Axon Enterprise, Inc 10-Q for FY2020 Q1

Axon Enterprise, Inc. (AXON)

10-Q 2020-05-08 For: 2020-03-31

Added on April 10, 2026

About this 10-Q

Axon Enterprise, Inc filed this 10-Q on May 8, 2020, covering the quarter ended March 31, 2020 (FY2020 Q1).

Headline figures

Quarter ended March 31, 2020, as reported in this filing, compared with the same period a year earlier where the filing states it.

Revenue: $147.16M; up 27.1% from $115.81M a year earlier
Net income: $4.07M; down 36.5% from net income of $6.42M a year earlier
Diluted EPS: $0.07; down 36.4% from $0.11 a year earlier

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☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020 or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


Delaware	86-0741227
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

17800 North 85th Street	85255
Scottsdale, Arizona
(Address of principal executive offices)	(Zip Code)


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


Large accelerated filer	☒	Accelerated filer	☐

Non-accelerated Filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

			Page
Special Note Regarding Forward-Looking Statements			ii

PART I - FINANCIAL INFORMATION			1
	Item 1. Financial Statements		1
		Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019	1
		Unaudited Condensed Consolidated Statements of Operations and Comprehensive Income for the Three Months Ended March 31, 2020 and 2019	2
		Unaudited Condensed Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019	3
		Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019	4
		Notes to Unaudited Condensed Consolidated Financial Statements	5
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		37
	Item 4. Controls and Procedures		38
PART II - OTHER INFORMATION			38
	Item 1. Legal Proceedings		38
	Item 1A. Risk Factors		38
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		39
	Item 3. Defaults Upon Senior Securities		39
	Item 4. Mine Safety Disclosures		39
	Item 5. Other Information		39
	Item 6. Exhibits		40
	SIGNATURES		41


	March 31,		December 31,
	2020		2019
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	156,540	$	172,250
Short-term investments		188,673		178,534
Accounts and notes receivable, net of allowance of $1,827 and $1,567 as of March 31, 2020 and December 31, 2019, respectively		147,945		146,878
Contract assets, net		43,959		38,102
Inventory		46,922		38,845
Prepaid expenses and other current assets		34,702		34,866
Total current assets		618,741		609,475
Property and equipment, net		43,065		43,770
Deferred tax assets, net		29,433		27,688
Intangible assets, net		11,929		12,771
Goodwill		24,752		25,013
Long-term investments		50,225		45,499
Long-term notes receivable, net of current portion		27,556		31,598
Long-term contract assets, net		12,293		9,644
Other assets		59,457		40,181
Total assets	$	877,451	$	845,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	31,568	$	25,874
Accrued liabilities		36,404		45,001
Current portion of deferred revenue		119,827		117,864
Customer deposits		3,325		2,974
Other current liabilities		3,891		3,853
Total current liabilities		195,015		195,566
Deferred revenue, net of current portion		91,886		87,936
Liability for unrecognized tax benefits		4,173		3,832
Long-term deferred compensation		3,430		3,936
Deferred tax liability, net		342		354
Other long-term liabilities		23,015		10,520
Total liabilities		317,861		302,144
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		-		—
Common stock, $0.00001 par value; 200,000,000 shares authorized; 59,813,163 and 59,497,759 shares issued and outstanding as of March 31, 2020 and December 31, 2019, respectively		1		1
Additional paid-in capital		543,305		528,272
Treasury stock at cost, 20,220,227 shares as of March 31, 2020 and December 31, 2019		(155,947)		(155,947)
Retained earnings		175,699		172,265
Accumulated other comprehensive loss		(3,468)		(1,096)
Total stockholders’ equity		559,590		543,495
Total liabilities and stockholders’ equity	$	877,451	$	845,639


	Three Months Ended March 31,
	2020		2019
Net sales from products	$	107,288	$	88,089
Net sales from services		39,874		27,721
Net sales		147,162		115,810
Cost of product sales		48,884		39,600
Cost of service sales		9,670		7,293
Cost of sales		58,554		46,893
Gross margin		88,608		68,917
Operating expenses:
Sales, general and administrative		63,027		42,892
Research and development		26,381		23,354
Total operating expenses		89,408		66,246
Income (loss) from operations		(800)		2,671
Interest and other income, net		941		2,313
Income before provision for income taxes		141		4,984
Benefit from income taxes		(3,933)		(1,435)
Net income	$	4,074	$	6,419
Net income per common and common equivalent shares:
Basic	$	0.07	$	0.11
Diluted	$	0.07	$	0.11
Weighted average number of common and common equivalent shares outstanding:
Basic		59,609		58,914
Diluted		60,394		59,751
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income	$	4,074	$	6,419
Foreign currency translation adjustments		(2,372)		50
Comprehensive income	$	1,702	$	6,469


											Accumulated
				Additional							Other		Total
	Common Stock			Paid-in		Treasury Stock			Retained		Comprehensive		Stockholders’
	Shares	Amount		Capital		Shares	Amount		Earnings		Loss		Equity
Balance, December 31, 2019	59,497,759	$	1	$	528,272	20,220,227	$	(155,947)	$	172,265	$	(1,096)	$	543,495
Cumulative effect of applying a change in accounting principle, net of tax	—		—		—	—		—		(640)		—		(640)
Issuance of common stock under employee plans, net	315,404		—		(5,162)	—		—		—		—		(5,162)
Stock-based compensation	—		—		20,195	—		—		—		—		20,195
Net income	—		—		—	—		—		4,074		—		4,074
Foreign currency translation adjustments	—		—		—	—		—		—		(2,372)		(2,372)
Balance, March 31, 2020	59,813,163	$	1	$	543,305	20,220,227	$	(155,947)	$	175,699	$	(3,468)	$	559,590


	Three Months Ended March 31, 2020						Three Months Ended March 31, 2019
			Software and						Software and
	TASER		Sensors		Total		TASER		Sensors		Total
TASER 7	$	15,326	$	—	$	15,326	$	9,954	$	—	$	9,954
TASER X26P		11,061		—		11,061		15,872		—		15,872
TASER X2		14,075		—		14,075		13,085		—		13,085
TASER Pulse and Bolt		1,200		—		1,200		670		—		670
Single cartridges		26,625		—		26,625		19,160		—		19,160
Axon Body		—		12,823		12,823		—		6,445		6,445
Axon Flex		—		1,183		1,183		—		1,224		1,224
Axon Fleet		—		4,775		4,775		—		3,516		3,516
Axon Dock		—		4,951		4,951		—		3,312		3,312
Axon Evidence and cloud services		498		39,154		39,652		36		27,618		27,654
TASER Cam		—		927		927		—		903		903
Extended warranties		4,977		5,458		10,435		4,316		4,930		9,246
Other		2,133		1,996		4,129		2,298		2,471		4,769
Total	$	75,895	$	71,267	$	147,162	$	65,391	$	50,419	$	115,810


	March 31, 2020
Contract assets, net	$	56,252
Contract liabilities (deferred revenue)		211,713
Revenue recognized in the period from:
Amounts included in contract liabilities at the beginning of the period		48,465


	March 31, 2020						December 31, 2019
	Current		Long-Term		Total		Current		Long-Term		Total
Warranty:
TASER	$	12,963	$	15,469	$	28,432	$	12,716	$	16,378	$	29,094
Software and Sensors		10,886		4,447		15,333		9,852		5,156		15,008
		23,849		19,916		43,765		22,568		21,534		44,102
Hardware:
TASER		14,097		15,901		29,998		9,569		15,468		25,037
Software and Sensors		17,142		36,062		53,204		22,235		33,759		55,994
		31,239		51,963		83,202		31,804		49,227		81,031
Services:
TASER		588		1,293		1,881		293		765		1,058
Software and Sensors		64,151		18,714		82,865		63,199		16,410		79,609
	$	64,739	$	20,007	$	84,746	$	63,492	$	17,175	$	80,667
Total	$	119,827	$	91,886	$	211,713	$	117,864	$	87,936	$	205,800


	As of March 31, 2020
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments		Investments
Cash	$	73,560	$	—	$	—	$	73,560	$	73,560	$	—	$	—

Level 1:
Money market funds		3,536		—		—		3,536		3,536		—		—
Agency bonds		40,340		91		(2)		40,429		2,000		12,738		25,602
Treasury bills		17,983		15				17,998		10,995		6,988
Subtotal		61,859		106		(2)		61,963		16,531		19,726		25,602

Level 2:
State and municipal obligations		32,185		34		(27)		32,192		1,991		29,687		507
Certificates of deposit		1,900		—		—		1,900		—		1,400		500
Corporate bonds		145,022		79		(959)		144,142		4,987		119,654		20,381
U.S. Treasury repurchase agreements		49,400		—		—		49,400		49,400		—		—
Treasury inflation-protected securities		3,247		—		(47)		3,200		—		—		3,247
Commercial paper		28,364		—		—		28,364		10,072		18,292		—
Subtotal		260,118		113		(1,033)		259,198		66,450		169,033		24,635
Total	$	395,537	$	219	$	(1,035)	$	394,721	$	156,541	$	188,759	$	50,237


	As of December 31, 2019
			Gross		Gross				Cash and
	Amortized		Unrealized		Unrealized				Cash		Short-Term		Long-Term
	Cost		Gains		Losses		Fair Value		Equivalents		Investments		Investments
Cash	$	103,319	$	—	$	—	$	103,319	$	103,319	$	—	$	—

Level 1:
Money market funds		8,845		—		—		8,845		8,845		—		—
Agency bonds		32,869		14		(4)		32,879		—		15,131		17,738
Subtotal		41,714		14		(4)		41,724		8,845		15,131		17,738

Level 2:
State and municipal obligations		25,038		8		—		25,046		—		21,560		3,478
Certificates of deposit		1,400		—		—		1,400		—		1,400		—
Corporate bonds		135,175		71		(30)		135,216		886		113,241		21,048
U.S. Treasury repurchase agreements		57,200		—		—		57,200		57,200		—		—
Treasury inflation-protected securities		3,235		14		—		3,249		—		—		3,235
Commercial paper		29,202		—		—		29,202		2,000		27,202		—
Subtotal		251,250		93		(30)		251,313		60,086		163,403		27,761
Total	$	396,283	$	107	$	(34)	$	396,356	$	172,250	$	178,534	$	45,499


	March 31, 2020
		United States		Other countries		Total
Balance, beginning of period	$	1,395	$	172	$	1,567
Adoption of Topic 326, cumulative-effect adjustment to retained earnings		767		1		768
Provision for expected credit losses		722		164		886
Amounts written off charged against the allowance		(2)		-		(2)
Other, including dispositions and foreign currency translation		-		(4)		(4)
Balance, end of period	$	2,882	$	333	$	3,215


	March 31,
	2020
Accounts receivable and notes receivable, current	$	1,827
Contract assets, net		429
Long-term notes receivable, net of current portion		959
Total allowance for expected credit losses on customer receivables	$	3,215


	Three Months Ended March 31,
	2020		2019
Cash flows from operating activities:
Net income	$	4,074	$	6,419
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,881		2,800
Loss on disposal and abandonment of intangible assets		13		18
Loss on disposal and impairment of property and equipment, net		517		242
Stock-based compensation		20,195		7,905
Deferred income taxes		(1,548)		577
Unrecognized tax benefits		341		307
Other noncash, net		1,156		896
Provision for expected credit losses		902		—
Change in assets and liabilities:
Accounts and notes receivable and contract assets		(9,700)		(21,994)
Inventory		(8,630)		(3,936)
Prepaid expenses and other assets		2,277		(3,152)
Accounts payable, accrued and other liabilities		(3,562)		(7,284)
Deferred revenue		4,499		3,232
Net cash provided by (used in) operating activities		13,415		(13,970)
Cash flows from investing activities:
Purchases of investments		(99,512)		(105,322)
Proceeds from call / maturity of investments		84,315		—
Purchases of property and equipment		(2,209)		(5,271)
Proceeds from disposal of property and equipment		78		—
Purchases of intangible assets		(45)		(162)
Investment in unconsolidated affiliate		(4,700)		—
Net cash used in investing activities		(22,073)		(110,755)
Cash flows from financing activities:
Proceeds from options exercised		28		100
Income and payroll tax payments for net-settled stock awards		(5,190)		(1,259)
Net cash used in financing activities		(5,162)		(1,159)
Effect of exchange rate changes on cash and cash equivalents		(1,890)		67
Net decrease in cash and cash equivalents		(15,710)		(125,817)
Cash and cash equivalents and restricted cash, beginning of period		172,355		351,027
Cash and cash equivalents and restricted cash, end of period	$	156,645	$	225,210

Supplemental disclosures:
Cash and cash equivalents	$	156,540	$	223,642


	Three Months Ended March 31,
	2020		2019
Balance, beginning of period	$	1,476	$	898
Utilization of reserve		(171)		(123)
Warranty expense (benefit)		(85)		252
Balance, end of period	$	1,220	$	1,027


	March 31, 2020		December 31, 2019
Raw materials	$	21,808	$	20,789
Finished goods		25,114		18,056
Total inventory	$	46,922	$	38,845


		March 31, 2020						December 31, 2019
		Gross				Net		Gross				Net
	Useful	Carrying		Accumulated		Carrying		Carrying		Accumulated		Carrying
	Life	Amount		Amortization		Amount		Amount		Amortization		Amount
Amortizable (definite-lived) intangible assets:
Domain names	5‑10 years	$	3,161	$	(1,111)	$	2,050	$	3,161	$	(1,035)	$	2,126
Issued patents	5‑25 years		3,175		(1,397)		1,778		3,271		(1,339)		1,932
Issued trademarks	3‑15 years		1,164		(553)		611		1,166		(678)		488
Customer relationships	4‑8 years		3,636		(1,497)		2,139		3,721		(1,416)		2,305
Non-compete agreements	3‑4 years		439		(398)		41		450		(404)		46
Developed technology	3‑5 years		10,660		(7,074)		3,586		10,660		(6,528)		4,132
Re-acquired distribution rights	2 years		1,765		(1,765)		—		2,009		(2,009)		—
Total amortizable			24,000		(13,795)		10,205		24,438		(13,409)		11,029
Non-amortizable (indefinite-lived) intangible assets:
TASER trademark			900				900		900				900
Patents and trademarks pending			824				824		842				842
Total non-amortizable			1,724				1,724		1,742				1,742
Total intangible assets		$	25,724	$	(13,795)	$	11,929	$	26,180	$	(13,409)	$	12,771


2020	$	2,476
2021		2,854
2022		1,258
2023		971
2024		890
2025		623
Thereafter		1,133
Total	$	10,205


	March 31, 2020		December 31, 2019
Cash surrender value of corporate-owned life insurance policies	$	3,523	$	4,214
Deferred commissions ⁽¹⁾		21,826		22,068
Restricted cash		55		56
Operating lease assets		21,944		9,653
Investment in unconsolidated affiliate ⁽²⁾		4,700		—
Warrants for unconsolidated affiliate ⁽³⁾		2,588		—
Prepaid expenses, deposits and other		4,821		4,190
Total other long-term assets	$	59,457	$	40,181


	March 31, 2020		December 31, 2019
Accrued salaries, benefits and bonus	$	13,378	$	24,737
Accrued professional, consulting and lobbying fees		8,993		3,235
Accrued warranty expense		1,220		1,476
Accrued income and other taxes		2,093		3,362
Other accrued expenses		10,720		12,191
Accrued liabilities	$	36,404	$	45,001


		Eight Separate Adjusted EBITDA (CEO
Eight Separate Revenue Goals ⁽¹⁾		Performance Award) Goals
(in thousands)		(in thousands)
Goal #1, $710,058		Goal #9, $125,000
Goal #2, $860,058		Goal #10, $155,000
Goal #3, $1,010,058		Goal #11, $175,000
Goal #4, $1,210,058		Goal #12, $190,000
Goal #5, $1,410,058		Goal #13, $200,000
Goal #6, $1,610,058		Goal #14, $210,000
Goal #7, $1,810,058		Goal #15, $220,000
Goal #8, $2,010,058		Goal #16, $230,000


	Number of	Weighted Average		Aggregate
	Units	Grant-Date Fair Value		Intrinsic Value
Units outstanding, beginning of year	1,249	$	45.47
Granted	78		69.19
Released	(219)		35.49
Forfeited	(34)		50.82
Units outstanding, end of period	1,074		49.05	$	75,985


				Weighted
		Weighted		Average
	Number	Average		Remaining
	of	Exercise		Contractual	Aggregate
	Options	Price		Life (years)	Intrinsic Value
Options outstanding, beginning of year	6,431	$	28.34
Granted	—		—
Exercised	(6)		4.74
Expired / terminated	—		—
Options outstanding, end of period	6,425		28.36	7.84	$	272,512
Options exercisable, end of period	59		4.50	0.67		3,936


	Three Months Ended March 31,								Dollar		Percent
	2020				2019				Change		Change
TASER segment:
TASER 7	$	15,326	10.4	%	$	9,954	8.6	%	$	5,372	54.0	%
TASER X26P		11,061	7.5			15,872	13.7			(4,811)	(30.3)
TASER X2		14,075	9.6			13,085	11.3			990	7.6
TASER Pulse and Bolt		1,200	0.8			670	0.6			530	79.1
Single cartridges		26,625	18.1			19,160	16.6			7,465	39.0
Axon Evidence and cloud services		498	0.3			36	—			462	1,283.3
Extended warranties		4,977	3.4			4,316	3.7			661	15.3
Other		2,133	1.5			2,298	2.0			(165)	(7.2)
Total TASER segment		75,895	51.6			65,391	56.5			10,504	16.1
Software and Sensors segment:
Axon Body		12,823	8.7			6,445	5.6			6,378	99.0
Axon Flex		1,183	0.8			1,224	1.1			(41)	(3.3)
Axon Fleet		4,775	3.2			3,516	3.0			1,259	35.8
Axon Dock		4,951	3.4			3,312	2.9			1,639	49.5
Axon Evidence and cloud services		39,154	26.6			27,618	23.7			11,536	41.8
TASER Cam		927	0.6			903	0.8			24	2.7
Extended warranties		5,458	3.7			4,930	4.3			528	10.7
Other		1,996	1.4			2,471	2.1			(475)	(19.2)
Total Software and Sensors segment		71,267	48.4			50,419	43.5			20,848	41.3
Total net sales	$	147,162	100.0	%	$	115,810	100.0	%	$	31,352	27.1	%



	Three Months Ended March 31,		Unit	Percent
	2020	2019	Change	Change
TASER 7	11,430	8,835	2,595	29.4
TASER X26P	11,003	14,985	(3,982)	(26.6)
TASER X2	10,478	9,861	617	6.3
TASER Pulse and Bolt	3,261	1,253	2,008	160.3
Cartridges	873,364	616,517	256,847	41.7
Axon Body	39,864	25,848	14,016	54.2
Axon Flex	3,074	3,591	(517)	(14.4)
Axon Fleet	2,676	1,735	941	54.2
Axon Dock	5,297	4,994	303	6.1
TASER Cam	1,514	1,741	(227)	(13.0)


	Three Months Ended				Three Months Ended				Dollar		Percent
	March 31, 2020				December 31, 2019				Change		Change
TASER segment:
TASER 7	$	15,326	10.4	%	$	17,186	10.0	%	$	(1,860)	(10.8)	%
TASER X26P		11,061	7.5			14,692	8.5			(3,631)	(24.7)
TASER X2		14,075	9.6			15,507	9.0			(1,432)	(9.2)
TASER Pulse and Bolt		1,200	0.8			1,169	0.7			31	2.7
Cartridges		26,625	18.1			28,633	16.7			(2,008)	(7.0)
Axon Evidence and cloud services		498	0.3			341	0.2			157	46.0
Extended warranties		4,977	3.4			4,733	2.8			244	5.2
Other		2,133	1.5			1,694	1.0			439	25.9
TASER segment		75,895	51.6			83,955	48.9			(8,060)	(9.6)
Software and Sensors segment:
Axon Body		12,823	8.7			25,219	14.7			(12,396)	(49.2)
Axon Flex		1,183	0.8			1,411	0.8			(228)	(16.2)
Axon Fleet		4,775	3.2			5,205	3.0			(430)	(8.3)
Axon Dock		4,951	3.4			11,048	6.4			(6,097)	(55.2)
Axon Evidence and cloud services		39,154	26.6			36,804	21.4			2,350	6.4
TASER Cam		927	0.6			623	0.4			304	48.8
Extended warranties		5,458	3.7			5,124	3.0			334	6.5
Other		1,996	1.4			2,462	1.4			(466)	(18.9)
Software and Sensors segment		71,267	48.4			87,896	51.1			(16,629)	(18.9)
Total net sales	$	147,162	100.0	%	$	171,851	100.0	%	$	(24,689)	(14.4)	%

31.1*		Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
31.2*		Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
32**		Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		The cover page from the Company’s Quarterly Report for the quarter ended March 31, 2020, formatted in Inline XBRL

AXON ENTERPRISE, INC.

Date:	May 8, 2020
		By:	/s/ PATRICK W. SMITH
			Chief Executive Officer
			(Principal Executive Officer)

Date:	May 8, 2020	By:	/s/ JAWAD A. AHSAN
			Chief Financial Officer
			(Principal Financial and
			Accounting Officer)


	/s/ Patrick W. Smith
	Patrick W. Smith
	Chief Executive Officer
	May 8, 2020


	/s/ Jawad A. Ahsan
	Jawad A. Ahsan
	Chief Financial Officer
	May 8, 2020