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Stockholders' Equity | 9 Months Ended
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Sep. 30, 2024
Share-Based Payment Arrangement [Abstract] |
Stockholders' Equity | Stockholders’ Equity 2024 Employee XSP and 2024 CEO Performance Award On May 10, 2024, our shareholders approved the 2024 Employee XSP. The 2024 Employee XSP includes an approved pool of 4.5 million shares of common stock to be reserved for grants of XSU awards to employees under the 2024 Employee XSP. A total of approximately 3.8 million 2024 XSUs were granted in the nine months ended September 30, 2024. The 2024 XSUs are grants of performance-based RSUs that vest in seven substantially equal tranches. The tranches will vest upon certification by the Compensation Committee of the Board of Directors upon achievement of three independent vesting conditions, described in the following table:
|  | Operational Goals(1) (in millions) |  | Stock Price Goal |  |  | Minimum Service Requirement |  |
Tranche |  | Revenue |  | Adj. EBITDA |  |  |  | Employee XSP |  | CEO Award |  | Goal Expiration
1 |  | $ | 1,834 |  | or | $ | 393 |  | and | $ | 247.40 |  | and |  | June 2025 |  | December 2028 |  | December 31, 2026
2 |  | 2,293 |  | or | 508 |  | and | 309.25 |  | and |  | December 2025 |  | December 2028 |  | December 31, 2027
3 |  | 2,866 |  | or | 655 |  | and | 386.56 |  | and |  | June 2026 |  | December 2029 |  | December 31, 2028
4 |  | 3,583 |  | or | 845 |  | and | 483.20 |  | and |  | December 2026 |  | December 2029 |  | December 31, 2029
5 |  | 4,479 |  | or | 1,088 |  | and | 604.00 |  | and |  | June 2027 |  | December 2030 |  | December 31, 2030
6 |  | 5,599 |  | or | 1,400 |  | and | 755.00 |  | and |  | December 2027 |  | December 2030 |  | December 31, 2031
7 |  | 6,999 |  | or | 1,750 |  | and | 943.75 |  | and |  | June 2028 |  | December 2030 |  | December 31, 2032
(1) Operational goals are measured, as of any date, for the previous four consecutive fiscal quarters, beginning with the Company's first full fiscal quarter ending after the fiscal quarter in which the grant date occurred Additionally, shareholders approved the 2024 CEO Performance Award to grant 679,102 shares of the 2024 XSUs to our CEO, Patrick W. Smith. The stock price goals and operational goals under the 2024 CEO Performance Award are identical to those under the 2024 Employee XSP, but Mr. Smith is subject to a longer minimum required service period. Stock-based compensation expense associated with the 2024 XSU awards is recognized over the requisite service period, which is considered the longest explicit, implicit or derived service period for each respective tranche. W e utilized Monte Carlo simulations to evaluate a range of possible future stock price goals over the term of the awards at each of the respective grant dates. The median of all iterations of the simulation was used as the basis for the derived service period for each tranche. We measured the grant date fair value of each tranche using a Monte Carlo simulation with the following assumptions: risk-free interest rate of 4.3% - 4.5%, expected volatility of 41.4% – 41.5%, expected term of 8.6 years, and dividend yield of 0.0%. We utilized a blended volatility assumption, equally weighting both historical volatility and implied volatility, resulting in a weighted-average expected volatility of 41.4%. An illiquidity discount is considered in our estimate of the fair value of shares during post-vesting holding periods. The mandatory post-vesting holding periods for 2024 XSU awards will lapse on the earlier of (i) December 31, 2030, or (ii) the date that a subsequent tranche vests and settles. Therefore, the illiquidity discount is dependent upon projected tranche vesting dates, determined via the Monte Carlo simulation. This simulation is based on a subjective assessment of our forward-looking financial projections, taking into consideration statistical analysis. Even though no tranche with respect to either the 2024 Employee XSP or the 2024 CEO Performance Award vests unless the stock price goal, operational goal and corresponding minimum service condition are achieved, stock-based compensation expense is recognized when an operational goal is considered probable of attainment regardless of the achievement of the stock price and minimum service conditions. As of September 30, 2024, we consider some of the tranches probable and will recognize the expense ratably over their respective expected vesting periods. This may result in volatility and higher upfront expense recognition and is subject to change based on periodic probability assessments. Restricted Stock Units The following table summarizes RSU activity for the nine months ended September 30, 2024 (number of units and aggregate intrinsic value in thousands):
| Number of Units |  | Weighted Average Grant-Date Fair Value |  | Aggregate Intrinsic Value
Units outstanding, beginning of year | 1,615 |  | $ | 193.09 |  |  |
Granted | 595 |  | 269.18 |  |  |
Released | (488) |  | 185.33 |  |  |
Forfeited | (128) |  | 202.01 |  |  |
Units outstanding, end of period | 1,594 |  | $ | 223.16 |  |  | $ | 636,869 |
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $399.60 per share, multiplied by the number of RSUs outstanding. As of September 30, 2024, there was $252.7 million in unrecognized compensation costs related to RSUs under our stock plans for awards that are expected to vest. We expect to recognize the cost related to the RSUs over a weighted average period of 2.2 years. RSUs are settled when vesting requirements are met. On January 2, 2024, we granted an aggregate of 0.4 million RSUs to employees whose compensation was under a specified threshold. The RSUs generally vest in five annual installments from March 2024 through March 2028. For the nine months ended September 30, 2024, there was $38.3 million of stock compensation expense related to these RSUs that was primarily recorded within cost of product and service sales. Performance Stock Units The following table summarizes PSU activity for the nine months ended September 30, 2024 (number of units and aggregate intrinsic value in thousands):
| Number of Units |  | Weighted Average Grant-Date Fair Value |  | Aggregate Intrinsic Value
Units outstanding, beginning of year | 394 |  | $ | 201.61 |  |
Granted | 4,517 |  | 240.07 |  |
Released | (11) |  | 149.49 |  |
Forfeited | (345) |  | 232.01 |  |
Units outstanding, end of period | 4,555 |  | $ | 237.57 |  | $ | 1,820,338
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $399.60 per share, multiplied by the number of PSUs outstanding. As of September 30, 2024, there was $585.0 million in unrecognized compensation expense related to PSUs under our stock plans for awards that are expected to vest. Of the balance, there was $579.5 million of total unrecognized stock-based compensation expense related to XSP for performance goals that were considered probable of achievement, which will be recognized over a weighted-average period of 3.7 years. Stock Option Activity The following table summarizes stock option activity for the nine months ended September 30, 2024 (number of options and aggregate intrinsic value in thousands):
| Number of Options |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Life (years) |  | Aggregate Intrinsic Value
Options outstanding, beginning of year | 531 |  | $ | 28.58 |  |  |  |
Granted | — |  | — |  |  |  |
Exercised | (350) |  | 28.58 |  |  |  |
Expired / terminated | — |  | — |  |  |  |
Options outstanding and exercisable, end of period | 181 |  | $ | 28.58 |  | 3.41 |  | $ | 67,085
Aggregate intrinsic value represents the difference between the exercise price of the underlying stock options and the closing stock price on the last trading day of the period ended September 30, 2024, which was $399.60 per share. Of the total stock options exercised during the nine months ended September 30, 2024, 0.2 million shares were immediately sold to cover the exercise price and the option holder’s tax obligation for the applicable income and other employment taxes. Stock-based Compensation Expense The following table summarizes the composition of stock-based compensation expense for the three and nine months ended September 30, 2024 and 2023 (in thousands):
| Three Months Ended September 30, |  | Nine Months Ended September 30,
| 2024 |  | 2023 |  | 2024 |  | 2023
Cost of product sales and service sales | $ | 10,123 |  |  | $ | 1,687 |  |  | $ | 48,235 |  |  | $ | 4,685 |
Sales, general and administrative expenses | 55,248 |  |  | 12,886 |  |  | 117,036 |  |  | 43,232 |
Research and development expenses | 36,409 |  |  | 15,414 |  |  | 86,445 |  |  | 48,311 |
Total stock-based compensation expense | $ | 101,780 |  |  | $ | 29,987 |  |  | $ | 251,716 |  |  | $ | 96,228 |
Stock Incentive Plan In May 2024, our shareholders approved the Axon Enterprise, Inc. Amended and Restated 2022 Stock Incentive Plan (the “Amended 2022 Plan”) authorizing an additional 2.2 million shares, plus remaining available shares under prior plans, for issuance under the Amended 2022 Plan. Combined with the shares of our common stock available under our legacy stock incentive plans, there are 3.7 million shares of our common stock available for grant under the Amended 2022 Plan as of September 30, 2024. At-The-Market Equity Offering We participate in an “at-the-market” equity offering program (the “ATM”), pursuant to which we are authorized to sell up to a total of approximately 2.0 million shares of our common stock. As of September 30, 2024, there were approximate ly 2.0 million shares remaining. There were no issuances under the ATM during the nine months ended September 30, 2024.

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