ANNUALREPORTANNUALREPORT AXON IS A MISSION-DRIVEN COMPANY WHOSEOVERARCHING GOAL IS TO PROTECT LIFE.OUR VISION IS A WORLD WHERE BULLETS ARE OBSOLETE,WHERE SOCIAL CONFLICT IS DRAMATICALLY REDUCED,AND WHERE EVERYONE HAS ACCESS TO A FAIRAND EFFECTIVE JUSTICE SYSTEM.THE MISSION20TWENTYAXON IS A MISSION-DRIVEN COMPANY WHOSEOVERARCHING GOAL IS TO PROTECT LIFE.OUR VISION IS A WORLD WHERE BULLETS ARE OBSOLETE,WHERE SOCIAL CONFLICT IS DRAMATICALLY REDUCED,AND WHERE EVERYONE HAS ACCESS TO A FAIRAND EFFECTIVE JUSTICE SYSTEM.THE MISSION20TWENTY To our shareholders:
Let me begin by offering perspective on the conventional narrative that 2020 was a terrible year. Challenging times bring
out the best in humanity — these are the times that inspire us to rise up, to overcome, to stretch, to create our finest hours.
If we choose to focus on the negative, there was plenty to see in 2020. But if we look harder, we see so many signs of
hope and progress. We see that 2020 showed us all what we are made of.
Supercharged by a global plague, nations sprung into the kind of arms race we should want to see: competing ferociously
to cure a pandemic. The result was an amazing feat for humanity: In early 2020, our worlds began to lock down due to
Covid. By December, the first Covid vaccinations were being placed in arms, thanks to vaccines developed ten times faster
than ever before.
Humanity also supercharged into space in 2020. SpaceX, whose ultimate mission is to make life multiplanetary, helped
NASA to return human spaceflight capabilities to the United States for the first time since the space shuttle program ended
in 2011. And since my last letter, NASA’s fifth Mars rover, Perseverance, began to persevere on the Red Planet.
Back on Earth, many of us adapted to new realities. We virtualized ourselves and learned to Zoom around the world for
business, and parents got to see our kids for dinner every night. My customer engagement jumped more than 10-fold as
police chiefs opened up to video conferencing, and our leadership team enjoyed seeing our analyst community face-to-
face in our new quarterly Zoom conferences.
I don’t mean to minimize the pain we all experienced, and in many cases, are still experiencing. I understand and shared
it. My mother passed away days before Christmas after contracting Covid. But, even in that sorrow came progress as we
came together to heal fractured relationships within our family. I would not have chosen for 2020 to turn out as it did, but
we don’t get to choose what the world throws at us. We can choose how we respond.
At Axon we are continuing to look forward. At a recent executive planning session, we asked ourselves where we want to
be at the end of the decade. Here’s the answer: Our vision is to be globally synonymous with our mission of Protecting
Life by building the world’s largest and most trusted network of safety devices and services.
The urgency resulting from the intense social strife of 2020 is accelerating the world’s readiness to move beyond bullets,
to a world where killing each other is no longer something we accept as some immutable facet of human society. It has
supercharged our energy as we redouble our efforts to deliver TASER devices that will outperform a traditional sidearm
before this decade is out. Our customers are embracing this goal. They have told us the bar will be very high, and I am
confident our team will deliver.
Axon is delivering incredible value to our customers and the communities they serve. In 2020, we secured our first
Dispatch customer, established a solid foothold in the Federal market, launched our Respond platform and grew our
international revenue by more than 70%. We are proud to have delivered a record $681 million in 2020 revenue,
representing 28% growth, $1.1 billion in contract bookings, and $221 million in annual recurring revenue. We wrapped
up the year with an exceptional fourth quarter, highlighted by revenue growth of 32%, strong profitability and robust
global demand for our TASER devices.
We didn’t just deliver on our operational goals, we significantly outperformed them. I am humbled by our team’s ability
to deliver exceptional results amid turmoil and adversity. We exited 2020 better positioned than we’ve ever been from an
operational, strategic and financial perspective.
I would like to conclude by telling you what I’m hearing from customers today: They see us as a key partner to transforming
public safety. We hear stories daily about customers using our products to save lives and protect communities. Our Net
Promoter Scores are hitting new highs, and customers are actively and enthusiastically supporting our mission to make the
bullet obsolete - so that officers will not have to make the most terrible of decisions.
We know that we’re welcoming a lot of new shareholders onto our growth journey. Thank you for joining us and taking
an interest.
Sincerely,
Rick Smith
AXON ENTERPRISE, INC.
17800 North 85th Street
Scottsdale, Arizona 85255
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
May 27, 2021
To Our Shareholders:
The 2021 Annual Meeting of Shareholders (the “Annual Meeting”) of Axon Enterprise, Inc. (the “Company” or “Axon”)
will be held at 10:00 a.m. (local time) on Thursday, May 27, 2021. This year’s Annual Meeting will be a completely virtual
meeting of shareholders. You will be able to attend the Annual Meeting, vote your shares electronically, and submit your
questions during the live webcast by visiting www.virtualshareholdermeeting.com/AXON2021. You will need to have
your 16-digit control number included on your Notice, on your proxy card, or in the instructions that accompanied your
proxy materials. The Annual Meeting will be held for the following purposes:
1. Electing the three Class C directors of the Company named in this proxy statement for a term of three years, and
until their successors are elected and qualified;
2. Advisory vote to approve the compensation of the Company’s named executive officers;
3. Ratifying the appointment of Grant Thornton LLP as the Company’s independent registered public accounting
firm for fiscal year 2021;
4. Approving an amendment to the Company’s amended and restated Certificate of Incorporation to increase the
maximum size of the Board of Directors from 9 to 11 Directors;
5. Shareholder proposal recommending the Company move from a plurality voting standard to a majority voting
standard, if properly presented at the Annual Meeting; and
6. Transacting such other business as may properly come before the Annual Meeting or any continuation,
postponement or adjournment thereof.
Only stockholders of record of the Company’s common stock at the close of business on March 31, 2021 are entitled to
notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. Only shareholders with a
valid 16-digit control number will be able to attend the Annual Meeting and vote, ask questions, and access the list of
shareholders as of the close of business on the Record Date for the Annual Meeting.
Your vote is very important. Whether or not you plan to attend the Annual Meeting virtually, we encourage you to
read the proxy statement and vote as soon as possible. For specific instructions on how to vote your shares, please
refer to the section entitled “General Information About the Annual Meeting and Voting” and the instructions on
your proxy card or the voting instruction card you receive from your broker, bank or other intermediary. Please
note that if you hold shares in different accounts, it is important that you vote the shares represented by each
account.
By Order of the Board of Directors,
/s/ ISAIAH FIELDS
Isaiah Fields
Corporate Secretary
Scottsdale, Arizona
April 12, 2021
YOUR VOTE IS IMPORTANT. WHETHER OR NOT YOU EXPECT TO ATTEND THE ANNUAL MEETING
VIRTUALLY, PLEASE VOTE ON THE INTERNET, BY TELEPHONE, OR MARK, SIGN, DATE AND PROMPTLY
RETURN YOUR PROXY OR VOTING INSTRUCTION CARD IN THE ENCLOSED ENVELOPE.
TABLE OF CONTENTS
General Information About the Annual Meeting and Voting
Governance
The Board of Directors
Board and Committee Governance
Director Compensation
Certain Relationships and Related Transactions
Share Ownership
Ownership of Equity Securities of the Company
Delinquent Section 16(a) Reports
Executive Compensation
Executive Officers
Compensation Discussion and Analysis
Summary Compensation Table
Pay Ratio of Chief Executive Officer Compensation to Median Employee Compensation
2020 Grants of Plan-Based Awards
Audit Matters
Report of the Audit Committee
Proposals
Proposal No. 1 - Election of Directors
Proposal No. 2 - Advisory Approval of the Company’s Executive Compensation
Proposal No. 3 - Ratification of Appointment of Independent Registered Public Accounting Firm
Proposal No. 4 - Amendment to the Company’s Amended and Restated Certificate of Incorporation to Increase
the Maximum Size of the Board of Directors from 9 to 11 Directors
Proposal No. 5 - Shareholder Proposal to Elect Directors by Majority Vote
Other Matters
Annex A - Marked Copy of Form of Amended and Restated Certificate of Incorporation
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A-1
AXON ENTERPRISE, INC.
17800 North 85th Street
Scottsdale, Arizona 85255
PROXY STATEMENT FOR 2021 ANNUAL MEETING OF SHAREHOLDERS
GENERAL INFORMATION ABOUT THE ANNUAL MEETING AND VOTING
Why am I receiving these proxy materials?
Our Board of Directors (the “Board” or “Board of Directors”) has made these materials available to you on the Internet or
has delivered printed versions of these materials to you by mail in connection with the Board of Directors’ solicitation of
proxies for use at the Annual Meeting, which will take place virtually at 10:00 a.m. local time on Thursday, May 27, 2021.
You will be able to attend the Annual Meeting, vote your shares electronically, access the list of shareholders as of the
close of business on the Record Date, and submit your questions during the live webcast by visiting
www.virtualshareholdermeeting.com/AXON2021. You will need to have your 16-digit control number included on your
Notice, on your proxy card, or in the instructions that accompanied your proxy materials. We recommend logging into the
meeting prior to the start time. This proxy statement describes matters on which you, as a shareholder, are entitled to vote.
It also gives you information on these matters so that you can make an informed decision. This proxy statement is first
being made available or sent to shareholders on or about April 12, 2021.
What is included in these materials?
These materials include:
� This proxy statement for the Annual Meeting; and
� The Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”).
If you received printed versions of these materials by mail, these materials also include the proxy card or vote instruction
form for the Annual Meeting.
Why did I receive a one-page notice in the mail regarding the Internet availability of proxy materials instead of printed
proxy materials?
In accordance with the rules of the Securities and Exchange Commission (“SEC”), instead of mailing a printed copy of
our proxy materials to all of our shareholders, we have elected to furnish such materials to shareholders by providing
access to these documents over the Internet. Accordingly, on April 12, 2021 we sent a Notice of Internet Availability of
Proxy Materials (the “Notice”) to shareholders of record and beneficial owners. Shareholders have the ability to access the
proxy materials on a website referred to in the Notice or request to receive a printed or electronic set of the proxy materials
by following the directions found in the Notice. The Company encourages you to take advantage of the availability of the
proxy materials on the Internet in order to help reduce the cost and environmental impact of the Annual Meeting.
Axon Enterprise, Inc. | 2020 Proxy Statement | 1
How can I get electronic access to the proxy materials?
The Notice provides you with instructions regarding how to: (1) view our proxy materials for the Annual Meeting on the
Internet; (2) vote your shares after you have viewed our proxy materials; (3) request a printed or electronic copy of the
proxy materials; and (4) instruct us to send our future proxy materials to you electronically email. Copies of the proxy
materials are also available for viewing at the investor relations page of the Company’s website at http://investor.axon.com.
What proposals will be voted on at the Annual Meeting and how does the Board of Directors recommend I vote?
Shareholders will vote on the following items at the Annual Meeting:
Proposal
No. 1
No. 2
No. 3
No. 4
No. 5
Description
The election of the three Class C directors of the Company named in this
proxy statement for a term of three years, and until their successors are
elected and qualified
Advisory vote to approve the compensation of the Company’s named
executive officers
Ratification of the appointment of Grant Thornton LLP as the Company’s
independent registered public accounting firm for fiscal year 2021
Amendment to the Company’s amended and restated Certificate of
Incorporation to increase the maximum size of the Board of Directors from 9
to 11 Directors
Shareholder proposal recommending the Company move from a plurality
voting standard to a majority voting standard, if properly presented at the
Annual Meeting
Board Recommendation
FOR
(all nominees)
FOR
FOR
FOR
AGAINST
Shareholders will also vote on the transaction of any other business as may properly come before the Annual Meeting or
any continuation, postponement or adjournment thereof. To the maximum extent allowed by the SEC’s proxy rules, the
proxy holders will vote your shares on such other matters as they determine in their discretion.
Where are the Company’s principal executive offices located and what is the Company’s main telephone number?
The Company’s principal executive offices are located at 17800 North 85th Street, Scottsdale, Arizona 85255. The
Company’s main telephone number is (800) 978-2737.
Who may vote at the Annual Meeting?
As of March 31, 2021 (the “Record Date”), there were 64,673,091 shares of the Company’s common stock outstanding.
Each share of common stock entitles the holder to one vote on each matter that may properly come before the Annual
Meeting. The holders of a majority of the voting power of all shares entitled to vote, present in person (virtually) or
represented by proxy, will constitute a quorum for the transaction of business at the Annual Meeting. Shareholders are not
entitled to cumulative voting in the election of directors. Only shareholders as of the close of business on the Record Date
are entitled to receive notice of, to attend, and to vote at the Annual Meeting.
What is the difference between a shareholder of record and a beneficial owner of shares held in street name?
Shareholder of Record
If your shares are registered directly in your name with the Company’s transfer agent, Broadridge Corporate Issuer
Solutions, Inc., you are considered the shareholder of record with respect to those shares, and the Notice or printed
materials were sent directly to you by the Company. If you request printed copies of the proxy materials by mail, you will
also receive a printed proxy card.
Axon Enterprise, Inc. | 2020 Proxy Statement | 2
Beneficial Owner of Shares Held in Street Name
If your shares are held in an account at a brokerage firm, bank, broker-dealer, or other similar organization, then you are
the beneficial owner of shares held in “street name,” and the Notice or the printed proxy materials were forwarded to you
by that organization. The organization holding your account is considered the shareholder of record for purposes of voting
at the Annual Meeting. As a beneficial owner, you have the right to direct that organization how to vote the shares held in
your account. If you request printed copies of the proxy materials by mail, you will also receive a printed vote instruction
form.
If I am a shareholder of record of the Company’s shares, how do I vote?
There are multiple ways to vote:
Via the Internet. If you received a Notice, you may vote via the Internet:
Before the Meeting: visit http://www.proxyvote.com and enter the control number found in the Notice.
During the Meeting: visit http://www.annualshareholdermeeting.com/AXON2021 and enter the control
number found in the Notice.
by calling the toll free number found on the proxy card.
By telephone. If you received or requested printed copies of the proxy materials by mail, you may vote
filling out the proxy card and returning it in the envelope provided.
By mail. If you received or requested printed copies of the proxy materials by mail, you may vote by
If I am a beneficial owner of shares held in street name, how do I vote?
Your bank or broker will send you instructions on how to vote. There are multiple ways to vote:
Via the Internet. If you received a Notice, you may vote via the Internet:
Before the Meeting: visit http://www.proxyvote.com and enter the control number found in the Notice.
During the Meeting: visit http://www.annualshareholdermeeting.com/AXON2021 and enter the control
number found in the Notice.
by calling the toll free number found on the vote instruction form.
By telephone. If you received or requested printed copies of the proxy materials by mail, you may vote
filling out the vote instruction form and returning it in the envelope provided.
By mail. If you received or requested printed copies of the proxy materials by mail, you may vote by
To attend and participate in the Annual Meeting, you will need the 16-digit control number included in your Notice of
Internet Availability of Proxy Materials, on your proxy card or on the instructions that accompanied your proxy materials.
If your shares are held in street name, you should contact your broker to obtain your 16-digit control number or otherwise
vote through your broker. Only stockholders with a valid 16-digit control number, will be able to attend the Annual
Meeting and vote, ask questions and access the list of stockholders as of the close of business on the Record Date for the
Annual Meeting.
Axon Enterprise, Inc. | 2020 Proxy Statement | 3
What constitutes a quorum in order to hold and transact business at the Annual Meeting?
Under Delaware law and the Company’s bylaws, the holders of a majority of the voting power of all shares entitled to
vote, present in person or represented by proxy, at a meeting constitutes a quorum. Abstentions and broker non-votes will
be counted as present to determine whether a quorum has been established. Once a share of the Company’s common stock
is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting
and any adjournments or postponements. If a quorum is not present, the Annual Meeting may be adjourned until a quorum
is obtained.
How are proxies voted?
All valid proxies received prior to the Annual Meeting will be voted. All shares represented by a proxy will be voted and,
where a shareholder specifies by means of the proxy a choice with respect to any matter to be acted upon, the shares will
be voted in accordance with the shareholder’s instructions.
What happens if I do not give specific voting instructions?
Shareholder of Record If you are a shareholder of record and you indicate when voting on the Internet or by telephone
that you wish to vote as recommended by the Board, or sign and return a proxy card without giving specific voting
instructions, then the proxy holders will vote your shares in the manner recommended by the Board on all matters presented
in this proxy statement and as the proxy holders may determine in their discretion with respect to any other matters properly
presented for a vote at the Annual Meeting.
Beneficial Owner of Shares Held in Street Name If you are a beneficial owner of shares held in street name and do not
provide the organization that holds your shares with specific voting instructions, the organization that holds your shares
may vote on routine matters but cannot vote on non-routine matters. If the organization that holds your shares does not
receive instructions from you on how to vote your shares on a non-routine matter, the organization that holds your shares
will inform the inspector of election that it does not have the authority to vote on such matters with respect to your shares.
This is generally referred to as a “broker non-vote.”
Which ballot measures are considered “routine” or “non-routine”?
Proposal No. 3 (ratification of the appointment of Grant Thornton as the Company’s independent registered public
accounting firm) is considered “routine.” A broker or other nominee may generally vote on routine matters, and therefore
no broker non-votes are expected in connection with this proposal.
Proposals No. 1, No. 2, No. 4, and No. 5 (election of directors, advisory vote to approve the compensation of the
Company’s named executive officers, approval of an amendment to the Company’s Certificate of Incorporation to increase
the maximum size of the Board of Directors from 9 to 11 Directors, and the shareholder proposal to elect directors by
majority vote) are considered “non-routine.” A broker or other nominee cannot vote without specific instructions from the
beneficial owner on non-routine matters, and therefore we anticipate there will be broker non-votes in connection with
Proposals No. 1, No. 2, No. 4 and No. 5.
Can I change my vote after I have voted?
You may revoke your proxy and change your vote at any time before the final vote during the Annual Meeting by voting
again via the Internet or by telephone (only your latest Internet or telephone proxy submitted prior to the Annual Meeting
will be counted), by signing and returning a new proxy card or voting instruction form with a later date, or by attending
the Annual Meeting virtually and voting during the meeting. However, your attendance at the Annual Meeting will not
automatically revoke your proxy unless you vote again during the virtual meeting or specifically request that your prior
proxy be revoked by delivering to the Company’s Corporate Secretary at 17800 North 85th Street, Scottsdale, Arizona
85255 a written notice of revocation prior to the Annual Meeting.
Axon Enterprise, Inc. | 2020 Proxy Statement | 4
Is my vote confidential?
Proxy instructions, ballots and voting tabulations that identify individual shareholders are handled in a manner that protects
your voting privacy. Your vote will not be disclosed either within the Company or to third parties, except as necessary to
meet applicable legal requirements; to allow for the tabulation and certification of votes; and to facilitate a successful
proxy solicitation.
What is the voting requirement to approve each of the proposals?
Election of Directors
For Proposal No. 1, under our bylaws, assuming the existence of a quorum at the Annual Meeting, the three nominees for
director who receive the affirmative vote of a plurality of all of the votes cast will be elected to the Board of Directors.
This means that the three director nominees with the most votes will be elected. Votes to withhold will be counted toward
a quorum, but will not affect the outcome of the vote on the election of directors. Broker non-votes will have no effect on
the outcome of this proposal if a quorum is present.
Advisory Vote to Approve the Compensation of the Company’s Named Executive Officers (“Say-on-Pay”)
For Proposal No. 2, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal in person or by proxy at the Annual Meeting
is required for ratification. Broker non-votes and abstentions will have no impact on the outcome of this proposal if a
quorum is present.
Ratification of Independent Registered Public Accounting Firm
For Proposal No. 3, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal in person or by proxy at the Annual Meeting
is required for ratification. Broker non-votes and abstentions will have no impact on the outcome of this proposal if a
quorum is present.
Amendment to the Company’s amended and restated Certificate of Incorporation to increase the maximum size
of the Board of Directors from 9 to 11 Directors
Proposal No. 4 requires the affirmative vote of a majority of the shares issued and outstanding as of the record date to
approve this amendment to the Amended and Restated Certificate of Incorporation. Abstentions and broker non-votes will
have the same effect as a vote cast against the proposal.
Shareholder Proposal to Elect Directors by Majority Vote
For Proposal No. 5, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal in person or by proxy at the Annual Meeting
is required for approval. Broker non-votes and abstentions will have no impact on the outcome of this proposal if a quorum
is present.
Who will serve as the inspector of election?
A member of the Company’s internal legal department will serve as the inspector of election.
Where can I find the voting results of the Annual Meeting?
The final voting results will be tallied by the inspector of election and, within four business days after the Annual Meeting,
the Company expects to report the final results on Form 8-K with the SEC.
Axon Enterprise, Inc. | 2020 Proxy Statement | 5
Who is paying for the cost of this proxy solicitation?
The Company will bear the cost of solicitation of proxies for the Annual Meeting. We are soliciting your proxy on behalf
of our Board. In addition to the use of mail, proxies may be solicited by personal interview, telephone, facsimile,
electronically, including e-mail, or otherwise, by our officers, directors and other employees. They will not receive any
additional compensation for these activities. We also will request persons, firms and corporations holding shares in their
names, or in the names of their nominees, that are beneficially owned by others to send or cause to be sent proxy materials
to, and obtain proxies from, such beneficial owners and will reimburse such holders for their reasonable expenses in so
doing.
Axon Enterprise, Inc. | 2020 Proxy Statement | 6
GOVERNANCE
Director Nominations
THE BOARD OF DIRECTORS
The Nominating and Corporate Governance Committee (the “NCG Committee”) is responsible for identifying and
evaluating nominees for director and for recommending to the Board a slate of nominees for election at each annual
meeting of shareholders. Nominees may be suggested by directors, members of management, shareholders, or, in some
cases, by a third-party firm engaged by the NCG Committee.
Shareholders who wish the NCG Committee to consider their recommendations for nominees for the position of director
should submit their recommendations in writing by mail to the Nominating and Corporate Governance Committee, c/o
Axon Enterprise, Inc., 17800 North 85th Street, Scottsdale, AZ 85255. Recommendations by shareholders that are made
in accordance with these procedures will receive the same consideration by the NCG Committee as other suggested
nominees.
Qualifications for All Directors
In its assessment of each potential candidate, including those recommended by shareholders, the NCG Committee
considers the potential nominee’s demonstrated character, judgment, relevant business, functional and industry experience,
and whether they possess a high degree of business, technological, medical, military, political or law enforcement acumen,
independence, and other such factors the NCG Committee determines are pertinent in light of the current needs of the
Board. The NCG Committee also takes into account the ability of a potential nominee to devote the time and effort
necessary to fulfill his or her responsibilities to the Board of Directors. While the NCG Committee does not have a formal
diversity policy, it strives to achieve a well-rounded balance of varying skill sets and backgrounds in the composition of
the Board.
While recognizing that any group of people is more than the sum of its parts, that biography does not always define identity
and that attempting to quantify diversity is an imperfect exercise in a world of unique individuals, we also acknowledge
and celebrate that our board intentionally reflects a wide range of human experiences and identities.
On our board, six identify as men and three identify as women, one identifies as Iranian-American, one identifies as
Black, three identify as White or Caucasian, one identifies as a member of the LGBTQ+ community, one is a combat
decorated and disabled U.S. Army Special Forces Veteran and a decorated police officer, five were born in the United
States, one was born in Iran, two have relied on government-provided public assistance over the course of their lifetime
and at least four religions and faith practices are represented by our board.
The NCG Committee’s process for identifying and evaluating nominees typically involves a series of internal discussions,
review of information concerning candidates and interviews with selected candidates. The Company has not historically
paid third parties to identify or assist in identifying or evaluating potential nominees but reserves the right to do so in the
future.
Specific Qualifications, Attributes, Skills and Experience to be Represented on the Board
The Board has identified particular qualifications, attributes, skills and experience that it believes are important to be
represented on the Board as a whole in order to advise and contribute to the execution of the Company’s strategic
objectives. Each Board member was selected in accordance with the process for the selection and nomination of directors
described above. Accordingly, the Board believes that each of the Company’s Board members brings a myriad of attributes
Axon Enterprise, Inc. | 2020 Proxy Statement | 7
that combined benefit the Company and its shareholders. The following table summarizes certain key characteristics of
the Company’s business and the associated attributes that have been identified as important to be represented on the Board.
Business Characteristics
The Company’s business is multifaceted and involves complex
financial transactions.
Qualifications, Attributes, Skills & Experience
• High level of financial literacy
• Relevant CEO, CFO, or treasury
The Company’s business requires compliance with a variety of
regulatory requirements across a number of countries and
relationships with various entities and non-governmental
organizations.
The Company’s TASER product lines utilize Neuro-Muscular
Incapacitation from electrical currents as the method to disable a
resisting suspect, which inherently involves medical and scientific
testing.
The Company’s primary markets are law enforcement, military and
corrections agencies.
The Company’s business includes the innovative fields of cloud
computing, software as a service, wearable technology, and other
emerging technologies such as artificial intelligence, all of which
involve different points of view and perspectives from its traditional
TASER background.
The Board’s responsibilities include understanding and overseeing
the various risks facing the Company and ensuring that appropriate
policies and procedures are in place to effectively manage risk.
Director Nominees in 2020
experience
• Certified Public Accountant,
Certified Financial Analyst
• Governmental, legal or political
experience
• Medical and/or scientific experience
• Law enforcement experience
• Military experience
• Emerging technologies experience
• Risk oversight
• Management expertise
Vice Admiral (Retired) Richard H. Carmona M.D., M.P.H., F.A.C.S.
Director since 2007
Class C
Age: 71
Board Committees: NCG Committee (Chair), Litigation Committee, Scientific and Medical Committee
Other Public Company Boards: The Clorox Company, The Herbalife Company
Dr. Carmona was sworn in as the 17th Surgeon General of the United States on August 5, 2002 and served the statutory
four year term. Prior to being named United States Surgeon General, Dr. Carmona was the chairman of the State of Arizona
Southern Regional Emergency Medical System, a professor of surgery, public health and family and community medicine
at the University of Arizona, and the Pima County Sheriff’s Department surgeon and deputy sheriff. He is currently
employed as Chief of Health Innovation of Canyon Ranch Health in Tucson, Arizona and has held that position since
October 1, 2006. Dr. Carmona attended Bronx Community College of the City University of New York where he earned
his associate of arts degree. Dr. Carmona holds a B.S. degree and medical degree from the University of California, San
Francisco. He has also earned a Master’s Degree in Public Health from the University of Arizona.
Axon Enterprise, Inc. | 2020 Proxy Statement | 8
Specific Qualifications, Attributes, Skills and Experience:
Relevant Political Background
Risk Oversight & Management
High Level of Financial
Literacy
As Chief of Heath Innovation at Canyon Ranch, CEO of Canyon Ranch
Health, and as a member of other public company boards, Dr. Carmona is able
to contribute to the oversight of the Company’s financial matters.
Service on the Clorox Company and the Herbalife Company boards of
directors provides valuable insight into public company corporate governance
matters.
Service as the former Surgeon General of the U.S. provides a unique insight
into political matters.
Service as the Surgeon General of the U.S. as well as an extensive career in
emergency medical services, provides Dr. Carmona with a deep understanding
of health, safety and medicine.
Law Enforcement/Military Experience Dr. Carmona is a combat decorated and disabled U.S. Army Special Forces
Veteran and a highly decorated police officer, giving him unusual insight into
our diverse customer base.
Medical and Scientific Expertise
Julie Cullivan
Director since 2017
Class C
Age: 55
Board Committees: Audit Committee, Information Security Committee (Chair)
Other Public Company Boards: None.
Most recently, Ms. Cullivan was the Chief Technology and People Officer at Forescout Technologies, Inc., reporting to
the CEO, where she was responsible for leading the company’s business model transformation, information technology
strategy, security risk and compliance program, customer production operations, and human resources. She joined in
July 2017 and helped Forescout scale from a private company with $160 million in revenue, through its successful initial
public offering, to a publicly traded company with revenues of $330 million and $1.5 billion valuation. In addition to
focusing on scale, Ms. Cullivan led the operational transformation from an appliance and license software business to a
cloud subscription business. Forescout was acquired by Advent International, a private equity firm, in 2020. Ms. Cullivan
left Forescout in January 2021. Prior to Forescout, Ms. Cullivan held executive roles at FireEye Inc., Autodesk, Inc.,
McAfee Corp, EMC Corporation, and Oracle Corporation.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management
Ms. Cullivan is a recognized leader in the cyber security field and a sought-after
speaker on topics including women in security, security as a boardroom imperative,
innovation and building high impact teams.
Experience as SVP, Business Operations, Chief People Officer and Chief
Information Officer where Ms. Cullivan led cross functional initiatives and
information security strategy in a high-growth environment.
Axon Enterprise, Inc. | 2020 Proxy Statement | 9
Caitlin Kalinowski
Director since 2019
Class C
Age: 40
Board Committees: Information Security Committee, Technology Committee (Chair)
Other Public Company Boards: None
Caitlin Kalinowski leads VR hardware for Facebook’s AR/VR division. Her team is responsible for the product design,
electrical and mechanical engineering of the Oculus Quest 1 and 2, Oculus Go, Oculus Rift S and Touch controllers. Before
working at Facebook, Caitlin was a technical lead at Apple on the Mac Pro and MacBook Air products, and was part of
the original unibody MacBook Pro team. Ms. Kalinowski is also on the strategic board of Lesbians Who Tech & Allies,
the largest LGBTQ technical organization in the world. Ms. Kalinowski holds a B.S. in Mechanical Engineering from
Stanford University. Ms. Kalinowski was recommended for nomination to the Board by a former non-management
director.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Ms. Kalinowski has extensive experience in established technology organizations
such as Facebook and Apple. Ms. Kalinowski led technical teams at Apple and
currently heads Oculus VR at Facebook. She has tremendous insight into product
design and engineering for technology focused initiatives.
Incumbent Directors in 2020
Mark Kroll, Ph.D.
Director since 2003
Class B
Age: 68
Board Committees: Litigation Committee (Chair), Scientific and Medical Committee (Chair)
Other Public Company Boards: Haemonetics Corporation
Dr. Kroll retired in July 2005 from St. Jude Medical, Inc., where he held various executive level positions since 1995,
most recently as Senior Vice President and Chief Technology Officer, Cardiac Rhythm Management Division. Dr. Kroll
holds a B.S. degree in Mathematics and a M.S. degree and a Ph.D. degree from the Electrical Engineering department of
the University of Minnesota and an M.B.A. degree from the University of St. Thomas. Dr. Kroll is also the named inventor
of over 350 issued U.S. patents and is a Fellow of: American College of Cardiology, Heart Rhythm Society, Institute of
Electronics and Electrical Engineering ("IEEE"), and the American Institute for Medicine and Biology in Engineering
("AIMBE").
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Medical and Scientific
Expertise
Advanced mathematical and scientific education and technology and scientific
accomplishments as recognized by “Fellow” designations from IEEE and AIMBE
provide a strong scientific background that is beneficial to the Company.
Scientific accomplishments as recognized by “Fellow” designations from the
American College of Cardiology and the Heart Rhythm Society provide invaluable
skills and experience to the TASER business.
Risk Oversight & Management Service on Haemonetic Corporation’s board of directors as well as leadership
positions at St. Jude’s Medical, Inc. provides beneficial experience in management
and oversight.
Axon Enterprise, Inc. | 2020 Proxy Statement | 10
Matthew R. McBrady, Ph.D
Director since 2016
Class B
Age: 50
Board Committees: Audit Committee, Compensation Committee, Merger and Acquisition Committee (Chair)
Other Public Company Boards: None
From August 1998 through January 2000, Dr. McBrady served as an international economist with President Clinton’s
Council of Economic Advisers and the U.S. Treasury Department. Dr. McBrady subsequently served as a professor of
finance at the Wharton School of Business at the University of Pennsylvania (from September 2002 through May 2003)
and at the Darden Graduate School of Business Administration at the University of Virginia (from May 2003 through
December 2006). Dr. McBrady then worked as an investment professional within the North American Private Equity
group at Bain Capital, LLC (from January 2007 through January 2009). Dr. McBrady then joined Silver Creek Capital
Management, LLC as Managing Director and Head of Investment Strategy and Risk Management (from January 2009
through January 2014) prior to joining BlackRock, Inc. where he served as Managing Director and Chief Investment
Officer of Multi-Strategy Hedge Funds from January 2014 through September 2016. Dr. McBrady served as the Managing
Director of Investments at the Cystic Fibrosis Foundation from September 2017 to January 2019 and as a Senior Advisor
and co-CIO of Callaway Capital from January 2017 to December 2019, before returning to the Darden Graduate School
of Business Administration as a Professor of Practice in August 2020.
Dr. McBrady holds a B.A. degree in Economics from Harvard University, a M.S. degree in International Economics from
Oxford University (U.K.), and a Masters and Ph.D. degree in Business Economics from Harvard University. Dr. McBrady
previously served as a director for the Company from January 2001 through June 2014.
Specific Qualifications, Attributes, Skills and Experience:
High Level of Financial
Literacy
Relevant Political Background
Service as a member of President Clinton’s Council of Economic Advisory and
teaching positions at the Harvard Business School, the Wharton School of Business
and
the Darden Graduate School of Business Administration providing
Dr. McBrady valuable financial knowledge and context. Service as Chief
Investment Officer for BlackRock and investment strategy and management
positions for other investment management firms.
Service as a member of President Clinton’s Council of Economic Advisors giving
him deep insight into government processes.
Patrick W. Smith, Chief Executive Officer
Director since 1993
Class B
Age: 50
Other Public Company Boards: None
Mr. Smith has served as Chief Executive Officer (“CEO”) and as a director of the Company since 1993. He is also co-
founder of the Company. After graduating from Harvard, cum laude, in just three years (class of 1991), Mr. Smith entered
directly into the Master of Business Administration program at the University of Chicago. In two years, he completed both
a master’s degree in international finance from the University of Leuven in Leuven, Belgium and an M.B.A. degree with
honors at the University of Chicago, graduating in the top 5% of his class. After completing graduate school in the summer
of 1993, he co-founded Axon Enterprise, Inc. (F.K.A. TASER International, Inc.) in September 1993 with his brother,
Thomas P. Smith.
Axon Enterprise, Inc. | 2020 Proxy Statement | 11
Among other qualifications, Mr. Smith is the founder and visionary of the Company and brings to the Board extensive
executive leadership experience in the technology industry, including the management of worldwide operations, sales,
service, and support as well as technology innovation as he currently holds 39 U.S. patents.
Adriane Brown
Director since 2020
Class A
Age: 62
Board Committees: None
Other Public Company Boards: eBay Inc.
Ms. Brown is a Venture Partner at Flying Fish Fund, a venture capital firm, since November 2018, serving as Managing
Partner beginning in 2021. Prior to that, Ms. Brown served as President and Chief Operating Officer for Intellectual
Ventures (“IV”), an invention and investment company that commercializes inventions, from January 2010 through
July 2017, and served as a Senior Advisor until December 2018. Before joining IV, Ms. Brown served as President and
Chief Executive Officer of Honeywell Transportation Systems. Over the course of 10 years at Honeywell, she held
leadership positions serving the aerospace and automotive markets globally. Prior to Honeywell, Ms. Brown spent 19 years
at Corning, Inc., ultimately serving as Vice President and General Manager, Environmental Products Division, having
started her career there as a shift supervisor.
Ms. Brown also serves on the boards of directors of eBay Inc., Washington Research Foundation, the Pacific Science
Center and Jobs for America’s Graduates. Ms. Brown also served on the boards of directors of Allergan Plc and Raytheon
Company until 2020, and Harman International Industries from 2013 to 2017.
Ms. Brown holds a Doctorate of Humane Letters and a bachelor’s degree in environmental health from Old Dominion
University, and is a winner of its Distinguished Alumni Award. She also holds a master’s degree in management from the
Massachusetts Institute of Technology where she was a Sloan Fellow.
Specific Qualifications, Attributes, Skills and Experience:
High Level of Financial
Literacy
Risk Oversight & Management
Technology Expertise
Michael Garnreiter, Chairman
President and Chief Operating Officer for IV from January 2010 to July 2017, and
President and Chief Executive Officer of Honeywell Transportation Systems from
January 2005 to June 2009.
Board Experience for Harman, Allergan plc, eBay Inc., and Raytheon Company
gives extensive experience relating to public company corporate governance
matters.
Brown is a Managing Partner and member of the Investment Committee at Flying
Fish Partners. The fund invests in and supports start-ups utilizing artificial
intelligence and machine learning to transform processes in a variety of
market verticals. Over the course of her career, Brown has engaged in business and
technology transformations across a number of businesses and markets.
Director since 2006
Class A
Age: 69
Board Committees: Audit Committee (Chair), Compensation Committee, NCG Committee, Litigation Committee
Other Public Company Boards: Knight-Swift Transportation Holdings, Amtech Systems
Mr. Garnreiter most recently served as Vice President of Finance and Treasurer of Shamrock Foods, a privately-held
manufacturer and distributor of foods and food-related products. He retired from this position in December 2015. From
Axon Enterprise, Inc. | 2020 Proxy Statement | 12
January 2010 until August 2012, Mr. Garnreiter was a managing director of Fenix Financial Forensics, a Phoenix-based
litigation and financial consulting firm. From April 2002 through June 2006, Mr. Garnreiter was Executive Vice President,
Treasurer, and Chief Financial Officer of the Main Street Restaurant Group. Mr. Garnreiter previously served with the
international accounting firm, Arthur Andersen, from 1974 through March 2002 with increasing levels of responsibility,
culminating as a partner. Mr. Garnreiter holds a B.S. degree in accounting from California State University at Long Beach
and is a Certified Public Accountant.
Specific Qualifications, Attributes, Skills and Experience:
High Level of Financial
Literacy
Risk Oversight & Management
Certified Public Accountant and former partner at Arthur Andersen. Served on the
audit committee for each board he has served in the past.
Board Experience for Knight-Swift Transportation Holdings, Amtech Systems, IA
Global Inc., and Fenix Financial Forensics gives extensive experience relating to
public company corporate governance matters.
Hadi Partovi
Director since 2010
Class A
Age: 48
Board Committees: Compensation Committee (Chair), NCG Committee, Merger and Acquisition Committee,
Technology Committee
Other Public Company Boards: None
Mr. Partovi is the CEO and co-founder of the non-profit education organization Code.org, and serves as a Director on the
board of Convoy. Mr. Partovi is a past or present strategic advisor or early investor at numerous technology companies,
including Facebook, Dropbox, Uber, airbnb, SpaceX, and Zappos. From 2009 through 2010, Mr. Partovi was Senior Vice
President of Technology for MySpace (via acquisition) and from 2006 through 2009 he was President and Co-Founder of
ILIKE, Inc. which was acquired by MySpace in 2009. From 2002 through 2005, Mr. Partovi was General Manager,
Microsoft MSN Entertainment and MSN.com and from 1999 through 2001, he was Co-Founder and VP of Product and
Professional Services for TELLME Networks, Inc. From 1994 through 1999, he was Program Manager for Microsoft
Internet Explorer. Mr. Partovi holds B.A. and M.S. degrees in Computer Science, summa cum laude, from Harvard
University.
Specific Qualifications, Attributes, Skills and Experience:
Technology Expertise
Risk Oversight & Management
Experience as an investor in technology companies provides Mr. Partovi with
invaluable insight into software and Internet-related business development
initiatives.
Experience as an advisor to multiple start-up companies provides Mr. Partovi
experience in the unique challenges facing companies pursuing new technology.
Axon Enterprise, Inc. | 2020 Proxy Statement | 13
Role of the Board of Directors
BOARD AND COMMITTEE GOVERNANCE
The principal duties of the Board of Directors are to oversee management and evaluate strategy. The fundamental
responsibility of the directors is to exercise their business judgment to act in what they reasonably believe to be the best
interest of the Company and its shareholders. Our governance structure is designed to foster disciplined actions, effective
decision-making, and appropriate oversight of both compliance and performance.
Axon’s key governance documents,
at http://investor.axon.com/governance/documents-and-charters.
including our Corporate Governance Guidelines,
are
available
Board Leadership Structure
The Company’s governance documents provide the Board with flexibility to select the appropriate leadership structure for
the Company. In making leadership structure determinations, the Board considers many factors, including the specific
needs of the business and what is in the best interests of the Company’s shareholders. The current leadership structure is
anchored by a non-management director as Chairman of the Board. The Board believes this structure provides a very well-
functioning and effective balance between strong Company leadership and appropriate safeguards and oversight by
independent directors.
• Chairman of the Board: Michael Garnreiter
• Chief Executive Officer: Patrick W. Smith
The principal role of the Chairman of the Board is to manage and to provide leadership to the Board of Directors of the
Company. The Chairman is accountable to the Board and acts as a direct liaison between the Board and the management
of the Company, through the CEO. The Chairman acts as the communicator for Board decisions where appropriate. The
separation of the role of the Chairman from that of the CEO is based on the Board’s view that the Chairman should be free
from any interest and any business or other relationship that could interfere with the Chairman’s judgment, other than
interests resulting from Company shareholdings and remuneration.
The Board conducts an annual evaluation of the performance of the Board and each of its standing committees, including
peer assessments of each individual director.
Meetings of the Board of Directors
During the year ended December 31, 2020, the Board held four meetings. During 2020, each director attended at least 75%
of all regular Board and applicable committee meetings.
Axon Enterprise, Inc. | 2020 Proxy Statement | 14
Committees of the Board of Directors
The following table summarizes the current membership of our standing non-management Board committees, and
identifies the chairman of each committee and the number of committee meetings held in fiscal 2020:
Merger and
Scientific
and
Information
NCG
Litigation Acquisition Medical Technology
Security
Compensation
Audit
Committee
5
Committee Committee Committee Committee Committee Committee Committee
3
—
—
1
1
1
1
X
*
X
X
X
*
X
X
*
*
X
X
*
X
X
*
*
X
*
X
# Meetings
Director
Richard Carmona
Julie Cullivan
Michael Garnreiter
Caitlin Kalinowski
Mark Kroll
Matthew McBrady
Hadi Partovi
X = Member
* = Chair
The Audit Committee, established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), exercises sole authority with respect to the selection of the Company’s independent
registered public accounting firm and the terms of its engagement; reviews the policies and procedures of the Company
and management with respect to maintaining the Company’s books and records; reviews with the independent registered
public accounting firm, upon the completion of its audit, the results of the auditing engagement and any other
recommendations the independent registered public accounting firm may have with respect to the Company’s financial,
accounting or auditing systems; and reviews with the independent registered public accounting firm, upon the completion
of its quarterly review of the Company’s financial statements, the results of the quarterly review and any other
recommendations the independent registered public accounting firm may have in connection with such quarterly reviews.
The Report of the Audit Committee for the year ended December 31, 2020 is included in this proxy statement.
The Compensation Committee determines salaries, stock and bonus awards and considers employment agreements for
appointed officers of the Company; considers and reviews grants of options and other equity awards under the Company’s
compensations plans and administers such plans; and considers matters of director compensation, benefits and other forms
of remuneration. The Compensation Committee Report for the year ended December 31, 2020 is included in this proxy
statement. See “Compensation Discussion and Analysis” for more information regarding the Compensation Committee.
The NCG Committee is charged with identifying qualified candidates for nomination for election to the Board and
nominating such candidates for election; and reviewing and making recommendation to the Board concerning the
composition and size of the Board and its committees. The Committee also monitors the process to assess the Board’s
effectiveness and is primarily responsible for oversight of corporate governance, and developing and updating our
Corporate Governance Principles.
The Litigation Committee is responsible for reviewing and approving the settlement of certain litigation matters against
the Company or its officers and directors to ensure the settlement is fair, reasonable and in the best interests of the
Company’s shareholders. No member of the Litigation Committee was a named party in any pending litigation involving
the Company.
The Merger and Acquisition Committee serves to focus on issues related to any proposed merger, acquisition, or other
strategic investment activity or plans identified by the Company’s management.
Axon Enterprise, Inc. | 2020 Proxy Statement | 15
The Scientific and Medical Committee aims to create board linkage with the Company’s Scientific and Medical Advisory
Board which provides important feedback directly to the Company’s management about scientific, medical and
electrophysiology issues related to the Company’s TASER products.
The Technology Committee was established to stay abreast of new technology and the impact of new technology on the
Company’s products and strategy.
The Information Security Committee was established to ensure that members of the Board of Directors actively understand
information security protections and associated risks. The Information Security Committee engages in key decisions to
help set the direction for the Company’s information security strategy, as well as understand and prioritize information
security capabilities and associated risk remediation.
The Audit Committee, Compensation Committee, NCG Committee, and Litigation Committee have each adopted charters
that govern their respective authority, responsibilities and operation. The charters of these committees are available on our
website at http://investor.axon.com/governance/documents-and-charters.
Effective January 1, 2021, committee composition and membership was revised as follows:
Audit
Committee
Compensation
Committee Committee Committee Committee
Security
Scientific Enterprise
NCG
Merger and
Risk and
Acquisition Medical Information
and
Director
Adriane Brown
Richard Carmona
Julie Cullivan
Michael Garnreiter
Caitlin Kalinowski
Mark Kroll
Matthew McBrady
Hadi Partovi
X = Member
* = Chair
X
*
X
X
X
X
X
*
X
*
X
X
X
X
X
*
X
X
*
*
X
X
X
Audit Committee Financial Experts
The Board of Directors determined that Mr. Garnreiter and Dr. McBrady, independent directors of the Company, are audit
committee financial experts within the meaning of that term under applicable rules promulgated by the SEC. Information
about the past business and educational experience of Mr. Garnreiter and Dr. McBrady are included in this proxy statement
under the heading “Governance--The Board of Directors.” The Board has also determined that each current member of the
Audit Committee is financially literate and that Mr. Garnreiter and Dr. McBrady satisfy the financial sophistication
requirements under the current listing standards of NASDAQ.
Director Independence
As of the date of this proxy statement, based upon the information submitted by each of its directors, the Board has made
a determination that a majority of our current Board is independent as that term is defined by NASDAQ listing standards
and that all of the members of our Board committees also meet any additional specific independence standards applicable
to any committee on which such director serves, including the more stringent audit committee and compensation
committee independence committee criteria. The Company has determined that all Board members, other than Patrick W.
Smith, are independent under applicable NASDAQ and SEC rules. Each of our directors other than Mr. Smith is also a
“non-employee director” (within the meaning of Rule 16b-3 under the Exchange Act) and an “outside director” within the
meaning of Section 162(m) of the Internal Revenue Code and related Treasury Regulations.
Axon Enterprise, Inc. | 2020 Proxy Statement | 16
In making its independence determinations, the Board considered that Mark Kroll, Ph.D., provides consulting services for
the Company. The expenses related to these services, excluding travel reimbursements, were less than $0.1 million for the
year ended December 31, 2020. At December 31, 2020, the Company had no accrued liabilities relating to these
services. The Board determined that these consulting services did not impair Mr. Kroll’s independence because the
amount of the fees are not material to Dr. Kroll or the Company and they represent a significant reduction from his standard
fees.
Patrick W. Smith is not independent because he is an executive officer of the Company.
Board of Directors’ Role in Risk Oversight
The Company’s risk management process is intended to ensure that risks are taken knowingly and purposefully. As such,
the Company’s executive management keeps the Board apprised by presenting results of the process to identify, assess,
prioritize and address strategic, financial, operating, business, compliance, litigation, regulatory, safety, reputational,
cybersecurity and other risks to the Company. Executive management meets with the Board on a quarterly basis to address
high priority risks and on an as-needed basis to evaluate and monitor emerging risks.
Code of Ethics
The Company has adopted a Code of Business Conduct and Ethics (“Code of Ethics”) which is applicable to all employees,
directors and consultants of the Company. A copy of the Company’s Code of Ethics is published and available on the
investors portion of Company’s website at http://investor.axon.com/governance/documents-and-charters. The Company
intends to disclose any future amendments or waivers to the Code of Ethics on the Company’s website within four
business days following the date of such amendment or waiver, unless required by NASDAQ rules to disclose such event
on Form 8-K.
Director Attendance at Annual Meetings of Shareholders
Directors are encouraged by the Company to attend each annual meeting of shareholders if their schedules permit. All of
our directors attended the 2020 Annual Meeting of Shareholders with the exception of Adriane Brown, who was not yet
appointed to the Board at that time.
Shareholder Communications with Directors
Shareholders may communicate with members of the Board by mail addressed to the Chairman, or any other individual
member of the Board, to the full Board, or to a particular committee of the Board. In each case, such correspondence
should be sent to the Company’s headquarters at 17800 North 85th Street, Scottsdale, AZ 85255. In general, any
shareholder communication about bona fide issues concerning the Company delivered to the Secretary for forwarding to
the Board or specified members will be forwarded in accordance with the shareholder’s instructions.
DIRECTOR COMPENSATION
Members of the Board who are employees of the Company are not separately compensated for serving on the Board. Board
compensation is reviewed periodically by the Company’s Compensation Committee. In March of 2017, the Company
retained Compensia Inc. ("Compensia") to assist the Compensation Committee with reviewing peer group data and
updating the Company’s Board compensation program. As a result of this analysis, the Compensation Committee approved
updated compensation plans bringing the Company’s total Board compensation levels in line with the median level of its
peer group. Non-employee directors of the Company are paid $9,000 per quarter and are eligible to receive annual grants
of restricted stock units (“RSUs”) of the Company’s stock with a grant date fair value equal to approximately $160,000
vesting in equal annual installments over three years. New Board members are eligible to receive an initial grant of RSUs
with a grant date fair value equal to approximately $160,000 in their first year of service vesting in equal annual
installments over three years. The Chairman of the Board receives an additional (i) $5,000 in cash per quarter and (ii) an
annual grant of RSUs with a grant date fair value equal to $20,000 vesting over one year. Board members that provide any
special Board advisory consultations in their official capacity as a Board member (other than Board and committee
Axon Enterprise, Inc. | 2020 Proxy Statement | 17
meetings) are paid compensation at the rate of $2,500 per day or $1,250 per half day, with no pay for travel days. All
directors are reimbursed for reasonable expenses incurred in connection with their attendance at meetings.
In addition, board members serving on committees in either the chair or member capacity receive fees as summarized in
the following table:
Committee
Audit
Compensation
NCG
Litigation
Merger and Acquisition
Science and Medical
Technology
Information Security Committee
Quarterly Chair Quarterly Member
Fee
Fee
$
5,000 $
2,500
2,250
1,500
2,500
6,000
2,500
2,500
2,500
1,500
1,250
750
1,500
2,500
1,500
1,500
The annual RSU awards are typically granted on the date of the Company’s annual shareholder’s meeting. Directors have
the option of deferring all or a portion of their cash compensation into a non-qualified deferred compensation plan.
Effective January 1, 2021, non-employee directors of the Company are paid $10,000 per quarter and are eligible to receive
annual RSU grants with a grant date fair value equal to approximately $200,000 vesting in equal annual installments over
three years. New Board members are eligible to receive an initial grant of RSUs with a grant date fair value equal to
approximately $200,000 in their first year of service vesting in equal annual installments over three years.
The following table summarizes the compensation paid to non-employee directors for the fiscal year ended December 31,
2020.
Fees Earned or
All Other
Name
Adriane M. Brown
Richard H. Carmona
Julie Cullivan
Michael Garnreiter (3)
Caitlin E. Kalinowski
Mark W. Kroll (4)
Matthew McBrady
Hadi Partovi
$
Paid in Cash Stock Awards Compensation
($) (1)
($) (2)
($)
21,000 $ 160,024 $
58,000
56,000
90,000
52,000
66,000
62,000
63,000
160,048
160,048
180,101
160,048
160,048
160,048
160,048
Total ($)
— $ 181,024
218,048
—
216,048
—
270,101
—
212,048
—
316,248
90,200
222,048
—
223,048
—
(1) Amounts in this column represent the aggregate grant date fair value of RSUs, computed in accordance with
stock-based compensation accounting rules (ASC Topic 718). The fair value of each RSU is the closing price of
our common stock on the date of grant. Each non-employee director, with the exception of Ms. Brown, received
an award of 2,107 RSUs on May 29, 2020. The awards vest in three equal installments on May 29, 2021, 2022
and 2023. Ms. Brown received an award of 1,783 RSUs on June 1, 2020, which vests in three equal installments
on June 1, 2021, 2022, and 2023. Pursuant to SEC regulations, the amounts shown exclude the impact of
estimated forfeitures related to service-based vesting conditions. The assumptions used in the calculations of the
grant date fair value for stock awards are included in Note 1 to our Consolidated Financial Statements contained
in our Annual Report on Form 10-K for fiscal 2020.
Axon Enterprise, Inc. | 2020 Proxy Statement | 18
The following table shows the aggregate number of outstanding RSUs outstanding as of December 31, 2020.
Name
Adriane M. Brown
Richard H. Carmona
Julie Cullivan
Michael Garnreiter
Caitlin E. Kalinowski
Mark W. Kroll
Matthew McBrady
Hadi Partovi
As of December 31, 2020
Aggregate
Restricted Stock
Units Outstanding
1,783
4,563
4,563
4,827
3,857
4,563
4,563
4,563
(2) Other compensation for Dr. Kroll represents fees for consulting services provided.
(3) Pursuant to his service as Chairman of the Board, on May 29, 2020, Mr. Garnreiter received a grant of 264 shares
which vest one year from the award date.
(4) Non-employee directors have the option of participating in the non-qualified deferred compensation plan through
which participants may elect to postpone the receipt and taxation of a portion of their compensation. All gains or
losses are allocated fully to plan participants and the Company does not guarantee a rate of return on deferred
balances. The Company does not make discretionary payments to the plan. There were no above-market returns
for participants in the plan. Dr. Kroll participates in the Company’s deferred compensation plan and elected to
defer $66,000 of earned compensation into the plan during the year ended December 31, 2020.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company reviews all relationships and transactions in which we and our directors, director nominees, executive
officers or their immediate family members are participants, to determine whether such persons have a direct or indirect
material interest. Management is primarily responsible for the development and implementation of processes and controls
to obtain information from the directors and executive officers with respect to related party transactions and for then
determining, based on the facts and circumstances, whether the Company or a related party has a direct or indirect material
interest in the transaction. As required under SEC rules, transactions that are determined to be directly or indirectly material
to us or a related party are disclosed in our proxy statement.
The Company has a written related party policy which is included within the Audit Committee Charter, wherein the Audit
Committee reviews, approves, or ratifies related party transactions in accordance with NASDAQ rules. All proposed
transactions in excess of $120,000 between the Company and its directors, officers, five-percent stockholders and their
affiliates should be entered into or approved only if such transactions are on terms no less favorable to the Company than
it could obtain from unaffiliated parties, are reasonably expected to benefit the Company and are disclosed to the Audit
Committee. The Audit Committee is authorized to consult with independent legal counsel at the Company’s expense in
determining whether to approve any such transaction.
SHARE OWNERSHIP
OWNERSHIP OF EQUITY SECURITIES OF THE COMPANY
The following table sets forth information, as of March 30, 2021, with respect to beneficial ownership of the Company’s
common stock by each current director or nominee for director, by each of our named executive officers (as defined by
Item 402(a)(3) of Regulation S-K)(the “NEOs”), by all directors and executive officers as a group, and by each person
who is known to the Company to be the beneficial owner of more than five percent of the Company’s outstanding common
Axon Enterprise, Inc. | 2020 Proxy Statement | 19
stock. The Company believes that, except as otherwise described below, each named beneficial owner has sole voting and
investment power with respect to the shares listed.
Name of Beneficial Owner (1)
BlackRock, Inc. (4)
The Vanguard Group (5)
Baillie Gifford & Co (6)
Patrick W. Smith
Hadi Partovi
Michael Garnreiter
Richard H. Carmona
Mark W. Kroll
Julie Cullivan
Caitlin Kalinowski
Matthew R. McBrady
Adriane Brown
Jawad A. Ahsan (7)
Luke S. Larson
Joshua M. Isner
Jeffrey C. Kunins
Shares
Acquirable
Within 60
Total
Beneficial
Percent of
Shares Owned Days (2) Ownership Class (3)
9.4 %
8.7
6.7
— 6,109,343
— 5,656,053
— 4,329,299
6,109,343
5,656,053
4,329,299
438,780
288,130
24,823
13,165
13,044
2,996
875
834
—
530,488
702
966
702
702
702
702
702
—
86,362
28,536
26,883
22,900
11,111
—
—
—
969,268
288,832
25,789
13,867
13,746
3,698
1,577
1,536
—
97,473
28,536
26,883
22,900
1.5
*
*
*
*
*
*
*
*
*
*
*
*
All directors and executive officers as a group (13 persons)
947,328 546,777 1,494,105
2.3 %
* Less than 1%
(1) Except as noted in Notes 4, 5, 6, and 7 below, the address of each of the persons listed is c/o Axon Enterprise, Inc.,
17800 North 85th Street, Scottsdale, AZ 85255.
(2) Reflects the number of shares that could be purchased by exercise of options exercisable at March 31, 2021, or
options or restricted stock units vesting within 60 days thereafter under the Company’s stock incentive plans.
(3) Based on 64,673,091 shares outstanding as of March 30, 2021. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above, any security which such person or
group has the right to acquire within 60 days of March 30, 2021, is deemed to be outstanding for the purpose of
computing the percentage ownership of such person or group, but is not deemed to be outstanding for the purpose
of computing the percentage ownership of any other person or group.
(4) Represents shares of the Company’s common stock beneficially owned as of December 31, 2020, based on the
Schedule 13G/A filed on January 29, 2021 by BlackRock, Inc. In such filing, BlackRock, Inc. lists its address as
55 East 52nd Street, New York, New York 10055, and indicates it has sole voting power with respect to 5,899,632
shares of the Company’s common stock, shared voting power with respect to no shares of the Company’s common
stock, sole dispositive power with respect to 6,109,343 shares of the Company’s common stock, and shared
dispositive power with respect to no shares of the Company’s common stock.
(5) Represents shares of the Company’s common stock beneficially owned as of December 31, 2020, based on the
Schedule 13G/A filed on February 10, 2021 by The Vanguard Group. In such filing, The Vanguard Group lists
its address as 100 Vanguard Blvd., Malvern, PA 19355, and indicates it has sole voting power with respect to no
shares of the Company’s common stock, shared voting power with respect to 49,558 shares of the Company’s
common stock, sole dispositive power with respect to 5,555,157 shares of the Company’s common stock, and
shared dispositive power with respect to 100,896 shares of the Company’s common stock.
Axon Enterprise, Inc. | 2020 Proxy Statement | 20
(6) Represents shares of the Company’s common stock beneficially owned as of December 31, 2020, based on the
Schedule 13G/A filed on January 20, 2021 by Baillie Gifford & Co. In such filing, Baillie Gifford & Co lists its
address as Calton Square, 1 Greenside Row, Edinburgh EH1 3AN, Scotland, United Kingdom, and indicates it
has sole voting power with respect to 3,798,953 shares of the Company’s common stock, shared voting power
with respect to no shares of the Company’s common stock, sole dispositive power with respect to 4,329,299
shares of the Company’s common stock, and shared dispositive power with respect to no shares of the Company’s
common stock.
(7)
Includes 56,679 vested shares pledged to a financial institution.
DELINQUENT SECTION 16(a) REPORTS
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially
own more than 10 percent of a registered class of the Company’s equity securities, to file reports of ownership and changes
in ownership with the SEC. Executive officers, directors and greater than 10 percent beneficial owners are required by
SEC regulations to furnish the Company with copies of all forms they file pursuant to Section 16(a). Based solely on a
review of the copies of Section 16(a) reports furnished to the Company and written representations from certain reporting
persons that no other reports were required, to the Company’s knowledge, such persons complied with all of the
Section 16(a) filing requirements applicable to them in 2020, except as follows: Michael Garnreiter and Matthew R.
McBrady each filed one late Form 4 (each reporting one transaction).
Axon Enterprise, Inc. | 2020 Proxy Statement | 21
EXECUTIVE COMPENSATION
EXECUTIVE OFFICERS
See “Governance--The Board of Directors” for biographical information for Patrick W. Smith, who is also our CEO.
Luke S. Larson
Title: President
Joined Axon in 2008
Age: 39
Mr. Larson serves as Axon’s President. Mr. Larson is responsible for day to day operations and execution for all aspects
of the Company’s business. Mr. Larson joined Axon in June of 2008 and has served in a variety of executive and
management roles including director of video products, product manager and product development manager. Prior to
joining Axon, Mr. Larson served as a Marine Corps infantry officer. Mr. Larson graduated from University of Arizona
with honors where he was an NROTC Scholarship recipient. He also received an MBA in International Business from
Thunderbird School of Global Management.
Jawad A. Ahsan
Title: Chief Financial Officer
Joined Axon in 2017
Age: 41
Mr. Ahsan joined Axon in 2017 and is responsible for leading the company’s global finance, corporate strategy, legal and
IT organizations, as well as Axon’s consumer-facing business. Prior to Axon, Mr. Ahsan was CFO for Market Track,
private-equity backed SaaS company that he helped guide to an exit to Vista Equity. He spent 13 years in various roles at
GE, most notably serving as CFO for GE Healthcare’s electronic health record and enterprise software solutions.
Mr. Ahsan gained substantial international experience while at GE, working across more than 20 countries in several
industries including healthcare, aviation, financial services, and film & entertainment. Mr. Ahsan is a graduate of GE’s
Corporate Audit Staff and Financial Management leadership development programs. He earned his MBA from the MIT
Sloan School of Management and a BA in Economics from the College of the Holy Cross.
Joshua M. Isner
Title: Chief Revenue Officer
Joined Axon in 2009
Age: 35
Mr. Isner came to Axon in 2009 as a member of our Leadership Development Program. After rotating through several
departments in the Company, he eventually helmed our domestic video and cloud sales team, which he led to a record year
in 2014. Mr. Isner now oversees our entire sales organization. Mr. Isner was previously the Director of Leadership
Development, Northeast Regional Sales Executive, VP of Video and Cloud Sales, and EVP of Global Sales at Axon.
Mr. Isner has a B.S. in Government & Political Science from Harvard University.
Jeffrey C. Kunins
Title: Chief Product Officer and Executive Vice President of Software
Joined Axon in 2019
Age: 46
Mr. Kunins joined the Company in September 2019. Most recently, he served as Vice President of Alexa Entertainment
at Amazon from February 2018 until joining Axon. Mr. Kunins served as the Vice President of Kindle at Amazon from
Axon Enterprise, Inc. | 2020 Proxy Statement | 22
March 2014 to February 2018. Prior to Amazon, Mr. Kunins served as General Manager (GM) of Product and Design at
Skype, GM of Windows Live Messenger at Microsoft, and VP of Product at TELLME Networks, Inc. Mr. Kunins has a
B.S. in Information & Decision Systems from Carnegie Mellon University.
Each executive officer serves at the discretion of our Board of Directors and no officer is subject to an agreement that
requires the officer to serve the Company for a specified number of years. We have entered into employment-related
agreements with each of the executive officers listed above. These agreements require notice of termination by the
Company in certain situations that are described in further detail in this proxy statement under the heading “Compensation
Discussion and Analysis--Employment Agreements and Other Arrangements.”
Axon Enterprise, Inc. | 2020 Proxy Statement | 23
COMPENSATION DISCUSSION AND ANALYSIS
The purpose of this Compensation Discussion and Analysis is to provide material information about our compensation
objectives and policies and to explain and provide context for the material elements of the disclosure which follows in this
proxy statement with respect to the compensation of our named executive officers (“NEOs”).
Fiscal 2020 Company Highlights and Compensation Overview
Our financial and business highlights for fiscal 2020 include the following:
• Full year revenue of $681 million, up 28% compared to fiscal 2019.
• Follow-on offering in June 2020 raised over $300 million, enabling us to further strengthen our balance sheet.
• We secured our first Dispatch customer, launched our Respond platform, established a solid foothold in the
Federal market, and grew our international revenue by more than 70%.
• We attained the first operational goal under our CEO Performance Award and eXponential Stock Performance
Plan, which are described below.
As described in more detail below and in the compensation tables that follow this Compensation Discussion and Analysis,
our compensation structure applicable to our named executive officers did not change significantly during 2020.
Our Compensation Philosophy
The Compensation Committee (in this section, the “Committee”) is in place to address matters relating to the fair and
competitive compensation of our NEOs and non-employee directors, together with matters relating to our other benefit
plans. The Committee believes that executive compensation should be aligned with the values, objectives and financial
performance of the Company.
Objectives of NEO compensation include:
• Attract and retain highly qualified individuals who are capable of making significant contributions critical to our
long-term success;
• Promote a performance-oriented environment that encourages Company and individual achievement;
• Reward NEOs for long-term strategic management and the enhancement of shareholder value;
• Strengthen the relationship between pay and performance by emphasizing variable, at-risk compensation that is
dependent upon the achievement of specified corporate and personal performance goals; and
• Align long-term management interests with those of shareholders, including long-term at-risk pay.
Our Compensation Programs
CEO Performance Award
On May 24, 2018, Axon’s shareholders approved the Board of Directors’ grant of non-qualified stock options to purchase
6,365,856 shares of common stock to Patrick W. Smith (the "CEO Performance Award"). The CEO Performance Award
consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational goals
(performance conditions) and market capitalization goals (market conditions), assuming continued employment either as
the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Each of the 12
vesting tranches of the CEO Performance Award have a 10-year contractual term and will vest upon certification by the
Board of Directors that both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first
tranche and increases by increments of $1.0 billion thereafter, and (ii) any one of the following eight operational goals
Axon Enterprise, Inc. | 2020 Proxy Statement | 24
focused on revenue or eight operational goals focused on Adjusted EBITDA have been met for the previous four
consecutive fiscal quarters.
Eight Separate Revenue Goals (1)
(in thousands)
Goal #1, $710,058
Goal #2, $860,058
Goal #3, $1,010,058
Goal #4, $1,210,058
Goal #5, $1,410,058
Goal #6, $1,610,058
Goal #7, $1,810,058
Goal #8, $2,010,058
Eight Separate Adjusted EBITDA (CEO Performance Award) Goals
(in thousands)
Goal #9, $125,000
Goal #10, $155,000
Goal #11, $175,000
Goal #12, $190,000
Goal #13, $200,000
Goal #14, $210,000
Goal #15, $220,000
Goal #16, $230,000
(1)
In connection with the business acquisition that was completed during 2018, the revenue goals were adjusted for the
acquiree’s Target Revenue, as defined in the CEO Performance Award agreement.
As of December 31, 2020, the following operational goals were achieved, with vesting of the related tranche approved by
the Committee in March 2021:
• Adjusted EBITDA (CEO Performance Award) of $125.0 million.
As of December 31, 2020, the following operational goals were considered probable of achievement:
• Total revenue of $710.1 million, $860.1 million, and $1,010.1 million; and
• Adjusted EBITDA (CEO Performance Award) of $155.0 million, $175.0 million, $190.0 million, $200.0 million,
$210.0 million, $220.0 million, and $230.0 million.
The first four market capitalization goals have been achieved as of December 31, 2020, and the fifth and sixth market
capitalization goals were achieved in January and February 2021, respectively. However, none of the shares subject to the
CEO Performance Award had vested as of December 31, 2020 as attainment of the first tranche was not certified by the
Committee until March 2021, and none of the other operational goals have been achieved. The number of stock options
that vested in March 2021 related to the achieved tranche is approximately 0.5 million shares. The number of stock options
that would vest related to the remaining ten probable tranches is approximately 5.3 million shares.
The total grant date fair value of the CEO Performance Award, including those tranches not considered probable of
attainment as of December 31, 2020, was approximately $246.0 million. The fair value of the options when the CEO
Performance Award was approved by our Board and accepted by Mr. Smith in February 2018 was approximately $72.4
million. Due to a significant increase in the price of Axon’s common stock between February 2018 and May 2018, when
our shareholders approved the CEO Performance Award, the grant date fair value for accounting purposes increased to the
amount disclosed in the Summary Compensation Table for 2018.
Mr. Smith’s compensation for 2020 and 2019 consists of an annual base salary consistent with minimum wage
requirements and the CEO Performance Award.
eXponential Stock Performance Plan
On February 12, 2019, our shareholders approved the 2019 Stock Incentive Plan (the "2019 Plan"), which was adopted by
the Board of Directors to reserve a sufficient number of shares to facilitate our eXponential Stock Performance Plan
Axon Enterprise, Inc. | 2020 Proxy Statement | 25
(“XSPP”) and grants of eXponential Stock Units ("XSUs") under the plan. There were five main reasons why the Board
recommended that shareholders approve the 2019 Plan. The XSPP and equity incentive awards under the 2019 Plan:
1. Substitute short-term guaranteed share-based compensation and cash compensation for long-term, performance-
vesting share-based compensation to deliver market competitive total pay,
2. Align the entire Company around clearly defined market cap, revenue and Adjusted EBITDA performance goals
through a broad-based plan that is offered to every employee,
3. Strengthen Axon’s ability to retain and recruit top technical talent,
4. Further align the interests of employees with those of the Company’s other shareholders, and
5.
Incorporated shareholder feedback and input on plan design.
Pursuant to the XSPP, all eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain
employees had the opportunity to elect to receive a percentage of the value of their target compensation over a nine year
period from 2019 to 2027 in the form of additional XSUs. For employees who elected to receive XSUs, the XSU grants
were made as an up front, lump sum grant in January 2019, and are intended to replace that portion of the target
compensation they elected to receive in the form of XSUs for the next nine years. Accordingly, their annual go forward
target compensation will be reduced until 2027 by the amount of such compensation that the employees elected to receive
in the form of the January 2019 XSU grants.
Other than Mr. Smith, each of the NEOs received an XSU grant with a target value of $1,000,000 prior to a 3x risk
multiplier and a 9x time multiplier. The number of shares granted was based on the closing stock price on the respective
grant dates. Messrs. Ahsan, Isner, and Larson each received an XSU grant of 598,537 shares on January 2, 2019.
Mr. Kunins received an XSU grant of 432,000 shares on September 23, 2019. There were no performance share units
(“PSUs”) granted to the named executive officers for fiscal 2019 or 2020 as XSUs are intended to generally replace shorter-
term PSUs.
The market capitalization and operational goals are identical to the CEO Performance Award, except for the number of
shares that are used to calculate the market capitalization goals if shares outstanding exceed the XSU Maximum (defined
below). Additionally, because the grant date is different than that of the CEO Performance Award, the measurement period
for market capitalization is not identical.
The XSUs are grants of restricted stock units, each with a term of approximately nine years, that vest in 12 equal tranches.
Each of the 12 tranches will vest upon certification by the Committee of the Board of Directors that both (i) the market
capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0
billion thereafter, and (ii) any one of eight operational goals focused on revenue or eight operational goals focused on
Adjusted EBITDA have been met for the previous four consecutive fiscal quarters.
The XSPP contains an anti-dilution provision incorporated into the plan based on shareholder feedback, which affects the
calculation of the market capitalization goals in the plan. The plan defines a maximum number of shares outstanding that
may be used in the calculation of the market capitalization goals (the “XSU Maximum”). If the actual number of shares
outstanding exceeds the XSU Maximum guardrail, then the lower pre-defined number of shares in the XSU Maximum,
rather than the higher actual number of shares outstanding, is used to calculate market capitalization for the determination
of the market capitalization goals in the XSPP, which, together with the operational goals, determines whether XSUs vest
for participating employees.
The XSU Maximum is defined as the actual number of shares outstanding on the original XSU grant date of January 2,
2019, increased by a 3% annual rate over the term of the XSPP and by shares issued upon the exercise of CEO Performance
Award options. The XSU Maximum is also adjusted for acquisitions, spin-offs or other changes in the number of
outstanding shares of common stock, if such changes have a corresponding adjustment on the market capitalization goals.
Axon Enterprise, Inc. | 2020 Proxy Statement | 26
New shares issued for any other reasons, including shares issued upon vesting of XSUs, RSUs, and PSUs as well as shares
issued to raise capital through equity issuances or in other transactions, do not increase the XSU Maximum.
As of December 31, 2020, actual shares outstanding exceeded the XSU Maximum as a result of the common stock offering
completed in June 2020. Accordingly, market capitalization as calculated for the purposes of achieving additional goals
uses the lower XSU Maximum share amount rather than actual shares outstanding. The first four market capitalization
goals have been achieved as of December 31, 2020, and the fifth and sixth market capitalization goals were achieved in
January and February 2021, respectively. While none of the XSU tranches had vested as of December 31, 2020, the first
operational goal was achieved as of December 31, 2020 and the related tranche vested upon certification from the
Committee in March 2021. The remaining probable operational goals have not yet been achieved as of December 31,
2020.
Axon’s shareholder outreach prior to introducing the XSPP included speaking with portfolio managers, analysts and
corporate governance representatives at institutions that were among the highest percentage holders of Axon common
stock for the purpose of gathering input and understanding best practices and shareholder preferences regarding share-
based compensation plans. Shareholders tended to favor broad-based employee-wide plans over highly concentrated plans
among senior management, and favor using performance-based share-based compensation, rather than cash, in delivering
market-competitive total pay. Axon addressed shareholders’ dilution concerns by adopting into the XSPP the XSU
Maximum described above, which removes any management incentive to dilute the value by increasing the share count to
achieve the market capitalization goals. We credit our shareholder outreach efforts in helping us to design an employee-
wide share-based compensation plan that drives alignment among shareholders, senior management and every employee.
Other Executive Compensation
We utilize various non-cash compensation programs, in addition to traditional cash-based compensation methods.
Specifically, we have utilized stock-based awards.
The principal components of compensation in 2020 and 2021 for our NEOs (other than the CEO) consist of the following:
• Annual salary;
• Annual performance-based cash incentive plans, comprised of:
• Commissions on revenue growth for 2020 and on a combination of revenue growth and new product and
new market bookings growth for 2021 for our Chief Revenue Officer; and
• Payouts under the 2020 annual cash incentive plan based on the achievement of annual operational and
financial goals;
• Long-term equity compensation in the form of service-based RSUs awarded pursuant to the 2019 Stock Incentive
Plan and the 2019 Stock Inducement Plan; and
• Long-term equity compensation in the form of XSUs subject to certain milestone vesting periods.
Any decision to materially increase compensation is based upon the objectives listed above, taking into account all forms
of compensation, as well as based upon individual achievement of performance goals. These goals include revenue and
earnings targets as well as specific operational goals. Decisions regarding the CEO’s compensation are made by the
Committee and reflect the same considerations used for the other NEOs. The Board has not adopted any clawback policies,
but adopted stock ownership guidelines in December 2018.
Axon Enterprise, Inc. | 2020 Proxy Statement | 27
Stock Ownership Guidelines
The stock ownership guidelines require that non-employee directors hold Company stock equivalent to five times the
dollar value of their base cash compensation; for 2021, this equates to $200,000. New non-employee directors have up to
three years to meet this requirement. If a director falls below this requirement, he or she is not allowed to sell shares until
the requirement is met. Named executive officers are required to own at least 50,000 shares of the Company’s stock. For
purposes of these guidelines, stock ownership includes shares for which the executive or director has direct or indirect
ownership or control, including Axon common stock plus vested and unvested Axon stock options and RSUs, including
unvested performance-based RSUs and XSUs. Executives are expected to meet their ownership guidelines once they have
received enough grants to add up to the required minimum.
Policy Regarding Hedging Transactions
The Company’s Insider Trading Policy, which applies to all employees and directors, prohibits hedging and similar
transactions designed to decrease the risks associated with holding Company securities.
Processes and Procedures for Considering and Determining Executive Compensation
The Committee assists the Board of Directors in addressing matters relating to the fair and competitive compensation of
our NEOs and non-employee directors, together with matters relating to our other benefit plans. The Committee is currently
composed of three independent directors: Hadi Partovi (Chair), Matthew McBrady, and Michael Garnreiter. The
Committee makes the sole decision regarding compensation for the Chief Executive Officer and each NEO.
The Committee met one time in 2020. All Committee members were present for the meeting.
Members of management also attended the meeting. The agendas for these meetings were determined by the Committee
members prior to the meetings. The Committee generally receives and reviews materials in advance of each meeting.
Depending on the agenda for the particular meeting, materials may include:
• Financial reports;
• Reports on levels of achievement of corporate performance objectives;
• Schedules setting forth the total compensation of the NEOs, including base salary, cash incentives, equity awards,
perquisites and other compensation and any potential amounts payable to the NEOs pursuant to employment,
severance and change of control agreements;
• Summaries which show the NEOs’ total accumulated stock awards and stock option holdings;
•
Information regarding compensation paid by comparable companies identified in executive compensation
surveys; and
• Reports from consultants to the Committee.
The Committee’s primarily responsibilities are to:
• Review and approve corporate goals and objectives relevant to the compensation of NEOs, evaluate the
performance of the NEOs in light of these goals and objectives and determine and approve the compensation
level of NEOs based on that evaluation;
• Evaluate and establish the incentive components of the CEO’s compensation and related bonus awards, taking
into account the Company’s performance and relative shareholder return, the value of similar incentive awards
to CEOs at comparable companies, the services rendered by the CEO and the awards given to the CEO in
past years;
• Review and approve the design of the compensation and benefit plans that pertain to the CEO and other NEOs
who report directly to the CEO;
• Administer equity-based plans, including stock incentive plans;
• Approve the material terms of all employment, severance and change of control agreements for NEOs;
Axon Enterprise, Inc. | 2020 Proxy Statement | 28
• Retain compensation consultants and advisors as necessary, or appropriate, on an advisory basis to establish
comparator groups, benchmarking and targets for compensation related matters;
• Recommend to the Board the compensation for Board members, such as retainers, committee fees, chair fees,
stock awards and other similar items;
• Provide oversight regarding the Company’s benefit and other welfare plans, policies and arrangements;
• Form and delegate authority to subcommittees when appropriate; and
• Prepare the Compensation Committee report to be included in the Company’s annual proxy statement and Annual
Report on Form 10-K filed with the SEC.
The Committee’s charter reflects these responsibilities, and the Committee and the Board periodically review and revise
the
at
the Committee
http://investor.axon.com/governance/documents-and-charters.
charter. The
our website
available
charter
text
full
on
of
is
Role of Management and Consultants in Determining Executive Compensation
Our executive management supports the Committee in carrying out its responsibilities by preliminarily outlining
compensation levels for NEOs, administering our benefit and other welfare plans and providing data to the Committee for
analysis. Annually, compensation is initially proposed by the CEO for each executive (excluding the CEO), consisting of
base salary, annual and long-term performance-based compensation and long-term equity compensation, which is then
provided to the Committee for review and approval.
Our Committee has sole authority to engage the services of outside consultants and advisors, as it deems necessary or
appropriate in the discharge of its duties and responsibilities. The Committee has budgetary authority to authorize and pay
for the services of outside consultants and advisors, and such consultants and advisors report directly to the Committee. In
2017 and 2018, the Committee retained compensation consulting firm Compensia, which provided research, data analyses,
benchmarking and design expertise in developing and structuring compensation programs for its executives. The Company
utilized that information in the design of its 2018 and 2019 executive compensation plans, including the CEO Performance
Award and XSPP. In 2018 and 2019, the Company also retained the compensation consulting division of Aon
Consulting, Inc. to provide additional data analysis, modeling, and equity design expertise specific to developing and
structuring the CEO Performance Award and XSPP.
The Committee also retained Compensia in 2019 for research, data analyses, benchmarking and design expertise in
developing and structuring compensation for its new Chief Product Officer role. Compensia provided executive
compensation information for Chief Product Officer roles based on its proprietary database for public companies with
revenues between $150 million and $950 million and a market capitalization between $900 million and $10 billion.
Peer Comparator Group
The scope of Compensia’s review in 2018 included determining an appropriate comparator group to compare the
Company’s executive compensation to, based primarily on the following criteria: Industry and Global Industry
Classification code, revenue, and market capitalization. Compensia selected public technology companies with annual
sales between $150 million and $950 million, with market capitalization of $900 million to $10 billion.
The Committee has selected the following comparator group when reviewing executive compensation:
2U, Inc.
8x8, Inc.
Alarm.com Holdings, Inc.
Benefitfocus, Inc.
Box. Inc.
Carbonite, Inc.
Cornerstone OnDemand Inc.
Ellie Mae, Inc.
Five9 Inc.
HubSpot, Inc.
MINDBODY Inc.
New Relic, Inc.
Paycom Software, Inc.
Paylocity Holding Corp.
Proofpoint, Inc.
Qualys, Inc.
RingCentral Inc.
SPS Commerce Inc.
Twilio Inc.
Zendesk Inc.
Zuora Inc.
Axon Enterprise, Inc. | 2020 Proxy Statement | 29
In addition to the comparator group, to supplement the executive compensation information where publicly disclosed
information was limited, Compensia provided executive compensation information for the NEOs based on its proprietary
database for technology companies, primarily internet and software as a service companies, with revenues between $150
million and $950 million and a market capitalization between $900 million and $10 billion.
The Company plans to engage a compensation consulting firm to provide research, data analyses, benchmarking and
design expertise in reviewing and structuring compensation programs for its executives every three years, beginning in
2021.
The following tables show the composition of each NEO’s total target direct compensation for 2020 and 2021:
Annual Salary
(1)
% Total
Annual Target
Incentive
Compensation
(2)
Long-term Target
Incentive Compensation--
XSUs
(3)
Long-term Equity
Compensation--RSUs
(4)
$
% Total
$
% Total
$
% Total
Target Total
Direct
Compensation
$
$
350,000
2020
Name
Patrick
W. Smith $ 24,960
Luke S.
Larson
Jawad A.
Ahsan
Joshua
M. Isner
Jeffrey
C.
Kunins (5)
325,000
300,000
325,000
100.0 % $
—
— % $
—
— % $
—
— % $
24,960
15.5
305,000
13.5
1,000,000
44.4
600,000
26.6
2,255,000
15.1
330,000
15.3
1,000,000
46.4
500,000
23.2
2,155,000
15.9
500,000
24.4
1,000,000
48.7
225,000
11.0
2,050,000
18.8
300,000
18.8
1,000,000
62.4
—
—
1,600,000
(1) Annual salary effective January 1, 2020.
(2) Presented at target levels. Actual results for 2020 were below targets, resulting in payouts under the annual cash
incentive plan for Messrs. Larson, Ahsan, and Kunins in the amounts of approximately $293,000, $317,000, and
$289,000, respectively. Mr. Isner earned commissions in 2020 of approximately $738,000. See further discussion
following under “Annual Performance-Based Incentive Plans.”
(3) Represents XSUs granted to Messrs. Larson, Ahsan, and Isner on January 2, 2019 and to Mr. Kunins on
September 23, 2019 which are discussed in more detail under “Executive Compensation — Compensation
Discussion and Analysis — Our Compensation Programs — eXponential Stock Performance Plan". The grants
had a target value of $1,000,000 prior to risk and time multipliers and were granted in 2019 in lieu of traditional
performance-based RSUs. For purposes of the Summary Compensation Table, these amounts were reported as
compensation in 2019 and are not reported as compensation in 2020, and represent the amount of 2020 target
compensation that the executives elected to receive over nine years (2019 to 2027) in the form of XSUs.
(4) Except for Mr. Kunins, reflects the value of RSUs awarded in December 2019, which are intended as 2020
compensation awards. Mr. Kunins did not receive an RSU award in December 2019 based on his September 2019
start date.
Axon Enterprise, Inc. | 2020 Proxy Statement | 30
Annual Salary
Annual Target
Incentive
Compensation
Long-term Target
Incentive Compensation--
XSUs
(1)
Long-term Equity
Compensation--RSUs
(2)
$
% Total
$
% Total
$
% Total
$
% Total
Target Total
Direct
Compensation
$
2021
Name
Patrick
W.
Smith
Luke S.
Larson
Jawad
A.
Ahsan
Joshua
M. Isner
(3)
Jeffrey
C.
Kunins
$ 31,200
100.0 % $
—
— % $
—
— % $
—
— % $
31,200
350,000
15.5
305,000
13.5
1,000,000
44.4
600,000
26.6
2,255,000
325,000
15.1
330,000
15.3
1,000,000
46.4
500,000
23.2
2,155,000
325,000
15.9
500,000
24.4
1,000,000
48.7
225,000
11.0
2,050,000
300,000
13.6
300,000
13.6
1,000,000
45.5
600,000
27.3
2,200,000
(1) Represents XSUs granted to Messrs. Larson, Ahsan, and Isner on January 2, 2019 and to Mr. Kunins on
September 23, 2019 which are discussed in more detail under “Executive Compensation — Compensation
Discussion and Analysis — Our Compensation Programs — eXponential Stock Performance Plan". The grants
had a target value of $1,000,000 prior to risk and time multipliers and were granted in 2019 in lieu of traditional
performance-based RSUs. For purposes of the Summary Compensation Table, these amounts were reported as
compensation in 2019 and are not reported as compensation in 2021, and represent the amount of 2021 target
compensation that the executives elected to receive over nine years (2019 to 2027) in the form of XSUs.
(2) Reflects the value of RSUs awarded in November 2020, which are intended as 2021 compensation awards.
(3) The annual target incentive compensation for Mr. Isner reflects target commission based on a combination of
revenue growth and new product and new market bookings growth for 2021.
Annual Salary
Salaries for NEOs are reviewed annually, as well as at the time of a promotion or other changes in responsibilities.
Consistent with our goal for overall compensation, we set salaries at a competitive level to ensure we can attract and retain
our executives. There is no set percentile of market that we use and executive salaries vary in their positioning to market
depending on facts; such as, tenure with the Company, results of personal, department and corporate performance,
complexity and scope of the executive’s responsibilities, and the perceived detrimental effects to the Company that may
result from such executive’s departure. The base salaries of our NEOs, other than the CEO, were proposed by the CEO,
established by the Committee and approved by the independent directors after considering compensation salary trends,
overall level of responsibilities, total performance and compensation levels for comparable positions in the market for
executive talent based on salary surveys and compensation data from comparator group companies. After considering the
above, the Committee did not adjust the base salaries of Messrs. Ahsan, Isner, Larson or Kunins for 2021.
Annual Performance-Based Incentive Plans
The objective of the annual cash incentive plan has been to provide executives with a competitive total compensation
opportunity, as well as to align executive rewards with company performance.
Axon Enterprise, Inc. | 2020 Proxy Statement | 31
2020 Structure
The 2020 executive compensation structure included: payments under the annual cash incentive plan, and for Mr. Isner,
revenue-based commissions, paid quarterly. Each component was designed to incentivize specific Company business
goals.
Payouts under the 2020 annual cash incentive plan were based on the achievement of the following annual financial goals
and operational metrics: revenue, number of Officer Safety Plan (“OSP”) 7+ licenses booked, Adjusted EBITDA as a
percentage of revenue, net promoter score, Aware attachment rate, OSP7+ benefit adoption, TASER 7 handle yield, and
Axon Body 3 yield.
The Committee believed the criteria for the annual cash incentive plan were challenging, but achievable.
Sales commissions were earned based upon specific sales targets for Mr. Isner. For 2020, the maximum payout was
$750,000.
Metric
Threshold
Target
Maximum
Actual
Weight
Weighted
Payout
2020 Performance - Based Cash Incentive Plans Metrics
Revenue
# of OSP7+ licenses booked
Adjusted EBITDA % of revenue
Net promoter score
Aware attachment rate
OSP7+ benefit adoption
TASER 7 handle yield
Axon Body 3 yield
Actual attainment/plan payout
($ in millions)
$ 570.0
18,750
$ 620.0
25,000
$ 650.0
35,000
$ 681.0
10,100
16.0 %
58
30.0 %
20.0 %
0 %
0 %
17.0 %
59
40.0 %
23.0 %
91.0 %
95.0 %
18.0 %
61
46.0 %
28.0 %
93.0 %
99.0 %
22.9 %
63
25.2 %
26.6 %
92.1 %
98.7 %
25 %
25
20
10
10
5
2.5
2.5
100 %
37.5 %
—
30.0
15.0
—
6.8
3.2
3.6
96.1 %
The 2020 performance-based cash incentive plan metrics were measured and paid after the Company determined its annual
earnings for 2020. The revenue, number of OSP7+ licenses booked, Adjusted EBITDA as a percentage of revenue, net
promoter score, Aware attachment rate, and OSP7+ benefit adoption metrics each have a threshold, target and maximum
goal with corresponding base payouts of 50%, 100% and 150% of target, respectively. The weighted payout for the 2020
annual cash incentive plan is capped at a 150% payout. The weighted average payout achieved under the 2020
performance-based cash incentive plan was 96.1%.
Payouts under the 2020 annual cash incentive plan for Mr. Isner were based entirely on growth of the Company’s revenue.
For 2020, approximately $738,000 was based on the growth of total 2020 revenue as compared to 2019.
Other Long-Term Performance-Based Equity Compensation
Beginning in 2018, the Company discontinued its long-term performance-based RSU grants. Instead, NEOs now
participate in the CEO Performance Award (for Mr. Smith) or the XSPP. The CEO Performance Award and XSPP are
each an incentive for future performance in the form of a high-risk, high-reward compensation plan, and the value is
realizable only if and when each set of market capitalization and operational goals are achieved and the options or shares
vest associated with each tranche. The grant is intended to compensate the NEOs over an extended term and will become
vested as to all options or shares subject to each grant only if our market capitalization increases to $13.5 billion and twelve
operational goals are achieved during the ten year term of the award. If any portion of the awards have not vested by the
end of the term of the award, they will be forfeited and the NEO will not realize the related value. The first set of vesting
milestones (a market capitalization goal paired with an operational goal) for the CEO Performance Award and the XSPP
were achieved as of December 31, 2020, and were certified by the Committee in March 2021.
Axon Enterprise, Inc. | 2020 Proxy Statement | 32
For additional discussion of the CEO Performance Award and the XSPP, see “Executive Compensation — Compensation
Discussion and Analysis — Our Compensation Programs — CEO Performance Award” and “— eXponential Stock
Performance Plan” above.
Long-Term Service-Based Equity Compensation — RSUs
The Committee believes that service-based equity compensation with multi-year vesting periods ensures that our NEOs
have a continuing stake in our long-term success. For 2020, the Committee granted RSUs on December 23, 2019, which
vest at the end of a three-year service period. For 2021, the Committee granted RSUs on November 30, 2020, which vest
in equal annual installments over a three-year service period.
In determining the total number of RSUs to award to each NEO, the Committee considered, among other things, the
strategic objectives of the Company over the next three years, and the practice of comparator group companies. The
following table sets forth the service-based RSU awards made to our continuing NEOs in December 2019 (for 2020) and
in November 2020 (for 2021). Mr. Kunins did not receive an award in December 2019 based on his September 2019 hire
date.
2020 Awards
2021 Awards
Named Executive
Patrick W. Smith
Luke S. Larson
Jawad A. Ahsan
Joshua M. Isner
Jeffrey C. Kunins
Approximate
Approximate Number of
Number of
Service-based Grant Date Service-based Grant Date
Fair Value
RSUs Awarded
—
—
600,000
8,306
500,000
6,922
225,000
3,115
600,000
N/A
Fair Value RSUs Awarded
—
4,774
3,979
1,791
4,774
—
600,000
500,000
225,000
N/A
Employment Agreements and Other Arrangements
In June 2019, the Company entered into revised employment agreements with Jawad A. Ahsan, Luke S. Larson, and
Joshua M. Isner pursuant to their continued service. The fundamental terms and provisions of each executive’s agreement
are substantially similar to the terms and provisions of each executive’s previously existing executive employment
agreement except as follows: under the agreements, (1) the executives are no longer entitled to severance benefits
following a resignation for good reason, except following Change in Control [as defined in the Company’s 2019 Stock
Incentive Plan (or any successor equity incentive plan adopted by the Company in the future)]; (2) following a termination
without cause and the terminated executive’s execution of a customary release, the terminated executive will be entitled
only to continued vesting of unvested time-based RSUs scheduled to vest during the notice and severance period (one year)
versus acceleration of all unvested equity awards; (3) following termination without cause and the terminated executive’s
execution of the customary release, the terminated executive will be entitled to a full year target annual bonus or full year
target annual sales commission for the year in which the termination becomes effective, versus a prorated bonus for
the year in which the termination occurs; and (4) following termination without cause and the terminated executive’s
execution of the customary release, a portion of the terminated executive’s XSUs may be entitled to accelerated vesting.
In September 2019, the Company entered into an employment agreement with Jeffrey C. Kunins with the same terms.
Mr. Smith’s employment agreement terminated following shareholder approval of the CEO Performance Award on
May 24, 2018 and the Company has no further obligations thereunder.
Perquisites and Other Personal Benefits
We have a non-qualified deferred compensation plan for certain executives, key employees and non-employee directors
through which participants may elect to postpone the receipt and taxation of a portion of their compensation received from
us. The non-qualified deferred compensation plan allows eligible participants to defer up to 80% of their base salary and
up to 100% of other types of compensation. The plan also allows for matching and discretionary employer
contributions. Employee deferrals are deemed 100% vested upon contribution. Distributions from the plan generally
commence upon retirement, death, separation of service, specified date or upon the occurrence of an unforeseeable
Axon Enterprise, Inc. | 2020 Proxy Statement | 33
emergency. Distributions can be paid in a variety of forms from lump sum to installments over a period
of years. Participants in the plan are entitled to select from a wide variety of investments available under the plan and are
allocated gains or losses based upon the performance of the investments selected by the participant. All gains or losses are
allocated fully to plan participants and we do not guarantee a rate of return on deferred balances. Assets related to this plan
consist of corporate-owned life insurance contracts. Participants have no rights or claims with respect to any plan assets
and any such assets are subject to the claims of our general creditors.
We do not provide our NEOs with other significant perquisites or other benefits, except for Company matching
contributions to our defined contribution benefit plans and health care benefits that are widely available to employees. The
Committee periodically reviews the levels of perquisites and other benefits that could be provided to the NEOs.
Compensation Deductibility
Effective for tax years beginning after December 31, 2017, the Tax Cuts and Jobs Act repealed the performance-based
compensation exception to the deduction limit for compensation in Section 162(m) of the Code. As a result, the Company
expects that compensation over $1 million per year paid to any named executive officer, and any person who was a named
executive officer for any year beginning with 2017, will be nondeductible under Section 162(m) unless it qualifies for
transition relief applicable to certain arrangements in place as of November 2, 2017.
The Committee will continue to monitor the impact that the repeal of the performance-based pay exception to
Section 162(m) will have on the Company’s compensation programs and contracts.
COMPENSATION COMMITTEE REPORT
The Compensation Committee has reviewed and discussed with management the Compensation Discussion and Analysis
included in this proxy statement. Based on these reviews and discussions, the Compensation Committee recommended to
the Board of Directors that the Compensation Discussion and Analysis be included in this proxy statement and incorporated
by reference in our 2020 Annual Report on Form 10-K.
The Compensation Committee:
Hadi Partovi, Chair
Michael Garnreiter
Matthew McBrady
The foregoing Compensation Committee Report will not be deemed to be incorporated by reference by any general
statement incorporating by reference this proxy statement into any filing under the Securities Act of 1933 (the "Securities
Act") or under the Exchange Act, except to the extent that the Company specifically incorporates this information by
reference, and will not otherwise be deemed filed under such Acts.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No member of the Compensation Committee is, or was during or prior to fiscal 2020, an officer or employee of the
Company or any of its subsidiaries. None of the Company’s executive officers serves as a director or member of the
compensation committee of another entity in a case where an executive officer of such other entity serves as a director or
member of the Compensation Committee.
Axon Enterprise, Inc. | 2020 Proxy Statement | 34
SUMMARY COMPENSATION TABLE
Name and Principal
Position
Patrick W. Smith
Chief Executive Officer
Luke S. Larson
President
Jawad A. Ahsan
Chief Financial Officer
Joshua M. Isner
Chief Revenue Officer
Jeffrey C. Kunins
Chief Product Officer and EVP of Software
Year
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
2018
2020
2019
$
Salary
($)
25,004 (5) $
22,880 (5)
70,027 (5)
Bonus
($)
$
—
—
—
Stock
Awards
($) (1)
2,531,425
2,040
—
Non-Equity
Incentive Plan
All Other
Option Awards Compensation Compensation
($) (2)
($) (3)
($) (4)
$
—
—
245,953,429
$
$
—
—
—
350,000
325,000
325,000
325,000
300,000
300,000
325,000
275,000
275,000
300,000
81,923
—
50,000
—
1,612,573
21,134,307
—
—
—
200,000
1,512,650
20,959,354
299,984
—
270,193
21,000
900,063
20,309,338
—
—
—
600,044
20,742,720
—
—
—
—
—
—
—
—
—
—
—
293,238
301,146
191,624
317,274
301,146
255,499
2,963
13,609
3,254
34,754
28,110
12,604
13,885
15,000
1,504
$
Total ($)
2,559,392
38,529
246,026,710
2,290,565
21,838,563
529,228
2,168,809
21,575,500
1,056,987
1,998,616
22,389,894
1,729,702
738,134
1,304,250
1,412,852
35,419
231,113
20,850
288,518
—
12,223
2,131
1,200,785
20,826,774
(1) The amounts in this column reflect the aggregate grant date fair value for RSUs computed in accordance with
stock-based accounting rules (ASC Topic 718). Pursuant to SEC regulations, the amounts shown exclude the
impact of estimated forfeitures related to service-based vesting conditions. Assumptions included in the
calculation of these amounts are included in footnote 1 to our financial statements for the fiscal year ended
December 31, 2020 within our Annual Report on Form 10-K filed with the SEC.
On November 3, 2020, the Compensation Committee of our Board of Directors approved a modification to the
definition of a metric for certain of our outstanding PSU awards. We accounted for this change as a Type III
modification under ASC 718 since the expectation of the attainment for this metric changed from improbable to
probable. Amounts of $2,531,425, $1,012,529, $1,012,529, and $674,952 for Messrs. Smith, Larson, Ahsan, and
Isner, respectively, represent the total compensation expense from the modified shares.
Other amounts of $600,044, $500,121, $225,111, and $600,044 represent RSUs granted to Messrs. Larson,
Ahsan, Isner, and Kunins, respectively, on November 30, 2020 and were intended as 2021 compensation.
On February 12, 2019, our shareholders approved the 2019 Plan, which was adopted by the Board of Directors
to reserve a sufficient number of shares to facilitate our XSPP and grants of XSUs under the plan. Pursuant to the
XSPP, all eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain
employees had the opportunity to elect to receive a percentage of the value of their target compensation over the
following nine years (2019-2027) in the form of additional XSUs. Messrs. Larson, Ahsan, Isner, and Kunins
elected to receive XSUs, which XSU grants were made as an up front, lump sum grant in January 2019
(September 2019 for Mr. Kunins), and are intended to replace that portion of the target compensation they elected
to receive in the form of XSUs for the subsequent nine years. Accordingly, their go forward target compensation
will be reduced until 2027 by the amount of such compensation that the employees elected to receive in the form
of the 2019 XSU grants.
All of the XSUs will be vested only if our market capitalization increases to $13.5 billion and twelve operational
goals are achieved during the nine year term of the award. 1/12th of the total number of options in the grant will
become vested and exercisable each time: (i) Company market capitalization increases by $1 billion above the
February 2018 market capitalization of approximately $1.5 billion (to align with the CEO Performance Award);
and (ii) one of sixteen operational goals tied to revenue and adjusted EBITDA are attained, subject to continued
service to the Company at each such vesting event. If any XSUs have not vested by the end of the nine year term
of the award, they will be forfeited and the NEOs will not realize the value of such XSUs. As of December 31,
2020, the first tranche was achieved and was subsequently certified by the Compensation Committee and vested
in March 2021. The amounts and timing of compensation realized by the NEOs for the XSPP will differ from the
amount reported here pursuant to the requirements for the Summary Compensation Table.
Axon Enterprise, Inc. | 2020 Proxy Statement | 35
The grant-date fair value of the 60 XSUs received by Messrs. Smith, Larson, Ahsan and Isner is approximately
$2,000. Additional XSUs granted include amounts of $19,957,225 for Messrs. Larson, Ahsan and Isner and
$18,342,720 for Mr. Kunins.
(2) The amount reported as compensation for Mr. Smith in 2018 represents the grant date fair value of options under
the CEO Performance Award as computed in accordance with ASC Topic 718. Mr. Smith did not realize this
amount in 2018 because vesting of the options is entirely tied to achieving revenue, EBITDA and market
capitalization performance milestones, which are described below. No options will vest simply through the
passage of time. As of December 31, 2020, the first tranche was achieved and was subsequently certified by the
Compensation Committee and vested in March 2021.
The fair value of the options when the CEO Performance Award was approved by our Board and accepted by
Mr. Smith in February 2018 was approximately $72.4 million. Due to a significant increase in the price of Axon’s
common stock between February 2018 and May 2018, when our shareholders approved the CEO Performance
Award, the grant date fair value for accounting purposes increased to the amount disclosed in this Summary
Compensation Table.
The CEO Performance Award granted to Mr. Smith is an incentive for future performance in the form of a high-
risk, high-reward compensation plan, and the value is realizable only if and when each set of market capitalization
and operational goals are achieved and the options vest associated with each tranche.
The grant is intended to compensate Mr. Smith over a ten year term. The XSPP was aligned to agree all milestones
to the CEO Performance Award. See Note 1. The amounts and timing of compensation realized by Mr. Smith for
the CEO Performance Award will differ from the amount reported here pursuant to the requirements for the
Summary Compensation Table.
See “Executive Compensation — Compensation Discussion and Analysis — Our Compensation Programs —
CEO Performance Award” above.
(3)
In 2020, Messrs. Larson, Ahsan, and Kunins received non-equity incentive compensation as a result of exceeding
target metrics around revenue and other operating measures. Their 2020 incentive compensation was provided in
the form of cash payouts, which were paid in February 2021. In 2019, Messrs. Larson and Ahsan, received non-
equity incentive compensation as a result of exceeding target metrics around bookings and other operating
measures. Their 2019 incentive compensation was provided in the form of cash payouts, which were paid in
February 2020. In 2018, all the Company’s NEOs, excluding Messrs. Smith and Isner, received non-equity
incentive compensation as a result of exceeding target metrics around bookings and other operating measures.
Their 2018 incentive compensation was provided in the form of cash payouts, which were paid in February 2019.
Amounts for Mr. Isner represent commissions and in 2019 and 2018 also include cash incentives earned upon
completion of certain leadership development courses.
(4) All other compensation consists of matching contributions made to 401(k), contributions to health savings
accounts, employer paid life insurance premiums, taxable fringe items and payments made for taxes required to
gross-up other earnings. In 2019, approximately $200,000 of Mr. Isner’s compensation related to the taxes paid
by the Company for a vehicle Mr. Isner received in lieu of a cash bonus.
(5) The amounts paid to Mr. Smith for 2020 and 2019 are consistent with minimum wage requirements pursuant to
the requirements of the CEO Performance Award. The amount paid to Mr. Smith for 2018 represents his existing
salary level through February 28, 2018 and minimum wage annually thereafter consistent with the requirements
of the CEO Performance Award.
Axon Enterprise, Inc. | 2020 Proxy Statement | 36
PAY RATIO OF CHIEF EXECUTIVE OFFICER COMPENSATION TO MEDIAN EMPLOYEE
COMPENSATION
The Company’s compensation practices and programs are designed with the goal of ensuring compensation programs are
fair, equitable, globally compliant and are aligned with its business objectives. Our CEO, Patrick W. Smith, has agreed to
a compensation arrangement in the CEO Performance Award, which was approved by shareholders in May 2018, that
vests based solely on attainment of both market capitalization and internal operational goals. We are providing a ratio
of (i) Mr. Smith’s 2020 annual total compensation to (ii) the median of the 2020 annual total compensation of all Axon
employees other than Mr. Smith, calculated pursuant to the disclosure requirements of the Summary Compensation Table
above as if the median compensated employee was a named executive officer. Because of the treatment of the CEO
Performance Award as compensation for Mr. Smith in 2018 for purposes of the Summary Compensation Table, there may
be a significant disconnect between what is reported as compensation for Mr. Smith in a given year in the Summary
Compensation Table and the value actually realized as compensation in that year or over a period of time. See “Executive
Compensation — Compensation Discussion and Analysis — Our Compensation Programs — CEO Performance Award”
above.
Mr. Smith’s annual total compensation, as reported in the Summary Compensation Table, for 2020 was $2,559,392, and
the median 2020 annual total compensation of all other employees was $102,499. Consequently, the applicable ratio of
such amounts for 2020 was 25:1.
Our methodology for identifying the median of the 2020 annual total compensation for each of our employees other than
Mr. Smith was as follows:
• We determined that as of December 31, 2020, Axon and all of our subsidiaries had 1,716 qualifying individuals
(full-time, part-time, and temporary employees other than Mr. Smith), of which 15% were based outside of the
U.S. and 12% were production line employees.
• We did not include in the population of qualifying individuals any employees of staffing agencies whose
compensation is determined by such agencies.
• We applied the requirements and assumptions required for the table in the Summary Compensation Table for
each of such individuals as if he or she was a named executive officer to calculate the total annual compensation,
including base salary or wages, performance-based commission payments, and equity awards based on their grant
date fair values.
• We converted any payment earned or paid in a foreign currency to U.S. dollar using the average of the prevailing
conversion rates for 2020.
• We selected the median of all total annual compensation amounts calculated in accordance with the foregoing.
The SEC rules for identifying the median compensated employee and calculating the pay ratio based on that employee’s
annual total compensation allow companies to adopt a variety of methodologies, exclusions, and assumptions that reflect
their compensation practices. As such, the pay ratio reported above may not be comparable to the pay ratio reported by
other companies, even those in a related industry or of a similar size and scope. Other companies may have different
employment practices, regional demographics or may utilize different methodologies and assumptions in calculating their
pay ratios.
Axon Enterprise, Inc. | 2020 Proxy Statement | 37
The following table shows information about awards made under various compensation plans during 2020:
2020 GRANTS OF PLAN-BASED AWARDS
Name
Luke S. Larson
Jawad A. Ahsan
Joshua M. Isner
Jeffrey C. Kunins
Estimated future payouts under
non-equity incentive
plan awards
Grant
Date
11/30/20 (2)
Threshold Target
($)
($)
Maximum
($)
—
—
179,188 305,000 457,500 (3)
—
11/30/20 (2)
—
—
—
193,875 330,000 495,000 (3)
11/30/20 (2)
11/30/20 (2)
—
—
— 500,000 750,000 (4)
—
—
—
—
176,250 300,000 450,000 (3)
All other
stock
awards:
number of
shares of
stock or
units (#)
4,774
—
3,979
—
1,791
—
4,774
—
Grant date
fair
value of stock
awards
($) (1)
600,044
—
500,121
—
225,111
—
600,044
—
(1) Grant date fair value of RSUs and options, computed in accordance with stock-based compensation accounting
rules (ASC 718). The fair value of each RSU is the closing price of our common stock on the date of grant. The
assumptions used in the calculations of the grant date fair value for option awards are included in Note 1 to our
Consolidated Financial Statements contained in our Annual Report on Form 10-K for fiscal 2020.
(2) RSUs vest at annual intervals over a three-year period. The awards granted on November 30, 2020 are intended
as 2021 compensation. Pursuant to the rules and principles of the SEC, however, they are treated as 2020
compensation for purposes of this table and the Summary Compensation Table.
(3) Payouts under the 2020 annual cash incentive plan are based on the achievement of annual financial goals,
including goals related to: revenue; the number of OSP7+ licenses booked; Adjusted EBITDA as a percentage of
revenue; net promoter score; Aware attachment rate; OSP7+ benefit adoption; TASER 7 handle yield; and Axon
Body 3 yield. Actual awards earned in 2020 were included in the Non-Equity Incentive Plan Compensation
column in the Summary Compensation Table.
(4) Mr. Isner was eligible for commissions based on revenue growth for the Company. There was a maximum amount
of $750,000 related to these commissions. Actual commissions earned in 2020 were included in the Non-Equity
Incentive Plan Compensation column in the Summary Compensation Table.
Axon Enterprise, Inc. | 2020 Proxy Statement | 38
OUTSTANDING EQUITY AWARDS AT FISCAL 2020 YEAR-END
The following table includes certain information with respect to all outstanding equity awards previously awarded to the
NEOs as of December 31, 2020.
Option Awards
Stock Awards
Name
Patrick W. Smith
Number of
Securities
Underlying
Unexercised
Options
Unexercisable (#)
Equity
Incentive Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options (#)
Number of
Shares or
Units
of Stock
That
Have Not
Vested
(#)
Option
Exercise
Price
($)
Option
Expiration
Date
Market
Value
of Shares
or Units
of Stock
That Have
Not Vested
($)
Equity Incentive
Plan Awards:
Number of
Unearned Shares,
Units or Other
Rights That Have
Not Vested
(#)
Equity Incentive
Plan Awards:
Market or Payout
Value of Unearned
Shares, Units or
Other Rights
That Have Not
Vested
($)
530,488 (1) 5,835,368 (1) 28.58 2/26/28
5 (9)
613
124,482 (2) 15,252,779
55 (3)
6,739
Luke S. Larson
—
—
—
Jawad A. Ahsan
—
—
—
Joshua M. Isner
—
—
—
Jeffrey C. Kunins
—
—
—
5 (9)
49,878 (9)
49,792 (2)
12,747 (4)
8,306 (5)
4,774 (11)
613
6,111,551
6,101,014
1,561,890
1,017,734
584,958
5 (9)
49,878 (9)
49,792 (2)
14,478 (7)
22,223 (6)
11,085 (4)
6,922 (5)
3,979 (11)
613
6,111,551
6,101,014
1,773,989
2,722,984
1,358,245
848,153
487,547
5 (9)
49,878 (9)
33,196 (2)
2,772 (4)
3,115 (5)
1,791 (11)
613
6,111,551
4,067,506
339,653
381,681
219,451
36,000 (9)
4,800 (8)
6,400 (10)
4,774 (11)
4,411,080
588,144
784,192
584,958
548,659 (3) 67,227,187
6,739
55 (3)
548,659 (3) 67,227,187
6,739
55 (3)
548,659 (3) 67,227,187
6,739
55 (3)
396,000 (3) 48,521,880
(1) This grant is intended to compensate Mr. Smith over its ten-year term and will become vested as to all shares
subject to it only if both market capitalization and internal operational goals are attained during such ten year
period. 1/12th of the total number of shares subject to the options will become vested and exercisable upon
certification by the Board of Directors that both: (i) one of the market capitalization goals is achieved; and (ii) one
of sixteen specified internal operational goals relating to financial results is attained, subject to Mr. Smith’s
continued service at each such vesting event. If any tranches have not vested by the end of the ten-year term of
the award, they will be forfeited, and Mr. Smith will not realize the value of such shares. As of December 31,
2020, the first tranche was achieved and was subsequently certified by the Compensation Committee and vested
in March 2021. See “Executive Compensation — Compensation Discussion and Analysis — Our Compensation
Programs — CEO Performance Award” above.
(2) These stock awards are performance based. The number of shares that ultimately vested was based upon the
Company’s compounded annual revenue growth rate (80% of target shares) and its compounded annual EBITDA
growth rate (20% of target shares) both compared to target for the three-year period ending December 31, 2020.
Axon Enterprise, Inc. | 2020 Proxy Statement | 39
On November 3, 2020, the Compensation Committee of our Board of Directors approved a modification to the
definition of a metric for these PSU awards. We accounted for this change as a Type III modification under ASC
718 since the expectation of the attainment for this metric changed from improbable to probable. Based upon the
performance achieved, the number of shares that vested in February 2021 were 200% of target, which has been
presented in the above table.
(3) These grants are intended to compensate our executives over their approximately nine-year term and will become
vested as to all shares subject to each grant only if both market capitalization and internal operational goals are
attained during such term. 1/12th of the total number of shares will become vested upon certification by the Board
of Directors that both: (i) one of the market capitalization goals is achieved; and (ii) one of sixteen specified
internal operational goals relating to financial results is attained, subject to the NEO’s continued service at each
such vesting event. If any tranches have not vested by the end of the term of the award, they will be forfeited and
the NEO will not realize the value of such shares. As of December 31, 2020, the first tranche was achieved and
was subsequently certified by the Compensation Committee and vested in March 2021. See “Executive
Compensation — Compensation Discussion and Analysis — Our Compensation Programs — eXponential Stock
Performance Plan” above.
(4) These stock awards vest fully in January 2022.
(5) These stock awards vest fully in December 2022.
(6) This stock award vests at annual intervals over a five-year period and becomes fully vested in April 2022.
(7) This stock award is performance-based. The number of shares that ultimately vested was based upon the
Company’s compounded annual revenue growth rate compared to target for the three-year period ending
December 31, 2020. Based upon the performance achieved, the number of shares that vested in February 2021
were 200% of target, which has been presented in the above table.
(8) This stock award vested two thirds in September 2020 and vests one third in September 2021.
(9) These stock awards represent achievement of the first tranche of the XSPP (eXponential Stock Performance Plan).
These awards were certified by the Compensation Committee and vested in March 2021.
(10) This stock award vests at annual intervals over a three-year period and becomes fully vested in September 2022.
(11) These stock awards vest at annual intervals over a three-year period and become fully vested in November 2023.
Axon Enterprise, Inc. | 2020 Proxy Statement | 40
2020 OPTION EXERCISES AND STOCK VESTED
The following table provides information related to option exercises and vested stock awards for each NEO during the year
ended December 31, 2020:
Name
Patrick W. Smith
Luke S. Larson
Jawad A. Ahsan
Joshua M. Isner
Jeffrey C. Kunins
Stock Awards
Number of
Shares
Acquired upon
Vesting (#)
Value Realized on
Vesting ($)
$
67,392
37,130
27,407
13,143
27,200
5,343,642
2,969,879
2,203,259
1,081,612
2,364,272
2020 NONQUALIFIED DEFERRED COMPENSATION
On July 1, 2013 the Company adopted the TASER International, Inc. Deferred Compensation Plan ("DCP"). The DCP
allows eligible executives, key employees and non-employee directors through which participants may elect to defer the
receipt and taxation of a portion of their compensation. Compensation, as defined in the DCP, is comprised of base salary,
bonus, commission, director fees, and such other cash or equity-based compensation approved by the Compensation
Committee. Participants may elect to defer up to 80% of their base salary and up to 100% of other types of compensation.
Participants are 100% vested at all times in amounts deferred pursuant to the DCP. All gains or losses are allocated fully
to plan participants, and the Company does not guarantee a rate of return on deferred balances. There were no above-
market returns for participants in the plan.
The following table provides information on NEO and Director participation in the DCP:
Name
Joshua M. Isner
Executive
Registrant
Aggregate
Contributions in Contributions in Earnings in Last Withdrawals/ Aggregate Balance at
FY
($)(2)(3)
Distributions
($)
Last FY
($)(1)(2)
Aggregate
Last FYE
($)
543,350
1,504
66,155
—
Last FY
($)(1)
104,427
(1) The amounts included in the table as executive contributions and registrant contributions in the last fiscal year
were all reported as compensation in 2020 in the Summary Compensation Table.
(2) The Company does not make discretionary payments to the plan, but does make a restorative 401(k) match
contribution to participants as their eligible wages for 401(k) purposes is net of contributions made to the deferred
compensation plan.
(3) Aggregate earnings reflected represent deemed investment earnings from voluntary deferrals and Company
contributions, as applicable. No amounts included in aggregate earnings are reported in the 2020 Summary
Compensation Table because the plan does not provide for above-market or preferential earnings.
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
Pursuant to the employment agreements, the Company may terminate each of the NEOs with or without cause. The
conditions or events triggering the payment of severance benefits include the executive’s death, disability, termination
without cause, termination for good reason, or termination in connection with a change in control of the Company (i.e.,
double-trigger). Conditions to the payment of severance benefits include covenants relating to assignment of inventions,
nondisclosure of Company confidential information, and non-competition with the Company for a period of 12 months
after termination of employment. For Mr. Smith, benefits are determined pursuant to the CEO Performance Award.
Axon Enterprise, Inc. | 2020 Proxy Statement | 41
The severance benefit amounts with respect to the above triggering events were determined based on competitive practices.
The Company agreed to pay these variable amounts of compensation as severance benefits or change in control benefits
in order to attract and retain executive officers.
The table below depicts the severance payable to each of the NEOs other than Mr. Smith under the conditions indicated:
Termination for
Cause
Earned but
unpaid salary
and benefits
Termination without Cause
12 months’ salary1; target
bonus for calendar year of
effective date of
termination; time-based
RSUs vesting during notice
and severance period will
continue to vest
Termination By Executive Within
36 Months Following a Change in
Control For Good Reason or by the
Company Without Cause
Six Months Prior to Change in
Control at the Request of a Third-
Party Purchaser
36 months’ salary; pro rata
portion of annual target bonus
for the year in which
termination occurs;
12 months COBRA; all time-
and performance-based RSUs
will vest at target levels
Death or Disability
18 months’ salary; pro rata
portion of annual target
bonus for the year in which
termination occurs; all time-
and performance-based
RSUs will vest at target
levels
For all NEOs, all non-vested RSUs and PSUs may immediately vest at target levels and restrictions would lapse.
Accelerated vesting conditions are as follows:
• Termination for Cause: no accelerated vesting.
• Termination without Cause: except for Mr. Smith, continued vesting of time-based awards during the notice and
severance periods.
• Termination By Executive Within 36 Months Following a Change in Control For Good Reason or by the
Company Without Cause Six Months Prior to Change in Control at the Request of a Third-Party Purchaser
("Change in Control") and Termination due to Death or Disability: acceleration of all awards (both performance-
based at target and time-based).
1 The payment of 12 months’ salary includes an 11-month notice period and cash payment equal to 1 month’s base salary.
Axon Enterprise, Inc. | 2020 Proxy Statement | 42
Additional accelerated vesting conditions pursuant to the CEO Performance Award and the XSPP are as follows:
Plan
CEO Performance
Award (Patrick W.
Smith)
XSPP (all other
NEOs)
Termination
with Cause
Any tranches of the
CEO Performance
Award for which the
operational and
market capitalization
goals have been
achieved as of the
last date of
employment
immediately vest
Any tranches of the
XSU awards for
which the
operational and
market capitalization
goals have been
achieved as of the
last date of
employment
immediately vest;
most recently
acquired tranche is
forfeited
Termination
without Cause
CEO Performance Award
operational goals are
disregarded and all
tranches of CEO
Performance Award for
which market
capitalization goals have
been attained as of the
effective date of
termination vest; next
unattained tranche will
partially vest on a prorated
basis by comparing the
six-month market
capitalization to the goal
XSU operational goals are
disregarded and all
tranches of XSU Awards
for which market
capitalization goals have
been attained as of the
effective date of
termination vest; next
unattained tranche will
partially vest on a prorated
basis by comparing the
six-month market
capitalization to the goal
Change in Control
CEO Performance
Award operational
goals are disregarded
and an alternative
market capitalization
calculation is utilized
for purposes of
determining
attainment of
unvested tranches,
plus one additional
tranche
Death or Disability
Any tranches of the
CEO Performance
Award for which the
operational and
market
capitalization goals
have been achieved
as of the last date of
employment are
immediately vested
N/A
XSU operational
goals are disregarded
and an alternative
market capitalization
calculation is utilized
for purposes of
determining
attainment of
unvested tranches,
plus one additional
tranche
Axon Enterprise, Inc. | 2020 Proxy Statement | 43
The table below reflects the severance compensation that would be provided to each of the NEOs of the Company assuming
the notice of intent to terminate such executive’s employment occurred on December 31, 2020. The following table
excludes the deferred compensation amounts that would also be payable to Mr. Isner as described and set forth under the
heading “2020 Nonqualified Deferred Compensation.”
Patrick W. Smith
Stock Awards (1)
Total
Luke S. Larson
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
Jawad A. Ahsan
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
Joshua M. Isner
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
Jeffrey C. Kunins
Severance Payments (2)
Annual Cash Incentive Plan (3)
Benefits (4)
Stock Awards (1)
Total
Voluntary
Termination
By Executive
Termination
for Cause
Termination
without
Cause
Change in
Control
Death or
Disability
$ 49,839,348 $ 49,839,348 $ 244,828,721 $ 356,501,823 $ 49,839,348
$ 49,839,348 $ 49,839,348 $ 244,828,721 $ 356,501,823 $ 49,839,348
$
$
$
$
$
$
$
$
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
— $
—
—
—
— $
350,000 $ 1,050,000 $
305,000
—
29,226,591
525,000
— $
305,000
—
—
—
—
6,215,089
— $ 29,881,591 $ 50,372,717 $ 7,045,089
305,000
21,646
48,996,071
325,000 $
330,000
—
30,555,551
487,500
— $
330,000
—
—
—
—
9,354,430
— $ 31,210,551 $ 53,462,058 $ 10,171,930
975,000 $
330,000
21,646
52,135,412
325,000 $
500,000
—
29,104,796
487,500
— $
500,000
—
—
—
—
2,974,538
— $ 29,929,796 $ 47,252,166 $ 3,962,038
975,000 $
500,000
21,646
45,755,520
300,000 $
300,000
—
22,129,041
450,000
— $
300,000
—
—
—
—
1,957,294
— $ 22,729,041 $ 34,056,469 $ 2,707,294
900,000 $
300,000
21,615
32,834,854
(1) For Mr. Smith, includes the intrinsic value of non-vested performance stock options under the CEO Performance
Award which would immediately vest and become exercisable, as well as the value of non-vested PSUs and RSUs
which would immediately vest and restrictions would lapse, as described above.
For all NEOs other than Mr. Smith, includes the value of non-vested XSUs which would immediately vest and
become exercisable, as well as the value of those non-vested PSUs and RSUs which would immediately vest and
restrictions would lapse, as described above.
The value of RSU, PSU, and XSU vesting or acceleration is equal to the $122.53 closing market price of shares
of the Company’s common stock on December 31, 2020 multiplied by the number of units that would vest.
(2) Represents 12 months’ base salary for Termination without Cause (comprised of an 11-month notice period and
1 month’s base salary), 36 months’ base salary for Change in Control, and 18 months’ base salary for Termination
due to Death or Disability.
(3) Represents target bonus for the calendar year in which the effective date of termination occurs; for Change of
Control and Termination due to Death or Disability, represents target bonus pro-rated through termination date.
(4) Represents 12 months of payment of medical, dental, and vision insurance premiums for each NEO.
Axon Enterprise, Inc. | 2020 Proxy Statement | 44
AUDIT MATTERS
REPORT OF THE AUDIT COMMITTEE
The Audit Committee of the Board of Directors reviews the Company’s financial reporting process on behalf of the Board.
The Audit Committee has sole authority to retain, set compensation and retention terms for, terminate, oversee and evaluate
the work of the Company’s independent auditor. The independent auditor reports directly to the Audit Committee.
The Company’s management is responsible for the Company’s financial reporting process including its system of internal
controls, and for the preparation of consolidated financial statements in accordance with accounting principles generally
accepted in the United States. Grant Thornton LLP, the Company’s independent registered public accounting firm, is
responsible for expressing an opinion based on their audits of the consolidated financial statements. In accordance with its
written charter, the Audit Committee assists the Board of Directors in its oversight of (i) the integrity of the Company’s
financial statements and the Company’s financial reporting processes and systems of internal control, (ii) the
qualifications, independence and performance of the Company’s independent public accounting firm and the performance
of the Company’s internal audit function, (iii) the Company’s compliance with legal and regulatory requirements involving
financial, accounting and internal control matters, (iv) investigations into complaints concerning financial matters and
(v) risks that may have a significant impact on the Company’s financial statements.
Further, the Audit Committee reviews reports prepared by management on various matters including critical accounting
policies and issues, material written communications between the independent auditor and management, significant
changes in the Company’s selection or application of accounting principles and significant changes to internal control
procedures. It is not the duty or responsibility of the Audit Committee to conduct auditing and accounting reviews or
procedures.
In discharging its oversight responsibilities with respect to the audit process, the Audit Committee (i) obtained from the
independent public accounting firm a formal written statement describing all relationships between the independent public
accounting firm and the Company that might bear on the independent public accounting firm’s independence consistent
with the applicable requirements of the Public Company Accounting Oversight Board (“PCAOB”), (ii) discussed with the
independent auditing firm any relationships that may impact its objectivity and independence, and (iii) considered whether
any non-audit services provided to the Company by Grant Thornton LLP are compatible with maintaining their
independence. The Audit Committee also discussed with the independent auditing firm their identification of audit risk,
audit plans and audit scope, as well as all communications required by generally accepted auditing standards, including
those described in Auditing Standard No. 1301, “Communications with Audit Committees” issued by the PCAOB.
The Audit Committee reviewed and discussed with management and its independent public auditors our annual audited
financial statements and quarterly financial statements, including a review of the “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” included in the Company’s Form 10-K and 10-Q filings, as well as the
Company’s shareholder letters and information related thereto.
During fiscal year 2020, the Audit Committee met with representatives of the independent public accounting firm, both
with management present and in private sessions without management present, to discuss the results of the financial
statement audit and quarterly reviews and to solicit their evaluation of the Company’s accounting principles, practices and
judgments applied by management and the quality and adequacy of the Company’s internal controls.
In performing the above described functions, the Audit Committee acts only in an oversight capacity and necessarily relies
on the work and assurances of the Company’s management and independent public accounting firm, which, in the
independent public accounting firm’s report, expresses an opinion on the conformity of the Company’s annual financial
statements to accounting principles generally accepted in the United States.
Based upon the Audit Committee’s discussion with the Company’s management and Grant Thornton LLP, and the Audit
Committee’s review of the representations of the Company’s management and the report of the independent public
accountants to the Audit Committee, the Audit Committee recommended to the Board that the audited financial statements
be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020. The Audit
Axon Enterprise, Inc. | 2020 Proxy Statement | 45
Committee also approved the selection of Grant Thornton LLP as the Company’s independent auditor for the fiscal year
2021.
February 25, 2021
The Audit Committee:
Michael Garnreiter, Chair
Julie Cullivan
Caitlin Kalinowski
Matthew McBrady
The foregoing Report of the Audit Committee does not constitute soliciting material and should not be deemed filed or
incorporated by reference into any other Company filing under the Securities Act or Exchange Act, except to the extent
the Company specifically incorporates this Report by express reference therein.
Axon Enterprise, Inc. | 2020 Proxy Statement | 46
PROPOSALS
Overview of Proposals
This proxy statement contains five proposals requiring shareholder action.
• Proposal No. 1 requests the election of the three Class C directors of the Company named in this proxy statement
for a term of three years, and until their successors are elected and qualified.
• Proposal No. 2 requests that shareholders vote to approve, on an advisory basis, the compensation of the
Company’s named executive officers.
• Proposal No. 3 requests the ratification on the appointment of Grant Thornton LLP as the Company’s independent
registered public accounting firm for fiscal year 2021.
• Proposal No. 4 requests that shareholders approve an amendment to the Company’s amended and restated
Certificate of Incorporation to increase the maximum size of the Board of Directors from 9 to 11 directors.
• Proposal No. 5 is a shareholder proposal to elect directors by majority vote, if properly presented at the Annual
Meeting.
Each proposal is discussed in more detail below.
Respond to Last Year’s Shareholder Vote to Recommend Declassification of the Board
The Board of Directors retains the ultimate responsibility to act in the best interest of all shareholders, even if that means
not adopting a shareholder resolution. Last year, shareholders voted to approve a proposal that the Company take all steps
necessary to reorganize the Board of Directors into one class with annual elections. At the time, the Board determined it
was not in the best interests of the Company to declassify the Board. The Board continues to be dedicated to maximizing
shareholder value and acting in the best interests of the company, and the Board has considered and discussed the
shareholder vote to declassify the Board and determined that a classified board continues to be in the best interest of the
Company.
Classified Boards and Three-Year Terms Foster Independence, Stability, Continuity and Experience
The Board of Directors is divided into three classes, with each class serving a staggered three-year term. The classified
nature of the Board fosters independence, stability, continuity and experience in at least three ways.
First, the longer terms enhance independence and encourage directors to make decisions in the long-term interest of our
Company and shareholders, reducing the potential influence of certain investors and special interest groups with short-
term agendas that may be harmful to the Company and shareholders over the long-term.
Second, the classified structure creates stability and continuity on the Board by ensuring that, at any given time, the Board
is comprised of experienced directors who are intimately familiar with our business, strategic goals, history and culture. If
the Board were declassified, it could be wholly replaced by directors unfamiliar with our history and strategies. Instead,
our classified board structure allows for orderly change, with new directors and fresh perspectives benefitting from
interaction with experienced directors.
Third, a classified board structure also assists us in attracting and retaining highly qualified directors who are willing to
commit the time and resources necessary to understand our operations, strategies and competitive environment. We further
believe that agreeing to serve a three-year term demonstrates a nominee’s commitment to us over the long-term.
Axon Enterprise, Inc. | 2020 Proxy Statement | 47
Classified Boards Protect Long-Term Shareholder Value
The classified board structure protects the Company and our shareholders against a hostile purchaser replacing a majority
of our directors with its own nominees at a single annual meeting of shareholders, thereby gaining control of the Company
without paying fair market value to our shareholders. A classified board does not preclude a takeover but rather encourages
potential acquirers to initiate arms-length negotiations with seasoned directors, providing our Board with the time and
flexibility necessary to evaluate the adequacy and fairness of a proposed offer, consider alternative methods of maximizing
shareholder value, protect shareholders against abusive tactics during a takeover process and, if appropriate, negotiate the
best possible return for all shareholders.
Declassification of our Board would undercut these benefits and could make us a target for unsolicited and hostile overtures
from investor groups focusing on short-term financial gains. In particular, in recent years, hedge funds and other activist
investors have increasingly used the threat of a proxy fight to pressure boards to take actions that produce short-term gains
at the expense of strategies designed to achieve meaningful long-term shareholder value. We believe classified board
structures have been shown to be an effective means of protecting long-term shareholder interests against these types of
abusive tactics.
Classified Boards Have the Same level of Accountability as Declassified Boards
All of our directors, regardless of the length of their term, have a fiduciary duty under Delaware law to act in a manner
they believe to be in the best interests of the Company and shareholders. Accountability does not depend on the length of
the term but on the selection of experienced and committed individuals.
Axon Enterprise, Inc. | 2020 Proxy Statement | 48
PROPOSAL NO. 1 - ELECTION OF DIRECTORS
The Board is elected by and accountable to the shareholders to oversee their interest in the long-term health and the overall
success of the Company’s business and its financial strength. The Board serves as the ultimate decision-making body of
the Company except for those matters reserved to, or shared with, the shareholders. The Board selects and oversees the
members of senior management, who are charged by the Board with conducting the business of the Company.
Election Process
The Board is currently comprised of nine directors. The directors are divided into three classes comprised of three directors
in each class. One class is elected each year for a three-year term and until their successors are elected and qualified. The
classes of prospective directors will be determined upon appointment.
The three director nominees in Class C are up for nomination at the 2021 Annual Meeting. These directors would serve
regular three-year terms until the annual meeting of shareholders in 2024, or until their respective successors are elected
and qualified. These Class C directors are: Richard H. Carmona, Julie Cullivan, and Caitlin Kalinowski.
The Board has no reason to believe that any of the nominees will be unwilling or unable to serve if elected a director. If
any nominee is unable or unwilling to serve as a director at the date of the Annual Meeting or any postponement or
adjournment thereof, the proxies may be voted for a substitute nominee, as designated by the Board to fill such vacancy.
Unless marked otherwise, signed proxies received will be voted FOR the election of each of the nominees.
The Board of Directors recommends a vote FOR the election of Richard H. Carmona, Julie Cullivan, and Caitlin
Kalinowski.
Vote Required
For Proposal No. 1, under our bylaws, assuming the existence of a quorum at the Annual Meeting, the three nominees for
director who receive the affirmative vote of a plurality of all of the votes cast will be elected to the Board of Directors.
This means that the three director nominees with the most votes will be elected. Votes to withhold and broker non-votes
will be counted toward a quorum, but will not affect the outcome of the vote on the election of directors.
Axon Enterprise, Inc. | 2020 Proxy Statement | 49
PROPOSAL NO. 2 - ADVISORY APPROVAL OF THE COMPANY’S EXECUTIVE COMPENSATION
Shareholders will be given the opportunity to vote on the following advisory resolution (commonly referred to as “say on
pay”):
RESOLVED, that the shareholders of Axon Enterprise, Inc. hereby approve the compensation paid to the Company’s
NEOs, as disclosed pursuant to Item 402 of Regulation S-K, including the Compensation Discussion and Analysis,
compensation tables and narrative discussion set forth in this proxy statement.
Background on Proposal
In accordance with the requirements of Section14A of the Exchange Act and related SEC rules, shareholders are being
given the opportunity to vote at the annual meeting on this advisory resolution regarding the compensation of our NEOs.
As described in the Compensation Discussion and Analysis, our executive compensation program is designed to allow us
to: attract and retain talent, link annual incentive compensation to our financial results produced during the year, and link
long term compensation in the form of stock awards to Company performance and enhancement of shareholder value over
time. For a comprehensive description of our executive compensation program, philosophy and objectives, including the
specific elements of executive compensation that comprised the program in 2020, please refer to the Compensation
Discussion and Analysis. The Summary Compensation Table and other executive compensation tables (and accompanying
narrative disclosures) provide additional information about the compensation that we paid to our NEOs in 2020.
At our 2017 Annual Meeting of Shareholders, the shareholders indicated, on an advisory vote basis, that they preferred
that we hold Say on Pay votes on an annual basis (a frequency vote is required to be held at least once every six years). In
light of these results, the Company’s Board of Directors decided to hold its future advisory votes on the compensation of
named executive officers annually until the next frequency vote, which will be held on or before our 2023 Annual Meeting.
Effects of Advisory Vote
Because the vote on this proposal is advisory in nature, it will not affect any compensation already paid or awarded to our
NEOs and will not be binding on the Board or the Compensation Committee. However, the Compensation Committee will
consider the outcome of the vote when making future executive compensation decisions.
Overview and Summary; Consideration of Prior Year Say on Pay Vote
The Company believes in competitive compensation aligned with the values, objectives and financial performance of the
Company. In 2018, 2019, and 2020, a significant amount of our executives’ potential total compensation was tied to
performance. The Compensation Committee considers the performance criteria for the Company’s performance-based
compensation challenging, but achievable. Performance-based RSUs, non-equity incentive compensation plan, and
commission targets have been achieved during 2018, 2019, and 2020. With the creation of the CEO Performance Award
and XSU awards in 2018 and 2019, respectively, more focus and compensation is aligned with long-term Company
performance; while none of the XSU tranches had vested as of December 31, 2020, the first operational goal was achieved
as of December 31, 2020 and the related tranche vested upon certification from the Compensation Committee in
March 2021.
At the 2020 Annual Meeting of Shareholders (“2020 Annual Meeting”), we presented to shareholders, for advisory
approval, the Company’s executive compensation (“Say on Pay”). Of the 45.5 million votes cast on the Say on Pay vote
(including abstentions), 87% were favorable for our Say on Pay resolution. The Compensation Committee considered this
a favorable outcome and believed it conveyed our shareholders’ support of the Compensation Committee’s decisions and
existing executive compensation programs.
Our compensation opportunities for our named executive officers are predominantly delivered in the form of performance-
based awards, including equity-based awards, which are designed to promote incentives that are aligned with long-term
stockholder interests. It is the Committee’s intent that the total compensation for our NEOs be competitive to attract and
Axon Enterprise, Inc. | 2020 Proxy Statement | 50
retain highly qualified individuals who are capable of making significant contributions critical to our long-term success.
The Compensation Committee will continue to consider the results from this year’s and future advisory votes on executive
compensation.
Unless marked to the contrary, proxies received will be voted FOR approval of the advisory vote on executive
compensation.
The Board of Directors unanimously recommends a vote FOR approval of the resolution set forth above approving
the compensation of our named executive officers.
Vote Required
For Proposal No. 2, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal, in person or represented by proxy at the
meeting and entitled to vote on this proposal is required for approval. Abstentions and broker non-votes will have no
impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2020 Proxy Statement | 51
PROPOSAL NO. 3 - RATIFICATION OF APPOINTMENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
The Audit Committee has appointed Grant Thornton LLP, independent registered public accounting firm, to audit the
consolidated financial statements of the Company for the year ending December 31, 2021. Grant Thornton LLP has acted
as the independent registered public accounting firm for the Company since 2005. A representative of Grant Thornton
LLP is expected to be present at the Annual Meeting, will have the opportunity to make a statement and is expected to be
available to respond to appropriate questions.
Shareholder ratification of the selection of Grant Thornton LLP as our independent registered public accounting firm is
not required by our bylaws or otherwise. Nonetheless, the Audit Committee is submitting the selection of Grant Thornton
LLP to the shareholders for ratification as a matter of good corporate practice and because the Audit Committee values
the views of our shareholders on our independent auditors.
If the shareholders fail to ratify the election, the Audit Committee will reconsider the appointment of Grant Thornton LLP.
Even if the selection is ratified, the Audit Committee, in its discretion, may appoint a different independent registered
public accounting firm at any time during the year if it determines that such an appointment would be in the Company’s
best interest.
If the appointment is not approved by the shareholders, the adverse vote will be considered a direction to the Audit
Committee to consider other auditors for next year. However, because of the difficulty in making any substitution of
auditors so long after the beginning of the current year, the appointment in 2021 will stand, unless the Audit Committee
finds other good reason for making a change.
Audit and Non-Audit Fees
The following table presents fees for audit, tax and other professional services rendered by Grant Thornton LLP for
the years ended December 31, 2020 and 2019.
Audit fees
Audit-Related Fees
Tax Fees
All Other Fees
2020
$ 1,480,997
—
—
—
2019
$ 1,272,316
—
—
—
$ 1,480,997 $ 1,272,316
Audit Fees: Consisted of fees billed for professional services rendered for the audit of Axon Enterprise, Inc.’s financial
statements, fees billed related to Sarbanes-Oxley 404 review and services provided by Grant Thornton LLP in connection
with statutory and regulatory filings.
Audit-Related Fees: Audit-related fees related to professional services that are reasonably related to the performance of
the audit or review of Axon’s consolidated financial statements. No such services were rendered during the years ended
December 31, 2020 or 2019.
Tax Fees: Consisted of fees billed principally for services provided in connection with worldwide tax consulting and
planning services. No such services were rendered during the years ended December 31, 2020 or 2019.
All Other Fees: All other fees related to services not included in the categories above, including services related to other
regulatory reporting requirements. No such services were rendered during the years ended December 31, 2020 or 2019.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditor
Consistent with SEC policies regarding auditor independence, the Audit Committee must pre-approve all audit and
permissible non-audit services provided by our independent auditors. Our Non-Audit Services Pre-Approval Policy covers
Axon Enterprise, Inc. | 2020 Proxy Statement | 52
all services to be performed by our independent auditors. The policy contemplates a general pre-approval for all audit,
audit-related, tax and all other services that are permissible, with a general pre-approval period of twelve months from the
date of each pre-approval. Any other proposed services that are to be performed by our independent auditors, not covered
by or exceeding the pre-approved levels or amounts, must be specifically approved in advance.
Prior to engagement, the Audit Committee pre-approves the following categories of services. These fees are budgeted, and
the Audit Committee requires the independent auditors and management to report actual fees versus the budget periodically
throughout the year, by category of service.
• Audit services include the annual financial statement audit (including required quarterly reviews) and other work
required to be performed by the independent auditors to be able to form an opinion on our consolidated financial
statements. Such work includes, but is not limited to, services associated with SEC registration statements,
periodic reports, SEC reviews and other documents filed with the SEC or other documents issued in connection
with securities offerings.
• Audit-related services are for services that are reasonably related to the performance of the audit or review of
our financial statements or that are traditionally performed by the independent auditor. Such services typically
include but are not limited to, due diligence services pertaining to potential business acquisitions or dispositions,
accounting consultations related to accounting, financial reporting or disclosure matters not classified as “audit
services,” statutory audits or financial audits for subsidiaries or affiliates, and assistance with understanding and
implementing new accounting and financial reporting guidance.
• Tax services include all services performed by the independent auditors’ tax personnel, except those services
specifically related to the financial statements, and includes fees in the area of tax compliance, tax planning and
tax advice.
The Company’s CFO has the authority to engage the Company’s independent registered public accounting firm for
amounts less than $5,000. There were no such audit–related fees, tax fees or other fees in 2020.
The Audit Committee has considered and concluded that the provision by Grant Thornton LLP of non-audit services is
compatible with Grant Thornton maintaining its independence.
Unless marked to the contrary, proxies received will be voted FOR ratification of the appointment of Grant Thornton LLP
as the Company’s independent registered public accounting firm for the year ending December 31, 2021.
The Board of Directors recommends a vote FOR ratification of the appointment of Grant Thornton LLP as the
Company’s independent registered public accounting firm for fiscal 2021.
Vote Required
For Proposal No. 3, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal, in person or represented by proxy at the
meeting and entitled to vote on this proposal is required for approval. Abstentions and broker non-votes will have no
impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2020 Proxy Statement | 53
PROPOSAL NO. 4 – AMENDMENT TO THE COMPANY’S AMENDED AND RESTATED CERTIFICATE
OF INCORPORATION TO INCREASE THE MAXIMUM SIZE OF THE BOARD OF DIRECTORS FROM
9 TO 11 DIRECTORS
On March 18, 2021, the Board of Directors unanimously voted to adopt a resolution approving and recommending the
stockholders to approve an amendment to our Amended and Restated Certificate of Incorporation to increase the maximum
size of the Board of Directors from 9 to 11 directors.
Rationale for Increasing the Maximum Number of Directors
As discussed in “Governance – The Board of Directors,” the NCG Committee assesses potential candidates based off their
demonstrated character, judgment, relevant business, functional and industry experience, including their skill set and
background. There are currently 9 directors serving on the Board. We believe the current restriction on size of the board
limits the flexibility of the Board to add new directors in the event that multiple strong candidates are identified. Increasing
the maximum size of the Board will also allow us to further enhance the diversity, expertise, and experience of the Board.
Proposed Amendment to Increase the Maximum Number of Directors
Increasing the maximum size of the Board of Directors requires an amendment to our Certificate of Incorporation (the
“Certificate”). If this proposal is approved by the stockholders, the second sentence of Section 5(a) of the Certificate would
be amended and restated to state, “In no event shall the number of directors that constitute the whole Board of Directors
be less than three (3) or more than eleven (11).” The Amended and Restated Certificate of Incorporation reflecting this
proposed change is attached as Appendix A to this proxy statement.
If approved by our stockholders, the amendment will become effective upon the filing of a certificate of amendment with
the Delaware Secretary of State, which will occur promptly following the 2021 Annual Meeting.
The Board of Directors unanimously recommends a vote FOR approval of the amendment to our Amended and
Restated Certificate of Incorporation to increase the maximum size of the Board of Directors from 9 to 11 directors.
Vote Required
Proposal No. 4 requires the affirmative vote of a majority of the shares issued and outstanding as of the record date to
approve this amendment to the Amended and Restated Certificate of Incorporation. Abstentions and broker non-votes will
have the same effect as a vote cast against the proposal.
Axon Enterprise, Inc. | 2020 Proxy Statement | 54
PROPOSAL NO. 5 - SHAREHOLDER PROPOSAL RECOMMENDING THE COMPANY MOVE FROM A
PLURALITY VOTING STANDARD TO A MAJORITY VOTING STANDARD
Axon has been advised that Mr. James McRitchie, 9295 Yorkship Court, Elk Grove, CA 95758, who has indicated he is a
beneficial owner of at least $2,000 in market value of Axon’s common stock, intends to submit the following proposal at
the Annual Meeting:
RESOLVED: Shareholders of Axon Enterprise Inc (‘Company’) request the Board of Directors amend our Company’s
policies, articles of incorporation and/or bylaws to provide that the director nominees be elected by the affirmative vote
of the majority of votes cast, with a plurality vote standard retained for contested director elections, that is, when the
number of director nominees exceeds the number of board seats. This proposal includes that a director who receives less
than a majority vote be removed as soon as a replacement director can be qualified on an expedited basis. If such a
removed director has key experience, they can transition to a consultant or director emeritus. With written justification,
the board can set an effective date several years into the future for these changes to take effect.
Supporting Statement: To provide shareholders a meaningful role in director elections, our Company’s current director
election standard should transition from a plurality vote standard to a majority vote standard when only board nominated
candidates are on the ballot.
Under our Company’s current voting system, a director can be elected if all shareholders oppose the director but one
shareholder votes FOR, even by mistake. More than 90% of the companies in the S&P 500 have adopted majority voting
for uncontested elections.
In 2019 and 2020 majority shares voted FOR similar proposals at TG Therapeutics, Lipocine, Abeona Therapeutics,
Alico, Guidewire Software, Stemline Therapeutics, Caesars Entertainment, RadNet, Gannet, New Residential
Investment, Safety Insurance Group, First Community Bancshares, Greenhill, and Advaxis.
Vanguard includes the following in their proxy voting guidance: “If the company has plurality voting, a fund will
typically vote for shareholder proposals requiring majority vote for election of directors.” Blackrock’s proxy voting
guidelines include the following: “Majority voting standards assist in ensuring that directors who are not broadly
supported by shareholders are not elected to serve as their representatives.” Many of our other large shareholders have
similar proxy voting policies.
Our board is locked into an outdated governance structure that reduces accountability to shareholders, increasing the
likelihood of stagnation. We should not risk Zombies on Board: Investors Face
the Walking Dead
(https://www.msci.com/www/blog-posts/zombies-on-board-investors-face/02161045315).
To Enhance Shareholder Value, Vote FOR
Elect Directors by Majority Vote – Proposal No. 5
Statement in Opposition to Proposal No. 5
The Board of Directors recommends a vote AGAINST the shareholder proposal.
The Board of Directors does not believe that electing our directors by majority vote is in the best interest of the Company
and its shareholders for the following reasons:
Stability, Continuity and Experience
Currently, the Board of Directors is chosen by plurality voting, meaning each year, the nominees with the most votes are
elected. This guarantees that each year directors will be elected. Under a majority voting scheme, as outlined in the
proposal, any or all of the nominees up for election in any given year could fail to reach the majority vote threshold,
Axon Enterprise, Inc. | 2020 Proxy Statement | 55
exposing the Company and shareholders to the undue risk where we fail to elect any nominees that year. If this were to
happen, we could lose continuity in our leadership and lose valuable Board knowledge and expertise. This loss would be
exacerbated in a situation where the nominees who fail to reach the majority threshold hold key experience or independence
status as required by various rules, regulations, and listing standards. It would be impossible to comply with some of these
rules, regulations and standards by engaging these directors as consultants or director emeritus and there is no guarantee
they would accept such a reduced role. Further, it may be difficult to replace that experience and could be impossible to
replace the intimate Company knowledge such directors have gained by serving on our board. We also believe that any
perceived benefit from a majority voting scheme is outweighed by these risks and by the assurance that under our current
system, we will always elect new directors each year. Given the concern that a nominee could become director with a low
vote total, the Board will evaluate on an ongoing basis low vote results for any given director nominee and take it into
consideration if and when such director is up for re-nomination.
We respectfully disagree with the shareholder proposal statement and hypothetical charge that the Company’s Board
features an “outdated governance structure that reduces accountability to shareholders, increasing the likelihood of
stagnation.” Axon enjoys a strong, engaged and independent Board of Directors that actively maintains strong relationships
with shareholders, has demonstrated a commitment to strong corporate governance through active engagement with
executive officers, putting forth compensation plans that align the interests of shareholders, executive officers, and
employees, and having implemented Board tenure and minimum share ownership guidelines. We believe it is in the best
interest of the corporation to foster stability, continuity and experience in our Board of Directors by maintaining the current
plurality voting standard.
Non-Customary “Expeditious” Language
The proposal contains non-customary language requiring the Board to replace any incumbent director who fails to reach
a majority consensus on an expedited basis as opposed to a set period of time (i.e., 90 days). We believe this to be non-
customary language. Requiring the Board to find a replacement on an expedited basis could divert Board attention away
from managing the Company towards finding replacements. Such a distraction could harm the company and its
shareholders.
After careful consideration, our Board of Directors has determined that continuation of the election by plurality vote is
appropriate and in the best long-term interests of the Company and our shareholders.
The Board of Directors recommends a vote AGAINST the approval of Proposal No. 5.
Vote Required
For Proposal No. 5, assuming the existence of a quorum at the Annual Meeting, the affirmative vote of a majority of the
total votes of shares of common stock properly cast for or against the proposal, in person or represented by proxy at the
meeting and entitled to vote on this proposal is required for approval. Abstentions and broker non-votes will have no
impact on this proposal if a quorum is present.
Axon Enterprise, Inc. | 2020 Proxy Statement | 56
OTHER MATTERS
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contains forward-looking statements within the meaning of the Private Securities Litigation Reform
Act of 1995. Statements in this proxy statement that are not historical facts are hereby identified as “forward-looking
statements” for the purpose of the safe harbor provided by Section 21E of the Exchange Act, and Section 27A of the
Securities Act. These forward-looking statements, wherever they occur in this proxy statement, are necessarily estimates
reflecting the best judgment of the management of Axon and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the forward-looking statements. These forward-looking
statements should, therefore, be considered in light of various important factors, including those set forth in this proxy
statement.
Words such as “estimate,” “project,” “plan,” “intend,” “expect,” “anticipate,” “believe,” “would,” “should,” “could” and
similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at
various places throughout this proxy statement. Important factors that could cause actual results to differ materially from
those indicated by such forward-looking statements include those set forth in Axon’s filings with the SEC, including its
Annual Report on Form 10-K for the fiscal year ended December 31, 2020, which accompanies this proxy statement.
Axon undertakes no obligation to publicly update any forward-looking statement, whether as a result of new information,
future events or otherwise, except as required by law. In the event that Axon does update any forward-looking statement,
no inference should be made that Axon will make additional updates with respect to that statement, related matters or any
other forward-looking statements.
SHAREHOLDER PROPOSALS
To be eligible for inclusion in the Company’s proxy materials for the 2022 Annual Meeting of Shareholders, a proposal
intended to be presented by a shareholder for action at that meeting must, in addition to complying with the shareholder
eligibility and other requirements of the SEC’s rules governing such proposals, be received not later than December 12,
2021 by the Corporate Secretary of the Company at the Company’s principal executive offices, 17800 North 85th Street,
Scottsdale, Arizona 85255.
Shareholders may bring business before an annual meeting of shareholders that is not submitted for inclusion in the
Company’s proxy materials (including the nomination of any person to be elected as a director) only if the shareholder
proceeds in compliance with the Company’s bylaws. For business to be properly brought before an annual meeting of
shareholders by a shareholder that is not submitted for inclusion in the Company’s proxy materials (including the
nomination of any person to be elected as a director), notice of the proposed business must be given to the Corporate
Secretary of the Company in writing no later than 60 days before the annual meeting of shareholders or (if later) ten days
after the first public notice of the meeting is sent to shareholders.
The notice to the Company’s Corporate Secretary must set forth as to each matter that the shareholder proposes to bring
before the meeting: (a) the nature of the proposed business with reasonable particularity, including the exact text of any
proposal to be presented for adoption, and the reasons for conducting that business at the annual meeting; (b) the
shareholder’s name and address as they appear on the records of the Company, business address and telephone number,
residence address and telephone number, and the number of shares of common stock of the Company directly or
beneficially owned by the shareholder; (c) any interest of the shareholder in the proposed business; (d) the name or names
of each person nominated by the shareholder to be elected or re-elected as a director, if any; and (e) with respect to any
such director nominee, the nominee’s name, business address and telephone number, residence address and telephone
number, the number of shares of common stock of the Company, if any, directly or beneficially owned by the nominee,
all information relating to the nominee that is required to be disclosed in solicitations of proxies for elections of directors,
or is otherwise required, under Regulation 14A of the Exchange Act or successor regulation, and a letter signed by the
nominee stating the nominee’s acceptance of the nomination, the nominee’s intention to serve as a director if elected and
consenting to being named as a nominee for director in any proxy statement relating to such election.
Axon Enterprise, Inc. | 2020 Proxy Statement | 57
The presiding officer at any annual meeting shall determine whether any matter was properly brought before the meeting
in accordance with the above provisions. If the presiding officer should determine that any matter has not been properly
brought before the meeting, he or she will so declare at the meeting and any such matter will not be considered or acted
upon.
HOUSEHOLDING OF ANNUAL MEETING MATERIALS
Some brokers and other nominee record holders may be participating in the practice of “householding” proxy statements
and annual reports. This means that only one copy of the proxy statement and Annual Report may have been sent to
multiple shareholders in a shareholder’s household. The Company will promptly deliver a separate copy of either document
to any shareholder who contacts the Company’s investor relations department at 17800 North 85th Street, Scottsdale,
Arizona 85255, phone number (480) 515-6330, requesting such copies. If a shareholder is receiving multiple copies of the
proxy statement and Annual Report at the shareholder’s household and would like to receive a single copy of the proxy
statement and annual report for a shareholder’s household in the future, shareholders should contact their broker, other
nominee record holder, or the Company’s investor relations department to request mailing of a single copy of the proxy
statement and annual report.
A copy of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, is available
to shareholders without charge upon request to: Investor Relations, Axon Enterprise, Inc., 17800 North 85th Street,
Scottsdale, Arizona 85255.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS FOR THE SHAREHOLDER MEETING TO BE HELD ON MAY 27, 2021
The proxy materials for the Company’s Annual Meeting of Shareholders, including the 2020 Annual Report and this proxy
statement, are available over the Internet by accessing the investor relations page of the Company’s website at
http://investor.axon.com. Other information on the Company’s website does not constitute part of the Company’s proxy
materials.
By Order of the Board of Directors,
/s/ ISAIAH FIELDS
Isaiah Fields
Corporate Secretary
February 21, 2021
Axon Enterprise, Inc. | 2020 Proxy Statement | 58
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
AXON ENTERPRISE, INC.
ANNEX A
Axon Enterprise, Inc., a corporation organized and existing under and by virtue of the provisions of the General
Corporation Law of the State of Delaware (the “Law”),
DOES HEREBY CERTIFY:
1.
That the name of this corporation is Axon Enterprise, Inc. and that this corporation was originally
incorporated pursuant to the General Corporation Law on January 5, 2001 under the name Taser International, Inc.
2.
That the Board of Directors duly adopted resolutions proposing to amend and restate the Certificate of
Incorporation of this corporation, declaring said amendment and restatement to be advisable and in the best interests of
this corporation and its stockholders, and authorizing the appropriate officers of this corporation to solicit the consent of
the stockholders therefor, which resolution setting forth the proposed amendment and restatement is as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended and restated in its entirety to
read as follows:
1.
The name of the corporation is Axon Enterprise, Inc. (the “Corporation”).
2.
The street and the mailing address of the Corporation’s registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle, State of Delaware 19801. The
name of its registered agent at such address is The Corporation Trust Company.
3.
The purpose of the Corporation is to conduct any lawful business, to promote any lawful purpose, and
to engage in any lawful act or activity for which corporations may be organized under the Law.
4.
The Corporation is authorized to issue a total of 225,000,000 shares of two classes of stock:
200,000,000 shares of Common Stock, par value $.00001 per share; and 25,000,000 shares of Preferred Stock, par value
$.00001 per share.
(a)
(b)
Holders of Common Stock are entitled to one vote per share on any matter submitted to the
stockholders. On dissolution of the Corporation, after any preferential amount with respect to any series of Preferred Stock
has been paid or set aside, the holders of Common Stock and the holders of any series of Preferred Stock entitled to
participate in such distribution of assets are entitled to receive the net assets of the Corporation.
(c)
The Board of Directors is authorized, subject to limitations prescribed by the Law and by the
provisions of this Article 4, and to the approval of a majority of the Corporation’s independent and disinterested directors,
to provide for the issuance of shares of Preferred Stock in series. The Board of Directors is further authorized to establish
from time-to-time the number of shares to be included in each series and to determine the designations, relative rights,
preferences and limitations of the shares of each series. The authority of the Board of Directors with respect to each series
includes determination of the following:
(i)
The number of shares in and the distinguishing designation of that series;
(ii)
rights, except to the extent otherwise provided by the Law;
Whether shares of that series will have full, special, conditional, limited or no voting
Axon Enterprise, Inc. | 2020 Proxy Statement | A - 1
(iii) Whether shares of that series will be convertible and the terms and conditions of the
conversion, including provision for adjustment of the conversion rate in circumstances determined by the Board of
Directors;
(iv) Whether shares of that series will be redeemable and the terms and conditions of the
redemption, including the date or dates upon or after which they will be redeemable and the amount per share payable in
case of redemption, which amount may vary under different conditions or at different redemption dates;
dividends and the preferences of any dividends;
(v)
The dividend rate, if any, on shares of that series, the manner of calculating any
The rights of shares of that series in the event of voluntary or involuntary dissolution
of the Corporation and the right of priority of that series relative to the Common Stock and any other series of Preferred
Stock on the distribution of assets on dissolution; and
(vi)
Law.
(vii)
Any other rights, preferences and limitations of that series that are permitted by the
No stockholder of the Corporation shall be entitled to any cumulative voting rights. The Board
of Directors is authorized, subject to limitations prescribed by the Law, by resolution to create, issue and fix the terms of
any preemptive or antidilution rights of any stockholder.
(d)
5.
The number, classification and terms of the Board of Directors and the procedures to elect or remove
directors and to fill vacancies on the Board of Directors shall be as follows:
(a)
The number of directors that shall constitute the whole Board of Directors shall from time to
time be fixed exclusively by the Board of Directors by a resolution adopted by a majority of the whole Board of Directors
serving at the time of the vote. In no event shall the number of directors that constitute the whole Board of Directors be
less than three (3) or more than nine (9) eleven (11). No decrease in the number of directors shall have the effect of
shortening the term of any incumbent director.
(b)
The Board of Directors of the Corporation shall be divided into three (3) classes designated
Class A, Class B and Class C, respectively, as nearly equal in number as possible, with each director in office at the time
of such initial classification receiving the classification approved by a majority of the Board of Directors. The initial term
of office of directors of Class A shall expire at the annual meeting of stockholders of the Corporation in 2001, of Class B
shall expire at the annual meeting of stockholders of the Corporation in 2002, and of Class C shall expire at the annual
meeting of stockholders of the Corporation in 2003, and in all cases a director shall serve until the director’s successor is
elected and qualified or until the director’s earlier death, resignation or removal. At each annual meeting of stockholders
beginning with the annual meeting of stockholders in 2001, each director elected to succeed a director whose term is then
expiring shall hold office until the third annual meeting of stockholders after his or her election and until his or her
successor is elected and qualified or until his or her earlier death, resignation or removal. If the number of directors that
constitutes the whole Board of Directors is changed as permitted by this Article, a majority of the whole Board of Directors
that adopts the change shall also fix and determine the number of directors comprising each class; provided, however, that
any increase or decrease in the number of directors shall be apportioned among the classes as equally as possible.
(c)
Vacancies on the Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause, and newly created directorships resulting from any increase in the
authorized number of directors, may be filled by no less than a majority vote of the remaining directors then in office,
though less than a quorum, who are designated to represent the same class or classes of stockholders that the vacant
position, when filled, is to represent or by the sole remaining director (but not by the stockholders except as required by
the Law); provided that, with respect to any directorship to be filled by the Board of Directors by reason of an increase in
the number of directors: (i) such directorship shall be for a term of office continuing only until the next election of one or
more directors by the stockholders; and (ii) the Board of Directors may not fill more than two such directorships during
the period between any two successive annual meetings of stockholders. Each director chosen in accordance with this
Axon Enterprise, Inc. | 2020 Proxy Statement | A - 2
provision shall receive the classification of the vacant directorship to which he or she has been appointed or, if it is a
newly-created directorship, shall receive the classification approved by a majority of the Board of Directors and shall hold
office until the first meeting of stockholders held after his or her election for the purpose of electing directors of that
classification and until his or her successor is elected and qualified or until his or her earlier death, resignation or removal
from office.
A director may be removed from office before the expiration date of that director's term of
office, with or without cause, only by an affirmative vote of the holders of a majority of the voting power of the then
outstanding shares of capital stock entitled to vote thereon (the "Voting Stock"), voting together as a single class.
(d)
(e)
Notwithstanding any other provision of this Certificate of Incorporation or any provision of the
Law that might otherwise permit a lesser or no vote, and in addition to any affirmative vote of the holders of any particular
class or series of the capital stock of the Corporation required by the Law or by this Certificate of Incorporation, the
affirmative vote of a majority of the Voting Stock, voting together as a single class, shall be required to amend or repeal,
or to adopt any provision inconsistent with, this Article 5.
6.
(a)
All of the power of the Corporation, insofar as it may be lawfully vested by this Certificate of
Incorporation in the Board of Directors, is hereby conferred upon the Board of Directors. In furtherance of and not in
limitation of that power or the powers conferred by the Law, a majority of directors then in office (or such higher
percentage as may be specified in the Bylaws with respect to any provision thereof) shall have the power to adopt, alter,
amend and repeal the Bylaws of the Corporation, and notwithstanding any other provision of this Certificate of
Incorporation or any provision of the Law that might otherwise permit a lesser or no vote, and in addition to any affirmative
vote of the holders of any particular class or series of the capital stock of the Corporation required by the Law or by this
Certificate of Incorporation, the Bylaws of the Corporation shall not be adopted, altered, amended or repealed by the
stockholders of the Corporation except in accordance with the provisions of the Bylaws and by the vote of the holders of
not less than a majority of the Voting Stock, voting together as a single class. Notwithstanding any other provision of this
Certificate of Incorporation or any provision of the Law that might otherwise permit a lesser or no vote, and in addition to
any affirmative vote of the holders of any particular class or series of the capital stock of the Corporation required by the
Law or by this Certificate of Incorporation, the affirmative vote of the holders of not less than a majority of the Voting
Stock, voting together as a single class, shall be required to amend or repeal, or to adopt any provision inconsistent with,
this Article 6.
Subject to the terms of any Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be taken at a duly called annual or special meeting of such stockholders or by written
consent of all (but not less than all) stockholders entitled to vote in lieu of such a meeting.
(b)
7.
A director of the Corporation shall not be personally liable to the Corporation or its stockholders for
monetary damages for conduct as a director, provided that this Article does not eliminate the liability of any director for
any act or omission for which such elimination of liability is not permitted under the Law. No amendment to the Law that
further limits the acts or omissions for which elimination of liability is permitted will affect the liability of a director for
any act or omission which occurs prior to the effective date of the amendment.
Axon Enterprise, Inc. | 2020 Proxy Statement | A - 3
8.
The Corporation may indemnify to the fullest extent not prohibited by law any person (an “Indemnified
Person”) who is made, or threatened to be made, a party to an action, suit or proceeding, whether civil, criminal,
administrative, investigative or other (including an action, suit or proceeding by or in the right of the Corporation), by
reason of the fact that such person is or was a director, officer, employee or agent of the Corporation or a fiduciary within
the meaning of the Employee Retirement Income Security Act of 1974 with respect to any employee benefit plan of the
Corporation, or serves or served at the request of the Corporation as a director, officer, employee or agent, or as a fiduciary
of an employee benefit plan, of another corporation, partnership, joint venture, trust or other enterprise. The Corporation
may, in its sole discretion, pay for or reimburse the reasonable expenses incurred by any Indemnified Person in any such
proceeding in advance of the final disposition of the proceeding. This Article 8 will not be deemed exclusive of any other
provisions for indemnification of or advancement of expenses to an Indemnified Person that may be included in any statute,
bylaw, agreement, general or specific action of the Board of Directors, vote of stockholders or other document or
arrangement.
9.
The election of directors need not be by written ballot unless a stockholder demands election by written
ballot before voting begins at a meeting of stockholders.
10.
The name and mailing address of the incorporator is Corporation Service Company, 251 Little Falls
Drive, Wilmington, Delaware, 19808.
* * *
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
Axon Enterprise, Inc. | 2020 Proxy Statement | A - 4
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by a duly
authorized officer of this corporation on this ___ day of _________, 2021.
By:
Name:
Title:
Axon Enterprise, Inc. | 2020 Proxy Statement | A - 5
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2020
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission File Number: 001-16391
Axon Enterprise, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
17800 North 85th Street
Scottsdale, Arizona
(Address of principal executive offices)
86-0741227
(I.R.S. Employer
Identification No.)
85255
(Zip Code)
Registrant’s telephone number, including area code:
(480) 991-0797
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock, $0.00001 par value per share
Trading Symbol(s)
AXON
Name of exchange on which registered
The NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☒
☐
Accelerated filer☐
Smaller reporting company☐
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. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 762(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $6.126 billion based on the closing sale price as
reported on The NASDAQ Global Select Market.
The number of shares of the registrant’s common stock outstanding as of February 18, 2021 was 63,783,849.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the registrant’s definitive proxy statement for its 2021 annual meeting of stockholders to be prepared and filed with the Securities and Exchange Commission not later than
120 days after December 31, 2020 are incorporated by reference into Part III of this Form 10-K.
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AXON ENTERPRISE, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2020
Business
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART I
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
PART III
Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14. Principal Accountant Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Item 16. Form 10-K Summary
2
PART I
Statements contained in this report that are not historical are “forward-looking statements” within the meaning
of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), including statements regarding our expectations, beliefs,
intentions and strategies regarding the future. We intend that such forward-looking statements be subject to the safe-
harbor provided by the Private Securities Litigation Reform Act of 1995. 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. 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. This report 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 Exchange Act and Section 27A of the
Securities Act. Readers can find them under the heading “Risk Factors” in this Annual Report on Form 10-K, and
investors should refer to them. 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 10-Q, 8-K and 10-K reports to the Securities and Exchange Commission
("SEC"). Our filings with the SEC may be accessed at the SEC’s web site at www.sec.gov.
3
Item 1. Business
Axon Enterprise, Inc. may be referred to as “the Company,” “Axon,” “we,” or “our.” We were incorporated in
Arizona in September 1993 as ICER Corporation. We changed our name to AIR TASER, Inc. in December 1993 and
to TASER International, Incorporated in April 1998. In January 2001, we reincorporated in Delaware as TASER
International, Inc., and in April 2017, changed our name to Axon Enterprise, Inc.
Our headquarters in Scottsdale, Arizona houses our executive management, sales, marketing, certain
engineering, manufacturing, finance and other administrative support functions. Our global software hub is located in
Seattle, Washington, and we also have subsidiaries and / or offices located in Australia, Canada, Finland, Germany,
Hong Kong, India, Italy, the Netherlands, the United Kingdom, and Vietnam.
Overview
Axon’s mission is to protect life. We fulfill this mission through developing hardware and software products
that advance our long-term strategic goals of a) obsoleting the bullet, b) reducing social conflict, c) enabling a fair and
effective justice system, and d) building for racial equity, diversity, and inclusion. Our products solve some of society's
most challenging problems and our mission attracts top talent.
An axon is a nerve fiber that serves as the primary communication link in a nervous system — similarly, we see
ourselves as building the nervous system for public safety. Our research & development (“R&D”) investments support
continuous innovation on behalf of our customers. Our financial strategy is to build highly recurring, highly profitable
businesses.
• What we build - Technologies to assist officers in de-escalating events, devices, digital evidence management
systems, productivity software, real-time operations software and services, and virtual reality training
services
• Who we sell to - State and local police departments, U.S. federal agencies, justice and court systems, fire
departments and emergency medical services providers, consumers, and commercial enterprises such as
private security firms and transportation services
• Where we deliver – U.S., Asia-Pacific (“APAC”); Europe, the Middle East, and Africa (“EMEA”) and the
Americas
Axon’s operations comprise two reportable segments:
1. TASER: Axon is the market leader in the development, manufacture and sale of conducted energy devices
("CEDs"), which we sell under our brand name, TASER.
2. Software and Sensors: We develop, manufacture and sell fully integrated hardware and cloud-based software
solutions that enable law enforcement to capture, securely store, manage, share and analyze video and other
digital evidence.
Further information about our reportable segments and sales by geographic region is included in Notes 1 and 17
of the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. For backlog by
reportable segment, refer to Part II, Item 7 of this Annual Report on Form 10-K.
Key Product Category Revenue Drivers: What We Offer
Axon products are generally cloud-connected, designed to drive better outcomes and customer experiences, and
sold via mutually reinforcing integrated bundles. Our key revenue drivers belong to three broad product categories:
1. TASER: We develop smart devices, tools and services that support public safety officers in de-escalating
situations, avoiding or minimizing use of force. These tools include:
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• TASER devices: Research has shown that TASER devices are the most effective less-than-lethal
force option, with the lowest likelihood of injury to officers and assailants. Since our inception in
1993, TASER devices have been adopted by a majority of U.S. police departments and are used
daily to help keep communities safe. The cloud-connected TASER CED (TASER 7) is our newest
device. We also sell TASER devices to consumers for personal protection.
• VR and Training: We offer a suite of virtual reality ("VR") training services for public safety,
delivered through our Axon Academy training platform. To obsolete bullets, we intend to drive
training and adoption of best practices in modern policing.
2. Sensors: Axon devices address many needs, including transparency, real-time situational awareness, and
capturing evidence accurately and integrating with software workflows. Product categories within sensors
include:
• Axon Body cameras, including Axon Body 3, an LTE-enabled camera with Global Positioning
System ("GPS") capability and support for real-time awareness via our software. Our body cameras
also include the Axon Flex sunglasses-or-brim-mounted camera.
• Axon Fleet in-car camera systems. We are investing in automated license plate reading (“ALPR”),
which uses artificial intelligence (“AI”) to read license plates to apprehend criminals, find missing
children, and recover stolen vehicles. We believe a key differentiator is that our AI-powered system
is being built from the ground up using an ethical design and privacy-centric framework.
• Axon Air is Axon's unmanned aircraft program, which allows agencies to ingest data captured on
drone devices directly into Axon Evidence. Axon Air is an important tool to help improve officer
safety, provide tactical support, and manage evidence.
• Our sensors network works with our software to help to automatically ensure cameras are on when
they are supposed to be on and send alerts within the network, including Signal Sidearm sensors
that detect when a firearm has been removed from a holster, sensors that detect when a TASER
device is unholstered or armed, when a vehicle lightbar is activated, or the vehicle door opens, and
we are introducing new signal activation events based on location and dispatching.
3. Software: Axon is building a suite of cloud-based, software-as-a-service (“SaaS”) solutions that integrate
with our sensors and TASER devices to benefit customers and drive annual recurring revenue, which totaled
$221.3 million(a) as of December 31, 2020. Our SaaS solutions can be best trisected into:
• Digital Evidence Management: Axon Evidence addresses the challenges presented by growing
amounts of digital evidence via closed circuit television video, body worn camera video, in-car
camera video, Internet of Things sensors and citizen-captured digital evidence. We make it easy to
store, manage, redact and share evidence on one platform. Axon Evidence is the world’s largest
cloud-hosted public safety data repository of public safety video data and other types of digital
evidence. Products include:
o Axon Evidence (Evidence.com) for managing, sharing and storing video, as well as hosting
all types of digital evidence.
o Axon Performance to help agencies ensure officers are adhering to policies and provides
analytics on the effectiveness of body-worn camera programs.
o Redaction Assistant to enable agencies to quickly redact videos using AI.
(a) Monthly recurring license, integration, warranty, and storage revenue annualized.
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• Productivity: Our productivity suite of tools is designed to reduce the time officers spend on
administrative tasks and give command staff tools to make data-driven decisions. Our productivity-
enhancing products include:
o Axon Records, an emerging cloud-based report-writing tool that modernizes records
management systems ("RMS") by putting body camera video at the heart of incident
records.
o Axon Standards, a use-of-force reporting module that can be easily adopted alongside an
agency’s legacy RMS before an agency adopts the rest of Axon Records.
o Auto-transcribe, which uses AI to help agencies review massive amounts of video evidence
to find what is pertinent to an investigation and quickly and accurately transcribe video so
it can move through the justice system.
• Real Time Operations. We are developing decision-making and communication tools that support
real-time situational awareness through the sharing of information across myriad media, including
voice, messaging, location mapping, and intelligence and evidence sharing. Products include:
o Respond for Devices, which allows agencies to receive alerts, to know the GPS location of
their officers and what those officers are experiencing through live-video streaming.
o Respond for Dispatch, a computer-aided dispatch ("CAD") solution designed to empower
everyone in public safety involved in incident response: dispatchers, call takers, command
staff, patrol officers, firefighters and medical personnel.
Sales and Distribution: Who We Sell To and Where We Deliver
Axon’s direct sales force and strong customer relationships represent key strategic advantages. The majority of
our revenues are generated via direct sales, including our online store, although we do leverage distribution partners
and third-party resellers.
No customer represented more than 10% of total net sales for the years ended December 31, 2020, 2019 or 2018.
Our primary customer market is U.S. law enforcement. Of the approximately 18,000 law enforcement agencies
in the U.S., we have a customer relationship with approximately 17,000. Axon has dedicated sales representatives for
the 1,200 largest agencies, which account for 70% to 80% of U.S. law enforcement patrol officers. The remaining
agencies are served via our telesales team as well as distributors. Internationally, we began focusing on a direct sales
strategy in 2017, and we have made significant investments over the past three years in building out our international
direct sales force, particularly in Asia, Australia, Europe, and South America.
In 2019, we added sales personnel to capture law enforcement-adjacent markets, such as the U.S. federal
government and military, domestic and international departments of corrections, and the fire and emergency medical
services markets. In 2020, we also added dedicated sales personnel to support increased adoption of new products
within law enforcement, specifically for Axon Air, AR / VR and Training, Axon Records, and Respond for Dispatch.
Governmental agencies generally have the ability to terminate our contracts, in whole or in part, for reasons
including, but not limited to, non-appropriation of funds.
Resources
Manufacturing and Supply Chain
We perform light manufacturing, final assembly, and final test operations at our headquarters in Scottsdale,
Arizona, and own substantially all of the equipment required to develop, prototype, manufacture and assemble our
finished products. We have continued to maintain both our ISO 9001 and our ISO 9001:2015 certifications.
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We previously took steps to diversify our supply chain and global manufacturing footprint, which have
positioned us well to manage through the COVID-19 pandemic. Thus far, we have been able to produce and ship our
critical core products with little to no interruption. We have proactively built up a safety stock of raw and finished
goods inventory aligned to our strategic model to help meet strong product demand while also preparing us to stagger
factory work schedules as needed. We continue to adjust strategic inventory levels based on areas of risk to mitigate
potential supply disruptions.
In light of our broad domestic and international geographic supplier base, we are continuously monitoring our
supply chain to manage through potential impacts, finding alternate sources as well as shipping or logistic options as
available or working with foreign regulators to ensure that our suppliers can provide parts.
We obtain many of our components from single source suppliers; however, because we own the injection molded
component tooling used in their production, we believe we could obtain alternative suppliers in most cases without
incurring significant production delays. For additional discussion of sources and availability of raw materials, refer to
Note 1 to the consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K.
We provide limited manufacturer’s warranties on our CEDs and Axon devices, and customers also have the
option to purchase extended warranties. For additional information about our warranties, refer to Note 1 to the
consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
Intellectual Property
We protect our intellectual property with U.S. and international patents and trademarks. Our patents and pending
patent applications relate to technology used by us in connection with our products. We also rely on international
treaties, organizations and laws to protect our intellectual property. As of December 31, 2020, we hold 223 U.S.
patents, 89 U.S. registered trademarks, 137 international patents, and 333 international registered trademarks, and also
have numerous patent and trademark applications pending. We are constantly innovating across all of our platforms,
including on the TASER platform, and in 2020, we filed more patent applications related to TASER 7 alone than there
are TASER patents expiring in the next few years due to age.
We continuously assess whether and where to seek formal protection for particular innovations and technologies
based on such factors as the commercial significance of our operations and our competitors’ operations in particular
countries and regions, our strategic technology or product directions in different countries, and the degree to which
intellectual property laws exist and are meaningfully enforced in different jurisdictions. We have the exclusive rights
to many Internet domain names, primarily including “TASER.com”, “Axon.com”, “Axon.net”, “Evidence.com” and
“Axon.io.” We also vigorously protect our intellectual property, including trademarks, patents and trade secrets against
third-party infringement.
Confidentiality agreements are used with employees, consultants and key suppliers to help ensure the
confidentiality of our trade secrets.
Competition
TASER for Law Enforcement, Corrections and Private Security Markets: Our CEDs compete with a variety of
other less-lethal alternatives to firearms, including rubber bullets or rubber baton rounds, pepper spray, mace,
traditional stun guns, hand-held remote restraint devices involving a tether, laser dazzlers that cause temporary
blindness, stun grenades, long-range acoustic devices, police batons and night sticks. TASER devices offer advanced
technology, versatility, portability, effectiveness, built-in accountability systems, and low injury rates, which enable
us to compete effectively against other less-lethal alternatives. TASER devices also offer connectivity to our cloud
network, which allows agencies to more effectively manage their less-lethal programs and automate use-of-force
reporting.
The primary competitive factors in this market include a device’s accuracy, effectiveness, reputation, safety,
cost, ease of use, and exceptional customer experience. The design maturity of the TASER platform, as well as our
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development and sale of a two-shot device, are also key competitive differentiators. We are aware of competitors
providing competing CED products primarily in international markets.
TASER for Personal Safety: In the private citizen market, TASER devices compete with firearms and with other
less-than-lethal self-defense options such as stun guns and pepper spray-based products including pepper guns and
miniature spray cans. The TASER StrikeLight competes in the flashlight category, in which there are dozens, if not
hundreds, of competitors, including tactical flashlight providers with and without stun-gun capabilities.
TASER devices are not stun guns, and have different capabilities, including NMI (neuro-muscular
incapacitation) functionality. The broader market for personal safety and home defense is far-reaching, and categories
range from threat detection and accountability (dash and doorbell cameras), to home security (home alarms, locks,
and response services) to personal defense (firearms, stun guns, TASER devices, pepper spray, tactical flashlights,
and personal alarms).
The primary benefit of TASER devices is in less-than-lethal stopping power. Other competitive factors include
a device’s cost, effectiveness, safety, ease of use, and available training options.
Sensors — Connected Cameras and Digital Evidence Management Software: The body-worn camera and in-car
video/ALPR market is highly competitive. Our competition includes Motorola Solutions, WatchGuard, Edesix, and
Vigilant, all three of which Motorola purchased in 2019, Utility Associates, Getac, Panasonic Corp., Reveal Media,
Coban Technologies, L3 Mobile-Vision, Digital Ally, Visual Labs, Intresnsic, LLC, as well as Safety Vision, Rekor,
and Genetec.
The market for software solutions to improve public safety agency workflows is both highly fragmented and
highly competitive. Our cloud-based digital evidence management system, Axon Evidence, competes with both cloud-
based platforms and on-premises based systems designed by third-parties or developed internally by an agency's
technology staff.
Key competitive factors in this market include product performance, product features, battery life, product
quality and warranty, total cost of ownership, data security, data and information work flows, company reputation and
financial strength, and relationships with customers.
Productivity and Real-Time Operations — RMS and CAD: The RMS and CAD markets are highly competitive
and highly fragmented. We have identified more than 50 software providers, including Motorola Solutions, Tyler
Technologies, Central Square Technologies (formerly Superion, TriTech and Aptean), Northrop Grumman, Hexagon
AB, Niche Technology Inc., Caliber Public Safety (parent, Harris Systems USA), Saab, SOMA Global, RapidDeploy,
Sopra Steria, and Mark 43 Inc. In addition, not all law enforcement agencies use software for report writing — some
still use paper. We believe our network of camera sensors and digital evidence management platform give us a strategic
advantage in these product categories.
Seasonality
We have historically experienced higher net sales in our fourth quarter compared to other quarters in our
fiscal year due primarily to municipal budget cycles. Additionally, new product introductions can significantly impact
the cadence of net sales, product costs and operating expenses. Municipal law enforcement budgets tend to feature a
mix of fiscal years that end in either June, September or December. However, historical seasonal patterns, municipal
budgets or historical patterns of product introductions should not be considered reliable indicators of our future net
sales or financial performance.
Governmental Regulation
We are subject to a variety of laws and regulations in the United States and abroad that involve matters central
to our business, including, for example, laws and regulations related to: privacy and data protection, security, retention,
and deletion; rights of publicity; content; intellectual property; regulation of our CEDs as firearms; advertising;
8
marketing; distribution; electronic contracts and other communications; competition; consumer protection;
telecommunications; product liability; taxation; labor and employment; economic or other trade prohibitions or
sanctions; securities; and online payment services. There are a number of legislative proposals in the U.S., at both the
federal and state level, that could impose new obligations in areas affecting our business, such as liability for copyright
infringement by third parties. Foreign laws and regulations can impose different obligations or be more restrictive
than those in the U.S.
These U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private
parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result,
the application, interpretation, and enforcement of these laws and regulations are often uncertain and may be
interpreted and applied inconsistently from country to country and inconsistently with our current policies and
practices.
TASER and Axon Devices
For our TASER products, we rely on the opinions of the U.S. Bureau of Alcohol, Tobacco, Firearms and
Explosives, including the determination that a device that does not expel projectiles by the action of an explosive is
not classified as a firearm.
Federal regulation of sales in the U.S.: Our CEDs are not firearms regulated by the U.S. Bureau of Alcohol,
Tobacco, Firearms and Explosives, but our consumer products are regulated by the U.S. Consumer Product Safety
Commission. There are currently no federal laws restricting sales of our core CED products in the U.S.
Axon devices using lithium batteries are subject to U.S.-DOT/UN 38.3 for transportation.
Our CED products are also subject to testing, safety and other standard organizations such as the American
National Standards Institute, the International Electrotechnical Commission, the National Institute of Standards and
Technology, and Underwriters Laboratories. These regulations also affect CEDs with Axon Signal technology,
including Signal Performance Power Magazine technology, and TASER 7 battery packs.
Federal regulation of international sales: Our CEDs are considered a “crime control” product by the U.S.
Department of Commerce (“DOC”) for export directly from the U.S. Consequently, we must obtain an export license
from the DOC for the export of our CED devices from the U.S. to any country other than Canada.
Federal regulation of foreign national employees: Our intangible CED production is also considered controlled
“technology” by the U.S. DOC and is categorized as a “deemed export” for any foreign national employees exposed
to the technology within the U.S. Consequently, we must obtain an export licenses from the DOC for any deemed
export within the U.S. made to a foreign national employee exposed to the deemed controlled technology. Deemed
export licenses are subject to DOC approvals and issued licenses require annual status reports for the stated employees.
State and local regulation: Our CEDs are controlled, restricted or, less frequently, prohibited by a number of
state and local governments. As of December 31, 2020, the general public in Hawaii and Rhode Island is prohibited
from possessing certain of our TASER-branded devices. Some cities and municipalities also prohibit private citizen
possession or use of our CED products.
International regulation of foreign imports and sales: Certain jurisdictions prohibit, restrict, or require a permit
for the importation, sale, possession or use of CEDs, including in some countries by law enforcement agencies,
limiting our international sales opportunities.
U.S. and International regulation of component movements globally: We rely on a global supply chain of
components across our product lines with most final assembly occurring in the U.S. Export of these components from
abroad is subject to shifting regulatory landscapes imposed by both the foreign government and U.S. authorities upon
import.
International regulation of foreign-based operations: We maintain foreign operations in several countries
globally for purposes of logistics, sales, and R&D support. Depending on these activities, regulations can include
9
business activity licensing and registration, import permits and recordkeeping, warehousing & storage security and
permitting, and government reporting.
Radio Spectrum Devices
Certain of our products utilize the radio spectrum to provide wireless voice, data and video communications
services. The allocation of spectrum is regulated in the U.S. and other countries and limited spectrum space is allocated
to wireless services and specifically to public safety users. In the U.S., the Federal Communications Commission
(“FCC”) regulates spectrum use by non-federal entities and federal entities. Similarly, countries around the world have
one or more regulatory bodies that define and implement the rules for use of radio spectrum and electromagnetic
interference, pursuant to their respective national laws. We manufacture and market products in spectrum bands
already made available by regulatory bodies.
Axon body worn cameras, docks, fleet vehicle cameras and signal devices are subject to FCC’s rules and
regulations. The FCC regulates not only the "intentional radiation" of radio transmitters, but also the "unintentional
radiation" of noise from all sorts of electrical equipment. Current Axon products use Bluetooth, WiFi and/or Long
Term Evolution (“LTE”) radio technologies. With the integration of LTE technologies, we must also apply for the
approval of private certifications such as Cellular Telecommunications and Internet Association certification, required
by FirstNet and other operators. These regulations affect CEDs with Signal technology, including the TASER 7,
SPPM, and future CEDs implementing wireless technology.
Environmental Regulations
We are subject to various state, federal and international laws and regulations governing the environment,
including restricting the presence of certain substances in our products and making producers of those products
financially responsible for the collection, treatment, recycling and disposal of such products.
The European Union (“EU”) has published Directives on the restriction of certain hazardous substances in
electronic and electrical equipment (the “RoHS Directive”) and on electronic and electrical waste management (the
“WEEE Directive”). The RoHS Directive restricts the use of a number of substances, including lead. The WEEE
Directive directs members of the EU to enact laws, regulations, and administrative provisions to ensure that producers
of electric and electronic equipment are financially responsible for the collection, recycling, treatment and
environmentally responsible disposal of certain products sold into the EU. In addition, similar environmental
legislation has been enacted in other jurisdictions, including the U.S. (under federal and state laws) and other countries.
In addition, the EU has defined a regulation for the registration, evaluation, authorization and restriction of
chemicals that places responsibility on companies to manage the risks from chemicals contained in products and to
provide safety information about such substances. Manufacturers and importers are required to gather information on
the properties of the chemical substances in their products and provide for their safe handling. As of January 5, 2021,
companies supplying products on the EU market containing substances of very high concern as identified by the EU
have to submit information on these products to the European Chemicals Agency. The information in their database
is then made available to waste operators and consumers.
Privacy Regulations
We are subject to laws and regulations that dictate whether, how, and under what circumstances we can transfer,
process and/or receive certain data that is critical to our operations, including data shared between countries or regions
in which we operate and data shared among our products and services. For example, in 2016, the EU and the U.S.
agreed to an alternative transfer framework for data transferred from the EU to the U.S., called the Privacy Shield
Framework. However, in 2020, the EU’s Court of Justice invalidated the use of this framework moving forward. The
court ruled that the framework did not ensure an adequate level of protection for data transferred from the EU to the
U.S. Notably, there are alternative legal mechanisms available that allow the compliant transfer of data from the EU
to the U.S., however, they may also be challenged by national regulators or private parties.
The European General Data Protection Regulation ("GDPR") took effect in May 2018 and applies to many of
our products and services that provide service in Europe. The GDPR includes operational requirements for companies
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that receive or process personal data of residents of the EU. The GDPR includes significant penalties for non-
compliance. In addition, some countries have passed legislation implementing data protection requirements or
requiring local storage and processing of data or similar requirements.
Human Capital Resources
Our success depends on the continued service of our employees and on our ability to continue to attract, retain,
and motivate top talent. To facilitate this, we strive to create a diverse and inclusive environment at Axon, with
equitable opportunities for employee growth and development, supported by strong compensation and benefits and
by programs that build connections between our employees and their communities. Axon’s mission is central to our
recruiting and retention efforts.
As of December 31, 2020, we had 1,710 full-time employees and 838 temporary employees (temporary
employees include contractors, interns, and consultants). The breakdown of our full-time employees by department
was as follows: 260 direct manufacturing employees, 475 research and development employees, 458 administrative
and manufacturing support employees and 517 employees within sales, marketing, communications and training. Our
employees are not covered by any collective bargaining agreement, and we have never experienced a work stoppage.
We believe that our relations with our employees are strong.
During fiscal 2020, the number of full-time employees increased by approximately 380, primarily due to
increases in engineering resources as well as sales. We closed the year with our regrettable attrition rate(b) under 5%
and with 94% of employees responding to an internal survey stating they were proud to work at Axon.
Diversity and Inclusion
We embrace diversity, equity and inclusion. A truly innovative workforce needs to be diverse, leverage the skills
and perspectives of a wealth of backgrounds and experiences, and ensure that all employees are equitably empowered
to succeed. We continue to focus on the hiring, retention, development, and advancement of women and
underrepresented communities. We are focused on recruiting diverse candidates and on internal talent development
of our diverse leaders so that they can advance their careers and move into leadership positions.
Our employee affinity groups are company-sponsored, employee-led communities that address specific needs,
priorities, and barriers to success for each community of focus. These groups provide a forum for employees to discuss
problems and craft solutions for each community of focus, while also creating leadership and professional
development opportunities for members. As of December 31, 2020, we had four affinity groups — Axon Allies for
LGBTQ+ employees and allies, Axon Mosaic for Black employees, Axon Vets for service veterans, and Women at
Axon.
In 2020, we broadened our already strong support for our customers and the communities they are sworn to
protect. We added a Vice President of Community Impact to build and lead a team dedicated to listening to
communities, seeking citizen feedback, and keeping them safe and informed on a variety of topics. We also launched
a company-wide R&D initiative that allowed employees to break from their regular responsibilities and solely focus
on developing life-changing solutions to better protect citizens and law enforcement. Internally, we took time to listen
to our employees with town hall sessions and, after intentional reflection, took action with employee affinity groups,
provided expert-led webinars for parents, and hosted community round tables.
(b) Regrettable attrition is defined as rolling 12-month attrition of employees rated as “exceptional” or
“exceeds” in the prior performance rating cycle.
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Health and Safety
The health and safety of our employees is of utmost important to us. We conduct regular self-assessments and
audits to ensure compliance with our health and safety guidelines and regulatory requirements. Our ultimate goal is to
achieve a level of work-related injuries as close to zero as possible through continuous investment in our safety
programs. We provide protective gear (e.g. eye protection, masks and gloves) as required by applicable standards and
as appropriate given employee job duties. Additionally, during the COVID-19 pandemic, we have invested heavily to
help ensure the health of our employees. Through the use of education and awareness, provision of necessary personal
protective equipment, and changes to our manufacturing facilities and screening, we strive to make our workplaces a
safe place for employees during the workday.
To promote mental and emotional wellbeing, all full time employees globally were provided free, unlimited
access by Axon to Ginger. Ginger is a 24/7 resource that includes individualized coaching via text in addition to access
to article and activities offering guidance on maintaining emotional balance throughout tumultuous times.
Available Information
Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy
statements and amendments to those reports filed with or furnished to the SEC are available free of charge on our
website at http://investor.axon.com as soon as reasonably practicable after we electronically file or furnish such
material to the SEC. The information on our website, including information about our trademarks, is not incorporated
by reference into or otherwise a part of this Annual Report on Form 10-K. The SEC maintains a website that contains
reports, proxy and information statements and other information regarding issuers that file electronically with the SEC
at http://www.sec.gov.
Item 1A. Risk Factors
Because of the following factors, as well as other variables affecting our operating results, our past financial
performance may not be a reliable indicator of our future performance and historical trends should not be used to
anticipate our results or trends in future periods. You should carefully consider the trends, risks and uncertainties
described below and other information in this Form 10-K and subsequent reports filed with or furnished to the SEC
before making any investment decision with respect to our securities. If any of the following trends, risks or
uncertainties actually occurs or continues, our business, financial condition or operating results could be materially
adversely affected, the trading prices of our securities could decline, and you could lose all or part of your investment.
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their
entirety by this cautionary statement.
Strategic Risks
We are materially dependent on acceptance of our products by law enforcement markets, both domestic and
international. If law enforcement agencies do not continue to purchase and use our products, our revenues will
be adversely affected.
At any point, due to external factors and opinions, whether or not related to product performance, law
enforcement agencies may elect to no longer purchase our CEDs or other products.
We substantially depend on sales of our TASER CEDs, and if these products do not continue to be widely
accepted, our growth prospects will be diminished.
In the years ended December 31, 2020, 2019 and 2018, we derived a significant portion of our revenues from
sales of TASER brand devices and related cartridges, and expect to depend on sales of these products for a significant
portion of our revenue for the foreseeable future. A decrease in the selling prices of, or demand for these products, or
their failure to maintain broad market acceptance, would significantly harm our growth prospects, operating results
and financial condition.
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If we are unable to design, introduce, sell and deploy new products or new product features successfully, our
business and financial results could be adversely affected.
Our future success will depend on our ability to develop new products or new product features that achieve
market acceptance in a timely and cost-effective manner. These products include, but are not limited to, Axon Records,
Axon Respond, and future generations of the TASER CED and Axon Body Cameras. The development of new
products and new product features is complex, time consuming and expensive, and we may experience delays in
completing the development and introduction of new products. We may choose to carry higher level of inventories to
mitigate the risk of production delays, which may in turn expose us to an increased risk of obsolescence.
We are devoting significant resources to develop and deploy our cloud-based productivity and real-time
operations SaaS solutions, which we intend to broadly deploy to a large number of customers. Customer requirements
for these products are complex and varied. If we are unable to develop scalable solutions that can consistently be
configured for customers with minimal effort, or if we are unable to build out a professional services team that can
consistently configure our products to meet the requirements of large numbers of customers in a timely and cost-
effective manner, our ability to broadly scale our cloud-based productivity and real-time operations SaaS solutions
could be negatively impacted, and our deployment costs could negatively impact our operating results.
We cannot provide any assurance that products that we may develop in the future will achieve market acceptance.
If we fail to develop new products or new product features on a timely basis that achieve market acceptance, our
business, financial results and competitive position could be adversely affected.
We face risks associated with rapid technological change and new competing products.
The technology associated with law enforcement devices and software is receiving significant attention and is
rapidly evolving. While we have some patent protection in certain key areas of our CED, Axon device and SaaS
technology, it is possible that new technology may result in competing products that operate outside our patents and
could present significant competition for our products, which could adversely affect our business, financial results and
competitive position.
Our future success is dependent on our ability to expand sales through direct sales and distributors and our
inability to increase direct sales or recruit new distributors would negatively affect our sales.
Our distribution strategy is to pursue sales through multiple channels with an emphasis on direct sales and
independent distributors. We are focusing on direct sales to larger agencies through our regional sales managers and
our inability to grow sales to these agencies in this manner could adversely affect our sales. Our inability to establish
relationships with and retain law enforcement equipment distributors, who we believe can successfully sell our
products, would adversely affect our sales. If we do not competitively price our products, meet the requirements of
our distributors or end-users, provide adequate marketing support, or comply with the terms of our distribution
arrangements, our distributors may fail to aggressively market our products or may terminate their relationships with
us. These developments would likely have a material adverse effect on our sales. Our reliance on the sales of our
products by others also makes it more difficult to predict our revenues, cash flow and operating results.
In certain states and foreign jurisdictions we have decided to pursue sales directly with law enforcement
customers, rather than working through established distribution channels. Our customers may have strong working
relationships with distributors and we may face resistance to this change. If we do not overcome this resistance and
effectively build a direct relationship with our customers, sales may be adversely affected.
Acquisitions, joint ventures, and other strategic investments may have an adverse effect on our business.
We may consider additional acquisitions, joint ventures, or other strategic investments as part of our long-term
business strategy. These transactions involve significant challenges and risks including that the transaction does not
advance our business strategy, expected synergies are not achieved, we do not realize a satisfactory return on our
investment, we experience difficulty in the integration or coordination of new employees, business systems, and
technology, we incur unanticipated liabilities or impairments, or there is a diversion of management’s attention from
our other businesses. These events could harm our operating results, financial condition or cash flows.
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We are highly dependent on the services of Patrick W. Smith, our Chief Executive Officer.
Our future success depends upon our ability to retain executive officers, specifically Patrick W. Smith, and any
failure to do so could adversely impact our business, prospects, new product development, financial condition and
operating results.
Operational Risks
Catastrophic events may disrupt our business.
A disruption or failure of our systems or operations in the event of a major earthquake, weather event, fire,
explosion, failure to contain hazardous materials, industrial accident, cyber-attack, terrorist attack, public health crisis,
or other catastrophic event could cause delays in completing sales, providing services, or performing other mission-
critical functions. A catastrophic event that results in the destruction or disruption of any of our critical business or
information technology systems could harm our ability to conduct normal business operations and our operating
results as well as expose us to claims, litigation and governmental investigations and fines.
In March 2020 the World Health Organization declared coronavirus (or “COVID-19”) a global pandemic. This
contagious disease outbreak, which has continued to spread throughout the United States and world, has adversely
affected workforces, economies, and financial markets globally, leading to an economic downturn. As an essential
provider of products and services for law enforcement and other first responders, we remain focused on protecting the
health and well-being of our employees while assuring the continuity of our business operations.
COVID-19-related risks that may affect our operations and financial results include, but are not limited to:
• Manufacturing disruptions at our Scottsdale headquarters or at our suppliers;
• A change in our classification as an essential business that impairs our ability to continue operating;
• Economic slowdowns that negatively affect municipal and state tax collections and put pressure on law
enforcement budgets that in turn increases the risk that our customers will be unable to appropriate funds for
existing or future contracts with us; this could also affect customer demand and ability to pay, cause decreases
in sales, and negatively impact the realizability of our accounts and notes receivable and contract assets
• Existing and potential increased costs relating to personal protective equipment, which we are sourcing for
our employees and customers;
• Costs incurred to shut down and decontaminate our facilities if the virus is detected
• Extended illness, incapacitation or death of key personnel or executives;
• Ongoing governmental mandates to shutdown factories or limit travel and the movement of people that causes
interruptions to our business, supply chain or extended supply chain;
• Compounding risk from continued surges in infections around the world, including in the U.S.; and
• Additional airline bankruptcies or further reduction in very limited global freight capacity that causes
interruptions to our supply chain or extended supply chain
These events have had and could continue to have an impact on our operations. If our backup and mitigation
plans are not sufficient to minimize business disruption, our financial results could be adversely affected. We are
continuously monitoring our operations and intend to take appropriate actions to mitigate the risks arising from the
COVID-19 pandemic, but there can be no assurances that we will be successful in doing so.
Higher costs or unavailability of materials could adversely affect our financial results.
We depend on certain domestic and international suppliers for the delivery of components used in the assembly
of our products. Our reliance on third-party suppliers creates risks related to our potential inability to obtain an
adequate supply of components or sub-assemblies and reduced control over pricing and timing of delivery of
components and sub-assemblies. Specifically, we depend on suppliers of sub-assemblies, machined parts, injection
molded plastic parts, printed circuit boards, custom wire fabrications and other miscellaneous customer parts for our
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products. Although we have and are implementing additional long-term agreements with strategic suppliers to mitigate
the risk of supply continuity, there remains risk across our supply chain while we extend our supplier contract program,
and there is no guarantee that supply will not be interrupted.
Single or sole-source components used in the manufacture of our products may become unavailable or
discontinued. Delays caused by industry allocations or obsolescence may take weeks or months to resolve. In some
cases, parts obsolescence may require a product re-design to ensure quality replacement components. These delays
could cause significant delays in manufacturing and loss of sales, leading to adverse effects significantly impacting
our financial condition or results of operations and could injure our reputation.
A significant number of our raw materials or components are comprised of petroleum-based products or incur
some form of landed cost associated with transporting the raw materials or components to our facility. Our freight and
import costs and the timely delivery of our products could be adversely impacted by a number of factors which could
reduce the profitability of our operations, including: higher fuel costs; potential port closures; customs clearance
issues; increased government regulation or regulatory changes for imports of foreign products into the U.S.; delays
created by terrorist attacks or threats, public health issues, national disasters or work stoppages; and other matters.
Any interruption of supply for any material components of our products could significantly delay the shipment of our
products and have a material adverse effect on our revenues, profitability and financial condition. For example, other
industries are experiencing a significant shortage of semiconductors in their supply chains. We are tracking second-
and third-level constraints and have taken steps to mitigate the potential impacts by building in buffers in our raw
materials inventory and ensuring our suppliers have adequate access to raw material levels aligned to our forecasts.
Disruptions in the semi-conductor supply chain could cause a disruption in our ability to make our products.
International or domestic geopolitical or other events, including the imposition of new or increased tariffs and/or
quotas by the U.S. government on any of these raw materials or components and other government trade policies,
could adversely impact the supply and cost of these raw materials or components, and could adversely impact the
profitability of our operations. In particular, the implementation of tariffs and trade restrictions as well as changes in
trade policies between the U.S. and China may have an adverse effect on our supply chain from a sourcing and cost
perspective. We source certain raw materials from China, as do some of our suppliers. While we have actively
implemented programs to increase buffer inventory levels as well as transition from China along with secondary
sources of raw materials outside of China, future actions or events could result in a material adverse effect on our
revenues, profitability and financial condition.
To the extent demand for our products increases, our future success will be dependent upon our ability to
manage our growth and to increase manufacturing production capacity, which may be accomplished by the
implementation of customized manufacturing automation equipment.
To the extent demand for our products increases significantly in future periods, one of our key challenges will
be to increase our production capacity to meet sales demand while maintaining product quality. Our primary strategies
to accomplish this include introducing additional shifts, increasing the physical size of our assembly facilities, the
hiring of additional production staff, and the implementation of additional customized automation equipment. The
investments we make in this equipment may not yield the anticipated labor and material efficiencies. Our inability to
meet any future increase in sales demand or effectively manage our expansion could have a material adverse effect on
our revenues, financial results and financial condition.
Delays in product development schedules may adversely affect our revenues and cash flows.
The development of CEDs, devices, sensors and software is a complex and time-consuming process. New
products and enhancements to existing products can require long development and testing periods. Our focus on our
SaaS platform also presents complex development issues. Significant delays in new product or service releases or
significant problems in creating new products or services could adversely affect our business, financial results and
competitive position.
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We expend significant resources in anticipation of a sale due to our lengthy sales cycle and may receive no
revenue in return.
Generally, law enforcement and corrections agencies consider a wide range of issues before committing to
purchase our products, including product benefits, training costs, the cost to use our products in addition to, or in place
of, other products, budget constraints and product reliability, safety and efficacy. The length of our sales cycle may
range from a few weeks to as long as several years. Adverse publicity surrounding our products or the safety of such
products has in the past, and could in the future, lengthen our sales cycle with customers. In the past, we believe that
our sales were adversely impacted by negative publicity surrounding our products or the use of our products. We may
incur substantial selling costs and expend significant effort in connection with the evaluation of our products by
potential customers before they place an order. If these potential customers do not purchase our products, we will have
expended significant resources and received no revenue in return.
Changes in civil forfeiture laws may affect our customers’ ability to purchase our products.
Some of our customers use funds seized through civil forfeiture proceedings to fund the purchase of our products.
Legislative changes could impact our customers’ ability to seize funds or use seized funds to fund purchases. Changes
in civil forfeiture statutes or regulations are outside of our control and could limit the amount of funds available to our
customers, which could adversely affect the sale of our products.
If our security measures or those of our third-party cloud storage providers are breached and unauthorized
access is obtained to customers’ data or our data, our network, data centers and service may be perceived as
not being secure, customers may curtail or stop using our service and we may incur significant legal and
financial exposure and liabilities.
Our service involves the storage and transmission of customers’ proprietary information, and security breaches
could expose us to a risk of loss of information or the total or partial deletion or encryption of all stored customer data,
litigation and possible liability. We devote significant resources to engineer secure products and ensure security
vulnerabilities are mitigated, and we require our third-party service providers to do so as well. Despite these efforts,
security measures may be breached as a result of third-party action, employee error, and malfeasance or otherwise.
Breaches could occur during transfer of data to data centers or at any time, and result in unauthorized access to our
data or our customers’ data. Third parties may attempt to fraudulently induce employees or customers into disclosing
sensitive information such as usernames, passwords or other information in order to gain access to our data or our
customers’ data. Additionally, hackers may develop and deploy viruses, worms, and other malicious software
programs that attack or gain access to our networks and data centers.
Because the techniques used to obtain unauthorized access, or to sabotage systems, change frequently, grow
more complex over time, and generally are not recognized until launched against a target, we may be unable to
anticipate these techniques or to implement adequate preventative measures. Moreover, our security measures and
those of our third-party service providers or customers may not detect such security breaches if they occur. Although
we have developed systems and processes that are designed to protect our data and user data, to prevent data loss, and
to prevent or detect security breaches, we cannot assure that such measures will provide absolute security, and we
may incur significant costs in protecting against or remediating cyber-attacks.
A security breach could expose us to a risk of loss or inappropriate use of proprietary and sensitive data, or the
denial of access to this data. A security breach could also result in a loss of confidence in the security of our service,
disrupt our business, damage our reputation, lead to legal liability, negatively impact our future sales and significantly
harm our growth prospects, operating results and financial condition.
Defects or disruptions in our services could impact demand for our services and subject us to substantial
liability.
We currently serve our Axon Evidence customers from third-party cloud storage providers based in the U.S. and
other countries. Interruptions in our service, or loss or corruption of digital evidence, may reduce our revenue, cause
us to issue credits or pay penalties, cause customers to file litigation against us, cause customers to terminate their
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subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business will also
be harmed if our customers and potential customers believe our service is unreliable.
Since our customers use our services for important aspects of their operations, any errors, defects, disruptions in
service or other performance problems could hurt our reputation and may damage our customers’ operations. As a
result, customers could elect to not renew our services or delay or withhold payment to us. We could also lose future
sales or customers may make warranty or other claims against us, which could result in an increase in our warranty
expense, an increase in collection cycles for and decline in the collectability of accounts receivable, and an increase
in the expense and risk of litigation.
Defects in our products could reduce demand for our products and result in a loss of sales, delay in market
acceptance and damage to our reputation.
Complex components and assemblies used in our products may contain undetected defects that are subsequently
discovered at any point in the life of the product. Defects in our products could result in a loss of sales, delay in market
acceptance, damage to our reputation and increased warranty costs, which could adversely affect our business,
financial results and competitive position.
Our international operations expose us to additional risks that could harm our business, operating results, and
financial condition.
Our international operations are significant, and we plan to continue to grow internationally by acquiring existing
entities or setting up new legal entities in new markets. In certain international markets, we have limited operating
experience and may not benefit from any first-to-market advantages or otherwise succeed. In addition to risks
described elsewhere in this section, our international operations expose us to other risks, including the following:
• Restrictions on foreign ownership and investments, and stringent foreign exchange controls that might
prevent us from repatriating cash earned in countries outside the U.S.
•
Import and export requirements, tariffs, trade disputes and barriers, and customs classifications that may
prevent us from offering products or providing services to a particular market or obtaining necessary parts
and components to manufacture products, which may lead to decreased sales and may increase our
operating costs.
• Longer payment cycles in some countries, increased credit risk, and higher levels of payment fraud.
• Uncertainty regarding liability for our products and services, including uncertainty as a result of local laws
and lack of legal precedent.
• Different labor laws and customs, existence of workers’ councils and labor unions, and other challenges
caused by distance, language, and cultural differences, making it harder to do business in certain
jurisdictions.
Additionally, changes in international local political, economic, regulatory, tax, social, and labor conditions may
adversely harm our business and compliance with complex foreign and U.S. laws and regulations that apply to our
international operations increases our cost of doing business. These numerous and sometimes conflicting laws and
regulations include, among others, environmental regulations, internal control and disclosure rules, privacy and data
protection requirements, anti-corruption laws, such as the U.S. Foreign Corrupt Practices Act, and other local laws
prohibiting corrupt payments to governmental officials, and competition regulations, among others.
Our business in the United Kingdom may be negatively impacted by the exit of the United Kingdom from the
EU (commonly referred to as "Brexit"). The exit itself could negatively impact the United Kingdom and other
economies, which could adversely affect sales of our products and services. We may also experience increased
volatility in the value of the pound sterling, the euro and other European currencies. In addition, Brexit could lead to
legal uncertainty and potentially divergent national laws and regulations in the United Kingdom and the EU, and we
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may incur additional costs or need to make operational changes as we adapt to potentially divergent regulatory
frameworks.
Violations of these laws and regulations could result in fines and penalties, criminal sanctions against us, our
officers, or our employees, prohibitions on the conduct of our business and on our ability to offer our products and
services in one or more countries, and could also materially affect our brand, our international growth efforts, our
ability to attract and retain employees, our business, and our operating results. Although we have implemented policies
and procedures designed to ensure compliance with these laws and regulations, there can be no assurance that our
employees, contractors, or agents will not violate our policies.
We depend on our ability to attract and retain our key management, sales and technical personnel.
Our success depends upon the continued service of our key management personnel. Our success also depends
on our ability to continue to attract, retain and motivate qualified technical employees. Although we have employment
agreements with our officers and other members of our executive management team, the employment of such persons
is “at-will” and either we or the employee can terminate the employment relationship at any time, subject to the
applicable terms of the employment agreements. The competition for our key employees is intense. The loss of the
service of one or more of our key personnel could adversely impact our business, prospects, financial condition and
operating results.
Financial Risks
An increasing percentage of our revenue is derived from subscription billing arrangements which may result
in delayed cash collections and may increase customer credit risk on receivables and contract assets.
A growing portion of our sales are derived from subscription billing arrangements and on an open credit basis.
While we record an estimate of expected credit losses and perform ongoing reviews of trade accounts receivables, if
we become aware of information related to the creditworthiness of a major customer, or if future actual default rates
on receivables in general differ from those currently anticipated, we may have to adjust our expected credit loss
reserve, which could adversely affect our business, financial condition or operating results.
We may experience a decline in gross margins due to a shift in product sales from CEDs to software and sensors
products and services which may continue to carry a lower gross margin.
We continue to invest in the growth of the Software and Sensors segment, and this expected growth may result
in a higher percentage of total revenues being comprised of Software and Sensors products and services. Gross margin
as a percentage of net sales for the Software and Sensors segment is currently lower than that of the TASER segment,
and may continue to be lower in the future.
SaaS revenue for Axon Evidence is recognized over the terms of the contracts, which may be several years, and,
as such, trends in new business may not be immediately reflected in our operating results.
Our SaaS service revenue is generally recognized ratably over the terms of the contracts, which generally range
from one to five years. As a result, most of the SaaS revenue we report each quarter is the result of agreements entered
into during previous quarters. Consequently, current positive or negative trends in this portion of our business may
not be fully reflected in our revenue results for several periods.
Most of our end-user customers are subject to budgetary and political constraints that may delay or prevent
sales.
Most of our end-user customers are government agencies. These agencies often do not set their own budgets and
therefore, have limited control over the amount of money they can spend. In addition, these agencies experience
political pressure that may dictate the manner in which they spend money. As a result, even if an agency wants to
acquire our products, it may be unable to purchase them due to budgetary or political constraints, particularly in
challenging economic environments. There can be no assurance that the economic, budgeting or political issues will
not worsen and adversely impact sales of our products. Some government agency orders may also be canceled or
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substantially delayed due to budgetary, political or other scheduling delays, which frequently occur in connection with
the acquisition of products by such agencies, and such cancellations may accelerate or be more severe than we have
experienced historically.
Due to municipal government funding rules, certain of our contracts are subject to appropriation, termination
for convenience, or similar cancellation clauses, which could allow our customers to cancel or not exercise
options to renew contracts in the future.
Although we have entered into contracts for the delivery of products and services in the future and anticipate the
contracts will be completed, if agencies do not appropriate money in future year budgets, terminate contracts for
convenience or if other cancellation clauses are invoked, revenue and cash associated with these bookings will not
ultimately be recognized, and could result in a reduction to bookings and revenue.
We maintain most of our cash balances, some of which are not insured, at four depository institutions.
We maintain the majority of our cash and cash equivalents accounts at four depository institutions. As of
December 31, 2020, the aggregate balances in such accounts were $145.1 million. Our balances with these institutions
regularly exceed Federal Deposit Insurance Corporation (“FDIC”) insured limits for domestic deposits and various
foreign deposit insurance programs covering our deposits in Australia, Canada, Finland, Germany, Hong Kong, India,
Italy, the Netherlands, Spain, the United Kingdom, and Vietnam.
We could suffer losses with respect to the uninsured balances if the depository institutions failed and the
institution’s assets were insufficient to cover its deposits and/or the governments did not take actions to support
deposits in excess of existing insurance limits. Any such losses could have a material adverse effect on our liquidity,
financial condition and results of operations.
Stock compensation expense may have a material, unpredictable impact on our results of operations.
We have historically granted and expect to continue to grant stock-based compensation to key employees and
non-employee directors as a means of attracting and retaining highly qualified personnel. All stock-based awards are
required to be recognized in our financial statements based on their grant date fair values. The amount recognized for
stock compensation expense could vary depending on a number of assumptions or changes that may occur.
For awards containing multiple service, performance and market conditions, where all conditions must be
satisfied prior to vesting, compensation expense is recognized over the requisite service period, which is defined as
the longest explicit, implicit or derived service period, based on management’s estimate of the probability and timing
of the performance criteria being satisfied, adjusted at each balance sheet date. Changes in the subjective and
probability-based assumptions can materially affect the estimates of the fair value of the awards and timing of
recognition of stock-based compensation expense and consequently, the related amount recognized in our statements
of operations and comprehensive income.
If we achieve specific operational goals and the covered employees complete the requisite service conditions for
the performance-based awards with multiple service, performance, and market conditions, including our CEO
Performance Award and our eXponential Stock Performance Plan ("XSPP"), we will recognize stock compensation
expense regardless of whether the market conditions are achieved and the underlying tranches vest.
Our financial performance is subject to risks associated with changes in the value of the U.S. dollar versus local
currencies.
For current and potential international customers whose contracts are denominated in U.S. dollars, the relative
change in local currency values creates relative fluctuations in our product pricing. These changes in international
end-user costs may result in lost orders and reduce the competitiveness of our products in certain foreign markets.
Additionally, intercompany sales to our non-U.S. dollar functional currency international subsidiaries are transacted
in U.S. dollars which could increase our foreign exchange rate risk caused by foreign currency transaction gains and
losses.
19
For non-U.S. dollar denominated sales, weakening of foreign currencies relative to the U.S. dollar generally
leads us to raise international pricing, potentially reducing demand for our products. Should we decide not to raise
local prices to fully offset the dollar’s strengthening, the U.S. dollar value of our foreign currency denominated sales
and earnings would be adversely affected. We do not currently engage in hedging activities. Fluctuations in foreign
currency could result in a change in the U.S. dollar value of our foreign denominated assets and liabilities including
accounts receivable. Therefore, the U.S. dollar equivalent collected on a given sale could be less than the amount
invoiced causing the sale to be less profitable than contemplated.
We also import selected components which are used in the manufacturing of some of our products. Although
our purchase orders are generally in U.S. dollars, weakness in the U.S. dollar could lead to price increases for the
components.
Unanticipated changes in our effective tax rate and additional tax liabilities may impact our operating results.
We are subject to income taxes in the U.S. and various jurisdictions outside of the U.S. Our effective tax rate
could fluctuate due to changes in the mix of earnings and losses in countries with differing statutory tax rates. Our tax
expense could also be impacted by changes in non-deductible expenses, changes in excess tax benefits related to
exercises of stock options and vesting of restricted stock units, changes in the valuation of deferred tax assets and
liabilities and our ability to utilize them, the applicability of withholding taxes, and changes in our liability for
unrecognized tax benefits.
We are subject to tax examinations in multiple jurisdictions. While we regularly evaluate new information that
may change our judgment resulting in recognition, derecognition or change in measurement of a tax position taken,
there can be no assurance that the final determination of any examinations will not have an adverse effect on our
operating results and financial position.
Our tax provision could also be impacted by changes in federal, state or international tax laws including
fundamental tax law changes applicable to corporate multinationals.
Additionally, we may be subject to additional tax liabilities due to changes in non-income-based taxes resulting
from changes in federal, state, city or international tax laws, changes in taxing jurisdictions’ administrative
interpretations, decisions, policies, and positions, results of tax examinations, settlements or judicial decisions,
changes in accounting principles, changes to the business operations, including acquisitions, as well as the evaluation
of new information that results in a change to a tax position taken in a prior period.
Our revenues and operating results may fluctuate unexpectedly from quarter-to-quarter, which may cause our
stock price to decline.
Our revenues and operating results have varied significantly in the past and may vary significantly in the future
due to various factors, including, but not limited to:
•
budgetary cycles of municipal, state and federal law enforcement and corrections agencies;
• market acceptance of our products and services;
•
•
•
•
•
•
•
•
the timing of large domestic and international orders;
the outcome of any existing or future litigation;
adverse publicity surrounding our products, the safety of our products, or the use of our products;
changes in our sales mix;
new product introduction costs;
increased raw material expenses;
changes in our operating expenses, including stock-based compensation expense;
changes in foreign currency exchange rates and
20
•
regulatory changes that may affect the marketability of our products.
As a result of these and other factors, we believe that period-to-period comparisons of our operating results may
not be meaningful in the short term, and our performance in a particular period may not be indicative of our
performance in any future period.
Legal and Compliance Risks
We may face personal injury, wrongful death and other liability claims that harm our reputation and adversely
affect our sales and financial condition.
Our CED products are often used in aggressive confrontations that may result in serious, permanent bodily injury
or death to those involved. Our CED products may be associated with these injuries. A person, or the family members
of a person, injured in a confrontation or otherwise in connection with the use of our products, may bring legal action
against us to recover damages on the basis of theories including wrongful death, personal injury, negligent design,
defective product or inadequate warning. We are currently subject to a number of such lawsuits and we have been
subject to significant adverse judgments and settlements. We may also be subject to lawsuits involving allegations of
misuse of our products. If successful, wrongful death, personal injury, misuse and other claims could have a material
adverse effect on our operating results and financial condition and could result in negative publicity about our
products. We incur significant legal expenses in defending these cases, and significant litigation could also result in a
diversion of management’s attention and resources, negative publicity and a potential award of monetary damages in
excess of our insurance coverage. The outcome of any litigation is inherently uncertain and there can be no assurance
that our existing or any future litigation will not have a material adverse effect on our business, financial condition or
operating results.
Other litigation may subject us to significant litigation costs and judgments and divert management attention
from our business.
We have been or could in the future be involved in numerous other litigation matters relating to our products,
contracts and business relationships, including litigation against persons whom we believe have infringed on our
intellectual property, infringement litigation filed against us, litigation against a competitor, enforcement actions filed
against us, and litigation involving the U.S. Federal Trade Commission (“FTC”). Such matters have resulted, and are
expected to continue to result in, substantial costs to us, including in the form of attorneys’ fees and costs, damages,
fines or other penalties, whether pursuant to a judgment or settlement, and diversion of our management’s attention,
which could adversely affect our business, financial condition or operating results. There is also a risk of adverse
judgments, as the outcome of litigation is inherently uncertain.
We have been, and may be in the future, subject to intellectual property infringement and other claims, which
could incur substantial litigation costs, result in significant damage awards, inhibit our use of certain
technologies, and divert management attention from our business.
Many companies own intellectual property rights that are directly or indirectly related to public safety
technologies. These companies periodically demand licensing agreements or engage in litigation based on allegations
of infringement or other violations of their patents, trademarks, copyrights, or trade secrets. Non-practicing entities
also have patents they have been granted or otherwise acquired, including patents that are directly or indirectly related
to public safety technologies. These entities may seek compensation for perceived infringement of their patents,
including by filing claims against us, independent of the merit of any such claims. As we enter new markets, expand
into new product categories, and otherwise offer new products, services, and technologies, additional intellectual
property claims may be filed against us by these companies, entities, and other third parties. Additional intellectual
property claims may also be filed against us as our current products, services, and technologies gain additional market
share.
If our products, services, or technologies were found to infringe a third-party’s proprietary rights, we could be
forced to enter into costly royalty or licensing agreements in order to be able to sell our products or discontinue use
of the protected technology. Such royalty and licensing agreements may not be available on terms acceptable to us or
at all. We could also be required to pay substantial damages, fines or other penalties, indemnify customers or
21
distributors, cease the manufacture, use, or sale of infringing products or processes, and/or expend significant
resources to develop or acquire non-infringing technologies. Our suppliers may not provide, or we may not be able to
obtain, intellectual property indemnification sufficient to offset all damages, fines or other penalties resulting from
any claims of intellectual property infringement brought against us or our customers. There is no guarantee that our
use of conventional technology searching and brand clearance searching will identify all potential rights holders.
Rights holders may demand payment for past infringements and/or force us to accept costly license terms or
discontinue use of protected technology and/or works of authorship that may include, for example, photos, videos,
and software. Our current research and development focus on developing software-based products, including that
which is related to artificial intelligence, increases this risk.
If we are unable to protect our intellectual property, the value of our brands and products may decrease and
we may lose our competitive market advantage.
Our future success depends upon our proprietary technology. Our protective measures for this proprietary
technology include patents, trademarks, copyrights, and trade secret protection. However, these protective measures,
as well as our efforts to pursue such protective measures, may prove inadequate. For example, the value of intellectual
property protection in certain countries may not be apparent until after such protection can no longer be pursued. As
such, our intellectual property protection may not extend to all countries in which our products are distributed or will
be distributed in the future. Though we work to protect our innovations, we may not be able to obtain protection for
certain innovations. For example, we may be unable to patent some software-based products. The scope of any patent
protection we have obtained, or may obtain, may not prevent others from developing and selling competing products.
Despite our efforts, any intellectual property protection we obtain may be later determined to be insufficient or
ineffective.
Our protective measures may prove inadequate for reasons outside of our control. Different intellectual property
laws between different countries may lead to differences in protection between such countries. In certain countries in
which our products are distributed, the ability to effectively enforce intellectual property rights may not exist. Patent
requirements differ by country and certain domestic or foreign laws may prohibit us from satisfying these
requirements, creating a risk that some of our international patents may become unenforceable. Patents for older
technologies, such as our M26 and X26E models of CEDs, have expired or will expire due to statutory limits on patent
term. Despite policies and efforts to maintain secrecy, trade secrets and other confidential information we maintain,
or may choose to maintain in the future, could be compromised by employees, partners, or other third parties.
Once established, there is no guarantee that our intellectual property rights will remain in force. Issued patents
may be re-examined and subsequently ruled invalid or unenforceable. Our registered trademarks may also be
diminished or lost. For example, there is a risk that our “TASER” trademark could become synonymous with the
general product category of “conducted energy devices”. The right to stop others from misusing our trademarks and
service marks in commerce depends, to some extent, on our ability to show evidence of enforcement of our rights
against such misuse in commerce. Our efforts to stop improper use, if insufficient, may lead to loss of trademark and
service mark rights, brand loyalty and notoriety among our customers and prospective customers.
Our intellectual property may also be at risk if we are unable to defend from enforcement actions, such as that
filed by the FTC against us regarding our acquisition of Vievu LLC from Safariland LLC on May 3, 2018. For
additional discussion of this matter, refer to Note 10 to the consolidated financial statements included in Part II, Item 8
of this Annual Report on Form 10-K. If successful, the FTC is seeking a divestiture of Vievu along with Axon assets
sufficient to stand up a viable competitor.
Inability to protect our intellectual property could negatively impact our commercial efforts and competitive
market advantage. Regardless of outcome, the prosecution of patent and other intellectual property claims is both
costly and time consuming. Unauthorized use of our proprietary technology could divert our management’s attention
from our business, and could result in a material adverse effect on our business, financial position, and operating
results.
22
Internationally, we can enforce patent rights only in the jurisdictions in which our patent applications have
been granted.
Our U.S. patents protect us from imported infringing products coming into the U.S. from abroad. We have made
applications for patents in a few foreign countries; however, these may be inadequate to protect markets for our
products in other foreign countries. Each patent is examined and granted according to the law of the country where it
was filed independent of whether a U.S. patent on similar technology was granted. A patent in a foreign country may
be subject to cancellation if the claimed invention has not been sold in that country. Meeting the requirements of
working invention differs by country and ranges from sales in the country to manufacturing in the country. U.S. export
law, or the laws of some foreign countries, may prohibit us from satisfying the requirements for working the invention,
creating a risk that some of our international patents may become unenforceable.
A variety of new and existing laws and/or interpretations could materially and adversely affect our business.
As detailed in “Business – Government Regulation,” we are subject to a variety of laws and regulations in the
United States and abroad that involve matters central to our business, including privacy, data protection and personal
information, rights of publicity, content, intellectual property, advertising, marketing, distribution, data security, data
retention and deletion, electronic contracts and other communications, competition, consumer protection,
telecommunications, product liability, taxation, labor and employment, economic or other trade prohibitions or
sanctions, securities law compliance, and online payment services. The introduction of new products, expansion of
our activities in certain jurisdictions, or other actions that we may take may subject us to additional laws, regulations,
or other government scrutiny. In addition, foreign data protection, privacy, content, competition, and other laws and
regulations can impose different obligations or be more restrictive than those in the United States.
These U.S. federal and state and foreign laws and regulations, which in some cases can be enforced by private
parties in addition to government entities, are constantly evolving and can be subject to significant change. As a result,
the application, interpretation, and enforcement of these laws and regulations are often uncertain and may be
interpreted and applied inconsistently from country to country and inconsistently with our current policies and
practices. New laws and regulations (or new interpretations of existing laws and regulations) may require us to incur
substantial costs, expose us to unanticipated civil or criminal liability, or cause us to change our business practices.
The costs of compliance with these laws and regulation are high and are likely to increase in the future.
Additionally, these laws and regulations, or any associated inquiries or investigations or other government actions,
may delay or impede the development of new products, result in negative publicity, require significant management
time and attention, and subject us to remedies that may harm our business, including fines or demands or orders that
we modify or cease existing business practices.
TASER and Axon Devices
For our TASER products, we rely on the opinions of the U.S. Bureau of Alcohol, Tobacco, Firearms and
Explosives, including the determination that a device that does not expel projectiles by the action of an explosive is
not classified as a firearm. Changes in statutes, regulations, and interpretation outside of our control may result in our
products being classified or reclassified as firearms. If this were to occur, our private citizen market could be
substantially reduced because consumers would be required to comply with federal, state, or local firearm transfer
requirements prior to purchasing our products.
Federal regulation of sales in the U.S.: Our CEDs are not firearms regulated by the U.S. Bureau of Alcohol,
Tobacco, Firearms and Explosives, but our consumer products are regulated by the U.S. Consumer Product Safety
Commission. Although there are currently no federal laws restricting sales of our core CED products in the U.S.,
future federal regulation could adversely affect sales of our products.
Our CED products are subject to regulation by testing, safety and other standard organizations. These regulations
also affect CEDs with Axon Signal technology, including Signal Performance Power Magazine technology, and
TASER 7 battery packs, and could impact future CEDs that feature wireless technology.
23
Federal regulation of international sales: Our CEDs are considered a “crime control” product by the U.S. DOC
for export directly from the U.S which requires us to obtain an export license from the DOC for the export of our CED
devices from the U.S. to any country other than Canada. Future products and services may require classifications from
the DOC before they may be shipped internationally. Our inability to obtain DOC export licenses or classifications on
a timely basis for sales of our products to our international customers could significantly and adversely affect our
international sales.
Federal regulation of foreign national employees: Our intangible CED production is also considered controlled
“technology” by the U.S. DOC and is categorized as a “deemed export” for any foreign national employees exposed
to the technology within the U.S. Consequently, we must obtain an export licenses from the DOC for any deemed
export within the U.S. made to a foreign national employee exposed to the deemed controlled technology. Deemed
export licenses are subject to DOC approvals and issued licenses require annual status reports for the stated employees.
Inability to obtain proper licensing could curtail the company’s ability to execute R&D and production related to CED
technology.
State and local regulation: Our CEDs are controlled, restricted or, less frequently, prohibited by a number of
state and local governments. Other jurisdictions may ban or restrict the sale of our CED products, or restrict their use
through changes to use-of-force laws or regulations, and our product sales may be significantly affected by additional
state, county and city governmental regulation.
International regulation of foreign imports and sales: Certain jurisdictions prohibit, restrict, or require a permit
for the importation, sale, possession or use of CEDs, including in some countries by law enforcement agencies,
limiting our international sales opportunities.
U.S. and International regulation of component movements globally: We rely on a global supply chain of
components across our product lines with most final assembly occurring in the U.S. Export of these components from
abroad is subject to shifting regulatory landscapes imposed by both the foreign government and U.S. authorities upon
import. Abrupt changes to these regulations can result in delays or interruptions to final product supplies.
International regulation of foreign-based operations: We maintain foreign operations in several countries
globally for purposes of logistics, sales, and R&D support. Any failure to properly maintain or license could limit our
ability to sell, support, or develop our products and services both internationally and in the U.S. market.
Radio Spectrum Devices
Certain of our products utilize the radio spectrum to provide wireless voice, data and video communications
services. The allocation of spectrum is regulated in the U.S. and other countries and limited spectrum space is allocated
to wireless services and specifically to public safety users. We manufacture and market products in spectrum bands
already made available by regulatory bodies. If current products do not comply with the regulations set forth by these
governing bodies, we may be unable to sell our products or could incur penalties. Our results could be negatively
affected by the rules and regulations adopted from time to time by the FCC or regulatory agencies in other countries.
Regulatory changes in current spectrum bands may also require modifications to some of our products so they can
continue to be manufactured and marketed.
Axon body worn cameras, docks, fleet vehicle cameras and signal devices are subject to FCC’s rules and
regulations. These regulations affect CEDs with Signal technology, including the TASER 7, SPPM, and future CEDs
implementing wireless technology. Compliance with government regulations could increase our operations and
product costs and impact our future financial results.
Environmental Regulations
We are subject to various state, federal and international laws and regulations governing the environment,
including restricting the presence of certain substances in our products and making us financially responsible for the
collection, treatment, recycling and disposal of such products. In addition, further environmental legislation may be
24
enacted in other jurisdictions, including the U.S. (under federal and state laws) and other countries, the cumulative
impact of which could be significant.
We endeavor to comply with applicable environmental laws, yet compliance with such laws could increase our
operations and product costs, increase the complexities of product design, procurement, and manufacturing, limit our
ability to manage excess and obsolete non-compliant inventory, limit our sales activities, and impact our future
financial results. Any violation of the various environmental regulations can subject us to significant liability,
including fines, penalties, and prohibiting sales of our products into one or more states or countries and result in a
material adverse effect on our financial condition or results of operations.
Privacy Regulations
We are subject to laws and regulations that dictate whether, how, and under what circumstances we can transfer,
process and/or receive certain data that is critical to our operations, including data shared between countries or regions
in which we operate and data shared among our products and services. If one or more of the legal mechanisms for
transferring data from other countries to the U.S. is invalidated, if we are unable to transfer data between and among
countries and regions in which we operate, or if we are prohibited from sharing data among our products and services,
it could affect the manner in which we provide our services or adversely affect our financial results. Additional
countries may pass legislation implementing data protection requirements or requiring local storage and processing of
data or similar requirements that could increase the cost and complexity of delivering our services and expose us to
significant penalties for non-compliance.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our corporate headquarters and manufacturing facilities are based in an approximately 100,000 square foot
facility in Scottsdale, Arizona, which we own. We also lease premises in Phoenix, Arizona; Scottsdale, Arizona;
Charlotte, North Carolina; Topsfield, Massachusetts; Seattle, Washington; Melbourne, Australia; Sydney, Australia;
Toronto, Canada; Daventry, England; London, England; Tampere, Finland; Frankfurt, Germany; Mumbai, India;
Rome, Italy; Amsterdam, Netherlands; and Ho Chi Minh City, Vietnam. In September 2020, we purchased a parcel
of land located in Scottsdale, Arizona on which we intend to construct a new manufacturing and office facility.
We believe our existing facilities are well maintained and in good operating condition. We also believe we have
adequate manufacturing capacity for our existing product lines. To the extent that we introduce new products in the
future, we will likely need to acquire additional facilities to locate the associated production lines. However, we
believe we can acquire or lease such facilities on reasonable terms. We continue to make investments in capital
equipment as needed to meet anticipated demand for our products.
The majority of our locations support both of our reportable segments, except for our Vietnam and Seattle,
Washington locations, which primarily support our Software & Sensors segment.
Item 3. Legal Proceedings
See discussion of litigation in Note 10 to the consolidated financial statements included in Part II, Item 8 of this
Annual Report on Form 10-K, which discussion is incorporated by reference herein.
Item 4. Mine Safety Disclosures
None.
25
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Market Information
Our common stock is quoted under the symbol “AXON” on The NASDAQ Global Select Market.
Holders
As of December 31, 2020, there were 229 holders of record of our common stock.
Dividends
To date, we have not declared or paid cash dividends on our common stock. We do not intend to pay cash
dividends in the foreseeable future.
Issuer Purchases of Equity Securities
In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million
of our outstanding common stock subject to stock market conditions and corporate considerations. The stock
repurchase program does not have a stated expiration date. During the year ended December 31, 2020, no common
shares were purchased under the program. As of December 31, 2020, $16.3 million remained available under the plan
for future purchases.
26
Stock Performance Graph
The following stock performance graph compares the performance of our common stock to the NASDAQ
Composite Index, Russell 3000 Index, S&P 500 Index, and Russell 2000 Index. We are transitioning from the Russell
3000 Index to the Russell 2000 Index, and adding the S&P 500 Index, based on the increase in our market
capitalization.
The graph covers the period from December 31, 2015 to December 31, 2020. The graph assumes that the value
of the investment in our stock and in each index was $100 at December 31, 2015, and that all dividends were
reinvested. We do not pay dividends on our common stock.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN
Among Axon Enterprise, Inc., the NASDAQ Composite Index, the Russell 3000 Index, the S&P 500 Index and the Russell 2000 Index
$800
$700
$600
$500
$400
$300
$200
$100
$0
12/31/15
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
Axon Enterprise, Inc.
NASDAQ Composite
Russell 3000
S&P 500
Russell 2000
2015
2016
2017
2018
2019
2020
Axon Enterprise, Inc.
NASDAQ Composite
Russell 3000
S&P 500
Russell 2000
Item 6. Selected Financial Data
Not applicable.
$100.00 $ 140.20 $153.27 $ 253.04 $423.83 $ 708.68
100.00 108.87 141.13 137.12 187.44 271.64
204.95
100.00 112.74
100.00 111.96
203.04
100.00 121.31
186.36
129.40
130.42
123.76
169.54
171.49
155.35
136.56
136.40
139.08
27
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A")
Management’s Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") is
designed to provide a reader of our consolidated financial statements with a narrative from the perspective of our
management on our financial condition, results of operations, liquidity and certain other factors that may affect our
future results. Our MD&A should be read in conjunction with the other sections of this Annual Report on Form 10-K,
including Part I, Item 1A: “Risk Factors” and Part II, Item 8: “Financial Statements and Supplementary Data.” The
various sections of this MD&A contain a number of forward-looking statements, all of which are based on our current
expectations and could be affected by the uncertainties and risk factors described throughout this filing. The tables in
the MD&A sections below are derived from exact numbers and may have immaterial rounding differences.
This section discusses our results of operations for the year ended December 31, 2020 as compared to the year
ended December 31, 2019. For a discussion and analysis of the year ended December 31, 2019, compared to the same
period in 2018 please refer to Management’s Discussion and Analysis of Financial Condition and Results of
Operations included in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019,
filed with the SEC on February 27, 2020.
Overview
Axon is a global network of devices, apps and people that helps public safety personnel become smarter and
safer. With a mission of protecting life, our technologies give law enforcement the confidence, focus and time they
need to protect their communities. Our products impact every aspect of a public safety officer’s day-to-day experience
with the goal of helping everyone get home safe.
Our revenues for the year ended December 31, 2020 were $681.0 million, an increase of $150.1 million,
or 28.2%, from the prior year. We had a loss from operations of $14.2 million compared to $6.4 million in the
prior year. The higher loss from operations was primarily the result of increased stock compensation expense for our
CEO Performance Award and XSPP awards and an increase in legal expenses. Remaining cost increases were
primarily attributable to the increase in unit sales and an increase in headcount. These cost increases were largely
offset by higher revenue and improved gross margin. For the year ended December 31, 2020, we recorded net loss
of $1.7 million compared to net income of $0.9 million for the prior year.
2021 Outlook
For the year ending December 31, 2021, we expect revenue of $740 million to $780 million. We anticipate that
revenue for the three months ending March 31, 2021 will reflect approximately 12% growth as compared to the
three months ended March 31, 2020. We anticipate capital expenditures of approximately $65 million to $70 million
in 2021, including approximately $25 million in support of capacity expansion and automation of TASER device and
cartridge manufacturing, approximately $20 million for development of our planned new manufacturing and office
facility in Scottsdale, Arizona, and the remainder on investments to support our continued growth.
COVID-19
In late 2019, COVID-19 was first detected in Wuhan, China. In March 2020 the World Health Organization
declared COVID-19 a global pandemic. This contagious disease outbreak, which has continued to spread throughout
the United States and world, has adversely affected workforces, economies, and financial markets globally, leading to
an economic downturn. As an essential provider of products and services for law enforcement and other first
responders, we remain focused on protecting the health and wellbeing of our employees while assuring the continuity
of our business operations.
In response to the pandemic, Axon has taken a number of actions:
Customer support:
● Free access to Axon Citizen cloud software to all public law enforcement agencies in 2020 to enable
social distancing;
28
● A partnership with the National Police Foundation to provide personal protective equipment (“PPE”)
for first responders;
● An online support center for our customers, www.axon.com/covid-19-support-center; and
● Our annual Axon Accelerate user conference was held virtually in late August 2020.
Employee safety and manufacturing:
● Curbed all non-essential travel at the beginning of March;
● We continue to allow for a remote work model for the majority of our office staff, with medical
screening for any employees who do work in our offices; and
● Mitigating contamination risk in our facilities through staggered shifts, the use of PPE, increased
distancing, cleaning standards that exceed CDC guidance, and paying or subsidizing certain high-risk
employees while they stay at home.
Supply chain:
● We previously took steps to diversify our supply chain and global manufacturing footprint, which have
positioned us well to manage through the pandemic. Thus far, we have been able to produce and ship
our critical core products with little to no interruption.
● We have proactively built up a safety stock of raw and finished goods inventory aligned to our strategic
model to help meet strong product demand while also preparing us to stagger factory work schedules.
We continue to adjust strategic inventory levels based on areas of risk to mitigate potential supply
disruptions.
● In light of our broad geographic supplier base both domestic and international, we are continuously
monitoring our supply chain to manage through potential impacts, finding alternate sources as well as
shipping / logistic options as available or working with foreign regulators to ensure that our suppliers
can provide parts.
Shareholder engagement:
● We have pivoted our shareholder engagement to a virtual format.
o Our annual meeting was held virtually on May 29, 2020, and we anticipate holding our 2021
annual meeting virtually;
o We completed a follow-on equity offering in June 2020 for which all related marketing was
conducted virtually; and
o We will continue to participate in several upcoming investor conferences utilizing video
conferencing. All investor materials and events are available at investor.axon.com.
We are in a strong liquidity position, with substantial cash and investments on hand, which are discussed in more
detail under Liquidity and Capital Resources. We believe that our existing liquidity and other sources of funding will
be sufficient to satisfy our currently anticipated cash requirements including capital expenditures, working capital
requirements, potential acquisitions or strategic investments and other liquidity requirements through at least the next
12 months. Our expenses for the year ended December 31, 2020 increased by approximately $4.1 million for costs
related to the pandemic. We expect ongoing increased costs related to the mitigation of contamination risk at our
facilities. We expect these incremental costs will continue to be partially offset by savings on travel and events and
other cost-savings measures.
We have elected to participate in the social security deferral program offered under the Coronavirus Aid, Relief,
and Economic Security Act, whereby we deferred payment of the employer portion of all social security taxes that
would otherwise have been payable from March 27, 2020 through December 31, 2020. Payment of the deferred
amount is due 50% on December 31, 2021 and 50% on December 31, 2022.
29
Results of Operations
The following table presents data from our consolidated statements of operations as well as the percentage
relationship to total net sales of items included in our statements of operations (dollars in thousands):
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Operating expenses:
Sales, general and administrative
Research and development
Total operating expenses
Income (loss) from operations
Interest and other income, net
Income (loss) before provision for income taxes
Provision for (benefit from) income taxes
Net income (loss)
Year Ended December 31,
2020
$ 500,250
180,753
681,003
224,131
40,541
264,672
416,331
2019
73.5 % $ 399,474
131,386
26.5
530,860
100.0
190,683
32.9
32,891
6.0
223,574
38.9
307,286
61.1
75.3 %
24.7
100.0
35.9
6.2
42.1
57.9
307,286
123,195
430,481
(14,150)
7,859
(6,291)
(4,567)
$ (1,724)
45.1
18.1
63.2
(2.1)
1.1
(1.0)
(0.7)
(0.3) % $
212,959
100,721
313,680
(6,394)
8,464
2,070
1,188
882
40.1
19.0
59.1
(1.2)
1.6
0.4
0.2
0.2 %
Net sales to the U.S. and other countries are summarized as follows (dollars in thousands):
United States
Other Countries
Total
Year Ended December 31,
2020
2019
$ 535,079
145,924
$ 681,003
79 % $ 446,100
84,760
21
100 % $ 530,860
84 %
16
100 %
International revenue in 2020 increased substantially compared to 2019, driven by strength in all of our
international regions and most notably within EMEA.
Our operations are comprised of two reportable segments: the manufacture and sale of CEDs, batteries,
accessories and extended warranties and other products and services (collectively, the “TASER” segment); and
software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products, and
services (collectively, the "Software and Sensors" segment). In both segments, we report sales of products and
services. Service revenue in both segments includes sales related to Axon Evidence. In the TASER segment, service
revenue also includes digital subscription training content. In the Software and Sensors segment, service revenue also
includes other recurring cloud-hosted software revenue and related professional services. Collectively, this revenue is
sometimes referred to as "Axon Cloud revenue." Revenue from our “products” in the Software and Sensors segment
are generally from sales 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." Within the
Software and Sensors segment, we include only revenues and costs attributable to that segment which costs include:
costs of sales for both products and services, direct labor, and product management and R&D for products included,
or to be included, within the Software and Sensors segment. All other costs are included in the TASER segment.
30
For the Years Ended December 31, 2020 and 2019
Net Sales
Net sales by product line were as follows for the years ended December 31, 2020 and 2019 (dollars in thousands):
TASER segment:
TASER 7
TASER X26P
TASER X2
TASER Pulse
Cartridges
Axon Evidence and cloud services
Extended warranties
Other
TASER segment
Software and Sensors segment:
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Axon Evidence and cloud services
Extended warranties
Other
Software and Sensors segment
Total net sales
Net unit sales were as follows:
TASER 7
TASER X26P
TASER X2
TASER Pulse
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Year Ended December 31,
2020
2019
Dollar
Change
Percent
Change
$ 107,506
41,724
60,107
9,407
115,193
2,935
20,754
8,926
366,552
15.8 % $ 56,652
52,524
6.1
55,920
8.8
4,089
1.4
85,987
16.9
704
0.4
18,074
3.0
7,711
1.3
281,661
53.7
89.8 %
10.7 % $ 50,854
(20.6)
(10,800)
9.9
4,187
10.5
7.5
5,318 130.1
0.8
34.0
16.2
2,231 316.9
0.1
14.8
2,680
3.4
15.8
1.5
1,215
30.1
84,891
53.1
29,206
57,150
4,082
20,108
19,723
176,797
24,408
12,183
314,451
13,111
44,039
(1,846)
5,928
3,926
16,182
(726)
20,449
46,532
130,265
5,220
19,188
(965)
13,148
65,252
249,199
$ 681,003 100.0 % $ 530,860 100.0 % $ 150,143
8.3
1.1
3.0
3.9
24.5
3.6
2.5
46.9
8.4
0.6
3.0
2.9
26.0
3.6
1.8
46.3
29.8
(31.1)
24.3
(3.6)
35.7
27.2
(7.3)
26.2
28.3 %
Unit
Percent
Change Change
Year Ended December 31,
2020
77,451
37,391
43,407
33,158
2019
49,221
28,230
48,798 (11,407)
40,973
2,434
21,373
11,785
3,714,291 2,751,603 962,688
31,039
(6,624)
837
3,147
151,499
15,586
10,467
22,275
182,538
8,962
11,304
25,422
57.4 %
(23.4) %
5.9 %
181.4 %
35.0 %
20.5 %
(42.5) %
8.0 %
14.1 %
Net sales for the TASER segment increased $84.9 million, or 30.1%, primarily as a result of a net increase of
$49.6 million in TASER device sales and a $29.2 million increase in cartridge revenue. Cartridge revenue increased
due to increased unit sales, partially offset by a slight decrease in average selling price. We continue to see a shift to
purchases of our latest generation device, TASER 7, from legacy devices, especially X26P devices. Sales of our
TASER 7 device also drove the increase in revenue from Axon Evidence and cloud services. Revenue was also
impacted by higher average selling prices for TASER 7, X2, and X26P. Revenue from consumer TASER Pulse devices
increased due to a substantial increase in volume, partially offset by lower average selling prices.
Net sales for the Software and Sensors segment increased $65.3 million, or 26.2%. Revenue from Axon Evidence
and cloud services increased $46.5 million as we continued to add users and associated devices to our network during
31
the year ended December 31, 2020. The increase in the aggregate number of users and devices also resulted in
increased extended warranty revenues of $5.2 million. Revenue from Axon Body cameras increased $13.1 million
following the introduction of our Axon Body 3 camera during the third quarter of 2019.
Backlog - As of December 31, 2020 compared to December 31, 2019
Our backlog for products and services includes all orders that have been received and are believed to be firm.
In the TASER segment, we define backlog as equal to deferred revenue. Deferred revenue represents amounts
invoiced to customers for goods and services to be delivered in subsequent periods. We process orders within the
TASER segment quickly, and our best estimate of firm orders outstanding as of period end represents those that have
been invoiced but remain undelivered. The TASER segment backlog balance was $61.8 million as of December 31,
2020. We expect to realize $28.9 million of this deferred revenue balance as revenue during the next 12 months. This
represents cash received and accounts receivable from customers on or prior to December 31, 2020 for products and
services expected to be delivered in the next 12 months.
In the Software and Sensors segment, we define backlog as cumulative bookings, net of cancellations, less
product and service revenue recognized to date. Bookings are generally realized as revenue over multiple years. The
Software and Sensors backlog balance was $1.4 billion as of December 31, 2020. This backlog balance includes
$213.4 million of deferred revenue, and $1.2 billion that has been recorded as bookings but not yet invoiced, all as of
December 31, 2020. We expect to realize approximately $370.0 million of the December 31, 2020 backlog balance as
revenue during the next 12 months.
Balance, beginning of period
Add: additions to backlog, net of cancellations
Less: revenue recognized during period
Balance end of period
TASER
Software and Sensors
(in thousands)
Total
$
55,189 $
373,119
(366,552)
$
61,756 $
1,026,192 $ 1,081,381
716,145 1,089,264
(314,451)
(681,003)
1,427,886 $ 1,489,642
Our backlog of $1.5 billion as of December 31, 2020 has increased significantly from $1.1 billion as of
December 31, 2019. The increase in TASER segment backlog is not expected to have a material impact on revenue
or operating margins. Our significant increase in backlog, primarily in the Software and Sensors segment is indicative
of expected revenue growth in this segment.
Cost of Product and Service Sales
Cost of product and services sales in dollars and as a percent of related segment sales (dollars in thousands):
TASER segment:
Cost of product sales
Software and Sensors segment:
Cost of product sales
Cost of service sales
Total cost of sales
Total cost of product and service sales
Year Ended December 31,
2020
2019
Dollar
Change
Percent
Change
$ 136,925
37.4 % $ 107,188
38.1 % $ 29,737
27.7 %
87,206 27.7 % 83,495 33.5 % 3,711
40,541 12.9 % 32,891 13.2 % 7,650
127,747 40.6 % 116,386 46.7 % 11,361
$ 264,672 38.9 % $ 223,574 42.1 % $ 41,098
4.4 %
23.3 %
9.8 %
18.4 %
Within the TASER segment, cost of product and service sales was $136.9 million, an increase of $29.7 million,
or 27.7%, from 2019. Cost as a percentage of sales decreased to 37.4% from 38.1%. The increase in cost of sales was
primarily a result of increased sales, with improvement to the cost as a percentage of sales primarily a result of
32
increased leverage on manufacturing overhead expenses and higher expense in the prior year for TASER 7 ramp-up
and optimization costs related to scrap, obsolete inventory, and higher labor costs.
Within the Software and Sensors segment, cost of product and service sales was $127.7 million, an increase of
$11.4 million, or 9.8%, from 2019. As a percentage of net sales, cost of product and service sales decreased to 40.6%
in 2020 from 46.7% in 2019. Cost of product sales increased $3.7 million primarily driven by the impact of increased
units, but decreased as a percentage of total segment net sales, reflecting higher average selling prices on Axon
cameras and docks, overall product mix, and relatively stable unit costs. Cost of service sales increased $7.7
million driven primarily by a $3.9 million increase in third party cloud data cost, and an increase in professional
services expense due to increased deployments in 2020.
Gross Margin
Gross Margin (dollars in thousands):
TASER segment
Software and Sensors segment
Total gross margin
Gross margin as % of net sales
Year Ended December 31,
2020
$ 229,627
186,704
$ 416,331
2019
$ 174,473
132,813
$ 307,286
Dollar
Change
Percent
Change
$ 55,154 31.6 %
53,891 40.6 %
35.5 %
$ 109,045
61.1 %
57.9 %
Gross margin increased $109.0 million to $416.3 million for the year ended December 31, 2020 compared to
$307.3 million for 2019. As a percentage of net sales, gross margin increased to 61.1% for 2020 from 57.9% for 2019.
As a percentage of net sales, gross margin for the TASER segment increased to 62.6% for the year ended
December 31, 2020 from 61.9% for the year ended December 31, 2019.
Within the Software and Sensors segment, gross margin as a percentage of total segment net sales was 59.4%
and 53.3% for the years ended 2020 and 2019, respectively. Within the Software and Sensors segment, product gross
margin was 36.6% for the year ended December 31, 2020 and 29.8% for the same period in 2019, while the service
margins were 77.1% and 74.8% during those same periods, respectively.
Sales, General and Administrative Expenses
Sales, General and Administrative ("SG&A") Expenses (dollars in thousands):
Salaries, benefits and bonus
Stock-based compensation
Professional, consulting and lobbying
Sales and marketing
Office and building
Travel and meals
Depreciation and amortization
Other
Total sales, general and administrative expenses
SG&A expenses as a percentage of net sales
Year Ended December 31,
Dollar
Percent
Change Change
2020
$ 83,287
103,860
45,541
32,464
9,076
5,630
6,079
21,349
$ 307,286
2019
$ 67,582
59,341
21,590
28,961
6,650
11,407
5,739
11,689
$ 212,959
$ 15,705
44,519
23,951
3,503
2,426
(5,777)
340
9,660
$ 94,327
23.2 %
75.0
110.9
12.1
36.5
(50.6)
5.9
82.6
44.3 %
45.1 %
40.1 %
SG&A expenses increased $94.3 million, or 44.3%. Stock-based compensation expense increased $44.5
million in comparison to the prior year comparable period, which was primarily attributable to an increase of $41.5
33
million in expense related to the CEO Performance Award and XSPP. As of December 31, 2020, eleven operational
goals for the CEO Performance Award and XSPP are considered probable of attainment or have been attained; during
the prior year comparable period, nine operational goals were considered probable. Refer to Note 13 of the notes to
our consolidated financial statements within this Annual Report on Form 10-K for additional discussion of the CEO
Performance Award and XSPP. Stock-based compensation expense also increased over the prior year comparable
period due to an increase in headcount.
Professional, consulting and lobbying expenses increased $24.0 million, driven primarily by an increase of $19.1
million in expenses related to the FTC litigation. As discussed in Note 10 of the notes to our consolidated financial
statements within this Annual Report on Form 10-K, on January 3, 2020, we sued the FTC in the District of Arizona,
and the FTC filed an enforcement action regarding our May 2018 acquisition of Vievu LLC. Also contributing to the
increase were higher expenses related to our enterprise resource planning system conversion.
Salaries, benefits and bonus expense increased $15.7 million, primarily due to an increase in headcount. Salaries,
benefits and bonus expense decreased as a percentage of sales from 12.7% for 2019 to 12.2% for 2020.
Sales and marketing expenses increased $3.5 million, driven by a $4.8 million increase in commissions tied to
higher revenues. The increase was partially offset by savings driven by the cancellation of in-person events, including
our annual Axon Accelerate user conference.
Other SG&A expenses increased by $9.7 million, primarily driven by the following:
• Supplies expense increased $3.0 million, including a $2.4 million increase in computer licenses and
maintenance supporting increased headcount, and a $0.7 million increase for PPE and other COVID-19
related expenses.
• Charitable contributions increased $1.8 million, primarily reflecting our donations of PPE under our
•
Got You Covered campaign.
Insurance expense increased $1.4 million primarily as a result of increases in the cost of comparable
policies.
• Recruiting expense increased $0.9 million as a result of increased hiring needs in 2020.
Partially offsetting the noted increases was a $5.8 million decrease in travel expenses following the suspension
of all non-essential travel in mid-March 2020 in response to the COVID-19 pandemic.
Research and Development Expenses
Research and Development ("R&D") Expenses (dollars in thousands):
Salaries, benefits and bonus
Stock-based compensation
Professional and consulting
Travel and meals
Other
Total research and development expenses
R&D expenses as a percentage of net sales
Dollar
Percent
Change Change
Year Ended December 31,
2020
2019
$ 71,488 $ 63,763 $ 7,725
8,660
5,978
(1,653)
1,764
$ 123,195 $ 100,721 $ 22,474
17,588
4,525
2,247
12,598
26,248
10,503
594
14,362
18.1 %
19.0 %
12.1 %
49.2
132.1
(73.6)
14.0
22.3 %
The increase in R&D expense was primarily attributable to our Software and Sensors segment. Within the
TASER segment, R&D expenses increased $0.9 million or 6.3%, reflecting increased consulting expense and supplies
in the current year related to the development of next generation products. The increase was partially offset by lower
compensation and benefits resulting from decreased headcount.
34
R&D expense for the Software and Sensors segment increased $21.6 million or 25.0% but remained relatively
consistent at 34.3% of sales as compared to 34.6% in the prior year. Of the increase, $9.1 million related to salaries,
benefits, and bonus attributable to increased headcount.
Stock-based compensation expense increased $8.7 million. Contributing to the increase was expense of $3.8
million related to our XSPP. As of December 31, 2020, eleven operational goals for the XSPP are considered probable
of attainment or have been attained; during the prior year comparable period, nine operational goals were considered
probable. Stock-based compensation expense also increased over the prior year comparable period due to an increase
in headcount.
Professional and consulting expenses increased $6.0 million related to development of next generation products.
The increases were partially offset by a decrease of $1.7 million in travel and meals expense following the
suspension of all non-essential travel in mid-March 2020 due to the COVID-19 pandemic
We expect R&D expense to continue to increase in absolute dollars as we focus on growing the Software and
Sensors segment as we add headcount and additional resources to develop new products and services to further
advance our scalable cloud-connected device platform. We believe that these investments will result in an increase in
our subscription revenue base, which over time will result in revenue increasing faster than the increase in SG&A
expenses as we reach economies of scale.
Interest and Other Income, Net
Interest and other income, net was $7.9 million and $8.5 million for the years ended December 31, 2020 and
2019, respectively.
For the year ended December 31, 2020, we earned interest income of $5.1 million, other income, net of $0.6
million, had losses from foreign currency transaction adjustments of $0.2 million, and interest expense of $0.1 million.
Additionally, we recorded a net gain of $2.1 million related to an observable price change for our investment in Flock
Group, Inc. and related warrants. The decrease in interest income was a result of decreased interest rates during the
current period, partially offset by higher balances of cash, cash equivalents, and investments.
For the year ended December 31, 2019, we earned interest income of $8.7 million and had losses from foreign
currency transaction adjustments of $0.3 million, other income, net of $0.1 million, and interest expense of less than
$0.1 million.
Provision for Income Taxes
The provision for income taxes was a benefit of $4.6 million for the year ended December 31, 2020. The effective
income tax rate for 2020 was 72.6%. The benefits related to excess stock-based compensation of $9.0 million, research
and development credits of $10.2 million, and a deduction for foreign derived intangible income (“FDII”) of $0.9
million were partially offset by the tax effects of permanently non-deductible expenses for executive compensation of
$15.5 million, an increase in uncertain tax benefits of $1.0 million, other permanently non-deductible expenses of $0.8
million and state tax expense of $0.9 million. Additionally, we recorded a $0.2 million increase to our valuation
allowance as of December 31, 2020 related to research and development tax credits that may not be utilized prior to
expiration, partially offset by changes in certain foreign jurisdictions.
The provision for income taxes was $1.2 million for the year ended December 31, 2019. The effective income
tax rate for 2019 was 57.4%. The benefits related to excess stock-based compensation of $5.0 million and research
and development credits of $4.9 million were partially offset by the tax effects of permanently non-deductible
expenses for executive compensation of $7.6 million, an increase in uncertain tax benefits of $1.2 million and other
permanently non-deductible expenses of $1.1 million and state tax expense of $0.5 million. Additionally, we recorded
35
a $0.4 million increase to our valuation allowance as of December 31, 2019 related to research and development tax
credits that may not be utilized prior to expiration, partially offset by changes in certain foreign jurisdictions.
Net Income
We recorded net loss of $1.7 million for the year ended December 31, 2020 compared to net income of $0.9
million in 2019. Net loss per basic and diluted share was $0.03 for 2020, compared to net income per basic and diluted
share of $0.01 for 2019.
Three Months Ended December 31, 2020 Compared to September 30, 2020
Net sales by product line were as follows (dollars in thousands):
TASER segment:
TASER 7
TASER X26P
TASER X2
TASER Pulse
Cartridges
Axon Evidence and cloud services
Extended warranties
Other
TASER segment
Software and Sensors segment:
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Axon Evidence and cloud services
Extended warranties
Other
Software and Sensors segment
Total net sales
Net unit sales were as follows:
TASER 7
TASER X26P
TASER X2
TASER Pulse
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Three Months Ended Three Months Ended Dollar
December 31, 2020
September 30, 2020
Percent
Change Change
$ 58,890
11,386
14,706
3,033
38,461
1,159
5,414
2,712
135,761
26.0 % $ 21,702
9,766
5.0
14,494
6.5
2,981
1.4
26,335
17.0
692
0.5
5,265
2.4
3,171
1.2
84,406
60.0
13.0 % $ 37,188 171.4 %
1,620
5.9
212
8.7
1.8
52
12,126
15.8
467
0.4
149
3.2
1.9
(459)
51,355
50.7
16.6
1.5
1.7
46.0
67.5
2.8
(14.5)
60.8
16,505
630
7,020
5,009
50,302
6,701
4,212
90,379
527
(959)
2,805
(699)
4,852
187
1,630
8,343
$ 226,140 100.0 % $ 166,442 100.0 % $ 59,698
15,978
1,589
4,215
5,708
45,450
6,514
2,582
82,036
9.6
1.0
2.5
3.4
27.3
3.9
1.6
49.3
7.3
0.3
3.1
2.2
22.2
3.0
1.9
40.0
3.3
(60.4)
66.5
(12.2)
10.7
2.9
63.1
10.2
35.9 %
Three Months Ended
December 31, 2020 September 30, 2020
15,908
8,119
10,078
12,811
41,099
10,611
9,751
11,657
1,272,679
44,735
749
3,905
6,326
Unit
Percent
Change Change
25,191
2,492
(327)
(1,154)
852,980 419,699
62,873 (18,138)
(2,426)
3,175
2,396
1,509
(2,839)
9,165
158.4 %
30.7 %
(3.2)%
(9.0)%
49.2 %
(28.8)%
(76.4)%
63.0 %
(31.0)%
Net sales for the TASER segment increased $51.4 million, or 60.8%, on a sequential basis primarily due to a
$37.2 million increase in revenue from TASER 7 devices and a $12.1 million increase in cartridge revenue. The
36
increase in TASER 7 revenues was a result of both increased unit sales and a higher average selling price, driven by
greater adoption of TASER 7, especially internationally.
Net sales for the Software and Sensors segment increased $8.3 million, or 10.2%, on a sequential basis primarily
due to a $4.9 million increase in Axon Evidence and cloud services revenue and a $2.8 million increase in Axon Fleet
revenue. The increase in Axon Evidence and cloud services revenue was a result of the increase in the aggregate
number of users on our network. Axon Fleet revenue was driven primarily by increased unit sales, as well as an
increase in the average selling price.
International sales were $59.5 million in for the three months ended December 31, 2020 as compared to $23.1
million for the three months ended September 30, 2020, an increase of $36.4 million, primarily driven by increased
sales in Europe.
Non-GAAP Financial Measures
To supplement our financial results presented in accordance with accounting principles generally accepted in the
U.S. ("GAAP"), we present the non-GAAP financial measures of EBITDA and Adjusted EBITDA (CEO Performance
Award). Our management uses these non-GAAP financial measures in evaluating our performance in comparison to
prior periods. We believe that both management and investors benefit from referring to these non-GAAP financial
measures in assessing our 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, taxes, depreciation and amortization.
• Adjusted EBITDA (CEO Performance Award) (Most comparable GAAP Measure: Net income) - Earnings
before interest expense, investment interest income, taxes, depreciation, amortization and non-cash stock-
based compensation expense.
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 our 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 our GAAP financial measures;
these non-GAAP financial measures should not be considered in isolation from, or as a substitute for, our
GAAP financial measures;
these non-GAAP financial measures should not be considered to be superior to our GAAP financial
measures; and
these non-GAAP financial measures were not prepared in accordance with GAAP and investors should not
assume that the non-GAAP financial measures presented in this Annual Report on Form 10-K were prepared
under a comprehensive set of rules or principles.
37
EBITDA and Adjusted EBITDA (CEO Performance Award) reconcile to net income as follows (dollars in
thousands):
Net income (loss)
Depreciation and amortization
Interest expense
Investment interest income
Provision for (benefit from) income taxes
EBITDA
Adjustments:
Stock-based compensation expense
Adjusted EBITDA (CEO Performance Award)
Liquidity and Capital Resources
Summary
For the Years Ended December 31,
December 31,
December 31,
2020
2019
$
$
$
(1,724)
12,475
55
(4,086)
(4,567)
2,153
133,572
135,725
$
$
$
882
11,361
46
(7,040)
1,188
6,437
78,495
84,932
As of December 31, 2020, we had $155.4 million of cash and cash equivalents, a decrease of $16.8 million from
December 31, 2019. Cash and cash equivalents and investments totaled $652.6 million, an increase of $256.4 million
from December 31, 2019.
Cash Flows
The following table summarizes our cash flows from operating, investing and financing activities (in thousands):
Operating activities
Investing activities
Financing activities
Effect of exchange rate changes on cash and cash equivalents
Net decrease in cash and cash equivalents and restricted cash
Operating activities
Year Ended December 31,
2019
2020
$
$
38,481
(356,526)
299,265
1,976
(16,804)
$
$
65,673
(240,737)
(3,937)
329
(178,672)
Net cash provided by operating activities in 2020 of $38.5 million consisted of $1.7 million in net loss, the net
add-back of non-cash income statement items totaling $141.0 million and a $100.8 million net change in operating
assets and liabilities. Included in the non-cash items were $12.5 million in depreciation and amortization expense,
$133.6 million in stock-based compensation expense, and a $16.5 million increase in deferred income tax assets. The
most significant increase to the portion of cash provided by operating activities related to the changes in operating
assets and liabilities was a $107.8 million increase in accounts and notes receivable and contract assets. The increase
in accounts and notes receivable and contract assets was attributable to increased sales in 2020, primarily sales made
under subscription plans. Operating cash flows were also negatively impacted by increased inventory of $52.2 million,
as we proactively built up a safety stock of inventory to help meet strong product demand while also preparing us to
stagger factory work schedules, and increased prepaid expenses and other assets of $14.9 million resulting primarily
from an increase in deferred commissions expense. Operating cash flows were positively impacted by an increase in
deferred revenue of $65.1 million. The increase in deferred revenue was primarily attributable to increased
prepayments for Software and Sensors hardware and services, and a smaller increase in hardware deferred revenue
from TASER subscription sales.
38
Investing activities
We used $356.5 million for investing activities in 2020. Purchases of investments, net of calls and maturities,
were $276.7 million. We also invested $72.6 million in the purchase of property and equipment and intangibles,
including $54.1 million for land on which we intend to construct our new manufacturing and office facility, and $7.1
million for equity investments in unconsolidated affiliates.
Financing activities
Net cash used provided by financing activities was $299.3 million for the year ended December 31, 2020. During
2020, we completed an equity offering that generated net proceeds of $306.8 million. Certain RSUs that vested in the
year ended December 31, 2020 were net-share settled, such that we withheld shares to cover the employees’ tax
obligation for the applicable income and other employment taxes, and remitted the cash, which totaled $7.8 million,
to the appropriate taxing authorities.
Liquidity and Capital Resources
Our most significant source of liquidity continues to be funds generated by operating activities and available
cash and cash equivalents. In addition, our $50.0 million revolving credit facility is available for additional working
capital needs or investment opportunities. Under the terms of the line of credit, available borrowings are reduced by
outstanding letters of credit. Advances under the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year
determined in accordance with a pricing grid based on our funded debt to earnings before interest, taxes, depreciation
and amortization ("EBITDA") ratio.
As of December 31, 2020, we had letters of credit outstanding of $6.1 million, leaving the net amount available
for borrowing of $43.9 million. The facility matures on December 31, 2021 and has an accordion feature which allows
for an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability
of additional bank commitments. There can be no assurance that we will continue to generate cash flows at or above
current levels or that we will be able to maintain our ability to borrow under our revolving credit facility. At
December 31, 2020 and 2019, there were no borrowings under the line.
Our agreement with the bank requires us to comply with a maximum funded debt to EBITDA ratio, as defined,
of no greater than 2.50 to 1.00 based upon a trailing four fiscal quarter period. At December 31, 2020, the Company’s
funded debt to EBITDA ratio was 0.0000 to 1.00.
On January 29, 2021, we entered into an amendment to the credit agreement which extends the maturity date to
December 31, 2023 and increases the amount of the unsecured revolving line of credit which is available for letters of
credit from $10 million to $20 million.
TASER subscription and installment purchase arrangements typically involve amounts invoiced in five equal
installments at the beginning of each year of the five-year term. This is in contrast to a traditional CED sale in which
the entire amount being charged for the hardware is invoiced upon shipment. This impacts liquidity in a commensurate
fashion, with the cash for the subscription or installment purchase received in five annual installments rather than up
front. It is our strategic intent to shift an increasing amount of our business to a subscription model, to better match
the municipal budgeting process of our customers as well as to allow for multiple product offerings to be bundled into
existing subscriptions. We carefully considered the cash flow impacts of this strategic shift and regularly revisit our
cash flow forecast with the goal of maintaining a comfortable level of liquidity as we introduce commercial offerings
in which we incur upfront cash costs to produce and fulfill hardware sales ahead of the cash inflows from our
customers.
Based on our strong balance sheet and the fact that we had no long-term debt or financing lease obligations at
December 31, 2020, we believe financing will be available, both through our existing credit line and possible
39
additional financing. However, there is no assurance that such funding will be available on terms acceptable to us, or
at all.
We believe that our sources of funding will be sufficient to satisfy our currently anticipated cash requirements
including capital expenditures, working capital requirements, potential acquisitions or strategic investments and other
liquidity requirements through at least the next 12 months. We and our Board of Directors may consider repurchases
of our common stock. Further repurchases of our common stock would take place on the open market, would be
financed with available cash and are subject to authorization as well as market and business conditions.
Contractual Obligations
The following table outlines our future contractual financial obligations by period in which payment is expected,
as of December 31, 2020 (dollars in thousands):
Operating lease obligations
Purchase obligations
Total contractual obligations
1 Year
Less than
More than
Total
1 - 3 Years 3 - 5 Years 5 Years
$ 26,409 $ 6,277 $ 12,069 $ 7,860 $
203
7,260
5,003
209,258 192,826
$ 235,667 $ 199,103 $ 16,238 $ 12,863 $ 7,463
4,169
Purchase obligations in the table above represent $169.3 million of open purchase orders and $40.0 million of
other purchase obligations. The open purchase orders represent both cancelable and non-cancelable purchase orders
with key vendors, which are included in this table due to our strategic relationships with these vendors.
We are subject to U.S. federal income tax as well as income taxes imposed by state and foreign jurisdictions. As
of December 31, 2020, we had $7.7 million of gross unrecognized tax benefits related to uncertain tax positions. The
settlement period for these long-term income tax liabilities cannot be determined; however, the liabilities are expected
to increase by approximately $0.1 million within the next 12 months.
Off-Balance Sheet Arrangements
The discussion of off-balance sheet arrangements in Note 10 to the consolidated financial statements included
in Part II, Item 8 of this Annual Report on Form 10-K is incorporated by reference herein.
Critical Accounting Estimates
We have identified the following accounting estimates as critical to our business operations and the
understanding of our results of operations. The preparation of this Annual Report on Form 10-K requires us to make
estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and
liabilities at the date of our consolidated financial statements, and the reported amounts of revenue and expenses
during the reporting period. While we do not believe that a change in these estimates is reasonably likely, there can
be no assurance that our actual results will not differ from these estimates. The effect of these estimates on our business
operations is discussed below.
Product Warranties
We warranty our CEDs, Axon cameras and certain related accessories from manufacturing defects on a limited
basis for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs
for the standard warranty are charged to cost of products sold when revenue is recorded for the related product. Future
warranty costs are estimated based on historical data related to warranty claims on a quarterly basis and this rate is
applied to current product sales. Historically, reserve amounts have been increased if management becomes aware of
a component failure or other issue that could result in larger than anticipated warranty claims from customers. The
warranty reserve is reviewed quarterly to verify that it sufficiently reflects the remaining warranty obligations based
40
on the anticipated expenditures over the balance of the warranty obligation period, and adjustments are made when
actual warranty claim experience differs from estimates. As of December 31, 2020 and 2019, our warranty reserve
was approximately $0.8 million and $1.5 million, respectively. Warranty expense for the years ended December 31,
2020, 2019 and 2018 was $0.0 million, $1.6 million and $0.7 million, respectively. Warranty expense for the year
ended December 31, 2020, was impacted by lower than expected warranty claims for the Axon Body 3 on-officer
body camera. Warranty expense for the year ended December 31, 2019 was impacted by higher than initially expected
warranty claims for the Axon Flex 2 on-officer body camera. Warranty expense for the year ended December 31,
2018, was impacted by lower than expected warranty claims for the Axon Body 2 on-officer body camera.
Revenue related to separately-priced extended warranties is initially recorded as deferred revenue at its allocated
amount and subsequently recognized as net sales on a straight-line basis over the warranty service period. Costs related
to extended warranties are charged to cost of product and service sales when incurred.
Inventory
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average
cost of raw materials, which approximates the first-in, first-out (“FIFO”) method and includes allocations of
manufacturing labor and overhead. Provisions are made to reduce potentially excess, obsolete or slow-moving
inventories, as well as trial and evaluation inventories to their net realizable value. These provisions are based on
management’s best estimate after considering historical demand, projected future demand, inventory purchase
commitments, industry and market trends and conditions among other factors. We evaluate inventory costs for
abnormal costs due to excess production capacity and treat such costs as period costs.
During the year ended December 31, 2020, we recorded provisions to reduce inventories to their lower of cost
and net realizable value of approximately $3.8 million compared to $1.3 million during the year ended December 31,
2019. The largest driver of the increase in the provision in 2020 compared to 2019 was a $2.2 million reduction in the
carrying amount of our trial and evaluation inventory to zero which is our estimate of its net realizable value. The
provision in 2020 and in 2019 was driven by analyses of projected sales data for existing products resulting in
adjustments to state inventories at their lower of cost and net realizable value.
Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable
We derive revenue from two primary sources: (1) the sale of physical products, including CEDs, Axon cameras,
Axon Signal enabled devices, corresponding hardware extended warranties, and related accessories such as Axon
docks, cartridges and batteries, among others, and (2) subscriptions to our Axon Evidence digital evidence
management SaaS (including data storage fees and other ancillary services), which includes varying levels of support.
To a lesser extent, we also recognize training, professional services and revenue related to other software and SaaS
services. We apply the five-step model outlined in Accounting Standards Codification ("ASC") Topic 606, Revenue
from Contracts with Customers ("Topic 606").
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is
the unit of account in Topic 606. For contracts with multiple performance obligations, we allocate the contract
transaction price to each performance obligation using our estimate of the standalone selling price ("SSP") of each
distinct good or service in the contract.
Revenues are recognized upon transfer of control of promised products or services to customers in an amount
that reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts
that can include various combinations of products and services, each of which is generally distinct and accounted for
as a separate performance obligation. Revenue is recognized net of allowances for returns.
Performance obligations to deliver products, including CEDs, cameras and related accessories such as cartridges,
batteries and docks, are generally satisfied at the point in time we ship the product, as this is when the customer obtains
control of the asset under our standard terms and conditions. In certain contracts with non-standard terms and
41
conditions, these performance obligations may not be satisfied until formal customer acceptance occurs. Performance
obligations to fulfill service-type extended warranties and provide our SaaS offerings, including Axon Evidence and
other cloud services, are generally satisfied over time as the customer receives and consumes the benefits of these
services over the stated service period.
Many of our products and services are sold on a standalone basis. We also bundle our hardware products and
services together and sell them to our customers in single transactions, where the customer can make payments over
a multi-year period. For the years ended December 31, 2020, 2019 and 2018, the composition of revenue recognized
from contracts containing multiple performance obligations and those not containing multiple performance obligations
was as follows (dollars in thousands):
TASER
For the Year Ended December 31, 2020
Software and Sensors
Total
Contracts with Multiple Performance
Obligations
Contracts without Multiple Performance
Obligations
Total
$ 186,427
50.9 % $ 311,187
99.0 % $ 497,614
73.1 %
180,125
$ 366,552
49.1
3,264
100.0 % $ 314,451
1.0
183,389
100.0 % $ 681,003
26.9
100.0 %
TASER
For the Year Ended December 31, 2019
Software and Sensors
Total
Contracts with Multiple Performance
Obligations
Contracts without Multiple Performance
Obligations
Total
$ 130,761
46.4 % $ 245,416
98.5 % $ 376,177
70.9 %
150,900
$ 281,661
3,783
53.6
100.0 % $ 249,199
1.5
154,683
100.0 % $ 530,860
29.1
100.0 %
TASER
For the Year Ended December 31, 2018
Software and Sensors
Total
Contracts with Multiple Performance
Obligations
Contracts without Multiple Performance
Obligations
Total
$ 72,355
28.6 % $ 159,318
95.4 % $ 231,673
55.2 %
180,760
$ 253,115
7,635
71.4
100.0 % $ 166,953
4.6
188,395
100.0 % $ 420,068
44.8
100.0 %
Additionally, we offer customers the ability to purchase CED cartridges and certain services on an unlimited
basis over the contractual term. Due to the unlimited nature of these arrangements whereby we are obligated to deliver
unlimited products at the customer’s request, we account for these arrangements as stand-ready obligations, and
recognize revenue ratably over the contract period. Cost of product sales is recognized as the products are shipped to
the customer.
We have elected to recognize shipping costs as an expense in cost of product sales when the control of hardware
products or accessories have transferred to the customer.
Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis.
Deferred revenue consists of payments received in advance related to products and services for which the criteria
for revenue recognition have not yet been met. Deferred revenue that will be recognized during the subsequent
twelve month period from the balance sheet date is recorded as current deferred revenue and the remaining portion is
recorded as long-term. Generally, customers are billed in annual installments.
Sales are typically made on credit, and we generally do not require collateral.
42
Valuation of Goodwill, Intangible and Long-lived Assets
We do not amortize goodwill and intangible assets with indefinite useful lives; rather, such assets are required
to be tested for impairment at least annually, or sooner whenever events or changes in circumstances indicate that the
assets may be impaired. We perform our annual impairment assessment in the fourth quarter of each year. Finite-lived
intangible assets and other long-lived assets are amortized over their estimated useful lives. Management evaluates
whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets
and intangible assets may warrant revision or that the remaining balance of these assets, including intangible assets
with indefinite lives, may not be recoverable.
Circumstances that might indicate long-lived assets might not be recoverable could include, but are not limited
to, a change in the product mix, a change in the way products and services are created, produced or delivered, or a
significant change in the way our products are branded and marketed. When performing a review for recoverability,
management estimates the future undiscounted cash flows expected to result from the use of the assets and their
eventual disposition. The amount of the impairment loss, if impairment exists, is calculated based on the excess of the
carrying amounts of the assets over their estimated fair value computed using discounted cash flows. During the year
ended December 31, 2020, we abandoned certain planning and site development activities related to our planned new
headquarters, resulting in an impairment charge of $0.7 million. Additionally, we recognized impairment charges
totaling $0.5 million related to improvements and remodeling of certain of our offices. Both charges were included in
sales, general and administrative expense in the accompanying consolidated statements of operations. During the year
ended December 31, 2019, we abandoned certain capitalized software related to implementation work on an enterprise
resource planning system conversion, resulting in an impairment charge of $1.3 million, and certain planning and site
development activities related to our planned new headquarters, resulting in an impairment charge of $0.7 million,
both of which were included in sales, general and administrative expense in the accompanying consolidated statements
of operations and comprehensive income (loss). During the year ended December 31, 2018, we abandoned certain
developed technology acquired in a business combination resulting in an impairment charge of $2.0 million.
Income Taxes
We recognize federal, state and foreign current tax liabilities or assets based on our estimate of taxes payable or
refundable in the current fiscal year by tax jurisdiction. We also recognize federal, state and foreign deferred tax assets
or liabilities, as appropriate, for our estimate of future tax effects attributable to temporary differences and carry
forwards.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position
will be sustained based on the technical merits of the position. The tax benefits recognized in the consolidated financial
statements from such positions are measured based on the largest benefit that has a greater than fifty percent likelihood
of being realized upon ultimate resolution. We must also assess whether uncertain tax positions as filed could result
in the recognition of a liability for possible interest and penalties if any. We have completed research and development
tax credit studies for each year a tax credit was claimed for federal, Arizona, and California income tax purposes. We
determined that it was more likely than not that the full benefit of the research and development tax credit would not
be sustained on examination and accordingly, have established a liability for unrecognized tax benefits of $7.7 million
as of December 31, 2020. We expect the amount of the unrecognized tax benefit to increase by approximately $0.1
million within the next 12 months. Should the unrecognized tax benefit of $7.7 million be recognized, our effective
tax rate would be favorably impacted. Our estimates are based on information available to us at the time we prepare
the income tax provision. Our income tax returns are subject to audit by federal, state, and local governments,
generally years after the returns are filed. These returns could be subject to material adjustments or differing
interpretations of the tax laws. During 2020, we completed an audit of our 2016 U.S. federal income tax return by the
Internal Revenue Service and began an audit of our 2016 and 2017 California income tax returns for which we are
currently in the closing phase with the Franchise Tax Board. Additionally, we have been notified that an audit will
commence for Axon Public Safety Southeast Asia LLC, our entity in Vietnam. The tax period has not yet been defined.
43
Our calculation of current and deferred tax assets and liabilities is based on certain estimates and judgments and
involves dealing with uncertainties in the application of complex tax laws. Our estimates of current and deferred tax
assets and liabilities may change based, in part, on added certainty or finality to an anticipated outcome, changes in
accounting or tax laws in the U.S. and internationally, or changes in other facts or circumstances. In addition, we
recognize liabilities for potential tax contingencies based on our estimate of whether, and the extent to which,
additional taxes may be due. If we determine that payment of these amounts is unnecessary, or if the recorded tax
liability is greater than our current assessment, we may be required to recognize an income tax benefit, or additional
income tax expense, respectively, in our consolidated financial statements.
In preparing our consolidated financial statements, we assess the likelihood that our deferred tax assets will be
realized from future taxable income. In evaluating our ability to recover our deferred income tax assets, we consider
all available positive and negative evidence, including operating results, ongoing tax planning and forecasts of future
taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if we determine that it is
more likely than not that some portion or all of the net deferred tax assets will not be realized. Although we believe
that our tax estimates are reasonable, the ultimate tax determination involves significant judgments that could become
subject to audit by tax authorities in the ordinary course of business.
We anticipate sufficient future pre-tax book income to realize a large portion of our deferred tax assets. However,
based on expected income for years in which Arizona R&D tax credits are set to expire, and certain identified
intangibles with an indefinite life, a reserve of $7.3 million has been recorded as a valuation allowance against deferred
tax assets as of December 31, 2020.
Stock-Based Compensation
We have historically granted stock-based compensation to key employees and non-employee directors as a
means of attracting and retaining highly qualified personnel. Stock-based compensation awards primarily consist of
service-based RSUs, performance-based RSUs, and performance-based stock options. Our stock-based compensation
awards are classified as equity and measured at the fair market value of the underlying stock at the grant date. For
service-based awards, we recognize RSU expense using the straight-line attribution method over the requisite service
period. Vesting of performance-based RSUs is contingent upon the achievement of certain performance criteria related
to our operating performance, as well as successful and timely development and market acceptance of future product
introductions. For performance-based RSUs containing only performance conditions, compensation cost is recognized
using the graded attribution model over the explicit or implicit service period. For awards containing multiple service,
performance or market conditions, where all conditions must be satisfied prior to vesting, compensation expense is
recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service period,
based on management’s estimate of the probability and timing of the performance criteria being satisfied, adjusted at
each balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur
as a reduction to stock-based compensation expense and additional paid-in-capital.
For performance-based options, stock-based compensation expense is recognized over the expected performance
achievement period of individual performance goals when the achievement of each individual performance goal
becomes probable. For performance-based awards with a vesting schedule based entirely on the attainment of both
performance and market conditions, stock-based compensation expense is recognized over the longer of the expected
achievement period of the performance and market conditions, beginning at the point in time that the relevant
performance condition is considered probable of achievement. The fair value of such awards is estimated on the grant
date using Monte Carlo simulations. Refer to Note 13 of the notes to our consolidated financial statements within this
Annual Report on Form 10-K.
We have granted a total of approximately 15.0 million performance-based awards (options and restricted stock
units) of which approximately 12.0 million are outstanding as of December 31, 2020, the vesting of which is
contingent upon the achievement of certain performance criteria including the successful development and market
acceptance of future product introductions as well as our future sales targets and operating performance and market
capitalization. Compensation expense for performance awards will be recognized based on management’s best
44
estimate of the probability of the performance criteria being satisfied using the most currently available projections of
future product adoption and operating performance, adjusted at each balance sheet date. Changes in the subjective and
probability-based assumptions can materially affect the estimates of the fair value of the awards and timing of
recognition of stock-based compensation and consequently, the related amount recognized in our statements of
operations and comprehensive income.
Contingencies and Accrued Litigation Expense
We are subject to the possibility of various loss contingencies arising in the ordinary course of business, including
product-related and other litigation. We consider the likelihood of loss or impairment of an asset or the incurrence of
a liability, as well as our ability to reasonably estimate the amount of loss in determining loss contingencies. An
estimated loss contingency is accrued when it is probable that an asset has been impaired or a liability has been
incurred and the amount of loss can be reasonably estimated. We regularly evaluate current information available to
us to determine whether such accruals should be adjusted and whether new accruals are required. Refer to Note 10 of
our consolidated financial statements within this Annual Report on Form 10-K.
Reserve for Expected Credit Losses
We are exposed to the risk of credit losses primarily through sales of products and services. Our expected credit
loss allowance for accounts receivable, notes receivable, and contract assets represents management’s best estimate
and application of judgment considering a number of factors, including historical collection experience, published or
estimated credit default rates for entities that represent our customer base, current and future economic and market
conditions and a review of the current status of customers' trade accounts receivables. Additionally, specific reserve
amounts are established to record the appropriate provision for customers that have a higher probability of default.
Our monitoring activities include account reconciliation, dispute resolution, payment confirmation, consideration of
customers' financial condition and macroeconomic conditions. Balances are written off when determined to be
uncollectible.
We review receivables for U.S. and international customers separately to better reflect different published credit
default rates and economic and market conditions.
A majority of our customers are governmental agencies. Due to municipal government funding rules, certain of
our contracts are subject to appropriation, termination for convenience, or similar cancellation clauses, which could
allow our customers to cancel or not exercise options to renew contracts in the future. Economic slowdowns that
negatively affect municipal tax collections and put pressure on law enforcement may increase this risk and negatively
impact the realizability of our accounts and notes receivable and contract assets. We considered the current and
expected future economic and market conditions surrounding the COVID-19 pandemic and increased our reserve for
expected credit losses by approximately $0.9 million during the year ended December 31, 2020.
Based on the balances of our financial instruments as of December 31, 2020, a hypothetical 25 percent increase
in expected credit loss rates across all pools would result in a $0.7 million increase in the allowance for expected credit
losses.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate Risk
We typically invest in a limited number of financial instruments, consisting principally of investments in money
market accounts, certificates of deposit, corporate and municipal bonds with a typical long-term debt rating of “A” or
better by any nationally recognized statistical rating organization, denominated in U.S. dollars. All of our cash
equivalents and investments are treated as “held-to-maturity.” Investments in fixed-rate interest-earning instruments
carry a degree of interest rate risk as their market value may be adversely impacted due to a rise in interest rates. As a
result, we may suffer losses in principal if we sell securities that have declined in market value due to changes in
45
interest rates. However, because we classify our debt securities as “held-to-maturity” based on our intent and ability
to hold these instruments to maturity, no gains or losses are recognized due to changes in interest rates. These securities
are reported at amortized cost. Based on investment positions as of December 31, 2020, a hypothetical 100 basis point
increase in interest rates across all maturities would result in a $1.7 million decline in the fair market value of the
portfolio. Such losses would only be realized if we sold the investments prior to maturity.
Additionally, we have access to a $50.0 million line of credit borrowing facility which bears interest at LIBOR
plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on our funded debt to EBITDA ratio.
Under the terms of the line of credit, available borrowings are reduced by outstanding letters of credit, which totaled
$6.1 million at December 31, 2020. At December 31, 2020, there was no amount outstanding under the line of credit,
and the available borrowing under the line of credit was $43.9 million. We have not borrowed any funds under the
line of credit since its inception; however; should we need to do so in the future, such borrowings could be subject to
adverse or favorable changes in the underlying interest rate.
Exchange Rate Risk
Our results of operations and cash flows are subject to fluctuations due to changes in foreign currency exchange
rates, in each case compared to the U.S. dollar, related to transactions by our foreign subsidiaries. The majority of our
sales to international customers are transacted in foreign currencies and therefore are subject to exchange rate
fluctuations on these transactions. The cost of our products to our customers increases when the U.S. dollar strengthens
against their local currency, and we may have more sales and expenses denominated in foreign currencies in
future years which could increase our foreign exchange rate risk. Additionally, intercompany sales to our non-U.S.
dollar functional currency international subsidiaries are transacted in U.S. dollars which could increase our foreign
exchange rate risk caused by foreign currency transaction gains and losses.
To date, we have not engaged in any currency hedging activities. However, we may enter into foreign currency
forward and option contracts with financial institutions to protect against foreign exchange risks associated with
certain existing assets and liabilities, certain firmly committed transactions, forecasted future cash flows and net
investments in foreign subsidiaries. However, we may choose not to hedge certain foreign exchange exposures for a
variety of reasons, including but not limited to the prohibitive economic cost of hedging particular exposures. As such,
fluctuations in currency exchange rates could harm our business in the future.
46
Item 8. Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2020 and 2019
Consolidated Statements of Operations and Comprehensive Income (Loss) for the years ended December 31,
2020, 2019 and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018
Notes to Consolidated Financial Statements
Report of Grant Thornton LLP, Independent Registered Public Accounting Firm
Page
48
49
50
51
52
88
47
AXON ENTERPRISE, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Accounts and notes receivable, net of allowance of $2,105 and $1,567 as of
December 31, 2020 and December 31, 2019 respectively
Contract assets, net
Inventory
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred tax assets, net
Intangible assets, net
Goodwill
Long-term investments
Long-term notes receivable, net
Long-term contract assets, net
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued liabilities
Current portion of deferred revenue
Customer deposits
Other current liabilities
Total current liabilities
Deferred revenue, net of current portion
Liability for unrecognized tax benefits
Long-term deferred compensation
Deferred tax liabilities, net
Other long-term liabilities
Total liabilities
Commitments and contingencies (Note 10)
Stockholders’ equity:
December 31,
2020
December 31,
2019
$
155,440 $
406,525
172,250
178,534
229,201
63,945
89,958
36,883
981,952
105,494
45,770
9,448
25,205
90,681
22,457
20,099
79,917
1,381,023 $
24,142 $
59,843
163,959
2,956
5,431
256,331
111,222
4,503
4,732
649
27,331
404,768
146,878
38,102
38,845
34,866
609,475
43,770
27,688
12,771
25,013
45,499
31,598
9,644
40,181
845,639
25,874
45,001
117,864
2,974
3,853
195,566
87,936
3,832
3,936
354
10,520
302,144
$
$
Preferred stock, $0.00001 par value; 25,000,000 shares authorized; no shares issued and
outstanding as of December 31, 2020 and December 31, 2019, respectively
Common stock, $0.00001 par value; 200,000,000 shares authorized; 63,766,555 and
59,497,759 shares issued and outstanding as of December 31, 2020 and
December 31, 2019, respectively
Additional paid-in capital
Treasury stock at cost, 20,220,227 shares as of December 31, 2020 and
December 31, 2019
Retained earnings
Accumulated other comprehensive income (loss)
Total stockholders’ equity
Total liabilities and stockholders’ equity
—
—
1
962,159
(155,947)
169,901
141
976,255
1,381,023 $
1
528,272
(155,947)
172,265
(1,096)
543,495
845,639
$
The accompanying notes are an integral part of these consolidated financial statements.
48
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
For the Years Ended December 31,
2018
2019
2020
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Sales, general and administrative
Research and development
Total operating expenses
Income (loss) from operations
Interest and other income, net
Income (loss) before provision for income taxes
Provision (benefit) for income taxes
Net income (loss)
Net income (loss) per share:
Basic
Diluted
Weighted average shares outstanding:
Basic
Diluted
Net income (loss)
Foreign currency translation adjustments
Comprehensive income (loss)
$ 500,250 $ 399,474 $ 327,635
92,433
131,386
420,068
530,860
139,337
190,683
22,148
32,891
161,485
223,574
258,583
307,286
156,886
212,959
76,856
100,721
233,742
313,680
24,841
(6,394)
3,263
8,464
28,104
2,070
(1,101)
1,188
29,205
180,753
681,003
224,131
40,541
264,672
416,331
307,286
123,195
430,481
(14,150)
7,859
(6,291)
(4,567)
$ (1,724) $
882 $
$
$
(0.03) $
(0.03) $
0.01 $
0.01 $
0.52
0.50
61,782
61,782
59,190
60,018
56,392
57,922
$ (1,724) $
1,237
(487) $
$
882 $
417
1,299 $
29,205
(46)
29,159
The accompanying notes are an integral part of these consolidated financial statements.
49
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T
AXON ENTERPRISE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
For the Years Ended December 31,
2019
2018
2020
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash used in operating
activities:
Depreciation and amortization
Loss on disposal and abandonment of intangible assets
Loss on disposal and impairment of property and equipment, net
Stock-based compensation expense
Deferred income taxes
Unrecognized tax benefits
Other noncash, net
Provision for expected credit losses
Change in assets and liabilities:
Accounts and notes receivable and contract assets
Inventory
Prepaid expenses and other assets
Accounts payable, accrued and other liabilities
Deferred revenue
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investments
Proceeds from call / maturity of investments
Purchases of property and equipment
Proceeds from disposal of property and equipment
Purchases of intangible assets
Investments in unconsolidated affiliates
Business acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Net proceeds from equity offering
Proceeds from options exercised
Income and payroll tax payments for net-settled stock awards
Payment of contingent consideration for business acquisitions
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents and restricted cash, beginning of period
Cash and cash equivalents and restricted cash, end of period
$
(1,724) $
882
$
29,205
12,475
320
1,722
133,572
(16,528)
671
7,449
1,302
(107,762)
(52,156)
(14,885)
8,886
65,139
38,481
(656,522)
379,839
(72,629)
95
(241)
(7,068)
—
(356,526)
11,361
67
2,542
78,495
(7,987)
983
3,928
—
(38,830)
(4,903)
(9,845)
4,967
24,013
65,673
(354,477)
130,083
(15,939)
—
(404)
—
—
(240,737)
306,779
295
(7,809)
—
299,265
1,976
(16,804)
172,355
—
114
(4,051)
—
(3,937)
329
(178,672)
351,027
$ 155,551 $ 172,355
$
10,615
2,117
303
21,879
(3,592)
1,144
34
—
(67,643)
14,804
(12,739)
13,506
54,242
63,875
(4,331)
11,158
(11,139)
—
(558)
—
(4,990)
(9,860)
233,993
1,757
(14,127)
(2,275)
219,348
(774)
272,589
78,438
351,027
The accompanying notes are an integral part of these consolidated financial statements.
51
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies
Axon Enterprise, Inc. (“Axon”, the “Company”, "we", or "us") is a market-leading provider of law enforcement
technology solutions. Our core mission is to protect life. We fulfill that mission through developing hardware and software
products that advance the long term objectives of a) obsoleting the bullet, b) reducing social conflict, and c) enabling a fair
and effective justice system.
The accompanying consolidated financial statements include the accounts of Axon Enterprise, Inc. and our wholly
owned subsidiaries. All material intercompany accounts, transactions, and profits have been eliminated.
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements have been prepared in conformity with accounting principles
generally accepted in the United States of America (“U.S. GAAP”). The preparation of these consolidated financial
statements requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period. Significant estimates and assumptions in these
consolidated financial statements include:
•
•
•
•
•
•
•
•
product warranty reserves,
inventory valuation,
revenue recognition,
reserve for expected credit losses
valuation of goodwill, intangible and long-lived assets,
recognition, measurement and valuation of current and deferred income taxes,
stock-based compensation, and
recognition and measurement of contingencies and accrued litigation expense.
Actual results could differ materially from those estimates.
Cash, Cash Equivalents and Investments
Cash, cash equivalents and investments include cash, money market funds, certificates of deposit, commercial paper,
corporate bonds, state and municipal obligations, U.S. Treasury inflation protected securities, U.S. Treasury Repurchase
agreements, U.S. Treasury bills, and agency bonds. We place our cash and cash equivalents with high quality financial
institutions. Although we deposit our cash with multiple financial institutions, our deposits regularly exceed federally
insured limits.
Cash and cash equivalents include funds on hand and highly liquid investments purchased with initial maturity of
three months or less. Short-term investments include securities with an expected maturity date within one year of the
balance sheet date that do not meet the definition of a cash equivalent, and long-term investments are securities with an
expected maturity date greater than one year. Based on management’s intent and ability to hold our investments, they are
classified as held to maturity investments and are recorded at amortized cost. Held-to-maturity investments are reviewed
quarterly for impairment to determine if other-than-temporary declines in the fair value have occurred for any individual
investment that may affect our intent and ability to hold the investment until recovery. Other-than-temporary declines in
the value of held-to-maturity investments are recorded as expense in the period the determination is made.
52
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Restricted Cash
Restricted cash balances of $0.1 million and $0.1 million as of December 31, 2020 and 2019, respectively, primarily
relate to funds held in an international bank account for a country in which we are required to maintain a minimum balance
to operate. Approximately half of the balance was included in prepaid expenses and other current assets on our consolidated
balance sheets, with the remainder included in other assets.
Inventory
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average
cost of raw materials, which approximates the first-in, first-out (“FIFO”) method and includes allocations of manufacturing
labor and overhead. Provisions are made to reduce potentially excess, obsolete or slow-moving inventories, as well as trial
and evaluation inventories to their net realizable value. These provisions are based on management’s best estimate after
considering historical demand, projected future demand, inventory purchase commitments, industry and market trends and
conditions among other factors. We evaluate inventory costs for abnormal costs due to excess production capacity and
treat such costs as period costs.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation and amortization. Additions and
improvements are capitalized, while ordinary maintenance and repair expenditures are charged to expense as incurred.
Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Land is not
depreciated.
Software Development Costs
We expense software development costs, including costs to develop software products or the software component of
products and services to be marketed to external users, before technological feasibility of such products is reached. We
have determined that technological feasibility is reached shortly before the release of those products and as a result, the
development costs incurred after the establishment of technological feasibility and before the release of those products are
not material.
Software development costs also include costs to develop software programs to be used solely to meet our internal
needs and applications. We capitalize development costs related to these software applications once the preliminary project
stage is complete and it is probable that the project will be completed and the software will be used to perform the intended
function. Additionally, we capitalize qualifying costs incurred for upgrades and enhancements to existing software that
result in additional functionality. Costs related to preliminary project planning activities, post-implementation activities,
maintenance and minor modifications are expensed as incurred. Internal-use software development costs are amortized on
a straight line basis over the estimated useful life of the software.
We evaluate the useful lives of these assets on an annual basis and test for impairment whenever events or changes
in circumstances occur that could impact the recoverability of these assets.
Valuation of Goodwill, Intangible and Long-lived Assets
Finite-lived intangible assets and other long-lived assets are amortized over their estimated useful lives. We do
not amortize goodwill and intangible assets with indefinite useful lives; rather, such assets are required to be tested for
impairment at least annually, or sooner whenever events or changes in circumstances indicate that the assets may be
impaired. We perform our annual impairment assessment in the fourth quarter of each year. Management evaluates
whether events and circumstances have occurred that indicate the remaining estimated useful life of long-lived assets and
53
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
intangible assets may warrant revision or that the remaining balance of these assets, including intangible assets with
indefinite lives, may not be recoverable.
Circumstances that might indicate long-lived assets might not be recoverable could include, but are not limited to, a
change in the product mix, a change in the way products and services are created, produced or delivered, or a significant
change in the way our products are branded and marketed. When performing a review for recoverability, management
estimates the future undiscounted cash flows expected to result from the use of the assets and their eventual disposition.
The amount of the impairment loss, if impairment exists, is calculated based on the excess of the carrying amounts of the
assets over their estimated fair value computed using discounted cash flows. During the year ended December 31, 2020,
we abandoned certain planning and site development activities related to our planned new headquarters, resulting in an
impairment charge of $0.7 million. Additionally, we recognized impairment charges totaling $0.5 million related to
improvements and remodeling of certain of our offices. Both charges were included in sales, general and administrative
expense in the accompanying consolidated statements of operations. During the year ended December 31, 2019, we
abandoned certain capitalized software related to implementation work on an enterprise resource planning system
conversion, resulting in an impairment charge of $1.3 million, and certain planning and site development activities related
to our planned new headquarters, resulting in an impairment charge of $0.7 million, both of which were included in sales,
general and administrative expense in the accompanying consolidated statements of operations and comprehensive
income. During the year ended December 31, 2018, we abandoned certain developed technology acquired in a business
combination resulting in an impairment charge of $2.0 million which was included in sales, general and administrative
expense in the accompanying consolidated statements of operations and comprehensive income.
Customer Deposits
We require deposits in advance of shipment for certain customer sales orders. Additionally, customers may elect to
make deposits with us related to contracts for our products and services that were not executed as of the end of a reporting
period. Customer deposits are included in other current liabilities in the accompanying consolidated balance sheets.
Revenue Recognition, Deferred Revenue and Accounts and Notes Receivable
We derive revenue from two primary sources: (1) the sale of physical products, including conducted energy devices
("CEDs"), Axon cameras, Axon Signal enabled devices, corresponding hardware extended warranties, and related
accessories such as Axon docks, cartridges and batteries, among others, and (2) subscriptions to our Axon Evidence digital
evidence management software-as-a-service ("SaaS") (including data storage fees and other ancillary services), which
includes varying levels of support. To a lesser extent, we also recognize revenue from training, professional services and
other software and SaaS services. We apply the five-step model outlined in Accounting Standards Codification ("ASC")
Topic 606, Revenue from Contracts from Customers ("Topic 606"). For additional discussion of the adoption of Topic
606, see Note 2.
A performance obligation is a promise in a contract to transfer a distinct good or service to the customer, and is the
unit of account in Topic 606. For contracts with multiple performance obligations, we allocate the contract transaction
price to each performance obligation using our estimate of the standalone selling price ("SSP") of each distinct good or
service in the contract.
Revenues are recognized upon transfer of control of promised products or services to customers in an amount that
reflects the consideration we expect to receive in exchange for those products or services. We enter into contracts that can
include various combinations of products and services, each of which is generally distinct and accounted for as a separate
performance obligation. Revenue is recognized net of allowances for returns.
Performance obligations to deliver products, including CEDs, cameras and related accessories such as cartridges,
batteries and docks, are generally satisfied at the point in time we ship the product, as this is when the customer obtains
control of the asset under our standard terms and conditions. In certain contracts with non-standard terms and conditions,
54
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
these performance obligations may not be satisfied until formal customer acceptance occurs. Performance obligations to
fulfill service-type extended warranties and provide our SaaS offerings, including Axon Evidence and other cloud services,
are generally satisfied over time as the customer receives and consumes the benefits of these services over the stated
service period.
Many of our products and services are sold on a standalone basis. We also bundle our hardware products and services
together and sell them to our customers in single transactions, where the customer can make payments over a multi-year
period. These sales may include payments for upfront hardware and services, as well as payments for hardware and services
to be provided by us at a future date. Additionally, we offer customers the ability to purchase CED cartridges and certain
services on an unlimited basis over the contractual term. Due to the unlimited nature of these arrangements whereby we
are obligated to deliver unlimited products at the customer’s request, we account for these arrangements as stand-ready
obligations, and recognize revenue ratably over the contract period. Cost of product sales is recognized when control of
hardware products or accessories have transferred to the customer.
We have elected to recognize shipping costs as an expense in cost of product sales when the control of hardware
products or accessories have transferred to the customer.
Sales tax collected on sales is netted against government remittances and thus, recorded on a net basis.
The timing of revenue recognition may differ from the timing of invoicing to customers. We generally have an
unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset
when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized
subsequent to invoicing. Contract asset amounts that will be invoiced during the subsequent twelve month period from the
balance sheet date are classified as current assets and the remaining portion is recorded within other assets on our
consolidated balance sheets. Deferred revenue that will be recognized during the subsequent twelve month period from
the balance sheet date is recorded as current deferred revenue and the remaining portion is recorded as long-term deferred
revenue. Generally, customers are billed in annual installments. See Note 2 for further disclosures about our contract assets.
Sales are typically made on credit, and we generally do not require collateral. We are exposed to credit losses
primarily through sales of products and services. Our expected loss allowance methodology for accounts receivable, notes
receivable, and contract assets is developed using historical collection experience, published or estimated credit default
rates for entities that represent our customer base, current and future economic and market conditions and a review of the
current status of customers' trade accounts receivables. We review receivables for U.S. and international customers
separately to better reflect different published credit default rates and economic and market conditions. Additionally,
specific reserve amounts are established to record the appropriate provision for customers that have a higher probability
of default. Our monitoring activities include account reconciliation, dispute resolution, payment confirmation,
consideration of customers' financial condition and macroeconomic conditions. Balances are written off when determined
to be uncollectible. Accounts and notes receivable and contract assets are presented net of a reserve for expected credit
losses, which totaled $3.4 million and $1.6 million as of December 31, 2020 and January 1, 2020, respectively. This
reserve represents management’s best estimate and application of judgment considering a number of factors, including
those listed above. In the event that actual uncollectible amounts differ from our estimates, additional expense could be
necessary.
We considered the current and expected future economic and market conditions surrounding the COVID-19
pandemic and increased our reserve for expected credit losses by approximately $0.9 million during the year ended
December 31, 2020.
Cost of Product and Service Sales
Cost of product sales represents manufacturing costs, consisting of materials, labor and overhead related to finished
goods and components. Shipping costs incurred related to product delivery are also included in cost of products sold. Cost
55
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of service sales includes third-party cloud services, and software maintenance and support costs, including personnel costs,
associated with supporting Evidence.com and other software related services.
Advertising Costs
We expense advertising costs in the period in which they are incurred. We incurred advertising costs of $1.3 million,
$0.9 million and $1.1 million in the years ended December 31, 2020, 2019 and 2018, respectively. Advertising costs are
included in sales, general and administrative expenses in the accompanying statements of operations.
Standard Warranties
We warranty our CEDs, Axon cameras and certain related accessories from manufacturing defects on a limited basis
for a period of one year after purchase and, thereafter, will replace any defective unit for a fee. Estimated costs for the
standard warranty are charged to cost of products sold when revenue is recorded for the related product. Future warranty
costs are estimated on a quarterly basis based on historical data related to warranty claims and this rate is applied to current
product sales. Historically, reserve amounts have been increased if management becomes aware of a component failure or
other issue that could result in larger than anticipated warranty claims from customers. The warranty reserve is reviewed
quarterly to verify that it sufficiently reflects the remaining warranty obligations based on the anticipated expenditures
over the balance of the warranty obligation period, and adjustments are made when actual warranty claim experience
differs from estimates. The warranty reserve is included in accrued liabilities on the accompanying consolidated balance
sheets.
Changes in our estimated warranty reserve were as follows (in thousands):
Balance, beginning of period
Utilization of reserve
Warranty expense (benefit)
Balance, end of period
Research and Development Expenses
Year Ended December 31,
2020
2019
$
$
1,476 $
(700)
(7)
769 $
898
(973)
1,551
1,476
We expense as incurred research and development costs that do not meet the qualifications to be capitalized. We
incurred research and development expense of $123.2 million, $100.7 million and $76.9 million in 2020, 2019 and 2018,
respectively.
Income Taxes
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement amounts of assets and liabilities
and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in future years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rate is recognized
in income in the period that includes the enactment date. Deferred tax assets are reduced through the establishment of a
valuation allowance if, based upon available evidence, it is determined that it is more likely than not that the deferred tax
assets will not be realized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will
be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits
recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has
56
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
a greater than 50% likelihood of being realized upon ultimate resolution. We also assess whether uncertain tax positions,
as filed, could result in the recognition of a liability for possible interest and penalties. Our policy is to include interest and
penalties related to unrecognized tax benefits as a component of income tax expense. Refer to Note 11 for additional
information regarding the change in unrecognized tax benefits.
Concentration of Credit Risk and Major Customers / Suppliers
Financial instruments that potentially subject us to concentrations of credit risk consist of accounts and notes
receivable, contract assets, and cash. Historically, we have experienced an immaterial level of write-offs related to
uncollectible accounts.
We maintain the majority of our cash at four depository institutions. As of December 31, 2020, the aggregate balances
in such accounts were $145.1 million. Our balances with these institutions regularly exceed Federal Deposit Insurance
Corporation (“FDIC”) insured limits for domestic deposits and various deposit insurance programs covering our deposits
in Australia, Canada, Finland, Germany, Hong Kong, India, Italy, the Netherlands, Spain, the United Kingdom, and
Vietnam. To manage the related credit exposure, management continually monitors the creditworthiness of the financial
institutions where we have deposits.
No customer represented more than 10% of total net sales for the years ended December 31, 2020, 2019 or 2018. At
December 31, 2020, and 2019, no customer represented more than 10% of the aggregate balance of accounts and notes
receivable and contract assets.
We currently purchase both off the shelf and custom components, including, but not limited to, finished circuit
boards, injection-molded plastic components, small machined parts, custom cartridge components, electronic components,
and off the shelf sub-assemblies from suppliers located in the U.S., Canada, China, Israel, Mexico, Republic of Korea, and
Taiwan. Although we currently obtain many of these components from single source suppliers, we own the injection
molded component tooling, most of the designs, and the test fixtures used in their production for all custom components.
As a result, we believe we could obtain alternative suppliers in most cases without incurring significant production delays.
We also strategically hold safety stock levels on custom components to further reduce this risk. For off the shelf
components, we believe that in most cases there are readily available alternative suppliers who can consistently meet our
needs for these components. We acquire components either through contractual agreements or on a purchase order basis
along with in some cases providing rolling 12 month forecasts to suppliers so they can procure or secure subcomponents
to further mitigate upstream risks to our supply chain.
Fair Value of Financial Instruments
We use the fair value framework that prioritizes the inputs to valuation techniques for measuring financial assets and
liabilities measured on a recurring basis and for non-financial assets and liabilities when these items are re-measured. Fair
value is considered to be the exchange price in an orderly transaction between market participants, to sell an asset or
transfer a liability at the measurement date. The hierarchy below lists three levels of fair value based on the extent to which
inputs used in measuring fair value are observable in the market. We categorize each of our fair value measurements in
one of these three levels based on the lowest level input that is significant to the fair value measurement in its entirety.
These levels are:
• Level 1 – Valuation techniques in which all significant inputs are unadjusted quoted prices from active markets
for assets or liabilities that are identical to the assets or liabilities being measured.
• Level 2 – Valuation techniques in which significant inputs include quoted prices from active markets for assets
or liabilities that are similar to the assets or liabilities being measured and/or quoted prices for assets or liabilities
that are identical or similar to the assets or liabilities being measured from markets that are not active. Also,
57
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
model-derived valuations in which all significant inputs and significant value drivers are observable in active
markets are Level 2 valuation techniques.
• Level 3 – Valuation techniques in which one or more significant inputs or significant value drivers are
unobservable. Unobservable inputs are valuation technique inputs that reflect our own assumptions about inputs
that market participants would use in pricing an asset or liability.
We have cash equivalents and investments, which at December 31, 2020 and 2019, were comprised of money market
funds, agency bonds, certificates of deposit, commercial paper, corporate bonds, municipal bonds, U.S. Treasury bills,
U.S. Treasury repurchase agreements, and U.S. Treasury inflation-protected securities. See additional disclosure regarding
the fair value of our cash equivalents and investments in Note 3. Included in the balance of other assets as of December 31,
2020 and 2019 was $4.7 million and $4.2 million, respectively, related to corporate-owned life insurance policies which
are used to fund our deferred compensation plan. We determine the fair value of our insurance contracts by obtaining the
cash surrender value of the contracts from the issuer, a Level 2 valuation technique.
During 2020, we invested in two unconsolidated affiliates, which are included within other assets. The estimated fair
value of the investments was determined based on Level 3 inputs. As of December 31, 2020, management estimated that
the fair value of the investments equaled the carrying value.
Our financial instruments also include accounts and notes receivable, accounts payable and accrued liabilities. Due
to the short-term nature of these instruments, their fair values approximate their carrying values on the balance sheet.
Segment and Geographic Information
Our operations are comprised of two reportable segments: the manufacture and sale of CEDs, batteries, accessories,
extended warranties and other products and services (the “TASER” segment); and the development, manufacture and sale
of software and sensors, which includes the sale of devices, wearables, applications, cloud and mobile products, and
services (collectively, the "Software and Sensors" segment). Reportable segments are determined based on discrete
financial information reviewed by our Chief Executive Officer who is our chief operating decision maker ("CODM"). We
organize and review operations based on products and services, and currently there are no operating segments that are
aggregated. We perform an analysis of our reportable segments at least annually. Additional information related to our
business segments is summarized in Note 17.
For a summary of net sales by geographic area, see Note 2. The majority of our sales to international customers are
transacted in foreign currencies and are attributed to each country based on the shipping address of the distributor or
customer. For the years ended December 31, 2020, 2019 and 2018, no individual country outside the U.S. represented
more than 10% of net sales. Substantially all of our assets are located in the U.S.
Stock-Based Compensation
We recognize expense related to stock-based compensation transactions in which we receive services in exchange
for equity instruments of the Company. Stock-based compensation expense for restricted stock units ("RSUs") is measured
based on the closing fair market value of our common stock on the date of grant. We recognize stock-based compensation
expense over the award’s requisite service period on a straight-line basis for time-based RSUs. For performance-based
RSUs, stock-based compensation expense is recognized over the requisite service period, which is defined as the longest
explicit, implicit or derived service period based on management’s estimate of the probability of the performance criteria
being satisfied, adjusted at each balance sheet date. For performance-based options with a vesting schedule based entirely
on the attainment of both performance and market conditions, stock-based compensation expense is recognized over the
longer of the expected achievement period of the performance and market conditions, beginning at the point in time that
the relevant performance condition is considered probable of achievement. For both time-based and performance-based
58
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
RSUs, we recognize forfeitures as they occur as a reduction to stock-based compensation expense and to additional paid-
in-capital.
eXponential Stock Performance Plan
On February 12, 2019, our shareholders approved the 2019 Stock Incentive Plan (the “2019 Plan”), which was
adopted by the Board of Directors to reserve a sufficient number of shares to facilitate our eXponential Stock Performance
Plan (“XSPP”) and grants of eXponential Stock Units (“XSUs”) under the plan. The XSUs are grants of restricted stock
units, each with a term of approximately nine years, that vest in 12 equal tranches. Each of the 12 tranches will vest upon
certification by the Compensation Committee of the Board of Directors that both (i) the market capitalization goal for such
tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0 billion thereafter, and (ii) any
one of eight operational goals focused on revenue or eight operational goals focused on Adjusted EBITDA (CEO
Performance Award) have been met for the previous four consecutive fiscal quarters. A total of approximately 0.3 million
XSUs were granted during the year ended December 31, 2020.
Stock-based compensation expense associated with XSU awards is recognized over the longest explicit, implicit or
derived service period for each pair of market capitalization and operational goals, beginning at the point in time when the
relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation of
each tranche are determined using a Monte Carlo simulation, which is also used as the basis for determining the expected
achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected
achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-
looking financial projections, taking into consideration statistical analysis. Even though no tranches of the XSU awards
vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation expense
is recognized when an operational goal is considered probable of achievement regardless of whether a market capitalization
goal is actually achieved.
Given the complexity of the awards, we utilized Monte Carlo simulations to simulate a range of possible future
market capitalizations for the Company over the term of the awards at each of the respective grant dates. The average of
all iterations of the simulation was used as the basis for the valuation and market capitalization goal derived service period
for each tranche. Additionally, we applied an illiquidity discount of between 10.3% and 17.4% to the valuation of XSUs
because the awards specify a post-vest holding period of 2.5 years for the acquired shares that vest. Certain of the XSU
awards specify a post-vest holding period of the longer of 2.5 years or until the next tranche vests. The illiquidity discounts
were estimated using the Finnerty model and reduced by the impact of expected payroll and income taxes due upon vesting
of the awards, as the related proportion of shares are expected to be sold to satisfy such obligations. We measured the grant
date fair value of the XSU awards with the following assumptions: risk-free interest rate of between 0.53% and 1.53%,
expected term of between 7.3 and 8.0 years, expected volatility of between 46.37% and 51.96%, and dividend yield
of 0.00%.
Stock Options
On May 24, 2018 (the “CEO Grant Date”), our stockholders approved the Board of Directors’ grant of
6,365,856 stock option awards to Patrick W. Smith, our CEO (the “CEO Performance Award”). The CEO Performance
Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both operational goals
(performance conditions) and market capitalization goals (market conditions), assuming continued employment either as
the CEO or as both Executive Chairman and Chief Product Officer and service through each vesting date. Stock-based
compensation expense associated with the CEO Performance Award is recognized over the requisite service period, which
is defined as the longer of the expected achievement period for each pair of market capitalization and operational goals,
beginning at the point in time when the relevant operational goal is considered probable of being met.
Given the complexity of the award, we utilized Monte Carlo simulations to simulate a range of possible future market
capitalizations for the Company over the term of the options at the grant date. The average of all iterations of the simulation
59
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
was used as the basis for the valuation and market capitalization goal derived service period for each tranche. Additionally,
we applied an illiquidity discount of 9.2% to the valuation because the award specifies a post-exercise holding period of
2.5 years. This discount was estimated using the Finnerty model and reduced by the impact of expected payroll and income
taxes due upon exercise of the options, as the related proportion of shares are expected to be sold to satisfy such obligations.
Additional assumptions used for the CEO Performance Award and the resulting estimates of weighted-average fair value
per share of options granted are as follows:
Volatility
Risk-free interest rate
Dividend rate
Expected life of options
Weighted average grant date fair value of options granted
47.71 %
2.98 %
—
9.76 years
$
38.64
The expected life of the options represented the estimated period of time from grant date until exercise; in this case,
exercise was assumed to occur at the full contractual term of ten years from grant and was based on input from the CEO
and his historical behavior of not exercising vested options until the end of their terms. Expected stock price volatility was
based on the average of the 9.76-year historical volatility and the implied volatility on 1,080-day call option for the
Company. The risk-free interest rate was based on the implied yield available on United States Treasury bill zero-coupon
issuances with an equivalent remaining term to the term of the options. We have not paid dividends in the past and do not
plan to pay any dividends in the near future.
No options were awarded during the years ended December 31, 2020 or 2019. Other than the CEO Performance
Award, no options were awarded during the year ended December 31, 2018.
Income (Loss) per Common Share
Basic income or loss per common share is computed by dividing net income (loss) by the weighted average number
of common shares outstanding during the periods presented. Diluted income (loss) per share reflects the potential dilution
from outstanding stock options and unvested restricted stock units. The calculation of the weighted average number of
shares outstanding and earnings per share are as follows (in thousands except per share data):
For the Year Ended December 31,
2019
2020
2018
Numerator for basic and diluted earnings per share:
Net income (loss)
Denominator:
Weighted average shares outstanding-basic
Dilutive effect of stock-based awards
Diluted weighted average shares outstanding
Anti-dilutive stock-based awards excluded
Net income (loss) per share:
Basic
Diluted
Recently Issued Accounting Guidance
Recently Adopted Accounting Pronouncements
$
(1,724) $
882 $ 29,205
61,782
—
61,782
12,150
59,190
828
60,018
12,627
56,392
1,530
57,922
6,757
$
$
(0.03) $
(0.03) $
0.01 $
0.01 $
0.52
0.50
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses (“Topic 326”): Measurement of Credit Losses on Financial Instruments.
ASU 2016-13 includes an impairment model (known as the current expected credit loss model) on financial instruments
60
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
and other commitments that is based on expected losses rather than incurred losses. Under the new guidance, an entity
recognizes as an allowance its estimate of expected credit losses, which the FASB believes will result in more timely
recognition of such losses. The use of forecasted information is intended to incorporate more timely information in the
estimate of expected credit losses. This ASU also requires enhanced disclosures relating to significant estimates and
judgments used in estimating credit losses, as well as credit quality. Upon adoption effective January 1, 2020, we recorded
a noncash cumulative effect adjustment to retained earnings of $0.6 million, net of $0.2 million of income taxes, on the
opening consolidated balance sheet as of January 1, 2020, reflecting an overall increase to the allowance for expected
credit losses. See Notes 3 and 4 for further disclosures related to Topic 326.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—
Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 eliminates, adds and modifies certain
disclosure requirements for fair value measurements. The amendments apply to the disclosures of changes in unrealized
gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value
measurements, and provide that the narrative description of measurement uncertainty should be applied prospectively for
only the most recent interim or annual period presented in the initial year of adoption. All other amendments should be
applied retrospectively to all periods presented upon their effective date. Adoption of this ASU on January 1, 2020 did not
have a material impact on our consolidated financial statements.
Effective the first quarter of 2021:
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes. The amendments
in the ASU are effective for fiscal years beginning after December 15, 2020, including interim periods therein. Early
adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have
not yet been issued. Adoption of this ASU is not expected to have a material impact on our consolidated financial
statements.
In January 2020, the FASB issued ASU No. 2020-01, Investments – Equity Securities (Topic 321), Investments –
Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) – Clarifying the Interactions
Between Topic 321, Topic 323, and Topic 815 (a Consensus of the Emerging Issues Task Force). The guidance clarifies
the interaction between ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement
of Financial Assets and Financial Liabilities and the ASU on equity method investments. ASU 2016-01 provides
companies with an alternative to measure certain equity securities without a readily determinable fair value at cost, minus
impairment, if any, unless an observable transaction for an identical or similar security occurs. ASU 2020-01 clarifies that
for purposes of applying the Topic 321 measurement alternative, an entity should consider observable transactions that
require it to either apply or discontinue the equity method of accounting under Topic 323, immediately before applying or
upon discontinuing the equity method. In addition, the new ASU provides direction that a company should not consider
whether the underlying securities would be accounted for under the equity method or the fair value option when it is
determining the accounting for certain forward contracts and purchased options, upon either settlement or exercise. The
amendments in this update become effective for fiscal years beginning after December 15, 2020, and interim periods
within those fiscal years. Early adoption is permitted, and the amendments are to be applied prospectively. Adoption of
this ASU is not expected to have a material impact on our consolidated financial statements.
Reclassification of Prior Year Presentation
Certain prior year amounts, including the long-term portion of contract assets, have been reclassified for consistency
with the current year presentation. These reclassifications are not material and had no effect on the reported results of
operations.
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AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Risks and Uncertainties
In March 2020, the World Health Organization declared COVID-19 a global pandemic. As a result of COVID-19,
we have modified certain aspects of our business, including restricting employee travel, allowing a remote work model for
the majority of our office staff, and holding certain events and meetings online instead of in person, among other
modifications. We are monitoring the situation closely, and although operations have not been materially affected by the
COVID-19 outbreak to date, the ultimate duration and severity of the outbreak and its impact on the economic environment
and business is uncertain. However, while we have not incurred significant disruptions from the COVID-19 outbreak, we
are unable to accurately predict the full impact that COVID-19 will have due to numerous uncertainties, including the
duration of the outbreak, actions that may be taken by governmental authorities and the impact to our customers and
partners. At this time, we are unable to estimate the ultimate impact of COVID-19 on our operations.
2. Revenues
Nature of Products and Services
The following table presents our revenues by primary product and service offering (in thousands):
TASER 7
TASER X26P
TASER X2
TASER Pulse
Cartridges
Axon Body
Axon Flex
Axon Fleet
Axon Dock
Axon Evidence and cloud services
Extended warranties
Other
Total
Year Ended December 31, 2020
Software and
Sensors
Year Ended December 31, 2019
Software and
Sensors
Total
Total
TASER
TASER
$ 107,506 $
41,724
60,107
9,407
115,193
—
—
—
—
2,935
20,754
8,926
— $ 56,652
52,524
—
55,920
—
—
4,089
85,987
—
44,039
44,039
5,928
5,928
16,182
16,182
20,449
20,449
130,969
130,265
37,262
19,188
20,859
13,148
$ 366,552 $ 314,451 $ 681,003 $ 281,661 $ 249,199 $ 530,860
— $ 107,506 $ 56,652 $
—
—
—
—
57,150
4,082
20,108
19,723
176,797
24,408
12,183
52,524
55,920
4,089
85,987
—
—
—
—
704
18,074
7,711
41,724
60,107
9,407
115,193
57,150
4,082
20,108
19,723
179,732
45,162
21,109
The following table presents our revenues disaggregated by geography (in thousands):
United States
Other Countries
Total
Contract Balances
2020
$
$
535,079
145,924
681,003
Year Ended December 31,
2019
79 % $ 446,100
84,760
21
100.0 % $ 530,860
2018
84 % $ 335,310
84,758
16
100.0 % $ 420,068
80 %
20
100.0 %
The timing of revenue recognition may differ from the timing of invoicing to customers. We generally have an
unconditional right to consideration when we invoice our customers and record a receivable. We record a contract asset
when revenue is recognized prior to invoicing, or a contract liability (deferred revenue) when revenue will be recognized
subsequent to invoicing.
62
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Contract assets generally result from our subscription programs where we satisfy a hardware performance obligation
upon shipment to the customer, and the right to the portion of the transaction price allocated to that hardware performance
obligation is conditional on our future performance of a SaaS service obligation under the contract. We recognize a portion
of the amount allocated to hardware products shipped to the customer as accounts receivable when invoiced to the
customer, and record the remaining allocated value as a contract asset as we have generally fulfilled our hardware
performance obligation upon shipment. Unbilled accounts receivable expected to be invoiced and collected within
twelve months was $18.6 million as of December 31, 2020, and was included in accounts and notes receivable, net on our
consolidated balance sheet.
Contract liabilities generally consist of deferred revenue on our subscription programs where we generally invoice
customers at the beginning of each annual contract period and record a receivable at the time of invoicing when there is
an unconditional right to consideration.
Deferred revenue is comprised mainly of unearned revenue related to our Axon Evidence SaaS platform, secure
cloud-based storage, service-type extended warranties, stand-ready obligations in our cartridge programs, and rights to
future CED, camera and related accessories hardware in our subscription programs. Revenue for Axon Evidence and
cloud-based storage, our service-type extended warranties and stand-ready cartridge programs is generally recognized on
a straight-line basis over the subscription term. Revenue for the rights to future hardware is generally recognized at the
point in time the hardware products are shipped to the customer.
Payment terms and conditions vary by contract type and geography, but our standard terms are that payments are due
within 30 days from the date of invoice.
The following table presents our contract assets, contract liabilities and certain information related to these balances
as of and for the year ended December 31, 2020 (in thousands):
Contract assets, net
Contract liabilities (deferred revenue)
Revenue recognized in the period from:
December 31, 2020
84,044
275,181
$
Amounts included in contract liabilities at the beginning of the period
135,513
Contract liabilities (deferred revenue) consisted of the following (in thousands):
Current
December 31, 2020
Long-Term
Total
Current
Long-Term Total
December 31, 2019
Warranty:
TASER
Software and Sensors
Hardware:
TASER
Software and Sensors
Services:
TASER
Software and Sensors
Total
$ 11,635 $ 16,953 $ 28,588 $ 12,716 $ 16,378 $ 29,094
15,008
44,102
18,951
47,539
13,926
25,561
5,025
21,978
5,156
21,534
9,852
22,568
16,314
25,181
41,495
14,304
50,981
65,285
30,618
76,162
106,780
9,569
22,235
31,804
15,468
33,759
49,227
25,037
55,994
81,031
996
95,907
96,903
1,058
79,609
80,667
$ 163,959 $ 111,222 $ 275,181 $ 117,864 $ 87,936 $ 205,800
2,550
118,312
120,862
1,554
22,405
23,959
765
16,410
17,175
293
63,199
63,492
63
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
TASER
Software and Sensors
Total
Remaining Performance Obligations
December 31, 2020
Long-Term
December 31, 2019
Long-Term
Current
$ 28,945 $ 32,811 $ 61,756 $ 22,578 $ 32,611 $ 55,189
150,611
$ 163,959 $ 111,222 $ 275,181 $ 117,864 $ 87,936 $ 205,800
213,425
78,411
135,014
55,325
Current
95,286
Total
Total
As of December 31, 2020, we had approximately $1.73 billion of remaining performance obligations, which included
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 Topic 606 as of
December 31, 2020. We expect to recognize between 20% - 25% of this balance over the next twelve months, and expect
the remainder to be recognized over the following five to seven years, subject to risks related to delayed deployments,
budget appropriation or other contract cancellation clauses.
Costs to Obtain a Contract
We recognize an asset for the incremental costs of obtaining a contract with a customer, which consist primarily of
sales commissions. These costs are ascribed to or allocated to the underlying performance obligations in the contract and
amortized consistent with the recognition timing of the revenue for the underlying performance obligations.
For contract costs related to performance obligations with an amortization period of one year or less, we apply the
practical expedient to expense these sales commissions when incurred. These costs are recognized as incurred within sales,
general and administrative expenses on the accompanying consolidated statements of operations and comprehensive
income.
As of December 31, 2020, our assets for costs to obtain contracts were as follows (in thousands):
Current deferred commissions (1)
Deferred commissions, net of current portion (2)
December 31, 2020 December 31, 2019
9,623
$
22,068
31,691
13,316 $
32,455
45,771 $
$
(1) Current deferred commissions are included within prepaid expenses and other current assets on the accompanying
consolidated balance sheet.
(2) Deferred commissions, net of current portion, are included in other assets on the accompanying consolidated balance
sheet.
During the years ended December 31, 2020 and 2019, we recognized $11.3 million and $8.2 million, respectively,
of amortization related to deferred commissions. These costs are recorded within sales, general and administrative
expenses on the accompanying consolidated statements of operations and comprehensive income (loss).
Significant Judgments
Our contracts with certain municipal government customers may be subject to budget appropriation, other contract
cancellation clauses or future periods which are optional. In contracts where the customer’s performance is subject to
budget appropriation clauses, we generally consider the likelihood of non-appropriation to be remote when determining
the contract term and transaction price. Contracts with other cancellation provisions or optional periods may require
judgment in determining the contract term, including the existence of material rights, determining transaction price and
identifying the performance obligations.
64
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At times, customers may request changes that either amend, replace or cancel existing contracts. Judgment is required
to determine whether the specific facts and circumstances within the contracts require the changes to be accounted for as
a separate contract or as a modification. Generally, contract modifications containing additional goods and services that
are determined to be distinct and sold at their SSP are accounted for as a separate contract. For contract modifications
where both criteria are not met, the original contract is updated and the required adjustments to revenue and contract assets,
liabilities, and other accounts are made accordingly.
Our contracts with customers often include promises to transfer multiple products and services to a customer.
Determining whether products and services are considered distinct performance obligations that should be accounted for
separately rather than together may require significant judgment. We consider CED devices and related accessories, as
well as cameras and related accessories, to be separately identifiable from each other as well as from extended warranties
on these products and the SaaS subscriptions to Axon Evidence and other cloud services.
In contracts where there are timing differences between when we transfer a promised good or service to the customer
and when the customer pays for that good or service, we have determined that, with the exception of our TASER 60
installment purchase arrangements, our contracts generally do not include a significant financing component. For the year
ended December 31, 2020, we recorded revenue of $34.0 million, including $1.5 million of interest income, under our
TASER 60 plan. For the year ended December 31, 2019, we recorded revenue of $39.3 million including $1.6 million of
interest income under our TASER 60 plan. For the year ended December 31, 2018, we recorded revenue of $48.2 million
including $1.3 million of interest income under our TASER 60 plan.
Judgment is required to determine the SSP for each distinct performance obligation. We analyze separate sales of
our products and services as a basis for estimating the SSP of our products and services and then use that SSP as the basis
for allocating the transaction price when our products and services are sold together in a contract with multiple performance
obligations. In instances where the SSP is not directly observable, such as when we do not sell the product or service
separately, we determine the SSP using information that may include market conditions, time value of money and other
observable inputs. We typically have more than one SSP for individual products and services due to the stratification of
those products and services by customers and circumstances. In these instances, we may use information such as
geographic region and distribution channel in determining the SSP.
65
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
3. Cash, Cash Equivalents and Investments
The following tables summarize the Company’s cash, cash equivalents, and held-to-maturity investments at
December 31, 2020 and December 31, 2019 (in thousands):
As of December 31, 2020
Gross
Amortized Unrealized Unrealized
Gross
Cash and
Cash
Losses
Fair Value Equivalents
— $ 116,107 $ 116,107 $
Short-Term Long-Term
Investments Investments
— $
—
Cash
Level 1:
Money market funds
Agency bonds
Treasury bills
Subtotal
Level 2:
State and municipal obligations
Certificates of deposit
Corporate bonds
U.S. Treasury repurchase
agreements
Treasury inflation-protected
securities
Commercial paper
Subtotal
Total
Cost
$ 116,107 $
Gains
— $
23,611
63,794
96,384
183,789
77,130
500
212,825
—
122
6
128
25
—
232
—
—
—
—
23,611 23,611
—
63,916
—
96,390
183,917 23,611
—
23,794
96,384
120,178
—
40,000
—
40,000
(28)
—
(100)
77,127
500
212,957
—
—
2,525
66,519
500
170,205
10,611
—
40,095
13,200
—
—
13,200
13,200
—
—
3,307
45,974
353,065
—
—
—
—
—
—
15,725
(128)
50,706
(128) $ 653,089 $ 155,443 $ 406,667 $ 90,706
3,291
45,974
286,489
3,291
45,974
352,920
$ 652,816 $
16
—
273
401 $
66
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2019
Gross
Amortized Unrealized Unrealized
Gross
Cash and
Cash
Losses
Fair Value Equivalents
— $ 103,319 $ 103,319 $
Short-Term Long-Term
Investments Investments
— $
—
Cash
Level 1:
Money market funds
Agency bonds
Subtotal
Level 2:
State and municipal obligations
Certificates of deposit
Corporate bonds
U.S. Treasury repurchase
agreements
Treasury inflation-protected
securities
Commercial paper
Subtotal
Total
Cost
$ 103,319 $
Gains
— $
8,845
32,869
41,714
25,038
1,400
135,175
57,200
—
14
14
8
—
71
—
3,235
29,202
251,250
$ 396,283 $
14
—
93
107 $
—
(4)
(4)
8,845
32,879
41,724
8,845
—
8,845
—
15,131
15,131
—
17,738
17,738
—
—
(30)
25,046
1,400
135,216
—
—
886
21,560
1,400
113,241
3,478
—
21,048
—
57,200
57,200
—
—
3,249
29,202
251,313
—
3,235
—
2,000
—
—
60,086
(30)
27,761
(34) $ 396,356 $ 172,250 $ 178,534 $ 45,499
—
27,202
163,403
We adopted Topic 326 on January 1, 2020, and applied the credit loss guidance related to held-to-maturity securities
prospectively. Because we do not have any history of losses for our held-to-maturity investments, our expected loss
allowance methodology for held-to-maturity investments is developed using published or estimated credit default rates for
similar investments and current and future economic and market conditions. At January 1 and December 31, 2020, our
credit loss reserve for held-to-maturity investments was approximately $0.1 million and $0.2 million, respectively. During
the year ended December 31, 2020, we increased the frequency of review for our investment portfolio in order to more
closely monitor potential impacts of the COVID-19 pandemic and its impact on the global economy.
4. Expected Credit Losses
The following table provides a roll-forward of the allowance for expected credit losses that is deducted from the
amortized cost basis of accounts receivable, notes receivable, and contract assets to present the net amount expected to be
collected (in thousands):
Year Ended December 31, 2020
Balance, beginning of period
Adoption of Topic 326, cumulative-effect adjustment to retained earnings
Provision for expected credit losses
Amounts written off charged against the allowance
Other, including dispositions and foreign currency translation
Balance, end of period
$
$
1,395 $
767
824
(84)
—
2,902 $
172 $
1
391
(33)
(57)
474 $
United States Other countries
Total
1,567
768
1,215
(117)
(57)
3,376
67
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
As of December 31, 2020, the allowance for expected credit losses for each type of customer receivable was as
follows:
Accounts receivable and notes receivable, current
Contract assets, net
Long-term notes receivable, net of current portion
Total allowance for expected credit losses on customer receivables
4.
5. Inventory
December 31,
2020
$
$
2,105
794
477
3,376
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted average
cost of raw materials which approximates the FIFO method and includes allocations of manufacturing labor and overhead.
Provisions are made to reduce excess, obsolete or slow-moving inventories to their net realizable value. Inventories
consisted of the following at December 31 (in thousands):
Raw materials
Finished goods
Total inventory
6. Property and Equipment
December 31, 2020 December 31, 2019
20,789
$
18,056
38,845
39,194 $
50,764
89,958 $
$
Property and equipment consisted of the following at December 31 (in thousands):
Estimated
Land
Building and leasehold improvements
Production equipment
Computers, equipment and software
Furniture and office equipment
Vehicles
Website development costs
Capitalized internal-use software development costs
Construction-in-process
Total cost
Less: Accumulated depreciation
Property and equipment, net
$
N/A
3 - 39 years
3 - 7 years
3 - 5 years
5 - 7 years
5 years
3 years
3 years
N/A
Useful Life December 31, 2020 December 31, 2019
2,900
20,089
29,961
8,126
6,514
1,753
204
3,670
12,385
85,602
(41,832)
43,770
57,052 $
20,912
37,539
10,889
6,954
1,980
204
3,670
13,479
152,679
(47,185)
105,494 $
$
In September 2020, we purchased a parcel of land located in Scottsdale, Arizona at auction from the Arizona State
Land Department, on which we intend to construct our new manufacturing and office facility. The purchase price of the
land was $49.1 million, plus selling fees, administrative fees, and certain other costs and expenses incurred by the Arizona
State Land Department pursuant to the auction, for a total cost of approximately $50.6 million. We also capitalized legal
and broker fees related
totaling approximately $1.3 million. Additionally, we capitalized
approximately $2.2 million paid to the City of Scottsdale under a separate public infrastructure reimbursement
development agreement; we are eligible for a refund of this and other infrastructure and development costs to be paid by
Axon up to a total of approximately $9.4 million if certain milestones in the agreement are achieved.
the purchase
to
68
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Depreciation and amortization expense related to property and equipment was $9.2 million, $7.9 million and $4.9
million for the years ended December 31, 2020, 2019 and 2018, respectively, of which $4.0 million, $3.5 million and $1.4
million was included in cost of sales for the respective years.
7. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for the year ended December 31, 2020 were as follows (in
thousands):
Balance, December 31, 2019
Foreign currency translation adjustments
Balance, December 31, 2020
$
$
TASER
Software and
Sensors
23,659 $
96
23,755 $
1,354 $
96
1,450 $
Total
25,013
192
25,205
Intangible assets (other than goodwill) consisted of the following (in thousands):
December 31, 2020
December 31, 2019
Amortizable (definite-lived) intangible assets:
Useful
Life
Gross
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
Gross
Net
Net
Domain names
Issued patents
Issued trademarks
Customer relationships
Non-compete agreements
Developed technology
Re-acquired distribution rights
Total amortizable
5 ‑ 10 years $ 3,036 $
5 ‑ 25 years
3 ‑ 15 years
4 ‑ 8 years
3 ‑ 4 years
3 ‑ 5 years
2 years
3,232
1,002
3,780
460
10,660
2,202
24,372
(1,339) $ 1,697 $ 3,161 $
(1,567)
(227)
(1,955)
(429)
(8,713)
(2,202)
(16,432)
3,271
1,166
3,721
450
10,660
2,009
24,438
1,665
775
1,825
31
1,947
—
7,940
(1,035) $ 2,126
1,932
(1,339)
488
(678)
2,305
(1,416)
46
(404)
4,132
(6,528)
—
(2,009)
11,029
(13,409)
Non-amortizable (indefinite-lived) intangible assets:
TASER trademark
Patents and trademarks pending
Total non-amortizable
Total intangible assets
900
608
1,508
900
842
1,742
$ 25,880 $ (16,432) $ 9,448 $ 26,180 $ (13,409) $ 12,771
900
842
1,742
900
608
1,508
Amortization expense of intangible assets was $3.3 million, $3.5 million and $5.7 million for the years ended
December 31, 2020, 2019 and 2018, respectively. Estimated amortization for intangible assets with definitive lives for the
next five years ended December 31, and thereafter, is as follows (in thousands):
2021
2022
2023
2024
2025
Thereafter
Total
$
$
2,894
1,285
983
900
635
1,243
7,940
69
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
8. Other Long-Term Assets
Other long-term assets consisted of the following at December 31 (in thousands):
Cash surrender value of corporate-owned life insurance policies
Deferred commissions
Restricted cash
Operating lease assets
Investments in unconsolidated affiliates (1)
Warrants for unconsolidated affiliate (2)
Prepaid expenses, deposits and other
Total other long-term assets
4,654 $
December 31, 2020 December 31, 2019
4,214
$
22,068
56
9,653
—
—
4,190
40,181
32,455
62
22,308
9,500
2,211
8,727
79,917 $
$
(1)
(2)
In March 2020, we made a $4.7 million minority investment in and entered into a commercial partnership agreement
with Flock Group Inc., a provider of advanced security for neighborhoods and law enforcement. We account for this
investment under the ASC 321 measurement alternative for equity securities without readily determinable fair values,
as there are no quoted market prices for the investment. The investment is measured at cost less impairment, adjusted
for observable price changes and is assessed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. As of December 31, 2020, no impairment was recorded for the
investment.
In October 2020, we made an additional $2.1 million investment in Flock Group Inc. The issuance of new equity by
Flock Group Inc. to us and other investors represented an observable price change for our initial investment and related
warrants. Accordingly, we recorded an increase of $2.4 million to our carrying value during the quarter ended
December 31, 2020.
In conjunction with the equity investment in and commercial partnership with Flock Group Inc., we have the ability
to commit additional capital over time through warrants where the exercisability and exercise prices are conditional
on the achievement of certain partnership performance metrics. The fair value of the preferred stock warrants was
estimated at $2.6 million using Monte Carlo simulation. The issuance of new equity by Flock Group Inc. to us and
other investors in October 2020 represented an observable price change for our initial investment and related warrants.
Accordingly, we recorded a decrease of $0.4 million to the carrying value of the warrants during the quarter ended
December 31, 2020.
In February 2021, we made a $20.0 million minority investment in RapidSOS, Inc.
9. Accrued Liabilities
Accrued liabilities consisted of the following at December 31 (in thousands):
Accrued salaries, benefits and bonus
Accrued professional, consulting and lobbying fees
Accrued warranty expense
Accrued income and other taxes
Accrued inventory in transit
Other accrued expenses
Accrued liabilities
70
December 31, 2020 December 31, 2019
24,737
$
3,235
1,476
3,362
4,156
8,035
45,001
36,892 $
3,055
769
3,848
4,597
10,682
59,843 $
$
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
10. Commitments and Contingencies
Data Storage Purchase Commitment
In June 2019, we entered into a purchase agreement for cloud data storage with a 3 year term beginning July 1, 2019.
The purchase agreement includes a total commitment of $50.0 million, with an up-front prepayment of $15.0 million that
was made in July 2019. Storage fees under this agreement were $20.6 million for the year ended December 31, 2020, and
were recorded in cost of service sales. The remaining purchase commitment at December 31, 2020 was $22.4 million.
Purchase commitments
We routinely enter into cancelable and non-cancelable purchase orders with many of our key vendors. Based on
the strategic relationships with many of these vendors, our ability to cancel these purchase orders and maintain a favorable
relationship would be limited. As of December 31, 2020, we had approximately $169.3 million of open purchase orders.
Litigation
Product Litigation
As a manufacturer of weapons and other law enforcement tools used in high-risk field environments, we are often
the subject of products liability litigation concerning the use of our products. We are currently named as a defendant in
seven lawsuits (1 pending dismissal) in which the plaintiffs allege either wrongful death or personal injury in situations in
which a TASER CED was used by law enforcement officers in connection with arrests or training. While the facts vary
from case to case, these product liability claims typically allege defective product design, manufacturing, and/or failure to
warn. They seek compensatory and sometimes punitive damages, often in unspecified amounts.
We continue to aggressively defend all product litigation. As a general rule, it is our policy not to settle suspect injury
or death cases. Exceptions are sometimes made where the settlement is strategically beneficial to us. Due to the confidential
nature of our litigation strategy and the confidentiality agreements that are executed in the event of a settlement, we do not
identify or comment on specific settlements by case or amount. Based on current information, we do not believe that the
outcome of any such legal proceeding will have a material effect on our financial position, results of operations, or cash
flows. We are self-insured for the first $5.0 million of any product claim made after 2014. No judgment or settlement has
ever exceeded this amount in any products case. We continue to maintain product liability insurance coverage, including
an insurance policy fronting arrangement, above our self-insured retention with various limits depending on the policy
period.
U.S. Federal Trade Commission Litigation
The U.S. Federal Trade Commission (“FTC”) filed an enforcement action on January 3, 2020 regarding Axon’s
May 2018 acquisition of Vievu LLC from Safariland LLC. The FTC alleges the merger was anticompetitive and adversely
affected the body worn camera (“BWC”) and digital evidence management systems (“DEMS”) market for “large
metropolitan police departments.” Fact and expert discovery is complete. On October 2, 2020, the Ninth Circuit stayed
the administrative hearing set for October 13, 2020 pending decision on Axon’s appeal (see below). If ultimately
successful, the FTC may require Axon to divest Vievu and other assets or take other remedial measures, any of which
could be material to Axon. We are vigorously defending the matter. At this time, we cannot predict the eventual scope,
duration, or outcome of the proceeding and accordingly we have not recorded any liability in the accompanying
consolidated financial statements.
Prior to the FTC’s enforcement action, Axon sued the FTC in federal court in the District of Arizona for declaratory
and injunctive relief alleging the FTC’s structure and administrative processes violate Article II of the U.S. Constitution
and our Fifth Amendment rights to due process and equal protection. On April 8, 2020, the district court dismissed the
71
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
action, without prejudice, for lack of jurisdiction, requiring Axon to first bring its constitutional claims in the administrative
case. The Ninth Circuit affirmed that ruling on January 28, 2021 (No. 20-15662) in a split 2-1 decision. We are exploring
further appellate options, including a petition for rehearing en banc to the Ninth Circuit and a petition for certiorari to the
U.S. Supreme Court. The administrative case should remain stayed until the appellate mandate issues.
In parallel to these matters, we are evaluating strategic alternatives to litigation, which we might pursue if determined
to be in the best interests of shareholders and customers. This could include a divestiture of the Vievu entity and/or related
assets and the licensure of certain intellectual and other intangible property. While we continue to believe the acquisition
of Vievu was lawful and a benefit to Vievu’s customers, the cost, risk and distraction of protracted litigation merit
consideration of settlement if achievable on terms agreeable to the FTC and the company.
General
From time to time, we are notified that we may be a party to a lawsuit or that a claim is being made against us. It is
our policy to not disclose the specifics of any claim or threatened lawsuit until the summons and complaint are actually
served on us. After carefully assessing the claim, and assuming we determine that we are not at fault or we disagree with
the damages or relief demanded, we vigorously defend any lawsuit filed against us. We record a liability when losses are
deemed probable and reasonably estimable. When losses are deemed reasonably possible but not probable, we determine
whether it is possible to provide an estimate of the amount of the loss or range of possible losses for the claim, if material
for disclosure. In evaluating matters for accrual and disclosure purposes, we take into consideration factors such as our
historical experience with matters of a similar nature, the specific facts and circumstances asserted, the likelihood of our
prevailing, the availability of insurance, and the severity of any potential loss. We reevaluate and update accruals as matters
progress over time.
Based on our assessment of outstanding litigation and claims as of December 31, 2020, we have determined that it
is not reasonably possible that these lawsuits will individually, or in the aggregate, materially affect our results of
operations, financial condition or cash flows. However, the outcome of any litigation is inherently uncertain and there can
be no assurance that any expense, liability or damages that may ultimately result from the resolution of these matters will
be covered by our insurance or will not be in excess of amounts recognized or provided by insurance coverage and will
not have a material adverse effect on our operating results, financial condition or cash flows.
Off-Balance Sheet Arrangements
Under certain circumstances, we use letters of credit and surety bonds to guarantee our performance under various
contracts, principally in connection with the installation and integration of our Axon cameras and related technologies.
Certain of our letters of credit contracts and surety bonds have stated expiration dates, with others being released as the
contractual performance terms are completed. We expect to fulfill all contractual performance obligations related to
outstanding guarantees. At December 31, 2020, we had outstanding letters of credit of approximately $6.1 million, which
are expected to expire in June and September 2021. We also had outstanding letters of credit and bank guarantees of
$2.0 million that do not draw against our credit facility. The outstanding letters of credit are expected to expire in
June 2021. In January 2021, the letters of credit were amended to expire in January 2022. Additionally, we had
approximately $21.5 million of outstanding surety bonds at December 31, 2020, with $0.4 million expiring in 2021, $3.1
million expiring in 2022, $7.5 million expiring in 2023, and the remaining $10.5 million expiring in 2024.
72
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
11. Income Taxes
Income (loss) before income taxes included the following components for the years ended December 31 (in
thousands):
United States
Foreign
Total
2020
2019
$ (11,529) $ (1,449)
3,519
2,070
5,238
$ (6,291) $
2018
$ 25,751
2,353
$ 28,104
Significant components of the provision for income taxes are as follows for the years ended December 31 (in
thousands):
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Tax impact of unrecorded tax benefits liability
Provision for income taxes (Income tax benefit)
2020
2019
2018
$
$
$
5,277
3,886
1,943
11,106
4,247
2,414
1,533
8,194
4,900
1,377
228
6,505
(10,175)
(3,111)
(3,131)
(16,417)
744
$ (4,567) $
(6,060)
(1,665)
(264)
(7,989)
983
(8,382)
(364)
(3)
(8,749)
1,143
1,188 $ (1,101)
A reconciliation of our effective income tax rate to the federal statutory rate follows for the years ended December 31
(in thousands):
Federal income tax at the statutory rate
State income taxes, net of federal benefit
Difference between statutory and foreign tax rates
Permanent differences (1)
Foreign derived intangible income deduction
Executive compensation limitation
Research and development
Return to provision adjustment
Change in liability for unrecognized tax benefits
Excess stock-based compensation benefit
Change in valuation allowance
Tax effects of intercompany transactions
Other
Provision for income taxes (Income tax benefit)
Effective tax rate
$
$
2020
(1,321) $
935
(86)
794
(902)
15,463
(10,246)
(1,078)
987
(9,002)
163
(389)
115
(4,567) $
72.6 %
2019
$
435
526
43
1,356
(217)
7,596
(4,911)
(9)
1,191
(4,999)
368
16
(207)
1,188 $
57.4 %
2018
5,902
(215)
7
1,029
(304)
1,167
(6,908)
1,780
1,768
(8,907)
1,984
1,004
592
(1,101)
(3.9)%
(1) Permanent differences include certain expenses that are not deductible for tax purposes including meals and
entertainment, certain transaction costs, lobbying fees, and taxable income as a result of global intangible low-tax
income ("GILTI").
73
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Significant components of our deferred income tax assets and liabilities are as follows at December 31 (in thousands):
Deferred income tax assets:
Net operating loss carryforward
Deferred revenue
Deferred compensation
Lease liability
Inventory reserve
Stock-based compensation
Amortization
Research and development tax credit carryforward
Reserves, accruals, and other
Total deferred income tax assets
Deferred income tax liabilities:
Contract asset
Right of use asset
Depreciation
Amortization
Investment in unconsolidated affiliate
Prepaid expenses
Other
Total deferred income tax liabilities
Net deferred income tax assets before valuation allowance
Valuation allowance
Net deferred income tax assets
2020
2019
$
$
1,834
21,055
1,175
5,730
511
18,890
2,436
6,654
7,274
65,559
(1,150)
(5,237)
(5,363)
—
(321)
(874)
(185)
(13,130)
52,429
(7,308)
45,121 $
$
2,341
15,348
971
2,460
1,258
10,769
1,133
4,957
3,394
42,631
(883)
(2,228)
(3,715)
(62)
—
(600)
(637)
(8,125)
34,506
(7,172)
27,334
We have $0.5 million of state net operating losses (“NOLs”) which expire at various dates between 2029 and 2036.
We also have a federal NOL of $0.1 million which expires in 2036, and is subject to limitation under Internal Revenue
Code (“IRC”) Section 382. We have $0.1 million of federal R&D credits, which expire between 2034 and 2037, and are
also subject to limitation under IRC Section 382. We have $11.6 million of Arizona R&D credits carrying forward, which
expire at various dates between 2021 and 2035. In the U.K., Canada, and Australia, we have $6.0 million, $1.0 million,
and $1.3 million of NOLs, respectively, which expire at various dates or may be carried forward indefinitely.
In preparing our consolidated financial statements, we have assessed the likelihood that deferred income tax assets
will be realized from future taxable income. In evaluating the ability to recover deferred income tax assets, we consider
all available evidence, positive and negative, including our operating results, ongoing tax planning and forecasts of future
taxable income on a jurisdiction by jurisdiction basis. A valuation allowance is established if it is determined that it is
more likely than not that some portion or all of the net deferred income tax assets will not be realized. We exercise
significant judgment in determining our provision for income taxes, our deferred income tax assets and liabilities, and our
future taxable income for purposes of assessing our ability to utilize any future tax benefit from our deferred income tax
assets.
As of December 31, 2020, we continue to demonstrate cumulative positive income in the U.S. federal and state tax
jurisdictions; however, we have Arizona R&D tax credits expiring unutilized each year. Therefore, we have concluded
that it is more likely than not that our Arizona R&D deferred tax asset will not be realized.
As of December 31, 2020, we now have cumulative pre-tax income in the U.K. and Canada, along with positive
evidence from projections of future growth for both entities. Therefore, we have released the full valuation allowances of
$1.3 million and $0.3 million, respectively.
74
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
In Australia, we have determined that sufficient deferred tax liabilities will reverse in order to realize all assets except
one long-lived intangible where there is not an expectation that the asset will be realized. Therefore, we have recorded a
partial valuation allowance for Australia.
We consider the undistributed earnings of certain non-U.S. subsidiaries to be indefinitely reinvested outside of the
United States on the basis of estimates that future domestic cash generation will be sufficient to meet future domestic cash
needs and our specific plans for reinvestment of those subsidiary earnings. We project that our foreign earnings will be
utilized offshore for working capital and future foreign growth. The determination of the unrecognized deferred tax liability
on those undistributed earnings is not practicable due to our legal entity structure and the complexity of U.S. and local
country tax laws. If we decide to repatriate the undistributed foreign earnings, we will need to recognize the income tax
effects in the period we change our assertion on indefinite reinvestment.
We complete R&D tax credit studies for each year that an R&D tax credit is claimed for federal, Arizona, and
California income tax purposes. Management has made the determination that it is more likely than not that the full benefit
of the R&D tax credit will not be sustained on examination and recorded a liability for unrecognized tax benefits of $7.7
million as of December 31, 2020. Should the unrecognized tax benefit of $7.7 million be recognized, our effective tax rate
would be favorably impacted.
The following table presents a roll forward of our liability for unrecognized tax benefits, exclusive of accrued interest,
as of December 31 (in thousands):
Balance, beginning of period
Increase (decrease) in previous year tax positions
Increase in current year tax positions
Decrease due to lapse of statutes of limitations
Balance, end of period
2020
6,861
$
(34)
950
(120)
7,657 $
2019
6,058
$
(615)
1,749
(331)
6,861 $
2018
4,243
213
1,982
(380)
6,058
$
$
Federal income tax returns for 2017 through 2019 remain open to examination by the U.S. Internal Revenue Service
(the “IRS”), while state and local income tax returns for 2016 through 2019 also generally remain open to examination by
state taxing authorities. The 2006 through 2015 income tax returns are only open to the extent that net operating loss or
other tax attributes carrying forward from those years were utilized in 2016 through 2019. The foreign tax returns for 2016
through 2019 also generally remain open to examination. During 2020, we completed an audit of our 2016 U.S. federal
income tax return by the Internal Revenue Service and began an audit of our 2016 and 2017 California income tax returns
for which we are currently in the closing phase with the Franchise Tax Board. Additionally, we have been notified that an
audit will commence for Axon Public Safety Southeast Asia LLC, our entity in Vietnam. The tax period has not yet been
defined.
We recognize interest and penalties related to unrecognized tax benefits within the provision (benefit) for income tax
expense line in the accompanying consolidated statements of operations and comprehensive income (loss). As of
December 31, 2020 and 2019, we had accrued interest of $0.2 million and $0.2 million, respectively.
12. Line of Credit
We have a $50.0 million unsecured revolving line of credit with a domestic bank, of which $10.0 million is available
for letters of credit. The credit agreement matures on December 31, 2021 and has an accordion feature which allows for
an increase in the total line of credit up to $100.0 million, subject to certain conditions, including the availability of
additional bank commitments. On January 29, 2021, we entered into an amendment to the credit agreement, which extends
the term of the credit agreement to December 31, 2023 and increases the amount of the unsecured revolving line of credit
which is available for letters of credit from $10 million to $20 million.
75
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
At December 31, 2020 and 2019, there were no borrowings under the line. Under the terms of the line of credit,
available borrowings are reduced by outstanding letters of credit. As of December 31, 2020, we had letters of credit
outstanding of approximately $6.1 million under the facility and available borrowing of $43.9 million. Advances under
the line of credit bear interest at LIBOR plus 1.0 to 1.5% per year determined in accordance with a pricing grid based on
our funded debt to earnings before interest, taxes, depreciation and amortization ("EBITDA") ratio.
We are required to comply with a maximum funded debt to EBITDA ratio of no greater than 2.50 to 1.00 based upon
a trailing four fiscal quarter period. At December 31, 2020, our funded debt to EBITDA ratio was 0.0000 to 1.00.
13. Stockholders’ Equity
Common Stock and Preferred Stock
We have authorized the issuance of two classes of stock designated as “common stock” and “preferred stock,” each
having a par value of $0.00001 per share. We are authorized to issue 200 million shares of common stock and 25 million
shares of preferred stock.
Stock-based Compensation Plans
We have historically utilized stock-based compensation, consisting of RSUs and stock options, for key employees
and non-employee directors as a means of attracting and retaining quality personnel. Service-based grants generally have
a vesting period of 2 to 5 years and a contractual maturity of ten years. Performance-based grants generally have vesting
periods ranging from 1 to 10 years and a contractual maturity of ten years.
On February 12, 2019, our shareholders approved the 2019 Plan, which was adopted by the Board of Directors to
reserve a sufficient number of shares to facilitate our XSPP and grants of XSUs under the plan. Under the 2019 Plan, we
reserved for future grants: (i) 6.0 million shares of common stock, plus (ii) the number of shares of common stock that
were authorized but unissued under our 2018 Stock Incentive Plan (the “2018 Plan”) and all prior Company equity plans
as of the effective date of the 2019 Plan, and (iii) the number of shares of stock that have been granted under the prior
plans that either terminate, expire or lapse for any reason after the effective date of the 2019 Plan. As of December 31,
2020, approximately 1.9 million shares remain available for future grants. Shares issued upon exercise of stock awards
from these plans have historically been issued from our authorized unissued shares.
Performance-based stock awards
We have issued performance-based stock options and performance-based RSUs, the vesting of which is generally
contingent upon the achievement of certain performance criteria related to our operating performance, as well as successful
and timely development and market acceptance of future product introductions. In addition, certain of the performance
RSUs have additional service requirements subsequent to the achievement of the performance criteria. Compensation
expense is recognized over the requisite service period, which is defined as the longest explicit, implicit or derived service
period based on management’s estimate of the probability of the performance criteria being satisfied, adjusted at each
balance sheet date. For both service-based and performance-based RSUs, we account for forfeitures as they occur as a
reduction to stock-based compensation expense and additional paid-in-capital
CEO Performance Award
On May 24, 2018, our stockholders approved the CEO Performance Award of 6,365,856 stock option awards. The
CEO Performance Award consists of 12 vesting tranches with a vesting schedule based entirely on the attainment of both
operational goals (performance conditions) and market capitalization goals (market conditions), assuming continued
employment either as the CEO or as both Executive Chairman and Chief Product Officer and service through each
attainment date. Each of the 12 vesting tranches of the CEO Performance Award have a 10-year contractual term and will
76
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
vest upon certification by the Compensation Committee of the Board of Directors (the “Compensation Committee”) that
both (i) the market capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by
increments of $1.0 billion thereafter, and (ii) any one of the following eight operational goals focused on revenue
or eight operational goals focused on Adjusted EBITDA have been met for the previous four consecutive fiscal
quarters. Adjusted EBITDA for purposes of the CEO Performance Award ("Adjusted EBITDA (CEO Performance
Award)") is defined as net income (loss) attributable to common stockholders before interest expense, investment interest
income, provision (benefit) for income taxes, depreciation and amortization, and stock-based compensation expense.
Eight Separate Revenue Goals (1)
(in thousands)
Goal #1, $710,058
Goal #2, $860,058
Goal #3, $1,010,058
Goal #4, $1,210,058
Goal #5, $1,410,058
Goal #6, $1,610,058
Goal #7, $1,810,058
Goal #8, $2,010,058
Eight Separate Adjusted EBITDA (CEO
Performance Award) Goals
(in thousands)
Goal #9, $125,000
Goal #10, $155,000
Goal #11, $175,000
Goal #12, $190,000
Goal #13, $200,000
Goal #14, $210,000
Goal #15, $220,000
Goal #16, $230,000
(1)
In connection with the acquisition of Vievu that was completed during 2018, the revenue goals were adjusted for the
acquiree’s Target Revenue, as defined in the CEO Performance Award agreement.
As of December 31, 2020, the following operational goals were considered probable of achievement:
• Total revenue of $710.1 million, $860.1 million, and $1,010.1 million; and
• Adjusted EBITDA (CEO Performance Award) of $155.0 million, $175.0 million, $190.0 million, $200.0
million, $210.0 million, $220.0 million, and $230.0 million.
As of December 31, 2020, the following operational goals were achieved, with vesting of the related tranche pending
certification by the Compensation Committee:
• Adjusted EBITDA (CEO Performance Award) of $125.0 million.
Stock-based compensation expense associated with the CEO Performance Award is recognized over the longer of
the expected achievement period for each pair of market capitalization and operational goals, beginning at the point in
time when the relevant operational goal is considered probable of being met. The probability of meeting an operational
goal and the expected achievement point in time for meeting a probable operational goal are based on a subjective
assessment of our forward-looking financial projections, taking into consideration statistical analysis. Even though no
tranches of the CEO Performance Award vest unless a market capitalization and a matching operational goal are both
achieved, stock-based compensation expense is recognized when an operational goal is considered probable of
achievement regardless of whether a market capitalization goal is actually achieved. Stock-based compensation represents
a non-cash expense and is recorded in sales, general, and administrative operating expense on our consolidated statements
of operations and comprehensive income.
The first four market capitalization goals have been achieved as of December 31, 2020, and the fifth and sixth market
capitalization goals were achieved in January and February 2021, respectively. However, none of the stock options granted
under the CEO Performance Award have vested thus far as attainment of the first tranche has not been certified by the
Compensation Committee, and none of the other operational goals have been achieved. As there are ten operational goals
considered probable of achievement and one achieved operational goal, we recorded stock-based compensation expense
77
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
of $93.8 million related to the CEO Performance Award from the CEO Grant Date through December 31, 2020. The
number of stock options that will vest related to the achieved tranche is approximately 0.5 million shares. The number of
stock options that would vest related to the remaining ten probable tranches is approximately 5.3 million shares.
As of December 31, 2020, we had $134.5 million of total unrecognized stock-based compensation expense related
to the CEO Performance Award for the operational goals that were considered probable of achievement, which will be
recognized over a weighted-average period of 5.1 years. As of December 31, 2020, we had unrecognized stock-based
compensation expense of $17.6 million for the operational goal that was considered not probable of achievement.
eXponential Stock Performance Plan
On February 12, 2019, our shareholders approved the 2019 Plan, which was adopted by the Board of Directors to
reserve a sufficient number of shares to facilitate our XSPP and grants of XSUs under the plan. Pursuant to the XSPP, all
eligible full-time U.S. employees were granted an award of 60 XSUs in January 2019, and certain employees had the
opportunity to elect to receive a percentage of the value of their target compensation over the following nine years
(2019-2027) in the form of additional XSUs. For employees who elected to receive XSUs, the XSU grants were made as
an up front, lump sum grant in January 2019, and are intended to replace that portion of the target compensation they
elected to receive in the form of XSUs for the subsequent nine years. Accordingly, their go forward target compensation
will be reduced until 2027 by the amount of such compensation that the employees elected to receive in the form of the
January 2019 XSU grants. Additional employee awards were granted approximately quarterly during 2019 and 2020. A
total of approximately 0.3 million XSUs were granted during the year ended December 31, 2020.
The XSUs are grants of restricted stock units, each with a term of approximately nine years, that vest in 12 equal
tranches. Each of the 12 tranches will vest upon certification by the Compensation Committee that both (i) the market
capitalization goal for such tranche, which begins at $2.5 billion for the first tranche and increases by increments of $1.0
billion thereafter, and (ii) any one of eight operational goals focused on revenue or eight operational goals focused on
Adjusted EBITDA (CEO Performance Award) have been met for the previous four consecutive fiscal quarters.
The XSPP contains an anti-dilution provision incorporated into the plan based on shareholder feedback, which affects
the calculation of the market capitalization goals in the plan. The plan defines a maximum number of shares outstanding
that may be used in the calculation of the market capitalization goals (the “XSU Maximum”). If the actual number of
shares outstanding exceeds the XSU Maximum guardrail, then the lower pre-defined number of shares in the XSU
Maximum, rather than the higher actual number of shares outstanding, is used to calculate market capitalization for the
determination of the market capitalization goals in the XSPP, which, together with the operational goals, determines
whether XSUs vest for participating employees.
The XSU Maximum is defined as the actual number of shares outstanding on the original XSU grant date of
January 2, 2019, increased by a 3% annual rate over the term of the XSPP and by shares issued upon the exercise of CEO
Performance Award options. The XSU Maximum is also adjusted for acquisitions, spin-offs or other changes in the number
of outstanding shares of common stock, if such changes have a corresponding adjustment on the market capitalization
goals.
New shares issued for any other reasons, including shares issued upon vesting of XSUs, RSUs, and PSUs as well as
shares issued to raise capital through equity issuances or in other transactions, do not increase the XSU Maximum.
The market capitalization and operational goals are identical to the CEO Performance Award, but a different number
of shares is used to calculate the market capitalization goals if shares outstanding exceed the XSU Maximum. Additionally,
because the grant date is different than that of the CEO Performance Award, the measurement period for market
capitalization is not identical.
78
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock-based compensation expense associated with XSU awards is recognized over the longest explicit, implicit or
derived service period for each pair of market capitalization and operational goals, beginning at the point in time when the
relevant operational goal is considered probable of being met. The market capitalization goal period and the valuation of
each tranche are determined using a Monte Carlo simulation, which is also used as the basis for determining the expected
achievement period of the market capitalization goal. The probability of meeting an operational goal and the expected
achievement point in time for meeting a probable operational goal are based on a subjective assessment of our forward-
looking financial projections, taking into consideration statistical analysis. Even though no tranches of the XSU awards
vest unless a market capitalization and a matching operational goal are both achieved, stock-based compensation expense
is recognized when an operational goal is considered probable of achievement regardless of whether a market capitalization
goal is actually achieved.
As of December 31, 2020, actual shares outstanding exceeded the XSU Maximum as a result of the common stock
offering completed in June 2020. Accordingly, market capitalization as calculated for the purposes of achieving additional
goals uses the lower XSU Maximum share amount rather than actual shares outstanding. The first four market
capitalization goals have been achieved as of December 31, 2020, and the fifth and sixth market capitalization goals were
achieved in January and February 2021, respectively. While none of the XSU tranches have vested thus far, the first
operational was achieved as of December 31, 2020 and the related tranche will vest upon certification from the
Compensation Committee. The remaining probable operational goals have not yet been achieved as of December 31, 2020.
As there are ten operational goals considered probable of achievement and one achieved operational goal, we recorded
stock-based compensation expense of $58.3 million related to the XSU awards from their respective grant dates through
December 31, 2020. The number of XSU awards that will vest related to the achieved tranche is approximately 0.4 million
shares. The number of XSU awards that would vest related to the remaining ten probable tranches is
approximately 4.5 million shares.
As of December 31, 2020, we had $121.3 million of total unrecognized stock-based compensation expense related
to the XSU awards for the operational goals that were considered probable of achievement, which will be recognized over
a weighted-average period of 4.66 years. As of December 31, 2020, we had unrecognized stock-based compensation
expense of $11.3 million for the operational goal that was considered not probable of achievement.
Restricted Stock Units
The following table summarizes RSU activity for the years ended December 31 (number of units and aggregate
intrinsic value in thousands):
Units outstanding, beginning of year
Granted
Released
Forfeited
Units outstanding, end of year
Aggregate intrinsic value at year end
Number
of
2020
2019
Weighted
Number Average
2018
Weighted
Number Average
of
Grant-Date
Weighted
Average
Grant-Date
Grant-Date
Fair Value Units Fair Value Units Fair Value
1,249 $ 45.47 1,244 $ 28.52 1,902 $ 23.58
45.99
23.50
25.17
28.52
718
100.76
(547)
40.68
52.40
(166)
76.10 1,249
287
59.09
(730)
27.38
36.91
(215)
45.47 1,244
of
Units
577
(598)
(121)
1,107
$ 135,679
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was $122.53
per share at December 31, 2020, multiplied by the number of RSUs. The fair value as of the respective vesting dates of
RSUs that vested during the year was $56.0 million, $39.4 million, and $36.6 million for the years ended December 31,
2020, 2019, and 2018, respectively.
79
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Certain RSUs that vested in the year ended December 31, 2020 were net-share settled, such that we withheld shares
to cover the employees’ tax obligation for the applicable income and other employment taxes, and remitted the cash to the
appropriate taxing authorities. Total shares withheld during 2020 were 0.1 million and had a value of approximately $6.6
million on their respective vesting dates as determined by the closing stock price of our stock. Payments for the employees’
tax obligations are reflected as a financing activity within the consolidated statements of cash flows. We record a liability
for the tax withholding to be paid by us as a reduction to additional paid-in capital.
As of December 31, 2020, we had $67.6 million of total unrecognized stock-based compensation expense related to
RSUs under our stock plans for shares that are expected to vest. We expect to recognize the cost related to the RSUs over
a weighted average period of 2.35 years. RSUs are released when vesting requirements are met.
Performance Stock Units
The following table summarizes PSU activity, inclusive of XSUs, for the years ended December 31 (number of units
and aggregate intrinsic value in thousands):
Units outstanding, beginning of year
Granted
Released
Forfeited
Units outstanding, end of year
Aggregate intrinsic value at year end
6,033 $ 34.47
2020
2018
Weighted
Number Average
2019
Weighted
Number Average
of
Grant-Date
Weighted
Average
Grant-Date
Grant-Date
Fair Value Units Fair Value Units Fair Value
446 $ 23.02
46.29
27.11
23.65
27.82
411 $ 27.82
34.61
17.14
33.99
34.47
58.11 6,041
27.79
(103)
(316)
40.83
35.71 6,033
94
(42)
(87)
411
of
Number
of
Units
417
(184)
(648)
5,618
$ 688,414
Aggregate intrinsic value represents our closing stock price on the last trading day of the period, which was
$122.53 per share, multiplied by the number of PSUs outstanding. As of December 31, 2020, there was $127.4 million in
unrecognized compensation costs related to PSUs under our stock plans for shares that are expected to vest. We expect to
recognize the cost related to the PSUs over a weighted average period of 4.49 years. PSUs are released when vesting
requirements are met.
Of the 0.4 million performance-based RSUs granted in 2020, 0.3 million were XSUs. Certain of the performance-
based RSUs outstanding as of December 31, 2020 can vest with a range of shares earned being between 0% and 200% of
the targeted shares granted, depending on the final achievement of pre-determined performance criteria as of the vesting
date. The amount of PSUs included in the table above related to such grants is the target level. The maximum additional
number of PSUs that could be earned is 0.2 million, which are not included in the table above. As of December 31, 2020,
the performance criteria had been met for approximately 0.2 million of the 0.3 million performance-based RSUs
outstanding, exclusive of XSUs outstanding. We recognized $48.3 million, $24.1 million and $4.8 million of compensation
expense related to performance-based RSUs during the years ended December 31, 2020, 2019 and 2018, respectively,
which included expense related to XSUs of $40.8 million during the year ended December 31, 2020.
On November 3, 2020, the Compensation Committee of our Board of Directors approved a modification to the
definition of a metric for certain of our outstanding PSU awards. We accounted for this change as a Type III modification
under ASC 718 since the expectation of the attainment for this metric changed from improbable to probable. We will
recognize additional stock-based compensation of approximately $6.4 million over the remaining requisite service period,
beginning from the modification date; of this total, $3.2 million was recognized during the year ended December 31, 2020.
Certain PSUs that vested in the year ended December 31, 2020 were net-share settled such that we withheld shares
to cover the employees’ tax obligation for the applicable income and other employment taxes, and remitted the cash to the
80
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
appropriate taxing authorities. Total shares withheld related to PSUs were approximately 16 thousand and had a value of
$1.2 million on their respective vesting dates as determined by the closing stock price on such dates. Payments for the
employees’ tax obligations are reflected as a financing activity within the consolidated statements of cash flows. We record
a liability for the tax withholding to be paid by us as a reduction to additional paid-in capital.
Stock Option Activity
The following table summarizes stock option activity for the years ended December 31 (number of options in
thousands):
2020
2019
2018
Number
of
Weighted
Average
Exercise
Weighted
Number Average
Exercise
of
Weighted
Number Average
Exercise
of
Options Price
Options Price
Options Price
Options outstanding, beginning of year
Granted
Exercised
Expired / terminated
Options outstanding, end of year
Options exercisable, end of year
6,431 $ 28.34
—
—
4.52
(65)
—
—
28.58
6,366
28.58
530
6,458 $ 28.24
—
(27)
—
6,431
65
— 6,366
(664)
4.27
—
(48)
28.34 6,458
92
804 $ 4.99
28.58
5.09
4.55
28.24
4.45
4.52
We granted 6.4 million stock options in 2018 and none in 2020 or 2019. The total intrinsic value of options exercised
was $5.1 million, $1.2 million and $28.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.
The intrinsic value for options exercised was calculated as the difference between the exercise price of the underlying
stock option awards and the market price of our common stock on the date of exercise.
The following table summarizes information about stock options that were fully vested or expected to vest as of
December 31, 2020 (number of options in thousands):
Options Outstanding
Options Exercisable
Range of
Exercise Price
$28.58
Number of
Options
Outstanding
530 $
Weighted
Average
Exercise
Price
28.58
Weighted
Average
Remaining
Contractual
Life (Years) Exercisable
Weighted
Number of
Options
Average
Exercise
Price
7.15
530 $
28.58
Weighted
Average
Remaining
Contractual
Life (Years)
7.15
The aggregate intrinsic value of options exercisable at December 31, 2020 was $49.8 million, respectively. Aggregate
intrinsic value represents the difference between the exercise price of the underlying stock option awards and the closing
market price of our common stock of $122.53 on December 31, 2020.
At December 31, 2020, we had 6.4 million unvested options outstanding with a weighted average exercise price of
$28.58 per share, weighted average grant-date fair value of $38.64 per share and weighted average remaining contractual
life of 7.2 years. The aggregate intrinsic value of unvested options at December 31, 2020 was $598.1 million.
81
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Stock-based Compensation Expense
We account for stock-based compensation using the fair-value method. Reported stock-based compensation expense
was classified as follows for the years ended December 31 (in thousands):
Cost of product and service sales
Sales, general and administrative expenses
Research and development expenses
Total stock-based compensation expense
Income tax benefit
Stock Inducement Plan
$
2018
$
2020
3,464
103,860
26,248
$ 133,572
$ 29,329 $ 11,457 $
2019
1,565
59,342
17,588
$ 78,495
511
12,710
8,658
$ 21,879
4,049
$
In September 2019, our Board of Directors adopted the Axon Enterprise, Inc. 2019 Stock Inducement Plan (the “2019
Inducement Plan”) pursuant to which we reserved 500,000 shares of common stock for issuance under the Inducement
Plan. The 2019 Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) and
Rule 5635(c)(3) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of equity-based awards,
including restricted stock units, restricted stock, performance shares and performance units, and its terms are substantially
similar to our stockholder-approved 2019 Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq
Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-
employee directors of the Company (or following such individuals’ bona fide period of non-employment with the
Company), as an inducement material to the individuals’ entry into employment with the Company.
As of December 31, 2020, there were 29,600 shares available for grant under the 2019 Inducement Plan.
Stock Repurchase Plan
In February 2016, our Board of Directors authorized a stock repurchase program to acquire up to $50.0 million of
our outstanding common stock subject to stock market conditions and corporate considerations. As of December 31, 2020
and 2019, $16.3 million remained available under the plan for future purchases.
14. Leases
Lease Obligations
We determine if an arrangement is a lease at inception. Operating lease right-of-use (“ROU”) assets and liabilities
are recognized based on the present value of future minimum lease payments over the lease term at commencement date.
As most of our leases do not provide an implicit rate, we use our estimated incremental borrowing rate based on the
information available at the commencement date in determining the present value of future payments. Additionally, we
use the portfolio approach in determining the discount rate used to present value lease payments. We give consideration
to our line of credit as well as publicly available data for instruments with similar characteristics when estimating our
incremental borrowing rates. The ROU asset also includes any lease payments made and initial direct costs incurred and
excludes lease incentives.
We have operating and finance leases for office space and certain equipment. Leases with an initial term of 12 months
or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the
lease term. For leases beginning on or after January 1, 2019, we account for lease components separately from non-lease
components for all asset classes.
Our leases have remaining terms of less than 1 to approximately 7 years, some of which include one or more options
to renew for up to 5 years, and some of which include options to terminate the leases within 1 year. The exercise of lease
82
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
renewal options is at our sole discretion and such options are included in ROU assets and liabilities for renewal periods
that are reasonably certain of exercise. Certain of our lease agreements include stated rental payment escalations. Our lease
agreements do not contain any material residual value guarantees or material restrictive covenants. We sublease certain
real estate to third parties. Finance leases as of December 31, 2020 were immaterial.
Leases (in thousands)
Assets
Operating lease assets
Liabilities
Current
Operating
Noncurrent
Operating
Total lease liabilities
Classification
December 31, 2020 December 31, 2019
Other assets
$
22,308 $
9,653
Other current liabilities
$
5,431 $
3,817
Other long-term liabilities
$
18,952
24,383 $
6,792
10,609
The components of lease expense were as follows (in thousands):
Operating lease expense (1)
Sublease income
Net lease expense
Classification
Sales, general and administrative
expenses (2)
Interest and other income, net
Twelve Months Ended Twelve Months Ended
December 31, 2019
December 31, 2020
$
$
6,757 $
(55)
6,702 $
4,627
(301)
4,326
(1)
Includes short-term leases, which are immaterial.
(2) An immaterial portion of operating lease expense is included within research and development expenses and cost of sales.
Other information related to leases was as follows (in thousands, except lease term and discount rate):
Supplemental Cash Flows Information
Cash paid for amounts included in the measurement of lease
liabilities:
Operating cash flows for operating leases
$
4,666
$
4,374
Right-of-use assets obtained in exchange for lease liabilities:
Twelve Months Ended
December 31, 2020
Twelve Months Ended
December 31, 2019
Operating leases
Weighted average remaining lease term:
Operating leases
Weighted average discount rate:
Operating leases
17,390
888
4.4 years
3.1 years
3.36 %
3.55 %
83
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Future minimum lease payments under non-cancellable leases as of December 31, 2020 were as follows (in
thousands):
2021
2022
2023
2024
2025
Thereafter
Total minimum lease payments
Less: Amount representing interest
Present value of lease payments
Operating
6,277
6,178
5,891
4,009
3,851
203
26,409
(2,026)
24,383
$
As of December 31, 2020, we do not have any leases that have not yet commenced that create significant rights and
obligations for us.
15. Employee Benefit Plans
We have a defined contribution profit sharing 401(k) plan for eligible employees, which is qualified under Sections
401(a) and 401(k) of the Internal Revenue Code of 1986, as amended. Employees are entitled to make tax-deferred
contributions of up to the maximum allowed by law of their eligible compensation.
We also have a non-qualified deferred compensation plan for certain executives, key employees and non-employee
directors through which participants may elect to postpone the receipt and taxation of a portion of their compensation,
including stock-based compensation, received from us. The non-qualified deferred compensation plan allows eligible
participants to defer up to 80% of their base salary and up to 100% of other types of compensation. The plan also allows
for matching and discretionary employer contributions. Employee deferrals are deemed 100% vested upon contribution.
Distributions from the plan generally commence upon retirement, death, separation of service, specified date or upon the
occurrence of an unforeseeable emergency. Distributions can be paid in a variety of forms from lump sum to installments
over a period of years. Participants in the plan are entitled to select from a wide variety of investments available under the
plan and are allocated gains or losses based upon the performance of the investments selected by the participant. All gains
or losses are allocated fully to plan participants and we do not guarantee a rate of return on deferred balances. Assets
related to this plan consist of corporate-owned life insurance contracts and are included in other assets in the consolidated
balance sheets; see Note 8 for balances. Participants have no rights or claims with respect to any plan assets and any such
assets are subject to the claims of our general creditors.
Contributions to the plans are made by both the employee and us. Our contributions to the 401(k) plan are based on
the level of employee contributions and are immediately vested. Future matching contributions to the plans are at our sole
discretion.
We also sponsor defined contribution plans in Australia, Finland, and the United Kingdom.
Our matching contributions for all defined contribution plans for the years ended December 31, 2020, 2019 and 2018,
were approximately $5.6 million, $4.8 million and $3.2 million, respectively. Future matching or profit sharing
contributions to the plans are at our sole discretion.
84
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
16. Business Acquisitions
Vievu
On May 3, 2018, we acquired all of the outstanding ownership interests of Vievu, a public safety camera and cloud-
based evidence management system provider for law enforcement agencies.
The purchase price of $17.6 million consisted of $5.0 million in cash, net of cash acquired of $0.1 million, and $2.4
million, or 58,843 shares, of our common stock issued to Vievu’s parent company, Safariland, LLC (“Safariland”).
Additionally, the purchase price consisted of contingent consideration of up to $6.0 million, or 141,226 additional shares
of common stock, if certain conditions relating to retention of certain Vievu customers are met as of the first and second
anniversaries of the acquisition date. The fair value of the contingent consideration as of the acquisition date was $5.8
million. The purchase price also included the fair value of a long-term Product Development and Supplier Agreement (the
“Supply Agreement”) with Safariland, pursuant to which Safariland will be our preferred provider of holsters for our CEW
products. The estimated fair value of the Supply Agreement as of the acquisition date was $4.5 million, a portion of which
was recorded within accrued liabilities and the remaining portion recorded within other long-term liabilities.
The major classes of assets and liabilities to which we allocated the purchase price were as follows (in thousands):
Accounts receivable
Inventory
Prepaid expenses and other assets
Property and equipment
Contract assets
Intangible assets
Goodwill
Accounts payable and accrued liabilities
Deferred revenue
Total purchase price
$
$
1,776
2,626
362
459
1,472
4,510
10,285
(3,345)
(543)
17,602
We assigned the goodwill to the Software and Sensors segment. Identifiable definite-lived intangible assets were
assigned a total weighted average amortization period of 5.1 years. Vievu has been included in our consolidated results of
operations subsequent to the acquisition date. In connection with the acquisition, we incurred and expensed costs of
approximately $0.8 million, which included legal, accounting and other third-party expenses related to the transaction.
Subsequent to the acquisition date, we recorded expenses of $1.2 million in 2018 related to purchase commitments
assumed in the Vievu business combination that exceeded estimated future demand.
17. Segment Data
Our operations are comprised of two reportable segments: the TASER segment and the Software and Sensors
segment. In both segments, we report sales of products and services. Service revenue in both segments includes sales
related to Axon Evidence. In the TASER segment, service revenue also includes digital subscription training content. In
the Software and Sensors segment, service revenue also includes other recurring cloud-hosted software revenue and related
professional services. Collectively, this revenue is sometimes referred to as "Axon Cloud revenue." Our Chief Executive
Officer, who is the CODM, is not provided asset information or sales, general, and administrative expense by segment.
85
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
Information relative to our reportable segments was as follows (in thousands):
For the year ended December 31, 2020
Software and
Sensors
TASER
362,649
3,903
366,552
136,925
—
136,925
229,627
15,380
$
$
$
137,601
176,850
314,451
87,206
40,541
127,747
186,704
107,815
$
$
$
For the year ended December 31, 2019
Software and
Sensors
TASER
280,554
1,107
281,661
107,188
—
107,188
174,473
14,469
$
$
$
118,920
130,279
249,199
83,495
32,891
116,386
132,813
86,252
$
$
$
For the year ended December 31, 2018
Software and
Sensors
TASER
253,115
—
253,115
80,354
—
80,354
172,761
17,012
$
$
$
74,520
92,433
166,953
58,983
22,148
81,131
85,822
59,844
$
$
$
Total
500,250
180,753
681,003
224,131
40,541
264,672
416,331
123,195
Total
399,474
131,386
530,860
190,683
32,891
223,574
307,286
100,721
Total
327,635
92,433
420,068
139,337
22,148
161,485
258,583
76,856
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Research and development
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Research and development
Net sales from products
Net sales from services
Net sales
Cost of product sales
Cost of service sales
Cost of sales
Gross margin
Research and development
$
$
$
$
$
$
$
$
$
86
AXON ENTERPRISE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)
18. Supplemental Disclosure to Cash Flows
Supplemental non-cash and other cash flow information were as follows as of and for the years ended December 31
(in thousands):
Supplemental disclosures:
Cash and cash equivalents
Restricted cash
Total cash, cash equivalents and restricted cash shown in the statements of cash
flows
$ 155,440
111
$
$ 172,250
105
$
$ 349,462
1,565
$
$ 155,551
$ 172,355
$ 351,027
2020
2019
2018
Cash paid for income taxes, net of refunds
$ 10,893 $
3,669 $ 10,609
Non-cash transactions:
Property and equipment purchases in accounts payable
Non-cash purchase consideration related to business combinations
Commission payable converted to stock-based award
878
—
—
834
—
314
501
12,508
—
87
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Axon Enterprise, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheets of Axon Enterprise, Inc. (a Delaware corporation)
and subsidiaries (the “Company”) as of December 31, 2020 and 2019, the related consolidated statements of operations
and comprehensive income (loss), stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020
and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31,
2020, in conformity with accounting principles generally accepted in the United States of America.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria
established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”), and our report dated February 25, 2021 expressed an unqualified opinion.
Basis for opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities
laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement,
whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of
the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for
our opinion.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial
statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts
or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate
opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Revenue Recognition – Bundled Arrangements with Multiple Performance Obligations
As described further in Notes 1 and 2 to the financial statements, the Company derives revenue from two primary
sources: the sale of physical products (including conducted energy devices (CEDs), cameras, corresponding hardware
extended warranties, and related accessories), and subscriptions to the Axon Evidence digital evidence management
software as a service and support. To a lesser extent, the Company also recognizes revenue related to training, professional
services and other software services. Many of the Company’s products are sold on a standalone basis; however, the
Company also bundles its hardware product and service performance obligations and sells them to customers as part of a
single transaction.
88
We consider the identification of performance obligations, treatment of contract term assessments, the determination
of the standalone selling price and allocation of the transaction price to multiple performance obligations, including the
determination as to whether any amendments to an existing contract result in a modification, to be a critical audit matter.
The principal consideration for our determination that these revenue recognition matters are a critical audit matter is
that significant judgment is exercised by the Company in determining revenue recognition for contracts with multiple
performance obligations, and includes the following:
• Judgment in modification assessment and conclusions resulting from amendments to existing contracts.
•
Identification and treatment of contract terms that may impact the timing and amount of revenue recognized (e.g.,
substantive termination penalties).
• Determination of whether products and services are considered distinct performance obligations that should be
accounted for separately or in combination, and identification of all promises in the contract and whether such
promises are limited to distinct explicit goods or services or whether they may be implied.
• Determination of stand-alone selling prices for each distinct performance obligation and for products and services
that are not sold separately, which may include a market assessment of what the customer would be willing to
pay for each performance obligation or an estimate of the expected cost plus an appropriate estimated margin of
the performance obligation.
These judgments require significant auditor subjectivity in evaluating the reasonableness of those judgments. Our
audit procedures related to the revenue recognition for contracts with multiple performance obligations included the
following, among others:
• We tested the design and operating effectiveness of controls over the Company’s contract review process,
including those over the assessment of amendments to existing contracts, treatment of contract term assessments,
the identification of distinct performance obligations included in the initial or amended contract, and the
establishment and monitoring of standalone selling prices.
• We evaluated management’s judgment in significant accounting polices related to these arrangements for
reasonableness.
• For a sample of contracts, we performed the following procedures:
- Obtained and analyzed the contract source documents for each selection, and other documents deemed a
component of the arrangement in order to test the appropriateness of management’s identification and
determination of contract terms.
- Assessed the terms in the arrangement and evaluated the appropriateness of management’s application of
their accounting policies, along with their use of estimates, in the determination of revenue recognition
conclusions.
- Assessed contractual terms and the appropriateness of material right determinations.
- Obtained management’s contract review assessment and corroborated the judgments applied in accounting
for the arrangements.
- Assessed the terms in the arrangement and evaluated the appropriateness of management’s application of
their accounting policies, along with their use of estimates, in the determination of revenue recognition
conclusions.
- Traced the term of the revenue recognition period to the contract and recalculated the expected revenue
recognized during the period.
• We evaluated the reasonableness of management’s estimate of stand-alone selling prices for products and services
by comparing the stand-alone prices to historic stand-alone transactions and other data.
89
Stock Based Compensation – Ongoing Assessment of Vesting Probabilities
As described further in Notes 1 and 13 to the financial statements, the CEO Performance Award provides for the
granting of stock options to the Company’s CEO and the XSPP provides for the granting of eXponential Stock Units
(XSUs) to the Company’s employees. Both the stock options and XSUs vest in 12 tranches upon the achievement of
market capitalization and operational goals. Stock-based compensation expense associated with the awards is recognized
beginning at the point in time when the relevant operational goal is considered probable of being met. We consider the
probability assessment of achieving the operational goals to be a critical audit matter.
The principal consideration for our determination that the probability of achieving the operational goals is a critical
audit matter is that significant judgment is exercised by the Company in determining the achievement of the operational
goals for these awards, and includes the following:
• Judgment regarding the number of operational goals that are probable to be achieved and the expected point in
time the goals will be achieved, based on a subjective and statistical assessment of the Company’s forward-
looking financial projections, estimates of the successful development and market acceptance of future product
introductions, future sales targets, and operating performance.
• The application of the judgments regarding probability of achievement and expected point in time of achievement
to the requisite service period.
These judgments are subject to estimation uncertainty and require significant auditor subjectivity in evaluating the
reasonableness of those judgments. Our audit procedures related to the ongoing assessment of vesting probabilities
included the following, among others:
• We tested the design and operating effectiveness of controls over the Company’s assessments of future
expectations, reviews of third-party valuation specialist prepared statistical analysis, and determination of stock-
based compensation expense based on the implied requisite service periods.
• We analyzed the statistical analysis employed by the specialists in determining the projected achievement of each
operational goal and determined whether such assessment was reasonable. We used a specialist to develop an
independent model to assist us in evaluating the appropriateness and reasonableness of the Company’s statistical
analysis.
• We assessed the reasonableness of management’s forecasts as an input into the model by comparing
management’s previous forecasts to actual results to assess management’s ability to accurately forecast actual
results, and by comparing to historical trends.
/s/ GRANT THORNTON LLP
We have served as the Company’s auditor since 2005.
Phoenix, Arizona
February 25, 2021
90
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Attached as exhibits to this Form 10-K are certifications of the Chief Executive Officer (as the principal executive
officer) and Chief Financial Officer (as the principal financial and accounting officer), which are required in accordance
with Rule 13a-14 of the Exchange Act. This “Controls and Procedures” section includes information concerning the
controls and controls evaluation referred to in the certifications. This section should be read in conjunction with the
certifications and the Grant Thornton LLP attestation report for a more complete understanding of the topics presented.
Grant Thornton LLP has independently assessed the effectiveness of our internal control over financial reporting and its
report is included below.
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer are responsible for the evaluation of the effectiveness of
our disclosure controls and procedures (as defined in Rules 13a-15(e) under the Exchange Act) as of the end of the period
covered by this Annual Report on Form 10-K. Our disclosure controls and procedures are designed to ensure that
information we are required to disclose in reports that we file or submit under the Exchange Act is (i) recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and
communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and our Chief
Financial Officer have concluded that as of December 31, 2020 our disclosure controls and procedures were effective.
Management Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting (as
defined in Rule 13a-15(f) under the Exchange Act). Management has assessed the effectiveness of our internal control
over financial reporting as of December 31, 2020 based on criteria set forth in Internal Control - Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). As a result of this
assessment, management concluded that, as of December 31, 2020, our internal control over financial reporting was
effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. Grant Thornton LLP has
independently assessed the effectiveness of our internal control over financial reporting and its report is included below.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the fiscal quarter ended December 31,
2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
91
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Axon Enterprise, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of Axon Enterprise, Inc. (a Delaware corporation) and
subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in the 2013 Internal Control-
Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2020, based on criteria established in the 2013 Internal Control-Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended December 31,
2020, and our report dated February 25, 2021 expressed an unqualified opinion on those financial statements.
Basis for opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying
Management Report on Internal Control over Financial Reporting (“Management’s Report”). Our responsibility is to
express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance
with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission
and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and limitations of internal control over financial reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded
as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations of management
and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial
statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
/s/ GRANT THORNTON LLP
Phoenix, Arizona
February 25, 2021
92
Item 9B. Other Information
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
The information required to be disclosed by this item is incorporated herein by reference to our definitive proxy
statement for the 2021 Annual Meeting of Stockholders (the “2021 Proxy Statement”), which proxy statement we expect
to file with the SEC within 120 days after the end of our fiscal year ended December 31, 2020.
Item 11. Executive Compensation
The information required to be disclosed by this item is incorporated herein by reference to our 2021 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
A description of our equity compensation plans approved by our stockholders is included in Note 13 to the
consolidated financial statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following table
provides details of our equity compensation plans at December 31, 2020:
Number of
Securities to be
Issued upon
Exercise of Outstanding
Weighted
Average
Exercise Price
of Outstanding Options,
Options, Warrants and Rights Warrants and Rights
(a)
(b) (1)
Number of Securities
Remaining Available for
Future Issuance Under Equity
Compensation Plans (Excluding Securities
Reflected
in Column (a)) (c)
12,648,300 $
28.58
443,200
13,091,500
1,854,655
29,600
1,884,255
Plan Category
Equity compensation plans
approved by security holders
Equity compensation plans not
approved by security holders(2)
Total
(1) The weighted average exercise price is calculated based solely on the exercise prices of the outstanding options and
does not reflect the shares that will be issued upon the vesting of outstanding awards of RSUs which have no exercise
price.
(2)
In September 2019, our Board of Directors adopted the Axon Enterprise, Inc. 2019 Stock Inducement Plan (the “2019
Inducement Plan”) pursuant to which we reserved 500,000 shares of common stock for issuance under the Inducement
Plan. The 2019 Inducement Plan was adopted without stockholder approval pursuant to Rule 5635(c)(4) and Rule
5635(c)(3) of the Nasdaq Listing Rules. The Inducement Plan provides for the grant of equity-based awards, including
restricted stock units, restricted stock, performance shares and performance units, and its terms are substantially
similar to our stockholder-approved 2019 Plan. In accordance with Rule 5635(c)(4) and Rule 5635(c)(3) of the Nasdaq
Listing Rules, awards under the Inducement Plan may only be made to individuals not previously employees or non-
employee directors of the Company (or following such individuals’ bona fide period of non-employment with the
Company), as an inducement material to the individuals’ entry into employment with the Company.
All other information required to be disclosed by this item is incorporated herein by reference to our 2021 Proxy
Statement.
93
Item 13. Certain Relationships and Related Transactions, and Director Independence
The information required to be disclosed by this item is incorporated herein by reference to our 2021 Proxy Statement.
Item 14. Principal Accountant Fees and Services
The information required to be disclosed by this item is incorporated herein by reference to our 2021 Proxy Statement.
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this report:
1. Consolidated financial statements: All consolidated financial statements as set forth under Part II, Item 8 of this
report.
2. Supplementary Financial Statement Schedules: Supplementary schedules have not been included because they
are not applicable or because the information is included elsewhere in this report.
3. Exhibits:
Exhibit
Number
3.1
3.2
4.1
4.2*
10.1+
10.2+
Description
Amended and Restated Certificate of Incorporated (incorporated by reference to Exhibit 3.1 to the Current
Report on Form 8-K, filed June 12, 2020)
Bylaws, as amended and restated (incorporated by reference to Exhibit 3.2 to the Current Report on
Form 8-K, filed June 12, 2020)
Form of Common Stock Certificate (incorporated by reference to Exhibit 4.2 to Registration Statement on
Form SB-2, effective May 11, 2001 (Registration No. 333-55658))
Description of securities of Axon Enterprise, Inc. registered under Section 12 of the Exchange Act
Form of Indemnification Agreement between the Company and its directors (incorporated by reference to
Exhibit 10.4 to Registration Statement on Form SB-2, effective May 11, 2001 (Registration No. 333-55658))
Form of Indemnification Agreement between the Company and its officers (incorporated by reference to
to Registration Statement on Form SB-2, effective May 11, 2001 (Registration
Exhibit 10.15
No. 333-55658))
10.3+
2013 Stock Incentive Plan (incorporated by reference to Appendix of 2013 Proxy Statement, filed on April 3,
2013)
10.4+
TASER International, Inc. Deferred Compensation Plan (incorporated by reference to Exhibit 10.1 to
Form 8-K, filed on July 12, 2013)
10.5+
2016 Stock Incentive Plan (incorporated by reference to Annex B of 2016 Proxy Statement, filed on April 15,
2016)
10.6+
Axon Enterprise, Inc. 2018 Stock Incentive Plan (incorporated by reference to Annex B of the Company’s
Proxy Statement, filed on April 13, 2018)
10.7+
CEO Performance Award (incorporated by reference to Annex A of the Company’s Proxy Statement, filed
on April 13, 2018)
10.8+
Axon Enterprise, Inc. 2019 Stock Incentive Plan (incorporated by reference to Annex A of the Company’s
Proxy Statement, filed on December 31, 2018)
10.9+
Axon Enterprise, Inc. 2019 Stock Incentive Plan Exponential Stock Unit Grant Notice (incorporated by
reference to Annex B of the Company’s Proxy Statement, filed on December 31, 2018)
10.10
Amended and Restated Credit Agreement dated December 31, 2018 between the Company and JP Morgan
Chase Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed
January 7, 2019)
10.11+
Executive Employment Agreement by and between Axon Enterprise, Inc. and Jawad A. Ahsan (incorporated
by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed June 4, 2019)
10.12+
Executive Employment Agreement by and between Axon Enterprise, Inc. and Luke S. Larson (incorporated
by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed June 4, 2019)
94
Exhibit
Number
10.13+
10.14+
Description
Executive Employment Agreement by and between Axon Enterprise, Inc. and Joshua M. Isner (incorporated
by reference to Exhibit 10.3 to the Current Report on Form 8-K, filed June 4, 2019)
Executive Employment Agreement by and between Axon Enterprise, Inc. and Jeffrey C. Kunins, dated
September 23, 2019 (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K, filed
February 28, 2020)
10.15+
Axon Enterprise, Inc. 2019 Stock Inducement Plan (incorporated by reference to Exhibit 99.1 to the
registration statement on Form S-8, filed September 23, 2019)
10.16
Auction Statement from the Company to the Arizona State Land Department (incorporated by reference to
Exhibit 10.1 to the Quarterly Report on Form 10-Q, filed November 6, 2020)
10.17
21.1*
23.1*
24.1*
31.1*
31.2*
32**
Amendment to the Amended and Restated Credit Agreement between the Company and JP Morgan Chase
Bank, N.A. (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K, filed February 3,
2021)
List of Subsidiaries
Consent of Grant Thornton, LLP, independent registered public accounting firm
Powers of attorney (see signature page)
Principal Executive Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Principal Financial Officer Certification pursuant to Rule 13a-14(a) or Rule 15d-14(a)
Principal Executive Officer and Principal Financial Officer Certification pursuant to 18 U.S.C. Section 1350
101.INS*
101.SCH*
101.CAL*
101.LAB*
101.PRE*
104
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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.
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Calculation Linkbase Document
Inline XBRL Taxonomy Label Linkbase Document
Inline XBRL Taxonomy Presentation Linkbase Document
The cover page from the Company’s Annual Report for the year ended December 31, 2020, formatted in
Inline XBRL
+ Management contract or compensatory plan or arrangement
* Filed herewith
** Furnished herewith
Item 16. Form 10-K Summary
Not applicable.
95
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
AXON ENTERPRISE, INC.
Date: February 25, 2021
Date: February 25, 2021
By:
By:
/s/ PATRICK W. SMITH
Chief Executive Officer, Director
(Principal Executive Officer)
/s/ JAWAD A. AHSAN
Chief Financial Officer
(Principal Financial and Accounting Officer)
96
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes
and appoints Patrick W. Smith his or her true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him or her in any and all capacities, to sign any amendments to this Annual Report on Form 10-K, and
to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may
do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following
persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PATRICK W. SMITH
Patrick W. Smith
/s/ JAWAD A. AHSAN
Jawad A. Ahsan
/s/ ADRIANE M. BROWN
Adriane M. Brown
/s/ RICHARD H. CARMONA
Richard H. Carmona
/s/ JULIE A. CULLIVAN
Julie A. Cullivan
/s/ MICHAEL GARNREITER
Michael Garnreiter
/s/ CAITLIN E. KALINOWSKI
Caitlin E. Kalinowski
/s/ MARK W. KROLL
Mark W. Kroll
/s/ MATTHEW R. MCBRADY
Matthew R. McBrady
/s/ HADI PARTOVI
Hadi Partovi
Chief Executive Officer, Director
(Principal Executive Officer)
February 25, 2021
Chief Financial Officer
(Principal Financial and Accounting Officer) February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
February 25, 2021
Director
Director
Director
Director
Director
Director
Director
Director
97
AXON IS A MISSION-DRIVEN COMPANY WHOSEOVERARCHING GOAL IS TO PROTECT LIFE.OUR VISION IS A WORLD WHERE BULLETS ARE OBSOLETE,WHERE SOCIAL CONFLICT IS DRAMATICALLY REDUCED,AND WHERE EVERYONE HAS ACCESS TO A FAIRAND EFFECTIVE JUSTICE SYSTEM.THE MISSION20TWENTYAXON IS A MISSION-DRIVEN COMPANY WHOSEOVERARCHING GOAL IS TO PROTECT LIFE.OUR VISION IS A WORLD WHERE BULLETS ARE OBSOLETE,WHERE SOCIAL CONFLICT IS DRAMATICALLY REDUCED,AND WHERE EVERYONE HAS ACCESS TO A FAIRAND EFFECTIVE JUSTICE SYSTEM.THE MISSION20TWENTY ANNUALREPORTANNUALREPORT