0001069183false00010691832024-02-262024-02-26

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

February 26, 2024

Date of Report (Date of earliest event reported)

Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)

Delaware

001-16391

86-0741227

(State or other jurisdiction of
incorporation)

(Commission File Number)

(IRS Employer
Identification No.)

17800 N. 85th St.

Scottsdale, Arizona 85255

(Address of principal executive offices, including zip code)

(480) 991-0797

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, 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

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).  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. 

Item 2.02 Results of Operations and Financial Condition

On February 27, 2024, Axon Enterprise, Inc. (the “Company” or “Axon”) issued a shareholder letter regarding the Company’s financial results for its fourth quarter and fiscal year ended December 31, 2023. The full text of the letter, together with the audited consolidated statements of operations, segment reporting, balance sheets, cash flow information, statistical measures and reconciliations of GAAP to non-GAAP financial measures are attached hereto as Exhibit 99.1.

The information pursuant to Item 2.02 in this report on Form 8-K is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that Section.

Item 4.01 Changes in Registrant’s Certifying Accountant

On February 26, 2024, following the conclusion of a process managed by the Audit Committee (the “Audit Committee”) of the Board of Directors (the “Board”) of Axon Enterprise, Inc. (the “Company”), the Audit Committee approved the appointment of PricewaterhouseCoopers LLP as the Company’s independent registered public accounting firm, effective following the filing of the Company's Annual Report on Form 10-K for the year ended December 31, 2023.

During the Company’s years ended December 31, 2023 and 2022 and through February 26, 2024, neither the Company, nor anyone on its behalf, consulted PricewaterhouseCoopers LLP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report nor oral advice was provided to the Company that PricewaterhouseCoopers LLP concluded was an important factor considered by the Company in reaching a decision as to any accounting, auditing, or financial reporting issue; or (ii) any matter that was the subject of a “disagreement,” within the meaning of Item 304(a)(1)(iv) of Regulation S-K promulgated under the Securities Exchange Act of 1934, as amended, and the related instructions thereto (“Regulation S-K”), or “reportable event,” within the meaning of Item 304(a)(1)(v) of Regulation S-K.

In connection with the appointment of PricewaterhouseCoopers LLP, on February 26, 2024, the Audit Committee approved the dismissal of Grant Thornton LLP (“Grant Thornton”) as the Company’s independent registered public accounting firm, effective immediately following completion of their engagement for the year ended December 31, 2023. The appointment of PricewaterhouseCoopers LLP does not affect Grant Thornton LLP’s engagement for the year ended December 31, 2023.

Grant Thornton has served as the Company’s independent registered public accounting firm since 2005.

During the years ended December 31, 2022 and 2021 and the subsequent interim period through February 26, 2024, there were no: (1) “disagreements,” within the meaning of Item 304(a)(1)(iv) of Regulation S-K, between the Company and Grant Thornton on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements, if not resolved to Grant Thornton’s satisfaction, would have caused Grant Thornton to make reference to the subject matter of the disagreement in connection with its reports on the Company’s consolidated financial statements for such years, or (2) “reportable events,” within the meaning of Item 304(a)(1)(v) of Regulation S-K, except for the material weakness in the Company’s internal control over financial reporting stemming from control deficiencies with respect to the risks of understatement of software and services revenue and overstatement of deferred revenue.  

The audit reports of Grant Thornton on the Company’s consolidated financial statements as of and for the years ended December 31, 2022 and 2021 did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope or accounting principles.

The Company has provided Grant Thornton with a copy of this Form 8-K prior to its filing with the Securities and Exchange Commission (“SEC”). The Company requested Grant Thornton to furnish the Company with a letter addressed to the SEC stating whether or not Grant Thornton agrees with the above statements, as required by Item 304(a)(3) of Regulation S-K. A copy of Grant Thornton’s letter is filed as Exhibit 16.1.

Item 9.01 Financial Statements and Exhibits

(d)           Exhibits

Exhibit
Number

    

Exhibit Description

16.1

 

Letter from Grant Thornton LLP to the Securities and Exchange Commission dated February 27, 2024

99.1

Shareholder letter dated February 27, 2024

101

Cover Page Interactive Data File - the cover page XBRL tags are embedded within the Inline XBRL document

104

The cover page from this Current Report on Form 8-K, formatted as Inline XBRL

SIGNATURE

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 hereunto duly authorized.

Dated: February 27, 2024

Axon Enterprise, Inc.

  

By:

/s/ BRITTANY BAGLEY

Brittany Bagley

Chief Operating Officer and Chief Financial Officer

Exhibit 16.1

February 27, 2024

U.S. Securities and Exchange Commission

Office of the Chief Accountant100 F Street, NE

Washington, DC 20549

Re: Axon Enterprise, Inc.

File No. 001-16391

Dear Sir or Madam:

We have read Item 4.01 of Form 8-K of Axon Enterprise, Inc. dated February 27, 2024, and agree with the statements concerning our Firm contained therein.

Very truly yours,

/s/ GRANT THORNTON LLP


Exhibit 99.1

CONTACT:

Investor Relations

Axon Enterprise, Inc.

IR@axon.com

Axon 2023 Revenue Grows 31% to $1.56 Billion

Axon Cloud and Services revenue grows 52% to $561 million
Annual recurring revenue grows 47% to $697 million
Annual net income of $174 million supports Adjusted EBITDA of $329 million
Company projects Full Year 2024 revenue of $1.88 billion to $1.94 billion, representing 20% to 24% annual growth

Fellow shareholders,

Axon is delighted to deliver another year of record company performance, fueled by product innovation, partnership with our customers and strong industry trends. Demand for our mission-driven product ecosystem continued to grow in the fourth quarter of 2023, and we recorded our fifth consecutive year of 25% or greater revenue growth, growing 31% year over year. We achieved this growth with a full year net income margin of 11% and Adjusted EBITDA margin of 21%.

Our core measure of success as a company is progress on our mission to protect life. Our mission aligns our people, our customers and our communities. Together, we focus on solving problems with modern technology, pioneering new ways of thinking and taking new approaches to complex social dynamics, driving toward our moonshot goal to cut gun-related deaths between police and the public in half by 2033. In this first year after announcing our moonshot, we introduced new technology, new modern training capabilities and new sources of improved data and analytics. We’ve laid the groundwork for the next nine years, and we are just getting started.

Our mission and products have resonated with our customers and afford us a growing pipeline across our business. In 2024, Axon expects to deliver annual revenue in a range of $1.88 billion to $1.94 billion, and Adjusted EBITDA of $410 million to $430 million, reflecting more than 20% annual growth and continued Adjusted EBITDA margin expansion from the prior year. We are propelling our growth through innovation and diversification while realizing efficiencies and leverage on our business as it scales. We are humbled to enter a new year with robust expectations for each of our product categories and customer verticals. In this letter, we recap a historic 2023 for our company and provide an update on the opportunities we see ahead, our roadmap and our progress.

2023 Key Takeaways


Commitment to being a Force for Good

Axon’s mission is embodied in our moonshot goal to cut gun-related deaths between police and the public by 50% over 10 years. 2023 was the first year in our moonshot journey, and we progressed significant advancements to help us achieve this goal, including introducing technology, new ways of training, and optimized data collection and reporting with the Axon Public Safety Gun Fatality Database. We also published our Force For Good report in November, a bi-annual update on our progress in the areas of Corporate Social Responsibility. In addition, we summarize 5 Giant Leaps we made over the last year, here.

Strong financial results

Axon delivered annual revenue of $1.56 billion and net income of $174 million in 2023. This represents 31% annual revenue growth and an 11.1% net income margin, supporting Adjusted EBITDA of $329 million (21.1% margin). We are delivering profitable growth at scale and improvement in our operating expenses as a percentage of revenue was primarily driven by leverage on sales, general and administrative (“SG&A”) expenses. Axon continues to grow our research and development (“R&D”) footprint to invest in several multi-year growth opportunities, and our R&D expenses


grew roughly in-line with revenue. 2023 revenue and Adjusted EBITDA margin exceeded our expectations and reflect record performance for our company. 

Product innovation

We power our business through relentless product innovation. In 2023, years of investments materialized in two major new product launches — TASER 10 and Axon Body 4 — and a number of advancements in our ecosystem, including groundbreaking real-time communications features such as two-way voice communications and WatchMe, as well as an expanded virtual reality (“VR“) training suite including all-new bespoke TASER VR controllers alongside expanded training content and more. We also reached key adoption milestones, including new deployments bringing us to over 100 agencies live on one or more modules of Axon Records.

New customer vertical expansion

Axon has diversified beyond U.S. state and local law enforcement. In 2023, we achieved significant growth in emerging customer verticals, including U.S. federal, international, justice, corrections and enterprise. A few examples of our progress include the successful deployment of Axon Records with the U.S. Department of Veterans Affairs, two of our largest TASER 10 orders coming from international and corrections customers, and our partnership with the Government of Scotland to power its digital evidence management system across courts, lawyers, government and police. We also have several trials kicking off with our newly launched product for enterprise, including Fairview Health, where they are trialing Body Workforce with nurses as part of their commitment to patient and staff safety.

Strategic investments to further enhance our ecosystem and expand our TAM

Axon’s investment and partner strategy is geared to accelerate our product roadmap and enhance our ecosystem while building our talent base in product categories accretive to our long-term growth. In 2023, we acquired Sky-Hero and earlier this month we announced our acquisition of Fusus. Sky-Hero is an example of an acquisition supporting Axon in building next-generation technology in public safety that will leverage enhanced robotic security capabilities to improve situational awareness, power more effective means of response and protect life. With Fusus, Axon advances mission control, the future of real-time operations for public safety, enabling customers to aggregate live video, data and sensor feeds from virtually any source. Even without updating our core total addressable market (“TAM”), which we updated last year and update on a bi-annual basis, these acquisitions expand Axon’s TAM from $50 billion to more than $63 billion.

Select Highlights

Product Traction & Ecosystem Expansion

Axon has set out to build the technology ecosystem for public safety — to enable our customers to protect life, capture truth and accelerate justice. We invest incrementally each year to consistently develop and deliver new game-changing technology while simultaneously enhancing our existing products. When our products resonate with our customers, we see strong demand and a growing opportunity set of expanding relationships, measurable through new product traction and increasing adoption of the expanding Axon software ecosystem surrounding those new products. This affords us the opportunity to further invest in new technology categories and applications, both through our continued investment in R&D and through strategic investment, fueling our future product innovation, expansion and growth.

Product highlights from this past year are examples of this strategy at work:

Our two most successful product launches together in a single year

The successful launch and ramp of TASER 10 and Axon Body 4 in the same year is evidence of what our team is able to accomplish.

After over five years of development, our latest TASER device features new game changing technology, including individually targeted probes, the ability to deploy up to 10 probes, and a longer range of up to 45 feet, along with a host of other features and upgrades that make this latest generation TASER product the best yet. These are major steps toward where we see the future of this critical technology, and together they are generating unprecedented demand from our customers.

At the same time, our operational advancements are measurable in our execution in launching the product. In 2023, we shipped over 50,000 units of TASER 10 and the new product was our top selling TASER device in the fourth quarter.

“TASER 10 is now our fastest growing TASER product in history.” Rick Smith, Axon Founder and CEO


Following the launch of TASER 10 in January 2023, we introduced Axon Body 4 in April 2023, which has quickly become our fastest selling body camera product to date. Axon Body 4 includes a host of advancements from prior generation body cameras, including expanded communications abilities, more points of view, upgraded camera features and more streamlined operations. We shipped more than 100,000 units of Axon Body 4 in the second half of 2023, only months after introducing this next generation body camera product to market.

“As Sheriff of Bernalillo County, I’ve witnessed firsthand the profound impact that the new TASER 10 audible and visual warning alert system has had on our law enforcement efforts. The innovative design, featuring a bright pulsing light paired with a loud alert sound, has significantly enhanced our deputies’ ability to gain compliance from initially non-compliant suspects without the need to deploy cartridges. This technology is not just about maintaining safety; it’s about escalating our approach to de-escalation. We’ve observed that this generation, in particular, responds strongly to the visual and audible cues of the TASER 10 warning alert. It captures their attention and conveys a clear message that they need to reconsider their actions. This tool has been invaluable in our mission to protect and serve, offering a powerful alternative that benefits both our deputies and our team and the results in the field speak volumes to the effectiveness of this approach. The TASER 10 is a testament to the evolution of law enforcement tools towards safer, more effective outcomes.” — Sheriff Josh Allen, Bernalillo County (NM) Sheriff’s Office

Software innovation supporting multiple vectors of growth

We describe our software products as belonging to three major categories: 1) digital evidence management, 2) real-time operations and 3) productivity software. Within our software portfolio, we deliver right-sized and custom subscription plans that can be configured to meet the needs of any customer, and we support customers in their journeys to build world-class public safety organizations. Most often, our customers initially adopt cloud digital evidence management licenses included with our standard product subscription plans for Axon Body, Axon Fleet, TASER, interview rooms and Officer Safety PlanS.

Over time, we see customers opting to upgrade to additional product features and categories — this includes adding premium digital evidence management features, such as Axon Performance, Auto-Tagging and Redaction Assistant, as well as our real-time operations, live-streaming and two-way voice communications capabilities with Axon Respond and productivity software with Axon Standards and Axon Records. Our net revenue retention of 122% in the fourth quarter of 2023 reflects our success in selling new premium features to our existing customers.

“Best of all, as the agency continues to leverage [Axon] Respond, everyone in the agency can have a voice in maximizing the technology — officers, for example, can proactively request assistance from supervisors at complicated scenes. This is why supervisors at Las Cruces have been transparent about when and how it’s being used. The more [patrol officers] know about it, they get creative and [think of] ways to use it I’m not even aware of...and then they let me know and it makes everyone better” — Officer Benavidez, Las Cruces (NM) Police Department

Strategic acquisition of Fusus accelerates and further unleashes Axon real-time operations

In addition to our R&D, Axon also leverages partnerships to deliver on our product vision. We take a technology first strategic approach to reviewing potential partners and believe it benefits our customers when we can provide them more of an ecosystem opportunity. Sometimes we also see the opportunity to make minority investments in select partners to further align our goals on delivering strategic outcomes to customers. Fusus was one of those partners where we saw strong alignment between our products, we invested in them as a company, and now we’re thrilled to have acquired them to more fully support our ecosystem vision for real-time operations.

An immediate benefit from this acquisition is empowering customers to securely access existing CCTV and other camera feeds from key sources like local businesses in the community — with appropriate permissions — to see events unfolding in real-time with greater context and clarity. This open platform improves crucial real-time situational awareness for our customers, while directly facilitating collaborative community partnerships.

Over time, real-time crime centers powered by Axon and Fusus will safely and securely connect to an increasingly wide range of data sources beyond Axon devices, including fixed, body-worn, in-car, and automated license plate recognition (“ALPR”) cameras; gunshot detection sensors, social media feeds and various other sensors and systems — again, with appropriate permissions. By aggregating all of this information into a single pane of glass, real-time crime centers can further improve situational awareness, reduce response times and support proactive crime prevention efforts by leveraging up-to-minute information and analytics. We enable information to be quickly and easily shared between collaborating agencies, ensuring accelerated justice for all involved, another point of expansion into additional emerging product areas for our company. We believe Fusus adds approximately $13 billion to our TAM opportunity, bringing our total real-time operations TAM to $16 billion, which we discuss in more detail later in this letter.


Real-time operations is an example of Axon’s product innovation driving category creation. Axon introduced live-streaming through a body camera to the market with Axon Body 3 and further advanced on our vision with direct two-way voice communications with Axon Body 4. We believe the integration of Fusus into this product category will be accretive to our long-term growth, and we saw early signs of success leading into this strategic acquisition.

Laying the groundwork for a new phase of product innovation with Sky-Hero and Axon Air

Axon Air is our product category that powers applications for robotic security, which we believe holds significant promise in achieving our moonshot goal, and as a driver of future growth. We think utilizing robotic systems in tactical high-risk situations to create more distance and time, two critical factors that can drastically change outcomes for the better, will become a mission-critical tool leveraged in the future of public safety operations. Ultimately, we aim to enable customers to reduce the number of times where humans are forced to face high-risk, potentially life-altering situations.

Axon Air also supports use cases for drones to increase situational awareness, providing an additional point of view for an evolving incident or enabling better visibility into surveying and disaster search efforts. In crime scene investigations, Axon Air powered drones can be leveraged to uncover otherwise undiscoverable evidence to support resolution. Finally, drone as a first responder (“DFR”) is a growing application where the utilization of drone technology can reduce emergency response times and act as a force multiplier.

We have leveraged our internal talent, as well as strategic partnerships and our Sky-Hero acquisition, in this emerging product category. Along with our partners, we are able to drive robotic security applications and ensure secure operating conditions for this future technology through highly advanced software and systems. We estimate Sky-Hero’s current products expand our TAM for Axon Air by more than $400 million to $4.5 billion.

“It didn’t take long for us to realize the value of drones. Now we use them for everything. After the traffic division, detectives started using drones for crime scene documentation. Then SWAT started using them. And now, every patrol crew has a drone and pilot. We tell our people if there’s a situation where you think a drone would be useful, just try it out to see.” — Chad Karlewicz, Commander of Special Operations, Renton (WA) Police Department

Graphic

Updating TAM for our Expanding Ecosystem
In the beginning of 2023, we updated our TAM analysis to reflect the opportunities we see ahead in each of our product categories, with a breakdown into the primary product drivers, including digital evidence management, real-time operations and productivity software, camera hardware, Axon Air, AR/VR training, TASER professional and personal protection. Our findings resulted in a TAM of approximately $50 billion, which we will update in full again at the beginning of 2025.


However, we have updated our TAM with respect to the acquisitions of Sky-Hero and Fusus. In total, these additions to our ecosystem expand Axon’s TAM to $63 billion in 2024.

Graphic

Our efforts to build the technology ecosystem for public safety go beyond our product strategy. We are also diversifying our business by growing our presence with new types of customer profiles, or users, and by adding to our core customer base. This materializes through Axon selling into additional categories of funding sources beyond U.S. state and local governments, including the U.S. federal government, international governments, enterprises and civilians. Simultaneously, the types of customers, or verticals, who find value in our product offerings expand beyond law enforcement to include attorneys, fire and emergency medical services (“EMS”) personnel, corrections and the U.S. military.

As we recap our progress over the last year, we are providing a breakdown of our 2023 TAM by funding source to highlight an additional view into our opportunities. Collectively, customer funding sources outside U.S. state and local governments account for the majority of the TAM we pursue today.

$15 billion in U.S. state and local governments, including more than 900,000 law enforcement personnel between sworn and civilian roles and more than 400,000 vehicles. In addition, we estimate approximately 30% of our U.S. state and local customer TAM comprises adjacent public safety customer verticals outside of law enforcement, including justice, with over 700,000 legal professionals involved in criminal justice between attorneys and paralegals; corrections, with approximately 500,000 corrections, probation, and child services officers; fire, with approximately 1 million career and volunteer firefighters; and EMS, with over 250,000 paramedics. We estimate that our acquisitions of Fusus and Sky-Hero added nearly $3 billion to our U.S. state and local government TAM.
$10 billion in U.S. federal governmentwith more than 2 million potential users and over 300,000 vehicles across various branches of the U.S. federal government, including the U.S. Department of Defense, U.S. Department of Justice, U.S. Department of Homeland Security, U.S. Department of Veterans Affairs and U.S. Department of State, to name a few.
$19 billion in international governments, where a single-country opportunity presents a 200,000 or larger potential user base and, together, the potential user base of international law enforcement and adjacencies totals to approximately 10x the user base of U.S. state and local law enforcement. We estimate that our acquisitions of Fusus and Sky-Hero added over $3 billion to our international government TAM.
$15 billion in enterprise, comprising more than 20 million potential users in the United States, including retail associates, technicians, transportation and warehouse employees, and private security professionals, among others. Our recent acquisition of Fusus nearly doubled our enterprise opportunity, adding $7 billion to this TAM, with Fusus technology helping unlock our opportunity to access fixed video and CCTV feeds within our ecosystem.
$5 billion in civilian personal protection.


Our TAM estimates are based on publicly available data on user counts, our estimate of in-scope users for our products over the next three years, by product and user category, and our estimated potential value of applicable products. We reference the most up to date data published by national governments, surveys and studies and proprietary information in the production of our TAM estimates. The product and vertical level TAMs shown have been rounded to the nearest whole number and will not arrive at our total TAM of $63 billion when added together due to rounding.

Growing Customer Verticals
Each year, we provide updates on our progress and activity in select customer verticals where we have directed our investment. Last quarter, we discussed our progress in U.S. federal and international, two areas that have become driving forces of our growth beyond the growth we see with our U.S. state and local law enforcement customers. As we recap our year, we are providing an additional update on corrections, a fast-growing adjacent public safety vertical, and enterprise, where our new product introductions open further applications for our technology in the private sector, including private security, retail and healthcare.

The future of technology and corrections

One area where we have identified the opportunity to enable safe means of de-escalation while improving transparency is in the corrections vertical — which, as we described above, increases our potential domestic user base by approximately 50% relative to U.S. state and local law enforcement.

We introduced TASER devices to corrections customers to provide a means to safely de-escalate conflict without violence, particularly useful in a correctional environment, and have found strong new customer fit for this product. In fact, our second largest TASER 10 order has come from a corrections customer in the United States. Further, conversations during our recent participation at the annual conference of the Florida Council on Crime and Delinquency validated our strategy to drive body camera adoption in this emerging customer vertical for Axon. Body cameras were discussed as an accountability and transparency tool to keep corrections facilities safe, and our growing pipeline with this customer vertical supports our investment here. Corrections was our top growing adjacent customer vertical in 2023.

"Body-worn cameras have deterred use of force in our facility." —  Correctional Officer, Hardee (FL) Correctional Institution

Introducing Axon Body Workforce for enterprise

In January, we announced our first ever dedicated enterprise vertical product, Axon Body Workforce. This new generation of body cameras is designed for frontline workers in retail stores and healthcare facilities and adapts the same life-saving technology trusted by our public safety customers. Axon has identified applications in retail, healthcare and other areas within enterprise where body cameras are a tool to promote personal safety for employees at work. In addition to deterring and de-escalating incidents with the presence of a camera, Axon Body Workforce integrates Axon’s real-time capabilities and digital evidence management workflows, allowing for quicker and more effective interventions and making it easier to act on captured footage. We have kicked off several customer trials with this newly launched product for enterprise.

The enterprise vertical also includes applications in private security, which more closely mirror public safety professional use cases. Private security use of Axon technology facilitates collaboration between local public safety professionals and governments, creating efficiencies and improving transparency. Examples of current customer applications include private security professionals in stadiums, theme parks and other secured public spaces. Within our potential enterprise user base, the U.S. Bureau of Labor Statistics reports there are approximately 1 million private security professionals employed in the United States, today.

“Public safety is about just that — people feeling and being safe in public, including while at work.”  — Rick Smith, Axon Founder and CEO.

Q4 2023 Summary Results

Quarterly revenue of $432 million exceeded our expectations and grew 28.6% year over year driven by strong demand across product categories. Axon Cloud software was the primary driver, with increasing adoption of our premium  add-on features, a growing base of software licenses associated with Axon Fleet systems and expansion into new customers supporting growth in our now largest product category. Ramping shipments of TASER 10 and Axon Body 4 also supported our growth as demand for both new products continues to build.


Total company gross margin of 61.1% declined 10 basis points year over year, primarily driven by lower TASER gross margin, partially offset by a higher Sensors gross margin and increased mix to Axon Cloud and Services.
Operating profit of $43 million increased 89.9% year over year driven by higher revenue and operating leverage. Operating expenses of $221 million included $33 million in stock-based compensation expenses. Operating expenses as a percent of revenue improved to 51.2% as compared to 54.5% in the Q4 2022.
oSG&A expense of $137 million, 31.7% of revenue, included $15 million in stock-based compensation expenses.
oR&D expense of $84 million, 19.4% of revenue, included $18 million in stock-based compensation expenses.
Net income of $57 million (13.3% net income margin, compared to 8.7% in Q4 2022), or $0.75 per diluted share, supported non-GAAP net income of $85 million (19.8% margin), or $1.12 per diluted share.
Adjusted EBITDA of $91 million reflected an Adjusted EBITDA margin of 21.1%. Adjusted EBITDA margin expanded from 19.6% in Q4 2022 driven by operating leverage.
oBoth Non-GAAP net income and Adjusted EBITDA exclude stock-based compensation expenses and net gains or losses related to our strategic investment portfolio.
Operating cash flow of $140 million in the quarter supported Free Cash Flow of $116 million and Adjusted Free Cash Flow of $121 million.
As of December 31, 2023, Axon had $1.2 billion in cash, cash equivalents and investments, and outstanding convertible notes in principal amount of $690 million, for a net cash position of $553 million, up $121 million sequentially.

Financial commentary by segment

Software & Sensors

THREE MONTHS ENDED

CHANGE

 

    

31 DEC 2023

    

30 SEP 2023

    

31 DEC 2022

    

QoQ

    

YoY

(in thousands)

 

Axon Cloud and Services revenue(1)

$

163,632

$

147,963

$

113,538

 

10.6

%  

44.1

%

Axon Cloud gross margin

 

74.6

%  

 

72.4

%  

 

75.5

%  

220

bp

(90)

bp

Sensors and Other revenue

$

107,167

$

103,068

$

85,867

 

4.0

%  

24.8

%

Sensors and Other gross margin

 

46.3

%  

 

45.2

%  

 

41.5

%  

110

bp

480

bp


(1)The TASER segment includes Cloud and Services revenue, which is not broken out here.
Axon Cloud and Services revenue growth of 44.1% year over year reflects user growth, increasing adoption of premium add-on features related to Axon Evidence, real-time operations and productivity software, a growing base of software licenses associated with Axon Fleet systems and associated growth in professional services installations.
Axon Cloud and Services gross margin of 74.6% decreased modestly year over year due to higher professional services costs related to Axon Fleet Systems installations. Our software-only gross margin continues to exceed our software gross margin target of 80%.
Sensors and Other revenue growth of 24.8% year over year was driven by growth in Axon body cameras and accessories, primarily due to strength in demand for Axon Body 4.
Sensors and Other gross margin of 46.3% increased year over year due to scale efficiencies on fixed costs and mix towards premium products, including Axon Body 4.


TASER

THREE MONTHS ENDED

CHANGE

 

    

31 DEC 2023

    

30 SEP 2023

    

31 DEC 2022

    

QoQ

    

YoY

(in thousands)

 

Revenue

$

161,343

$

162,570

$

136,737

 

(0.8)

%  

18.0

%

Gross margin

 

57.1

%  

 

62.5

%  

 

61.6

%  

(540)

bp

(450)

bp

TASER segment revenue growth of 18% year over year was driven by the continued ramp of TASER 10, partially offset by a decline in TASER 7, which remained flat quarter over quarter.
TASER segment gross margin of 57.1% decreased from 61.6% year over year primarily due to a 420 basis point headwind from warranty reserve charges recognized in the quarter related to a TASER 7 production issue that occurred largely in March 2023. Without this charge, TASER gross margins would have been down modestly due to mix. As a reminder, we are still ramping to scale volumes on TASER 10 and expect to make substantial progress in 2024, including moving to more automated production in the second half of the year.

Forward-looking performance indicators

    

31 DEC 2023

    

30 SEP 2023

    

30 JUN 2023

    

31 MAR 2023

    

31 DEC 2022

($ in millions)

 

Annual recurring revenue (1)

$

697

$

619

$

559

$

520

$

473

Net revenue retention (1)

 

122

%  

 

122

%  

 

122

%  

 

121

%  

 

121

%  

Total company future contracted revenue (1)

$

7,140

$

5,819

$

5,227

$

4,778

$

4,647


(1)Refer to “Statistical Definitions” below.
Annual recurring revenue grew 47% year over year to $697 million, driven by Axon Cloud software growth, which reflects growing demand for our high-value software bundles and a growing base of connected devices in our ecosystem.
Net revenue retention was 122% in the quarter, reflecting our ability to deliver additional value to our customers over time and de minimis attrition. We drive adoption of our cloud software solutions through subscription plans, which include a variety of premium software options. This Software-as-a-Service (“SaaS”) metric excludes the hardware portion of customer subscriptions and is normalized to account for phased customer deployments throughout the year.
Total company future contracted revenue grew to $7.1 billion. We expect to recognize between 15% to 25% of this balance over the next 12 months, and generally expect the remainder to be recognized over the following ten years.

2024 Outlook


The following forward-looking statements reflect Axon’s expectations as of February 27, 2024, and are subject to risks and uncertainties. Please refer to “Forward-looking statements” below for more information.

Axon expects full year 2024 revenue of $1.88 billion to $1.94 billion, representing approximately 20% to 24% annual growth.
Axon expects a full year 2024 Adjusted EBITDA dollars of $410 million to $430 million, implying continued Adjusted EBITDA margin expansion from 2023.
oWe provide Adjusted EBITDA guidance, rather than net income guidance, due to the inherent difficulty of forecasting certain types of expenses and gains such as stock-based compensation, income tax expenses and gains or losses on marketable securities and strategic investments, which affect net income but not Adjusted EBITDA. We are unable to reasonably estimate the impact of such expenses, which could be material, on net income. Accordingly, we do not provide a reconciliation of projected net income to projected Adjusted EBITDA.
We expect stock-based compensation expenses to be approximately $205 million to $220 million for the full year.
oFull year expected stock based compensation expense includes approximately $42 million in expenses related to an enhanced equity compensation opportunity provided to employees whose compensation is under a specified threshold. We expect this expense to be primarily reflected within cost of goods

sold with approximately half of the full year expense to be recognized in the first quarter, in line with vesting schedules which will occur over the next four years.
oBecause our stock-based compensation expenses may vary based on changes in our stock price or the actual timing of attainment of certain metrics, it is inherently difficult to forecast future stock-based compensation expense, which may also be materially affected by any future stock-based compensation plans, subject to shareholder approval. 
We expect 2024 CapEx to be in the range of $60 million to $75 million. Our 2024 CapEx plans include investments in TASER 10 automation and capacity expansion, including cartridge capacity and lab enhancements and global facility build-out and upgrades, including warehousing support for global shipping facilities.

Long-Term Outlook

Looking ahead, we remain confident in our ability to scale globally, to penetrate new customer verticals and to introduce new products that drive highly profitable revenue growth as we progress on our mission to protect life. We believe our future opportunities will enable us to drive solid top and bottom-line growth, generate significant cash flow, and create meaningful value for our shareholders. 

Last year at this time, we provided a three-year target model for 2025, including a revenue target of $2 billion, implying a 20% revenue compound annual growth rate (“CAGR”), and a 25% Adjusted EBITDA margin target. Given our strong revenue performance in 2023 and new 2024 guidance, which we are proud to provide above our outlook from this time last year, along with our progress on margin expansion, we are updating our long-term framework.

Beyond 2024, we expect to achieve continued 20% or greater compound annual revenue growth and continue to target Adjusted EBITDA margins of approximately 25% as we continue to balance investing for growth and delivering strong profitability. We also remain committed to delivering strong cash generation with Adjusted Free Cash Flow conversion on Adjusted EBITDA of at least 60% by 2025. In addition, we remain focused on reducing annual dilution related to stock-based compensation and we continue to target average annual dilution from stock compensation expense of approximately 3% for 2025 and beyond.

Thank you for investing with us in this mission.

-The Axon team


Quarterly conference call and webcast

We will host our Q4 2023 earnings conference call webinar on Tuesday, February 27, at 2 p.m. PT / 5 p.m. ET.

The webcast will be available via a link on Axon's investor relations website at https://investor.axon.com, or can be accessed directly via https://axon.zoom.us/j/94299685390.

Statistical Definitions

Annual recurring revenue: Annual recurring revenue is a performance indicator that management believes provides more visibility into the growth of our revenue generated by our highest margin, recurring services. Annual recurring revenue should be viewed independently of revenue and deferred revenue because it is an operating measure and is not intended to be combined with or to replace GAAP revenue or deferred revenue, as they can be impacted by contract start and end dates and renewal rates. Annual recurring revenue is not intended to be a replacement or forecast of revenue or deferred revenue. We calculate annual recurring revenue as monthly recurring license, integration, warranty, and storage revenue, annualized.

Net revenue retention: Dollar-based net revenue retention is an important metric to measure our ability to retain and expand our relationships with existing customers. We calculate it as the software and camera warranty subscription and support revenue from a base set of agency customers from which we generated Axon Cloud subscription revenue in the last month of a quarter divided by the software and camera warranty subscription and support revenue from the year-ago month of that same customer base. This calculation includes high-margin warranty revenue but purposely excludes the lower-margin hardware subscription component of the customer contracts, as it is meant to be a SaaS metric that we use to monitor the health of the recurring revenue business we are building. This calculation also excludes the implied monthly revenue contribution of customers that were added since the year-ago quarter, and therefore excludes the benefit of new customer acquisition. The metric includes customers, if any, that terminated during the annual period, and therefore, this metric is inclusive of customer churn. This metric is downwardly adjusted to account for the effect of phased deployments—meaning that, for the year-ago period, we consider the total contractually obligated implied monthly revenue amount, rather than monthly revenue amounts that might have been in actuality smaller on a GAAP basis due to the customer not having yet fully deployed their Axon solution. For more information relative to our revenue recognition policies, please reference our filings with the Securities and Exchange Commission (“SEC”).

Total company future contracted revenue: Total company future contracted revenue represents remaining performance obligation and includes 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 Topic 606 as of December 31, 2023. We currently expect to recognize between 15% to 25% of this balance over the next 12 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.

Non-GAAP Measures

To supplement the Company's financial results presented in accordance with GAAP, we present the non-GAAP financial measures of EBITDA, Adjusted EBITDA, Non-GAAP Net Income, Non-GAAP Diluted Earnings Per Share, Free Cash Flow, and Adjusted Free Cash Flow. The Company's management uses these non-GAAP financial measures in evaluating the Company's performance in comparison to prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial measures in assessing its 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, income taxes, depreciation and amortization.
Adjusted EBITDA (Most comparable GAAP Measure: Net income) - Earnings before interest expense, investment interest income, income taxes, depreciation, amortization, non-cash stock-based compensation expense, fair value adjustments to strategic investments and marketable securities, transaction costs related to acquisitions and investments, and other unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance (identified and listed below in the reconciliation).
Adjusted EBITDA margin (Most comparable GAAP Measure: Net income margin) – Adjusted EBITDA as a percentage of net sales.

Non-GAAP Net Income (Most comparable GAAP Measure: Net income) - Net income excluding the costs of non-cash stock-based compensation, gain/loss/write-down/disposal/abandonment of property, equipment and intangible assets; fair value adjustments to strategic investments and marketable securities; transaction costs related to acquisitions and investments; costs related to the Federal Trade Commission (“FTC”) litigation and antitrust litigation and other unusual, non-recurring pre-tax items that are not considered representative of our underlying operating performance (listed below). The Company tax-effects non-GAAP adjustments using the blended statutory federal and state tax rates for each period presented.
Non-GAAP Diluted Earnings Per Share (Most comparable GAAP Measure: Earnings Per share) - Measure of Company's Non-GAAP Net Income divided by the weighted average number of diluted common shares outstanding during the period presented.
Free Cash Flow (Most comparable GAAP Measure: Cash flow from operating activities) - Cash flows provided by operating activities minus purchases of property and equipment and intangible assets.
Adjusted Free Cash Flow (Most comparable GAAP Measure: Cash flow from operating activities) - Cash flows provided by operating activities minus purchases of property and equipment and intangible assets, excluding the net impact of investments in our new Scottsdale, Arizona campus and bond premium amortization.
oWe believe that free cash flow and adjusted free cash flow excluding the impact of bond premium amortization and net campus investment are non-GAAP measures that are useful to investors and management to evaluate the Company’s ability to generate cash. These non-GAAP measures can also be used to evaluate the Company’s ability to generate cash flow from operations and the impact that this cash flow has on the Company’s liquidity.

Caution on Use of Non-GAAP Measures

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 the Company's 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 the Company's GAAP financial measures;
these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, the Company's GAAP financial measures;
these non-GAAP financial measures should not be considered to be superior to the Company's GAAP financial measures; and
these non-GAAP financial measures were not prepared in accordance with GAAP or under a comprehensive set of rules or principles proposed by a third party.
Further, these non-GAAP financial measures may be unique to the Company, as they may be different from similarly titled non-GAAP financial measures used by other companies. As such, this presentation of non-GAAP financial measures may not enhance the comparability of the Company's results to the results of other companies.

About Axon

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 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, enterprises and consumers.

Non-Axon trademarks are property of their respective owners.


Axon, Axon Air, Axon Body, Axon Auto-Transcribe, Axon Evidence, Axon Fleet, Axon Records, Axon Respond, Axon Standards, Axon VR, Sky-Hero, TASER, TASER 7, TASER 10, Protect Life, the Filled Bolt within Circle Logo and the Delta Logo are trademarks of Axon Enterprise, Inc., some of which are registered in the United States and other countries. For more information, visit www.axon.com/legal. All rights reserved.

Forward-looking statements

Forward-looking statements in this letter 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, including statements related to our user base, customer profiles and TAM; the impact of pending litigation; strategies and trends relating to subscription plan programs and revenues; statements related to recently completed acquisitions; our anticipation that contracts with governmental customers will be fulfilled; the timing and realization of future contracted revenue; the fulfillment of bookings; strategies and trends, including the amounts and benefits of, R&D investments; the sufficiency of our liquidity and financial resources; expectations about customer behavior; statements concerning projections, predictions, expectations, estimates or forecasts as to our business, financial and operational results and future economic performance, including our outlook for 2024 full year revenue, stock-based compensation expense, Adjusted EBITDA, Adjusted EBITDA margin, and capital expenditures; 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 10K for the year ended December 31, 2022, and the soon-to-be-filed Form 10-K for the year ended December 31, 2023 (collectively, our “Annual Reports”). Such statements give our current expectations or forecasts of future events; they do not relate strictly to historical or current facts. Words such as “may,” “will,” “should,” “could,” “would,” “predict,” “potential,” “continue,” “expect,” “anticipate,” “future,” “intend,” “plan,” “believe,” “estimate,” and similar expressions, as well as statements in future tense, identify forward-looking statements. However, not all forward-looking statements contain these identifying words.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and potentially inaccurate assumptions. The following important factors could cause actual results to differ materially from those in the forward-looking statements: our exposure to cancellations of government contracts due to appropriation clauses, exercise of a cancellation clause, or non-exercise of contractually optional periods; the ability of law enforcement agencies to obtain funding, including based on tax revenues; our ability to design, introduce and sell new products, services or features; our ability to defend against litigation and protect our intellectual property, and the resulting costs of this activity; our ability to win bids through the open bidding process for governmental agencies; our ability to manage our supply chain and avoid production delays, shortages and impacts to expected gross margins; the impacts of inflation, macroeconomic conditions and global events; the impact of catastrophic events or public health emergencies; the impact of stock-based compensation expense, impairment expense, and income tax expense on our financial results; customer purchase behavior, including adoption of our software as a service delivery model; negative media publicity or sentiment regarding our products; the impact of various factors on projected gross margins; defects in, or misuse of, our products; changes in the costs of product components and labor; loss of customer data, a breach of security, or an extended outage, including by our third party cloud-based storage providers; exposure to international operational risks; delayed cash collections and possible credit losses due to our subscription model; changes in government regulations in the United States and in foreign markets, especially related to the classification of our products by the United States Bureau of Alcohol, Tobacco, Firearms and Explosives; our ability to integrate acquired businesses; the impact of declines in the fair values or impairment of our investments, including our strategic investments; our ability to attract and retain key personnel; litigation or inquiries and related time and costs; and counter-party risks relating to cash balances held in excess of federally insured limits. Many events beyond our control may determine whether results we anticipate will be achieved. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could differ materially from past results and those anticipated, estimated or projected. You should bear this in mind as you consider forward-looking statements. The Annual Report on Form 10 K that we expect to file with the Securities and Exchange Commission ("SEC") on February 27, 2024 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 Securities Exchange Act of 1934, as amended, and Section 27A of the Securities Act of 1933, as amended. Readers can find them under the heading “Risk Factors” in our Annual Reports, and investors should refer to them. You should understand that it is not possible to predict or identify all such factors. 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 8-K, 10Q and 10K reports to the SEC. Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.

Update on Legal Matters:

New Jersey Proposed Antitrust Class Action

 

Pending in the District of New Jersey (No. 3:23-cv-7182-RK-RLS) is a consolidated proposed class action lawsuit brought by the Township of Howell (NJ), the City of Augusta (ME), and the City of Baltimore (MD) alleging Axon’s 2018 acquisition of Vievu LLC from Safariland LLC was anticompetitive, and that certain non-compete provisions in an ancillary holster supply agreement between Axon and Safariland LLC unlawfully retrained trade. The complaint is based primarily on claims by the FTC  regarding the transaction, that were dismissed without condition or consent decree in October 2023. Axon denies the allegations and will vigorously defend the action.

As previously reported, at the time of the acquisition, Vievu LLC was a significantly financially distressed company destined to exit the market, and we believe Axon’s action prevented major body-camera program disruptions for Vievu LLC customers. Plaintiffs Howell and Augusta have never purchased body-worn camera systems from Axon. Further, we believe Safariland LLC was never a TASER energy weapon competitor, had no intention of entering the energy weapon business, and has not done so in the four years since the parties rescinded the non-compete provisions of the holster agreement—provisions intended to protect Axon’s proprietary information and substantial intellectual property investments during new TASER product development. 

 

On February 5, 2024,  Axon served its motions to dismiss all claims and to strike the class allegations on numerous grounds, including that Axon’s federal, state, and municipal customers with sovereign immunity cannot be absent class members. Plaintiffs’ response is not due until mid-April with Axon’s reply due in mid-May.  A decision is therefore unlikely before year end.           


AXON ENTERPRISE, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

THREE MONTHS ENDED

TWELVE MONTHS ENDED

    

31 DEC 2023

    

30 SEP 2023

    

31 DEC 2022

    

31 DEC 2023

    

31 DEC 2022

Net sales from products

$

258,405

$

256,443

$

214,735

$

967,711

$

801,388

Net sales from services

 

173,737

 

157,158

 

121,407

 

595,680

 

388,547

Net sales

 

432,142

 

413,601

 

336,142

 

1,563,391

 

1,189,935

Cost of product sales

 

125,664

 

116,278

 

102,641

 

450,718

 

363,219

Cost of service sales

 

42,591

 

42,051

 

27,822

 

157,291

 

98,078

Cost of sales

 

168,255

 

158,329

 

130,463

 

608,009

 

461,297

Gross margin

 

263,887

 

255,272

 

205,679

 

955,382

 

728,638

Operating expenses:

 

  

 

  

 

  

 

  

 

  

Sales, general and administrative

 

137,106

 

123,279

 

114,418

 

496,874

 

401,575

Research and development

 

83,972

 

76,880

 

68,720

 

303,719

 

233,810

Total operating expenses

 

221,078

 

200,159

 

183,138

 

800,593

 

635,385

Income from operations

 

42,809

 

55,113

 

22,541

 

154,789

 

93,253

Interest Income, net

12,325

10,458

4,140

42,112

4,294

Other income (loss), net

 

668

 

3,852

 

8,049

 

(41,901)

 

98,971

Income before provision for income taxes

 

55,802

 

69,423

 

34,730

 

155,000

 

196,518

Provision for (benefit from) income taxes

 

(1,469)

 

10,026

 

5,555

 

(19,227)

 

49,379

Net income

$

57,271

$

59,397

$

29,175

$

174,227

$

147,139

Net income per common and common equivalent shares:

 

  

 

  

 

  

 

  

 

  

Basic

$

0.76

$

0.79

$

0.41

$

2.35

$

2.07

Diluted

$

0.75

$

0.78

$

0.40

$

2.31

$

2.03

Weighted average number of common and common equivalent shares outstanding:

 

  

 

  

 

  

 

  

 

  

Basic

 

75,060

 

74,826

 

71,270

 

74,195

 

71,093

Diluted

 

76,178

 

75,952

 

72,976

 

75,456

 

72,534


AXON ENTERPRISE, INC.

SEGMENT REPORTING

(in thousands)

THREE MONTHS ENDED

THREE MONTHS ENDED

THREE MONTHS ENDED

 

31 DEC 2023

30 SEP 2023

31 DEC 2022

 

  

  

Software

  

  

  

  

    

  

Software

    

  

  

  

  

  

Software

  

  

 

and

and

and

 

TASER

Sensors

Total

TASER

Sensors

Total

TASER

Sensors

Total

 

Net sales from products (1)

$

151,238

$

107,167

$

258,405

$

153,375

$

103,068

$

256,443

$

128,868

$

85,867

$

214,735

Net sales from services (2)

 

10,105

 

163,632

 

173,737

 

9,195

 

147,963

 

157,158

 

7,869

 

113,538

 

121,407

Net sales

 

161,343

 

270,799

 

432,142

 

162,570

 

251,031

 

413,601

 

136,737

 

199,405

 

336,142

Cost of product sales

 

68,067

 

57,597

 

125,664

 

59,746

 

56,532

 

116,278

 

52,447

 

50,194

 

102,641

Cost of service sales

 

1,096

 

41,495

 

42,591

 

1,252

 

40,799

 

42,051

 

 

27,822

 

27,822

Cost of sales

 

69,163

 

99,092

 

168,255

 

60,998

 

97,331

 

158,329

 

52,447

 

78,016

 

130,463

Gross margin

 

92,180

 

171,707

 

263,887

 

101,572

 

153,700

 

255,272

 

84,290

 

121,389

 

205,679

Gross margin %

  

 

57.1

%  

 

63.4

%  

 

61.1

%  

 

62.5

%  

 

61.2

%  

 

61.7

%  

 

61.6

%  

 

60.9

%  

 

61.2

%

Research and development

 

16,265

 

67,707

 

83,972

 

15,672

 

61,208

 

76,880

 

14,531

 

54,189

 

68,720

TWELVE MONTHS ENDED

TWELVE MONTHS ENDED

 

31 DEC 2023

31 DEC 2022

 

  

  

Software

  

  

  

Software

  

 

and

and

 

TASER

  

Sensors

  

Total

  

TASER

  

Sensors

  

Total

 

Net sales from products (1)

$

577,610

$

390,101

$

967,711

$

511,010

$

290,378

$

801,388

Net sales from services (2)

 

34,995

 

560,685

 

595,680

 

20,556

 

367,991

 

388,547

Net sales

 

612,605

 

950,786

 

1,563,391

 

531,566

 

658,369

 

1,189,935

Cost of product sales

 

238,364

 

212,354

 

450,718

 

194,957

 

168,262

 

363,219

Cost of service sales

 

3,613

 

153,678

 

157,291

 

 

98,078

 

98,078

Cost of sales

 

241,977

 

366,032

 

608,009

 

194,957

 

266,340

 

461,297

Gross margin

 

370,628

 

584,754

 

955,382

 

336,609

 

392,029

 

728,638

Gross margin %

  

 

60.5

%  

 

61.5

%  

 

61.1

%  

 

63.3

%  

 

59.5

%  

 

61.2

%

Research and development

 

62,393

 

241,326

 

303,719

 

51,607

 

182,203

 

233,810


(1)Software and Sensors “products” revenue consists of sensors, including on-officer body cameras, Axon Fleet cameras, other hardware sensors, warranties on sensors, and other products, and is sometimes referred to as Sensors and Other revenue.
(2)Software and Sensors “services” revenue comprises sales related to the Axon Cloud and Services, which includes Axon Evidence, cloud-based evidence management software revenue, other recurring cloud-hosted software revenue and related professional services, and is sometimes referred to as Axon Cloud and Services revenue.

Note: The level of integration across Axon's business, including our TASER and Software & Sensors segments, with highly complementary products sold under subscription plans to our customers means that much of our SG&A expenses support both segments, together. This is increasingly true for our R&D expenses, as well, with our Chief Product Officer and Chief Technology Officer overseeing all R&D spend. Thus, starting with our Q1 2024 disclosures, we will no longer break out R&D by segment, similar to our combined SG&A reporting, but we will continue to provide revenue and gross margin by segment.


AXON ENTERPRISE, INC.

SALES BY PRODUCT AND SERVICE

(in thousands)

THREE MONTHS ENDED

31 DEC 2023

30 SEP 2023

    

31 DEC 2022

    

TASER segment:

TASER Devices (Professional)

$

94,758

 

21.9

%

$

86,718

21.0

%

$

69,075

 

20.5

%  

Cartridges

 

43,781

 

10.1

54,279

13.1

 

47,541

 

14.1

Axon Evidence and Cloud Services

 

10,105

 

2.4

8,975

2.2

 

6,890

 

2.0

Extended Warranties

 

8,226

 

1.9

8,078

1.9

 

7,580

 

2.3

Other (1)

 

4,473

 

1.0

4,520

1.1

 

5,651

 

1.7

Total TASER segment

 

161,343

 

37.3

162,570

39.3

 

136,737

 

40.6

Software and Sensors segment:

 

  

 

 

  

 

Axon Body Cameras and Accessories

 

58,957

 

13.7

52,488

12.7

 

43,882

 

13.1

Axon Fleet Systems

 

22,481

 

5.2

26,716

6.4

 

23,177

 

6.9

Axon Evidence and Cloud Services

 

165,204

 

38.2

150,563

36.4

 

113,225

 

33.7

Extended Warranties

 

17,272

 

4.0

16,054

3.9

 

13,695

 

4.1

Other (2)

 

6,885

 

1.6

5,210

1.3

 

5,426

 

1.6

Total Software and Sensors segment

 

270,799

 

62.7

251,031

60.7

 

199,405

 

59.4

Total net sales

$

432,142

 

100.0

%

$

413,601

100.0

%  

$

336,142

 

100.0

%  

TWELVE MONTHS ENDED

31 DEC 2023

31 DEC 2022

TASER segment:

 

TASER Devices (Professional)

$

333,923

 

21.4

%

$

282,698

23.8

%

Cartridges

 

193,285

 

12.4

181,686

15.3

Axon Evidence and Cloud Services

 

34,775

 

2.2

18,752

1.6

Extended Warranties

 

31,689

 

2.0

29,008

2.4

Other (1)

 

18,933

 

1.2

19,422

1.6

Total TASER segment

 

612,605

 

39.2

531,566

44.7

Software and Sensors segment:

 

 

  

Axon Body Cameras and Accessories

 

183,023

 

11.7

157,281

13.2

Axon Fleet Systems

 

118,129

 

7.6

63,017

5.3

Axon Evidence and Cloud Services

 

566,183

 

36.2

371,889

31.3

Extended Warranties

 

62,577

 

4.0

49,765

4.1

Other (2)

 

20,874

 

1.3

16,417

1.4

Total Software and Sensors segment

 

950,786

 

60.8

658,369

55.3

Total net sales

$

1,563,391

 

100.0

%

$

1,189,935

100.0

%


(1)TASER segment “Other” includes smaller categories, such as VR hardware, weapons training revenue such as revenue associated with our Master Instructor School, and TASER consumer device sales.
(2)Software and Sensors segment “Other” includes revenue from items including Signal Sidearm, Interview Room and Axon Air.


AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

(in thousands)

THREE MONTHS ENDED

TWELVE MONTHS ENDED

    

31 DEC 2023

    

30 SEP 2023

    

31 DEC 2022

    

31 DEC 2023

    

31 DEC 2022

 

EBITDA and Adjusted EBITDA:

 

  

 

  

 

  

 

  

 

  

Net income

$

57,271

$

59,397

$

29,175

$

174,227

$

147,139

Depreciation and amortization

 

10,051

 

8,418

 

6,210

 

32,638

 

24,381

Interest expense

 

1,772

 

1,762

 

474

 

6,995

 

488

Investment interest income

 

(14,097)

 

(12,220)

 

(4,614)

 

(49,107)

 

(4,782)

Provision for (benefit from) income taxes

 

(1,469)

 

10,026

 

5,555

 

(19,227)

 

49,379

EBITDA

$

53,528

$

67,383

$

36,800

$

145,526

$

216,605

Adjustments:

 

  

 

  

 

  

 

  

 

  

Stock-based compensation expense

$

35,130

$

29,987

$

31,722

$

131,358

$

106,176

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

(521)

(4,036)

(6,445)

41,785

(98,943)

Transaction costs related to strategic investments and acquisitions

 

2,708

 

495

 

64

 

4,501

 

2,368

Loss on disposal, abandonment, and impairment of property, equipment and intangible assets, net

 

 

137

 

3,530

 

317

 

5,562

Insurance recoveries

 

 

(2,615)

 

 

(3,404)

 

Costs related to FTC litigation and antitrust litigation

 

169

 

71

 

250

 

241

 

545

Payroll taxes related to 2019 XSPP vesting and 2018 CEO Performance Award option exercises

50

201

9,011

Adjusted EBITDA

$

91,064

$

91,623

$

65,921

$

329,335

$

232,313

Net income as a percentage of net sales

 

13.3

%  

 

14.4

%  

 

8.7

%  

 

11.1

%  

 

12.4

%

Adjusted EBITDA as a percentage of net sales

 

21.1

%  

 

22.2

%  

 

19.6

%  

 

21.1

%  

 

19.5

%

Stock-based compensation expense:

 

  

 

  

 

  

 

  

 

  

Cost of product and service sales

$

1,910

$

1,687

$

1,276

$

6,595

$

4,607

Sales, general and administrative

 

15,301

 

12,886

 

15,441

 

58,533

 

51,301

Research and development

 

17,919

 

15,414

 

15,005

 

66,230

 

50,268

Total

$

35,130

$

29,987

$

31,722

$

131,358

$

106,176


AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - continued

(in thousands, except per share amounts)

THREE MONTHS ENDED

TWELVE MONTHS ENDED

    

31 DEC 2023

    

30 SEP 2023

    

31 DEC 2022

    

31 DEC 2023

    

31 DEC 2022

Non-GAAP net income:

GAAP net income

$

57,271

$

59,397

$

29,175

$

174,227

 

$

147,139

Non-GAAP adjustments:

 

  

 

  

 

  

 

  

 

 

  

Stock-based compensation expense

 

35,130

 

29,987

 

31,722

 

131,358

 

 

106,176

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

 

(521)

 

(4,036)

 

(6,445)

 

41,785

 

 

(98,943)

Transaction costs related to strategic investments and acquisitions

 

2,708

 

495

 

64

 

4,501

 

 

2,368

Loss on disposal, abandonment, and impairment of property, equipment and intangible assets, net

 

 

137

 

3,530

 

317

 

 

5,562

Insurance recoveries

 

 

(2,615)

 

 

(3,404)

 

 

Costs related to FTC litigation and antitrust litigation

169

71

250

241

545

Payroll taxes related to 2019 XSPP vesting and 2018 CEO Performance Award option exercises

50

201

9,011

Income tax effects

 

(9,391)

 

(6,168)

 

(7,276)

 

(46,015)

 

 

(3,936)

Non-GAAP net income

$

85,416

$

77,469

$

51,020

$

312,021

 

$

158,911

Diluted income per common share

GAAP

$

0.75

$

0.78

$

0.40

$

2.31

$

2.03

Non-GAAP

$

1.12

$

1.02

$

0.70

$

4.14

$

2.19

Weighted average number of diluted common and common equivalent shares outstanding (in thousands)

76,178

75,952

72,976

75,456

72,534


AXON ENTERPRISE, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

    

31 DEC 2023

    

31 DEC 2022

ASSETS

 

  

 

  

Current Assets:

 

  

 

  

Cash and cash equivalents

$

598,545

$

353,684

Marketable securities

77,940

39,240

Short-term investments

 

644,054

 

581,769

Accounts and notes receivable, net

 

417,690

 

358,190

Contract assets, net

 

275,779

 

196,902

Inventory

 

269,855

 

202,471

Prepaid expenses and other current assets

 

112,786

 

73,022

Total current assets

 

2,396,649

 

1,805,278

Property and equipment, net

 

200,533

 

169,843

Deferred tax assets, net

 

229,513

 

156,866

Intangible assets, net

 

19,539

 

12,158

Goodwill

 

57,945

 

44,983

Long-term investments

 

 

156,207

Long-term notes receivable, net

 

2,588

 

5,210

Long-term contract assets, net

77,710

 

45,170

Strategic investments

231,730

296,563

Other long-term assets

 

220,638

 

159,616

Total assets

$

3,436,845

$

2,851,894

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

  

 

  

Current Liabilities:

 

  

 

  

Accounts payable

 

88,326

 

59,918

Accrued liabilities

 

188,230

 

155,934

Current portion of deferred revenue

 

491,691

 

360,037

Customer deposits

 

21,935

 

20,399

Other current liabilities

 

9,787

 

6,358

Total current liabilities

 

799,969

 

602,646

Deferred revenue, net of current portion

 

281,852

 

248,003

Liability for unrecognized tax benefits

 

18,049

 

10,745

Long-term deferred compensation