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Organization and Summary of Significant Accounting Policies | 3 Months Ended
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Mar. 31, 2025
Organization, Consolidation and Presentation of Financial Statements [Abstract] |
Organization and Summary of Significant Accounting Policies | Organization and Summary of Significant Accounting Policies Axon Enterprise, Inc. (“Axon”, the “Company”, “we”, or “us”) is a provider of public safety technology solutions. Our mission is to protect life in service of promoting peace, justice and strong institutions. The accompanying unaudited consolidated financial statements include the accounts of Axon Enterprise, Inc. and our subsidiaries. All intercompany accounts, transactions and profits have been eliminated. Basis of Presentation and Use of Estimates These unaudited consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC. Certain information related to our organization, significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) has been condensed or omitted. The accounting policies followed in the preparation of these unaudited consolidated financial statements are consistent with those followed in our annual consolidated financial statements for the year ended December 31, 2024, as filed on our amended 2024 Annual Report on Form 10-K/A. In the opinion of management, these unaudited 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 the financial statements included in our amended 2024 Annual Report on Form 10-K/A for the year ended December 31, 2024. Certain amounts in prior periods’ consolidated financial statements have been reclassified to conform to current period presentation. Our results of operations for the three months ended March 31, 2025 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 consolidated financial statements include: •revenue recognition, •stock-based compensation, •business combinations, •inventory valuation and related reserves, •valuation of goodwill, intangible and long-lived assets, •valuation of strategic investments, •recognition, measurement and valuation of current and deferred income taxes, and •recognition and measurement of contingencies and accrued litigation expense. We believe that estimates used in the preparation of these unaudited consolidated financial statements are reasonable; however, actual results could differ materially from those estimates. Restatement of Previously Issued Financial Statements As discussed in the financial statements as of and for the year ended December 31, 2024 included in our amended 2024 Annual Report on Form 10-K/A, we identified an error in our previously issued financial statements related to the balance sheet presentation of the $690.0 million aggregate principal amount of 0.50% convertible senior notes due 2027 (the “2027 Notes” or “Notes”) issued pursuant to an indenture, dated December 9, 2022 (the “Indenture”), between current liabilities and long-term liabilities. The identified error impacted the financial statements previously issued in the Annual Report on Form 10-K for the year ended December 31, 2024, and in the Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2024 and September 30, 2024. Additionally, as discussed in the financial statements as of and for the year ended December 31, 2024 included in our amended 2024 Annual Report on Form 10-K/A, in preparing the consolidated financial statements as of September 30, 2024, we identified errors in our previously issued financial statements related to our historical conclusions of principal vs. agent accounting of certain reseller arrangements under Accounting Standards Codification (“ASC”) Topic 606, Revenue from Contracts with Customers (“ASC 606”). The identified errors impacted the financial statements as of and for the three months ended March 31, 2024, among other periods as previously disclosed. We assessed the materiality of the errors on prior period consolidated financial statements in accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” codified in ASC Topic 250, Accounting Changes and Error Corrections. Based on this assessment, we concluded that the errors, in the aggregate, are material to the March 31, 2024 financial statements and therefore, we are restating those financial statements herein. Furthermore, we made adjustments to correct for other previously identified immaterial errors. The Company has also restated impacted amounts within the accompanying footnotes to the Consolidated Financial Statements. See Note 18 for further information about the restatement. Concentration of Credit Risk Financial instruments that potentially subject us to concentrations of credit risk consist of accounts and notes receivable, contract assets and cash. Historically, we have experienced an immaterial level of write-offs related to uncollectible accounts. We hold the majority of our cash and cash equivalents accounts at three depository institutions. As of March 31, 2025, the aggregate balances in such accounts were $879.3 million. Our balances with these three institutions regularly exceed Federal Deposit Insurance Corporation insured limits for domestic deposits and various deposit insurance programs in countries such as Australia, Belgium, Canada, Finland, France, Germany, Greece, India, Italy, the Netherlands, Spain, the United Kingdom and Vietnam. To manage the related credit exposure, management continually monitors the creditworthiness of the financial institutions where we have deposits. Major Customers / Suppliers For the three months ended March 31, 2025 and 2024, no customer represented more than 10% of total net sales. At March 31, 2025 and December 31, 2024, no customer represented more than 10% o f the aggregate balance of accounts and notes receivable and contract assets. For additional details, refer to Note 2. We currently purchase both off-the-shelf and custom components, including finished circuit boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components and sub-assemblies from suppliers located in the United States, Taiwan, Mexico, China, Germany and the Republic of Korea, among others. Although we currently obtain components from single source suppliers, we own substantially all injection-molded component tooling, designs and test fixtures used in production for all custom components. As a result, we believe we could obtain alternative suppliers in most cases. 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. Segment Information In the three months ended March 31, 2025, we approved a plan to realign our business to better reflect our continued growth and expansion of our product offerings and our software and services offerings (the “Segment Realignment”). Previously reported within two reportable segments, TASER and Software and Sensors, we prospectively realigned our business in a manner that provides increased transparency and distinction between our hardware and software and services components. As a result of the Segment Realignment and effective as of the three months ended March 31, 2025, our financial results are reported in two reportable segments, Connected Devices and Software & Services. “Connected Devices” includes the development, manufacture and sale of fully integrated hardware solutions such as conducted energy devices (“CEDs”), body cameras, drones, accessories, extended warranties and other hardware products. “Software & Services” includes the development and sale of fully integrated cloud-based software solutions such as Axon Evidence, Records Management System, Draft One and other software and services that enable law enforcement to securely store, manage, share and analyze video and manage operations. As a result of the Segment Realignment, we have recast our segment and other relevant disclosures for the three months ended March 31, 2024 to conform to the new presentation. Reportable segments are determined based on discrete financial information provided to our Chief Executive Officer who is our chief operating decision maker (“CODM”). In deciding how to allocate resources and assess performance, the CODM reviews adjusted gross margin by segment to evaluate segment profitability, identify cost trends and make operational decisions to support our segments. Accordingly, t he segment measure of profit and loss used by the CODM is adjusted gross margin, defined as gross margin before stock-based compensation expense, amortization of acquired intangible assets and inventory step-up amortization related to acquisitions. For additional details, refer to Note 16. In addition, the CODM reviews consolidated financials and revenue by major geography and product and service lines. Consolidated financials provide a holistic view of our overall financial health to guide capital allocation and entity-wide decisions. Disaggregated views of revenue by major geography and product line support the evaluation of specific market and product performance to understand customer trends. There are no operating segments that are aggregated, and there are no inter-segment sales. Assets and other expense items, such as research and development and selling, general, and administrative expenses, are not provided to the CODM by segment, as our CODM does not evaluate our operating segments using this discrete information. As such, these items are not relevant to adjusted gross margin leveraged by the CODM to assess segment performance. As a result, they are not disclosed by segment. We perform an analysis of our reportable segments at least annually. Geographic Information The majority of our sales to international customers are transacted in foreign currencies and are attributed to each country based on the shipping address of the distributor or customer. For the three months ended March 31, 2025 and 2024, no individual country outside the United States represented more than 10% of total net sales. Substantially all of our assets are located in the United States. For additional details, refer to Note 2. The majority of our long-lived assets, including property, plant and equipment and right-of-use lease assets are located within the United States. International long-lived assets are immaterial. Additionally, the majority of our revenues are generated within the United States. Restricted Cash Restricted cash balances were $11.8 million and $11.9 million as of March 31, 2025 and December 31, 2024, respectively. This balance is primarily attributable to a $9.7 million payment held in escrow related to the potential construction of our headquarters building in Scottsdale, Arizona. Restricted cash also includes funds held in international bank accounts for various operating and financing activities. As of March 31, 2025, approximately $11.7 million was included in prepaid expenses and other current assets on our consolidated balance sheet, with the remainder in other long-term assets. Warranty Reserves 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 replace any defective unit for a fee. Changes in our estimated product warranty liabilities were as follows (in thousands):
| Three Months Ended March 31,
| 2025 |  | 2024
Balance, beginning of period | $ | 8,284 |  |  | $ | 7,374 |
Utilization of reserve | (1,701) |  |  | (2,207) |
Warranty expense | 3,779 |  |  | 1,119 |
Balance, end of period | $ | 10,362 |  |  | $ | 6,286 |
Debt Arrangements Our debt arrangements principally include the Senior Notes (as defined below) and the 2027 Notes as discussed in further detail in Note 10, as well as our revolving credit facility as discussed in further detail in Note 13. The Senior Notes and 2027 Notes are recorded at par value less debt issuance costs, which are recorded as a direct deduction from the carrying amount of the outstanding debt. Debt issuance costs related to the Senior Notes and the 2027 Notes are amortized to interest expense, using the effective interest method. Debt arrangements containing provisions that provide the holders with a right to demand cash payment of the outstanding principal within 1 year of the balance sheet date are classified as current liabilities unless the Company has both the intent and ability to refinance such short-term obligations on a long-term basis. In the event debt is modified and the new debt terms are substantially different from the original debt terms, the original debt is accounted for as being extinguished and a new debt instrument is recognized. If the new debt terms are not substantially different from the original debt terms, the transaction is accounted for as a modification of the original debt terms. In the event of an induced conversion, we recognize an inducement expense, calculated as of the date the inducement offer is accepted, representing the excess of the equity consideration transferred in the transaction over the fair value of securities and other consideration issuable pursuant to the original conversion terms defined in the indenture governing the relevant convertible notes. When third-party transaction costs are incurred as part of such induced conversion transactions, they are expensed as a cost of inducement and presented as part of other income, net in our consolidated statement of operations. Any unamortized debt issuance costs directly related to convertible notes repurchased as part of such induced conversion transactions are recorded as a reduction to additional paid-in-capital on our consolidated balance sheet, as part of the derecognition of the associated net carrying amount of the portion of the convertible notes repurchased. Refer to Note 10 for additional details. Borrowings under our revolving credit facility, if any, are recognized at principal balance plus accrued interest based upon stated interest rates. Debt issuance costs associated with our revolving credit facility are presented as part of other current assets, for the portion of total deferred costs to be amortized over the 12 months following the balance sheet date, and as part of other long-term assets, for the remaining portion of total deferred costs, in our consolidated balance sheets. Debt issuance costs related to our revolving credit facility are amortized to interest expense over the term of the revolving credit facility under the straight-line method. Refer to Note 13 for additional details. Valuation of Goodwill The carrying value of goodwill is tested for impairment at least annually or sooner whenever events or changes in circumstances indicate that the assets may be impaired. Goodwill is tested for impairment at a reporting unit level, which is the same as our operating segments. The Segment Realignment resulted in changes to the composition of our reporting units and as a result, goodwill was allocated to each reporting unit using a relative fair value approach. We determined the fair value of our reporting units using a discounted cash flow analysis and a market approach with comparable company information such as revenue multiples. Determining the fair value of a reporting unit involves judgment and the use of significant estimates and assumptions, which include projected sales, discount rates, and a variety of other factors. Changes in reporting unit earnings, expected future cash flows, and comparable company information, as well as underlying market and overall economic conditions, among others, make these estimates subject to uncertainty. Our most recent annual impairment assessment in the fourth quarter of 2024 determined that our goodwill was not impaired as the estimated fair values exceeded the carrying values for each of our reporting units. Furthermore, considering the Segment Realignment in the first quarter of 2025, there is likewise no goodwill impairment through March 31, 2025. Refer to Note 6 for additional details regarding the reallocation of goodwill due to the Segment Realignment. 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-based awards, our 2027 Notes and the early repurchase of a portion of the 2027 Notes, and warrants to acquire shares of our common stock (the “Warrants” or “2027 Warrants”). The effects of outstanding stock-based awards, our 2027 Notes, and our 2027 Warrants are excluded from the computation of diluted net income per share in periods in which the effect would be antidilutive. For additional information regarding our 2027 Notes and 2027 Warrants, refer to Note 10. The calculation of the weighted average number of shares outstanding and earnings per share is as follows (in thousands except per share data):
| Three Months Ended March 31,
| 2025 |  | 2024
Numerator for basic and diluted earnings per share: |  |  |
Net income | $ | 87,980 |  |  | $ | 133,352 |
Denominator: |  |  |
Weighted average shares outstanding | 76,890 |  |  | 75,355 |
Dilutive effect of stock-based awards | 1,714 |  |  | 1,243 |
Dilutive effect of 2027 Notes (1) | 1,610 |  |  | 534 |
Dilutive effect of 2027 Warrants | 1,270 |  |  | — |
Diluted weighted average shares outstanding | 81,484 |  |  | 77,132 |
Net income per common share: |  |  |
Basic | $ | 1.14 |  |  | $ | 1.77 |
Diluted | $ | 1.08 |  |  | $ | 1.73 |
(1)The impact of the early repurchase of a portion of the 2027 Notes is weighted based upon the number of days in each corresponding period of time for (a) the period between January 1, 2025 and the closing date of the repurchase, which includes the total amount of shares issuable upon a conversion of all of the 2027 Notes; and (b) subsequent to the closing date of the repurchase through March 31, 2025, which includes the amount of shares issuable upon a conversion of the 2027 Notes that remain outstanding after the early repurchase. Refer to Note 10 for additional details. Potentially dilutive securi ties that are not included in the calculation of diluted net income per share because doing so would be antidilutive are as follows (i n thousands):
| Three Months Ended March 31,
| 2025 |  | 2024
Stock-based awards | 3,913 |  |  | 308 |
2027 Notes | 511 |  |  | 2,483 |
2027 Warrants | 1,746 |  |  | 3,017 |
Total potentially dilutive securities | 6,170 |  |  | 5,808 |
Recently Issued Accounting Guidance and Disclosure Rules In December 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax. The provisions of ASU 2023-09 are effective for our Annual Report on Form 10-K for the year ending December 31, 2025, with early adoption permitted. We are currently evaluating the impact of this ASU on our consolidated financial statements and expect to adopt for the year ending December 31, 2025. In November 2024, the FASB issued ASU 2024-03, Income Statement (Topic 220): Reporting Comprehensive Income - Expense Disaggregation Disclosures. ASU 2024-03 is intended to enhance the level of detail disclosed related to expense categories and provide additional disclosure of expenses by nature. The provisions of ASU 2024-03 are effective for our Annual Report on Form 10-K for the year ending December 31, 2027, with early adoption permitted. We are currently evaluating the impact of this update on our consolidated financial statements. In November 2024, the FASB issued ASU 2024-04, Debt (Topic 470): Debt with Conversion and Other Options. ASU 2024-04 clarifies the assessment of whether certain transactions should be accounted for as an induced conversion or debt extinguishment. The provisions of ASU 2024-04 are effective for our Annual Report on Form 10-K for the year ending December 31, 2026, with early adoption permitted. We elected to early adopt ASU 2024-04 in March 2025 and applied the amendment when assessing the accounting treatment for our convertible debt repurchase. For additional details, refer to Note 10.

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- Definition The entire disclosure for the organization, consolidation and basis of presentation of financial statements disclosure, and significant accounting policies of the reporting entity. May be provided in more than one note to the financial statements, as long as users are provided with an understanding of (1) the significant judgments and assumptions made by an enterprise in determining whether it must consolidate a VIE and/or disclose information about its involvement with a VIE, (2) the nature of restrictions on a consolidated VIE's assets reported by an enterprise in its statement of financial position, including the carrying amounts of such assets, (3) the nature of, and changes in, the risks associated with an enterprise's involvement with the VIE, and (4) how an enterprise's involvement with the VIE affects the enterprise's financial position, financial performance, and cash flows. Describes procedure if disclosures are provided in more than one note to the financial statements. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 235 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/235/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 275 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/275/tableOfContent Reference 3: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 810 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/810/tableOfContent Reference 4: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/205/tableOfContent + Details
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