AXON Axon Enterprise Inc

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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Form 8-K

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CURRENT REPORT

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

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February 26, 2024

Date of Report (Date of earliest event reported)

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Axon Enterprise, Inc.

(Exact name of registrant as specified in its charter)

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17800 N. 85^th St.

Scottsdale, Arizona 85255

(Address of principal executive offices, including zip code)

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(480) 991-0797

(Registrant’s telephone number, including area code)

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Not Applicable

(Former name or former address, if changed since last report)

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

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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:

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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 ☐

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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. ☐

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Item 2.02 Results of Operations and Financial Condition

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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.

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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.

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Item 4.01 Changes in Registrant’s Certifying Accountant

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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.

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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.

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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.

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

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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.  

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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.

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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

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(d)           Exhibits

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SIGNATURE

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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.

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Exhibit 16.1

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February 27, 2024

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U.S. Securities and Exchange Commission

Office of the Chief Accountant100 F Street, NE

Washington, DC 20549

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Re: Axon Enterprise, Inc.

File No. 001-16391

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Dear Sir or Madam:

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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.

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Very truly yours,

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/s/ GRANT THORNTON LLP

Exhibit 99.1

CONTACT:

Investor Relations

Axon Enterprise, Inc.

IR@axon.com

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Axon 2023 Revenue Grows 31% to $1.56 Billion

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Fellow shareholders,

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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%.

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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.

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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.

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2023 Key Takeaways

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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.

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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. 

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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.

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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.

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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.

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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.

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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.

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

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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.

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“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

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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.

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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.

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“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

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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.

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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.

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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.

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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.

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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.

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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.

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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.

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“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

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.

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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.

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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.

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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.

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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.

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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.

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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.

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

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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.

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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.

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

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Q4 2023 Summary Results

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Financial commentary by segment

Software & Sensors

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TASER

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Forward-looking performance indicators

2024 Outlook

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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.

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. 

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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.

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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.

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Thank you for investing with us in this mission.

-The Axon team

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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.

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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.

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Statistical Definitions

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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.

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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”).

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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.

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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.

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Caution on Use of Non-GAAP Measures

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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:

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.

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Non-Axon trademarks are property of their respective owners.

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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.

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Forward-looking statements

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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 10‑K 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.

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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.

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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, 10‑Q and 10‑K reports to the SEC. Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.

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Update on Legal Matters:

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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.

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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

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AXON ENTERPRISE, INC.

SEGMENT REPORTING

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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

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AXON ENTERPRISE, INC.

RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

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