-the-Market equity offering

During the year ended December 31, 2021, we sold 577,956 shares of our common stock under our "at-the-market" equity offering program (the “ATM”). We generated approximately $107.6 million in aggregate gross proceeds from sales under the ATM.  Aggregate net proceeds from the ATM were $105.4 million after deducting related expenses, including commissions to the sales agent of $1.6 million and issuance costs of $0.5 million. No shares were sold during the nine months ended September 30, 2022.

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

Note 12 - Line of Credit

We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $20.0 million is available for letters of credit. The credit agreement matures on December 31, 2023 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 September 30, 2022 and December 31, 2021, 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 September 30, 2022, we had letters of credit outstanding of approximately $6.5 million under the facility and available borrowing of $43.5 million, excluding amounts available under the accordion feature. Advances under the line of credit bear interest at Term SOFR 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. “SOFR” is defined as a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (“NYFRB”) or a successor administrator of the secured overnight financing rate.

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 September 30, 2022, our funded debt to EBITDA ratio was 0.00 to 1.00.

Note 13 - Commitments and Contingencies

Data Storage Renewal Commitment

In June 2022, we entered into a purchase agreement for cloud hosting with a six year term beginning July 1, 2022. The purchase agreement includes a total commitment of $425.0 million. Storage fees under this agreement were $11.2 million for the three months ended September 30, 2022. The remaining purchase commitment at September 30, 2022 was $413.8 million.

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Product Litigation

As a manufacturer of weapons and other law enforcement tools used in high-risk field environments, we are often the subject of products liability litigation concerning the use of our products.  We are currently named as a defendant in two lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CED was used by law enforcement officers in connection with arrests or training. 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.

The litigation information in this note is current through the date of these financial statements.

U.S. Federal Trade Commission Litigation

The U.S. Federal Trade Commission (“FTC”) filed an administrative enforcement action in January 2020 regarding our May 2018 acquisition of an insolvent body worn camera competitor, Vievu LLC. The FTC alleges the merger was anticompetitive and adversely affected the body worn camera and digital evidence management market for “large metropolitan police departments,” which we deny. The administrative hearing remains stayed pending our federal court constitutional challenges to the FTC’s structure and administrative processes. Even if we ultimately are required to divest Vievu and other assets, any such result will not interfere with our ability to meet contractual obligations or implement our solutions.

Prior to the FTC’s enforcement action, we sued the FTC in federal court in the District of Arizona for declaratory and injunctive relief alleging the FTC’s structure and administrative processes violate Article II of the U.S. Constitution and our Fifth Amendment rights to due process and equal protection. The district court dismissed the action, without prejudice, for lack of jurisdiction. The Ninth Circuit affirmed in a split decision but granted our motion to stay the appellate mandate pending the filing of our petition for certiorari with the U.S. Supreme Court. On January 24, 2022, the Supreme Court granted our petition. Oral argument was held November 7, 2022. The FTC’s administrative case will remain stayed pending resolution of the Supreme Court proceedings.

In parallel to these matters, we are evaluating strategic alternatives to litigation, which we might pursue if determined to be in the best interests of shareholders and customers. This could include a divestiture of the Vievu entity and/or related assets and the licensure of certain intellectual and other intangible property. While we continue to believe the acquisition of Vievu was lawful and a benefit to Vievu’s customers, the cost, risk and distraction of protracted litigation merit consideration of settlement if achievable on terms agreeable to the FTC and Axon.

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

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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 September 30, 2022, 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 September 30, 2022, we had outstanding letters of credit issued under our credit facility of $6.5 million that are expected to expire throughout 2023. We also had outstanding letters of credit of $0.4 million that do not draw against our credit facility. The outstanding letters of credit that do not draw against our credit facility are expected to expire in May 2023. Additionally, we had $21.1 million of outstanding surety bonds at September 30, 2022, with $3.1 million expiring in 2022, $7.5 million expiring in 2023 and the remaining $10.5 million expiring in 2024.

Note 14 – Accumulated Other Comprehensive Income (loss)

The following tables reflect the changes in accumulated other comprehensive income (loss), net of tax (in thousands):

		Unrealized Gains (Losses)
		on Available-for-Sale		Foreign Currency
		Investments		Translation	Total
Balance, December 31, 2021	$	(207)	$	(1,110)	$	(1,317)
Other comprehensive loss		(489)		(1,072)		(1,561)
Balance, March 31, 2022	$	(696)	$	(2,182)	$	(2,878)
Other comprehensive loss		(161)		(2,166)		(2,327)
Balance, June 30, 2022	$	(857)	$	(4,348)	$	(5,205)
Other comprehensive loss		(326)		(2,275)		(2,601)
Balance, September 30, 2022	$	(1,183)	$	(6,623)	$	(7,806)

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AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

		Unrealized Gains (Losses)
		on Available-for-Sale		Foreign Currency
		Investments		Translation	Total
Balance, December 31, 2020	$	—	$	141	$	141
Other comprehensive income		—		1		1
Balance, March 31, 2021	$	—	$	142	$	142
Other comprehensive loss		—		(369)		(369)
Balance, June 30, 2021	$	—	$	(227)	$	(227)
Other comprehensive loss		—		(793)		(793)
Balance, September 30, 2021	$	—	$	(1,020)	$	(1,020)

Note 15 - 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. Contributions to the plan 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. Future matching contributions to the plans are at our sole discretion.

We also sponsor defined contribution plans in Australia, Canada, Finland, and the United Kingdom.

Our matching contributions for all defined contribution plans were $2.6 million and $1.7 million for the three months ended September 30, 2022 and 2021, respectively, and $8.0 million and $5.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Note 16 - Segment Data

Our operations are comprised of two reportable segments: the TASER segment and the Software and Sensors segment.

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

	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
Net sales from products	$	139,267	$	71,131	$	210,398	$	118,569	$	47,234	$	165,803
Net sales from services		5,616		95,740		101,356		2,922		63,264		66,186
Net sales		144,883		166,871		311,754		121,491		110,498		231,989
Cost of product sales		53,422		40,302		93,724		41,554		29,782		71,336
Cost of service sales		—		24,773		24,773		—		16,086		16,086
Cost of sales		53,422		65,075		118,497		41,554		45,868		87,422
Gross margin	$	91,461	$	101,796	$	193,257	$	79,937	$	64,630	$	144,567
Research and development	$	13,864	$	45,263	$	59,127	$	10,476	$	31,906	$	42,382

26

AXON ENTERPRISE, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
Net sales from products	$	382,142	$	204,511	$	586,653	$	326,508		136,608	$	463,116
Net sales from services		12,687		254,453		267,140		6,510		176,177		182,687
Net sales		394,829		458,964		853,793		333,018		312,785		645,803
Cost of product sales		142,510		118,068		260,578		112,200		83,053		195,253
Cost of service sales		—		70,256		70,256		145		44,556		44,701
Cost of sales		142,510		188,324		330,834		112,345		127,609		239,954
Gross margin	$	252,319	$	270,640	$	522,959	$	220,673	$	185,176	$	405,849
Research and development	$	37,076	$	128,014	$	165,090	$	32,032	$	111,320	$	143,352

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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 September 30, 2022, and results of operations for the three and nine months ended September 30, 2022 and 2021, should be read in conjunction with the condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited consolidated financial statements and related notes in our 2021 Annual Report on Form 10-K filed with the SEC on February 25, 2022. 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 2021 Annual Report on Form 10-K. See also "Special Note Regarding Forward-Looking Statements" on page ii of this Quarterly Report on Form 10-Q.

Overview

Axon is a technology leader in global public safety. Our moonshot goal is to cut gun-related deaths between police and the public by 50% before 2033. Axon is building the public safety operating system of the future by integrating a suite of hardware devices and cloud software solutions that lead modern policing. Axon’s suite includes TASER energy devices, body-worn cameras, in-car cameras, cloud-hosted digital evidence management solutions, productivity software and real-time operations capabilities. Axon’s growing global customer base includes first responders across international, federal, state, and local law enforcement, fire, corrections, and emergency medical services, as well as the justice sector, commercial enterprises, and consumers.

Our revenues for the three months ended September 30, 2022 were $311.8 million, an increase of $79.8 million, or 34.4%, from the comparable period in the prior year. We had income from operations of $32.1 million compared to $2.9 million for the same period in the prior year. Gross margin dollars increased $48.7 million but decreased slightly as a percentage of revenue compared to the three months ended September 30, 2021, reflecting higher labor and freight costs. Operating expenses increased $19.5 million, reflecting an increase in salaries, benefits, and bonus expense and increases in sales, marketing, and commissions expense, partially offset by a decrease of $6.9 million in stock-based compensation expense primarily related to the CEO Performance Award and XSPP. Net income of $12.1 million included unrealized losses of $11.3 million related to observable price changes for our existing strategic investments and marketable securities related to our investment in CLBT, compared to net income of $48.5 million for the comparable period in the prior year.

Our revenues for the nine months ended September 30, 2022 were $853.8 million, an increase of $208.0 million, or 32.2%, from the comparable period in the prior year. We had income from operations of $70.7 million compared to a loss from operations of $141.1 million for the same period in the prior year. Gross margin dollars increased $117.1 million but decreased as a percentage of revenue compared to the nine months ended September 30, 2021, primarily reflecting higher labor and freight costs. Operating expenses decreased $94.7 million, reflecting a decrease of $186.7 million in stock-based compensation expense primarily related to the CEO Performance Award and XSPP, partially offset by an increase in salaries and bonus expense, and increases in travel and commissions expense. For the nine months ended September 30, 2022, we recorded net income of $118.0 million, which reflected net unrealized gains of $129.4 million related to observable price changes for our existing investments and related warrants and an unrealized loss of $36.9 million on marketable securities related to our investment in CLBT, compared to net loss of $46.5 million for the comparable period in the prior year.

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Results of Operations

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

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 September 30,
	2022				2021
Net sales from products	$	210,398	67.5	%	$	165,803	71.5	%
Net sales from services		101,356	32.5			66,186	28.5
Net sales		311,754	100.0			231,989	100.0
Cost of product sales		93,724	30.1			71,336	30.7
Cost of service sales		24,773	7.9			16,086	6.9
Cost of sales		118,497	38.0			87,422	37.6
Gross margin		193,257	62.0			144,567	62.4
Operating expenses:
Sales, general and administrative		102,023	32.7			99,295	42.8
Research and development		59,127	19.0			42,382	18.3
Total operating expenses		161,150	51.7			141,677	61.1
Income (loss) from operations		32,107	10.3			2,890	1.3
Interest and other income (expense), net		(11,249)	(3.6)			(5,530)	(2.4)
Income (loss) before provision for income taxes		20,858	6.7			(2,640)	(1.1)
Provision for (benefit from) income taxes		8,727	2.8			(51,164)	(22.0)
Net income	$	12,131	3.9	%	$	48,524	20.9	%

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

	Three Months Ended September 30,
	2022				2021
United States	$	264,644	85	%	$	192,756	83	%
Other countries		47,110	15			39,233	17
Total	$	311,754	100	%	$	231,989	100	%

International revenue increased compared to the prior year comparable period, but decreased as a percentage of total revenue. The increase in domestic revenue was driven by demand for the premium versions of our products and bundles, as well as increases in our federal business.

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Net Sales

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

	Three Months Ended September 30,								Dollar		Percent
	2022				2021				Change		Change
TASER segment:
TASER 7	$	65,951	21.2	%	$	50,641	21.8	%	$	15,310	30.2	%
TASER X26P		5,897	1.9			9,086	3.9			(3,189)	(35.1)
TASER X2		8,298	2.7			10,078	4.3			(1,780)	(17.7)
TASER Consumer devices		1,702	0.6			967	0.4			735	76.0
Cartridges		46,475	14.9			39,313	16.9			7,162	18.2
Axon Evidence and cloud services		5,125	1.6			2,711	1.2			2,414	89.0
Extended warranties		7,290	2.3			6,099	2.6			1,191	19.5
Other		4,145	1.3			2,596	1.3			1,549	59.7
Total TASER segment		144,883	46.5			121,491	52.4			23,392	19.3
Software and Sensors segment:
Axon Body		35,427	11.4			20,862	9.0			14,565	69.8
Axon Flex		687	0.2			1,488	0.6			(801)	(53.8)
Axon Fleet		10,139	3.3			6,063	2.6			4,076	67.2
Axon Dock		4,830	1.5			6,460	2.8			(1,630)	(25.2)
Axon Evidence and cloud services		96,814	31.1			63,272	27.3			33,542	53.0
Extended warranties		14,511	4.6			8,983	3.9			5,528	61.5
Other		4,463	1.4			3,370	1.4			1,093	32.4
Total Software and Sensors segment		166,871	53.5			110,498	47.6			56,373	51.0
Total net sales	$	311,754	100.0	%	$	231,989	100.0	%	$	79,765	34.4	%

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

	Three Months Ended September 30,		Unit	Percent
	2022	2021	Change	Change
TASER 7	40,502	36,350	4,152	11.4	%
TASER X26P	3,745	6,596	(2,851)	(43.2)
TASER X2	5,120	5,562	(442)	(7.9)
TASER Consumer devices	7,180	3,232	3,948	122.2
Cartridges	1,481,169	1,327,971	153,198	11.5
Axon Body	71,070	58,248	12,822	22.0
Axon Flex	1,188	3,390	(2,202)	(65.0)
Axon Fleet	2,342	2,753	(411)	(14.9)
Axon Dock	3,822	8,556	(4,734)	(55.3)

Net sales for the TASER segment increased 19.3% primarily due to an increase of $15.3 million in TASER 7 devices that was partially offset by a decrease of sales in our legacy devices of $5.0 million. We continue to see a shift to purchases of our latest generation device, TASER 7, from legacy devices. TASER 7 revenue was favorably impacted by higher average selling prices and an increase in unit sales. The increase in revenue from Axon Evidence and cloud services was driven by an increase in the number of TASER 7 devices in the field and VR training. Cartridge revenue was impacted by an increase in unit sales, in particular for TASER 7 cartridges, and by higher average selling prices.

Net sales for the Software and Sensors segment increased 51.0% for the three months ended September 30, 2022 as compared to the prior year quarter as we continued to add users and associated devices to our network. The increase in the aggregate number of users drove the majority of the increase in Axon Evidence revenue of $33.5 million. The $14.6 million increase in Axon Body revenue was primarily driven by higher unit sales and higher average selling prices. An increase in cameras and docks in the field drove the $5.5 million increase in extended warranties, as most of those devices

30

are sold with extended warranties. Higher average selling prices drove the $4.1 million increase in Axon Fleet revenue, partially offset by decreased unit sales.

We consider total company future contracted revenues a forward-looking performance indicator. As of September 30, 2022, we had approximately $3.73 billion of total company future contracted revenue, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. 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 ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Cost of Product and Service Sales

Within the TASER segment, cost of product and service sales increased to $53.4 million for the three months ended September 30, 2022 from $41.6 million for the same period in 2021, primarily related to higher unit sales and increased cost of raw materials. Cost as a percentage of sales increased to 36.9% from 34.2%. The increase was primarily attributable to higher labor and freight costs as well as increased manufacturing overhead costs due to expanding our manufacturing capabilities. While we continue to adjust strategic inventory levels based on areas of risk to mitigate potential supply disruptions, global supply conditions could further impact our margins.

Within the Software and Sensors segment, cost of product and service sales increased to $65.1 million for the three months ended September 30, 2022 from $45.9 million for the same period in 2021. Cost as a percentage of sales decreased to 39.0% from 41.5%. The decrease in cost of product and service sales as a percentage of sales was primarily driven by higher average selling prices and savings on cloud hosting costs as a percent of revenue, partially offset by increased indirect manufacturing costs and supplies.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 63.1% from 65.8% for the three months ended September 30, 2022 and 2021, respectively. The decrease was a result of higher labor costs and increased freight.

As a percentage of net sales, gross margin for the Software and Sensors segment increased to 61.0% from 58.5% for the three months ended September 30, 2022 and 2021, respectively. Within the Software and Sensors segment, hardware gross margin increased to 43.3% for the three months ended September 30, 2022 compared to 36.9% for the same period in 2021 due to increased unit sales and higher average selling prices of Axon Body 3 and Axon Fleet, and savings on cloud hosting costs. Service margins decreased slightly to 74.1% for the three months ended September 30, 2022 from 74.6% for the same period in 2021 due to the mix of services provided.

Sales, General and Administrative Expenses

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

	Three Months Ended September 30,						Dollar		Percent
	2022			2021			Change		Change
Total sales, general and administrative expenses	$	102,023		$	99,295		$	2,728	2.7
Sales, general, and administrative as a percentage of net sales		32.7	%		42.8	%

Stock-based compensation expense decreased $11.7 million in comparison to the prior year comparable period, which was primarily attributable to a decrease of $11.3 million in expense related to the CEO Performance Award and a $5.3 million decrease related to the XSPP. The decreases were attributable to the vesting of ten tranches of the CEO Performance Award and nine tranches of the XSPP in 2021, which have no remaining unrecognized expense for the vested tranches. Partially offsetting the decreases was an increase in stock-based compensation expense for time-based awards due to higher headcount.

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Net salaries, benefits, and bonus expense increased $4.3 million. An increase of $10.2 million in salaries, benefits, and bonus expense was attributable due to an increase in headcount and higher anticipated attainment on bonuses expected to be paid to employees at the senior director level and below. Offsetting the increase was a decrease of $5.9 million in payroll taxes related to the vesting of five tranches of our XSPP in September 2021; as no tranches of the XSPP have vested in 2022, we have not recognized payroll tax expense related to the program this year.

Sales and marketing and travel expenses increased $5.9 million. The increase was partially attributable to a $4.4 million increase related to employee commissions driven by higher revenue. The increase also reflects a $1.5 million increase in travel expenses, reflecting a return to normalized levels and an increase of in-person customer meetings. Also impacting higher travel expense was increased travel costs per trip.

Impairment expenses increased $1.4 million, primarily as a result of the decision to slow pacing on construction of our new Scottsdale, Arizona campus.

Research and Development Expenses

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

	Three Months Ended September 30,						Dollar		Percent
	2022			2021			Change		Change
Total research and development expenses	$	59,127		$	42,382		$	16,745	39.5
Research and development as a percentage of net sales		19.0	%		18.3	%

Within the TASER segment, R&D expense increased $3.4 million. An increase of $2.1 million in salaries, benefits and bonus expense reflected higher headcount. Additionally, indirect manufacturing costs and supplies increased $1.2 million related to the development of next generation products.

R&D expense for the Software and Sensors segment increased $13.4 million, reflecting an increase of $8.9 million in salaries, benefits, and bonus expense due to higher headcount and higher anticipated attainment on bonuses expected to be paid to employees at the senior director level and below. Additionally, there was a $4.3 million increase related to stock-based compensation expense, primarily related to increased headcount.

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. We are investing in technologies that include our CEDs, body cameras, in-car cameras and other sensors, artificial intelligence, digital evidence management, productivity software, communications software, and technologies that enable real-time situational awareness for public safety.

Interest and Other Income (Expense), Net

Interest and other income (expense), net was an expense of $11.2 million for the three months ended September 30, 2022, compared to expense of $5.5 million for the same period in 2021. During the third quarter of 2022, we recorded a $10.6 million unrealized loss on marketable securities related to our investment in CLBT and a $0.7 million loss related to observable price changes on our existing strategic investments.

Provision for Income Taxes

The provision for income taxes was an expense of $8.7 million for the three months ended September 30, 2022, which was an effective tax rate of 41.8%. Our estimated full year effective income tax rate for 2022, before discrete period adjustments, is 28.0%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits offset by the executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m) and an increase in valuation allowance and unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was unfavorably impacted by a $0.2 million discrete tax expense associated with shortfalls related to stock-based compensation for RSUs and PSUs that vested during the three months ended September 30, 2022.

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Net Income

We recorded net income of $12.1 million for the three months ended September 30, 2022 compared to net income of $48.5 million for the same period in 2021. Net income per basic share was $0.17 for the three months ended September 30, 2022 compared to $0.73 net income per basic share for the same period in 2021. Net income per diluted share was $0.17 for the three months ended September 30, 2022 compared to $0.67 net income per diluted share for the same period in 2021.

Three Months Ended September 30, 2022 Compared to the Three Months Ended June 30, 2022

Net Sales

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

	Three Months Ended				Three Months Ended				Dollar		Percent
	September 30, 2022				June 30, 2022				Change		Change
TASER segment:
TASER 7	$	65,951	21.2	%	$	53,440	18.7	%	$	12,511	23.4	%
TASER X26P		5,897	1.9			12,339	4.3			(6,442)	(52.2)
TASER X2		8,298	2.7			4,534	1.6			3,764	83.0
TASER Consumer devices		1,702	0.6			1,687	0.6			15	0.9
Cartridges		46,475	14.9			49,845	17.5			(3,370)	(6.8)
Axon Evidence and cloud services		5,125	1.6			3,720	1.3			1,405	37.8
Extended warranties		7,290	2.3			7,459	2.6			(169)	(2.3)
Other		4,145	1.3			2,562	0.9			1,583	61.8
TASER segment		144,883	46.5			135,586	47.5			9,297	6.9
Software and Sensors segment:
Axon Body		35,427	11.4			27,468	9.6			7,959	29.0
Axon Flex		687	0.2			621	0.2			66	10.6
Axon Fleet		10,139	3.3			15,881	5.6			(5,742)	(36.2)
Axon Dock		4,830	1.5			5,849	2.0			(1,019)	(17.4)
Axon Evidence and cloud services		96,814	31.1			81,911	28.7			14,903	18.2
Extended warranties		14,511	4.6			12,498	4.4			2,013	16.1
Other		4,463	1.4			5,799	2.0			(1,336)	(23.0)
Software and Sensors segment		166,871	53.5			150,027	52.5			16,844	11.2
Total net sales	$	311,754	100.0	%	$	285,613	100.0	%	$	26,141	9.2	%

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

	Three Months Ended
			Unit	Percent
	September 30, 2022	June 30, 2022	Change	Change
TASER 7	40,502	32,790	7,712	23.5	%
TASER X26P	3,745	8,831	(5,086)	(57.6)
TASER X2	5,120	2,745	2,375	86.5
TASER Consumer devices	7,180	5,157	2,023	39.2
Cartridges	1,481,169	1,536,332	(55,163)	(3.6)
Axon Body	71,070	59,851	11,219	18.7
Axon Flex	1,188	1,136	52	4.6
Axon Fleet	2,342	6,146	(3,804)	(61.9)
Axon Dock	3,822	5,314	(1,492)	(28.1)

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Net sales within the TASER segment increased by approximately $9.3 million or 6.9% as compared to the prior quarter, primarily due to an increase of $12.5 million in TASER 7 revenue due to increased units sold. Cartridge revenue decreased $3.4 million due to a small decrease in the overall average selling prices and a decrease in legacy cartridge units. An overall decrease in sales for our TASER legacy devices was driven by lower unit sales for TASER X26P devices, partially offset by higher average selling prices and an increase in sales of our TASER X2 devices.

Within the Software and Sensors segment, net sales increased $16.8 million or 11.2% during the three months ended September 30, 2022 compared to the prior quarter. Net sales of Axon Body drove increases in the aggregate number of users, which resulted in increased Axon Evidence revenue of $14.9 million. Axon Body revenue increased $8.0 million due to increased unit sales and higher average selling prices. Partially offsetting the increases in segment revenue, Axon Fleet revenue decreased $5.7 million as a result of decreased units sold, partially offset by higher average selling prices.

Nine months ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

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):

	Nine Months Ended September 30,
	2022				2021
Net sales from products	$	586,653	68.7	%	$	463,116	71.7	%
Net sales from services		267,140	31.3			182,687	28.3
Net sales		853,793	100.0			645,803	100.0
Cost of product sales		260,578	30.5			195,253	30.2
Cost of service sales		70,256	8.2			44,701	6.9
Cost of sales		330,834	38.7			239,954	37.1
Gross margin		522,959	61.3			405,849	62.9
Operating expenses:
Sales, general and administrative		287,157	33.6			403,554	62.5
Research and development		165,090	19.4			143,352	22.2
Total operating expenses		452,247	53.0			546,906	84.7
Income (loss) from operations		70,712	8.3			(141,057)	(21.8)
Interest and other income, net		91,076	10.6			36,896	5.7
Income (loss) before provision for income taxes		161,788	18.9			(104,161)	(16.1)
Provision for (benefit from) income taxes		43,824	5.1			(57,651)	(8.9)
Net income (loss)	$	117,964	13.8	%	$	(46,510)	(7.2)	%

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

	Nine Months Ended September 30,
	2022				2021
United States	$	707,304	83	%	$	518,050	80	%
Other Countries		146,489	17			127,753	20
Total	$	853,793	100	%	$	645,803	100	%

International revenue increased compared to the prior year comparable period, driven primarily by increased sales in our Asia-Pacific (“APAC”) region.

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Net Sales

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

	Nine Months Ended September 30,								Dollar		Percent
	2022				2021				Change		Change
TASER segment:
TASER 7	$	169,457	19.8	%	$	112,760	17.5	%	$	56,697	50.3	%
TASER X26P		27,715	3.2			28,618	4.4			(903)	(3.2)
TASER X2		16,451	1.9			39,001	6.0			(22,550)	(57.8)
TASER Consumer devices		5,085	0.6			4,873	0.8			212	4.4
Cartridges		134,145	15.7			116,409	18.0			17,736	15.2
Axon Evidence and cloud services		11,862	1.4			5,809	0.9			6,053	104.2
Extended warranties		21,428	2.5			17,602	2.7			3,826	21.7
Other		8,686	1.1			7,946	1.3			740	9.3
TASER segment		394,829	46.2			333,018	51.6			61,811	18.6
Software and Sensors segment:
Axon Body		92,603	10.9			60,545	9.4			32,058	52.9
Axon Flex		2,637	0.3			3,481	0.5			(844)	(24.2)
Axon Fleet		39,840	4.7			15,073	2.3			24,767	164.3
Axon Dock		18,159	2.1			18,889	2.9			(730)	(3.9)
Axon Evidence and cloud services		258,664	30.3			175,933	27.2			82,731	47.0
Extended warranties		36,070	4.2			24,632	3.8			11,438	46.4
Other		10,991	1.3			14,232	2.3			(3,241)	(22.8)
Software and Sensors segment		458,964	53.8			312,785	48.4			146,179	46.7
Total net sales	$	853,793	100.0	%	$	645,803	100.0	%	$	207,990	32.2	%

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

	Nine Months Ended September 30,		Unit	Percent
	2022	2021	Change	Change
TASER 7	104,687	77,421	27,266	35.2	%
TASER X26P	18,914	21,837	(2,923)	(13.4)
TASER X2	9,871	24,188	(14,317)	(59.2)
TASER Consumer devices	18,538	18,225	313	1.7
Cartridges	4,107,440	3,751,060	356,380	9.5
Axon Body	193,483	149,914	43,569	29.1
Axon Flex	5,451	6,801	(1,350)	(19.9)
Axon Fleet	14,235	6,655	7,580	113.9
Axon Dock	17,200	20,625	(3,425)	(16.6)

Net sales for the TASER segment increased 18.6% primarily due to an increase of $56.7 million in TASER 7 devices and $17.7 million in cartridge revenue. We continue to see a shift to purchases of our latest generation device, TASER 7, from legacy devices. TASER 7 revenue was impacted by higher average selling prices and an increase in unit sales. The increase in cartridge revenue was impacted by an increase in unit sales and by higher average selling prices, driven by the increase in TASER 7 cartridge units. The increase in revenue from Axon Evidence and cloud services was driven by revenue from our VR training offering and an increase in the number of TASER 7 devices in the field. Offsetting the increases were decreased unit sales for our legacy TASER devices. During the nine months ended September 30, 2022, we recognized $33.3 million in TASER 7 revenue for orders that were scheduled to ship prior to December 31, 2021, but could not be fulfilled due to the delayed receipt of a manufacturing component for our TASER 7 devices.

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Net sales for the Software and Sensors segment increased 46.7%, or $146.2 million during the nine months ended September 30, 2022 as we continued to add users and associated devices to our network. The increase in the aggregate number of users drove the majority of the increase in Axon Evidence revenue of $82.7 million. Increased unit sales of our Axon Body 3 camera drove the $32.1 million increase in Axon Body. The $24.8 million increase in Axon Fleet revenue was primarily driven by higher unit sales and higher average selling prices. Our newest Fleet product, Axon Fleet 3, which includes automated license plate reader technology, began shipping on June 30, 2021. An increase in cameras and docks in the field drove the $11.4 million increase in extended warranties, as most of those devices are sold with extended warranties. Partially offsetting the overall increase in the Software and Sensors segment revenue was a $3.2 million decrease of Other revenue, driven primarily by $2.8 million of contra-revenue during the period related to a free trial program of third party products. During the nine months ended September 30, 2022, we recognized $14.7 million for orders that were scheduled to ship prior to December 31, 2021, but could not be fulfilled due to supply chain constraints for our Axon Body 3 devices.

We consider total company future contracted revenues a forward-looking performance indicator. As of September 30, 2022, we had approximately $3.73 billion of total company future contracted revenue, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. 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 ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

Cost of Product and Service Sales

Within the TASER segment, cost of product and service sales increased to $142.5 million for the nine months ended September 30, 2022 from $112.4 million for the same period in 2021, primarily related to higher unit sales and increased cost on raw materials. Cost as a percentage of sales increased to 36.1% from 33.7%. The increase was primarily attributable to higher labor and freight costs as well as increased manufacturing overhead costs due to expanding our manufacturing capabilities. While we continue to adjust strategic inventory levels based on areas of risk to mitigate potential supply disruption, global supply conditions could further impact our margins.

Within the Software and Sensors segment, cost of product and service sales increased to $188.3 million for the nine months ended September 30, 2022 from $127.6 million for the same period in 2021. Cost as a percentage of sales increased slightly to 41.0% from 40.8%. The increase was primarily driven by product mix and an increase in low-to-no margin professional services that support new installations for software customers.

Gross Margin

As a percentage of net sales, gross margin for the TASER segment decreased to 63.9% from 66.3% for the nine months ended September 30, 2022 and 2021, respectively. The decrease was a result of higher labor costs and increases on freight and raw materials.

As a percentage of net sales, gross margin for the Software and Sensors segment decreased slightly to 59.0% from 59.2% for the nine months ended September 30, 2022 and 2021, respectively. Within the Software and Sensors segment, hardware gross margin was 42.3% for the nine months ended September 30, 2022 compared to 39.2% for the same period in 2021, while the service margins were 72.4% and 74.7% during those same periods, respectively.

Sales, General and Administrative Expenses

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

	Nine Months Ended September 30,						Dollar		Percent
	2022			2021			Change		Change
Total sales, general and administrative expenses	$	287,157		$	403,554		$	(116,397)	(28.8)	%
SG&A expenses as a percentage of net sales		33.6	%		62.5	%

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Stock-based compensation expense decreased $175.2 million in comparison to the prior year comparable period, which was primarily attributable to a decrease of $116.0 million in expense related to the CEO Performance Award and a decrease of $74.3 million related to our XSPP. The decrease related to the vesting of ten tranches of the CEO Performance Award and nine tranches of the XSPP in 2021, which have no remaining unrecognized expense for the vested tranches. The decrease was partially offset by increased stock-based compensation expense for time-based awards due to higher headcount.

Salaries, benefits, and bonus expense increased $17.9 million. Of the total increase, $21.0 million is attributable to an increase in salaries and related primarily to increased headcount. An increase in bonus expense of $6.1 million reflected higher anticipated attainment on bonuses expected to be paid to employees at the senior director level and below, as well as on our annual bonus. Partially offsetting the increase was a decrease of $9.2 million in payroll taxes related to the vesting of nine tranches of the XSPP in the nine months ending September 30, 2021; as no tranches have vested in 2022, we have not recognized payroll tax expense related to the program this year.

Sales and marketing and travel expenses increased $21.5 million. The increase was primarily driven by a $9.2 million increase in commissions expense tied to higher revenue. Also impacting the change in expense was an increase in travel expenses of $8.6 million reflecting increased in-person customer and vendor meetings. Increased travel costs per trip also impacted higher travel expenses. An increase of $4.3 million related to trade shows and seminars, as we hosted in-person events including our annual user conference, Axon Accelerate, in 2022.

Professional and consulting expenses increased $7.4 million in comparison to the prior year comparable period, driven primarily by increased legal and consulting expense.  

Research and Development Expenses

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

	Nine Months Ended September 30,						Dollar		Percent
	2022			2021			Change		Change
Total research and development expenses	$	165,090		$	143,352		$	21,738	15.2	%
R&D expenses as a percentage of net sales		19.4	%		22.2	%

Within the TASER segment, R&D expense increased $5.0 million. An increase of $6.1million in salaries, benefits and bonus expense reflected higher headcount. Additionally, indirect manufacturing costs and supplies increased $2.5 million related to the development of next generation products. Fully offsetting these increases was a decrease in stock-based compensation expense of $5.6 million, due to the vesting of nine XSPP tranches during 2021, for which there is no remaining unamortized expense.

R&D expense for the Software and Sensors segment increased $16.7 million, reflecting an increase of $21.5 million in salaries, benefits, and bonus expense due to higher headcount, higher attainment on bonuses expected to be paid to employees at the senior director level and below and on our annual bonus. Partially offsetting the increase was a decrease in stock-based compensation expense of $5.8 million, due to the vesting of nine XSPP tranches during 2021, for which there is no remaining unamortized expense for the vested tranches.

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. We are investing in technologies that include our CEDs, body cameras, in-car cameras and other sensors, artificial intelligence, digital evidence management, productivity software, communications software, and technologies that enable real-time situational awareness for public safety.

Interest and Other Income, Net

Interest and other income, net was $91.1 million for the nine months ended September 30, 2022, compared to income of $36.9 million for the same period in 2021. During the nine months ended September 30, 2022, we recorded a

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net unrealized gain of $129.4 million related to observable price changes for our existing investments and related warrants and the exercise of warrants in one of our strategic investees, which was partially offset in part by a $36.9 million unrealized loss on marketable securities related to our investment in CLBT. For the nine months ended September 30, 2021, we recorded a gain of $40.9 million related to observable price changes for our investments in certain unconsolidated affiliates and related warrants; $12.3 million of this gain was realized during the period on the sale of a portion of our existing investment.

Provision for Income Taxes

The provision for income taxes was an expense of $43.8 million for the nine months ended September 30, 2022, which was an effective tax rate of 27.1%. Our estimated full year effective income tax rate for 2022, before discrete period adjustments, is 28.0%, which differs from the federal statutory rate primarily due to the impact of R&D tax credits offset by the executive compensation limitation under IRC Section 162(m) and an increase in valuation allowance and unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $1.4 million discrete tax benefit primarily associated with net windfalls related to stock-based compensation for RSUs and PSUs that vested during the nine months ended September 30, 2022.

Net Income

We recorded net income of $118.0 million for the nine months ended September 30, 2022 compared to net loss of $46.5 million for the same period in 2021. Net income per basic share was $1.66 for the nine months ended September 30, 2022 compared to $0.71 net loss per basic share for the same period in 2021. Net income per diluted share was $1.63 for the nine months ended September 30, 2022 compared to $0.71 net loss per diluted share for the same period in 2021.

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

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● 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) reconciles to net income (loss) as follows (in thousands):

	Three Months Ended						Nine Months Ended
	September 30,		June 30,		September 30,		September 30,		September 30,
	2022		2022		2021		2022		2021
Net income (loss)	$	12,131	$	50,962	$	48,524	$	117,964	$	(46,510)
Depreciation and amortization		6,206		6,210		4,838		18,171		13,420
Interest expense		3		3		5		14		27
Investment interest (income) loss		(1,098)		584		(123)		(168)		(1,158)
Provision for (benefit from) income taxes		8,727		17,475		(51,164)		43,824		(57,651)
EBITDA	$	25,969	$	75,234	$	2,080	$	179,805	$	(91,872)
Adjustments:
Stock-based compensation expense		28,204		21,162		35,062		74,454		262,221
Adjusted EBITDA (CEO Performance Award)	$	54,173	$	96,396	$	37,142	$	254,259	$	170,349

Liquidity and Capital Resources

Summary

As of September 30, 2022, we had $147.7 million of cash and cash equivalents, a decrease of $208.6 million as compared to December 31, 2021. Cash and cash equivalents and investments totaled $370.9 million, representing a decrease of $31.2 million from December 31, 2021.

Our ongoing sources of cash include cash on hand, investments, and cash flows from operations. Restricted cash balance of $1.7 million primarily related to funds held in an international bank account securing a guarantee and funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. This balance is included in prepaid expenses and other current assets, as well as other long-term assets on our condensed consolidated balance sheet. 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 Term SOFR 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 September 30, 2022, we had letters of credit outstanding of $6.5 million, leaving the net amount available for borrowing of $43.5 million. The facility matures on December 31, 2023, 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 September 30, 2022 and December 31, 2021, there were no borrowings under the line other than the outstanding letters of credit.

Based on our strong balance sheet and the fact that we do not have long-term debt at September 30, 2022, we believe financing will be available, both through our existing revolving credit facility 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 or investments, income and payroll tax payments for net-settled stock awards, 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 pursuant to our stock repurchase plan. Further repurchases of our

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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):

	Nine Months Ended September 30,
	2022		2021
Operating activities	$	104,241	$	111,564
Investing activities		(302,001)		93,412
Financing activities		(2,465)		(76,902)
Effect of exchange rate changes on cash and cash equivalents		(6,783)		(1,827)
Net increase (decrease) in cash and cash equivalents and restricted cash	$	(207,008)	$	126,247

Operating activities

Net cash provided by operating activities in the first nine months of 2022 of $104.2 million reflects net income of $118.0 million, non-cash income statement items totaling $41.6 million, and a decrease of $55.3 million for the net change in operating assets and liabilities. Included in the non-cash items were $74.5 million in stock-based compensation expense, a decrease of $30.3 million in deferred income taxes, net, $18.2 million in depreciation and amortization expense, and a $92.5 million gain on the change in fair value of strategic investments and marketable securities, net. Cash provided by operations was favorably impacted by increased deferred revenue of $115.2 million, which was primarily attributable to increased sales where payment is received from the customer before performance occurs. Additionally, accounts payable, accrued and other liabilities increased $28.7 million due to an increase in accounts payable due to the timing of invoice payments and to increased accrued commissions on higher revenue. Offsetting this activity was an increase of accounts and notes receivables and contract assets of $115.0 million, an increase of $66.3 million in inventory, and an increase in prepaid expenses and other assets of $17.9 million. The increase in accounts and notes receivable and contract assets is due to increased sales and timing of satisfied performance obligations compared to customer payments of accounts receivable. Inventory increases were a result of advance purchases to support future sales. The increase in prepaid expenses and other assets was driven by an increase of deferred commissions related to increased bookings. 

Net cash provided by operating activities in the first nine months of 2021 of $111.6 million reflects a net loss of $46.5 million, non-cash income statement items totaling $192.1 million, and a use of cash of $34.1 million for the net change in operating assets and liabilities. Included in the non-cash items were $13.4 million in depreciation and amortization expense, $262.2 million in stock-based compensation expense and a $40.9 million gain on the change in fair value of strategic investments, offset by an  unrealized loss of $6.7 million on marketable securities. Cash provided by operations was impacted by increased deferred revenue of $87.6 million, which was primarily attributable to increased sales. This increase was offset by increased accounts and notes receivable and contract assets of $118.1 million and increased prepaid expenses and other assets of $28.9 million. The increase in accounts and notes receivable and contract assets was primarily driven by increased sales. The increase in prepaid expenses and other assets was driven by increases in deferred commissions for bookings not yet recognized as revenue, an increase in prepaid licenses, an increase in right-of-use lease assets, and an increase in income tax receivable as compared to the prior year end.

Investing activities

We used $302.0 million of cash for investing activities during the first nine months of 2022. Cash outflows from investing activities included $70.5 million for new strategic minority investments, $6.6 million for the exercise price of warrants related to our strategic investments, and $2.1 million for a business acquisition. The outflows also included $178.7 million for the purchase of available-for-sale investments, net of proceeds from calls and maturities. Property and equipment purchases totaled $44.0 million, net of proceeds on disposals.

Net cash provided by investing activities was $93.4 million during the first nine months of 2021. Cash inflows from investing activities included proceeds, net of purchases, from held-to-maturity investments and marketable securities

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of $136.7 million, and $14.5 million of proceeds from the sale of a portion of one of our existing strategic investments. The inflows were partially offset by outflows of $20.5 million for new or incremental strategic minority investments and $36.7 million for the purchase of property and equipment and intangible assets.

Financing activities

Net cash used in financing activities was $2.5 million during the first nine months of 2022 and was primarily attributable to the payment of income and payroll taxes on behalf of employees who net-settled stock awards during the period.

Net cash used in financing activities was $76.9 million during the first nine months of 2021 and was attributable to the payment of income and payroll taxes on behalf of employees who net-settled stock awards during the period, net of proceeds received from our ATM offering. Net-settled stock awards included five tranches of our XSPP which vested during the three months ended September 30, 2021.

Off-Balance Sheet Arrangements

The discussion under the heading off-balance sheet arrangements in Note 13 of the notes to our condensed consolidated financial statements within this Quarterly Report on Form 10-Q is incorporated by reference herein.

Critical Accounting Estimates

Our management’s discussion and analysis of our financial condition and results of operation is based on our condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these condensed consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances, and we evaluate our estimates and assumptions on an ongoing basis. 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. 

Our significant accounting policies are discussed in Note 1 to our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021. There have been no significant changes to these policies for the nine months ended September 30, 2022.

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, 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 “available-for-sale”.  We report available-for-sale investments at fair value as of each balance sheet date and record any unrealized gains or losses within accumulated other comprehensive income (loss) as a component of stockholders’ equity. The cost of securities sold is determined on a specific identification basis, and realized gains and losses are included in interest and other income (expense), net within the condensed consolidated statements of operations. When the fair value is below the amortized cost of a marketable security, an estimate of expected credit losses is made. The credit-related impairment amount is recognized in the consolidated statements of operations. Credit losses are recognized through the use of an allowance for credit losses account in the condensed consolidated balance sheet and subsequent improvements in expected credit losses are recognized as a reversal of an amount in the allowance account. If we have the intent to sell the security or it is more likely than not that we will be required to sell the security prior to recovery of its amortized cost basis, then the allowance for the credit loss is written-off and the excess of the amortized cost basis of the asset over its fair value is recorded in the condensed consolidated statements of operations. Based on investment positions as of September 30, 2022, a hypothetical 100 basis point increase in interest rates across all maturities

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would result in a $4.8 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 Term SOFR 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 $6.5 million at September 30, 2022. At September 30, 2022, there was no amount outstanding under the line of credit and the available borrowing under the line of credit was $43.5 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 foreign currencies and therefore are subject to exchange rate fluctuations on these transactions. 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 September 30, 2022.

There was no change in our internal control over financial reporting during the quarter ended September 30, 2022 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1.    Legal Proceedings

The discussion under the headings Product Litigation and U.S. Federal Trade Commission Litigation in Note 13 of the notes to our condensed consolidated financial statements included within this Quarterly Report on Form 10-Q is incorporated by reference herein.

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Item 1A.    Risk Factors

There are no 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, 2021.

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.

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Item 6.    Exhibits

10.1+*	Executive Employment Agreement by and between Axon Enterprise, Inc. and Brittany Bagley
10.2	Axon Enterprise, Inc. 2022 Stock Inducement Plan (incorporated by reference to Exhibit 99.1 to the registration statement on Form S-8, filed September 23, 2022)
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*	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH*	Inline XBRL Taxonomy Extension Schema Document
101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL

+Management contract or compensatory plan or arrangement

*     Filed herewith

**   Furnished herewith

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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:	November 9, 2022
		By:	/s/ PATRICK W. SMITH
			Chief Executive Officer
			(Principal Executive Officer)
Date:	November 9, 2022	By:	/s/ BRITTANY BAGLEY
			Chief Financial Officer and Chief Business Officer
			(Principal Financial and
			Accounting Officer)

45

EX-10.1

EXHIBIT 10.1

EXECUTIVE EMPLOYMENT AGREEMENT

This EXECUTIVE EMPLOYMENT AGREEMENT (“Agreement”) is made effective as of September 26, 2022 (“Effective Date”) and entered into as of the date of last signature below (“Execution Date”) by and between AXON ENTERPRISE, INC., a Delaware corporation, (“Company”) and BRITTANY BAGLEY, an individual (“Executive”), also referred to herein each individually as “Party” or collectively as “Parties.”

RECITAL

WHEREAS, Company wishes to employ Executive as its Chief Financial Officer and Chief Business Officer on the terms and conditions set forth herein.

NOW, THEREFORE, in consideration of the mutual promises contained herein, Company and Executive each intend to be legally bound, covenant, and agree as follows:

AGREEMENT

1.EMPLOYMENT.  Upon the terms and conditions set forth in this Agreement, Company shall employ Executive as Chief Financial Officer and Chief Business Officer.  Except as expressly provided herein, the termination of this Agreement by either Party shall also terminate Executive’s employment with Company.

2.DUTIES.  Executive shall direct and manage Company’s financial strategy, accounting, finance, treasury, internal controls, financial reporting requirements, investor relations, mergers, acquisitions, investments, and information technology, and shall have such duties, authorities and responsibilities commensurate with the duties, authorities and responsibilities of persons in similar capacities in similarly sized companies, and such other duties and responsibilities as Company’s Chief Executive Officer, Chief Operating Officer, Chairman, or Board of Directors shall assign to Executive from time to time.  Executive shall serve Company faithfully, loyally, honestly and to the best of Executive’s ability, and shall devote Executive’s full-time and best efforts to Company.

3.OUTSIDE ACTIVITIES.  Nothing in this Agreement shall preclude Executive, with Company’s prior written approval, from engaging in civil, charitable or religious activities, or from serving as a consultant to or on any board of directors, managers or other board of advisors or companies or organizations which will not present any direct conflict of interest with Company, compete with Company, or adversely affect the performance of Executive’s duties hereunder.  Executive shall obtain Company’s prior written approval for such activities and services, which may be withheld in Company’s sole discretion.

4.TERM.  Subject to the provisions of Sections 6 and 10, Executive’s employment shall commence on the Effective Date and continue for a period of one year (the “Initial Term”). This Agreement will automatically renew and continue for successive one-year terms following the Initial Term (each a “Renewal Term”). The Initial Term and any Renewal Terms are collectively referred to herein as the “Term.”  In any event, unless otherwise agreed to by the parties, this Agreement shall automatically terminate, without notice, when Executive reaches seventy (70) years of age.

5.COMPENSATION.

(a)Base Salary.  Company shall pay Executive a base salary (“Base Salary”), in substantially equal periodic installments and in accordance with Company’s standard payroll practices and applicable law, at the rate set by the Compensation Committee of Company’s Board of Directors (“Committee”). Executive’s Base Salary will be reviewed periodically by and may be adjusted based on Executive’s performance and any compensation review conducted by the Committee. Such review will be based upon both individual and Company performance.

(b)Bonus.  During the Term, to the extent Executive is eligible to participate in any annual cash bonus program adopted by the Committee (“Company Bonus Plan”), the Committee, in its sole discretion and depending on Executive and Company’s attainment of the performance objectives established by the Committee (i.e., the actual amount payable to Executive may be more or less than the target amount), will determine whether Executive receives the entire annual target bonus.  Any annual bonus paid to Executive pursuant to this Agreement shall be paid not later than March 15 of the calendar year following the calendar year in which such bonus was earned. Except as provided in Section 7(a)(ii)(1)(c) below, Executive must be employed on the date the bonus is paid to receive Executive’s annual bonus.

(c)Equity Awards.  During the Term, Executive shall be eligible to receive grants of stock options, restricted stock units, and other forms of equity compensation awards (time and/or performance based, collectively referred to as the “Equity Awards”).  Such Equity Awards, if any, shall be made in the sole discretion of the Committee and will be subject to the terms and conditions established by the Committee, Company’s then existing equity incentive plan document (“Plan”), and the award agreement that Executive must execute as a condition to receive the awards.  Except as otherwise stated in Sections 7(a)(ii) and 10 below, if any terms or conditions contained in this Agreement conflict with any terms and conditions contained in the Plan or an Equity Award agreement, the following order of precedence shall apply to the relevant documents for purposes of determining which document controls the applicable term or condition: (1) the Plan; (2) each Equity Award agreement; (3) this Agreement; and (4) each eXponential Stock Unit Award agreement.

(d)Fringe Benefits.  During the Term, Executive shall be eligible to participate in any benefit plans, including, but not limited to, retirement plans, 401(k) savings plans, disability plans, life insurance plans and health, vision, and dental plans available to other executive employees of Company. The terms and conditions of Executive’s participation in such plans shall be set forth in the relevant benefit plan documents.  Executive shall also be entitled to take paid time off (“PTO”) in accordance with Company’s then existing PTO policy.

(e)Business Expenses. Company shall, in accordance with, and to the extent of, its policies in effect from time to time, bear all customary reasonable and necessary business expenses (including the advancement of certain expenses) incurred by Executive in performing his duties as an executive of Company, provided that Executive accounts promptly such expenses to Company in the manner prescribed from time to time by Company.  Any expenses that are to be reimbursed pursuant to this Agreement that are subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), shall:  (i) be paid no later than the last day of Executive’s tax year following the tax year in which the expense was incurred; (ii) not affect or be affected by any other expenses that are eligible for reimbursement in any other tax year of Executive; and (iii) not be subject to liquidation or exchange for any other benefit.

(f)Section 409A of the Internal Revenue Code.  This Agreement is intended to comply with Section 409A of the Code to the extent subject thereto and, accordingly, to the maximum extent permitted, this Agreement shall be interpreted and administered in compliance with Section 409A of the Code.  Any payments described in this Agreement that are due within the “short-term deferral period” or intended to fit within the “separation pay exception” as defined in Section 409A of the Code shall not be treated as deferred compensation for purposes of Section 409A unless otherwise required by the Code. Notwithstanding anything in this Agreement to the contrary, if Company concludes that any of the payments described in Section 7 or Section 10 are subject to Section 409A of the Code, such payments will not be made prior to Executive’s “separation from service” as defined in Treasury Regulation Section 1.409A-1(h)(applying the default rules of Treasury Regulation Section 1.409A-1(h). In addition, if the payments described in Section 7 or Section 10 are subject to Section 409A of the Code, and if Executive is a “specified employee” as defined in Treasury Regulation Section 1.409A-1(i)(1) on the date of Executive termination of employment, then, to the extent required by Section 409A of the Code, the payments described in Section 7 or Section 10 shall be delayed and paid on the earlier of (i) first day of the seventh month following Executive’s separation from service or (ii) Executive’s death. Executive acknowledges that Company makes no representations or warranties regarding the tax treatment or tax consequences of any compensation, benefits or other payments under this Agreement, including by operation of Section 409A of the Code to the payments described in this Agreement. Neither the time nor schedule of any payment under this Agreement may

be accelerated or subject to further deferral except as permitted by Section 409A of the Code and Executive does not have any right to make any election regarding the time or form of any payment due under this Agreement. For purposes of Section 409A of the Code, the right to a series of installment payments under this Agreement shall be treated as a right to a series of separate payments under Treasury Regulation Section 1.409A-2(b)(2)(iii).

6.TERMINATION.  Subject to the respective continuing obligations of the parties pursuant to Sections 8 through 17, this Agreement may be terminated prior to the expiration of its then remaining applicable Term as follows:

(a)By Company.  Company may terminate this Agreement and Executive’s employment under the following circumstances, and in any such case, the compensation due and owing by Company to Executive following any such early termination of this Agreement shall be paid as set forth in Section 7:

(i)For Cause.  Company may terminate this Agreement immediately for “Cause.” For purposes of this Agreement, “Cause” shall be defined as: (1) Executive’s commission of fraud, misrepresentation, theft or embezzlement of Company assets; (2) Executive’s violations of law or of Company policies material to the performance of Executive’s duties; (3) Executive’s repeated insubordination or failure to comply with any valid and legal directive of Executive’s supervisor; (4) Executive’s engagement in dishonesty, illegal conduct, or misconduct, which is, in each case, injurious to Company or its affiliates; (5) Executive’s conviction of, or plea of guilty or nolo contendere to a crime that constitutes either a felony or a misdemeanor involving embezzlement, misappropriation, moral turpitude or fraud, if such crime materially impairs Executive’s ability to perform services for Company or results in harm to Company or its affiliates; (6) Executive’s material breach of the provisions of this Agreement, including specifically, without limitation, the restrictive covenant obligations described in this Agreement; or, (7) the repeated failure to perform Executive’s duties as required by Section 2 after written notice of such failure from Company (other than any such failure resulting from incapacity due to physical or mental illness); provided, however, in the event of any proposed termination for Cause related to Executive’s poor performance, Executive’s termination shall be effective upon the expiration of a thirty (30) day cure period following written notice by Company and a lack of adequate corrective action having been undertaken by Executive to the reasonable satisfaction of Company, in its sole discretion, during such thirty (30) day cure period.

(ii)Without Cause.  Company may terminate this Agreement without Cause by giving eleven (11) months’ written notice to Executive.

(iii)Death.  If Executive should die during the Term of this Agreement, this Agreement shall immediately terminate effective on the date of Executive’s death.

(iv)Disability.  If Executive’s becomes “Disabled” during the Term of this Agreement, this Agreement shall immediately terminate on the effective date of Executive’s Disability.  For purposes of this Agreement, “Disability” and “Disabled” mean that Executive is physically or mentally disabled from performing the essential functions of Executive’s position, by reason of either: (1) Executive is unable to perform Executive’s duties under this Agreement by reason of any medically determinable physical or mental impairment that is expected to result in death or is expected to last for a continuous period of not less than twelve (12) months; or (2) Executive is, by reason of any medically determinable physical or mental impairment that is expected to result in death or is expected to last for a continuous period for not less than twelve (12) months, receiving income replacement benefits for a period of not less than twelve (12) months under a long-term disability insurance plan covering Executive.  Notwithstanding anything expressed or implied above to the contrary, Company will fully comply with its obligations under the Americans with Disabilities Act, and with any other applicable federal, state or local law, regulation or ordinance, governing the employment of individuals with disabilities.

(b)By Executive.  Executive may terminate this Agreement for any reason or no reason whatsoever by giving sixty (60) days’ written notice to Company (which notice period may be waived, in writing, by Company), and in such case, the compensation due and owed by Company to Executive following any such early termination of this agreement shall be paid as set forth in Section 7.

7.COMPENSATION PAYABLE FOLLOWING EARLY TERMINATION.

(a)In the event of any termination by Company pursuant to Section 6(a), Executive shall be entitled to the following:

(i)For Cause.  If Company terminates Executive for Cause, Executive’s Base Salary shall immediately cease as of the termination date and Executive shall be entitled to: Executive’s earned and unpaid Base Salary through the termination date, reimbursement for any accrued (but unpaid) expenses through the termination date, and the vested employee benefits, if any, to which Executive is entitled pursuant to the terms and conditions of Company’s benefit plans (the “Accrued Obligations”).

(ii)Without Cause.  

(1)If Company terminates Executive’s employment without Cause, and if Executive signs (and does not revoke) the release described in Section 13, Executive shall be entitled to receive the following:

(a)the Accrued Obligations;

(b)a cash severance payment equal to one (1) month of Executive’s then Base Salary (“Severance Benefit”), payable in substantially equal periodic installments, in accordance with Company’s standard payroll practices and applicable law, with the first installment due during the first payroll period following the effective date of Executive’s termination;  

(c)Executive’s annual target bonus, if any, Executive would have received pursuant to the then-existing Company Bonus Plan for the calendar year in which Executive’s effective date of termination of employment occurs, with such amount paid during the first payroll period following the date of termination, provided, however, that if Executive’s notice of termination of employment and effective date of such termination occur in different calendar years, Executive shall also receive Executive’s annual actual bonus for the calendar year in which Executive received notice of termination of employment, with such amount paid in the same manner each participant in the Company Bonus Plan receives his or her bonus;

(d)to the extent permitted by the applicable equity incentive plan document, any previously awarded but unvested Equity Awards subject solely to time based vesting (collectively, “Time-Based Equity Awards”) that would have vested during the one-month period following the effective date of termination if Executive had remained employed during such period shall vest within ten (10) business days following the effective date of termination;

(e)all XSUs (as defined in XSU Award Agreement) held by Executive, if any, applicable to the Tranches (as defined in the XSU Award Agreement) unattained by Company as of the date of notice of termination will vest within ten (10) business days following the expiration of the revocation period applicable to the release described in Section 13 if Company has attained the Market Capitalization Goal (as defined in the XSU Award Agreement) applicable to each respective Tranche as of the date of notice of termination (for purposes of clarity, Company will disregard Operational Goals (as defined in the XSU Award Agreement) in determining whether a Tranche vests pursuant to this subsection) (collectively, “Current XSU Tranche Benefit”); and

(f)in addition to any XSUs that vest pursuant to Section 7(a)(ii)(1)(e) above, all XSUs held by Executive, if any, applicable to the lowest-numbered Tranche unattained by Company as of the date of notice that did not vest pursuant to Section 7(a)(ii)(1)(e) above will partially vest, on a prorated basis, within ten (10) business days following the expiration of the revocation period applicable to the release described in Section 13, determined by dividing the (i) excess, if any, of the Six-Month Market Capitalization (as defined in the XSU Award Agreement) over the Market Capitalization Goal of the last attained tranche by (ii) the difference between the Market Capitalization Goal of the lowest-numbered unattained Tranche that did not vest

pursuant to Section 7(a)(ii)(1)(e) above and the Market Capitalization Goal of the last attained Tranche, including the Tranche that did vest pursuant to Section 7(a)(ii)(1)(e) above, and (iii) multiplying that percentage by the number of XSUs associated with the unattained Tranche that did not vest pursuant to Section 7(a)(ii)(1)(e) above (for purposes of clarity, Company will disregard Operational Goals in determining whether a Tranche vests pursuant to this subsection) (collectively, “Next XSU Tranche Benefit”); and

(2)For the avoidance of doubt, if the offer of the release expires or if the release described in Section 13 is timely executed but revoked, the termination or forfeiture of unvested Time-Based Equity Awards shall occur effective upon such expiration or revocation.

(3)For purposes of clarity and notwithstanding the XSU Award Agreement, the Holding Period Requirements (as defined in the XSU Award Agreement) shall not apply with respect to XSUs that vest pursuant to Section 7(a)(ii) above.  Furthermore, and notwithstanding the XSU Award Agreement, in the event no Tranches vest pursuant to Section 7(a)(ii)(1)(e) above, Company shall not be required to issue Executive a number of shares of Stock (as defined in the XSU Award Agreement) pursuant to the XSU Award Agreement (namely, its Section 3(c)) and, instead, Executive will receive the Next XSU Tranche Benefit, if any.

(iii)Death.  In the event of Executive’s death, and if Executive’s spouse (or representative of Executive’s estate) signs (and does not revoke) the release described in Section 13, Executive’s spouse (or estate) shall be entitled to the following;

(1)Accrued Obligations and the Severance Benefit (except the amount of the cash severance payment shall be increased from one (1) month to eighteen (18) months), with the first installment due for the first payroll period following the expiration of the release revocation period described in Section 13, below;  

(2)a pro rata portion of the annual target bonus Executive would have received pursuant to the then existing Company Bonus Plan had Executive continued employment through the end of the calendar year in which Executive’s death occurs, with such amount paid to Executive’s spouse (or estate) at the same time and in the same manner each participant in the Company Bonus Plan receives his or her bonus; and,

(3)to the extent permitted by the applicable Equity Award agreement, any previously awarded (but unvested) Equity Awards shall vest within ten (10) business days following the expiration of the revocation period applicable to the release described in Section 13, and in the event performance-based Equity Awards vest pursuant to this Subsection 7(a)(iii)(3), such vesting occurs according to the target for such Equity Awards as opposed to actual attainment.

(iv)Disability.  In the event of Executive’s Disability, and if Executive (or lawfully authorized representative of Executive) signs (and does not revoke) the release described in Section 13, Executive shall be entitled to the following:

(1)Accrued Obligations and the Severance Benefit (except the amount of the cash severance payment shall be increased from one (1) to eighteen (18) months), with the first installment due for the first payroll period following the expiration of the release revocation period described in Section 13, below;  

(2)a pro rata portion of the annual target bonus Executive would have received pursuant to the then existing Company Bonus Plan had Executive continued employment through the end of the calendar year in which Executive’s termination of employment occurs, with such amount paid to Executive at the same time and in the same manner each participant in the Company Bonus Plan receives his or her bonus; and,

(3)to the extent permitted by the applicable Equity Award agreement, any previously awarded (but unvested) Equity Awards shall vest within ten (10) business days following the expiration of the revocation period applicable to the release described in Section 13, and in the event performance-based

Equity Awards vest pursuant to this Subsection 7(a)(iv)(3), such vesting occurs according to the target for such Equity Awards as opposed to actual attainment.

(v)Any payments made pursuant to this subsection shall first be provided and paid pursuant to Company’s existing disability policy, as then in effect, and then will be further supplemented by Company as provided for in this subsection.

(b)Resignation.  In the event of any termination by Executive pursuant to Section 6(b), Executive shall be entitled to the Accrued Obligations.

8.CONFIDENTIAL INFORMATION.

(a)Executive agrees to maintain the confidentiality of and not use, directly or indirectly, confidential and proprietary information of Company. Confidential information includes but not limited to: (i) matters of a technical nature such as materials, models, devices, products, trade secret processes, techniques, data, formulas, inventions (whether or not patentable), specifications and characteristics of products and services planned or being developed; (ii) research subjects, methods and results; (iii) matters of a business nature such as information about costs, margins, pricing policies, markets, sales, suppliers, customers, product plans and marketing plans or strategies; (iv) recorded communication; or (v) other information of a similar nature that is not generally disclosed to the public (“Confidential Information”). Executive represents that Executive will return all Company Confidential Information in Executive’s possession to Company upon termination of Executive’s employment with Company.

(b)Executive agrees that, following Executive’s termination of employment for any reason, Executive will not directly or indirectly, alone or as a partner, officer, director, or shareholder of any other firm or entity, use the Confidential Information to solicit or attempt to influence any client, customer or other person to direct its purchase of products or services away from Company.

(c)The parties agree to maintain absolute confidentiality and secrecy concerning the terms of this Agreement and will not reveal, or disseminate by publication in any manner whatsoever this document or any matters pertaining to it to any other person except (i) Executive may disclose this Agreement to potential employers, in order to comply with his obligations contained herein; and (ii) as required by legal process or SEC rules (including, without limitation, any SEC rules designed to protect “whistle blowers”); and (iii) this Agreement does not limit Executive’s ability to communicate with any government agencies regarding matters within their jurisdiction or otherwise participate in any investigation or proceeding that may be conducted by any government agency, including providing documents or other information, without notice, to the government agencies. This confidentiality provision does not apply to communications necessary between Company management, its attorneys and auditors or members of its Board of Directors, Executive’s immediate family members, attorneys, or legal and financial planners or tax preparers who are also bound by this confidentiality provision. Nothing in this Agreement shall prevent Executive from the disclosure of confidential Information or trade secrets that: (i) is made: (1) in confidence to a federal, state, or local government official, either directly or indirectly, or to an attorney; and (2) solely for the purpose of reporting or investigating a suspected violation of law; or (ii) is made in a complaint or other document filed in a lawsuit or other proceeding, if such filing is made under seal.  In the event that Executive files a lawsuit alleging retaliation by Company for reporting a suspected violation of law, Executive may disclose Confidential Information or trade secrets related to the suspected violation of law or alleged retaliation to Executive’s attorney and use the Confidential Information or trade secrets in the court proceeding if Executive or Executive’s attorney: (i) files any document containing Confidential Information or trade secrets under seal; and (ii) does not disclose the Confidential Information or trade secrets, except pursuant to court order.  Company provides this notice in compliance with the Defend Trade Secrets Act of 2016.

(d)All information which Executive has a reasonable basis to consider Confidential Information or which is treated by Company as being Confidential Information shall be presumed to be Confidential Information,

whether originated by Executive, or by others, and without regard to the manner in which Executive obtains access to such information.

(e)Executive agrees that Company shall have the right to notify any future or prospective employers, or individuals or entities with whom Executive may be entering into a contractual relationship, of the provisions of this Section 8 for purposes of ensuring that Company’s interests are protected.  

9.INVENTIONS.

(a)For purposes of this Section 9, the term “Inventions” means discoveries, improvements and ideas (whether or not in writing or reduced to practice) and works of authorship, whether or not patentable or copyrightable: (i) which relate directly to the business of Company, or to Company’s actual or demonstrably anticipated research or development; (ii) which result from any work performed by Executive for Company; (iii) for which equipment, supplies, facilities or trade secret information of Company is utilized; or (iv) which were conceived or developed during the time Executive was obligated to perform the duties described in Section 2.

(b)Executive agrees that all Inventions made, authored or conceived by Executive, either solely or jointly with others, during Executive’s employment with Company (except as otherwise provided above), shall be the sole and exclusive property of Company. Upon termination of this Agreement, Executive shall turn over to a designated representative of Company all property in Executive’s possession and custody belonging to Company. Executive shall not retain any copies or reproductions of correspondence, memoranda, reports, notebooks, drawings, photographs or other documents relating in any way to the affairs of Company which came into Executive’s possession at any time during the Term of this Agreement.

(c)Executive is hereby notified that this Agreement does not apply to any invention for which no equipment, supplies, facility, or trade secret information of Company was used and which was developed initially on Executive’s own time and: (i) which does not relate: (1) directly to the business of Company; or (2) to Company’s actual or demonstrably anticipated research, development or products; or (ii) which does not result from any work performed by Executive for Company.

10.CHANGE IN CONTROL.

(a)General.  It is expressly recognized that Executive’s position with Company and agreement to be bound by the terms of this Agreement represent a commitment in terms of Executive’s personal and professional career which cannot be reduced to monetary terms, and thus, necessarily constitutes a forbearance of options now and in the future open to Executive in Company’s areas of endeavor.  This Section 10 is intended to allay any concerns Executive may have in connection with a potential Change in Control. For purposes of this Agreement, “Change in Control” shall have the meaning ascribed to it in Company’s 2019 Stock Incentive Plan (or any successor equity incentive plan adopted by Company in the future).

(b)Termination by Executive for Good Reason Following a Change in Control. If, during the Term of this Agreement, a Change in Control occurs, and if Executive terminates Executive’s employment for Good Reason during the thirty-six (36) month period following such Change in Control, and if Executive signs (and does not revoke) the release described in Section 13, Executive shall be entitled to receive:

(i)The Accrued Obligations and the Severance Benefit (except the amount of the cash severance payment shall be increased from one (1) month to thirty-six (36) months), payable in substantially equal periodic installments, in accordance with Company’s standard payroll practices, with the first installment due during the first payroll period following the expiration of the release revocation period described in Section 13, below.

(ii)A pro rata portion of the annual target bonus Executive would have received pursuant to the then existing Company Bonus Plan (or any successor plan) had Executive continued employment through the

end of the calendar year in which Executive’s termination of employment occurs, with such amount paid to Executive at the same time and in the same manner each participant in the Company Bonus Plan receives his or her bonus.

(iii)To the extent permitted by the then existing equity incentive plan document, any previously awarded (but unvested) Equity Awards (both time and performance-based), and other forms of equity that may have been previously awarded to Executive shall vest within ten (10) business days following the expiration of the revocation period applicable to the release described in Section 13 and, to the extent permitted by Section 409A of the Code, shall become immediately payable and/or exercisable within ten (10) days following the expiration of the release revocation period; provided, however that the foregoing shall not apply to XSUs, which shall be treated as set forth in the applicable Equity Award agreement.  Any termination or forfeiture of unvested Equity Awards that could vest pursuant to the prior sentence and otherwise would have occurred on or prior to the effective date of the release will be delayed until such date. For the avoidance of doubt, if the offer of the release expires or if the release is timely executed but revoked, the termination or forfeiture of unvested Equity Awards shall occur effective upon such expiration or revocation.  Notwithstanding the foregoing, any performance-based Equity Awards that vest pursuant to this Subsection 10(b)(iii) shall vest according to the target for such Equity Awards as opposed to actual attainment.

(iv)An additional lump sum cash payment equal to twelve (12) times the monthly amount that is charged to COBRA qualified beneficiaries for the same medical and dental coverage options elected by Executive (and Executive’s dependents) immediately prior to the termination date, with such amount payable during the first payroll period following the expiration of the release revocation period described in Section 13.

(v)For purposes of this Section 10(b), “Good Reason” means: (1) a material reduction of Executive’s duties, authority or responsibilities, in effect immediately prior to such reduction; (2) a material reduction of Executive’s then-existing Base Salary; or (3) Company’s material breach of this Agreement. Notwithstanding the foregoing, no termination by Executive shall constitute a termination for Good Reason unless: (x) Executive gives Company notice of the existence of the condition constituting Good Reason within thirty (30) days following the initial occurrence thereof; (y) Company does not remedy or cure the Good Reason condition within thirty (30) days of receiving such notice described in (x); and (z) Executive terminates employment within thirty (30) days following the end of the cure period described in (y).

(c)Termination by Company Prior to a Change in Control.  If, during the Term of this Agreement, Executive’s employment is terminated without Cause during the six (6) month period preceding a Change in Control at the request of a third party purchaser in contemplation of such Change in Control, and such Change in Control is consummated by such third-party purchaser, upon the closing of such Change in Control, if Executive signs (and does not revoke) the release described in Section 13, Executive shall be entitled to receive:

(i)The Accrued Obligations and the Severance Benefit (except the amount of the severance cash payment shall be increased from one (1) month to thirty-six (36) months), payable in substantially equal periodic installments, in accordance with Company’s standard payroll practices, with the first installment due during the first payroll period following the expiration of the release revocation period described in Section 13, below.

(ii)A pro rata portion of the annual target bonus Executive would have received pursuant to the then existing Company Bonus Plan (or any successor plan) had Executive continued employment through the end of the calendar year in which Executive’s termination of employment occurs, with such amount paid to Executive at the same time and in the same manner each participant in the Company Bonus Plan receives his or her bonus.

(iii)To the extent permitted by the then existing equity incentive plan document, any previously awarded (but unvested) Equity Awards, and other forms of equity that may have been previously awarded to Executive shall vest within ten (10) business days following the expiration of the revocation period

applicable to the release described in Section 13; provided, however that the foregoing shall not apply to XSUs, which shall be treated as set forth in the applicable Equity Award agreement. Notwithstanding the foregoing, any performance-based Equity Awards that vest pursuant to this Subsection 10(c)(iii) shall vest according to the target for such Equity Awards as opposed to actual attainment.

(iv)An additional lump sum cash payment equal to twelve (12) times the monthly amount that is charged to COBRA qualified beneficiaries for the same medical and dental coverage options elected by Executive (and Executive’s dependents) immediately prior to the termination date, with such amount payable during the first payroll period following the expiration of the release revocation period described in Section 13.

(d)XSU; Termination by Company Without Cause.  Notwithstanding anything to the contrary set forth in the applicable XSU Award Agreement or the Plan, if Executive’s employment is terminated by Company without Cause during the ninety (90) days prior to, or one (1) year after, a Change in Control, and if Executive signs (and does not revoke) the release described in Section 13, then Executive shall receive the Current XSU Tranche Benefit and Next XSU Tranche Benefit, subject to the terms and conditions of Sections 7(a)(ii)(1)(e) and 7(a)(ii)(1)(f) above.

11.Executive Covenants.  In consideration of Executive’s continued employment with Company and the benefits and payments described in this Agreement, Executive agrees to comply with and adhere to the following covenants during Executive’s period of employment with Company, including during any notice period of termination of employment and during a period of twelve (12) months commencing upon notice of termination of Executive’s employment with Company for any reason:

(a)Covenant Not to Compete.  Unless Executive resides and works in California, Executive agrees that during the Term of this Agreement, including the notice of termination of employment periods specified in this Agreement and during the twelve (12) month period following notice of termination of Executive’s employment with Company for any reason (the “Non-Compete Period”), Executive will not, directly or indirectly, own, control, manage, operate, or act for or on behalf of, assist in, engage in, have any financial interest in, or participate in any way, including as an owner, partner, employee, officer, agent, board member, consultant, advisor, volunteer, shareholder or investor in any entity, person, business or enterprise that is engaged in the design, manufacture, marketing, selling, importing, exporting, servicing or supporting of less lethal weapons, body-worn cameras, mountable video cameras, digital evidence or records management, computer-aided dispatch, any other business in which the Company is engaged or which is on the roadmap to enter at the time of termination of employment, or any service that the Company provides or has on its roadmap to provide in the field of personal or private safety, criminal justice, and public safety (including but not limited to first responders, corrections, private  or public security, law enforcement, and the military) (collectively, “Company Business”). The foregoing covenant will cover Executive’s activities in every part of the Territory. For purposes of this Agreement,“Territory”meansallstatesoftheUnitedStatesofAmerica and all foreign countries which Executive was involved inprovidinggoodsorservices on behalf of the Company,interacted with the Company’scustomers, acquired Company Confidential Information regarding the Company’s products, sales, marketing, and/or operations, orotherwiseconductedbusiness for the Company atanytimeduringthetwo-year period prior to the date of the termination of my relationship with theCompany.

Executive acknowledges that Executive’s continued employment with Company and the payments specified in this Agreement are sufficient consideration for this covenant not to compete.  Executive further acknowledges that Company is engaged in marketing and selling its products throughout the world and that this Covenant Not to Compete is necessary and reasonable to protect Company and that Company will suffer irreparable harm and other damages in the event of a breach of this provision.  Executive acknowledges that Executive’s training and experience have prepared him/her for employment or other business opportunities to sell product and perform services for businesses other than those in the Company Business.  Accordingly, Executive acknowledges that the restrictions contained in this covenant not to compete will not unduly prevent him from obtaining employment or business opportunities other than in the Company Business.  Executive also

acknowledges that the time, scope and the geographic area of this Covenant Not to Compete are reasonable and necessary to protect the interests of Company and the Company Business.  

(b)No Solicitation of Customers.  Executive shall not contact, or cause to be contacted, directly or indirectly, or engage in any form of oral, verbal, written, recorded, transcribed, or electronic communication with any Customer for the purposes of conducting business that is competitive or similar to that of Company or for the purpose of disadvantaging Company’s business in any way.  It is not a breach of this subsection for Executive to respond to an unsolicited inquiry from a Customer by informing that Customer that “I am subject to a contractual restriction and am unable to assist you,” or words of similar effect.  For purposes of this Agreement, “Customer” shall mean all persons or entities that have used or inquired of Company’s services concerning Covered Business at any time during the Term.  Executive acknowledges and agrees that Company’s list of Customers was cultivated with great effort and secured through the expenditure of considerable time and money by Company.

(c)Covenant Not to Recruit and Hire.  Executive shall not: (i) directly or indirectly hire, solicit, or recruit, or attempt to hire, solicit, or recruit, any employee of Company to leave their employment with Company, nor shall Executive contact any employee of Company, or cause an employee of Company to be contacted, for the purpose of leaving employment with Company; or (ii) solicit, encourage, or induce, or cause to be solicited, encouraged or induced, directly or indirectly, any supplier, vendor or contractor who conducted business with Company at any time during the two-year period preceding the termination of Executive’s employment with Company, to terminate or adversely modify any business relationship with Company or not to proceed with, or enter into, any business relationship with Company, nor shall Executive otherwise interfere with any business relationship between Company and any such supplier, vendor or contractor.

(d)Covenant Not to Disparage.  Executive agrees not to make any statements, written or verbal, or cause or encourage others to make any statements, written or verbal, including but not limited to any statements made via social media, on websites or blogs, that defame, disparage or in any way criticize the personal or business reputation, practices, or conduct of Company, or any of its affiliates, its directors, officers, employees, or its products. Executive acknowledges and agrees that this prohibition extends to statements, written or verbal, made to anyone, including but not limited to, the news media, any member of the Board of Directors or advisory board, competitors, vendors, employees (past and present) and clients.

(e)Acknowledgements.  Executive further acknowledges that Executive’s fulfillment of the obligations contained in this Agreement, including, but not limited to, his obligation neither to disclose nor to use Company Confidential Information other than for Company’s exclusive benefit and Executive’s obligations not to compete and not to solicit contained in subsections (a) and (b) above, is necessary to protect Company Confidential Information and, consequently, to preserve the value and goodwill of Company.  The covenants set forth in subsections (a) through (e) above are necessarily of a special, unique and extraordinary nature, and the loss arising from a breach thereof cannot reasonably and adequately be compensated by money damages, as such breach will cause Company to suffer irreparable harm.  Accordingly, in the event of any breach or threatened breach of any of the covenants set forth in this subsections (a) through (e) above, Company will be entitled to seek an injunctive or other extraordinary relief from a court of competent jurisdiction to restrain the violation or threatened violation of such covenants by Executive or any person acting for or with Executive in any capacity.  The remedy set forth herein will be cumulative and not in limitation of any other available remedies.

The covenants contained in subsections (a) through (e) above shall be construed as a series of separate covenants, one for each city, county and state of any geographic area in which Company sold products or services.  In the event that the provisions of subsections (a) through (e) above are deemed to exceed the time, geographic or scope limitations permitted by applicable law, then such provisions shall be reformed to the maximum time, geographic or scope limitations, as the case may be, then permitted by such law.  In the event that the court does not exercise the power granted to it in the prior sentence, Executive and Company agree to replace such invalid or unenforceable term or provision with a valid and enforceable term or provision that will achieve, to the extent possible, the economic, business and other purposes of such invalid or unenforceable term.

12.NO ADEQUATE REMEDY.  The parties declare that is impossible to measure in money the damages which will accrue to either party by reason of a failure to perform any of the obligations under this Agreement. Therefore, if either party shall institute any action or proceeding to enforce the provisions hereof, such person against whom such action or proceeding is brought hereby waives the claim or defense that such party has an adequate remedy at law, and such person shall not urge in any such action or proceeding the claim or defense that such party has an adequate remedy at law.

13.General Release of Claims by Executive.  To receive the severance and/or benefits described in Section 7 or Section 10, Executive (or Executive’s spouse or estate, if applicable) must no later than sixty (60) days following Executive’s termination date (or in the case of Section 10(b), no later than sixty (60) days following the date of the Change in Control), execute (and not revoke) a release in substantially the form attached hereto as Exhibit A. The release shall be provided to Executive prior to, or within, five (5) days following Executive’s termination (or a Change in Control, if applicable). Executive (or Executive’s spouse or estate, if applicable) shall have twenty-one (21) days following the date on which the release is given to Executive (or Executive’s spouse or estate, if applicable) to sign and return the release to Company. After return to Company, Executive (or Executive’s spouse or estate, if applicable) shall have seven (7) days to revoke the release.  Notwithstanding anything in this Agreement to the contrary, if Company concludes, in the exercise of its discretion, that the severance and/or benefits are subject to Section 409A of the Code, and if the consideration period described in the release, plus the revocation period described in the release spans two (2) calendar years, the severance payments and benefits shall not begin to be paid to Executive (or Executive’s spouse or estate, if applicable) until the second calendar year.

14.Company Property.  All computers, tablets, phones, equipment, records, files, records, lists (including computer generated lists), data, drawings, documents, equipment and similar items relating to Company’s business that Executive generated or received from Company remains Company’s sole and exclusive property. Executive further represents that Executive has not copied or caused to be copied, printout, or caused to be printed out any documents or other material originating with or belonging to Company. Executive agrees to promptly return to Company all property of Company in Executive’s possession upon termination of his employment with Company including all Company documents, equipment, or other materials.

15.EXECUTIVE WARRANTIES AND REPRESENTATIONS.  Executive warrants and represents that:

(a)Except as otherwise provided in this Agreement, Company has paid all wages, bonuses, commissions, and any and all other benefits due to Executive up to the date that Executive has signed this Agreement;

(b)Throughout Executive’s employment, up to the date that Executive has signed this Agreement, Executive was fully and appropriately compensated for all hours worked in accordance with the Fair Labor Standards Act and other applicable laws, if any;

(c)Up to the date that Executive has signed this Agreement, Executive has been provided with all leave to which Executive is entitled under Company policy and applicable law, including but not limited to the Family and Medical Leave Act;

(d)Executive has carefully read and fully understands the terms and conditions of this Agreement;

(e)Executive is not waiving rights or claims that may arise after the date this Agreement is executed;

(f)Executive is executing this Agreement knowingly and voluntarily, without any duress, coercion or undue influence by Company, its representatives, or any other person;

(g)Executive has not relied upon any representations or statements made by Company or its representatives which are not specifically set forth in this Agreement;

(h)Executive has had ample opportunity to consult with an attorney of Executive’s choice and to have that attorney review and explain to Executive the terms of this Agreement and its consequences before executing this Agreement;

(i)Executive has the capacity to act on Executive’s own behalf and on behalf of all who might claim through Executive to bind them to the terms and conditions of this Agreement;

(j)Executive has pending no claim, complaint, grievance or any document with any federal or state agency or any court seeking money damages or relief against Company; and

(k)The benefits in this Agreement constitute good and valuable consideration and Executive is fully satisfied with the terms and conditions of this Agreement.

16.Cooperation.  Executive agrees, during the Term and all time thereafter, to cooperate with Company regarding any claims, litigation, or related matters involving Company, including providing truthful: (a) information by phone, email, or otherwise upon reasonable request; and (b) testimony by deposition or in court as may be reasonably required, with Company paying reasonable compensation, travel and per diem expenses.

17.MISCELLANEOUS.

(a)Successors and Assigns.  This Agreement shall be binding upon and inure to the benefit of all successors and assigns of Company, whether by way of merger, consolidation, operation of law, assignment, purchase or other acquisition of substantially all of the assets or business of Company and shall only be assignable under the foregoing circumstances and shall be deemed to be materially breached by Company if any such successor or assign does not absolutely and unconditionally assume all of Company’s obligations to Executive hereunder. Any such successor or assign shall be included in the term “Company” as used in this Agreement.

(b)Notices.  All notices, requests and demands given to, or made, pursuant hereto shall, except as otherwise specified herein, be in writing and be delivered or mailed to any such party at its address which:

(i) In the case of Company shall be:

Axon Enterprise, Inc.

17800 North 85th Street

Scottsdale, Arizona 85255

(ii) In the case of Executive shall be:

Executive’s current address or email address on file with Company

Either party may, by notice hereunder, designate a change of address. Any notice, if mailed properly addressed, postage prepaid, registered or certified mail, shall be deemed dispatched on the registered date or that stamped on the certified mail receipt, and shall be deemed received within the fifth business day thereafter, or when it is actually received, whichever is sooner.

(c)Captions.  The various headings or captions in this Agreement are for convenience only and shall not affect the meaning or interpretation of this Agreement.

(d)Governing Law.  The validity, construction, rights, obligations, remedies and performance of this Agreement shall be governed by and construed in accordance with the Federal Arbitration Act. Any non-arbitration-covered disputes, including but not limited to Sections 8, 9, and 11, shall be governed by the laws of the State of California. To the extent that any lawsuit is permitted under this Agreement, I hereby expressly consent to the personal and exclusive jurisdiction and venue of the state and federal courts located in Maricopa County, Arizona for any lawsuit filed against me by the Company. BY SIGNING THIS AGREEMENT, EACH PARTY

HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY DISPUTE DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT.  Both parties will bear their own costs, attorneys’ fees and other expenses incurred in connection with the preparation and/or review of this Agreement.  Should Executive or Company employ an attorney to enforce any of the provisions of this Agreement, or to recover damages for the breach of any terms of this Agreement, the prevailing party shall be entitled to recover all reasonable costs, damages and expenses, including attorneys’ fees incurred or expended in connection therewith.  The phrase “prevailing party” shall mean the party who is determined in the proceeding to have prevailed or who prevails by dismissal, default, judgment, or otherwise.

(e)Construction.  Wherever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity without invalidating the remainder of such provision or the remaining provisions of this Agreement.

(f)Waivers.  No failure on the part of either party to exercise, and no delay in exercising, any right or remedy hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any right or remedy hereunder preclude any other or further exercise thereof or the exercise of any right or remedy granted hereby or by any related document or by law.

(g)No Conflicting Business.  Executive agrees that he will not, during the Term of this Agreement, transact business with Company personally, or as an agent, owner, partner, shareholder of any other entity; provided, however, Executive may enter into any business transaction that is, in the opinion of Company’s Board of Directors, reasonable, prudent or beneficial to Company, so long as any such business transaction is at arms-length as though between independent and prudent individuals and is ratified and approved by Company’s Board of Directors.

(h)Tax Consequences.  Company makes no representations or warranties with respect to the tax consequences of the payment of any sums to Executive under the terms of this Agreement. Executive agrees and understands that Executive is responsible for payment, if any, of local, state and federal taxes on the sums paid by Company and any penalties or assessments.

(i)Entire Agreement.  This Agreement contains the complete, entire understanding of the parties. In executing this Agreement, neither party relies on any term, condition, promise or representation other than those expressed in this Agreement. This Agreement supersedes all prior and contemporaneous oral and written agreements and discussions with respect to the subject matter of this Agreement and all prior employment agreements are deemed cancelled and terminated. This Agreement is intended to be effective in its entirety and if any provision of this Agreement is determined to be invalid or otherwise unenforceable, then the entire Agreement shall be deemed invalid or unenforceable.

(j)Counterparts.  This Agreement shall be executed in at least two counterparts, each of which shall constitute an original, but both of which, when taken together, will constitute one in the same instrument.

(k)Amendment.  This Agreement may be modified only by written agreement executed by both parties hereto.

18.SECTION 280G OF THE CODE.  Sections 280G and 4999 of the Internal Revenue Code (“Code”) may place significant tax burdens on both Executive and Company if the total payments made to Executive due to certain change in control events described in Section 280G of the Code (the “Total Change in Control Payments”) equal or exceed Executive’s 280G Cap.  For this purpose, Executive’s “280G Cap” is equal to Executive’s average annual compensation in the five (5) calendar years preceding the calendar year in which the change in control event occurs (the “Base Period Income Amount”) times three (3).  If the Total Change in Control Payments equal or exceed the 280G Cap, Section 4999 of the Code imposes a 20% excise tax (the “Excise Tax”) on all amounts

in excess of one (1) times Executive’s Base Period Income Amount.  In determining whether the Total Change in Control Payments will equal or exceed the 280G Cap and result in the imposition of an Excise Tax, the provisions of Sections 280G and 4999 of the Code and the applicable Treasury Regulations will control over the general provisions of this Section 18. All determinations and calculations required to implement the rules set forth in this Section 18 shall take into account all applicable federal, state, and local income taxes and employment taxes (and for purposes of such calculations, Executive shall be deemed to pay income taxes at the highest combined federal, state and local marginal tax rates for the calendar year in which the Total Change in Control Payments are to be made, less the maximum federal income tax deduction that could be obtained as a result of a deduction for state and local taxes (the “Assumed Taxes”)).

(a)Subject to the “best net” exception described in Section 18(b), in order to avoid the imposition of the Excise Tax, the total payments to which Executive is entitled under this Agreement or otherwise will be reduced to the extent necessary to avoid equaling or exceeding the 280G Cap, with such reduction first applied to the cash severance payments that Executive would otherwise be entitled to receive pursuant to this Agreement and thereafter applied in a manner that will not subject Executive to tax and penalties under Section 409A of the Code.

(b)If Executive’s Total Change in Control Payments minus the Excise Tax and the Assumed Taxes (payable with respect to the amount of the Total Change in Control Payments) exceeds the 280G Cap minus the Assumed Taxes (payable with respect to the amount of the 280G Cap), then the total payments to which Executive is entitled under this Agreement or otherwise will not be reduced pursuant to Section 18(a).  If this “best net” exception applies, Executive shall be fully responsible for paying any Excise Tax (and income or other taxes) that may be imposed on Executive pursuant to Section 4999 of the Code or otherwise.

(c)Company will engage a law firm, a certified public accounting firm, and/or a firm of reputable executive compensation consultants (the “Consultant”) to make any necessary determinations and to perform any necessary calculations required in order to implement the rules set forth in this Section 18.  The Consultant shall provide detailed supporting calculations to both Company and Executive and all fees and expenses of the Consultant shall be borne by Company.  If the provisions of Section 280G and 4999 of the Code are repealed without succession, this Section 18 shall be of no further force or effect.  In addition, if this provision does not apply to Executive for whatever reason, this Section shall be of no further force or effect.

[SIGNATURE PAGE FOLLOWS]

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the Execution Date.

AXON	EXECUTIVE:
AXON ENTERPRISE, INC., a corporation organized under the laws of the State of Delaware, U.S.A.	BRITTANY BAGLEY, an individual
By: ​ ​	By: ​ ​
Name: Joshua Isner	Date: ​ ​
Title: Chief Operating Officer
Date: ​ ​

Exhibit A

Form of Release Agreement

This Confidential Severance Agreement and General Release (“Release”) is made and entered into by and between Brittany Bagley (“Employee”) and Axon Enterprise, Inc., a Delaware corporation (“Axon” or the “Company”) (Employee and Axon are collectively referred to as the “Parties” and separately as a “Party”).  This Release is intended to settle and dispose of all liability, rights, claims, demands, actions or causes of action that Employee may have against Axon and/or its current or former shareholders, principals, parent companies, subsidiaries, affiliated companies, divisions, directors, officers, employees, staff, agents, contractors, assigns, affiliates, attorneys, predecessors, successors, indemnitors, insurers, and all those for whom the above referenced parties may have legal responsibility (collectively referred to as the “Released Parties”).

RECITALS

A.Employee and Axon mutually agree that Employee’s employment with Company will terminate effective __________________.  

B.In consideration for the severance benefits described in Executive Employment Agreement entered into by and between Axon and Employee dated _______________ (the “Employment Agreement”), Employee agrees as follows:

COVENANTS

NOW, THEREFORE, IN CONSIDERATION of the covenants, agreements, recitals and promises provided and identified herein, the sufficiency of which is expressly acknowledged, the Parties agree as follows:

1.Severance.  Provided that Employee signs and complies with this Release and has not exercised Executive’s right of revocation pursuant to section 2(b)(ii), Axon agrees to pay to Employee the severance and benefits described in the Employment Agreement (the “Severance Benefits”), at the times, and subject to the terms and conditions set forth in the Employment Agreement.  Employee acknowledges and agrees that Executive would not otherwise have been entitled to the Severance Benefits had Executive not elected to sign this Release.  Employee acknowledges that Executive has been paid all of Executive’s salary, wages, bonuses, accrued vacation and paid time off (if applicable), commissions, referral fees, penalties, benefits, or any other monies owed to Employee by or from any of the Released Parties, Executive is owed (and shall be owed in the future) nothing further from any of the Released Parties.

1.Employee’s Release.  In consideration of the covenants set forth herein:

(a) Full Release and Waiver.  Employee, on behalf of himself/herself, Executive’s marital community, if any, and Executive’s heirs and assigns, irrevocably, unconditionally, and expressly releases, waives, acquits, and forever discharges the Released Parties from any and all claims, complaints, causes of action, liabilities, obligations, agreements, controversies, damages, suits, rights, costs, losses, debts, expenses, and demands of any kind (including attorneys’ fees and costs actually incurred) of any nature whatsoever, whether known or unknown, suspected or unsuspected which Employee has, ever has had, or may have and which are based on acts or omissions which Employee knew or should have known about at the time of the signing of this Release.  This FULL RELEASE AND WAIVER includes, without limitation and to the fullest extent permitted by law, all rights

and claims arising under the following laws, as amended: Title VII of the Civil Rights Act; Civil Rights Act of 1866 (Section 1981); Lilly Ledbetter Fair Pay Act; Fair Credit Reporting Act; Labor Management Relations Act; Equal Pay Act; Americans with Disabilities Act; Age Discrimination in Employment Act; Fair Labor Standards Act; Older Workers Benefits Protection Act; Family Medical Leave Act; Rehabilitation Act; Occupational Safety and Health Act and its state equivalent; Genetic Information Nondiscrimination Act; Pregnancy Discrimination Act; False Claims Act; Sarbanes-Oxley Act; Employment Retirement Income Security Act; National Labor Relations Act; Health Insurance Portability and Accountability Act; Arizona Civil Rights Act; Arizona Drug Testing of Employees Act; Arizona Medical Marijuana Act; the anti-retaliation provisions of Arizona workers’ compensation; Arizona Employment Protection Act; Arizona state wage payment laws including the Arizona Wage Act, Arizona Minimum Wage Act, and Arizona Equal Pay Act; wage claims of all types, including, but not limited to, those for non-payment, late payment, overtime, rest periods, meal periods, bonuses, deductions, wage statements, and/or penalties; wrongful termination in violation of public policy; unfair business practices; any other local, state, or federal statute, regulation, or ordinance; any contract, express or implied; any covenant of good faith and fair dealing, express or implied; any state or federal whistleblower statute or regulation; any tort; any legal restriction on Axon’s right to terminate Employee; and/or other common law or statutory causes of action Employee may now have, has had, or could have been alleged as of the Effective Date.  Employee understands that Employee is not releasing or giving up any claims for any events or actions that happen after Executive signs this Release.

(i) Employee promises and covenants not to file, commence, or initiate any suits, grievances, demands, or causes of action against the Released Parties on the basis of any claim released herein.

(ii) This Release includes any claims that Employee’s spouse, agents, heirs, or assigns, if any, may have against the Released Parties, including those arising from or in any way related to Employee’s work and/or employment with Axon and/or the Released Parties.  

(iii) It is understood and agreed that this is a full, complete and final general release of any and all claims, as described herein, and that Employee and Axon agree that it shall apply to all unknown, unanticipated, unsuspected and undisclosed claims, demands, liabilities, actions or causes of action, in law, equity or otherwise, as well as those which are now known, anticipated, suspected or disclosed.  

(iv) This Release does not apply to any claim Employee may have under the workers’ compensation or unemployment compensation statutes or any other claim, which, as a matter of law, cannot be released by private agreement.  

(1) This Release does not limit Employee’s ability to communicate with any applicable government agencies or otherwise participate in any manner in any investigation or proceeding that may be conducted by any government agency.  This Release is not intended to affect the rights and responsibilities of government agencies to enforce the laws within their jurisdiction, including but not limited to the Equal Employment Opportunity Commission (“EEOC”), the National Labor Relations Board (“NLRB”), the Occupational Safety and Health Administration (“OSHA”),  the Arizona Division of Occupational Safety and Health

(“ADOSH”), the Securities and Exchange Commission (“SEC”), the Civil Rights Division of the Arizona Attorney General Office (“ACRD”), or any other applicable local, state, or federal agency.  This means that by signing this Release, Employee may still exercise Executive’s protected right to file an administrative charge with, or participate in an investigation or proceeding conducted by, a local, state, or federal government agency.  However, if a government agency commences an investigation or other legal action against the Released Parties on Employee’s behalf, Employee specifically waives and releases Executive’s right to recover monetary damages or other benefits or remedies of any sort whatsoever arising from the governmental action (including any legal action, agency charge, lawsuit, claim, proceeding, or investigation against the Released Parties).  The aforementioned waiver of monetary damages and other benefits or remedies does not apply to the Securities Exchange Act of 1934 or the Dodd-Frank Wall Street Reform and Consumer Protection Act, if applicable.  Employee acknowledges that this Release may be used by the Released Parties as a defense to any actions taken by Employee that may be in violation of this Release.

(v) Employee represents that Executive has not filed any charge or complaint with, or participated in, an investigation or proceeding conducted by the EEOC, NLRB, OSHA/ADOSH, SEC, ACRD or any other local, state, or federal government entity or agency.  Employee specifically acknowledges and represents that Executive has already disclosed to Company any and all information, if any, regarding any action or inaction that Executive reasonably believes, or believed to be, taken by the Released Parties and in violation of law.  To the extent Employee has not made such disclosures to date, Employee represents such information, if any, does not or did not exist to disclose now or in the future.

(b) Waiver of Age Discrimination in Employment Claims.  As noted above, this Release is intended to release and discharge all claims Employee may have under the Age Discrimination in Employment Act (“ADEA”).  To satisfy the requirements of the Older Workers’ Benefits Protection Act (“OWBPA”), Employee acknowledges the following:

(i) Employee has read and understands the terms of this Release.  Employee acknowledges that Executive has 21 calendar days from receipt of this Release to consider whether to sign this Release and that Employee may sign the Release any time within this time period.  If Employee signs before the 21-day period expires, Employee does so to expedite the Release and waives the right to take the remaining days to consider the Release.  Employee understands and agrees that the Release will be automatically revoked and withdrawn if not accepted and delivered to Human Resources at Company’s address with a copy to Legal@Company.com within 21 calendar days after receipt.

(ii) Employee can revoke Employee’s signature any time within seven (7) calendar days after signing it.  To revoke Employee’s signature pursuant to the OWBPA, Employee must do so in writing, sent to Human Resources at Company’s address with a copy to Legal@Company.com before the expiration of the seven-day period.  If Employee’s signature is not revoked at the expiration of the seven days, this Release will be enforceable and irrevocable.

(iii) Employee agrees that this Release is not effective and no money will be paid or owed towards the Severance Benefits until all of the following have occurred:  (1) Employee signs the Severance Release in the time period identified in this section above; and (2) the 7-day revocation period contained in this section has passed; and (3) Employee has not revoked Employee’s signature during this time period (hereinafter the “Effective Date”).  If Employee does not timely sign and/or revokes this Release, then this Release shall be null and void, and no payments shall be made and/or due under this Release.

(iv) Employee understands that this waiver and release does not apply to any rights or claims that may arise after execution date of this Release.  Employee has been advised hereby that Employee has the right to consult with an attorney, if desired, prior to executing this Release and acknowledges that Executive has received all advice Employee deems necessary concerning this Release.

2.Confidentiality of Release.  Employee agrees to treat all terms and conditions contained herein and all discussions leading up to this Release as strictly confidential and will not disclose them to anyone other than Executive’s (if applicable) respective attorneys, Executive’s spouse, Executive’s tax preparers, government agencies who have specifically requested a copy of this Release, to individuals necessary for Company to effectuate payment, or as otherwise required by law (“Authorized Individuals”).  Employee agrees Executive will not disclose or publish or cause to be disclosed or published the existence, amount of, or content of the terms of this Release, except to Authorized Individuals.  If Employee discloses any such information to Authorized Individuals, Executive will advise that person or entity of the terms of the confidentiality provision of this Release and require their consent to comply with that agreement, to the extent permissible by law.  The confidentiality of the terms and conditions contained herein is part of the consideration inducing Company to enter into this Release.  Employee agrees that this provision is a material provision to the Release, and that Company would not have entered into this Release, but for the inclusion of this provision.  Employee shall not disclose any information regarding this Release to individuals other than the Authorized Individuals, unless advance written authorization has been received by Employee from the CEO of Axon.  Violation of this section will constitute a material breach of the Release and entitle Company to pursue all remedies at law including seeking damages (including but not limited to the amount paid pursuant to this Release) and injunctive relief without posting bond with a court of competent jurisdiction to restrain any further violations of this Release.

3.Nondisparagement.  Employee covenants and agrees that Executive will not communicate any false and derogatory statements about the Released Parties in any manner whatsoever, including oral and/or written statements and comments on social networking applications, blogs, or internet websites.   

4.References.  Company agrees to provide an employment reference for Employee.  Specifically, Company will only confirm Employee’s dates of employment, job title, salary, and will communicate that Executive left on amenable terms.  If any third party (e.g., prospective employer, lender) wishes to verify Employee’s employment with Company, Employee shall advise that person or entity to contact Company’s Human Resources Department.  Company may designate another contact for Employee to direct reference requests, at Company’s sole discretion.

5.Return of Company Property.  Employee affirms that Executive has returned all Company property to Company as of the date this Release is executed, including but not limited to files, documents, records, copies, confidential information, Company-provided credit cards, keys, uniforms, computers, phones, equipment, and tools.

6.Entire Release.  This Release constitutes the full and complete understanding of the Parties.  There are no other agreements or representations, written or oral, pertaining to the subject matter hereof, and the Release supersedes any and all prior understandings, representations, warranties, and agreements between the parties pertaining to the subject matter hereof. The Parties may modify this Release only in a writing signed by all Parties.

7.Acknowledgment.  Employee acknowledges and agrees that Executive has read this Release in full; that Executive has had reasonable time to consider its terms; that Executive has been advised to consult with an attorney regarding this Release; and that Executive has signed this Release without coercion and of Executive’s own free will, knowingly and voluntarily, understanding its terms, and understanding the final and binding effect of execution of this Release.  Employee understands that this Release is a FULL RELEASE AND WAIVER OF ALL CLAIMS against the Released Parties.

9.No Reapply.  Employee acknowledges that the relationship with Company has been severed and, therefore, agrees not to apply for, seek employment, seek work, nor accept employment with, Company or any of its affiliated companies.  Employee further acknowledges Executive will not seek work as a consultant, independent contractor, or temporary worker with Company.

10.Assignment.  The rights and obligations of the Released Parties and/or Axon shall inure to the benefit of their successors and assigns.  Employee’s rights and obligations under this Release may not be assigned by Employee without prior written consent by the CEO of Axon.  Employee affirms Executive has not assigned any of Executive’s rights or obligations under this Release as of the Effective Date.

11.Governing Law and Jurisdiction.  The rights, obligations, and remedies, as specified under this Release, shall be interpreted and governed in all respects by the laws of the State of Arizona.  The Parties agree that any action or proceeding initiated to enforce this Release shall be brought solely in the state or federal district court within Maricopa County in the State of Arizona, and the Parties hereby irrevocably submit to the exclusive jurisdiction of these courts.  EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE UNDER THIS RELEASE IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES AND, THEREFORE, EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT SUCH PARTY MAY HAVE TO A TRIAL BY JURY WITH RESPECT TO ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS RELEASE.

12.Attorneys’ Fees and Costs.  Both Parties will bear their own costs, attorneys’ fees and other expenses incurred in connection with the preparation and/or review of this Release.  Should Employee or the Released Parties (which specifically includes Axon) employ an attorney to enforce any of the provisions of this Release, or to recover damages for the breach of any terms of this Release, the prevailing party shall be entitled to recover all reasonable costs, damages and expenses, including attorneys’ fees incurred or expended in connection therewith.  The phrase “prevailing party” shall mean the party who is determined in the proceeding to have prevailed or who prevails by dismissal, default, judgment, or otherwise.

13.No Admission of Liability.  This Release is not to be construed as an admission of liability by the Released Parties.  Employee agrees, admits, and acknowledges that no representation of fact or opinion has been made by any Released Party or such representative, either jointly, individually, or collectively, to induce this Release.  Employee agrees that the Released Parties have not admitted liability or wrongdoing of any sort, and that the Released Parties have not made any representation as to liability or wrongdoing of any sort.

14.Severability.  If any provision of this Release is held illegal, invalid, or unenforceable, such holding shall not affect any other provisions hereof.  In the event that any provision is held illegal, invalid, or

unenforceable, such provision shall be limited, deleted, or severed so as to affect the intent of the Parties to the fullest extent permitted by applicable law and the validity and enforceability of the remaining provisions shall not be affected.

15.Cooperation.  The Parties agree to cooperate fully, execute any supplementary documents, and take all additional actions that might be necessary or appropriate to give full force and effect to the basic terms and intent of this Release.

16.Counterparts.  This Release may be executed in counterparts, one or more of which may be facsimiles or PDFs, but all of which shall constitute one and the same Release.

EMPLOYEE HAS CAREFULLY READ THE FOREGOING RELEASE, HAS BEEN ADVISED TO CONSULT WITH AN ATTORNEY, KNOWS AND UNDERSTANDS THE CONTENTS OF THIS RELEASE, AND SIGNS THIS RELEASE VOLUNTARILY AND AGREES TO ABIDE BY ITS TERMS.  

[SIGNATURES ON FOLLOWING PAGE]

IN WITNESS WHEREOF, the Parties have hereby approved and executed this Release as of _____________________, ______.

AXON ENTERPRISE, INC.

______________________________________

[________________]

Its: [________________]

EXECUTIVE

_______________________________________

Brittany Bagley

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 September 30, 2022 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:	November 9, 2022	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, Brittany Bagley, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2022 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:	November 9, 2022	By:	/s/ Brittany Bagley
			Brittany Bagley
			Chief Financial Officer and Chief Business 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 September 30, 2022 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

November 9, 2022

In connection with the Quarterly Report on Form 10-Q of Axon Enterprise, Inc. (the “Company”) for the quarterly period ended September 30, 2022 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brittany Bagley, Chief Financial Officer and Chief Business 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/ Brittany Bagley

Brittany Bagley

Chief Financial Officer and Chief Business Officer

November 9, 2022

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2022	Nov. 04, 2022
Document and Entity Information
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Sep. 30, 2022
Document Transition Report	false
Entity File Number	001-16391
Entity Registrant Name	Axon Enterprise, Inc.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	86-0741227
Entity Address, Address Line One	17800 North 85th Street
Entity Address, City or Town	Scottsdale
Entity Address, State or Province	AZ
Entity Address, Postal Zip Code	85255
City Area Code	480
Local Phone Number	991-0797
Title of 12(b) Security	Common Stock, $0.00001 Par Value
Trading Symbol	AXON
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		71,165,354
Entity Central Index Key	0001069183
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q3
Amendment Flag	false

XML

CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Current assets:
Cash and cash equivalents	$ 147,711	$ 356,332
Marketable securities	35,280	72,180
Short-term investments	194,627	14,510
Accounts and notes receivable, net of allowance of $2,273 and $2,203 as of September 30, 2022 and December 31, 2021, respectively	418,308	320,819
Contract assets, net	168,673	180,421
Inventory	173,046	108,688
Prepaid expenses and other current assets	68,054	56,540
Total current assets	1,205,699	1,109,490
Property and equipment, net	164,160	138,457
Deferred tax assets, net	96,355	127,193
Intangible assets, net	13,039	15,470
Goodwill	44,819	43,592
Long-term investments	28,536	31,232
Long-term notes receivable, net	8,462	11,256
Long-term contract assets, net	48,388	29,753
Strategic investments	290,329	83,520
Other long-term assets	110,643	98,247
Total assets	2,010,430	1,688,210
Current liabilities:
Accounts payable	50,193	32,220
Accrued liabilities	112,766	103,707
Current portion of deferred revenue	246,446	265,591
Customer deposits	15,317	10,463
Other current liabilities	6,801	6,540
Total current liabilities	431,523	418,521
Deferred revenue, net of current portion	313,823	185,721
Liability for unrecognized tax benefits	7,317	3,797
Long-term deferred compensation	5,369	5,679
Deferred tax liability, net	1	811
Long-term lease liabilities	16,311	20,440
Other long-term liabilities	4,773	5,392
Total liabilities	779,117	640,361
Commitments and contingencies (Note 13)
Stockholders' equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively
Common stock, $0.00001 par value; 200,000,000 shares authorized; 71,151,670 and 70,896,856 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively	1	1
Additional paid-in capital	1,167,218	1,095,229
Treasury stock at cost, 20,220,227 shares as of September 30, 2022 and December 31, 2021	(155,947)	(155,947)
Retained earnings	227,847	109,883
Accumulated other comprehensive income (loss)	(7,806)	(1,317)
Total stockholders' equity	1,231,313	1,047,849
Total liabilities and stockholders' equity	$ 2,010,430	$ 1,688,210

XML

CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Statement of Financial Position [Abstract]
Allowance on accounts receivable	$ 2,273	$ 2,203
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)	71,151,670	70,896,856
Common stock, shares outstanding (in shares)	71,151,670	70,896,856
Treasury stock, shares (in shares)	20,220,227	20,220,227

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Net sales	$ 311,754	$ 231,989	$ 853,793	$ 645,803
Cost of sales	118,497	87,422	330,834	239,954
Gross margin	193,257	144,567	522,959	405,849
Operating expenses:
Sales, general and administrative	102,023	99,295	287,157	403,554
Research and development	59,127	42,382	165,090	143,352
Total operating expenses	161,150	141,677	452,247	546,906
Income (loss) from operations	32,107	2,890	70,712	(141,057)
Interest and other income (expense), net	(11,249)	(5,530)	91,076	36,896
Income (loss) before provision for income taxes	20,858	(2,640)	161,788	(104,161)
Provision for (benefit from) income taxes	8,727	(51,164)	43,824	(57,651)
Net income (loss)	$ 12,131	$ 48,524	$ 117,964	$ (46,510)
Net income (loss) per common and common equivalent shares:
Basic (in dollars per share)	$ 0.17	$ 0.73	$ 1.66	$ (0.71)
Diluted (in dollars per share)	$ 0.17	$ 0.67	$ 1.63	$ (0.71)
Weighted average number of common and common equivalent shares outstanding:
Basic (in shares)	71,107	66,192	71,033	65,139
Diluted (in shares)	72,525	72,441	72,386	65,139
Net income (loss)	$ 12,131	$ 48,524	$ 117,964	$ (46,510)
Foreign currency translation adjustments	(2,275)	(793)	(5,513)	(1,161)
Unrealized losses on available-for-sale investments	(326)		(976)
Comprehensive income (loss)	9,530	47,731	111,475	(47,671)
Product
Net sales	210,398	165,803	586,653	463,116
Cost of sales	93,724	71,336	260,578	195,253
Service
Net sales	101,356	66,186	267,140	182,687
Cost of sales	$ 24,773	$ 16,086	$ 70,256	$ 44,701

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Common stock	Additional Paid-in Capital	Treasury Stock	Retained Earnings	Accumulated Other Comprehensive Income (Loss)	Total
Beginning balance at Dec. 31, 2020	$ 1	$ 962,159	$ (155,947)	$ 169,901	$ 141	$ 976,255
Beginning balance (in shares) at Dec. 31, 2020	63,766,555		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans, net		(7,045)				(7,045)
Issuance of common stock under employee plans, net (in shares)	906,536
Stock-based compensation		89,610				89,610
Net income (loss)				(47,917)		(47,917)
Other comprehensive loss, net					1	1
Ending balance at Mar. 31, 2021	$ 1	1,044,724	$ (155,947)	121,984	142	1,010,904
Ending balance (in shares) at Mar. 31, 2021	64,673,091		20,220,227
Beginning balance at Dec. 31, 2020	$ 1	962,159	$ (155,947)	169,901	141	976,255
Beginning balance (in shares) at Dec. 31, 2020	63,766,555		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)						(46,510)
Ending balance at Sep. 30, 2021	$ 1	1,147,478	$ (155,947)	123,391	(1,020)	1,113,903
Ending balance (in shares) at Sep. 30, 2021	67,577,868		20,220,227
Beginning balance at Dec. 31, 2020	$ 1	962,159	$ (155,947)	169,901	141	976,255
Beginning balance (in shares) at Dec. 31, 2020	63,766,555		20,220,227
Ending balance at Dec. 31, 2021	$ 1	1,095,229	$ (155,947)	109,883	(1,317)	1,047,849
Ending balance (in shares) at Dec. 31, 2021	70,896,856		20,220,227
Beginning balance at Mar. 31, 2021	$ 1	1,044,724	$ (155,947)	121,984	142	1,010,904
Beginning balance (in shares) at Mar. 31, 2021	64,673,091		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans, net		(3,268)				(3,268)
Issuance of common stock under employee plans, net (in shares)	1,001,255
Stock-based compensation		137,549				137,549
Net income (loss)				(47,117)		(47,117)
Other comprehensive loss, net					(369)	(369)
Ending balance at Jun. 30, 2021	$ 1	1,179,005	$ (155,947)	74,867	(227)	1,097,699
Ending balance (in shares) at Jun. 30, 2021	65,674,346		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock		105,615				105,615
Issuance of common stock (in shares)	577,956
Issuance of common stock under employee plans, net		(172,204)				(172,204)
Issuance of common stock under employee plans, net (in shares)	1,325,566
Stock-based compensation		35,062				35,062
Net income (loss)				48,524		48,524
Other comprehensive loss, net					(793)	(793)
Ending balance at Sep. 30, 2021	$ 1	1,147,478	$ (155,947)	123,391	(1,020)	1,113,903
Ending balance (in shares) at Sep. 30, 2021	67,577,868		20,220,227
Beginning balance at Dec. 31, 2021	$ 1	1,095,229	$ (155,947)	109,883	(1,317)	1,047,849
Beginning balance (in shares) at Dec. 31, 2021	70,896,856		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock		(70)				(70)
Issuance of common stock under employee plans, net		(1,388)				(1,388)
Issuance of common stock under employee plans, net (in shares)	99,802
Stock-based compensation		25,088				25,088
Net income (loss)				54,871		54,871
Other comprehensive loss, net					(1,561)	(1,561)
Ending balance at Mar. 31, 2022	$ 1	1,118,859	$ (155,947)	164,754	(2,878)	1,124,789
Ending balance (in shares) at Mar. 31, 2022	70,996,658		20,220,227
Beginning balance at Dec. 31, 2021	$ 1	1,095,229	$ (155,947)	109,883	(1,317)	1,047,849
Beginning balance (in shares) at Dec. 31, 2021	70,896,856		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income (loss)						117,964
Ending balance at Sep. 30, 2022	$ 1	1,167,218	$ (155,947)	227,847	(7,806)	1,231,313
Ending balance (in shares) at Sep. 30, 2022	71,151,670		20,220,227
Beginning balance at Mar. 31, 2022	$ 1	1,118,859	$ (155,947)	164,754	(2,878)	1,124,789
Beginning balance (in shares) at Mar. 31, 2022	70,996,658		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock		(4)				(4)
Issuance of common stock under employee plans, net		(931)				(931)
Issuance of common stock under employee plans, net (in shares)	81,041
Stock-based compensation		21,162				21,162
Net income (loss)				50,962		50,962
Other comprehensive loss, net					(2,327)	(2,327)
Ending balance at Jun. 30, 2022	$ 1	1,139,086	$ (155,947)	215,716	(5,205)	1,193,651
Ending balance (in shares) at Jun. 30, 2022	71,077,699		20,220,227
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Issuance of common stock under employee plans, net		(72)				(72)
Issuance of common stock under employee plans, net (in shares)	73,971
Stock-based compensation		28,204				28,204
Net income (loss)				12,131		12,131
Other comprehensive loss, net					(2,601)	(2,601)
Ending balance at Sep. 30, 2022	$ 1	$ 1,167,218	$ (155,947)	$ 227,847	$ (7,806)	$ 1,231,313
Ending balance (in shares) at Sep. 30, 2022	71,151,670		20,220,227

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Cash flows from operating activities:
Net income (loss)	$ 117,964	$ (46,510)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization	18,171	13,420
Purchase accounting adjustments to goodwill	58
Loss on disposal and abandonment of intangible assets	68	130
Loss on disposal and impairment of property, equipment, and other assets, net	1,964	74
Realized and unrealized gains on strategic investments and marketable securities, net	(92,498)	(34,195)
Stock-based compensation	74,454	262,221
Deferred income taxes	30,349	(58,893)
Unrecognized tax benefits	3,519	77
Bond amortization	(61)	4,606
Noncash lease expense	4,997	4,087
Provision for expected credit losses	569	615
Change in assets and liabilities:
Accounts and notes receivable and contract assets	(115,046)	(118,094)
Inventory	(66,267)	(3,154)
Prepaid expenses and other assets	(17,871)	(28,906)
Accounts payable, accrued and other liabilities	28,684	28,528
Deferred revenue	115,187	87,558
Net cash provided by operating activities	104,241	111,564
Cash flows from investing activities:
Purchases of investments	(194,142)	(362,479)
Proceeds from call / maturity of investments	15,485	499,172
Exercise of warrants of strategic investments	(6,555)
Proceeds from sale of strategic investments		14,546
Purchases of property and equipment	(44,218)	(36,501)
Proceeds from disposal of property and equipment	226	31
Purchases of intangible assets	(193)	(157)
Strategic investments	(70,500)	(20,500)
Business acquisition, net of cash acquired	(2,104)	(700)
Net cash provided by (used in) investing activities	(302,001)	93,412
Cash flows from financing activities:
Net proceeds from equity offering	(74)	105,615
Income and payroll tax payments for net-settled stock awards	(2,391)	(182,517)
Net cash used in financing activities	(2,465)	(76,902)
Effect of exchange rate changes on cash and cash equivalents	(6,783)	(1,827)
Net increase (decrease) in cash and cash equivalents	(207,008)	126,247
Cash and cash equivalents and restricted cash, beginning of period	356,438	155,551
Cash and cash equivalents and restricted cash, end of period	$ 149,430	$ 281,798

XML

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Supplemental - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Supplemental disclosures:
Cash and cash equivalents	$ 147,711	$ 281,691
Restricted cash (Note 1)	1,719	107
Total cash, cash equivalents and restricted cash shown in the statements of cash flows	149,430	281,798
Cash paid for income taxes, net of refunds	7,503	5,016
Non-cash transactions
Property and equipment purchases in accounts payable and accrued liabilities	$ 1,244	$ 1,211

XML

Organization and Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2022

Organization and Summary of Significant Accounting Policies

Organization and Summary of Significant Accounting Policies

Note 1 - Organization and Summary of Significant Accounting Policies

Axon Enterprise, Inc. (“Axon,” the “Company,” "we," or "us") is a market-leading provider of law enforcement technology solutions. Our 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, finance and other administrative support functions. Our global software hub is located in Seattle, Washington, and we also have subsidiaries and / or offices located in Australia, Canada, Finland, France, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United Kingdom, and Vietnam.

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

Basis of Presentation and Use of Estimates

These unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) 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, 2021, 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, 2021. The results of operations for the three months and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

● product warranty reserves,

● inventory valuation,

● revenue recognition,

● reserve for expected credit loss,

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

● valuation of strategic investments,

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

● stock-based compensation, and

● recognition and measurement of contingencies and accrued litigation expense.

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 devices ("CEDs"), batteries, accessories, extended warranties and other products and services (collectively, 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, and services (collectively, the “Software and Sensors” segment). In both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon

Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes referred to as "Axon Cloud revenue."  

Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer who is our chief operating decision maker ("CODM"). We organize and review operations based on products and services, and currently there are no operating segments that are aggregated. We perform an analysis of our reportable segments at least annually. Additional information related to our business segments is summarized in Note 16.

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2022, no individual country outside the U.S. represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers. For the three and nine months ended September 30, 2022, no customer represented more than 10% of total net sales. At September 30, 2022 and December 31, 2021, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

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

Income per Common Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Denominator:
Weighted average shares outstanding		71,107		66,192		71,033		65,139
Dilutive effect of stock-based awards		1,418		6,249		1,353		—
Diluted weighted average shares outstanding		72,525		72,441		72,386		65,139
Anti-dilutive stock-based awards excluded		2,977		3,481		2,952		8,920
Net income (loss) per common share:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$	0.17	$	0.67	$	1.63	$	(0.71)

Standard Warranties

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

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

	Nine Months Ended September 30,
	2022		2021
Balance, beginning of period	$	2,822	$	769
Utilization of reserve		(1,988)		(582)
Warranty expense		161		1,176
Balance, end of period	$	995	$	1,363

Fair Value Measurements and Financial Instruments

We use the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

● Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

● Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

● Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs that market participants would use in pricing an asset or liability.

We have cash equivalents and investments, which at September 30, 2022 were comprised of money market funds, commercial paper, corporate bonds, municipal bonds, U.S. Government agency bonds, and U.S. Treasury bills. Cash equivalents and investments at December 31, 2021 were comprised of money market funds, corporate bonds, municipal bonds, and U.S. Government agency bonds. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other long-term assets as of September 30, 2022 and December 31, 2021

was $4.0 million and $5.3 million, respectively, related to corporate-owned life insurance policies which are used to fund our deferred compensation plan. We determine the fair value of insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

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

We have strategic investments in eight unconsolidated affiliates as of September 30, 2022. The estimated fair value of the investments was determined based on Level 3 inputs. In determining the estimated fair value of our strategic investments in privately held companies, we utilize observable data available to us as discussed further in Note 7.

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

Restricted Cash

Restricted cash balances as of September 30, 2022 were $1.7 million primarily related to funds held in an international bank account securing a guarantee and funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately $1.6 million was included in prepaid expenses and other assets on our condensed consolidated balance sheet, with the remainder in other long-term assets. Restricted cash balances as of December 31, 2021 included $0.1 million primarily related to funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately half of the balance was included in prepaid expenses and other current assets on our condensed consolidated balance sheet, with the remainder included in other long-term assets.

Valuation of Goodwill, Intangibles and Long-lived Assets

We evaluate whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and identifiable intangible assets, excluding goodwill and intangible assets with indefinite useful lives, may warrant revision or that the remaining balance of these assets may not be recoverable. Such 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 November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832). The guidance improves the transparency of government assistance accounting as it requires business entities to disclose transactions that involve government assistance received if the transactions were accounted for by applying a grant or contribution accounting model by analogy. The ASU is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-10 on January 1, 2022 and will

apply the disclosure requirement prospectively to all transactions within the scope of the amendments that are reflected in the financial statements at the date of the initial application along with new transactions that are entered into after the date of initial application. Adoption of this ASU did not have a material impact on our consolidated financial statements.

Reclassification of Prior Year Presentation

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

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Revenues

9 Months Ended

Sep. 30, 2022

Revenues

Revenues

Note 2 - Revenues

Nature of Products and Services

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

	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	65,951	$	—	$	65,951	$	50,641		—	$	50,641
TASER X26P		5,897		—		5,897		9,086		—		9,086
TASER X2		8,298		—		8,298		10,078		—		10,078
TASER Consumer devices		1,702		—		1,702		967		—		967
Cartridges		46,475		—		46,475		39,313		—		39,313
Axon Body		—		35,427		35,427		—		20,862		20,862
Axon Flex		—		687		687		—		1,488		1,488
Axon Fleet		—		10,139		10,139		—		6,063		6,063
Axon Dock		—		4,830		4,830		—		6,460		6,460
Axon Evidence and cloud services		5,125		96,814		101,939		2,711		63,272		65,983
Extended warranties		7,290		14,511		21,801		6,099		8,983		15,082
Other		4,145		4,463		8,608		2,596		3,370		5,966
Total	$	144,883	$	166,871	$	311,754	$	121,491	$	110,498	$	231,989

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	169,457	$	—	$	169,457	$	112,760		—	$	112,760
TASER X26P		27,715		—		27,715		28,618		—		28,618
TASER X2		16,451		—		16,451		39,001		—		39,001
TASER Consumer devices		5,085		—		5,085		4,873		—		4,873
Cartridges		134,145		—		134,145		116,409		—		116,409
Axon Body		—		92,603		92,603		—		60,545		60,545
Axon Flex		—		2,637		2,637		—		3,481		3,481
Axon Fleet		—		39,840		39,840		—		15,073		15,073
Axon Dock		—		18,159		18,159		—		18,889		18,889
Axon Evidence and cloud services		11,862		258,664		270,526		5,809		175,933		181,742
Extended warranties		21,428		36,070		57,498		17,602		24,632		42,234
Other		8,686		10,991		19,677		7,946		14,232		22,178
Total	$	394,829	$	458,964	$	853,793	$	333,018	$	312,785	$	645,803

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
United States	$	264,644	85	%	$	192,756	83	%	$	707,304	83	%	$	518,050	80	%
Other countries		47,110	15			39,233	17			146,489	17			127,753	20
Total	$	311,754	100	%	$	231,989	100	%	$	853,793	100	%	$	645,803	100	%

Contract Balances

The following table presents our contract assets, contract liabilities and certain information related to these balances as of and for the nine months ended September 30, 2022 (in thousands):

	September 30, 2022
Contract assets, net	$	217,061
Contract liabilities (deferred revenue)		560,269
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period		228,278

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

	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	15,031	$	19,349	$	34,380	$	21,257	$	4,766	$	26,023
Software and Sensors		22,357		17,825		40,182		23,175		18,137		41,312
		37,388		37,174		74,562		44,432		22,903		67,335
Hardware:
TASER		21,263		38,948		60,211		12,944		28,727		41,671
Software and Sensors		37,972		109,947		147,919		34,862		81,223		116,085
		59,235		148,895		208,130		47,806		109,950		157,756
Services:
TASER		4,648		9,655		14,303		2,701		3,482		6,183
Software and Sensors		145,175		118,099		263,274		170,652		49,386		220,038
		149,823		127,754		277,577		173,353		52,868		226,221
Total	$	246,446	$	313,823	$	560,269	$	265,591	$	185,721	$	451,312

	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	40,942	$	67,952	$	108,894	$	36,902	$	36,975	$	73,877
Software and Sensors		205,504		245,871		451,375		228,689		148,746		377,435
Total	$	246,446	$	313,823	$	560,269	$	265,591	$	185,721	$	451,312

Remaining Performance Obligations

As of September 30, 2022, we had approximately $3.73 billion of remaining performance obligations, which included both recognized contract liabilities as well as amounts that will be invoiced and recognized in future periods. The remaining performance obligations are limited only to arrangements that meet the definition of a contract under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers, as of September 30, 2022. We expect to recognize between 15% - 20% of this balance over the next twelve months, and generally expect the

remainder to be recognized over the following ten years, subject to risks related to delayed deployments, budget appropriation or other contract cancellation clauses.

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Cash, Cash Equivalents and Investments

9 Months Ended

Sep. 30, 2022

Cash, Cash Equivalents and Investments

Cash, Cash Equivalents and Investments

Note 3 - Cash, Cash Equivalents and Investments

The following tables summarize our cash, cash equivalents, marketable securities, and available-for-sale investments at September 30, 2022 and December 31, 2021 (in thousands):

	As of September 30, 2022
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Marketable		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Securities		Investments		Investments
Cash	$	94,638	$	—	$	—	$	94,638	$	94,638	$	—	$	—	$	—
Level 1:
Money market funds		6,982		—		—		6,982		6,982		—		—		—
Agency bonds		68,072		6		(69)		68,009		28,000		—		35,763		4,246
Treasury bills		55,520		2		(162)		55,360		14,999		—		40,361		—
Marketable securities		90,000		—		(54,720)		35,280		—		35,280		—		—
Subtotal		220,574		8		(54,951)		165,631		49,981		35,280		76,124		4,246
Level 2:
State and municipal obligations		6,935		—		(54)		6,881		—		—		6,881		—
Corporate bonds		75,412		6		(1,233)		74,185		2,096		—		47,799		24,290
Commercial paper		64,819		—		—		64,819		996		—		63,823		—
Subtotal		147,166		6		(1,287)		145,885		3,092		—		118,503		24,290
Total	$	462,378	$	14	$	(56,238)	$	406,154	$	147,711	$	35,280	$	194,627	$	28,536

As of September 30, 2022, we had $136.3 million of available-for-sale investments with unrealized losses.

During the year ended December 31, 2021, we acquired 9,000,000 shares of common stock of Cellebrite DI Ltd (“CLBT”) with a fair value of $90.0 million. The CLBT common stock is recorded as marketable securities in the accompanying condensed consolidated balance sheets and its fair value is adjusted every reporting period. Changes in fair value are recorded in the condensed consolidated statement of operations as unrealized gain or (loss) on marketable securities, which is included in interest and other income (expense), net. During the three and nine months ended September 30, 2022, we recorded an unrealized loss on marketable securities of $10.6 million and $36.9 million, respectively, relating to CLBT.

	As of December 31, 2021
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Marketable		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Securities		Investments		Investments
Cash	$	353,488	$	—	$	—	$	353,488	$	353,488	$	—	$	—	$	—
Level 1:
Money market funds		2,844		—		—		2,844		2,844		—		—		—
Agency bonds		10,700		4		—		10,704		—		—		10,704		—
Marketable securities		90,000		—		(17,820)		72,180		—		72,180		—		—
Subtotal		103,544		4		(17,820)		85,728		2,844		72,180		10,704		—
Level 2:
State and municipal obligations		2,570		—		(5)		2,565		—		—		1,400		1,165
Corporate bonds		32,748		1		(276)		32,473		—		—		2,406		30,067
Subtotal		35,318		1		(281)		35,038		—		—		3,806		31,232
Total	$	492,350	$	5	$	(18,101)	$	474,254	$	356,332	$	72,180	$	14,510	$	31,232

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Expected Credit Losses

9 Months Ended

Sep. 30, 2022

Expected Credit Losses

Expected Credit Losses

Note 4 - Expected Credit Losses

We are exposed to credit losses primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable, notes receivable, and contract assets is developed using historical collection experience, published or estimated credit default rates for entities that represent our customer base, current and future economic and market conditions and a review of the current status of customers' trade accounts receivables. Additionally, specific allowance amounts are established to record the appropriate provision for customers that have a higher probability of default. Our monitoring activities include account reconciliation, dispute resolution, payment confirmation, consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined to be uncollectible.

We review receivables for U.S. and international customers separately to better reflect different published credit default rates and economic and market conditions.

The following table provides a roll-forward of the allowance for expected credit losses that is deducted from the amortized cost basis of accounts receivable, notes receivable, and contract assets to present the net amount expected to be collected (in thousands):

	Nine Months Ended September 30, 2022
	United States		Other countries		Total
Balance, beginning of period	$	3,171	$	178	$	3,349
Provision for expected credit losses		254		315		569
Amounts written off charged against the allowance		(382)		-		(382)
Other, including foreign currency translation		-		(3)		(3)
Balance, end of period	$	3,043	$	490	$	3,533

As of September 30, 2022 and December 31, 2021, the allowance for expected credit losses for each type of customer receivable was as follows (in thousands):

	September 30,		December 31,
	2022		2021
Accounts receivable and notes receivable, current	$	2,273	$	2,203
Contract assets, net		1,120		1,010
Long-term notes receivable, net of current portion		140		136
Total allowance for expected credit losses on customer receivables	$	3,533	$	3,349

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Inventory

9 Months Ended

Sep. 30, 2022

Inventory

Inventory

Note 5 - Inventory

Inventories are stated at the lower of cost, determined on the first-in, first-out (“FIFO”) basis, or net realizable value, net of an inventory valuation allowance. We use a standard cost methodology to determine the cost basis for its inventories. Costs include allocations for materials, labor, and overhead. All variances between actual costs and standard costs are apportioned to inventory and cost of goods sold based upon inventory turnover. We evaluate inventory on a quarterly basis for obsolete or slow-moving items to ascertain if the recorded allowance is reasonable and adequate. Additional provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value.

Inventory consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Raw materials	$	61,921	$	38,267
Finished goods		111,125		70,421
Total inventory	$	173,046	$	108,688

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Property and Equipment

9 Months Ended

Sep. 30, 2022

Property and Equipment

Property and Equipment

Note 6 – Property and Equipment

Property and equipment consisted of the following (in thousands):

	Estimated
	Useful Life	September 30, 2022		December 31, 2021
Land	N/A	$	51,612	$	54,868
Building and leasehold improvements	3-39 years		26,860		25,712
Production equipment	3-5 years		56,237		54,090
Computers, equipment and software	3-5 years		23,478		15,343
Furniture and office equipment	3-5 years		7,511		6,838
Vehicles	5 years		3,746		2,932
Capitalized internal software development costs	3-5 years		14,198		12,200
Construction-in-process	N/A		53,262		25,258
Total cost			236,904		197,241
Less: Accumulated depreciation			(72,744)		(58,784)
Property and equipment, net		$	164,160	$	138,457

Construction-in-process includes $25.6 million and $12.4 million related to the development of our new campus at September 30, 2022 and December 31, 2021, respectively.

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Strategic Investments

9 Months Ended

Sep. 30, 2022

Strategic Investments

Strategic Investments

Note 7 - Strategic Investments

Strategic investments include investments in a number of non-public technology-driven companies. We account for strategic investments under the ASC 321 measurement alternative for equity securities without readily determinable fair values, as there are no quoted market prices for the investments. The investments are measured at cost less impairment, adjusted for observable price changes and are assessed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

In conjunction with certain of our strategic investments, we have the ability to commit additional capital over time through warrants and call options; for some investments, the exercisability and exercise prices are conditional on the achievement of certain performance metrics.

The following tables provide a roll-forward of the balance of strategic investments (in thousands):

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
	Strategic investments		Warrants			Call options	Total		Strategic investments		Warrants			Total
Balance, beginning of period	$	80,775	$	2,745	$	—	$	83,520	$	9,500	$	2,211	$	11,711
Investments		53,164		459		17,233		70,856		20,500		—		20,500
Observable price changes (1)		40,784		28,539		—		69,323		40,321		534		40,855
Exercises		96,719		(30,089)		—		66,630		—		—		—
Sales		—		—		—		—		(14,546)		—		(14,546)
Balance, end of period	$	271,442	$	1,654	$	17,233	$	290,329	$	55,775	$	2,745	$	58,520

	Inception to date
	Strategic investments		Warrants			Call options	Total
Investments	$	105,732	$	3,047	$	17,233	$	126,012
Observable price changes (1)		83,537		28,696		—		112,233
Exercises		96,719		(30,089)		—		66,630
Sales		(14,546)		—		—		(14,546)
Balance, end of period	$	271,442	$	1,654	$	17,233	$	290,329

(1) Includes a realized gain of $12.3 million for the nine months ended September 30, 2021.

During the three months ended September 30, 2022, we made minority, non-controlling investments totaling $8.8 million in a drone company and a biometrics sensor company. Both investments included multiple financial instruments.  

During the nine months ended September 30, 2022, certain of our strategic investees issued new equity to us and/or other investors. These events represented observable price changes for our existing investments and related warrants, resulting in unrealized gains of $70.4 million and unrealized losses of $1.1 million. Additionally, we exercised warrants in one of our strategic investees for a total exercise price of $6.6 million, resulting in an unrealized gain of $60.1 million that was recognized in earnings for the nine months ended September 30, 2022. The estimated fair value of the investments were calculated using valuation techniques that included both observable and unobservable inputs. This estimated fair value reflects a value that was lower than the issue per share of the new equity issued by the strategic investees because of different characteristics of the newly issued equity instruments compared to our existing investments. The valuation techniques included both Level 2 and Level 3 inputs as defined by ASC Topic 820.

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Variable Interest Entities

9 Months Ended

Sep. 30, 2022

Variable Interest Entities

Variable Interest Entities

Note 8 - Variable Interest Entities

We evaluate our investments and other significant relationships to determine whether any investee is a variable interest entity (“VIE”). If we conclude that an investee is a VIE, we evaluate our power to direct the activities of the investee, our obligation to absorb the expected losses of the investee and our right to receive the expected residual returns of the investee to determine whether we are the primary beneficiary of the investee. If we are the primary beneficiary of a VIE, we consolidate such entity and reflects the non-controlling interest of other beneficiaries of that entity.

We determine whether we are the primary beneficiary of a VIE by performing an analysis that principally considers:

● The VIE’s purpose, design, and risks the VIE was designed to create and pass through to its variable interest holders;

● The VIE’s capital structure;

● The terms between the VIE and its variable interest holders and other parties involved with the VIE; and

● Related-party affiliations.

The table below presents a summary of the nonconsolidated VIEs in which we hold variable interests:

	September 30, 2022		December 31, 2021
Total nonconsolidated variable interest entities:
Carrying value of variable interest - assets	$	5,296	$	895
Carrying value of variable interest - liabilities		—		—
Maximum exposure to loss:
Non-public equity (1)		5,296		895
Total	$	5,296	$	895

⁽¹⁾ The maximum exposure to loss is limited to the carrying value of the interest.

In the table above:

● The nature of our variable interest is described in the row under maximum exposure to loss.

● Our exposure to the obligations of the VIE is limited to our interest in the entity.

The primary purpose of our U.S-based, nonconsolidated VIE investments is to create strategic partnerships within market-leading providers of law enforcement technology solutions. We present all variable interests in unconsolidated VIEs as strategic investments within the long-term assets section of the condensed consolidated balance sheet.

We have provided financial support to the nonconsolidated VIEs in exchange for preferred equity as well as warrants and call options that give us the ability to commit additional capital overtime. Financial support provided to the nonconsolidated VIEs is used to continue to finance their operations. We have no explicit or implicit arrangements to provide additional financial support to the VIEs and we have no liabilities to the VIEs as of September 30, 2022 and December 31, 2021.

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Accrued Liabilities

9 Months Ended

Sep. 30, 2022

Accrued Liabilities

Accrued Liabilities

Note 9 - Accrued Liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Accrued salaries, benefits and bonus	$	69,058	$	62,425
Accrued professional, consulting and lobbying fees		3,918		7,152
Accrued warranty expense		995		2,822
Accrued income and other taxes		3,871		3,736
Accrued inventory in transit		11,081		9,945
Other accrued expenses		23,843		17,627
Accrued liabilities	$	112,766	$	103,707

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Income Taxes

9 Months Ended

Sep. 30, 2022

Income Taxes

Income Taxes

Note 10 - 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, but can be up to ten years in some jurisdictions following the tax year to which these filings relate. We have been previously notified that an income tax audit may commence for Axon Public Safety Southeast Asia LLC, our entity in Vietnam; however, there has been no audit activity to date.

Deferred Tax Assets

Net deferred income tax assets at September 30, 2022, primarily include R&D tax credits, stock-based compensation expense, deferred revenue, accruals and reserves, R&D capitalization, net of amortization and net operating losses, partially offset by accelerated depreciation expense, unrealized investment gains, and valuation allowance reserve. Our total net deferred tax assets at September 30, 2022 were $96.4 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 provision 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 September 30, 2022, management continues to believe the positive evidence from projected future earnings outweighs the negative evidence and a valuation allowance is not needed beyond the following items further described. We have concluded that a valuation allowance is necessary against unrealized investment losses and related costs incurred in connection with certain investments. Additionally, we do 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, and a valuation allowance has been recorded against this net asset.

In Australia, we have determined that sufficient deferred tax liabilities will reverse in order to realize all assets except one long-lived intangible where there is not an expectation that the asset may be realized. Therefore, we continue to recognize a partial valuation allowance for Australia.

We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal and state 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 $20.3 million as of

September 30, 2022. Should the unrecognized benefit of $20.3 million be recognized, our effective tax rate would be favorably impacted. Approximately $12.0 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 nine months ended September 30, 2022, after discrete period adjustments, was 27.1%. Before discrete adjustments, the tax rate was 28.0%, which differs from the federal statutory rate, primarily due to the impact of R&D tax credits offset by the executive compensation limitation under Internal Revenue Code ("IRC") Section 162(m) and an increase in valuation allowance and unrecognized tax benefits, on projected pre-tax income for the year. The effective tax rate was favorably impacted by a $1.4 million discrete tax benefit primarily associated with net windfalls related to stock-based compensation for restricted stock units (“RSUs”) and performance stock units (“PSUs”) that vested during the nine months ended September 30, 2022.

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Stockholders' Equity

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Stockholders' Equity

Note 11 - 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 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, 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 attainment 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 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 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, interest

and other income (such as dividends) earned on investments in marketable securities, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense.

Revenue Goal (1) (in thousands)	Achievement Status	Adjusted EBITDA (in thousands)	Achievement Status
Goal #1, $710,058	Achieved	Goal #1, $125,000	Achieved
Goal #2, $860,058	Achieved	Goal #2, $155,000	Achieved
Goal #3, $1,010,058	Achieved	Goal #3, $175,000	Achieved
Goal #4, $1,210,058	Probable	Goal #4, $190,000	Achieved
Goal #5, $1,410,058	Not Applicable	Goal #5, $200,000	Achieved
Goal #6, $1,610,058	Not Applicable	Goal #6, $210,000	Achieved
Goal #7, $1,810,058	Not Applicable	Goal #7, $220,000	Achieved
Goal #8, $2,010,058	Not Applicable	Goal #8, $230,000	Achieved

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

Stock-based compensation expense associated with the CEO Performance Award 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 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 CEO Performance Award 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. Stock-based compensation represents a non-cash expense and is recorded in sales, general, and administrative operating expense on our consolidated statements of operations and comprehensive income.

The first ten market capitalization goals have been achieved as of September 30, 2022. As of September 30, 2022, 5.3 million stock options have been certified by the Compensation Committee and vested. The eleventh market capitalization goal has not yet been attained, though the related operational goal was achieved as of September 30, 2022. As twelve operational goals have been achieved or are considered probable of achievement, we recorded stock-based compensation expense of $240.0 million related to the CEO Performance Award from the grant date through September 30, 2022. The number of stock options that would vest related to the remaining unvested tranches is approximately 1.1 million shares. As of September 30, 2022, we had $6.0 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 0.4 years.

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. Initial awards under the plan were granted in January 2019, with additional employee awards granted since that date.

The XSUs are grants of Restricted Stock Units (“RSUs”), 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. Beginning with the quarter ended June 30, 2021, new XSU grants are divided into a reduced number of tranches depending on employee eligibility and current market capitalization attainment.

The XSPP contains an anti-dilution provision incorporated into the plan based on shareholder feedback, which affects the calculation of the market capitalization goals in the plan. The plan defines a maximum number of shares outstanding that may be used in the calculation of the market capitalization goals (the “XSU Maximum”). If the actual number of shares outstanding exceeds the XSU Maximum guardrail, then the lower pre-defined number of shares in the XSU Maximum, rather than the higher actual number of shares outstanding, is used to calculate market capitalization for the determination of the market capitalization goals in the XSPP, which, together with the operational goals, determines whether XSUs vest for participating employees.

The XSU Maximum is defined as the actual number of shares outstanding on the original XSU grant date of January 2, 2019, increased by a 3% annual rate over the term of the XSPP and by shares issued upon the exercise of CEO Performance Award options. The XSU Maximum is also 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.

New shares issued for any other reasons, including shares issued upon vesting of XSUs, RSUs, and Performance Stock Units (“PSUs”) as well as shares issued to raise capital through equity issuances or in other transactions, do not increase the XSU Maximum.

The market capitalization and operational goals are identical to the CEO Performance Award, but a different number of shares is 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. As of September 30, 2022, actual shares outstanding exceeded the XSU Maximum. Accordingly, market capitalization as calculated for the purposes of achieving additional goals uses the lower XSU Maximum share amount rather than actual shares outstanding.

The first nine market capitalization goals have been achieved as of September 30, 2022. The tenth and eleventh market capitalization goals have not yet been attained, though the related operational goals were achieved as of September 30, 2021 and September 30, 2022, respectively. As all twelve operational goals have been achieved or are considered probable of achievement, we recorded stock-based compensation expense of $183.2 million related to the XSU awards from their respective grant dates through September 30, 2022. The number of XSU awards that would vest related to the remaining three tranches is approximately 1.2 million shares. As of September 30, 2022, we had $15.5 million of total unrecognized stock-based compensation expense, which will be recognized over a weighted-average period of 1.4 years.

Restricted Stock Units

The following table summarizes RSU activity for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,115	$	133.40
Granted	625		113.42
Released	(240)		93.14
Forfeited	(128)		136.22
Units outstanding, end of period	1,372		131.08	$	158,838

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $115.75 multiplied by the number of RSUs outstanding. As of September 30, 2022, there was $126.9 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 2.1 years. RSUs are released when vesting requirements are met.

Certain RSUs that vested in the nine months ended September 30, 2022 were net-share settled such that we withheld shares to cover the employees’ tax 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 seven thousand and had a value of $0.9 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Performance Stock Units

The following table summarizes PSU activity, inclusive of XSUs, for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,499	$	39.86
Granted	142		102.60
Released	(36)		122.83
Forfeited	(180)		34.15
Units outstanding, end of period	1,425		44.72	$	164,980

Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $115.75 per share, multiplied by the number of PSUs outstanding. As of September 30, 2022, there was $22.4 million in unrecognized compensation costs related to PSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the PSUs over a weighted average period of 1.4 years. PSUs are released when vesting requirements are met.

As of September 30, 2022, the performance criteria had been met for approximately forty-two thousand of the 1.4 million PSUs outstanding.

Certain PSUs that vested in the nine months ended September 30, 2022 were net-share settled such that we withheld shares to cover the employees’ tax obligation for the applicable income and other employment taxes, and remitted the cash to the appropriate taxing authorities. Total shares withheld related to PSUs were approximately twelve thousand and had a value of $1.5 million on their respective vesting dates as determined by the closing stock price on such dates.  Payments for the employees’ tax obligations are reflected as a financing activity within the condensed consolidated statements of cash flows. We record a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.

Stock Option Activity

The following table summarizes stock option activity for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

				Weighted
		Weighted		Average
	Number	Average		Remaining
	of	Exercise		Contractual	Aggregate
	Options	Price		Life (years)	Intrinsic Value
Options outstanding, beginning of year	2,438	$	28.58
Granted	—		—
Exercised	—		—
Expired / terminated	—		—
Options outstanding, end of period	2,438		28.58	5.41	$	212,517
Options exercisable, end of period	1,377		28.58	5.41		120,031

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 $115.75 on September 30, 2022. There were no options exercised for the nine months ended September 30, 2022. As of September 30, 2022, total options outstanding included 1.1 million unvested performance-based stock options, which relate to the CEO Performance Award and are probable of achievement.

Stock-based Compensation Expense

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of product sales and service sales	$	1,157	$	1,112	$	3,331	$	4,439
Sales, general and administrative expenses		14,268		25,969		35,860		211,073
Research and development expenses		12,779		7,981		35,263		46,709
Total stock-based compensation expense	$	28,204	$	35,062	$	74,454	$	262,221

Stock Incentive Plan

In May 2022, our shareholders approved the Axon Enterprise, Inc. 2022 Stock Incentive Plan (the “2022 Plan”) authorizing an additional 2.5 million shares, plus remaining available shares under prior plans, for issuance under the new plan. Combined with the 2019 Plan and other legacy stock incentive plans, there are 3.2 million shares available for grant as of September 30, 2022.

Stock Inducement Plan

In September 2022, our Board of Directors adopted the Axon Enterprise, Inc. 2022 Stock Inducement Plan (the “2022 Inducement Plan”) pursuant to which we reserved 250,000 shares of common stock for issuance under the Inducement Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employed by us (or following such individuals’ bona fide periods of non-employment by us), as an inducement material to the individuals’ entry into employment with us. The terms and conditions of the 2022 Inducement Plan are substantially similar to our 2019 Stock Inducement Plan. There are approximately 0.1 million shares available for grant as of September 30, 2022.

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 and nine months ended September 30, 2022 and 2021, no common shares were purchased under the program. As of September 30, 2022, $16.3 million remains available under the plan for future purchases. Any future purchases will be discretionary.

At-the-Market equity offering

During the year ended December 31, 2021, we sold 577,956 shares of our common stock under our "at-the-market" equity offering program (the “ATM”). We generated approximately $107.6 million in aggregate gross proceeds from sales under the ATM.  Aggregate net proceeds from the ATM were $105.4 million after deducting related expenses, including commissions to the sales agent of $1.6 million and issuance costs of $0.5 million. No shares were sold during the nine months ended September 30, 2022.

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

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Line of Credit

9 Months Ended

Sep. 30, 2022

Line of Credit.

Line of Credit

Note 12 - Line of Credit

We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $20.0 million is available for letters of credit. The credit agreement matures on December 31, 2023 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 September 30, 2022 and December 31, 2021, 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 September 30, 2022, we had letters of credit outstanding of approximately $6.5 million under the facility and available borrowing of $43.5 million, excluding amounts available under the accordion feature. Advances under the line of credit bear interest at Term SOFR 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. “SOFR” is defined as a rate equal to the secured overnight financing rate as administered by the Federal Reserve Bank of New York (“NYFRB”) or a successor administrator of the secured overnight financing rate.

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 September 30, 2022, our funded debt to EBITDA ratio was 0.00 to 1.00.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2022

Commitments and Contingencies.

Commitments and Contingencies

Note 13 - Commitments and Contingencies

Data Storage Renewal Commitment

In June 2022, we entered into a purchase agreement for cloud hosting with a six year term beginning July 1, 2022. The purchase agreement includes a total commitment of $425.0 million. Storage fees under this agreement were $11.2 million for the three months ended September 30, 2022. The remaining purchase commitment at September 30, 2022 was $413.8 million.

Product Litigation

As a manufacturer of weapons and other law enforcement tools used in high-risk field environments, we are often the subject of products liability litigation concerning the use of our products.  We are currently named as a defendant in two lawsuits in which the plaintiffs allege either wrongful death or personal injury in situations in which a TASER CED was used by law enforcement officers in connection with arrests or training. 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.

The litigation information in this note is current through the date of these financial statements.

U.S. Federal Trade Commission Litigation

The U.S. Federal Trade Commission (“FTC”) filed an administrative enforcement action in January 2020 regarding our May 2018 acquisition of an insolvent body worn camera competitor, Vievu LLC. The FTC alleges the merger was anticompetitive and adversely affected the body worn camera and digital evidence management market for “large metropolitan police departments,” which we deny. The administrative hearing remains stayed pending our federal court constitutional challenges to the FTC’s structure and administrative processes. Even if we ultimately are required to divest Vievu and other assets, any such result will not interfere with our ability to meet contractual obligations or implement our solutions.

Prior to the FTC’s enforcement action, we sued the FTC in federal court in the District of Arizona for declaratory and injunctive relief alleging the FTC’s structure and administrative processes violate Article II of the U.S. Constitution and our Fifth Amendment rights to due process and equal protection. The district court dismissed the action, without prejudice, for lack of jurisdiction. The Ninth Circuit affirmed in a split decision but granted our motion to stay the appellate mandate pending the filing of our petition for certiorari with the U.S. Supreme Court. On January 24, 2022, the Supreme Court granted our petition. Oral argument was held November 7, 2022. The FTC’s administrative case will remain stayed pending resolution of the Supreme Court proceedings.

In parallel to these matters, we are evaluating strategic alternatives to litigation, which we might pursue if determined to be in the best interests of shareholders and customers. This could include a divestiture of the Vievu entity and/or related assets and the licensure of certain intellectual and other intangible property. While we continue to believe the acquisition of Vievu was lawful and a benefit to Vievu’s customers, the cost, risk and distraction of protracted litigation merit consideration of settlement if achievable on terms agreeable to the FTC and Axon.

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 September 30, 2022, 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 September 30, 2022, we had outstanding letters of credit issued under our credit facility of $6.5 million that are expected to expire throughout 2023. We also had outstanding letters of credit of $0.4 million that do not draw against our credit facility. The outstanding letters of credit that do not draw against our credit facility are expected to expire in May 2023. Additionally, we had $21.1 million of outstanding surety bonds at September 30, 2022, with $3.1 million expiring in 2022, $7.5 million expiring in 2023 and the remaining $10.5 million expiring in 2024.

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Accumulated Other Comprehensive Income (loss)

9 Months Ended

Sep. 30, 2022

Accumulated Other Comprehensive Income (loss).

Accumulated Other Comprehensive Income (loss)

Note 14 – Accumulated Other Comprehensive Income (loss)

The following tables reflect the changes in accumulated other comprehensive income (loss), net of tax (in thousands):

		Unrealized Gains (Losses)
		on Available-for-Sale		Foreign Currency
		Investments		Translation	Total
Balance, December 31, 2021	$	(207)	$	(1,110)	$	(1,317)
Other comprehensive loss		(489)		(1,072)		(1,561)
Balance, March 31, 2022	$	(696)	$	(2,182)	$	(2,878)
Other comprehensive loss		(161)		(2,166)		(2,327)
Balance, June 30, 2022	$	(857)	$	(4,348)	$	(5,205)
Other comprehensive loss		(326)		(2,275)		(2,601)
Balance, September 30, 2022	$	(1,183)	$	(6,623)	$	(7,806)

		Unrealized Gains (Losses)
		on Available-for-Sale		Foreign Currency
		Investments		Translation	Total
Balance, December 31, 2020	$	—	$	141	$	141
Other comprehensive income		—		1		1
Balance, March 31, 2021	$	—	$	142	$	142
Other comprehensive loss		—		(369)		(369)
Balance, June 30, 2021	$	—	$	(227)	$	(227)
Other comprehensive loss		—		(793)		(793)
Balance, September 30, 2021	$	—	$	(1,020)	$	(1,020)

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Employee Benefit Plans

9 Months Ended

Sep. 30, 2022

Employee Benefit Plans

Employee Benefit Plans

Note 15 - 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. Contributions to the plan 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. Future matching contributions to the plans are at our sole discretion.

We also sponsor defined contribution plans in Australia, Canada, Finland, and the United Kingdom.

Our matching contributions for all defined contribution plans were $2.6 million and $1.7 million for the three months ended September 30, 2022 and 2021, respectively, and $8.0 million and $5.6 million for the nine months ended September 30, 2022 and 2021, respectively.

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Segment Data

9 Months Ended

Sep. 30, 2022

Segment Data

Segment Data

Note 16 - Segment Data

Our operations are comprised of two reportable segments: the TASER segment and the Software and Sensors segment.

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

	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
Net sales from products	$	139,267	$	71,131	$	210,398	$	118,569	$	47,234	$	165,803
Net sales from services		5,616		95,740		101,356		2,922		63,264		66,186
Net sales		144,883		166,871		311,754		121,491		110,498		231,989
Cost of product sales		53,422		40,302		93,724		41,554		29,782		71,336
Cost of service sales		—		24,773		24,773		—		16,086		16,086
Cost of sales		53,422		65,075		118,497		41,554		45,868		87,422
Gross margin	$	91,461	$	101,796	$	193,257	$	79,937	$	64,630	$	144,567
Research and development	$	13,864	$	45,263	$	59,127	$	10,476	$	31,906	$	42,382

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
Net sales from products	$	382,142	$	204,511	$	586,653	$	326,508		136,608	$	463,116
Net sales from services		12,687		254,453		267,140		6,510		176,177		182,687
Net sales		394,829		458,964		853,793		333,018		312,785		645,803
Cost of product sales		142,510		118,068		260,578		112,200		83,053		195,253
Cost of service sales		—		70,256		70,256		145		44,556		44,701
Cost of sales		142,510		188,324		330,834		112,345		127,609		239,954
Gross margin	$	252,319	$	270,640	$	522,959	$	220,673	$	185,176	$	405,849
Research and development	$	37,076	$	128,014	$	165,090	$	32,032	$	111,320	$	143,352

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Organization and Summary of Significant Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2022

Organization and Summary of Significant Accounting Policies

Basis of Presentation and 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, 2021, 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, 2021. The results of operations for the three months and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the full year (or any other period). Significant estimates and assumptions in these unaudited condensed consolidated financial statements include:

● product warranty reserves,

● inventory valuation,

● revenue recognition,

● reserve for expected credit loss,

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

● valuation of strategic investments,

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

● stock-based compensation, and

● recognition and measurement of contingencies and accrued litigation expense.

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 devices ("CEDs"), batteries, accessories, extended warranties and other products and services (collectively, 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, and services (collectively, the “Software and Sensors” segment). In both segments, we report sales of products and services. Service revenue in both segments includes sales related to Axon

Evidence. In the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is sometimes referred to as "Axon Cloud revenue."  

Reportable segments are determined based on discrete financial information reviewed by our Chief Executive Officer who is our chief operating decision maker ("CODM"). We organize and review operations based on products and services, and currently there are no operating segments that are aggregated. We perform an analysis of our reportable segments at least annually. Additional information related to our business segments is summarized in Note 16.

Geographic Information and Major Customers / Suppliers

Geographic Information and Major Customers / Suppliers

For the three and nine months ended September 30, 2022, no individual country outside the U.S. represented more than 10% of total net sales. Individual sales transactions in the international market are generally larger and occur more intermittently than in the domestic market due to the profile of our customers. For the three and nine months ended September 30, 2022, no customer represented more than 10% of total net sales. At September 30, 2022 and December 31, 2021, no customer represented more than 10% of the aggregate balance of accounts and notes receivable and contract assets.

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

Income per Common Share

Income per Common Share

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Denominator:
Weighted average shares outstanding		71,107		66,192		71,033		65,139
Dilutive effect of stock-based awards		1,418		6,249		1,353		—
Diluted weighted average shares outstanding		72,525		72,441		72,386		65,139
Anti-dilutive stock-based awards excluded		2,977		3,481		2,952		8,920
Net income (loss) per common share:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$	0.17	$	0.67	$	1.63	$	(0.71)

Standard Warranties

Standard Warranties

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

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

	Nine Months Ended September 30,
	2022		2021
Balance, beginning of period	$	2,822	$	769
Utilization of reserve		(1,988)		(582)
Warranty expense		161		1,176
Balance, end of period	$	995	$	1,363

Fair Value Measurements and Financial Instruments

Fair Value Measurements and Financial Instruments

We use the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety. These levels are:

● Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets for assets or liabilities that are identical to the assets or liabilities being measured.

● Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities that are identical or similar to the assets or liabilities being measured from markets that are not active. Also, model-derived valuations in which all significant inputs and significant value drivers are observable in active markets are Level 2 valuation techniques.

● Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs that market participants would use in pricing an asset or liability.

We have cash equivalents and investments, which at September 30, 2022 were comprised of money market funds, commercial paper, corporate bonds, municipal bonds, U.S. Government agency bonds, and U.S. Treasury bills. Cash equivalents and investments at December 31, 2021 were comprised of money market funds, corporate bonds, municipal bonds, and U.S. Government agency bonds. See additional disclosure regarding the fair value of our cash equivalents and investments in Note 3. Included in the balance of other long-term assets as of September 30, 2022 and December 31, 2021

was $4.0 million and $5.3 million, respectively, related to corporate-owned life insurance policies which are used to fund our deferred compensation plan. We determine the fair value of insurance contracts by obtaining the cash surrender value of the contracts from the issuer, a Level 2 valuation technique.

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

We have strategic investments in eight unconsolidated affiliates as of September 30, 2022. The estimated fair value of the investments was determined based on Level 3 inputs. In determining the estimated fair value of our strategic investments in privately held companies, we utilize observable data available to us as discussed further in Note 7.

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

Restricted Cash

Restricted Cash

Restricted cash balances as of September 30, 2022 were $1.7 million primarily related to funds held in an international bank account securing a guarantee and funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately $1.6 million was included in prepaid expenses and other assets on our condensed consolidated balance sheet, with the remainder in other long-term assets. Restricted cash balances as of December 31, 2021 included $0.1 million primarily related to funds held in an international bank account for a country in which we are required to maintain a minimum balance to operate. Approximately half of the balance was included in prepaid expenses and other current assets on our condensed consolidated balance sheet, with the remainder included in other long-term assets.

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 November 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2021-10, Government Assistance (Topic 832). The guidance improves the transparency of government assistance accounting as it requires business entities to disclose transactions that involve government assistance received if the transactions were accounted for by applying a grant or contribution accounting model by analogy. The ASU is effective for annual periods beginning after December 15, 2021. We adopted ASU 2021-10 on January 1, 2022 and will

apply the disclosure requirement prospectively to all transactions within the scope of the amendments that are reflected in the financial statements at the date of the initial application along with new transactions that are entered into after the date of initial application. Adoption of this ASU did not have a material impact on our 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 are not material and had no effect on the reported results of operations.

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Organization and Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2022

Organization and Summary of Significant Accounting Policies

Schedule of weighted average number of shares outstanding and earnings 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 September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$	12,131	$	48,524	$	117,964	$	(46,510)
Denominator:
Weighted average shares outstanding		71,107		66,192		71,033		65,139
Dilutive effect of stock-based awards		1,418		6,249		1,353		—
Diluted weighted average shares outstanding		72,525		72,441		72,386		65,139
Anti-dilutive stock-based awards excluded		2,977		3,481		2,952		8,920
Net income (loss) per common share:
Basic	$	0.17	$	0.73	$	1.66	$	(0.71)
Diluted	$	0.17	$	0.67	$	1.63	$	(0.71)

Summary of changes in our estimated warranty reserve

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

	Nine Months Ended September 30,
	2022		2021
Balance, beginning of period	$	2,822	$	769
Utilization of reserve		(1,988)		(582)
Warranty expense		161		1,176
Balance, end of period	$	995	$	1,363

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Revenues (Tables)

9 Months Ended

Sep. 30, 2022

Revenues

Summary of Revenue by Product and Service Offering and Geography

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

	Three Months Ended September 30, 2022						Three Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	65,951	$	—	$	65,951	$	50,641		—	$	50,641
TASER X26P		5,897		—		5,897		9,086		—		9,086
TASER X2		8,298		—		8,298		10,078		—		10,078
TASER Consumer devices		1,702		—		1,702		967		—		967
Cartridges		46,475		—		46,475		39,313		—		39,313
Axon Body		—		35,427		35,427		—		20,862		20,862
Axon Flex		—		687		687		—		1,488		1,488
Axon Fleet		—		10,139		10,139		—		6,063		6,063
Axon Dock		—		4,830		4,830		—		6,460		6,460
Axon Evidence and cloud services		5,125		96,814		101,939		2,711		63,272		65,983
Extended warranties		7,290		14,511		21,801		6,099		8,983		15,082
Other		4,145		4,463		8,608		2,596		3,370		5,966
Total	$	144,883	$	166,871	$	311,754	$	121,491	$	110,498	$	231,989

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	169,457	$	—	$	169,457	$	112,760		—	$	112,760
TASER X26P		27,715		—		27,715		28,618		—		28,618
TASER X2		16,451		—		16,451		39,001		—		39,001
TASER Consumer devices		5,085		—		5,085		4,873		—		4,873
Cartridges		134,145		—		134,145		116,409		—		116,409
Axon Body		—		92,603		92,603		—		60,545		60,545
Axon Flex		—		2,637		2,637		—		3,481		3,481
Axon Fleet		—		39,840		39,840		—		15,073		15,073
Axon Dock		—		18,159		18,159		—		18,889		18,889
Axon Evidence and cloud services		11,862		258,664		270,526		5,809		175,933		181,742
Extended warranties		21,428		36,070		57,498		17,602		24,632		42,234
Other		8,686		10,991		19,677		7,946		14,232		22,178
Total	$	394,829	$	458,964	$	853,793	$	333,018	$	312,785	$	645,803

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

	Three Months Ended September 30,								Nine Months Ended September 30,
	2022				2021				2022				2021
United States	$	264,644	85	%	$	192,756	83	%	$	707,304	83	%	$	518,050	80	%
Other countries		47,110	15			39,233	17			146,489	17			127,753	20
Total	$	311,754	100	%	$	231,989	100	%	$	853,793	100	%	$	645,803	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 nine months ended September 30, 2022 (in thousands):

	September 30, 2022
Contract assets, net	$	217,061
Contract liabilities (deferred revenue)		560,269
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period		228,278

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

	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	15,031	$	19,349	$	34,380	$	21,257	$	4,766	$	26,023
Software and Sensors		22,357		17,825		40,182		23,175		18,137		41,312
		37,388		37,174		74,562		44,432		22,903		67,335
Hardware:
TASER		21,263		38,948		60,211		12,944		28,727		41,671
Software and Sensors		37,972		109,947		147,919		34,862		81,223		116,085
		59,235		148,895		208,130		47,806		109,950		157,756
Services:
TASER		4,648		9,655		14,303		2,701		3,482		6,183
Software and Sensors		145,175		118,099		263,274		170,652		49,386		220,038
		149,823		127,754		277,577		173,353		52,868		226,221
Total	$	246,446	$	313,823	$	560,269	$	265,591	$	185,721	$	451,312

	September 30, 2022						December 31, 2021
	Current		Long-Term		Total		Current		Long-Term		Total
TASER	$	40,942	$	67,952	$	108,894	$	36,902	$	36,975	$	73,877
Software and Sensors		205,504		245,871		451,375		228,689		148,746		377,435
Total	$	246,446	$	313,823	$	560,269	$	265,591	$	185,721	$	451,312

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Cash, Cash Equivalents and Investments (Tables)

9 Months Ended

Sep. 30, 2022

Cash, Cash Equivalents and Investments

Summary of Cash, Cash Equivalents, Marketable Securities, and Available-for-Sale Investments

The following tables summarize our cash, cash equivalents, marketable securities, and available-for-sale investments at September 30, 2022 and December 31, 2021 (in thousands):

	As of September 30, 2022
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Marketable		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Securities		Investments		Investments
Cash	$	94,638	$	—	$	—	$	94,638	$	94,638	$	—	$	—	$	—
Level 1:
Money market funds		6,982		—		—		6,982		6,982		—		—		—
Agency bonds		68,072		6		(69)		68,009		28,000		—		35,763		4,246
Treasury bills		55,520		2		(162)		55,360		14,999		—		40,361		—
Marketable securities		90,000		—		(54,720)		35,280		—		35,280		—		—
Subtotal		220,574		8		(54,951)		165,631		49,981		35,280		76,124		4,246
Level 2:
State and municipal obligations		6,935		—		(54)		6,881		—		—		6,881		—
Corporate bonds		75,412		6		(1,233)		74,185		2,096		—		47,799		24,290
Commercial paper		64,819		—		—		64,819		996		—		63,823		—
Subtotal		147,166		6		(1,287)		145,885		3,092		—		118,503		24,290
Total	$	462,378	$	14	$	(56,238)	$	406,154	$	147,711	$	35,280	$	194,627	$	28,536

	As of December 31, 2021
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Marketable		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Securities		Investments		Investments
Cash	$	353,488	$	—	$	—	$	353,488	$	353,488	$	—	$	—	$	—
Level 1:
Money market funds		2,844		—		—		2,844		2,844		—		—		—
Agency bonds		10,700		4		—		10,704		—		—		10,704		—
Marketable securities		90,000		—		(17,820)		72,180		—		72,180		—		—
Subtotal		103,544		4		(17,820)		85,728		2,844		72,180		10,704		—
Level 2:
State and municipal obligations		2,570		—		(5)		2,565		—		—		1,400		1,165
Corporate bonds		32,748		1		(276)		32,473		—		—		2,406		30,067
Subtotal		35,318		1		(281)		35,038		—		—		3,806		31,232
Total	$	492,350	$	5	$	(18,101)	$	474,254	$	356,332	$	72,180	$	14,510	$	31,232

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Expected Credit Losses (Tables)

9 Months Ended

Sep. 30, 2022

Expected Credit Losses

Schedule of roll-forward of allowance for credit losses

The following table provides a roll-forward of the allowance for expected credit losses that is deducted from the amortized cost basis of accounts receivable, notes receivable, and contract assets to present the net amount expected to be collected (in thousands):

	Nine Months Ended September 30, 2022
	United States		Other countries		Total
Balance, beginning of period	$	3,171	$	178	$	3,349
Provision for expected credit losses		254		315		569
Amounts written off charged against the allowance		(382)		-		(382)
Other, including foreign currency translation		-		(3)		(3)
Balance, end of period	$	3,043	$	490	$	3,533

Schedule of allowance for expected credit losses for each type of customer receivable

As of September 30, 2022 and December 31, 2021, the allowance for expected credit losses for each type of customer receivable was as follows (in thousands):

	September 30,		December 31,
	2022		2021
Accounts receivable and notes receivable, current	$	2,273	$	2,203
Contract assets, net		1,120		1,010
Long-term notes receivable, net of current portion		140		136
Total allowance for expected credit losses on customer receivables	$	3,533	$	3,349

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Inventory (Tables)

9 Months Ended

Sep. 30, 2022

Inventory

Inventory

Inventory consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Raw materials	$	61,921	$	38,267
Finished goods		111,125		70,421
Total inventory	$	173,046	$	108,688

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Property and Equipment (Tables)

9 Months Ended

Sep. 30, 2022

Property and Equipment

Summary of Property and Equipment

Property and equipment consisted of the following (in thousands):

	Estimated
	Useful Life	September 30, 2022		December 31, 2021
Land	N/A	$	51,612	$	54,868
Building and leasehold improvements	3-39 years		26,860		25,712
Production equipment	3-5 years		56,237		54,090
Computers, equipment and software	3-5 years		23,478		15,343
Furniture and office equipment	3-5 years		7,511		6,838
Vehicles	5 years		3,746		2,932
Capitalized internal software development costs	3-5 years		14,198		12,200
Construction-in-process	N/A		53,262		25,258
Total cost			236,904		197,241
Less: Accumulated depreciation			(72,744)		(58,784)
Property and equipment, net		$	164,160	$	138,457

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Strategic Investments (Tables)

9 Months Ended

Sep. 30, 2022

Strategic Investments

Schedule of Roll-Forward of Strategic Investments

The following tables provide a roll-forward of the balance of strategic investments (in thousands):

	Nine Months Ended September 30, 2022								Nine Months Ended September 30, 2021
	Strategic investments		Warrants			Call options	Total		Strategic investments		Warrants			Total
Balance, beginning of period	$	80,775	$	2,745	$	—	$	83,520	$	9,500	$	2,211	$	11,711
Investments		53,164		459		17,233		70,856		20,500		—		20,500
Observable price changes (1)		40,784		28,539		—		69,323		40,321		534		40,855
Exercises		96,719		(30,089)		—		66,630		—		—		—
Sales		—		—		—		—		(14,546)		—		(14,546)
Balance, end of period	$	271,442	$	1,654	$	17,233	$	290,329	$	55,775	$	2,745	$	58,520

	Inception to date
	Strategic investments		Warrants			Call options	Total
Investments	$	105,732	$	3,047	$	17,233	$	126,012
Observable price changes (1)		83,537		28,696		—		112,233
Exercises		96,719		(30,089)		—		66,630
Sales		(14,546)		—		—		(14,546)
Balance, end of period	$	271,442	$	1,654	$	17,233	$	290,329

(1) Includes a realized gain of $12.3 million for the nine months ended September 30, 2021.

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Variable Interest Entities (Tables)

9 Months Ended

Sep. 30, 2022

Variable Interest Entities

Schedule of the nonconsolidated VIEs

	September 30, 2022		December 31, 2021
Total nonconsolidated variable interest entities:
Carrying value of variable interest - assets	$	5,296	$	895
Carrying value of variable interest - liabilities		—		—
Maximum exposure to loss:
Non-public equity (1)		5,296		895
Total	$	5,296	$	895

⁽¹⁾ The maximum exposure to loss is limited to the carrying value of the interest.

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Accrued Liabilities (Tables)

9 Months Ended

Sep. 30, 2022

Accrued Liabilities

Schedule of Accrued liabilities

Accrued liabilities consisted of the following at September 30, 2022 and December 31, 2021 (in thousands):

	September 30, 2022		December 31, 2021
Accrued salaries, benefits and bonus	$	69,058	$	62,425
Accrued professional, consulting and lobbying fees		3,918		7,152
Accrued warranty expense		995		2,822
Accrued income and other taxes		3,871		3,736
Accrued inventory in transit		11,081		9,945
Other accrued expenses		23,843		17,627
Accrued liabilities	$	112,766	$	103,707

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Stockholders' Equity (Tables)

9 Months Ended

Sep. 30, 2022

Stockholders' Equity

Equity Compensation Goals

Revenue Goal (1) (in thousands)	Achievement Status	Adjusted EBITDA (in thousands)	Achievement Status
Goal #1, $710,058	Achieved	Goal #1, $125,000	Achieved
Goal #2, $860,058	Achieved	Goal #2, $155,000	Achieved
Goal #3, $1,010,058	Achieved	Goal #3, $175,000	Achieved
Goal #4, $1,210,058	Probable	Goal #4, $190,000	Achieved
Goal #5, $1,410,058	Not Applicable	Goal #5, $200,000	Achieved
Goal #6, $1,610,058	Not Applicable	Goal #6, $210,000	Achieved
Goal #7, $1,810,058	Not Applicable	Goal #7, $220,000	Achieved
Goal #8, $2,010,058	Not Applicable	Goal #8, $230,000	Achieved

(1) In connection with the business acquisition that was completed during the three months ended September 30, 2018, the revenue goals were 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 nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,115	$	133.40
Granted	625		113.42
Released	(240)		93.14
Forfeited	(128)		136.22
Units outstanding, end of period	1,372		131.08	$	158,838

Summary of Performance Stock Unit Activity

The following table summarizes PSU activity, inclusive of XSUs, for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,499	$	39.86
Granted	142		102.60
Released	(36)		122.83
Forfeited	(180)		34.15
Units outstanding, end of period	1,425		44.72	$	164,980

Summary of the Company's Stock Options Activity

The following table summarizes stock option activity for the nine months ended September 30, 2022 (number of units and aggregate intrinsic value in thousands):

				Weighted
		Weighted		Average
	Number	Average		Remaining
	of	Exercise		Contractual	Aggregate
	Options	Price		Life (years)	Intrinsic Value
Options outstanding, beginning of year	2,438	$	28.58
Granted	—		—
Exercised	—		—
Expired / terminated	—		—
Options outstanding, end of period	2,438		28.58	5.41	$	212,517
Options exercisable, end of period	1,377		28.58	5.41		120,031

Reported Share-Based Compensation

The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2022 and 2021 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Cost of product sales and service sales	$	1,157	$	1,112	$	3,331	$	4,439
Sales, general and administrative expenses		14,268		25,969		35,860		211,073
Research and development expenses		12,779		7,981		35,263		46,709
Total stock-based compensation expense	$	28,204	$	35,062	$	74,454	$	262,221

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Accumulated Other Comprehensive Income (loss) (Tables)

9 Months Ended

Sep. 30, 2022

Accumulated Other Comprehensive Income (loss).

Summary of changes in accumulated other comprehensive income (loss), net of tax

The following tables reflect the changes in accumulated other comprehensive income (loss), net of tax (in thousands):

		Unrealized Gains (Losses)
		on Available-for-Sale		Foreign Currency
		Investments		Translation	Total
Balance, December 31, 2021	$	(207)	$	(1,110)	$	(1,317)
Other comprehensive loss		(489)		(1,072)		(1,561)
Balance, March 31, 2022	$	(696)	$	(2,182)	$	(2,878)
Other comprehensive loss		(161)		(2,166)		(2,327)
Balance, June 30, 2022	$	(857)	$	(4,348)	$	(5,205)
Other comprehensive loss		(326)		(2,275)		(2,601)
Balance, September 30, 2022	$	(1,183)	$	(6,623)	$	(7,806)

		Unrealized Gains (Losses)
		on Available-for-Sale		Foreign Currency
		Investments		Translation	Total
Balance, December 31, 2020	$	—	$	141	$	141
Other comprehensive income		—		1		1
Balance, March 31, 2021	$	—	$	142	$	142
Other comprehensive loss		—		(369)		(369)
Balance, June 30, 2021	$	—	$	(227)	$	(227)
Other comprehensive loss		—		(793)		(793)
Balance, September 30, 2021	$	—	$	(1,020)	$	(1,020)

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Segment Data (Tables)

9 Months Ended

Sep. 30, 2022

Segment Data

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 September 30, 2022						Three Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
Net sales from products	$	139,267	$	71,131	$	210,398	$	118,569	$	47,234	$	165,803
Net sales from services		5,616		95,740		101,356		2,922		63,264		66,186
Net sales		144,883		166,871		311,754		121,491		110,498		231,989
Cost of product sales		53,422		40,302		93,724		41,554		29,782		71,336
Cost of service sales		—		24,773		24,773		—		16,086		16,086
Cost of sales		53,422		65,075		118,497		41,554		45,868		87,422
Gross margin	$	91,461	$	101,796	$	193,257	$	79,937	$	64,630	$	144,567
Research and development	$	13,864	$	45,263	$	59,127	$	10,476	$	31,906	$	42,382

	Nine Months Ended September 30, 2022						Nine Months Ended September 30, 2021
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
Net sales from products	$	382,142	$	204,511	$	586,653	$	326,508		136,608	$	463,116
Net sales from services		12,687		254,453		267,140		6,510		176,177		182,687
Net sales		394,829		458,964		853,793		333,018		312,785		645,803
Cost of product sales		142,510		118,068		260,578		112,200		83,053		195,253
Cost of service sales		—		70,256		70,256		145		44,556		44,701
Cost of sales		142,510		188,324		330,834		112,345		127,609		239,954
Gross margin	$	252,319	$	270,640	$	522,959	$	220,673	$	185,176	$	405,849
Research and development	$	37,076	$	128,014	$	165,090	$	32,032	$	111,320	$	143,352

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Organization and Summary of Significant Accounting Policies - Narrative (Details) $ in Millions	3 Months Ended	9 Months Ended	12 Months Ended
	Sep. 30, 2022 USD ($) customer country	Sep. 30, 2022 USD ($) customer country item segment	Dec. 31, 2021 USD ($) customer
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of reportable segments | segment		2
Warranty period		1 year
Cash surrender value of corporate-owned life insurance policies	$ 4.0	$ 4.0	$ 5.3
Investments in number of unconsolidated affiliates | item		8
Restricted cash balance	1.7	$ 1.7	$ 0.1
Prepaid expenses and other assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Restricted cash balance	1.6	1.6
Other long-term assets
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Restricted cash balance	$ 0.1	$ 0.1
Net Sales | Geographic Concentration Risk
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of countries outside the U.S. representing more than 10% of total net sales | country	0	0
Net Sales | Customer Concentration Risk
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of major customers | customer	0	0
Accounts and notes receivable and contract assets | Customer Concentration Risk
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Number of major customers | customer		0	0

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Organization and Summary of Significant Accounting Policies - Weighted Average Number of Shares Outstanding and Earnings Per Share (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	3 Months Ended						9 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021	Sep. 30, 2022	Sep. 30, 2021
Numerator for basic and diluted earnings per share:
Net income (loss)	$ 12,131	$ 50,962	$ 54,871	$ 48,524	$ (47,117)	$ (47,917)	$ 117,964	$ (46,510)
Denominator:
Weighted average shares outstanding (in shares)	71,107			66,192			71,033	65,139
Dilutive effect of stock-based awards (in shares)	1,418			6,249			1,353
Diluted weighted average shares outstanding (in shares)	72,525			72,441			72,386	65,139
Anti-dilutive stock-based awards excluded (in shares)	2,977			3,481			2,952	8,920
Earnings (loss) per share
Basic (in dollars per share)	$ 0.17			$ 0.73			$ 1.66	$ (0.71)
Diluted (in dollars per share)	$ 0.17			$ 0.67			$ 1.63	$ (0.71)

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Organization and Summary of Significant Accounting Policies - Summary of Changes in Estimated Warranty Reserve (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021
Movement in Standard and Extended Product Warranty
Balance, beginning of period	$ 2,822	$ 769
Utilization of reserve	(1,988)	(582)
Warranty expense	161	1,176
Balance, end of period	$ 995	$ 1,363

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Revenues - Revenues By Products And Service Offerings (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 311,754	$ 231,989	$ 853,793	$ 645,803
TASER 7
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	65,951	50,641	169,457	112,760
TASER X26P
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	5,897	9,086	27,715	28,618
TASER X2
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	8,298	10,078	16,451	39,001
TASER Consumer devices
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	1,702	967	5,085	4,873
Cartridges
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	46,475	39,313	134,145	116,409
Axon Body
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	35,427	20,862	92,603	60,545
Axon Flex
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	687	1,488	2,637	3,481
Axon Fleet
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	10,139	6,063	39,840	15,073
Axon Dock
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	4,830	6,460	18,159	18,889
Axon Evidence and cloud services
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	101,939	65,983	270,526	181,742
Extended warranties
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	21,801	15,082	57,498	42,234
Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	8,608	5,966	19,677	22,178
TASER
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	144,883	121,491	394,829	333,018
TASER | TASER 7
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	65,951	50,641	169,457	112,760
TASER | TASER X26P
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	5,897	9,086	27,715	28,618
TASER | TASER X2
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	8,298	10,078	16,451	39,001
TASER | TASER Consumer devices
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	1,702	967	5,085	4,873
TASER | Cartridges
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	46,475	39,313	134,145	116,409
TASER | Axon Evidence and cloud services
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	5,125	2,711	11,862	5,809
TASER | Extended warranties
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	7,290	6,099	21,428	17,602
TASER | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	4,145	2,596	8,686	7,946
Software and Sensors
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	166,871	110,498	458,964	312,785
Software and Sensors | Axon Body
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	35,427	20,862	92,603	60,545
Software and Sensors | Axon Flex
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	687	1,488	2,637	3,481
Software and Sensors | Axon Fleet
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	10,139	6,063	39,840	15,073
Software and Sensors | Axon Dock
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	4,830	6,460	18,159	18,889
Software and Sensors | Axon Evidence and cloud services
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	96,814	63,272	258,664	175,933
Software and Sensors | Extended warranties
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	14,511	8,983	36,070	24,632
Software and Sensors | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 4,463	$ 3,370	$ 10,991	$ 14,232

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Revenues - Revenues By Geographic Area (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 311,754	$ 231,989	$ 853,793	$ 645,803
United States
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	264,644	192,756	707,304	518,050
Other countries
Disaggregation of Revenue [Line Items]
Revenue from contract with customers	$ 47,110	$ 39,233	$ 146,489	$ 127,753
Revenue from Contract with Customer | Geographic Concentration Risk
Disaggregation of Revenue [Line Items]
Concentration risk (as a percentage)	100.00%	100.00%	100.00%	100.00%
Revenue from Contract with Customer | Geographic Concentration Risk | United States
Disaggregation of Revenue [Line Items]
Concentration risk (as a percentage)	85.00%	83.00%	83.00%	80.00%
Revenue from Contract with Customer | Geographic Concentration Risk | Other countries
Disaggregation of Revenue [Line Items]
Concentration risk (as a percentage)	15.00%	17.00%	17.00%	20.00%

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Revenues - Contract Assets, Contract Liabilities (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Revenues
Contract assets, net	$ 217,061
Contract liabilities (deferred revenue)	560,269	$ 451,312
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period	$ 228,278

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Revenues - Schedule Of Contract Liabilities - Deferred revenue (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Disaggregation of Revenue [Line Items]
Current	$ 246,446	$ 265,591
Long-Term	313,823	185,721
Total	560,269	451,312
TASER
Disaggregation of Revenue [Line Items]
Current	40,942	36,902
Long-Term	67,952	36,975
Total	108,894	73,877
Software and Sensors
Disaggregation of Revenue [Line Items]
Current	205,504	228,689
Long-Term	245,871	148,746
Total	451,375	377,435
Warranty
Disaggregation of Revenue [Line Items]
Current	37,388	44,432
Long-Term	37,174	22,903
Total	74,562	67,335
Warranty | TASER
Disaggregation of Revenue [Line Items]
Current	15,031	21,257
Long-Term	19,349	4,766
Total	34,380	26,023
Warranty | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	22,357	23,175
Long-Term	17,825	18,137
Total	40,182	41,312
Hardware
Disaggregation of Revenue [Line Items]
Current	59,235	47,806
Long-Term	148,895	109,950
Total	208,130	157,756
Hardware | TASER
Disaggregation of Revenue [Line Items]
Current	21,263	12,944
Long-Term	38,948	28,727
Total	60,211	41,671
Hardware | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	37,972	34,862
Long-Term	109,947	81,223
Total	147,919	116,085
Services
Disaggregation of Revenue [Line Items]
Current	149,823	173,353
Long-Term	127,754	52,868
Total	277,577	226,221
Services | TASER
Disaggregation of Revenue [Line Items]
Current	4,648	2,701
Long-Term	9,655	3,482
Total	14,303	6,183
Services | Software and Sensors
Disaggregation of Revenue [Line Items]
Current	145,175	170,652
Long-Term	118,099	49,386
Total	$ 263,274	$ 220,038

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Revenues - Revenue Performance Obligations (Details) $ in Millions	Sep. 30, 2022 USD ($)
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation	$ 3,730
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2032-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation, expected timing of satisfaction, period	10 years
Minimum | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation to be recognized in the next twelve months (as a percentage)	15.00%
Maximum | Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date [Axis]: 2022-10-01
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction [Line Items]
Revenue, remaining performance obligation to be recognized in the next twelve months (as a percentage)	20.00%
Revenue, remaining performance obligation, expected timing of satisfaction, period	12 months

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Cash, Cash Equivalents and Investments (Details) - USD ($) $ in Thousands	3 Months Ended	9 Months Ended
	Sep. 30, 2022	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	$ 462,378	$ 462,378	$ 492,350
Gross Unrealized Gains	14	14	5
Gross Unrealized Losses	(56,238)	(56,238)	(18,101)
Fair Value	406,154	406,154	474,254
Cash and Cash Equivalents	147,711	147,711	356,332
Marketable Securities	35,280	35,280	72,180
Short-Term Investments	194,627	194,627	14,510
Long-Term Investments	28,536	28,536	31,232
Cash and cash equivalents	147,711	147,711	356,332	$ 281,691
Short-term investments	194,627	194,627	14,510
Long-term investments	28,536	28,536	31,232
Fair value of available for sale investments with unrealized losses	136,300	136,300
Share Purchase Agreement with Cellebrite DI Ltd.
Restricted Cash and Cash Equivalents Items [Line Items]
Marketable securities, unrealized gain (loss)	(10,600)	(36,900)
Common stock | Share Purchase Agreement with Cellebrite DI Ltd.
Restricted Cash and Cash Equivalents Items [Line Items]
Marketable Securities			$ 90,000
Investment owned, shares held			9,000,000
Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	220,574	220,574	$ 103,544
Gross Unrealized Gains	8	8	4
Gross Unrealized Losses	(54,951)	(54,951)	(17,820)
Fair Value	165,631	165,631	85,728
Cash and Cash Equivalents	49,981	49,981	2,844
Marketable Securities	35,280	35,280	72,180
Short-Term Investments	76,124	76,124	10,704
Long-Term Investments	4,246	4,246
Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	147,166	147,166	35,318
Gross Unrealized Gains	6	6	1
Gross Unrealized Losses	(1,287)	(1,287)	(281)
Fair Value	145,885	145,885	35,038
Cash and Cash Equivalents	3,092	3,092
Short-Term Investments	118,503	118,503	3,806
Long-Term Investments	24,290	24,290	31,232
Cash
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	94,638	94,638	353,488
Fair Value	94,638	94,638	353,488
Cash and Cash Equivalents	94,638	94,638	353,488
Money market funds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	6,982	6,982	2,844
Fair Value	6,982	6,982	2,844
Cash and Cash Equivalents	6,982	6,982	2,844
Agency bonds | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	68,072	68,072	10,700
Gross Unrealized Gains	6	6	4
Gross Unrealized Losses	(69)	(69)
Fair Value	68,009	68,009	10,704
Cash and Cash Equivalents	28,000	28,000
Short-Term Investments	35,763	35,763	10,704
Long-Term Investments	4,246	4,246
Treasury bills | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	55,520	55,520
Gross Unrealized Gains	2	2
Gross Unrealized Losses	(162)	(162)
Fair Value	55,360	55,360
Cash and Cash Equivalents	14,999	14,999
Short-Term Investments	40,361	40,361
Marketable securities | Fair Value, Inputs, Level 1
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	90,000	90,000	90,000
Gross Unrealized Losses	(54,720)	(54,720)	(17,820)
Fair Value	35,280	35,280	72,180
Marketable Securities	35,280	35,280	72,180
State and municipal obligations | Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	6,935	6,935	2,570
Gross Unrealized Losses	(54)	(54)	(5)
Fair Value	6,881	6,881	2,565
Short-Term Investments	6,881	6,881	1,400
Long-Term Investments			1,165
Corporate bonds | Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	75,412	75,412	32,748
Gross Unrealized Gains	6	6	1
Gross Unrealized Losses	(1,233)	(1,233)	(276)
Fair Value	74,185	74,185	32,473
Cash and Cash Equivalents	2,096	2,096
Short-Term Investments	47,799	47,799	2,406
Long-Term Investments	24,290	24,290	$ 30,067
Commercial paper | Fair Value, Inputs, Level 2
Restricted Cash and Cash Equivalents Items [Line Items]
Amortized Cost	64,819	64,819
Fair Value	64,819	64,819
Cash and Cash Equivalents	996	996
Short-Term Investments	$ 63,823	$ 63,823

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Expected Credit Losses (Details) $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($)
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Balance, beginning of period	$ 3,349
Provision for expected credit losses	569
Amounts written off charged against the allowance	(382)
Other, including foreign currency translation	(3)
Balance, end of period	3,533
United States
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Balance, beginning of period	3,171
Provision for expected credit losses	254
Amounts written off charged against the allowance	(382)
Balance, end of period	3,043
Other countries
Accounts Receivable, Allowance for Credit Loss [Roll Forward]
Balance, beginning of period	178
Provision for expected credit losses	315
Other, including foreign currency translation	(3)
Balance, end of period	$ 490

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Expected Credit Losses - Type Of Customer Receivable (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Expected Credit Losses
Accounts receivable and notes receivable, current	$ 2,273	$ 2,203
Contract assets, net	1,120	1,010
Long-term notes receivable, net of current portion	140	136
Total allowance for expected credit losses on customer receivables	$ 3,533	$ 3,349

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Inventory (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Inventory
Raw materials	$ 61,921	$ 38,267
Finished goods	111,125	70,421
Total inventory	$ 173,046	$ 108,688

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Property and Equipment - Summary of Property and Equipment (Details) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Property, Plant and Equipment [Line Items]
Total cost	$ 236,904	$ 197,241
Less: Accumulated depreciation	(72,744)	(58,784)
Property and equipment, net	164,160	138,457
Land
Property, Plant and Equipment [Line Items]
Total cost	51,612	54,868
Building and leasehold improvements
Property, Plant and Equipment [Line Items]
Total cost	$ 26,860	25,712
Building and leasehold improvements | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	3 years
Building and leasehold improvements | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	39 years
Production equipment
Property, Plant and Equipment [Line Items]
Total cost	$ 56,237	54,090
Production equipment | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	3 years
Production equipment | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	5 years
Computers, equipment and software
Property, Plant and Equipment [Line Items]
Total cost	$ 23,478	15,343
Computers, equipment and software | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	3 years
Computers, equipment and software | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	5 years
Furniture and office equipment
Property, Plant and Equipment [Line Items]
Total cost	$ 7,511	6,838
Furniture and office equipment | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	3 years
Furniture and office equipment | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	5 years
Vehicles
Property, Plant and Equipment [Line Items]
Estimated Useful Life	5 years
Total cost	$ 3,746	2,932
Capitalized internal software development costs
Property, Plant and Equipment [Line Items]
Total cost	$ 14,198	12,200
Capitalized internal software development costs | Minimum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	3 years
Capitalized internal software development costs | Maximum
Property, Plant and Equipment [Line Items]
Estimated Useful Life	5 years
Construction-in-process
Property, Plant and Equipment [Line Items]
Total cost	$ 53,262	$ 25,258

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Property and Equipment - Narrative (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Property, Plant and Equipment [Line Items]
Cost incurred to date	$ 236,904	$ 197,241
New campus development
Property, Plant and Equipment [Line Items]
Cost incurred to date	$ 25,600	$ 12,400

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Strategic Investments (Details) - USD ($) $ in Thousands	9 Months Ended		31 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022
Equity Securities without Readily Determinable Fair Value [Line Items]
Balance, beginning of period	$ 83,520	$ 11,711
Investments	70,856	20,500	$ 126,012
Observable price changes	69,323	40,855	112,233
Exercises	66,630		66,630
Sales		(14,546)	(14,546)
Balance, end of period	290,329	58,520	290,329
Investment in unconsolidated affiliate	290,329	58,520	290,329
Unrealized gain on observable price changes	70,400
Unrealized loss on observable price changes	1,100
Exercise price of warrants	6,600
Unrealized gains on warrants exercised	60,100
Realized gain on sale of investment		12,300
A drone company and a biometrics sensor company
Equity Securities without Readily Determinable Fair Value [Line Items]
Balance, end of period	8,800		8,800
Investment in unconsolidated affiliate	8,800		8,800
Strategic investments
Equity Securities without Readily Determinable Fair Value [Line Items]
Balance, beginning of period	80,775	9,500
Investments	53,164	20,500	105,732
Observable price changes	40,784	40,321	83,537
Exercises	96,719		96,719
Sales		(14,546)	(14,546)
Balance, end of period	271,442	55,775	271,442
Investment in unconsolidated affiliate	271,442	55,775	271,442
Warrants
Equity Securities without Readily Determinable Fair Value [Line Items]
Balance, beginning of period	2,745	2,211
Investments	459		3,047
Observable price changes	28,539	534	28,696
Exercises	(30,089)		(30,089)
Balance, end of period	1,654	2,745	1,654
Investment in unconsolidated affiliate	1,654	$ 2,745	1,654
Call options
Equity Securities without Readily Determinable Fair Value [Line Items]
Investments	17,233		17,233
Balance, end of period	17,233		17,233
Investment in unconsolidated affiliate	$ 17,233		$ 17,233

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Variable Interest Entities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021
Total nonconsolidated variable interest entities:
Carrying value of variable interest - assets	$ 2,010,430	$ 1,688,210
Carrying value of variable interest - liabilities	779,117	640,361
Nonconsolidated VIEs
Total nonconsolidated variable interest entities:
Carrying value of variable interest - assets	5,296	895
Maximum exposure to loss:
Non-public equity	5,296	895
Total	$ 5,296	$ 895

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Accrued Liabilities (Details) - USD ($) $ in Thousands	Sep. 30, 2022	Dec. 31, 2021	Sep. 30, 2021	Dec. 31, 2020
Accrued Liabilities
Accrued salaries, benefits and bonus	$ 69,058	$ 62,425
Accrued professional, consulting and lobbying fees	3,918	7,152
Accrued warranty expense	995	2,822	$ 1,363	$ 769
Accrued income and other taxes	3,871	3,736
Accrued inventory in transit	11,081	9,945
Other accrued expenses	23,843	17,627
Accrued liabilities	$ 112,766	$ 103,707

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Income Taxes (Details) $ in Millions	9 Months Ended
	Sep. 30, 2022 USD ($)
Income Taxes
Deferred tax assets, net	$ 96.4
Liability for unrecognized tax benefits	20.3
Research and development tax credit studies	$ 12.0
Effective tax rate (as a percentage)	27.10%
Effective tax rate, before discrete period adjustment (as a percentage)	28.00%
Discrete tax benefit, stock-based compensation	$ 1.4

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Stockholders' Equity - CEO Performance Award - Additional Information (Details) $ in Thousands		9 Months Ended	52 Months Ended
	May 24, 2018 USD ($) tranche item shares	Sep. 30, 2022 USD ($) shares	Sep. 30, 2022 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market capitalization goal for such tranche	$ 2,500,000
Market capitalization goal increment	$ 1,000,000
Recorded share-based compensation expense			$ 240,000
Number of awards expected to vest | shares		1,100,000	1,100,000
Revenue goal number 1		$ 710,058	$ 710,058
Revenue goal number 2		860,058	860,058
Revenue goal number 3		1,010,058	1,010,058
Revenue goal number 4		1,210,058	1,210,058
Revenue goal number 5		1,410,058	1,410,058
Revenue goal number 6		1,610,058	1,610,058
Revenue goal number 7		1,810,058	1,810,058
Revenue goal number 8		2,010,058	2,010,058
Adjusted EBITDA goal number 1		125,000	125,000
Adjusted EBITDA goal number 2		155,000	155,000
Adjusted EBITDA goal number 3		175,000	175,000
Adjusted EBITDA goal number 4		190,000	190,000
Adjusted EBITDA goal number 5		200,000	200,000
Adjusted EBITDA goal number 6		210,000	210,000
Adjusted EBITDA goal number 7		220,000	220,000
Adjusted EBITDA goal number 8		$ 230,000	230,000
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance shares authorized (in shares) | shares	6,365,856
Number of options vested | shares		5,300,000
Weighted average period over which costs are recognized		4 months 24 days
CEO Performance Award
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		$ 6,000	$ 6,000
Chief Executive Officer
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of vesting tranches of share-based awards | tranche	12
Vesting period	10 years
Number of performance goals, revenue | item	8
Number of performance goals, adjusted EBITDA | item	8

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Stockholders' Equity - eXponential Stock Performance Plan (Details) shares in Millions, $ in Millions			9 Months Ended	44 Months Ended	52 Months Ended
	Feb. 12, 2019 USD ($) tranche item	May 24, 2018 USD ($)	Sep. 30, 2022 USD ($) shares	Sep. 30, 2022 USD ($) shares	Sep. 30, 2022 USD ($) shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Market capitalization goal for such tranche		$ 2,500.0
Market capitalization goal increment		$ 1,000.0
Recorded share-based compensation expense					$ 240.0
Number of awards expected to vest | shares			1.1	1.1	1.1
eXponential Stock Units | 2019 eXponential Stock Performance Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expiration period	9 years
Number of vesting tranches of share-based awards | tranche	12
Market capitalization goal for such tranche	$ 2,500.0
Number of performance goals, revenue | item	8
Number of performance goals, adjusted EBITDA | item	8
Market capitalization goal increment	$ 1,000.0
Anti-dilution provision, maximum shares growth rate per year			3.00%
Recorded share-based compensation expense				$ 183.2
Number of awards expected to vest | shares			1.2	1.2	1.2
Unrecognized stock-based compensation expense			$ 15.5	$ 15.5	$ 15.5
Weighted average period over which costs are recognized			1 year 4 months 24 days

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Stockholders' Equity - Summary of RSU and PSU Activity (Details) $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($) $ / shares shares
Restricted Stock Units (RSUs)
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	1,115
Number of Units, Granted (in shares) | shares	625
Number of Units, Released (in shares) | shares	(240)
Number of Units, Forfeited (in shares) | shares	(128)
Number of Units outstanding, end of period (in shares) | shares	1,372
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) | $ / shares	$ 133.40
Weighted Average Grant Date Fair Value, Granted (in dollars per share) | $ / shares	113.42
Weighted Average Grant Date Fair Value, Released (in dollars per share) | $ / shares	93.14
Weighted Average Grant Date Fair Value, Forfeited (in dollars per share) | $ / shares	136.22
Weighted Average Grant Date Fair Value, Units outstanding, end of period (in dollars per share) | $ / shares	$ 131.08
Aggregate intrinsic value at end of period | $	$ 158,838
Performance Stock Units (PSUs)
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	1,499
Number of Units, Granted (in shares) | shares	142
Number of Units, Released (in shares) | shares	(36)
Number of Units, Forfeited (in shares) | shares	(180)
Number of Units outstanding, end of period (in shares) | shares	1,425
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) | $ / shares	$ 39.86
Weighted Average Grant Date Fair Value, Granted (in dollars per share) | $ / shares	102.60
Weighted Average Grant Date Fair Value, Released (in dollars per share) | $ / shares	122.83
Weighted Average Grant Date Fair Value, Forfeited (in dollars per share) | $ / shares	34.15
Weighted Average Grant Date Fair Value, Units outstanding, end of period (in dollars per share) | $ / shares	$ 44.72
Aggregate intrinsic value at end of period | $	$ 164,980

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Stockholders' Equity - RSU and PSU - Additional Information (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended		52 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Dec. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Recorded share-based compensation expense			$ 240,000
Tax payments, for net share settlement of share based award	$ 2,391	$ 182,517
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 115.75		$ 115.75
Restricted Stock Units (RSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 115.75		$ 115.75
Unrecognized stock-based compensation expense	$ 126,900		$ 126,900
Weighted average period over which costs are recognized	2 years 1 month 6 days
Number of shares vested	240
Number of units outstanding (in shares)	1,372		1,372	1,115
Shares withheld, for net share settlement of share based award (in shares)	7
Tax payments, for net share settlement of share based award	$ 900
Performance Stock Units (PSUs)
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 115.75		$ 115.75
Unrecognized stock-based compensation expense	$ 22,400		$ 22,400
Weighted average period over which costs are recognized	1 year 4 months 24 days
Performance criteria had been met (in shares)	42
Number of shares vested	36
Number of units outstanding (in shares)	1,425		1,425	1,499
Shares withheld, for net share settlement of share based award (in shares)	12
Tax payments, for net share settlement of share based award	$ 1,500

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Stockholders' Equity - Summary of the Company's Stock Options Activity (Details) - Stock Options $ / shares in Units, shares in Thousands, $ in Thousands	9 Months Ended
	Sep. 30, 2022 USD ($) $ / shares shares
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding [Roll Forward]
Number of options, Options outstanding, beginning of year (in shares)	2,438
Number of options, Exercised (in shares)	0
Number of options, Options outstanding, end of year (in shares)	2,438
Number of options, Options exercisable, end of period (in shares)	1,377
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	$ 28.58
Weighted average exercise price, Options outstanding, end of period (in dollars per share) | $ / shares	28.58
Weighted average exercise price, Options exercisable, end of period (in dollars per share) | $ / shares	$ 28.58
Weighted average remaining contractual life, Options outstanding, end of period	5 years 4 months 28 days
Weighted average remaining contractual life, Options exercisable, end of period	5 years 4 months 28 days
Aggregate intrinsic value, Options outstanding, end of period | $	$ 212,517
Aggregate intrinsic value, Options exercisable, end of period | $	$ 120,031

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Stockholders' Equity - Stock Option Activity - Additional Information (Details) - $ / shares shares in Thousands	9 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Stock Options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Aggregate intrinsic value price per share (in dollars per share)	$ 115.75
Stock options exercised (in shares)	0
Number of options outstanding (in shares)	2,438	2,438
Performance Shares
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of options outstanding (in shares)	1,100

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Stockholders' Equity - Reported Stock-Based Compensation (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 28,204	$ 35,062	$ 74,454	$ 262,221
Cost of product sales and service sales
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	1,157	1,112	3,331	4,439
Sales, general and administrative expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	14,268	25,969	35,860	211,073
Research and development expenses
Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Line Items]
Stock-based compensation expense	$ 12,779	$ 7,981	$ 35,263	$ 46,709

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Stockholders' Equity - Stock Repurchase Plan - Additional Information (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021	May 31, 2022	Feb. 29, 2016
2022 Stock Incentive Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for issuance (in shares)					2,500,000
Shares available for grant under the plan (in shares)	3,200,000		3,200,000
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	0	0
Remaining authorized repurchase amount	$ 16,300,000		$ 16,300,000
2022 Inducement Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Common stock reserved for issuance (in shares)	250,000		250,000
Shares available for grant under the plan (in shares)	100,000		100,000

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Stockholders' Equity - At-the-Market equity offering - Additional Information (Details) - ATM Offering - USD ($) $ in Millions	9 Months Ended	12 Months Ended
	Sep. 30, 2022	Dec. 31, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Issuance of common stock (in shares)	0	577,956
Gross proceeds		$ 107.6
Net proceeds		105.4
Commissions		1.6
Stock issuance costs		$ 0.5
Maximum number of common stock shares to be sold		3,000,000.0

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Line of Credit (Details) $ in Millions	9 Months Ended
	Sep. 30, 2022 USD ($)	Dec. 31, 2021 USD ($)
Debt Instrument [Line Items]
Maximum ratio of total liabilities to tangible net worth	2.50
Line of Credit
Debt Instrument [Line Items]
Accordion feature allowing for increase in borrowing capacity	$ 100.0
Letters of credit outstanding amount	6.5
Available borrowing under letter of credit	43.5
Line of credit borrowings	$ 0.0	$ 0.0
EBITDA ratio	0.00
Line of Credit | Unsecured Revolving Line of Credit
Debt Instrument [Line Items]
Total availability under line of credit agreement	$ 50.0
Line of Credit | Letter of Credit
Debt Instrument [Line Items]
Available borrowing under letter of credit	$ 20.0
Minimum | Line of Credit | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate (as a percentage)	1.00%
Maximum | Line of Credit | London Interbank Offered Rate (LIBOR)
Debt Instrument [Line Items]
Debt instrument basis spread on variable rate (as a percentage)	1.50%

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Commitments and Contingencies (Details) $ in Millions	1 Months Ended	3 Months Ended	9 Months Ended
	Jun. 30, 2022 USD ($)	Sep. 30, 2022 USD ($) lawsuit	Sep. 30, 2022 USD ($) lawsuit
Loss Contingencies [Line Items]
Number of lawsuits against Company | lawsuit		2	2
Amount self-insured for any product claim			$ 5.0
Line of Credit
Loss Contingencies [Line Items]
Letters of credit outstanding amount		$ 6.5	6.5
Outstanding letters of credit and bank guarantees not drawn against credit facility		0.4	0.4
Data Storage
Loss Contingencies [Line Items]
Purchase agreement term	6 years
Purchase obligation	$ 425.0
Storage fees		11.2
Remaining purchase commitment		413.8	413.8
Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		21.1	21.1
Expire throughout 2023 | Surety Bond
Loss Contingencies [Line Items]
Letters of credit outstanding amount		6.5	6.5
Expiring in 2022 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		3.1	3.1
Expiring in 2023 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		7.5	7.5
Expiring in 2024 | Surety Bond
Loss Contingencies [Line Items]
Bonds outstanding		$ 10.5	$ 10.5

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Accumulated Other Comprehensive Income (loss) (Details) - USD ($) $ in Thousands	3 Months Ended
	Sep. 30, 2022	Jun. 30, 2022	Mar. 31, 2022	Sep. 30, 2021	Jun. 30, 2021	Mar. 31, 2021
Accumulated other comprehensive income (loss):
Beginning balance	$ 1,193,651	$ 1,124,789	$ 1,047,849	$ 1,097,699	$ 1,010,904	$ 976,255
Other comprehensive income (loss)	(2,601)	(2,327)	(1,561)	(793)	(369)	1
Ending balance	1,231,313	1,193,651	1,124,789	1,113,903	1,097,699	1,010,904
Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss):
Beginning balance	(5,205)	(2,878)	(1,317)	(227)	142	141
Other comprehensive income (loss)	(2,601)	(2,327)	(1,561)	(793)	(369)	1
Ending balance	(7,806)	(5,205)	(2,878)	(1,020)	(227)	142
Unrealized Gains (Losses) on Available-for-Sale Investments
Accumulated other comprehensive income (loss):
Beginning balance	(857)	(696)	(207)
Other comprehensive income (loss)	(326)	(161)	(489)
Ending balance	(1,183)	(857)	(696)
Foreign Currency Translation
Accumulated other comprehensive income (loss):
Beginning balance	(4,348)	(2,182)	(1,110)	(227)	142	141
Other comprehensive income (loss)	(2,275)	(2,166)	(1,072)	(793)	(369)	1
Ending balance	$ (6,623)	$ (4,348)	$ (2,182)	$ (1,020)	$ (227)	$ 142

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Employee Benefit Plans (Details) - USD ($) $ in Millions	3 Months Ended		9 Months Ended
	Sep. 30, 2022	Sep. 30, 2021	Sep. 30, 2022	Sep. 30, 2021
Employee Benefit Plans
Defined contribution plan, cost	$ 2.6	$ 1.7	$ 8.0	$ 5.6

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Segment Data (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2022 USD ($)	Sep. 30, 2021 USD ($)	Sep. 30, 2022 USD ($) segment	Sep. 30, 2021 USD ($)
Segment Reporting Information [Line Items]
Number of reportable segments of company | segment			2
Net sales	$ 311,754	$ 231,989	$ 853,793	$ 645,803
Cost of sales	118,497	87,422	330,834	239,954
Gross margin	193,257	144,567	522,959	405,849
Research and development	59,127	42,382	165,090	143,352
TASER
Segment Reporting Information [Line Items]
Net sales	144,883	121,491	394,829	333,018
Cost of sales	53,422	41,554	142,510	112,345
Gross margin	91,461	79,937	252,319	220,673
Research and development	13,864	10,476	37,076	32,032
Software and Sensors
Segment Reporting Information [Line Items]
Net sales	166,871	110,498	458,964	312,785
Cost of sales	65,075	45,868	188,324	127,609
Gross margin	101,796	64,630	270,640	185,176
Research and development	45,263	31,906	128,014	111,320
Product
Segment Reporting Information [Line Items]
Net sales	210,398	165,803	586,653	463,116
Cost of sales	93,724	71,336	260,578	195,253
Product | TASER
Segment Reporting Information [Line Items]
Net sales	139,267	118,569	382,142	326,508
Cost of sales	53,422	41,554	142,510	112,200
Product | Software and Sensors
Segment Reporting Information [Line Items]
Net sales	71,131	47,234	204,511	136,608
Cost of sales	40,302	29,782	118,068	83,053
Service
Segment Reporting Information [Line Items]
Net sales	101,356	66,186	267,140	182,687
Cost of sales	24,773	16,086	70,256	44,701
Service | TASER
Segment Reporting Information [Line Items]
Net sales	5,616	2,922	12,687	6,510
Cost of sales		0		145
Service | Software and Sensors
Segment Reporting Information [Line Items]
Net sales	95,740	63,264	254,453	176,177
Cost of sales	$ 24,773	$ 16,086	$ 70,256	$ 44,556